third-party beneficiary

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Lawrence v. Fox (1859) created the third-party creditor beneficiary category under which a third party could sue. In that case, Holly owed Lawrence $300. Holly then loaned $300 to Fox in exchange for Fox’s promise to pay Lawrence $300. The New York Court of Appeals held that Lawrence, as a third-party beneficiary (more specifically, a creditor beneficiary), could directly sue Fox in order to enforce Fox’s agreement with Holly. Like a trust arrangement, in which the trustees promise to pay the beneficiary, Holly and Fox’s contract implied a promise by Fox to Lawrence; thus, it became Fox’s contractual duty to pay Lawrence. Both parties to the contract, Holly and Fox, had intended that Lawrence, the third party, benefit.