Which of the following is a contractual party who agrees to do something for the other party?

A contract is essentially a set of promises that can be enforced by law. Typically, a party promises to do something for another in exchange for a benefit. A contract can be written or verbal and involves one party making an offer and another accepting. If the contract's promise isn't kept, the harmed party can seek a legal remedy.

To be a legal contract, an agreement must have all of the following five characteristics:

Legal purpose: A contract must have a lawful purpose to be enforceable. For example, if one business partner contracted someone to kill another business partner, but the person took the money without fulfilling the contract, there's nothing that can be done. A contract of murder for hire is illegal and the contract is unenforceable.
Mutual agreement: All parties to the contract must have reached an agreement. That is, one party must have extended an offer to which the other parties have agreed. For example, Jim signs a contract with Tom's Tree Trimming. The contract outlines the scope of the work Tom will perform on Jim's property. Jim and Tom have a mutual agreement regarding the work that will be done.
Consideration: Each party to the contract must agree to give up something of value in exchange for a benefit. For example, you hire an independent contractor to repave your driveway. You and the paving contractor sign an agreement in which you promise to pay a sum of money in exchange for the paving work. Both you and the contractor have agreed to give up something of value. You have agreed to pay money, and the contractor has agreed to perform the paving work.

Competent parties: The parties to a contract must be competent. That is, they must be of sound mind, of legal age, and unencumbered by drugs or alcohol. If you enter into a contract with a person who isn't competent, the contract can't be enforced.
Genuine assent: All parties must engage in the agreement freely. A contract may not be enforced if one or more parties have made mistakes in the language. Likewise, a contract may be voided if one party has committed fraud or exerted undue influence over another. For example, you sign a contract in which you agree to sell your house to your next-door neighbor for $1. When you signed the contract, your neighbor was threatening you. Clearly, you made the agreement under duress, so the contract isn't valid.

Some types of contracts must be in writing. For example, real estate sales contracts must be written in order to be enforceable.

If one party fails to fulfill their duties under the agreement, that party has breached the contract. For example, suppose that you've hired a masonry contractor to construct a brick patio outside your restaurant. You pay the contractor half of the agreed-upon price upfront. The contractor completes about a quarter of the work and then stops. They keep promising they'll return and complete the job but never do. By failing to fulfill their promise, the contractor has breached the contract.

If one party breaches a contract, the other party may suffer a financial loss. In the above example, you paid for 50% of the work but only received half that much. You have several options for obtaining compensation:

Sue for damages: You may file a lawsuit against the contractor for damages. For example, you might sue for the cost of hiring another contractor to finish the job plus the costs you have incurred due to the delay.
Specific performance: You can compel the contractor to complete the work required by the contract.
Other remedies: If the contractor tricked or forced you into signing the contract, you might convince a court to terminate the agreement or amend its terms.

Failure to fulfill the terms of an insurance policy may constitute a breach of contract. An insurance policy imposes obligations on both you and your insurer. An insurer has an obligation to pay covered claims. If the insurer reneges on this duty, you may sue the insurer for breach of contract.

Likewise, you have an obligation to cooperate with your insurer when it investigates a claim. If you file a claim and then refuse to cooperate with the insurer's investigation, your refusal to cooperate may constitute a breach of the insurance contract. Your insurer may rely on your breach of the policy as a basis for denying the claim.

Most contracts are bilateral. This means that each party has made a promise to the other. When Jim signed the contract with Tom's Tree Trimming, he promised to pay the contractor a specified sum of money once the job was completed. Tom, in turn, made a promise to Jim to complete the work described in the agreement.

In a unilateral contract, one party makes a promise in exchange for an act by the other party. Insurance policies are unilateral contracts. When you buy liability insurance or any other type of policy, you pay a premium (an act) in exchange for the insurer's promise to pay future claims.

A legal contract is a legally enforceable agreement between two or more parties. It may be verbal or written.
Typically, a party promises to do something for the other in exchange for a benefit.
A legal contract must have a lawful purpose, mutual agreement, consideration, competent parties, and genuine assent to be enforceable.
If a contract is breached, you may be able to sue for damages or seek other remedies.
Contracts can be bilateral, which means each party has made a promise to the other, or unilateral, which is when one party makes a promise in exchange for an act by the other party.

Contracts are agreements between people that are ultimately enforceable by law. They can be as simple as the implied contract between a buyer of a bottle of water and the liquor store owner that sells it. Or they can be as complex as a written agreement between a landlord and a tenant in which the rights and responsibilities of both parties are clearly spelled out.

