Legal Memorandum: Incidental Beneficiary of a Contract

Issue: Under the laws of the state of Michigan, may an incidental beneficiary under a contract seek payment from the primary contracting parties where his or her own principal fails to provide payment?

Area of Law: Business Organizations & Contracts
Keywords: Contract; Incidental beneficiary; Payment from primary contract parties
Jurisdiction: Michigan
Cited Cases: None
Cited Statutes: None
Date: 02/01/2001

"Not everyone who benefits in some way from a contract can be considered a third-party beneficiary" under Michigan law.  Taggart v United States, 880 F2d 867, 869 (CA 6, 1989).  This occurs where a party is just an incidental beneficiary of the contractual relationship between its principal and the defendant.  So long as such an agreement lasts, the plaintiff incidentally benefits because the defendant pays the plaintiff’s principal, and plaintiff’s principal used its earnings to pay the plaintiff for services rendered to it in performance of its obligations to defendants.  Compare Koppers Co v Garling & Langlois, 594 F2d 1094 (CA 6, 1979) (subcontractors did not establish third-party beneficiary status by showing that "they were more likely to get paid and thereby stood to benefit if the owner faithfully performed the trust").  But receipt of incidental benefits under a contract by itself is not enough to support third-party beneficiary status.  Downriver Internists v Harris Corp, 929 F2d 1147, 1151 (CA 6, 1991); see also Kammer Asphalt Paving Co v East China Twp Schools, 443 Mich 176; 504 NW2d 635, 642 (1993) (subcontractor was merely an incidental beneficiary of a contract between a school district and a general contractor requiring the latter to obtain surety bonds); Seargeant v Commerce Loan & Inv Co, 77 Ariz 299; 270 P2d 1086, 1089 (1954) (lender which allowed car dealer a line of credit for the purchase of cars did not thereby create third-party beneficiary status for all sellers of cars […]

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