Third Party Beneficiaries

Question 1

What is the typical 3rd party beneficiary situation?

Answer 1

A (promisee) contracts with B (promisor) that B will perform some service for C (third party beneficiary?

Question 2

What is the relevance of “intended” versus “incidental” beneficiaries?

Answer 2

Only INTENDED beneficiaries have contractual rights, NOT incidental beneficiaries

Question 3

How do you determine if a beneficiary is “intended”?

Answer 3

Beneficiary is intended IF:

1. beneficiary is IDENTIFIED in K; OR
2. beneficiary receives performance directly from promisor
3. has some relationship w promisee to indicate intent to benefit

Question 4

What are the two types of “intended” beneficiaries?

Answer 4

1. creditor beneficiary

2. donee beneficiary

Question 5

What is a “creditor beneficiary”?

Answer 5

Person to whom debt is owed by promisee

Example –> father has legal obligation to pay child support to son. Uncle agrees with father to pay it for him. Son is creditor beneficiary.

Question 6

What is a “donee beneficiary”?

Answer 6

Person whom the promisee intends to benefit gratuitously

Example –> recipient of life insurance K

Question 7

What is the relevance of “creditor beneficiary” versus “donee beneficiary”

Answer 7

• All INTENDED beneficiaries can sue promisor on K
• ONLY a creditor beneficiary can sue promisee on K (he can also sue promisor, but can only get one satisfaction)

EXCEPTION –> donee beneficiary may sue promisee ONLY on theory of detrimental reliance

Question 8

What are the rights of third party beneficiary to sue promisor?

What defenses may promisor raise?

Answer 8

All intended beneficiaries can sue promisor on K

Promisor may raise any defenses against 3rd party beneficiary that he could have raised against promisee

Question 9

What are the rights of third party beneficiary to sue promisee?

Answer 9

Only a creditor beneficiary can sue a promisee on existing obligation between them. She can also sue promisor, but can only get one satisfaction.

NOTE: donee beneficiary may only sue promisee on detrimental reliance theory

Question 10

What are the rights of promisee against promisor?

Answer 10

Promisee may sue promisor both at law and equity for specific performance if promisor is not performing for 3rd party.

Question 11

With regards to 3rd party beneficiaries, what is the relevance of “vesting”?

Answer 11

3rd party beneficiary can ONLY sue once their rights have vested

Prior to vesting, promisor and promisee are free to modify or rescind the beneficiary’s rights under K

Question 12

When do 3rd party beneficiary’s rights vest?

Answer 12

1. he MANIFESTS ASSENT to the promise in the manner requested by the parties;
2. BRINGS AN ACTION to enforce the promise; OR
3. MATERIALLY CHANGES position in JUSTIFIABLE RELIANCE on promise

RESULT: his rights have ALWAYS vested if he is suing