GILMORE v. OMAHA INDEMNITY

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Court of Appeal, Fourth District, Division 1, California.

Ralph D. GILMORE et al., Plaintiffs and Appellants, v. OMAHA INDEMNITY, Defendant and Respondent.

Civ. 16891.

Decided: September 07, 1979

Post, Kirby, Wideman & Noonan and Richard W. Sweat, San Diego, for plaintiffs and appellants. Donnelly, Clark, Chase & Johnson and Severson, Werson, Berke & Melchior, and Claire D. Johnson and Carol A. Consolver, Los Angeles, for defendant and respondent.

Plaintiff Ralph D. Gilmore appeals a judgment of dismissal entered after Omaha Indemnity's (Omaha) demurrer was sustained without leave to amend.

Gilmore, as an employee of Stevens Air Systems (Stevens), was entitled to health care benefits from his employer. On behalf of its employees, Stevens contracted with Health Care Services Corporation (HCS) to provide the administrative services to ensure health care benefits for Stevens' employees. HCS, a nonprofit corporation whose primary function was administrative, did not have the funds to cover catastrophic losses so HCS contracted with Omaha for catastrophic loss coverage. While employed at Stevens, Gilmore, a health plan member, had a heart attack and underwent open heart surgery incurring $21,597.35 in medical expenses. According to HCS and Gilmore, Omaha was liable for $12,683.12 of the expenses but failed to pay.

Gilmore sued for actual and exemplary damages alleging breach of contract and emotional distress when Omaha did not pay under its medical benefits indemnity contract with HCS. The trial court sustained Omaha's demurrer without leave to amend on the ground Gilmore was neither a party to, nor a third-party beneficiary of, the indemnity contract. We have concluded Gilmore may sue to enforce the contract as a third-party beneficiary and may sue for emotional distress and bad faith as damages incidental to the contract action. In addition, and on an independent basis, Gilmore has a sufficient relationship to the insurance contract between HCS and Omaha to entitle him to sue the insurer, Omaha, directly on the tort theories of bad faith and intentional and negligent infliction of emotional distress.

I. Gilmore's Status as Third-Party Beneficiary

Gilmore, as a health plan member, contends he is an express third-party beneficiary of the indemnity contract between Omaha and HCS under Civil Code section 1559, which provides: “[A] contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it.” A third person need not be named and identified as an individual to be an “express beneficiary.” He may enforce the contract if he can show he is a member of a class for whose benefit it was made (Johnson v. Holmes Tuttle Lincoln-Merc. (1958) 160 Cal.App.2d 290, 297, 325 P.2d 193). The fact a third person is incidentally named in the contract is not determinative (Walters v. Calderon (1972) 25 Cal.App.3d 863, 871, 102 Cal.Rptr. 89). Corbin, in discussing the intention to benefit a third party, states:

“The contract itself has no purpose, motive, or intent. The two parties have purposes, motives, and intentions; but they never have quite the same ones. “In third party cases, the right of such party does not depend upon the purpose, motive, or intent of the promisor. The motivating cause of his making the promise is usually his desire for the consideration given by the promisee. In few cases will he be moved by a desire to benefit a third person.” (4 Corbin on Contracts, § 776, pp. 15-16; see Walters v. Calderon, supra, 25 Cal.App.3d 863, 871, 102 Cal.Rptr. 89.)

The crucial factor in determining whether a third party is the intended beneficiary is the intent of the promisee not the intent of the promisor (Walters v. Calderon, supra, 25 Cal.App.3d 863, 871, 102 Cal.Rptr. 89; see Lucas v. Hamm (1961) 56 Cal.2d 583, 591, 15 Cal.Rptr. 821, 364 P.2d 685, disapproving prior language in Smith v. Anglo-California Trust Co. (1928) 205 Cal. 496, 271 P. 98; and Fruitvale Canning Co. v. Cotton (1953) 115 Cal.App.2d 622, 252 P.2d 953, requiring the intent of the promisor). As to the intent of the promisee, Corbin states:

“In the case of most creditor beneficiaries, it is the purpose and intent of the promisee to procure the discharge of his obligation. The attainment of this end involves benefit both to himself and to his creditor. This ‘benefit’ he intends to bring about as an entirety, having no idea in his own mind as to its division between the persons receiving it or as to ‘primary’ or ‘paramount’ purpose. Neither should the court make such a division. It should content itself with bringing about the entire result that the promised performance would attain․ The question is not ‘whose interest and benefit are primarily subserved,’ but what was the performance contracted for and what is the best way to bring it about.” (4 Corbin on Contracts, § 776, at p. 20 [intalics added]; see Hartman Ranch Co. v. Associated Oil Co. (1937) 10 Cal.2d 232, 73 P.2d 1163.)

