Third Party contracts are sometimes difficult to understand for a lot of student

Question

Third Party contracts are sometimes difficult to understand for a lot of students. When thinking of Third party contracts look to the intent to benefit and who has a right to enforce the contract. For instance let's discuss this fact pattern: Nancy Neighbor's home is in serious disrepair and is diminishing the value of the neighborhood due to its poor condition. Nancy Neighbor pays a Peter Painter $10,000 to paint and repair her house, which is a fair price and market rate for a house of that size. Peter Painter defaults on the contract. Nancy Neighbor is unable to pay the cost of litigation for a suit against Peter Painter and does not bring an action against Peter. Suzy, a neighbor of Nancy Neighbor is outraged that the painting is not be completed and claims that she is harmed because the painting was not completed. If the house and repaired were painted she calculated that her house would increase in value to by $20,000. Suzy claims she has a right to sue Peter under this theory. Discuss

Explanation / Answer

A contract in which a party promises to give a certain performance not to the other party but to a third person is called a third-party beneficiary (the third person) contract. The third person is merely a beneficiary of the contract, not a party to it. The courts divide such contracts into two types: (1) intended beneficiary contracts and (2) incidental beneficiary contracts. An intended beneficiary is intended by the two parties to the contract to receive a benefit from the performance of their agreement. In such contracts, the beneficiary has right to enforce the contract. But for an incidental beneficiary contract, the third party is not intended to receive a benefit under the contract. Accordingly, courts do not enforce the third party's right to the benefits of the contract.

In this case, Suzy is an incidental third-party beneficiary to whom the parties (Nancy and Peter) did not intend a benefit but still, will nevertheless derive some benefit from contract's performance. She would have no rights under the contract, however, as the benefit to her would be unintended and incidental. Therefore, Suzy has no right to sue either Peter or Nancy.

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