 entitled to have the contract held to be one that had been made for their benefit; that 'A contract for the benefit of a third party is recognized by Iowa law as an enforceable agreement'; that there could therefore be no possible liability on the part of defendants in the situation, except to account for the proceeds of the escrow fund; and that the question of their liability in this respect had solved itself by defendants having made payment, in connection with their motion for summary judgment, of the $1179.11 in their hands, into the registry of the court.
It is the general rule in contract law that a third party may enforce a promise as having been made for his benefit, if it appears from the face of the promise of in the light of the contracting situation that he was intended in fact to be a donee beneficiary of the promisee, or-- when the situation is one in which no intention to make a gift appears-- if the promise has the effect as a matter of law, from the nature of its obligation, of according recognition to him, whether directly or by sound implication, as a creditor beneficiary of the promisee, so that in either situation he stands in the position of necessarily being more than a mere incidental beneficiary as to the promisor's performance. 2 Williston on Contracts, Rev.Ed., § 356, pp. 1041, 1042.
He is entitled to be regarded as a donee beneficiary, only 'if it appears from the terms of the promise in view of the accompanying circumstances that.' Restatement, Contracts, § 133(1)(a).
Similarly, he can be held to be a creditor beneficiary only if, where he is outside the definition of a donee beneficiary, '. Id., § 133(1)(b).
If he is not able to establish his qualification under the contract, as a donee beneficiary from factual intention on the part of the promisee, or as a creditor beneficiary from legal recognition made by the promisor, he must be regarded as a mere incidental beneficiary, having no right to a performance of the agreement. Id., §§ 133(1)(c), 147; 12 Am.Jur., Contracts, § 282, p. 834. Or, as sometimes loosely expressed, for one to be able to avail himself of a promise in an agreement to which he is not a party, 'he must, at least, show that it was intended for his direct benefit', in either all or part of its contemplated performance. German Alliance Ins. Co. v. Home Water Supply Co., 226 U.S. 220, 230, 33 S.Ct. 32, 35, 57 L.Ed. 195; Robins Dry Dock & Repair Co. v. Flint, 275 U.S. 303, 307, 48 S.Ct. 134, 72 L.Ed. 290.
Iowa law does not go beyond the principles which have been stated, in its recognition of third-party rights. The Iowa Supreme Court has specifically held that an incidental beneficiary can not claim any right to the performance of a contract between other parties. Casey v. Jesup Creamery Co., 224 Iowa 1094, 278 N.W. 214; Chicago, R.I. & P. Ry. Co. v. City of Ottumwa, 112 Iowa 300, 83 N.W. 1074, 51 L.R.A. 763; German State Bank v. Northwestern Water & Light Co., 104 Iowa 717, 74 N.W. 685. '* * * contracts made between two parties for the benefit of a third are enforceable by the latter under certain conditions. Among these conditions is * * * that the contract was made for his express benefit. That he might incidentally benefit by the contract * * * is not determinative of the question at all.' Casey v. Jesup Creamery Co., supra, 278 N.W. at page 215.
Some of the Iowa cases have engaged in even more restrictive expression as to the application of the principles which we have set out. 'To enable a third party to sue upon such a contract, it must have been made for his benefit; and if its primary object was to subserve the interests of one or both of the parties to the contract, they alone can maintain an action thereon for its breach.' Messenger v. Votaw, 75 Iowa 225, 39 N.W. 280, 281. And the German State Bank case, supra, 74 N.W. at page 686, went so far as to declare that 'The principle (that one may sue upon a promise made to another for his benefit) is * * * confined to cases where the person for whose benefit the promise is made has the sole, exclusive interest in its performance.'
Defendants do not contend that they were in the position of creditor beneficiary of the intervener, in relation to the promise of plaintiff that it would 'not take judgment in excess of $4585.00' on its counterclaim against defendants' client, and that it would 'look only to escrow fund and surety company on attachment bond for payment of judgment that the Court may enter'. Nor would it have been possible, on the record before us, for the court to have held as to the defendants that 'performance of the promise will satisfy an actual or supposed or asserted duty of the promisee to the beneficiary', within the expression of the principle contained in the Restatement, supra, or under the recognition of creditor-beneficiary status made by the Iowa cases, such as Runkle & Fouse v. Kettering, 127 Iowa 6, 102 N.W. 142; Knott v. Dubuque & S.C. Ry. Co., 84 Iowa 462, 51 N.W. 57.
If therefore, the court was entitled to enter summary judgment on the agreement, as it did, it was only because it could properly, as a matter of law, and without the light of a trial, view defendants as having been intended to be made, and as constituting, a donee beneficiary of the intervener, under the language and contracting situation of the parties. But the language and the contracting situation, insofar as the latter has been made to appear in the record, would not in our judgment permit of such a finding or conclusion as a matter of law.
The fragmentary deposition testimony in the record of the intervener's attorney, by whom the agreement had been drawn, tends to show that his only concern in the matter at the time had been to protect his own client (whether a creditor, the auctioneer, or the purchaser of the assets covered by the assignment made by defendants' client for the benefit of its creditors other than plaintiff, is not made clear) against any attack upon the assignment or any attempt on the part of plaintiff to reach the assets covered thereby; that there had been no mention made of the defendants or 'about protecting them', in the parties' making of the agreement; that he had knowledge at the time that plaintiff 'had some equipment which was tied up' and assumed that plaintiff was 'either entitled to get it back or have some damages'; and that it was his thought and purpose that 'the Corporation (not shown whether this was a creditor, the auctioneer, or the buyer of the assigned assets) would be protected if (plaintiff) got back (its) property'.
This is all that the record contains as to the circumstances of the making of the agreement. The court thus had nothing other than the language of the contract itself, on which to rest a determination that defendants were intended to be a donee beneficiary of the agreement, as a matter of safeguarding them against any possible claim on the part of plaintiff from a holding of the equipment by them. And, as to the language of the contract, since defendant were not a party to the agreement, plaintiff could not, of course, be precluded on a trial from showing by parol, as the deposition of the intervener's attorney might be accepted as doing, that the expression 'look only to escrow fund', as used between the intervener and plaintiff, was not intended by them to have any literal significance but was merely a term of generic, descriptive convenience, in distinguishing the property of plaintiff which had been taken and held against it and the assets of defendants' client which had been assigned for the benefit of other creditors, and that the term was as much intended to leave plaintiff with its rights as to the equipment which had not been sold, as to the proceeds of that which had been disposed of. Lanz v. Schumann, 175 Iowa 542, 154 N.W. 911; Nissen v. Sabin, 202 Iowa 1362, 212 N.W. 125, 50 A.L.R. 1216; Kiser v. Morton Farmers' Mut. Ins. Ass'n, 216 Iowa 928, 249 N.W. 753.
In the case of Preston v. Howell, 219 Iowa 230, 257 N.W. 415, 418, 97 A.L.R. 1140, (cited by the trial court in support of its conclusion that defendants legally had such rights under the agreement between plaintiff and the intervener as entitled them to claim the benefit of the agreement) the bondholders of a corporation had sought to hold the directors of the corporation personally liable for having consented to the issuance of such bonds in an amount exceeding the indebtedness to which the Iowa statutes permitted the corporation to subject itself. Recovery was denied upon the ground that, in their purchase of the bonds, the bondholders had expressly made themselves a party to an agreement that "the holder * * * shall not have any claim based upon said bond * * * against any * * * director, past, present or future of the Company, all such liability being by the acceptance of any bond or bonds as part of the consideration for the issuance thereof, expressly released". This agreement was held to be a legally valid one and to have clearly been made for the benefit of the directors, so that