To determine intent the contract must be read as a whole in light of the circumstances under which it was entered. (Walters v. Calderon, supra, 25 Cal.App.3d 863, 870, 102 Cal.Rptr. 89; italics added.) Therefore, to determine whether a third party has standing to sue for a breach of contract allegedly for his benefit three factors must be considered: (1) the contract as a whole; (2) the circumstances under which it was entered; and (3) the policy for allowing a third person to sue the breaching party directly. (Walters v. Calderon, supra, 25 Cal.App.3d 863, 870, 102 Cal.Rptr. 89; see Rest. Contracts, § 133, subds. (a) and (b).)

The contract in question is expressly for the benefit of health plan members. The contract provides: “[T]he insurance is to control losses of the Assured's Special Allowable Business Expenses.” These “Special Allowable Business Expenses” are those expenses “directly and solely attributable to the costs of those services (a) which the Health Plan Member is entitled to receive as a Health Plan Member, and (b) which are performed, prescribed or directed by or on behalf of Assured for Hospital Services, Medical Services, Referral Services and Emergency Care.” (Italics added.) A “Health Plan Member” is “any person … enrolled and eligible to receive … those services which fall in the category of Special Allowable Business Expenses.” The contract requires written notice by HCS of any claims and the right of subrogation of HCS' rights against any Health Plan Member for payments made under the insurance contract. In addition, the consideration for this contract is based upon the number of Health Plan Members covered. These factors all show that providing economic compensation for medical expenses of a Health Plan Member was the intended result of the contract.

Omaha claims it is not liable to Gilmore because the policy expressly provides it is solely between the contracting parties. They refer the court to the contract language that states “… HCS alone is responsible for all services to its Health Plan Members, for all liability and for payment of all expenses” and that Omaha “shall not have any responsibility or obligation to provide any direct service or payment to any Health Plan Member through the Assured or any person or facility, there being no relationship contractual or otherwise between the Company and any Health Plan Member of the Assured.” We agree Omaha said the contract was not for the benefit of any third party. The critical question is whether that language outweighs the other provisions of the contract which show an intent to benefit Gilmore. Initially we point out if the performance of a contract necessarily benefits the third person, then an intent to accomplish that result will be presumed whether the promisor has stated his intent or not (4 Corbin on Contracts, § 777, p. 25). Here there is no question the performance of the contract by Omaha would necessarily benefit Gilmore.

Our decision rests not on the intent of the promisor insurance company but on the intent of the promisee, HCS. It is the promisee's intent which governs (Lucas v. Hamm, supra, 56 Cal.2d 583, 591, 15 Cal.Rptr. 821, 364 P.2d 685) particularly when the promisee's intent is apparent to the promisor. When the contract is viewed in its entirety, read in the light of all the circumstances, and drafted as it undoubtedly was by Omaha, we can only conclude the language regarding the right of enforcement expressed the intent of the promisor but not the intent of the promisee. It is clear from the contract that HCS' reason for promising to pay insurance premiums to Omaha was to provide a health care program for Gilmore and his fellow employees. Despite its express disavowal of any intent to benefit third parties, Omaha signed the contract with full knowledge of HCS' intent to benefit the employees. Such knowledge of the promisee's intent is sufficient to give Gilmore the right to sue (id. at p. 591, 15 Cal.Rptr. 821, 364 P.2d 685). There is no requirement of mutual intent as to the right of enforcement (2 Williston on Contracts (3d ed.1959) pp. 836-839).

Accepting as true the allegations contained in the complaint (Hirsh v. Department of Motor Vehicles (1974) 42 Cal.App.3d 252, 254, 115 Cal.Rptr. 452), they show a legal duty to provide health care services owed by Stevens Air Systems to its employees and by HCS to Stevens Air Systems.

