Third Parties

Question 1

Restatement § 302 Intended Beneficiaries

Answer 1

(1) Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if the parties recognize that the beneficiary has a right to performance and either
(a) the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or
(b) the circumstances indicate that the promisee intends to give the beneficiary a gift.

Question 2

Restatement § 302 Incidental Beneficiaries

Answer 2

(2) An incidental beneficiary is a beneficiary who is not an intended beneficiary.

Question 3

Restatement § 302 Intended and Incidental Beneficiaries Promise to Pay the Promisee’s Debt

A owes C a debt of $100. The debt is barred by the statute of limitations or by a discharge in bankruptcy, or is unenforceable because of the Statute of Frauds. B promises A to pay the barred or unenforceable debt.

Answer 3

C is an intended beneficiary under Subsection (1)(a).

Question 4

Restatement § 302 Intended and Incidental Beneficiaries Promise to Pay the Promisee’s Debt

B promises A to furnish support for A’s minor child C, whom A is bound by law to support.

Answer 4

C is an intended beneficiary under Subsection (1)(a).

Question 5

Restatement § 302 Intended and Incidental Beneficiaries Promise to Pay the Promisee’s Debt

B promises A to pay whatever debts A may incur in a certain undertaking. A incurs in the undertaking debts to C, D and E.

Answer 5

If the promise is interpreted as a promise that B will pay C, D and E, they are intended beneficiaries under Subsection (1)(a); 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. Gift Promise

Question 6

Restatement § 302 Intended and Incidental Beneficiaries Gift Promise

A, an insurance company, promises B in a policy of insurance to pay $10,000 on B’s death to C, B’s wife.

Answer 6

C is an intended beneficiary under Subsection (1)(b).

Question 7

Restatement § 302 Intended and Incidental Beneficiaries Gift Promise

C is a troublesome person who is annoying A. A dislikes him but, believing the best way to obtain freedom from annoyance is to make a present, secures from B a promise to give C a box of cigars.

Answer 7

C is an intended beneficiary under Subsection (1)(b).

Question 8

Restatement § 302 Intended and Incidental Beneficiaries Gift Promise

A’s son C is indebted to D. With the purpose of assisting C, A secures from B a promise to pay the debt to D.

Answer 8

Both C and D are intended beneficiaries under Subsection (1)(b).

Question 9

Restatement § 302 Intended and Incidental Beneficiaries Gift Promise

A owes C $100 for money lent. B promises A to pay C $200, both as a discharge of the debt and as an indication of A’s gratitude to C for making the loan.

Answer 9

C is an intended beneficiary under Subsection (1)(a) as to the amount of the debt and under Subsection (1)(b) as to the excess.

Question 10

Restatement § 302 Intended and Incidental Beneficiaries Gift Promise

A conveys land to B in consideration of B’s promise to pay $15,000 as follows: $5,000 to C, A’s wife, on whom A wishes to make a settlement, $5,000 to D to whom A is indebted in that amount, and $5,000 to E, a life insurance company, to purchase an annuity payable to A during his life.

Answer 10

C is an intended beneficiary under Subsection (1)(b); D is an intended beneficiary under Subsection (1)(a); E is an incidental beneficiary.

Question 11

Restatement § 302 Intended and Incidental Beneficiaries Gift Promise

A owes C $100. Not knowing of any such debt, B promises A to pay $100 to C.

Answer 11

C is an intended beneficiary under Subsection (1)(a) if A manifests an intention that the payment is to satisfy the debt, an intended beneficiary under Subsection (1)(b) if A manifests an intention to make a gift of $100, leaving outstanding the original debt.

Question 12

Restatement § 302 Intended and Incidental Beneficiaries Other Intended Beneficiaries

A, the operator of a chicken processing and fertilizer plant, contracts with B, a municipality, to use B’s sewage system. With the purpose of preventing harm to landowners downstream from its system, B obtains from A a promise to remove specified types of waste from its deposits into the system.

Answer 12

C, a downstream landowner, is an intended beneficiary under Subsection (1)(b).

Question 13

Restatement § 302 Intended and Incidental Beneficiaries Other Intended Beneficiaries

A, a corporation, contracts with B, an insurance company, that B shall pay to any future buyer of a car from A the loss he may suffer by the burning or theft of the car within one year after sale. Later A sells a car to C, telling C about the insurance.

Answer 13

C is an intended beneficiary.

Question 14

Restatement § 302 Intended and Incidental Beneficiaries Other Intended Beneficiaries

B contracts to build a house for A. Pursuant to the contract, B and his surety S execute a payment bond to A by which they promise A that all of B’s debts for labor and materials on the house will be paid. B later employs C as a carpenter and buys lumber from D

Answer 14

C and D are intended beneficiaries of S’s promise to A, whether or not they have power to create liens on the house.

Question 15

Restatement § 302 Intended and Incidental Beneficiaries Other Intended Beneficiaries

C asserts that A owes him $100. A does not owe this money, or think that he owes it, but rather than engage in litigation and in order to obtain peace of mind A secures a promise from B to pay C $100.

Answer 15

C is an intended beneficiary.

Question 16

Restatement § 302 Intended and Incidental Beneficiaries Other Intended Beneficiaries

A, a labor union, enters into a collective bargaining agreement with B, an employer, in which B promises not to discriminate against any employee because of his membership in A.

Answer 16

All B’s employees who are members of A are intended beneficiaries of the promise.

