Definition of Creditor Beneficiary

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Borrowing is a common way for an individual to get money when he needs it. A standard loan agreement consists of a creditor and a debtor. However, in certain situations there may also be a third party involved. When this occurs, the creditor may be referred to as the credit beneficiary.

Contracts

In each loan contract agreement, there are two principal parties: the creditor, or the person who lends the money, and the debtor, the person who receives the money from the creditor and agrees to pay it back. Sometimes, a debtor loans the money he borrows to another person with the understanding that this person return the money to the original creditor. This creates a secondary loan contract between the debtor and the third party.

Creditor Beneficiary

If a debtor borrows $1,000 from a creditor and subsequently loans that money to a third party, such as a friend of relative, who promises to use the money to repay the debtor's debt, the third party becomes a promisor. As a promisor, this third party has a legal obligation to uphold his agreement with the debtor. In this situation, the person who originally loaned the $1,000 to the debtor becomes the creditor beneficiary, or the person who benefits from the promisor's actions.

Legality

Even though the creditor is a non-party to the contract between the debtor and the third party, or promisor, he is nonetheless legally entitled to receive the money owed him. Because of the new contract created between the debtor and the promisor and the promisor's agreed upon intention to use the money to repay the original debt, the third party becomes the person legally responsibility for the repayment of the $1,000 to the creditor beneficiary.

Legal Proceedings

If the promisor fails to pay the creditor the $1,000 he is due, both the creditor beneficiary and the debtor have the legal right to file suit against the third party. If it can be successfully demonstrated that the third party agreed to use the money to repay the creditor, but failed to do so, the claimants may prevail in the suit. Consult an attorney for questions regarding a specific contract.

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