“9. At all times mentioned herein, both before and after the effective date of said policy of insurance, Plaintiff Stevens Air Systems, Inc., was contractually obligated to provide health care benefits to its employees pursuant to schedules of benefits distributed to them, and Plaintiff Gilmore was one of such employees. At all times mentioned herein, both before and after the effective date of said policy of insurance, Plaintiff HCS Corp. was obligated, in return for sums of money received from Plaintiff Stevens Air Systems, Inc., to provide appropriate administrative services to insure delivery of the health care plan benefits set forth in the published schedules of benefits.”

Such facts make it clear HCS secured the indemnity agreement from Omaha to pay Stevens Air Systems' debt to its employees. Omaha claims HCS contracted with it for reimbursement and not to secure the discharge of its obligations, and therefore, Gilmore is only an incidental beneficiary. To so view the intentions of HCS exalts form over substance. HCS was obligated to deliver health care services to Stevens Air Systems. Stevens was obligated to provide such services to its employees. To find HCS' intent was to receive reimbursement rather than to discharge its obligation is to engage in distinctions between “primary” and “paramount” purposes rather than viewing the entire result the promised performance would attain (see 4 Corbin on Contracts, supra, p. 20.)

The entire arrangement was to provide health care benefits to Gilmore and his fellow employees. In effect, his life and limb were the subject of the entire transaction. His need for health insurance, and the need of his fellow employees, were the source and inspiration for all the contracts. To say he cannot recover for his injuries on the ground he is merely “incidental” to the contract ignores the heart of this transaction and frustrates the basic purpose of third-party beneficiary contract law which is to reduce multiplicity of suits (Lawrence v. Fox (1859) 20 N.Y. 268; Seaver v. Ransom (1918) 224 N.Y. 233, 120 N.E. 639).

II. Gilmore's Right to Sue for Emotional Distress and Bad Faith Incidental to Contract Action

The trial court based its order sustaining the demurrer without leave to amend on the ground Gilmore was neither a party nor a third-party beneficiary to the indemnity contract. Once the third-party beneficiary relationship is established, Gilmore has a right to proceed on the other three causes of action: intentional infliction of emotional distress (Silberg v. California Life Ins. Co. (1974) 11 Cal.3d 452, 113 Cal.Rptr. 711, 521 P.2d 1103; Fletcher v. Western National Life Ins. Co. (1970) 10 Cal.App.3d 376, 89 Cal.Rptr. 78); negligent infliction of emotional distress (see 4 Witkin, Summary of Cal. Law (8th ed. 1974) Torts, §§ 548-553) and breach of duty of good faith and fair dealing (Silberg v. California Life Ins. Co., supra, 11 Cal.3d 452, 460-461, 113 Cal.Rptr. 711, 521 P.2d 1103; Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 573-578, 108 Cal.Rptr. 480, 510 P.2d 1032), as damages incidental to the breach.

III. Gilmore's Independent Right to Sue in Tort

In addition to the contract action, Gilmore has a basis, independent from the contract action, to sue in tort.

An insurer may not unreasonably withhold payments due under a policy. (Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d 566, 573, 108 Cal.Rptr. 480, 510 P.2d 1032.) The insurer has the law-imposed duty to act fairly and in good faith in discharging its contractual responsibilities to its insured. (Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 328 P.2d 198; Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425, 58 Cal.Rptr. 13, 426 P.2d 173.) Accordingly, Omaha, relying primarily on Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d 566, 108 Cal.Rptr. 480, 510 P.2d 1032; Murphy v. Allstate Ins. Co. (1976) 17 Cal.3d 937, 132 Cal.Rptr. 424, 553 P.2d 584 and Austero v. National Cas. Co. (1976) 62 Cal.App.3d 511, 133 Cal.Rptr. 107, asserts that no cause of action for the tort of bad faith may be stated by Gilmore if he is not a party to the contract.

In Gruenberg our Supreme Court held employees of the insured could not be sued in “bad faith” because they were “total strangers to the contracts …” who became involved after the occurrence of the loss and claim. (Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d 566, 576, 108 Cal.Rptr. 480, 487, 510 P.2d 1032, 1039) The issue addressed by the Gruenberg court was restricted to the extension of liability to non-insurers. The tort was not discussed in the context of the relationship between the aggrieved party and the insurer. Different considerations are necessarily involved when the question is who should pay for damages not who should be entitled to receive damages.

