(4) Contracts: 3rd Party Beneficiaries & Enforcement of Rights

Question 1

1st Restatement - Creditor Beneficiary Rule

Answer 1

If performance would satisfy an actual duty of the promise to a 3rd party and the promise did not intend to make a gift to the 3rd party then the 3rd party is a creditor beneficiary and has the right to sue either the promisor or promisee.

Question 2

1st Restatement - Donee Beneficiary Rule

Answer 2

If the promisee entered the contract for the purpose of conferring a gift to a 3rd party then the 3rd party is a donee beneficiary and has the right to sue the promisor. However if the promisee tells the donee beneficiary about the contract and reasonably foresees reliance and the donee does detrimentally rely then the donee beneficiary can sue the promisee as well.

Question 3

1st Restatement - Incidental Beneficiary Rule

Answer 3

An incidental beneficiary has no rights to enforce the contract.

Question 4

Second Restatement - Intended Beneficairy Rule

Answer 4

A 3rd party can enforce the contract if they are an intended beneficiary. An intended beneficiary is one who the contracting parties intended their performances to benefit.

Question 5

Second Restatement Incidental Beneficiary Rule

Answer 5

An incidental beneficiary cannot enforce the contract. An incidental beneficiary is one who happens to benefit from the contract but it was not intended.

Question 6

Vesting of 3rd Party Beneficiary’s Rights

Answer 6

The rights of an intended beneficiary vest when the beneficiary (a) detrimentally relies on the contract; (b) manifests assent to the contract at one party’s requests; OR (c) files a lawsuit to enforce the contract. Once the rights have vested the contract cannot be altered or modified without the agreement of the 3rd party.