Third-Party Beneficiaries

Question 1

third party beneficiary (TBP)

Answer 1

3P that benefits from a k entered into between other parties

Question 2

promisor

Answer 2

party who promises to perform for TPB

Question 3

promisee

Answer 3

party who secures promise

Question 4

two types of TPB

Answer 4

1. intended TPB
2. Incidental TPB

Question 5

intended TPB

Answer 5

• Named in K: parties to the K intend for TPB to benefit from the k
• Can enforce K: TPB has rights under K and can enforce directly

1 step: name in K

Question 6

incidental TPB

Answer 6

• Unintended: stands to benefit from k although not intended by parties to k
• No rights: under k + no right to enforce k

Question 7

determining TPB status

Answer 7

whether a TPB is an intended beneficiary under the k is a question of fact

courts look @ following factors
- is TPB expressly designated in k
- does TPB directly benefit from some performance under k
- does TPB have rights under k
- Does TPB stand in such relationship to the promisee under the k that an intent to benefit 3P can be inferred

If answer to any of the above is “yes,” more likely that TPB is intended

Question 8

TPB characteristics

Answer 8

• not parties to k; merely beneficiaries
• intended TPBs have a right to sue for breach of k even though they are not parties to k
• Creditor TPBs
• donee TPBs

Question 9

creditor TPB

Answer 9

benefit is conferred based on a debt owed by the promisee to k

Question 10

donee TPB

Answer 10

benefit is conferred gratuitously

Question 11

requirement for TPB to enforce right

Answer 11

TPB’s rights must vest first before TPB can enforce

Question 12

vesting of TPB rights

Answer 12

occurs when TPB either:
1. Accepts benefits: of k in a manner requested by parties to k,
2. Sues to enforce: brings suit to enforce k, or
3. detrimental reliance: detrimentally rlies on K (ie, materially changes position in justifiable reliance on k)

Question 13

changes to TPB rights timing

Answer 13

k can be rescinded/modified until TPB’s rights have vested unless
1. TPB consents, or
2. K provides otherwise

Question 14

enforcement of TPB k

Answer 14

• either promisee or TPB can enforce rights against promisor
• Promisor has same defenses against TBP as against promisee
• promisee can sue promisor at law and in equity for specific performance
• creditor beneficiary can sue promisee on existing obligation between them
• donee beneficiary may only sue promisee if detrimental reliance exists