June 23, 2025 • 13 mins
Welcome back to the Law School Toolbox podcast! This is the second episode of a two-part discussion of third-party rights in contracts. Last time we covered assignments and delegations, and today we focus on third-party beneficiaries.
In this episode we discuss:
- A recap of assignment and delegation of contractual rights and obligations
- Intended and incidental third-party beneficiaries
- Illustrative examples of third-party beneficiaries
Resources:
- "Listen and Learn" series (https://lawschooltoolbox.com/law-school-toolbox-podcast-substantive-law-topics/#listen-learn)
- Podcast Episode 508: Listen and Learn – Third-Party Rights in Contracts (Part 1) (https://lawschooltoolbox.com/podcast-episode-508-listen-and-learn-third-party-rights-in-contracts-part-1-rules/)
Download the Transcript
(https://lawschooltoolbox.com/episode-509-listen-and-learn-third-party-rights-in-contracts-part-2/)
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Thanks for listening!
Alison & Lee
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Lee Burgess (00:02):
Welcome back to the Law School Toolbox podcast.
This is Part 2 of our explorationof third-party rights in contracts.
Did you miss Part 1?
We will link to it in the show notes.
Your Law School Toolbox hosts are AlisonMonahan and Lee Burgess, that's me.
We're here to demystify the lawschool and early legal career
experience, so you'll be the bestlaw student and lawyer you can be.
(00:23):
We're the co-creators of the Law SchoolToolbox, the Bar Exam Toolbox, and the
career-related website CareerDicta.
Alison also runs TheGirl's Guide to Law School.
If you enjoy the show, pleaseleave a review or rating on
your favorite listening app.
And if you have any questions,don't hesitate to reach out to us.
You can reach us via the contactform on LawSchoolToolbox.com,
and we'd love to hear from you.
And with that, let's get started.
(00:50):
Welcome back to the"Listen and Learn" series.
This is Part 2 of our explorationof third-party rights in contracts.
Did you miss Part 1?
We will link to it in the show notes.
In our previous episode, we coveredassignments and delegations - how
parties to a contract can transfertheir rights or obligations to others.
Today, we're going to complete ourdiscussion by diving into third-party
(01:13):
beneficiaries and applying all theseconcepts to some practical scenarios.
So let's start with a quick recap.
Remember, an assignment is the transfer ofa contractual right, while a delegation is
the transfer of a contractual obligation.
Both have specific rules governing whenthey're valid and how they operate.
Now let's move on to our new materialfor today - third-party beneficiaries.
(01:37):
Generally, a party who is not inprivity of contract with another
party, cannot assert a claimfor breach against that party.
However, when the party assertingthe claim is an intended third-party
beneficiary, the party has the samerights as those in privity of contract
and can assert a claim for breach.
An intended third-party beneficiaryis not a party to the contract,
(02:00):
but has rights under the contract,because the contracting parties
contemplated that their respectiveperformances were intended to
benefit an identified third party.
In contrast, an incidental beneficiaryis a person that just happens to benefit
from the contract, but has no legalrights, because the purpose of the
(02:21):
contract was not intended to benefit them.
An incidental beneficiary hasno rights under the contract.
To illustrate, let's say that acontractor owes a subcontractor
$10,000 for prior work.
The contractor enters into an agreementwith a homeowner to renovate their
home for $10,000, with the expressprovision that the homeowner pay the
(02:42):
$10,000 directly to the subcontractor.
The subcontractor is an intendedbeneficiary of the contract,
because the homeowner's payment ofthe $10,000 is expressly intended
to benefit the subcontractor.
In other words, the purpose ofthe agreement is to satisfy the
contractor's debt to the subcontractor.
(03:02):
Therefore, if the homeowner refuses to paythe subcontractor, the subcontractor has
a cause of action against the homeowner.
Note in this example, the subcontractorwas a creditor of the contractor, but
an intended third-party beneficiary canalso be the intended recipient of a gift.
In that case, the third party wouldbe called a "donee beneficiary".
(03:25):
Now let's change the facts a little.
Let's say the contractor doesn'towe the subcontractor anything.
