Third-party beneficiaries - Next Generation Bar Exam

1. When may a member of the public enforce a government contract as a beneficiary?

   Only when the contract shows an intent to make the promisor liable to members of the public. Absent such intent, members of the public are generally incidental beneficiaries.

2. What right does a creditor beneficiary retain against the promisee?

   The right to enforce the promisee's original obligation. The beneficiary may sue the promisor, the promisee, or both, but may recover only once.

3. What effect does a term reserving the right to change the beneficiary have on vesting?

   The parties may change the beneficiary even after events that would otherwise vest the rights. Life insurance policies commonly reserve this right.

4. Before an intended beneficiary's rights vest, what may the original parties do?

   Modify or rescind the contract without the beneficiary's consent. After vesting, a modification affecting the beneficiary requires its consent unless the contract reserves the power.

5. Which third-party beneficiaries may enforce a contract?

   Only intended beneficiaries. Incidental beneficiaries, who merely benefit from performance, have no enforceable rights.

6. An insured names her son as beneficiary of a life insurance policy. What is the son's status?

   An intended (donee) beneficiary who may enforce the policy. The insured purchased the policy specifically to benefit the son.

7. Which defenses may a promisor raise against an intended beneficiary?

   Any defense arising from the contract that it could raise against the promisee. The beneficiary's rights derive from the contract, so they are subject to the contract's limitations.

8. Under the Restatement (Second), when is a beneficiary an intended beneficiary?

   When recognizing its right fits the parties' intent and the promisee means to benefit it or pay a debt owed to it. Courts look to the contract's language and surrounding circumstances to identify that intent.

9. A city contracts for construction of a new road, and a nearby shop owner expects higher sales. What is the shop owner's status?

   An incidental beneficiary with no right to enforce the contract. The contracting parties did not intend to confer an enforceable benefit on the shop owner.

10. When do an intended beneficiary's rights vest?

    When it assents at the parties' request, sues on the promise, or materially changes position in justifiable reliance. Vesting protects the beneficiary against later changes by the contracting parties.

11. Which two kinds of intended beneficiaries did the first Restatement recognize?

    Creditor beneficiaries and donee beneficiaries. The Restatement (Second) merges both into the single category of intended beneficiaries.

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