A more thorough explanation:

A third-party beneficiary is someone who is not a part of a contract but can still benefit from it. The people who make the contract are called the promisor and promisee. The promisor makes promises to benefit the third-party beneficiary, while the promisee pays for those promises. For example, if a mother buys medical insurance for her son, the mother is the promisee, the son is the third-party beneficiary, and the insurance company is the promisor.

There are two types of third-party beneficiaries: intended and incidental. An intended beneficiary is someone who the contracting parties meant to benefit. There are two types of intended beneficiaries: donee and creditor. A donee beneficiary is someone who the promisee intends to benefit without asking for anything in return. A creditor beneficiary is someone who the promisee owes money to, and the promisor pays that debt. An incidental beneficiary is someone who benefits from the contract but was not meant to.

The third-party beneficiary's rights are not enforceable until they are vested. Vesting happens when the beneficiary knows about the promise and either agrees to it, sues to enforce it, or relies on it. Once vested, the beneficiary can sue the promisor for breach of contract. The promisor can defend themselves by saying that the promisee did not fulfill their part of the contract. The beneficiary cannot sue the promisee unless they relied on the promise.

For example, if a father promises to pay for his daughter's college tuition, and the daughter knows about the promise and relies on it, her rights are vested. If the father does not pay for her tuition, she can sue him for breach of contract. The father can defend himself by saying that the daughter did not fulfill her part of the contract, such as not maintaining good grades.

The contracting parties can modify or rescind the contract if the beneficiary's rights have not vested. Once vested, the contract cannot be changed without the beneficiary's consent.