The contractor enters intothe same agreement with the
homeowner, and later enters intoa contract with the subcontractor
to complete some of the work.
The subcontractor is an incidentalbeneficiary of the contractor's
contract with homeowner.
While the subcontractor clearlybenefits from that contract, its purpose
(03:50):
was not to benefit subcontractor.
If the homeowner breaches theagreement with contractor, the
subcontractor will not have acause of action against homeowner.
There's just one additionalrequirement for an intended third-party
beneficiary to be able to enforce theirrights, and that's the requirement
that the rights have vested.
Rights vest when a third-partybeneficiary, a) manifests assent to
(04:15):
the promise under the contract at therequest of a contracting party; b) has
detrimentally relied on the contract; orc) brings suit to enforce the contract.
Once rights have vested, a contractcannot be changed or modified
without the third-party's consent.
In the case of a doneebeneficiary, a claim may only
(04:35):
be brought against the promisor.
When the third party is a creditor,however, a suit may also be
brought against the promisee.
Okay, that's it for our rules.
Let's take a closer look at how they applyby working through a larger fact pattern:
"Annie and Bob operate neighboringbusinesses in a shopping center.
The businesses have identicalstorefronts with large windows
(04:57):
of equal size and quality.
Annie and Bob have maintained theirstorefronts for many years and the
windows are cracked, chipped, and dirty.
Carl w,ho operates another business inthe shopping center, has complained to
both Annie and Bob that the conditionof their storefronts reduces the number
of visitors to the shopping center.
(05:18):
Last month, Annie entered into avalid contract with Wally, a window
installer, pursuant to which Wallyagreed to replace the windows in
Annie's storefront and Annie agreedto pay Wally $5,000 upon completion.
This was a bargain for Annie,because the other quotes she
received were more than $8,000.
The next day, Annie mentionedthe great deal she got to Bob.
(05:41):
Bob told Annie that he wanted tohave a big event at the store,
but was putting it off because ofthe condition of his storefront.
He said that he would have replacedhis windows, but he couldn't
afford the going rate for the work.
Annie then suggested an arrangementthat could benefit them both.
She said that for $1,000,she would transfer her rights
(06:01):
under the contract to Bob.
She said, 'You'll give me $1,000and take over the contract.
Wally will replace yourwindows instead of mine.
And when he's finished, you willpay him the $5,000.' Bob agreed to
the deal and paid Annie the $1,000.
The next day, Bob saw Carl andtold him about his plans to
(06:22):
replace the windows in his store.
Carl responded that it was 'reallygoing to improve business around here'.
Later that day, Annie and Bobtold Wally about their deal.
Wally was upset with the newarrangement and said that he would not
do any work that he didn't agree to.
Annie didn't want to upset Wallyand wondered if she could just
back out of her deal with Bob.
(06:44):
There is no difference in the scope ordifficulty between the work required
to replace Annie's windows and thework required to replace Bob's windows.
1. Can Annie back out ofher agreement with Bob?
2. If Wally refuses to replace Bob'swindows, would Bob succeed in a breach
of contract action against Wally?
(07:04):
3. Assuming that Bob would succeedin the breach of contract action
against Wally, would Carl succeedin a breach of contract action?
4. If Wally replaces Bob's windowsand Bob does not pay the $5,000
contract price, would Wally succeedin a contract claim against Bob?
Would he succeed in acontract claim against Annie?
(07:26):
Alright let's take each question in turn.
The first question asks whether Anniecan back out of her agreement with Bob,
so the first thing we need to figureout is the nature of that agreement.
We know that Annie has a pre-existingcontract with Wally that requires her to
pay Wally $5,000 to replace her windows.
Her agreement with Bob transfers toBob both her right to performance
(07:50):
from Wally - which is the windowinstallation, and her duty of performance
which is her payment of $5,000.
Accordingly, Annie's agreement withBob is an assignment and delegation
of her contract with Wally.
Now we can figure out whether Anniecan back out of the assignment.
Our rules tell us that the keyquestion is whether there was
(08:12):
consideration for the assignment.
