Also known as: intended beneficiaries · third party beneficiary
Written by attorneys · grounded in primary & secondary sources — see below
A third party to a contract who acquires an enforceable right to performance because the contracting parties intended to confer that benefit directly on the third party. Recognition of the right is appropriate to effectuate the parties' intention when the promised performance will satisfy a money obligation of the promisee to the beneficiary or the circumstances show that the promisee intends to give the beneficiary the benefit of performance.
Andrew purchased a key-person life insurance policy from Black Assurance that named Federal Surety as sole beneficiary and directed proceeds to satisfy Andrew's outstanding loan. After Andrew died, Federal Surety demanded payment from Black Assurance. Federal Surety qualifies as an intended beneficiary because the policy performance satisfies Andrew's debt obligation to it.
Ivy Investments contracted with Inertia Dynamics to construct a specialized facility that would satisfy Ivy's preexisting obligation to supply space to Ironwood Capital. Ironwood Capital sued Inertia Dynamics for specific performance after delays. Ironwood Capital may maintain the suit for specific enforcement because it is an intended beneficiary of the construction contract.
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Interlink Communications contracted with an insurance company that agreed to pay any future buyer of equipment for loss by fire or theft within one year after sale. Interlink later sold equipment to India Inoue and told her about the coverage. India Inoue holds rights as an intended beneficiary even though she was not identified when the insurance contract was formed.
Foundation Health Psychcare Services required employees to sign arbitration agreements covering antidiscrimination claims. An employee sued to enforce the agreement's cost-shifting provisions after the employer refused to pay arbitration fees. The employee may enforce the agreement as an intended beneficiary because the contract was formed to confer direct procedural rights on covered employees.
Tess hired attorney Mel to draft a will leaving her estate to her nephew Benny. Mel negligently omitted required attestation formalities, causing the will to fail. Benny may recover from Mel as an intended beneficiary of the attorney-client contract because the drafting was performed specifically to confer the testamentary benefit on him.
Arthur Young prepared an audit report for a company knowing the report would be used by investors to decide whether to purchase securities. Investors who relied on the negligent report and suffered losses sued the auditor. The investors cannot recover because they are not intended beneficiaries of the audit contract under the circumstances presented.
An intended beneficiary acquires an enforceable right because recognition of that right effectuates the contracting parties' intention and either satisfies a money obligation of the promisee or the circumstances show the promisee intends to confer the benefit. An incidental beneficiary receives only a remote or fortuitous benefit with no enforcement rights.
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Yes. An intended beneficiary may enforce the promisor's duty to perform. The beneficiary may also proceed against the promisee when the beneficiary holds a separate claim against the promisee that the promised performance would satisfy.
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No. It is not essential that the beneficiary be identified at the time the contract containing the promise is made.
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Consideration need not move directly between the promisor and the beneficiary. Performance furnished by the promisee in exchange for the promisor's commitment to render performance to the beneficiary supplies valid consideration that supports enforcement by the intended beneficiary.
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…settlement costs under 10b-5 may be passed on to their client companies, and in turn incurred by the company's investors, the intended beneficiaries of the statute. See Winter, Paying Lawyers, Empowering Prosecutors, and Protecting Managers: Raising the Cost of Capital in America, 42 Duke L. J. 945, 948-966 (1993). We hasten to add…