Unformatted text preview: elissa, but
he will remain liable on the contract to Mary.
Mary John Melissa Obligee Delegator Delegatee “I don’t feel
” “I’ll do it!” $
The house John
contracts to paint Now, let’s examine the different third-party situations in more detail. Third-Party Beneficiaries
A third party must be an intended beneficiary of the contract in order to acquire enforceable rights. This means that the original contracting parties intended for the third person
to benefit from their contract; it is at least part of the reason they made the contract.
Example 6.1. Peter contracts to paint Harry’s house, and specifies that he
wants the payment to go to Ann, his girlfriend. Obviously, Peter intends
for this contract to benefit Ann.
Example 6.2. James takes out an insurance policy with Acme Insurance
Co., providing that in exchange for James paying monthly premiums,
Acme will pay a benefit of $100,000 to James’s wife Francesca when James
dies. The main purpose of the contract is to provide security for the wife.
So, both Ann and Francesca are intended beneficiaries. If Harry doesn’t pay Ann, or if the
insurance company doesn’t pay Francesca, the third-party beneficiaries have the right to
sue Harry and Acme for breach.
However, Ann and Francesca are what the law terms donee beneficiaries, who are getting the benefit essentially as a gift. Peter had no legal obligation to pay Ann money, and
James has no legal obligation to insure his life for his wife’s benefit. Donee beneficiaries
cannot prevent the parties from modifying the contract. Thus if James decided to cash in
the policy, Francesca would be unable to prevent it. rog80328_06_c06_111-133.indd 113 10/26/12 5:37 PM CHAPTER 6 Section 6.1 Third Parties Another type of intended third-party beneficiary is a creditor beneficiary. Suppose
James is in the process of buying a house, and he is getting a mortgage from Bigger
Bank. Bigger Bank requires James, as a condition of getting a thirty-year mortgage, to
also get an insurance policy that provides that if James dies without paying off the mortga...
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This test prep was uploaded on 04/09/2014 for the course BUS 311 taught by Professor Parker during the Spring '10 term at Ashford University.
- Spring '10
- Business Law