If there was no consideration,the assignment is revokable.
If there was consideration,the assignment is irrevocable.
Here, we're told that Bob paidAnnie $1,000 in exchange for
her assigning him the contract.
Therefore, there was consideration forthe assignment and Annie cannot revoke it.
(08:32):
Let's move on to the second question,which asks whether Bob would succeed in a
breach of contract claim against Wally ifWally refuses to replace Bob's windows.
There is no reason to believe thatthe assignment is prohibited by law
or public policy, nor would it beprecluded by Annie's contract with Wally.
So the only issue is whether theassignment materially alters what
(08:55):
is expected under the contract.
There is no reason toconclude that it does.
We're told that Annie and Bobhave neighboring storefronts
that are identical, with windowsof equal size and quality.
We're also specifically told thereis no difference in the scope or
difficulty between the work requiredto replace Annie's windows and the
work required to replace Bob's windows.
(09:16):
In other words, there's no changeto the duty owed by Wally or any
increase in the burden or risk to him.
Wally would be doing the exact samework, just for a neighboring business.
Moreover, there's no indication that theassignment would materially impair Wally's
chance of obtaining return performance- the agreed $5,000 payment, or materially
(09:37):
reduce the value of the contract to him.
Finally, we know from our rules thatan assignee may sue an obligor for
non-performance, and there does not appearto be any defenses to enforcement that
Wally could have asserted against Annie.
Therefore, Bob is likely to succeed in abreach of contract claim against Wally.
(09:57):
Let's move on to the third question,which asks whether Carl would succeed in
a breach of contract action against Wally.
We know that Carl is not a party toany of the agreements here, so any
claim would have to be based on hisstatus as a third-party beneficiary.
We also know from our rules that onlyintended third-party beneficiaries
(10:18):
have rights under a contract.
So the issue here is whether Carl isan intended third-party beneficiary.
We know that Carl complained toAnnie and Bob about the condition
of their storefronts, and seems tobelieve that the shopping center
would receive more visitors ifthey would make some improvements.
So, it's fair to assume thatCarl would benefit from Wally's
(10:38):
performance to some degree.
That benefit, however, is merelyincidental to Annie's contract with Wally.
In entering into the contract,it was neither Annie's nor
Wally's intent to benefit Carl.
Therefore, Carl will not succeedin a claim against Wally.
Now for our last question, which askswhether Wally could succeed in a claim
(10:59):
against Bob or Annie if he were to replaceBob's windows and not receive payment.
As we noted earlier, the agreementbetween Annie and Bob was not only an
assignment to Bob of Annie's rightsagainst Wally, but also a delegation
to Bob of Annie's obligation to Wally.
Moreover, we know from our rulesthat an obligor remains liable for
(11:21):
non-performance of the contract,unless all the parties agree otherwise.
With respect to the duty to pay Wally,Annie is the obligor, and there is
no indication that all the partiesagreed to release her from liability.
Therefore, if Bob doesn't payWally, Wally would likely succeed
in a breach of contract claimagainst either Bob or Annie.
(11:42):
And with that, we've completedour exploration of third-party
rights in contracts.
We've covered assignments, delegations,and third-party beneficiaries,
and we've seen how these conceptsapply in real-world scenarios.
These topics are crucial forsuccess on your exams and in
your future legal practice.
Remember, the key is to identifythe type of third-party right
(12:05):
at issue, and then apply thespecific rules we have discussed.
Let's quickly recap the mainpoints from our two-part series:
1. Assignments involve the transferof contractual rights, while
delegations involve the transferof contractual obligations.
2. Not all rights can be assigned,and not all duties can be delegated.
(12:26):
There are specific rules andexceptions to keep in mind.
3. Third-party beneficiaries can beeither intended or incidental, and
only intended beneficiaries haveenforceable rights under the contract.
4. When analyzing these issues, payclose attention to the relationships
between the parties and thespecific terms of their agreements.
(12:48):
We hope you found this two-partseries helpful in understanding
these complex but important concepts.
Remember, practice is key tomastering these topics for any exam.
Try applying these rules to different factpatterns to solidify your understanding.