For a contract to be binding, it must meet four characteristics: One party has made an offer to another; something of value ("consideration") was offered in exchange for an action or non-action; the offer was accepted clearly and unambiguously; both sides mutually agreed to the terms of the contract.

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A third-party beneficiary is a person who is not a contracting party of a contract but can still receive the benefits from the performance of the contract. The privity of the contract is between the contracting parties - the promisor and promisee. A promisor is a party that makes promises to benefit the third-party beneficiary. A promisee is a party who pays consideration to obtain the promisor’s promise. For instance, a mother purchased medical insurance for her son from an insurance company; the mother is the promisee, the son is the third-party beneficiary and the company is the promisor.

If a person is not the original party to a contract, they usually cannot enforce the contract or assert a claim of a breach of contract against any party; however, there is an exception. If the person is an intended third-party beneficiary and their rights of the contract are vested, then they have the same rights as the parties of the contract.

Classifications:

Intended third-party beneficiary

An intended beneficiary is an identified third-party that contracting parties intend to give benefits via their promised performances, like doing or not doing something or paying money. The beneficiary may get named in a contract to have contractual rights, but it is not necessary for them to be identifiable at the time the contract is formed. Meanwhile, even if the promise is not made to them directly, they may still enforce the contract.

The Restatement of Contract §133 divides intended beneficiaries into two categories:

Donee

The law says: “A donee beneficiary if it appears from the terms of the promise in view of the accompanying circumstances that the promise of the promisee in obtaining the promise of all or part of the performance thereof is to make a gift to the beneficiary or to confer upon him a right against the promisor to some performance neither due nor supposed or asserted to be due from the promisee to the beneficiary.”
It is a default rule to confer gifts. A donee is a person the promisee intends to benefit without asking for any payback. Once the donee knows the contract, the right is vested. If any contracting party breaches a promise, the creditor can only sue the promisor unless the donee has detrimental reliance on it.

Creditor

The law says: “A creditor beneficiary if no purpose to make a gift appears from the terms of the promise in view of the accompanying circumstances and performance of the promise will satisfy an actual or supposed or asserted duty of the promisee to the beneficiary, or a right of the beneficiary against the promisee which has been barred by the Statute of Limitations or by a discharge in bankruptcy, or which is unenforceable because of the Statute of Frauds.”
A creditor is a person whom a debt is owed by the promisee and paid by the promisor. The creation of it is to extinguish debt. Once the creditor has detrimental reliance on it, the right is vested. If any contracting party breaches promise, the creditor can sue both promisor and promisee. The contracting parties can defend the creditor by asserting claims they have against the other contracting party.

Incidental third-party beneficiary

If a beneficiary does not belong to above categories, they are an incidental beneficiary. An incidental beneficiary is a person whom contracting parties did not intend to benefit when they contracted but happens to get benefits.
Since an incidental beneficiary is not named in the contract and not intentionally included, they have no rights under the contract and cannot sue for breach of contract.

Vesting:

The contractual rights cannot be enforced by the third-party beneficiary until the rights are vested. Vesting occurs when the beneficiary:

Has knowledge of the promise and:
Manifests assent to a promise in the manner requested by the contract or contracting parties, or
Sues to enforce the promise, or
Detrimentally relies on the promise, or
Express contract term vesting rights.

Prior to vesting, contracting parties can rescind or modify the beneficiary’s contractual rights without the beneficiary's consent or knowledge. Once rights are vested, the contract cannot be changed or modified unless the third-party consent.

Rights:

Even though there is no contract privity among the third-party beneficiary and contracting parties, the third-party beneficiary may still have the right to sue them to enforce the contract or seek damages for the breach.
Generally, the beneficiary can only sue the promisor to enforce the duty created by the promise in the contract. The promisor can defend against the promisee. The beneficiary cannot sue the promisee unless they detrimentally rely on the promise. If the beneficiary is a donee beneficiary, they cannot ask for delivery of a promised gift, but only for recovery under equitable principles of justice. However, there is an exception that the creditor beneficiary can sue on the debt, which is the original obligation, for getting debts paid by promisee.
If a contract is conditioned on the satisfaction of the beneficiary, then the subjective test only depends on whether the beneficiary honestly believes that the contract was satisfied – the opinions of other reasonable persons are not relevant.

Contracting parties: promisor & promisee

If the promisor did not perform their promise to benefit the third party, the promisee may sue them for a specific performance.
The contracting parties can modify or rescind the contract via a subsequent contract if the contract didn’t vest, as they retain the right to change their duty. This right will be terminated if the beneficiary materially relies on the promise.

[Last updated in June of 2022 by the Wex Definitions Team]