Third-Party-Beneficiary Contracts Flashcards
Restatement 302: Intended and Incidental Beneficiaries
(1) Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties 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 the benefit of the promised performance.
(2) An incidental beneficiary is a beneficiary who is not an intended beneficiary.
Which type of beneficiary can enforce a contract?
Intended: can enforce a contract.
Incidental: cannot enforce a contract.
Restatement 308: Identification of Beneficiaries
it is not essential to the creation of a right in an intended beneficiary that he be identified when a contract containing the promise is made.
Restatement 309: Defenses against a beneficiary
(1) Pre-Contractual Defenses – A promise creates no duty to a beneficiary unless a contract is formed between the promisor and the promisee; and if a contract is voidable or unenforceable at the time of its formation the right of any beneficiary is subject to the infirmity.
(2) Post-Contractual Defense – If a contract ceases to be binding in whole or in party because of impracticability, public policy, non-occurrence of a condition, or present or prospective failure of performance, the right of any beneficiary is to that extent discharged or modified.
(3) General Rule: Except as stated in 1 and 2, the right of any beneficiary against the promisor is not subject to the promisor’s claims or defenses against the promisee or to the promisee’s claims or defenses against the beneficiary.
Restatement 311: Variation of a Duty to a Beneficiary
(2) In the absence of such a term, the promisor and promisee retain power to discharge or modify the duty by subsequent agreement.
(1) Discharge or modification of a duty to an intended beneficiary by conduct of the promisee or by a subsequent agreement between promisor and promisee is ineffective if a term of the promise creating the duty so provides.
(3) Such a power terminates when the beneficiary, before he receives notification of the discharge or modification, materially changes his position in justifiable reliance on the promise or brings suit on it or manifests assent to ti at the requires of the promisor or promisee.
What does Restatement 311 mean about the variation of a duty to a beneficiary?
1) The promisor and promisee have the right to change their minds and remove the third party beneficiary whenever they want. 2) unless a term of the contract says otherwise.
3) The power in 1 and 2 terminate when 3 occurs. 3 states that it terminates when:
a) third party materially changes position.
b) third party sues.
c) the promisee/promisor seeks the beneficiarys approval/assent to the right.
What can be done in a two party contract that can’t be done in a three party contract?
Nothing. Anything done in a 2 party contract can be done in a 3 party one.
What is required to sue on a contract?
Must have privity to that contract.
Does a third party have to have consideration for that contract?
No. They do not, just the promisor and promisee.
Four situations when a beneficiary is allowed to sue on a contract:
1) Cases where there is a pecuniary obligation running from the promisee to the beneficiary. 2) Cases where the contract is made for the benefit of the wife, or child of a party to the contract.
3) The public contract cases where the municipality seeks to protect its inhabitants by covenants for their benefit.
4) Cases where, at the request of a party to the contract, the promise runs directly to the beneficiary, although he does not furnish the consideration.
Is express language to create a third party beneficiary required?
No. There does not need to be express language to create a third party beneficiary, however, there does need to be mutual intent by both parties.
Does the third party have to have knowledge of their inclusion in the contract?
No. They do not need to have knowledge of their inclusion in the contract, but they do need to have knowledge to sue on the contract.
Can there be substantial performance in insurance contracts?
No, insurance contracts are all or nothing.
What are the differences between private and public contracts?
Nothing, must still look at the intentions of the parties at the time of contract formation.
How to determine intention of the parties?
Conduct, words, actions of the promisor and promisee. Court will look at objective intent of the parties, not subjective.