If you enjoyed this episode of theLaw School Toolbox podcast, please
take a second to leave a review andrating on your favorite listening app.
(13:10):
We'd really appreciate it.
And be sure to subscribeso you don't miss anything.
And if you have any questions orcomments, please don't hesitate
to reach out to myself or Alisonat lee@lawschooltoolbox.com or
alison@lawschooltoolbox.com.
Or you could always contactus via our website contact
form at LawSchoolToolbox.com.
Thanks for listening, and we'll talk soon!
Welcome back to the Law School Toolbox podcast.
This is Part 2 of our explorationof third-party rights in contracts.
Did you miss Part 1?
We will link to it in the show notes.
Your Law School Toolbox hosts are AlisonMonahan and Lee Burgess, that's me.
We're here to demystify the lawschool and early legal career
experience, so you'll be the bestlaw student and lawyer you can be.
(00:23):
We're the co-creators of the Law SchoolToolbox, the Bar Exam Toolbox, and the
career-related website CareerDicta.
Alison also runs TheGirl's Guide to Law School.
If you enjoy the show, pleaseleave a review or rating on
your favorite listening app.
And if you have any questions,don't hesitate to reach out to us.
You can reach us via the contactform on LawSchoolToolbox.com,
and we'd love to hear from you.
And with that, let's get started.
(00:50):
Welcome back to the"Listen and Learn" series.
This is Part 2 of our explorationof third-party rights in contracts.
Did you miss Part 1?
We will link to it in the show notes.
In our previous episode, we coveredassignments and delegations - how
parties to a contract can transfertheir rights or obligations to others.
Today, we're going to complete ourdiscussion by diving into third-party
(01:13):
beneficiaries and applying all theseconcepts to some practical scenarios.
So let's start with a quick recap.
Remember, an assignment is the transfer ofa contractual right, while a delegation is
the transfer of a contractual obligation.
Both have specific rules governing whenthey're valid and how they operate.
Now let's move on to our new materialfor today - third-party beneficiaries.
(01:37):
Generally, a party who is not inprivity of contract with another
party, cannot assert a claimfor breach against that party.
However, when the party assertingthe claim is an intended third-party
beneficiary, the party has the samerights as those in privity of contract
and can assert a claim for breach.
An intended third-party beneficiaryis not a party to the contract,
(02:00):
but has rights under the contract,because the contracting parties
contemplated that their respectiveperformances were intended to
benefit an identified third party.
In contrast, an incidental beneficiaryis a person that just happens to benefit
from the contract, but has no legalrights, because the purpose of the
(02:21):
contract was not intended to benefit them.
An incidental beneficiary hasno rights under the contract.
To illustrate, let's say that acontractor owes a subcontractor
$10,000 for prior work.
The contractor enters into an agreementwith a homeowner to renovate their
home for $10,000, with the expressprovision that the homeowner pay the
(02:42):
$10,000 directly to the subcontractor.
The subcontractor is an intendedbeneficiary of the contract,
because the homeowner's payment ofthe $10,000 is expressly intended
to benefit the subcontractor.
In other words, the purpose ofthe agreement is to satisfy the
contractor's debt to the subcontractor.
(03:02):
Therefore, if the homeowner refuses to paythe subcontractor, the subcontractor has
a cause of action against the homeowner.
Note in this example, the subcontractorwas a creditor of the contractor, but
an intended third-party beneficiary canalso be the intended recipient of a gift.
In that case, the third party wouldbe called a "donee beneficiary".
(03:25):
Now let's change the facts a little.
Let's say the contractor doesn'towe the subcontractor anything.
The contractor enters intothe same agreement with the
homeowner, and later enters intoa contract with the subcontractor
to complete some of the work.
The subcontractor is an incidentalbeneficiary of the contractor's
contract with homeowner.
While the subcontractor clearlybenefits from that contract, its purpose
(03:50):
was not to benefit subcontractor.
If the homeowner breaches theagreement with contractor, the
subcontractor will not have acause of action against homeowner.
There's just one additionalrequirement for an intended third-party
beneficiary to be able to enforce theirrights, and that's the requirement
that the rights have vested.
