Third-Party Beneficiary Contracts Flashcards
What is a third-party beneficiary contract?
When two parties contract with the understanding and intent that performance by one of the parties is to benefit a third person
What’s the difference between intended and incidental beneficiaries?
Intended beneficiary
-> one to whom the promisee wishes to satisfy an obligation or otherwise benefit by the promised performance; has the right to bring an action on the K
Incidental beneficiary
-> one whom benefits from a K even though there is no contractual intent to benefit that person; no right to enforce K
What type of third-party can recover from a K, and who can they recover against?
Is there a limit on how much a third-party can recover?
Third party can recover from both promisor and promisee to original K IF she is an intended beneficiary
BUT can only one recovery is allowed
How does the beneficiary’s rights vest?
Rights of intended beneficiary vest when beneficiary
-> detrimentally relies on rights created
-> manifests assent to K at one of the party’s request
OR
-> files lawsuit to enforce K
Who is a promisor and who is a promisee?
The promisor is the party that makes the promise, while the promisee is on the receiving end of the promise.
What are the defenses a promisor can raise?
A promisor can raise any defense against the third-party that he had against original promisee.
What are the promisee’s rights?
When the promisor fails to pay the third-party beneficiary, the promisee, on behalf of the third-party beneficiary,
-> can sue the promisor for specific performance of the promise.
In addition, when the promisee has paid a creditor beneficiary pursuant to their agreement, the promisee
-> can directly sue the promisor for reimbursement to the extent of the promise and, if the creditor beneficiary’s claim is fully satisfied, by subrogation to the beneficiary’s claim against the promisor.
