Third Party Beneficiaries

Question 1

Who are third parties?

Answer 1

Persons who are not parties to the contract

Question 2

Where do third party beneficiary issues fit?

Answer 2

Within every part of the timeline of the contract

Question 3

In an analysis, when should third party beneficiary issues be discussed?

Answer 3

At the same time as determining whether common law or UCC

Question 4

What are the three classifications of third party beneficiaries?

Answer 4

1. creditor
2. donee
3. incidental

Question 5

Of the classifications, who has rights to enforce a contract?

Answer 5

Creditor or donee. Incidental has no enforcement rights.

Question 6

What is a creditor beneficiary?

Answer 6

A third-party beneficiary of a contract who is a owed a debt that is to be satisfied by another party’s performance under the contract.

Question 7

What is a donee beneficiary?

Answer 7

A third party beneficiary who is intended to receive the benefit of the contract’s performance as a gift from the promisee.

Question 8

What is an incidental beneficiary?

Answer 8

A third party beneficiary who, though benefitting indirectly, is not intended to benefit from a contract and thus does not acquire rights under the contract.

Question 9

Who can a creditor beneficiary sue?

Answer 9

The promisor or promisee, but only one recovery is allowed.

Question 10

Who can a donee beneficiary sue?

Answer 10

Usually only the promisor

Question 11

When can a donee beneficiary sue the promisee?

Answer 11

If the promisee tells the intended beneficiary about the contract and should reasonably foresee reliance, and the beneficiary does justifiably rely to his detriment, then the intended benficiary may also sue the promisee.

Question 12

What is the restatement terminology for third party beneficiaries?

Answer 12

“intended beneficiary”

Question 13

What is privity?

Answer 13

The mutual and successive legal relationship of one person to another for a particular transaction or property or contract where they both share the same interest.

Question 14

What is privity of contract?

Answer 14

The relationship that exists between parties to a contract. Only thosse parties to the contract are bound by the terms of the contract and can enforce the contractual obligations under the contract.

Question 15

When do issues of vested beneficiary rights come up?

Answer 15

When the original contracting parties attempt to modify or terminate the beneficiary’s rights

Question 16

Can beneficiary rights be modified or terminated by the original contracting parties?

Answer 16

Yes, until the beneficiary’s rights vest

Question 17

What happens after a beneficiary’s rights vest?

Answer 17

The original parties to the contract are both bound to perform the contract. Any efforts by the original parties to modify or rescind after vesting are void, unless the third party agrees to the modification or rescission.

Question 18

When do a beneficary’s rights vest?

Answer 18

When the beneficiary:
* Manifests assent to the promise in a manner invited or requested by the parties;
* Brings suit to enforce the promise; or
* Materially changes position in justifiable reliance on the promise.

Question 19

What defenses can a promisor raise?

Answer 19

The promisor can raise any defense against a third party beneficiary that the promisor had against the original promisee, i.e., all formation defenses and excuses to performance.

Question 20

What can the beneficiary be liable for?

Answer 20

The beneficiary is liable for counterclaims arising from the contract that the promisory can establish against the promisee, but the beneficiary’s liability cannot exceed the amount that the promisor owes under the contract.

Question 21

Generally, what defenses can the promisor not raise?

Answer 21

The promisor generally may not assert any defenses that the promisee has against the intended beneficiary.

Question 22

When can a promisor raise defenses that the promisee has against the beneficiary?

Answer 22

If the promisor’s promise is one to assume the promisee’s entire obligation, then the promisor can raise the promisee’s defenses.

Question 23

Generally, what rights does the promisee have?

Answer 23

When the promisor fails to pay the third party beneficiary, the promisee, on behalf of the third party beneficiary, may sue the promisor for specific performance of the promise.

Question 24

What UCC section governs third party beneficiaries of express or implied warranties?

Answer 24

2-318

Question 25

What is alternative A of UCC 2-318?

Answer 25

A seller’s warranty whether express or implied extends to any natural person who is in the family or household of his buyer or who is a guest in his home if it is reasonable to expect that such person may use, consume, or be affected by the goods and who is injured in person by breach of the warranty. A seller may not exclude or limit the operation of this section.

Question 26

What is alternative B of UCC 2-318?

Answer 26

A seller’s warranty whether express or implied extends to any natural person who may reasonably be expected to use, consume, or be affected by the goods and who is injured in person by breach of the warranty. A seller may not exclude or limit the operation of this section.

Question 27

What is alternative C of UCC 2-318?

Answer 27

A seller’s warranty whether express or implied extends to any person who may reasonably be expected to use,condume, or be affected by the goods and who is injured by breach of the warranty. A seller may not exclude or limit the operation of this section with respect to injury to the person of an individual to whom the warranty extends.