when people think of contracts they assume that there are only two parties involved contract law is not always that simple though there can be other parties that stand to benefit from a contracts performance and can be hurt by its breach the outside party is known as a third party beneficiary as early as 1806 American courts started recognizing that third party beneficiaries have legal rights in the seminal case of Lawrence V Fox Holly loaned $300 to Fox and Fox agreed to pay the $300 to Lawrence to satisfy a debt that Holly owed Lawrence the New York Court of Appeals found that Lawrence was an intended third party beneficiary of the contract who had rights and could enforce the contract between Holly and Fox in order to recover the $300 a third party beneficiary is either a donee or a creditor a donee beneficiary benefits from a contract gratuitously that is not in exchange for a service he has provided for example assume that John enters into a contract with Robert a landscaper providing that Robert will shovel the snow off of John's elderly neighbor Bob's driveway every time it snows more than 3 inches bob is not a party to the contract but he is an intended third-party beneficiary who will gratuitously benefit from John's contract with Robert a creditor beneficiary is a person to whom an obligation is owed by the promisee in the previous example imagine that Bob had paid Robert to shovel his snow so if Robert hires John to shovel Bob snow he is doing so to offset his own contractual obligation Bob is therefore an intended third-party creditor beneficiary both donee and creditor beneficiaries can enforce contract rights but to do so both must be intended beneficiaries the named beneficiary on a life insurance policy is a classic example of an intended beneficiary under the life insurance contract in general intended beneficiary is one who is identified in the contract all of our examples Express cases in which the third party beneficiaries were named in the contract bob was identified by the parties in our snow shoveling cases and the beneficiary of a life insurance contract is named in the agreement an intended beneficiary is also one who receives performance directly from the promise or or circumstances demonstrate that the promisee will give the beneficiary the benefit from the contract for example in a 2012 case from New York Logan Baldwin vlsm general contractor's incorporated homeowners hired LSM to restore their home LSM hired Henry Isaac's a subcontractor to help with roofing Henry Isaac's then hired Hal Brewster for assistance with the project but Brewster caused damage to the home forcing the homeowners to fix the damage themselves the homeowner sued LSM and Isaac's for breach of contract Isaac's argued that the homeowners did not have standing to enforce its subcontract with LSM because the homeowners weren't intended third-party beneficiaries of the subcontract the court disagreed and held that the homeowners were intended third-party beneficiaries to the contract and therefore had standing against the promisee Isaac's the court routed its opinion on the circumstances of the contract Isaac's knew that the purpose of the contract was to restore a home for the homeowners the court reasoned that circumstances may indicate that there is an intended third-party beneficiary by looking at the contract as a whole for a third-party beneficiary to enforce a contract his rights under the agreement must have vested which means that the right must have come into existence aside from the fact that the contract becomes enforceable by a third party upon vesting the timing of the vesting is important for another reason before the third-party beneficiary's rights vest the original parties to a contract can modify their contract in any way they see fit once Wright's vest the original parties cannot discharge or modify contractual rights without the beneficiary's agreement to change to the contractual rights a third-party beneficiary's rights vest when any of the following three things happen one the beneficiary assent to the promise in a contract in the manner requested by the parties to the beneficiary sues to enforce the contracts promise or three the beneficiary materially changes position and justifiable reliance on the contracts promised as an example of the first scenario assume Adam was Carla $200 Adam and Bertha agree that Adam will paint Bertha's car and in exchange Bertha will pay Carla $200 on Adams behalf adam notifies carla by email that bertha will be paying her to satisfy adams dead carla responds to the e-mail by saying sure that's fine with me at this point Carla's rights as an intended third-party creditor beneficiary in the agreement between Adam and Bertha have vested as such Adam and Bertha can no longer rescind or change the agreement to Carla's detriment unless she consents an example of a third scenario would be where sandy pays Joan to mow Jaynes lon upon hearing of the agreement Jane calls her usual landscaping company and tells them that she won't be needing their services for the next two weeks because Jane has relied on Jones promised to sandy to her detriment she is vested as a beneficiary sandy cannot now let Joan out of the agreement without Jane's consent a third party beneficiary is more than a mere outsider to a contractual arrangement a third party beneficiary is often a legally protected entity with rights who can enforce the agreement to which she is a beneficiary