A property owner enters into a written contract with a contractor to build a house. The contract specifies that the property owner's adult child will move into the house once it is completed, and the property owner informs the adult child of the arrangement. After the contractor begins construction, the property owner decides not to proceed with the project and terminates the contract with the contractor. The contractor agrees to the termination. The adult child sues the contractor for breach of contract, arguing that they were a third-party beneficiary. Who is most likely to prevail, and why?
The adult child will prevail because they were an intended third-party beneficiary of the contract.
The adult child will prevail because they had a vested right to enforce the contract as soon as they were notified of its existence.
The contractor will prevail because the child’s rights as a third-party beneficiary were extinguished when the property owner and contractor terminated the contract.
The contractor will prevail because the adult child was merely an incidental beneficiary and cannot enforce the contract.
The adult child is an intended beneficiary of the contract if the contracting parties (the property owner and contractor) intended to confer a direct benefit on them and if the contractual terms explicitly or implicitly show that the performance was for the child’s benefit. However, the termination of the contract between the property owner and the contractor before the house was completed eliminates any enforceable rights the child may have had as a third-party beneficiary. Incidental beneficiaries, or individuals who derive a benefit from a contract without intent by the parties to confer such a benefit, cannot enforce the contract. The child was likely more than an incidental beneficiary since the contract expressly contemplated their benefit, but their rights were extinguished when the contract was canceled by the contracting parties.
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