Facts
- Holly owed Lawrence $300, due the next day.
- Fox asked Holly to lend him $300.
- Holly loaned Fox $300 and told Fox about Holly’s $300 debt to Lawrence.
- As Fox received the money, Fox promised Holly that Fox would pay Lawrence $300 the next day.
- Fox did not pay Lawrence.
- Lawrence sued Fox to recover $300 (plus interest) based on Fox’s promise made for Lawrence’s benefit.
- A bystander testified to the conversation in which Fox made the promise; Fox challenged the adequacy and admissibility of this oral proof.
Issues
- Whether Fox’s promise to pay Lawrence was supported by consideration when Lawrence gave no consideration to Fox.
- Whether Lawrence, not a party to the agreement between Holly and Fox, could sue Fox directly to enforce a promise made for Lawrence’s benefit.
- Whether a bystander’s oral testimony was legally sufficient to prove the existence and terms of Fox’s promise.
Decision
- The Court of Appeals affirmed the judgment for Lawrence.
- The court held that an intended beneficiary may sue to enforce a promise made for the beneficiary’s benefit.
- The court held that Holly’s $300 loan to Fox supplied consideration for Fox’s promise; consideration need not move from the beneficiary.
- The court held the bystander’s oral testimony was competent evidence of the promise.
Legal Principles
- A promise made to one person for the benefit of another may be enforced by the person intended to benefit from the promise.
- A third-party beneficiary’s lack of privity with the promisor does not bar suit when the contract was made expressly for the beneficiary’s benefit.
- Consideration supporting the contract between promisor and promisee is sufficient; the beneficiary need not furnish consideration.
- In a creditor-beneficiary setting, where the promise is to pay the promisee’s existing debt to the beneficiary, the beneficiary may sue the promisor directly for nonpayment.
- Oral testimony from a competent witness may establish the formation and terms of the promise when otherwise admissible.
Conclusion
The court permitted Lawrence to recover as an intended creditor beneficiary of Fox’s promise to Holly, holding that consideration between Holly and Fox supported the undertaking and that lack of privity or consideration from Lawrence did not bar enforcement.