## Facts

- A village entered annexation agreements with developers requiring developers to deposit specified sums with the village in escrow.
- The agreements contemplated two possible school-district recipients of the escrow funds, depending on future annexation events.
- For five years after execution, the parties agreed to use “best efforts” to annex certain territory to one school district; if annexed within five years, that district would receive the escrow funds.
- If annexation did not occur within five years, the other school district would receive the escrow funds.
- Before the five-year period expired, the village and developers amended the agreements to extend the annexation period from five years to nine years, delaying and potentially preventing payment to the contingent district.
- The contingent district claimed that, because annexation had not occurred within the original five years, it was entitled to the escrow funds and that the later amendment could not impair its rights.

## Issues

1. Whether a contingent third-party beneficiary had vested contractual rights before the contract’s mechanism identified it as the beneficiary.
2. Whether the original contracting parties could modify an annexation agreement to extend the annexation period before any beneficiary’s rights vested.
3. Whether summary judgment for the claimed beneficiary was proper on the record presented.

## Decision

- The appellate court reversed the summary judgment for the school district and remanded.
- The court held the school district had no vested right in the escrow funds at the time the village and developers amended the agreements.
- Because the agreements provided alternative potential beneficiaries and the district’s interest depended on an unoccurred contingency, the district was not yet identified as the beneficiary when the amendment was executed.
- The village and developers therefore retained authority to modify the agreements, including extending the annexation period.

## Legal Principles

- A third-party beneficiary generally obtains enforceable rights only after being identified by the contract’s terms or after vesting occurs.
- When a contract contemplates multiple potential beneficiaries selected by a future condition, no beneficiary has enforceable rights until the condition identifies the beneficiary.
- Until a third-party beneficiary’s rights vest (for example, by occurrence of a contractual vesting condition, assent, reliance, or suit where recognized), the promisor and promisee may modify their agreement, even if the change alters a third party’s expected benefit.
- Summary judgment is improper where it rests on the premise that a contingent beneficiary’s rights vested before the contract’s identification mechanism operated.

## Conclusion

The appellate court held that the school district’s interest in escrowed funds under the annexation agreements was contingent and unvested when the original parties extended the annexation period, so the amendment was permissible and the district was not entitled to judgment as a matter of law.


Bd. of Educ. of Cmty. Sch. Dist. No. 220 v. Vill. of Hoffman Ests., 126 Ill. App. 3d 625, 467 N.E.2d 1064 (Ill. App. Ct. 1st Dist. 1984)