Reliance on Murphy and Austero is also misplaced. The Murphy court held a third party could not sue the insurer directly in the absence of a written assignment from the insured to “enforce a covenant made solely to benefit others.” [Italics added.] (Murphy v. Allstate Ins. Co., supra, 17 Cal.3d 937, 944, 132 Cal.Rptr. 424, 428, 553 P.2d 584, 588.) The “duty to settle is intended to benefit the insured and not the injured claimant” (id. at p. 944, 132 Cal.Rptr. at p. 428, 553 P.2d at p. 588) who, in receiving damages for “bad faith” receives a windfall—all that he is really entitled to in the proceeds of the insurance policy. The Murphy holding was explained further in Royal Globe Insurance Co. v. Superior Court (1979) 23 Cal.3d 880, 889-890, 153 Cal.Rptr. 842, 848, 592 P.2d 329, 335:

“[A] third party claimant who had recovered a judgment against the insured for an amount in excess of the policy limits but who had not secured an assignment of the insured's cause of action could not sue the insurer for breach of the duty to settle. Our holding was based primarily upon contractual principles. That is, we held that since the third party claimant was not a party to the contract between the insured and the insurer and the duty to settle which the insurer owes to the insured is intended to protect the insured from liability for excess coverage rather than to benefit the injured claimant .. the third party beneficiary doctrine .. [does not] require … the injured party be permitted to sue for a breach of the duty to settle.”

HCS bought insurance to assure benefits would be available to Gilmore as a health plan member. The premium charged by Omaha was based on the number of health plan members; Omaha also had subrogation rights from HCS against its members. Any recovery made by HCS was required to be paid to Omaha to the extent of payment made under the policy. Thus, as a practical matter, there is a direct, and theoretically reciprocal, dollar for dollar relationship between the insurance proceeds paid by Omaha and the benefit received by an individual claimant in excess of $7,500. Whether a defendant should be held liable to a person not in privity is a “matter of policy” which involves a balancing of various factors including the extent to which the transaction was intended to benefit plaintiff, the foreseeability of harm to him, the degree of certainty that plaintiff suffered injury, the closeness of the connection between the defendant's conduct and the injury and the policy of preventing future harm. (Lucas v. Hamm, supra, 56 Cal.2d 583 at p. 588, 15 Cal.Rptr. 821, 364 P.2d 685.) Each of those factors is present in the Gilmore-Omaha relationship.

Omaha does not argue it is immune from an action in “bad faith” for it has not resisted by demurrer the cause of action asserted by HCS. It is only fair that the damages for all economic loss and emotional distress caused by the “bad faith” be determined in human terms from the effect on the person truly sustaining that loss and not measured by what in all likelihood will be the lesser damages suffered by the nonprofit corporation, HCS. (Neal v. Farmers Ins. Exchange (1979) 21 Cal.3d 910, 925, 148 Cal.Rptr. 389, 582 P.2d 980.) The problem of duplicate bad faith recovery is also not present for both HCS and Gilmore are joined as plaintiffs in the action.

Austero v. National Cas. Co., supra, 62 Cal.App.3d 511, 133 Cal.Rptr. 107, does not compel us to a different result. In Austero, the wife of the insured-injured party was held to have no standing because she was only remotely connected with the contract of insurance. As a matter of public policy, the Austero court decided she was too removed from the insurance contract to warrant her recovery. Presumably, the court considered the impact that the failure to pay insurance has in every case and determined that to include redress for a wife might open the door to other members of the family or friends who would suffer distress in observing the difficulties of an insured who was wrongfully deprived of the benefits of his policy. Gilmore's connection with the Omaha insurance policy is different from that of Mrs. Austero or other members of her family. As a health plan member, he is entitled to all the benefits of his plan which Omaha was fully aware of when it issued its policy to HCS. There is no undue extension of liability when Gilmore is permitted to sue the insurer directly in bad faith for all damages actually sustained by him.

Plaintiff has alleged all the elements essential to state a cause of action for intentional and negligent infliction of emotional distress. (Fletcher v. Western National Life Ins. Co. (1970) 10 Cal.App.3d 376, 89 Cal.Rptr. 78.) The court sustained the demurrer without leave to amend as to those causes of action on the sole ground that tort liability could not extend to Gilmore. As in the bad faith action, we find tort liability does extend to Gilmore and thus, also reverse as to the emotional distress causes of action.

Judgment reversed.

I concur and dissent.

