Contracts-Third-Party Issues: Beneficiaries

This post should really be called: all the stuff none of us ever learned in law school but the bar examiners find amusing to test on...

Third-Party Beneficiaries

Big rule: intended beneficiaries have rights; incidental beneficiaries don't.

Intended beneficiary is (1) designated by name or legal description in the contract, (2) promised performance is to be bestowed upon beneficiary directly, (3) promisee consciously intends to have benefit run to the beneficiary.

Vesting of rights by intended beneficiary means that traders cannot modify or rescind the deal.

How rights vest:
1. intended beneficiary learns of K and changes position in detrimental reliance;
2. intended beneficiary commences a cause of action against promisor;
3. intended beneficiary expresses consent to receive performance in response to a request for such consent from either trader.

Primary cause of action for breach lies in intended beneficiary. Promisee has secondary cause if beneficiary fails to commence or loses other than on the merits.

Defenses: same as the ones promisor has against promisee under the K. Promisee's potential defenses to his liability to beneficiary cannot be raised.

Counterclaims under the contract can reduce or extinguish liability (but not make the beneficiary liable to the promisor). Setoffs may not be raised (i.e. other debts owed by the promisee to the promisor, other than under this contract, do not count against the beneficiary).