Which term describes a third-party beneficiary owed a debt that is to be satisfied by performance of a contract?

• A. Tender
• B. Creditor beneficiary
• C. Incidental beneficiary
• D. Donee beneficiary

Answer: (B)

When a contract creates rights for a third party, that party can be classified by the contract’s purpose. A creditor beneficiary is the third party to whom the promisee owes a debt, and the contract is intended to discharge that debt through the promisor’s performance. In this setup, the promisee’s obligation to the third party is the reason the contract exists—the performance by the promisor will satisfy the debt owed to the third party. For example, if A owes B money and A contracts with C to perform something that B accepts as payment of that debt, B is the creditor beneficiary. The key is that the debt owed to the third party is being satisfied by the contracted performance.

A donee beneficiary, by contrast, is someone who is intended to receive a gift or benefit from the contract, not to have a debt satisfied. An incidental beneficiary benefits from the contract unintentionally and cannot enforce it. Tender refers to offering to perform or pay and is not a category of third-party beneficiary.