Ch 3: Third-Party Beneficiary Contracts Flashcards
(26 cards)
What is a third-party beneficiary contract?
A contract where performance by one party benefits a third person not party to the contract.
What are the three classifications of third-party beneficiaries according to the First Restatement?
- Creditor
- Donee
- Incidental
What defines a creditor beneficiary?
A third party whose rights arise because performance of a promise satisfies a duty of the promisee to that third party.
What rights does a creditor beneficiary have?
The right to sue either the promisor or the promisee to enforce the contract.
In the example where Party A paints B’s house in return for B’s payment to C, who is the creditor beneficiary?
Party C
What is a donee beneficiary?
A third-party beneficiary who receives a benefit as a gift from the promisee.
What rights does a donee beneficiary have?
The right to sue the promisor.
What is an incidental beneficiary?
A beneficiary who benefits from a contract without any intent to benefit them.
Can an incidental beneficiary enforce the contract?
No, they have no rights to enforce the contract.
Under the Second Restatement, what is required for a third party to enforce a contract?
The third party must be an intended beneficiary.
What distinguishes an intended beneficiary from an incidental beneficiary?
Intended beneficiaries are meant to benefit from the contract, while incidental beneficiaries are not.
What is the effect of vesting beneficiary rights?
Once vested, both original parties to the contract are bound to perform.
What are the three ways beneficiary rights can vest?
- Materially changes position in reliance
- Manifests assent to the contract
- Files a lawsuit to enforce the contract
What defenses can a promisor raise against a third-party beneficiary?
Any defense that the promisor had against the original promisee.
What happens if the promisor’s promise is to assume the promisee’s obligation?
The promisor can raise the promisee’s defense.
What can a promisee do if the promisor fails to pay the third-party beneficiary?
Sue the promisor for specific performance of the promise.
What is the relationship between a promisee and a creditor beneficiary regarding reimbursement?
The promisee can sue the promisor for reimbursement if they have paid the creditor beneficiary.
Fill in the blank: An intended beneficiary is one to whom the promise of the performance will satisfy the obligation of the promisee to _______.
pay money to the beneficiary
True or False: An incidental beneficiary has the right to enforce the contract.
False
What are the three types of third-party beneficiaries?
- Creditor
- Donee
- Incidental beneficiary
These categories define the roles and rights of parties not directly involved in a contract.
Define a creditor beneficiary.
Nonparty who is owed an obligation or debt by the promisee, which the contracting parties intended to satisfy through the contract.
A creditor beneficiary can sue either party to the contract.
Define a donee beneficiary.
Nonparty upon whom the contracting parties intended to confer a gift.
A donee beneficiary can sue the promisor.
Define an incidental beneficiary.
Nonparty whom the contracting parties did not intend to directly benefit from the contract.
An incidental beneficiary cannot enforce the contract.
Under what conditions do an intended beneficiary’s rights vest?
- Detrimentally relies on the rights created
- Manifests consent to the contract at one party’s request
- Files a lawsuit to enforce the contract
These conditions determine when a third-party beneficiary can enforce their rights under a contract.
