Contracts II

Third-Party Beneficiary


Class Info

Law School: Liberty University School of Law

Course ID: LAW 506

Term: Spring 2018

Instructor: Prof. Rice

My Grade Earned: A−


Restatement Second of Contracts § 302

Intended and Incidental Beneficiaries

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  1. Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either
    1. the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or
    2. the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.
  2. An incidental beneficiary is a beneficiary who is not an intended beneficiary.
Intended Beneficiary

Intended third-party beneficiaries have rights.

For one to to be an intended third-party beneficiary, he must be one of:

  1. Creditor Beneficiary

    A creditor beneficiary is an intended third-party beneficiary that the promisee has an obligation to that the performance of the promise will satisfy.

  2. Donee Beneficiary

    A donee beneficiary is an intended third-party beneficiary that the promisee intended to give the benefit of the promisor's performance.

    To be a donee beneficiary, the promisee must intend to "confer a right" against the promisor upon the third party.

Restatement Second of Contracts § 304

Creation of Duty to Beneficiary

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A promise in a contract creates a duty in the promisor to any intended beneficiary to perform the promise, and the intended beneficiary may enforce the duty.

An intended beneficiary may remove himself from being one within a reasonable time after learning of it and not assenting. R2C § 306.

Restatement Second of Contracts § 307

Remedy of Specific Performance

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Where specific performance is otherwise an appropriate remedy, either the promisee or the beneficiary may maintain a suit for specific enforcement of a duty owed to an intended beneficiary.

Restatement Second of Contracts § 309

Defenses Against the Beneficiary

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  1. A promise creates no duty to a beneficiary unless a contract is formed between the promisor and the promisee; and if a contract is voidable or unenforceable at the time of its formation the right of any beneficiary is subject to the infirmity.
  2. If a contract ceases to be binding in whole or in part because of impracticability, public policy, nonoccurrence of a condition, or present or prospective failure of performance, the right of any beneficiary is to that extent discharged or modified.
  3. Except as stated in Subsections (1) and (2) and in [R2C § 311] or as provided by the contract, the right of any beneficiary against the promisor is not subject to the promisor's claims or defenses against the promisee or to the promisee's claims or defenses against the beneficiary.
  4. A beneficiary's right against the promisor is subject to any claim or defense arising from his own conduct or agreement.
Restatement Second of Contracts § 311

Variation of a Duty to a Beneficiary

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  1. Discharge or modification of a duty to an intended beneficiary by conduct of the promisee or by a subsequent agreement between promisor and promisee is ineffective if a term of the promise creating the duty so provides.
  2. In the absence of such a term, the promisor and promisee retain power to discharge or modify the duty by subsequent agreement.
  3. Such a power terminates when the beneficiary, before he receives notification of the discharge or modification, materially changes his position in justifiable reliance on the promise or brings suit on it or manifests assent to it at the request of the promisor or promisee.
  4. If the promisee receives consideration for an attempted discharge or modification of the promisor's duty which is ineffective against the beneficiary, the beneficiary can assert a right to the consideration so received. The promisor's duty is discharged to the extent of the amount received by the beneficiary.
Restatement Second of Contracts § 313

Government Contracts

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  1. The rules stated in this Chapter apply to contracts with a government or governmental agency except to the extent that application would contravene the policy of the law authorizing the contract or prescribing remedies for its breach.
  2. In particular, a promisor who contracts with a government or governmental agency to do an act for or render a service to the public is not subject to contractual liability to a member of the public for consequential damages resulting from performance or failure to perform unless
    1. the terms of the promise provide for such liability; or
    2. the promisee is subject to liability to the member of the public for the damages and a direct action against the promisor is consistent with the terms of the contract and with the policy of the law authorizing the contract and prescribing remedies for its breach.
Incidental Beneficiary

Incidental third-party beneficiaries are beneficiaries who do not have rights that can be enforced.

Restatement Second of Contracts § 315

Effect of a Promise of Incidental Benefit

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An incidental beneficiary acquires by virtue of the promise no right against the promisor or the promisee.