Rights vest when a third-partybeneficiary, a) manifests assent to
(04:15):
the promise under the contract at therequest of a contracting party; b) has
detrimentally relied on the contract; orc) brings suit to enforce the contract.
Once rights have vested, a contractcannot be changed or modified
without the third-party's consent.
In the case of a doneebeneficiary, a claim may only
(04:35):
be brought against the promisor.
When the third party is a creditor,however, a suit may also be
brought against the promisee.
Okay, that's it for our rules.
Let's take a closer look at how they applyby working through a larger fact pattern:
"Annie and Bob operate neighboringbusinesses in a shopping center.
The businesses have identicalstorefronts with large windows
(04:57):
of equal size and quality.
Annie and Bob have maintained theirstorefronts for many years and the
windows are cracked, chipped, and dirty.
Carl w,ho operates another business inthe shopping center, has complained to
both Annie and Bob that the conditionof their storefronts reduces the number
of visitors to the shopping center.
(05:18):
Last month, Annie entered into avalid contract with Wally, a window
installer, pursuant to which Wallyagreed to replace the windows in
Annie's storefront and Annie agreedto pay Wally $5,000 upon completion.
This was a bargain for Annie,because the other quotes she
received were more than $8,000.
The next day, Annie mentionedthe great deal she got to Bob.
(05:41):
Bob told Annie that he wanted tohave a big event at the store,
but was putting it off because ofthe condition of his storefront.
He said that he would have replacedhis windows, but he couldn't
afford the going rate for the work.
Annie then suggested an arrangementthat could benefit them both.
She said that for $1,000,she would transfer her rights
(06:01):
under the contract to Bob.
She said, 'You'll give me $1,000and take over the contract.
Wally will replace yourwindows instead of mine.
And when he's finished, you willpay him the $5,000.' Bob agreed to
the deal and paid Annie the $1,000.
The next day, Bob saw Carl andtold him about his plans to
(06:22):
replace the windows in his store.
Carl responded that it was 'reallygoing to improve business around here'.
Later that day, Annie and Bobtold Wally about their deal.
Wally was upset with the newarrangement and said that he would not
do any work that he didn't agree to.
Annie didn't want to upset Wallyand wondered if she could just
back out of her deal with Bob.
(06:44):
There is no difference in the scope ordifficulty between the work required
to replace Annie's windows and thework required to replace Bob's windows.
1. Can Annie back out ofher agreement with Bob?
2. If Wally refuses to replace Bob'swindows, would Bob succeed in a breach
of contract action against Wally?
(07:04):
3. Assuming that Bob would succeedin the breach of contract action
against Wally, would Carl succeedin a breach of contract action?
4. If Wally replaces Bob's windowsand Bob does not pay the $5,000
contract price, would Wally succeedin a contract claim against Bob?
Would he succeed in acontract claim against Annie?
(07:26):
Alright let's take each question in turn.
The first question asks whether Anniecan back out of her agreement with Bob,
so the first thing we need to figureout is the nature of that agreement.
We know that Annie has a pre-existingcontract with Wally that requires her to
pay Wally $5,000 to replace her windows.
Her agreement with Bob transfers toBob both her right to performance
(07:50):
from Wally - which is the windowinstallation, and her duty of performance
which is her payment of $5,000.
Accordingly, Annie's agreement withBob is an assignment and delegation
of her contract with Wally.
Now we can figure out whether Anniecan back out of the assignment.
Our rules tell us that the keyquestion is whether there was
(08:12):
consideration for the assignment.
If there was no consideration,the assignment is revokable.
If there was consideration,the assignment is irrevocable.
Here, we're told that Bob paidAnnie $1,000 in exchange for
her assigning him the contract.
Therefore, there was consideration forthe assignment and Annie cannot revoke it.
(08:32):
Let's move on to the second question,which asks whether Bob would succeed in a
breach of contract claim against Wally ifWally refuses to replace Bob's windows.
There is no reason to believe thatthe assignment is prohibited by law
or public policy, nor would it beprecluded by Annie's contract with Wally.