The majority, on two independent grounds, holds Gilmore may sue the insurer directly. The first ground rests on traditional concepts of contract law—he has the right to enforce the contract and to sue for damages because he is an express third party beneficiary of the agreement between HCS and Omaha. The other is based upon an extension of present tort law—the nexus between Gilmore and the insurance contract is sufficient to entitle him to sue for all damages sustained on the theories of “bad faith” and intentional and negligent infliction of emotional distress. I agree with the latter; I disagree with the former.

Before discussing the relationship of the parties to the insurance contract; additional perspective on the status of HCS is helpful. It is not an insurer. It was engaged in business during the relevant period of plaintiff's complaint as a provider of health care services under the Knox-Mills Health Plan Act. (Former Gov. Code, § 12530 et seq., Stats.1974, ch. 1144, § 1 et seq., p. 2428; see Health & Saf. Code, § 1340 et seq., Stats. 1975, ch. 941, § 1 et seq., p. 2070. The statutory scheme is now known as the Knox-Keene Health Care Service Plan Act of 1975.) A “health care service plan” is defined as any organization in which responsibility was undertaken to provide, arrange for, pay for or reimburse any part of the cost of any health care service for a consideration consisting in part of pre-paid or periodic charges. (Former Gov. Code, § 12530, subd. (a).) The legislative history reflects a continuing concern by the Legislature with the failures of the plans to perform in the manner advertised, specifically, the effect of insolvency of a health plan on the public. (Review of Selected 1974 California Legislation (1975) 6 Pacific L.J. 190.) In 1970, minimum financial reserves were established by the Act, and amendments made in 1974 created additional financial controls including requirements of minimum cash reserves or insolvency insurance. (Gov. Code, §§ 12539, 12539.1.)

The Legislature thus recognized the dual social aspects involved in the delivery of quality health care. Specifically, the commercial reality that members of the public would be more likely to receive effective medical treatment if providers of that treatment had assurance that their services would be paid. A health maintenance organization, like any other business, has to pay its bills to continue to make available medical care at a reasonable cost to those who bargain for those services through group health plans.

Gilmore, an employee of Stevens Air Systems, Inc. (Stevens), was a health plan member of HCS pursuant to a contract between Stevens and HCS. On January 23, 1975, Omaha issued to HCS its “HMO Catastrophic Control Loss Policy” which provided that the insurance was “solely between the Company [Omaha] and the Assured [HCS]” and that it was “to control losses of the Assured … at a reasonable recurring predictable level so that the Assured can plan and budget its business with diminished catastrophic exposure.” The policy required Omaha to reimburse HCS 90 percent of its “Special Allowable Business Expense” for each health plan member who received medical expenses in excess of $7,500 up to a maximum of $120,000 per year. Special Allowable Business Expense was defined as “expenses calculated by use of the Service Equivalent Formula and which are directly and solely attributable to the cost of those services (1) which the Health Plan Member is entitled to receive as a Health Plan Member, and (b) which are performed, prescribed or directed by or on behalf of the Assured for Hospital Services, Medical Services, Referral Services and Emergency Care.” The conditions of the policy expressly declared that Omaha's responsibility to HCS was for “monetary purposes only,” as HCS

“alone is responsible for all services to its Health Plan Members, for all liability and for payment of all expenses. The Company shall not have any responsibility or obligation to provide any direct service or payment to any Health Plan Member through the Assured or any person or facility, there being no relationship contractual or otherwise between the Company and any Health Plan Member of the Assured.”

Gilmore may enforce the contract between Omaha and HCS under Civil Code section 1559 only if he is an intended—creditor or donee—beneficiary.1 (Martinez v. Socoma Companies, Inc. (1974) 11 Cal.3d 394, 400, 113 Cal.Rptr. 585, 521 P.2d 841.) If he is an incidental beneficiary he may not sue on the contract. (Lucas v. Hamm (1961) 56 Cal.2d 583, 590, 15 Cal.Rptr. 821, 364 P.2d 685; Martinez v. Socoma Companies, Inc., supra, 11 Cal.3d at p. 400, 113 Cal.Rptr. 585, 521 P.2d 841.) The classification of a beneficiary turns on the intent of the parties gathered from the terms of the contract read in the light of the circumstances under which it was entered. (Walters v. Calderon (1972) 25 Cal.App.3d 863, 870-871, 102 Cal.Rptr. 89.)

