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Legal Memorandum: Third-party Beneficiary of a Contract

Issue: Who is the third-party beneficiary of a contract?

Area of Law: Business Organizations & Contracts
Keywords: Contract; Third-party beneficiary; Direct benefit
Jurisdiction: Virgin Islands
Cited Cases: 583 A.2d 1378; 994 F. Supp. 634
Cited Statutes: Restatement (Second) of Contracts § 302
Date: 03/01/2007

A third-party beneficiary is a non-party to a contract that is made to benefit that non-party directly.  See Kmart Corp. v. Balfour Beatty, Inc., 994 F. Supp. 634, 38 V.I. 251 (D.V.I. 1998).  See also E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187 (3d Cir. 2001).  Under Restatement (Second) of Contracts § 302,[1] an intended third-party beneficiary must receive a direct benefit from the performance of the agreement.  .

In Rhone Poulenc, the Third Circuit Court of Appeals stated the test for determining third-party beneficiary status as follows:

[T]o qualify as a third party beneficiary of a contract, (a) the contracting parties must have intended that the third party beneficiary benefit from the contract, (b) the benefit must have been intended as a gift or in satisfaction of a pre-existing obligation to that person, and (c) the intent to benefit the third party must be a material part of the parties’ purpose in entering into the contract

269 F.3d at 196 (emphasis added) (citing Guardian Constr. Co. v. Tetra Tech Richardson, Inc., 583 A.2d 1378, 1386 (Del. Super. Ct. 1990)).  Delaware courts, like Virgin Islands courts, cite to and rely on the Restatement (Second) of Contracts in deciding third-party status.  See Guardian Constr. Co., 583 A.2d at 1387 (citing Restatement (Second) of Contracts § 311 to determine which types of third parties have legal rights to enforce a contract); see […]

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