Creditor Beneficiary Law and Legal Definition

A creditor beneficiary is defined as one to whom the promisee owes or is believed to owe a duty which is discharged by the promisor's performance.

Generally, strangers to a contract acquire no rights under such a contract. An exception to this rule is the doctrine of third-party beneficiary contracts. Under such a contract a third person may enforce a promise made for his/her benefit even though s/he is a stranger both to the contract and the consideration. However, the third party must be either a donee beneficiary or a creditor beneficiary. [Northern Nat'l Bank v. Northern Minnesota Nat'l Bank, 244 Minn. 202 (Minn. 1955)].

Thus, a creditor beneficiary is a third person designated to receive the benefit of performance by one of two contracting parties under the terms of the agreement with the other, who is to receive the benefit of performance because of a specific obligation owing to him/her by the promisee.