Contracts - Third-Party Beneficiaries

Front 1

Third-party Beneficiary Right

Back 1

Depends on classification:
(First Restatement - FL)
1. Creditor beneficiary:
--When a promisee seeks a performance from the promisor that will satisfy an obligation to a third party.

2. Donee beneficiary:
--When a promisee seeks a performance from a promisor in order to make a gift of that performance to a third party.

3. Incidental beneficiary:
--Third parties who will benefit from a promisor performance as a practical matter but are not donee or creditor beneficiaries.

Second Restatement:
-Only divides into intended and incidental beneficiaries.
-key factor: intent to benefit test

Front 2

Rights of Parties to Enforce Contract

Back 2

Incidental beneficiary does not have a right to seek contract enforcement.

Third party's rights against promisor:
-if not incidental, then can secure enforcement of an agreement from breaching promisor

Third party's rights against promisee:
-no rights in connection with the promised performance under the contract, BUT rights based on prior obligation between promisee and third-party beneficiary

Front 3

Vesting of Right to Sue
(intended beneficiary)

Back 3

Only vests in four situations:
1. beneficiary brings suit
2. beneficiary changes position in justifiable reliance
3. beneficiary manifests assent to the contract at one of party's requests
4. rights the beneficiary vested under express terms

Front 4

Promisor's Defenses against Third Party Beneficiary

Back 4

Any valid defenses the promisor has against the promisee are also applicable against third-party beneficiaries.

Cannot assert defenses based on separate transactions against promisee.

Front 5

Promisee's Rights Against Promisor

Back 5

1. breach of contracts

2. if donee beneficiary: if promisor's performance is intended to benefit a donee beneficiary, then no loss for promisee so cannot recover damages (unless specific performance).

3. if creditor beneficiary: can get specific performance for promisor's obligation
--might be double liability if promisee get economic benefits (because third-party beneficiary can then ask for same)--as a result, sometimes promisee cannot recover damages against promisor UNLESS promisee has already paid beneficiary to cover a default