Question

A-One Landscapers, Inc., owes Friendly Finance Company $5,000. A-One enters into a contract with Suburban Office Park under which A-One promises to maintain the landscaping on Suburban’s property and Suburban promises to pay Friendly Finance the amount that will be due A-One until A-One’s debt to Friendly Finance is paid. A-One performs as promised, but Suburban does not pay Friendly Finance.

1.   What is the basis for a claim by Friendly Finance against Suburban?
2.   Will Friendly Finance be successful if it sues Suburban based on your answer to 1., above?
3.   Explain why or why not Friendly Finance will succeed in such a suit. In your answer state the general legal principle and then apply it to these facts.

Answer 1

Solution -

1. Friendly Finance can claim its debt from the Suburban as there was a contract between A-One Landscapers Inc. and Suburban for maintenance of landscaping on Suburban's property and that Suburban would pay A-one until A-One's debt with Friendly Finance is paid-off. As per this contract Friendly Finance becomes the intended beneficiary and is liable to demand performance of the contract by Suburban.

2. Friendly Finance would be successful in its lawsuit against Suburban if they prove themselves to be the intended beneficiary and also that A-One had discharged its part of the contract in full.

3. Friendly Finance can successfully in its claim of it proves the two aspects of this underlying contract -

• Friendly Finance needs to prove that A-One who is indebted to them has discharged its part of the contract in full.
• Friendly Finance needs to prove that it was the intended beneficiary of the contract and not the incidental beneficiary.

The rule for proving that Friendly Finance was the intended beneficiary can be established if the beneficiary -

• Knows of the contract and has given its assent to the contract
• Has relied for its benefits on the performance of the contract
• Has filed a lawsuit to enforce the contract

In the above case when Friendly Finance files a lawsuit against Suburban then it can be established that its rights in the contract are vested. Both the direct parties to the contract have clearly mentioned that the payment needs to be made to Friendly Finance, hence they become the intended party and are liable to enforce the contract on Suburban. To prove the performance of A-One, Friendly Finance would have to rely on the direct confirmation communication between A-One and Suburban and once that is proved then Friendly Finance can legally enforce the contract. This rule is against the common law doctrine of privity and hence the burder of truth lies upon the beneficiary to prove itself that they are the intended beneficiary. In the above circumstances Friendly Finance is in capacity to prove its rights.