Third-party beneficiaries — intended vs incidental

Restatement §302

The rule

Only an intended beneficiary may sue to enforce a contract; an incidental beneficiary has no rights. A beneficiary is intended if recognition of a right to performance is appropriate to effectuate the intention of the parties AND either (a) performance will satisfy an obligation of the promisee to pay money to the beneficiary (creditor beneficiary), OR (b) the promisee intends to give the beneficiary the benefit of the promised performance (donee beneficiary).

In plain English

When two parties contract, sometimes a third person benefits. That third person can sue only if the contracting parties meant to give them the benefit — not if they just happen to gain from performance. Once the beneficiary's rights vest (by learning of and assenting to, suing on, or materially relying on the contract), the original parties can no longer modify or rescind those rights without the beneficiary's consent.

The trap

Students conflate 'benefits from performance' with 'intended beneficiary.' The test is the parties' intent — construction-project subcontractors and neighbors whose property values rise are usually incidental.

How examiners test it

A promises B to pay C. C sues A. Ask: was C intended (creditor or donee) or merely incidental? If intended and rights have vested, C wins directly against A.

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