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Contracts • Third Parties
K#174
Legal Definition
Only an intended beneficiary has legal contract rights, as determined by the intent of the parties. Generally, such a beneficiary: (1) is identified in the contract, (2) receives performance directly from the promisor, or (3) has some relationship with the promisee to indicate intent to benefit.
Plain English Explanation
Though there are arguably many beneficiaries to any contract, the law only gives rights to intended beneficiaries. For example, when Disneyland opened Star Wars Land, I personally benefited from how excited I was and how fun it was to ride the new rides. However, Disneyland didn't open Star Wars Land for me. They probably don't even know I exist, even though they cash my check every year for my annual pass. I am simply an incidental beneficiary in this scenario. For someone to have rights as a third-party beneficiary, they must have been intended as a beneficiary by the parties creating the contract.
In other words, an intended beneficiary is someone whose benefit was consciously included during the bargain and formation of a contract.
In other words, an intended beneficiary is someone whose benefit was consciously included during the bargain and formation of a contract.
Hypothetical
Hypo 1: Bob offers Sam $100 to paint Amy's house. Sam agrees. Jill finds out about the agreement and is super excited because she is neighbors with Amy and if Amy's house is painted nicely, it will increase the value of Jill's house next door.Result: Bob is obligated to pay Sam $100, and Sam is obligated to paint Amy's house. Here, Bob is the promisee and Sam is the promisor. They are both parties to the contract. Amy is a third-party beneficiary of the contract. Note that Jill is an incidental beneficiary, which means she will benefit from Sam painting Amy's house, but she has no right to force Sam to paint Amy's house.
Visual Aids
Related Concepts
In a third-party beneficiary situation, who is the third-party beneificiary, who is the promisor, and who is the promisee?
What are the implied warranties of an assignor in an assignment for consideration?
What defenses may a promisor assert against a third-party beneficiary?
What duties are not delegable?
What is a delegatee?
What is a delegator, delegatee, and obligee?
What is an assignee?
What is an assignment?
What is an assignor?
What is an obligee?
What is an obligor?
What is a promisee?
What is a promisor?
What is the difference between an assignment and a delegation?
What is the effect of a clause prohibiting assignment?
What is the effect of a contract containing no language about assignment rights?
What is the effect of consideration on assignment rights?
What is the effect of invalidation language on assignment?
What two types of intended beneficiaries are there?
When are modification agreements between the obligor and assignor effective?
When can an assignee sue an obligor for payments to the assignor?
When do a third party's rights to enforce the contract vest?
When does delegation of duties occur?
Who can sue whom in a suit involving beneficiaries, promisees, and promisors?
Who can sue whom in a suit involving the assignment of rights?
Who can sue whom in a suit involving the delegation of duties?
Who prevails when the same rights have been assigned to multiple parties?
