Beneficiaries

Question 1

What is the main difference between the types of beneficiaries?

Answer 1

Intended beneficiaries are third parties who a contract intends to benefit. They can sue to enforce the contract.

Incidental beneficiaries are third parties who the contract benefits only incidentally (not intentionally). They cannot sue to enforce a contract.

Question 2

When can a third party sue to enforce a contract?

Answer 2

When they are an intended beneficiary and when their rights vest.

An intended beneficiary’s rights vest when:

1. They reasonably and detrimentally rely on the contract.
2. They consent to the contract at the request of one of the parties
3. They sue to enforce the contract

Question 3

Rules regarding rescission

Answer 3

Two parties cannot rescind a contract with a third party beneficiary if that beneficiary’s rights have already vested (i.e. they have detrimentally relied on the contract, they consented to the contract at the request of a party, or they have sued based on the contract)