Creditor Beneficiary

Definition

The term creditor beneficiary refers to an entity that intentionally benefits from an agreement that extinguishes or reduces debt.  Creditor beneficiaries are a subset of third-party beneficiaries, in that they are a non-party to the agreement.

Explanation

A creditor beneficiary is a third-party that receives an intended benefit that satisfies a debt.  This type of agreement names a number of parties, including:

  • Debtor / Promisee: the person (or entity) that is indebted to the creditor and enters into an agreement with a promisor, who will pay the creditor on behalf of the debtor / promisee.
  • Promisor: the person (or entity) that promises to satisfy the debt using the assets provided by the debtor / promissee.
  • Creditor: a third party beneficiary to the agreement, the creditor receives the assets from the promisor.

If the promisor does not fulfill their duty to pay the creditor, the creditor has the legal right to sue the promisor, and will likely prevail.  The debtor / promisee also has the right to sue the promisor and force them to fulfill their duty to pay the creditor.

Related Terms

code of ethics, street name, safekeeping, custodian, contingent beneficiary, primary beneficiary, third-party beneficiary, beneficial interest