Non-parties to a contract. Yes, this happens often. The easiest example of such a contract is a life insurance contract. The insurance company is the promisor; the insured is the promisee; and the person who will receive the life insurance benefits is the third party beneficiary.
The general rule is that a contract operates to confer rights and impose duties only on the parties in the contract and no other person. However, there are exceptions. Exceptions include contractual rights involving third party beneficiaries, and contractual rights or duties that are transferred to the third parties.
Third party beneficiaries are people who benefit from a contract, which they were not a party to. The law is convoluted; however, here is our best attempt to simplify it without losing content.
Third party beneficiary rights and duties overview:
1. The original contract will confer the rights and duties on the third party.
2. Intended v. Incidental - only intended beneficiaries have contractual rights. Intent of the parties to the contract determines whether the contract is intended or incidental. Intended beneficiaries are usually either donees or creditors.
3. A contract cannot be cancelled or modified without the third party beneficiary consent if his/her rights were vested.
Vesting occurs when the third party beneficiary:
1. knows and relied on the contract,
2. knows and assents to the contract, or
3. brings a lawsuit.
Who can sue who and recover from whom?
1. The third party beneficiary can recover from the promisor,
2. Promisee can recover from the promisor,
3. Generally, beneficiary cannot recover from the promise, unless the creditor beneficiary can recover from the promisee; however, only from a pre-existing debt.
Know your rights as a third party beneficiary. The attorney's job is to know and consult you on your rights; however, you need be tenacious to pursue them.
KAASS LAW is authorized to practice law in California. The above content is intended for California residents only. This content provides only general information which may or may not reflect the most current legal developments. KAASS LAW expressly disclaims all liability in respect to actions taken or not taken based on any of the contents of this website.
