Business Law and the Regulation of Business 11th Edition by Richard Mann, Barry Roberts

تمرين 14

FACTS On April 26, 1984, Mary Stine (Stine) loaned her daughter (Mary Ellen) and son-in-law William Stewart $100,000 to purchase a home. In return, the Stewarts jointly executed a promissory note for $100,000, payable on demand to Stine. The Stewarts did not give a security interest or mortgage to secure the note. The Stewarts eventually paid $50,000 on the note, leaving $50,000, plus unpaid interest, due.
The Stewarts divorced on October 2, 1992. The couple executed an Agreement Incident to Divorce, which disposed of marital property, including the home (the agreement identifies the home as the Lago Vista property). The agreement provided that if Stewart sold the home, he agreed that ''any monies owing to [Stine] are to be paid in the current principal sum of $50,000.00.'' The agreement further states:
The parties agree that with regard to the note to Mary Nelle Stine, after application of the proceeds of the [Lago Vista property], if there are any amounts owing to [Stine] the remaining balance owing to her will be appropriated 50% to NANCY KAREN STEWART and 50% to WILLIAM DEAN STEWART, JR. and said 50%fromeach party will be due and payable upon the determination that the proceeds from the sale of said residence are not sufficient to repay said $50,000.00 in full.
Stine did not sign the agreement.
On November 17, 1995, Stewart sold the Lago Vista property for $125,000, leaving $6,820.21 in net proceeds. Stewart did not pay these proceeds to Stine and did not make any further payments on the $50,000 principal. Consequently, on July 27, 1998, Stine sued Stewart for breaching the agreement.
The trial court concluded that Stine was an intended third-party beneficiary of the agreement and that Stewart breached the agreement when he refused to pay Stine. The trial court awarded Stine $28,410 in damages from Stewart. The court of appeals reversed the judgment, concluding that Stine was neither an intended third-party donee beneficiary of the agreement nor an intended third-party creditor beneficiary of the agreement.
DECISION The court of appeals' judgment is reversed and case remanded.
OPINION Per Curiam. A third party may recover on a contract made between other parties only if the parties intended to secure a benefit to that third party, and only if the contracting parties entered into the contract directly for the third party's benefit. [Citation.] A third party does not have a right to enforce the contract if she received only an incidental benefit. [Citation.] ''A court will not create a third-party beneficiary contract by implication.'' [Citation.] Rather, an agreement must clearly and fully express an intent to confer a direct benefit to the third party. [Citation.] To determine the parties' intent, courts must examine the entire agreement when interpreting a contract and give effect to all the contract's provisions so that none are rendered meaningless. [Citation.]
To qualify as an intended third-party beneficiary, a party must show that she is either a ''donee'' or ''creditor'' beneficiary of the contract. [Citation.] An agreement benefits a ''donee'' beneficiary if, under the contract, ''the performance promised will, when rendered, come to him as a pure donation.'' [Citations.] In contrast, an agreement benefits a ''creditor'' beneficiary if, under the agreement, ''that performance will come to him in satisfaction of a legal duty owed to him by the promisee.'' [Citations.] This duty may be an indebtedness, contractual obligation or other legally enforceable commitment owed to the third party. [Citation.]
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We agree with the court of appeals' determination that Stine was not an intended third-party donee beneficiary of the agreement. [Citation.] But, we conclude that Stine is a third-party creditor beneficiary. The agreement expressly provides that the Stewarts intended to satisfy an obligation to repay Stine the $50,000 that the Stewarts owed her. Specifically, the agreement refers to the monies owed to Stine as ''the current principal sum of $50,000.'' Then, the agreement states that Stewart agreed to pay the property sale net proceeds ''with regard to the note'' to Stine. The agreement further provides that, if the property sale net proceeds did not cover the amount owed to Stine, the remainder would be immediately due and payable from the Stewarts, with each owing one half. Thus, the agreement expressly requires the Stewarts to satisfy their existing obligation to pay Stine. [Citation.]
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Furthermore, contrary to Stewart's argument, a thirdparty beneficiary does not have to show that the signatories executed the contract Solely to benefit her as a noncontracting party. Rather, the focus is on whether the contracting parties intended, at least in part, to discharge an obligation owed to the third party. [Citation.] Here, the entire agreement is obviously not for Stine's sole benefit. However, certain provisions in the agreement expressly state the Stewarts' intent to pay Stine the money due to her.
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The agreement's language clearly shows that Stewart intended to secure a benefit to Stine as a third-party creditor beneficiary. The agreement also acknowledges the existence of a legal obligation owed to Stine and thus revives it as an enforceable obligation. Consequently, Stewart breached the agreement when he refused to pay Stine the money owed to her as the agreement requires.
INTERPRETATION An intended third-party beneficiary of a contract may enforce that contract.
CRITICAL THINKING QUESTION Why did the court conclude that Stine was not an intended third-party donee beneficiary?