Legal Memorandum: Third-party Beneficiary in a Contract

Issue: Under the laws of the state of Michigan, what is required for a party to be determined to be a third-party beneficiary of another’s contract?

Third-party beneficiary contracts in Michigan are governed by statute, and Michigan’s legislature has deliberately adopted and maintained a restrictive approach.*FN1  The rule in Michigan is that third-party beneficiary status requires an express promise to act to an identifiable third- party beneficiary’s benefit.  Fishbach-Natkin, Inc v Shimizu Am Corp, 854 F Supp 1294, 1303 (ED Mich, 1994);  Dynamic Constr Co v Barton Malow Co, 214 Mich App 425; 543 NW2d 31, 33 (1995); Paul v Bogle, 193 Mich App 479; 484 NW2d 728, 735 (1992); Roulo v Automobile Club, 386 Mich 324; 192 NW2d 237, 240 (1971).  It is not enough for a stranger to the parties’ contract to receive some incidental benefit from its performance of one of the parties’ obligations. 

De minimis, under Michigan law an objectively ascertainable, direct promise to the benefit of a particular, identifiable third-party or parties is required to support third-party beneficiary status.  Taggart v United States, 880 F2d 867 (CA 6, 1989).  The court’s opinion in Downriver Internists v Harris Corp, 929 F2d 1147 (CA 6, 1991) illustrates the strict application of this rule:

[W]e find that the Center was barred from claiming third party beneficiary status from the HRI contract under Michigan law.  The relevant Michigan statute, M.C.L.A. § 600.1405, indicates that a party not privy to a contract can be such […]

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