Omaha quite understandably had no desire to participate in the business affairs of HCS with its members. To limit its involvement, the contract expressly provided that Omaha “shall not have any responsibility or obligation to provide any direct service or payment to any Health Plan Member”; and that there exists “no relationship contractual or otherwise” between Omaha and any health plan member. Omaha's duty under the policy was solely to reimburse HCS for its Special Allowable Business Expense. From the promisor's standpoint, health plan members of HCS were not intended to be creditor beneficiaries of the contract. But the intent of the promisee, HCS, must be examined, for normally it is the promisee who must intend to benefit the third party. (4 Corbin on Contracts, § 776, p. 18; Lucas c. Hamm, supra, 56 Cal.2d 583, 591, 15 Cal.Rptr. 821, 364 P.2d 685.) A person is a creditor beneficiary where the promisor's performance of the contract will discharge some form of legal duty owed to the beneficiary of the promisee. (Hartman Ranch Co. v. Associated Oil Co. (1937) 10 Cal.2d 232, 244, 73 P.2d 1163.)

HCS was desirous of benefiting all members of its health plan. The insurance contract it received did not provide, however, that funds recovered by HCS for each claimant were to be held in trust for the benefit of that claimant or that it was acting only as an administrative intermediary for the claimant who was the real party in interest. All insurance proceeds became part of the general fund of HCS to assure its continued financial solvency on behalf of all members and health care providers as required by the statute governing its performance. In the event of an insolvency, all creditors of HCS would share in its assets on a pro rata basis. Member creditors would not be preferred over other general creditors who might well include physicians, hospitals or other persons providing services. There is nothing contrary to public policy by having the insurance contract provide funds to enable HCS to pay its debts as contrasted with a contract which would have provided for insurance payments directly to member claimants. Comment 9 to section 133, subdivision (b) of the Restatement of Contract classifies the former as incidental beneficiaries; the latter as creditor beneficiaries.2

The pleadings do not allege fraud or mistake or that the contract is one of adhesion. To the contrary—the pleadings reinforce the conclusion that Gilmore is an incidental beneficiary. HCS has sued in its own name for the same amount of contract damages sought by Gilmore. It does not allege it is suing as agent for Gilmore or that the funds will be held for his benefit. Under the pleadings, the cause of action for breach of contract is properly asserted by HCS and not Gilmore.

Development of the common law in an enlightened fashion requires careful examination of all aspects of every case. I whole-heartedly endorse the well-reasoned and thoughtful opinion of the majority which, consistent with existing tort principles, extends to plaintiff rights to which he is socially and economically entitled. To rest those rights on contract law, contrary to the express bargain the parties made, has significant and, in my view, unfortunate commercial repercussions not limited to the health care area. No longer can parties voluntarily agree in a nonadhesive contract that insurance funds be payable solely to the insured for the payment of all its debts. All business transactions where insurance proceeds are the bargained-for source of assets for the payment of debts are covered by this decision with the class of preferred creditors being judicially determined. The resultant impact thus involves not only a diminution of general assets, but uncertainty as to the identity of the preferred creditor. Even in the health care area, the majority's rush to achieve an equitable result for Gilmore may well have the contrary effect, for the willingness of health care providers to render service is lessened when obstacles to the payment for those services are created.

FOOTNOTES

FOOTNOTE.  

1.  The phrase “intended beneficiary” has been adopted from Tentative Draft No. 3 of Restatement Second of the Laws (§ 133, reporter's notes, p. 18) and includes both donee and creditor beneficiary. California decisional law uses the donee-creditor classification for third party beneficiaries who have enforceable rights under contracts. (Walters v. Marler (1978) 83 Cal.App.3d 1, 31-32, fn. 18, 147 Cal.Rptr. 655.)

2.  Illustration 9 to section 133 provides:“B promises A for sufficient consideration to pay whatever debts A may incur in a certain undertaking. A incurs in the undertaking debts to C, D and E. If, on a fair interpretation of B's promise, the amount of the debts is to be paid by B to C, D and E, they are creditor beneficiaries; if the money is to be paid to A in order that he may be provided with money to pay C, D and E, they are at most incidental beneficiaries.”

EHRENFREUND,* Associate Justice. FN* San Diego Superior Court Judge sitting under assignment by the Chairperson of the Judicial Council.

STANIFORTH, Acting P. J., concurs. WIENER, Associate Justice, concurring and dissenting.

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