So the only issue is whether theassignment materially alters what
(08:55):
is expected under the contract.
There is no reason toconclude that it does.
We're told that Annie and Bobhave neighboring storefronts
that are identical, with windowsof equal size and quality.
We're also specifically told thereis no difference in the scope or
difficulty between the work requiredto replace Annie's windows and the
work required to replace Bob's windows.
(09:16):
In other words, there's no changeto the duty owed by Wally or any
increase in the burden or risk to him.
Wally would be doing the exact samework, just for a neighboring business.
Moreover, there's no indication that theassignment would materially impair Wally's
chance of obtaining return performance- the agreed $5,000 payment, or materially
(09:37):
reduce the value of the contract to him.
Finally, we know from our rules thatan assignee may sue an obligor for
non-performance, and there does not appearto be any defenses to enforcement that
Wally could have asserted against Annie.
Therefore, Bob is likely to succeed in abreach of contract claim against Wally.
(09:57):
Let's move on to the third question,which asks whether Carl would succeed in
a breach of contract action against Wally.
We know that Carl is not a party toany of the agreements here, so any
claim would have to be based on hisstatus as a third-party beneficiary.
We also know from our rules that onlyintended third-party beneficiaries
(10:18):
have rights under a contract.
So the issue here is whether Carl isan intended third-party beneficiary.
We know that Carl complained toAnnie and Bob about the condition
of their storefronts, and seems tobelieve that the shopping center
would receive more visitors ifthey would make some improvements.
So, it's fair to assume thatCarl would benefit from Wally's
(10:38):
performance to some degree.
That benefit, however, is merelyincidental to Annie's contract with Wally.
In entering into the contract,it was neither Annie's nor
Wally's intent to benefit Carl.
Therefore, Carl will not succeedin a claim against Wally.
Now for our last question, which askswhether Wally could succeed in a claim
(10:59):
against Bob or Annie if he were to replaceBob's windows and not receive payment.
As we noted earlier, the agreementbetween Annie and Bob was not only an
assignment to Bob of Annie's rightsagainst Wally, but also a delegation
to Bob of Annie's obligation to Wally.
Moreover, we know from our rulesthat an obligor remains liable for
(11:21):
non-performance of the contract,unless all the parties agree otherwise.
With respect to the duty to pay Wally,Annie is the obligor, and there is
no indication that all the partiesagreed to release her from liability.
Therefore, if Bob doesn't payWally, Wally would likely succeed
in a breach of contract claimagainst either Bob or Annie.
(11:42):
And with that, we've completedour exploration of third-party
rights in contracts.
We've covered assignments, delegations,and third-party beneficiaries,
and we've seen how these conceptsapply in real-world scenarios.
These topics are crucial forsuccess on your exams and in
your future legal practice.
Remember, the key is to identifythe type of third-party right
(12:05):
at issue, and then apply thespecific rules we have discussed.
Let's quickly recap the mainpoints from our two-part series:
1. Assignments involve the transferof contractual rights, while
delegations involve the transferof contractual obligations.
2. Not all rights can be assigned,and not all duties can be delegated.
(12:26):
There are specific rules andexceptions to keep in mind.
3. Third-party beneficiaries can beeither intended or incidental, and
only intended beneficiaries haveenforceable rights under the contract.
4. When analyzing these issues, payclose attention to the relationships
between the parties and thespecific terms of their agreements.
(12:48):
We hope you found this two-partseries helpful in understanding
these complex but important concepts.
Remember, practice is key tomastering these topics for any exam.
Try applying these rules to different factpatterns to solidify your understanding.
If you enjoyed this episode of theLaw School Toolbox podcast, please
take a second to leave a review andrating on your favorite listening app.
(13:10):
We'd really appreciate it.
And be sure to subscribeso you don't miss anything.
And if you have any questions orcomments, please don't hesitate
to reach out to myself or Alisonat lee@lawschooltoolbox.com or
alison@lawschooltoolbox.com.
Or you could always contactus via our website contact
form at LawSchoolToolbox.com.
Thanks for listening, and we'll talk soon!
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