Question 17

Restatement § 302 Intended and Incidental Beneficiaries

A buys food from B, a grocer, for household use, relying on B’s express warranty. C, A’s minor child, is injured in person by breach of the warranty.

Answer 17

Under Uniform Commercial Code § 2-318, without regard to the intention of A or B, the warranty extends to C.

Question 18

Restatement § 302 Intended and Incidental Beneficiaries Incidental Beneficiaries

B contracts with A to erect an expensive building on A’s land. C’s adjoining land would be enhanced in value by the performance of the contract.

Answer 18

C is an incidental beneficiary.

Question 19

Restatement § 302 Intended and Incidental Beneficiaries Incidental Beneficiaries

B contracts with A to buy a new car manufactured by C.

Answer 19

C is an incidental beneficiary, even though the promise can only be performed if money is paid to C.

Question 20

Restatement § 302 Intended and Incidental Beneficiaries Incidental Beneficiaries

A, a labor union, promises B, a trade association, not to strike against any member of B during a certain period. One of the members of B charters a ship from C on terms under which such a strike would cause financial loss to C.

Answer 20

C is an incidental beneficiary of A’s promise.

Question 21

Restatement § 302 Intended and Incidental Beneficiaries Incidental Beneficiaries

A contracts to erect a building for C. B then contracts with A to supply lumber needed for the building.

Answer 21

C is an incidental beneficiary of B’s promise, and B is an incidental beneficiary of C’s promise to pay A for the building.

Question 22

Restatement § 302 Intended and Incidental Beneficiaries Trust and Agency.

A, an insurance company, promises B in a policy of insurance to pay $10,000 on B’s death to C as trustee for B’s wife D.

Answer 22

C is an intended beneficiary and may enforce his rights as trustee; D’s rights as beneficiary of the trust and the contract are enforceable only in the manner in which rights of other trust beneficiaries are enforced.

Question 23

Restatement § 304 Creation of Duty to Beneficiary

Answer 23

A promise in a contract creates a duty in the promisor to any intended beneficiary to perform the promise, and the intended beneficiary may enforce the duty.

Question 24

Restatement § 304 Creation of Duty to Beneficiary Promise to Pay the Promisee’s Debt

A owes C $100. For consideration B promises A to pay the debt. B breaks his contract.

Answer 24

C may sue B and obtain judgment for the amount of the debt.

Question 25

Restatement § 304 Creation of Duty to Beneficiary Promise to Pay the Promisee’s Debt

A transfers Blackacre to B subject to a mortgage in favor of C, which B assumes and agrees to pay.

Answer 25

After default C may sue B and get judgment for the amount of the mortgage debt, or, after foreclosure by sale, for the amount of any deficiency in the sum realized by the sale.

Question 26

Restatement § 304 Creation of Duty to Beneficiary Promise to Pay the Promisee’s Debt

A owes C $100. For consideration B promises A to pay $100 to C in satisfaction of the debt. Later the statute of limitations bars an action by C against A.

Answer 26

That fact is not of itself a defense in an action by C against B.

Question 27

Restatement § 304 Creation of Duty to Beneficiary Promise to Pay the Promisee’s Debt

A promises C to have a fence built between their lands, and C pays A the price. B contracts with A to assume A’s obligation to C, and A promises to pay B on completion of the work.

Answer 27

On B’s failure to build the fence, C may recover damages from B. But a contract by B to build the fence for A would ordinarily not be a contract to assume A’s obligation to C.

Question 28

Restatement § 304 Creation of Duty to Beneficiary Gift Promise

A gives money to B, his son, who promises in consideration thereof to pay A’s daughter C, $5000 on A’s death. A dies and B fails to pay C.

Answer 28

C may sue on the promise and obtain judgment for $5000.

Question 29

Restatement § 304 Creation of Duty to Beneficiary Other Intended Beneficiaries

A owes C $1000. For consideration B promises A to pay C $1000 for an assignment of C’s right.

Answer 29

On tender of such an assignment C can recover from B on his promise.

Question 30

Restatement § 304 Creation of Duty to Beneficiary Other Intended Beneficiaries

A’s son C is indebted to D. With the purpose of assisting C, A secures from B for consideration a promise to pay the debt to D.

Answer 30

D may enforce B’s promise for D’s own benefit.

Question 31

Restatement § 304 Creation of Duty to Beneficiary Other Intended Beneficiaries

A owns property subject to a mortgage in favor of C. C asserts and A denies that A is personally liable for the mortgage debt. To resolve the dispute, A transfers the property to B on B’s promise to pay the mortgage debt.

Answer 31

C may enforce B’s promise for C’s own benefit whether or not A is personally liable.

Question 32

Restatement § 304 Creation of Duty to Beneficiary Other Intended Beneficiaries

A, a common carrier, is required as a condition of its license to maintain liability insurance covering claims for bodily injury arising out of A’s operations, and files a policy written by B. C claims to have been injured under circumstances covered by the policy.

Answer 32

C may maintain a direct action against B.

Question 33

Restatement § 304 Creation of Duty to Beneficiary Other Intended Beneficiaries

A transfers property to B. A promises to use money received from B to discharge all A’s obligations “including C’s fees” up to $20,000; B promises to discharge all obligations in excess of $20,000 which A “is found to be responsible to pay including C’s fees.”

Answer 33

C cannot maintain an action against B on the promise before A’s liability has been established.