Board of Ed District No. 220 v Village of Hoffman Estates
App Ct Illinois [1984]
Author:- Sam Biers

Vesting of Beneficiary’s Rights

Relevant Facts: Two owners (Pee) entered into agreements w/ Df Village providing that owners would pay Df $135 per residential unit developed, to be held in escrow for the benefit of education.  The parties would attempt to annex the land into District 15 and thereafter the funds would be released to that district, but if unsuccessful after 5 years the funds would go to Pl D220.  After 5 yrs the annex was unsuccessful, the agreement was modified and the time extended to 9 years where if again unsuccessful the funds would be paid to D220.  Pl started this action at the end of the 5 yr period.

Legal Issue(s): Whether the Owners and Village retained the right to modify their agreement which conferred a benefit to D220?

Court’s Holding: Yes

Procedure: Tr Ct granted Summary to Pl D220 and ordered funds to be paid to Pl; Df appealed seeking declaratory judgment defining rights of Pl. App Ct Reversed and remanded.

Law or Rule(s): TPB have enforceable rights under Ks made for their benefit.  The person who procures the promise (Pee) has no legal right to release or discharge the person who made the promise (Pr), from his liability to the beneficiary b/c the rights of the TPB vest immediately upon execution of the K.

Court Rationale: A TPB K may exist even if the beneficiary is identifiable or in existence when the time for performance arrives.  Such beneficiaries have no vested rights UNTIL they are identified, and Ks made for their benefit may therefore be rescinded or modified by the parties thereto until such time as the beneficiaries are identified. There could only be one beneficiary of the funds held in escrow, and that beneficiary could not be identified until the time for performance arose; i.e. until the land was included w/i the boundaries of D15 or 5 years had elapsed, whichever occurred first.  D220 was merely a potential beneficiary and the actual beneficiary had not yet been identified at the time Df and the owners modified their agreement.  Therefor neither District had a vested right as a TPB recipient under the K, and the parties were free to modify their agreement.

Plaintiff’s Argument: The beneficiary’s rights vested when the owners and Df executed the agreements and therefor no amendments were possible.

Defendant’s Argument: Where there are two possible beneficiaries of the promise, and the ultimate beneficiary is unidentified until certain events occur, the Df and owners were free to amend the agreement b/c no TPB rights were vested at that time.

Restatement : In the absence of language in the K making the rights of a TPB irrevocable, the PR and PEE retain the power to discharge or modify until such time as the Beneficiary , w/o notice of the modification/discharge, materially changes his position in reliance on the promise or brings suit on it or manifests assent to it at the request of the promisor or the promisee. [So long as there is no detriment to a third party ( who provided no consideration), the Pr and Pee are free to modify or discharge.  No I/D of TPB, modification is allowed b/c there is no detriment.