Parties to a Contract: Promisor, Promisee & Beneficiary

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  • 0:05 Contract Party Roles…
  • 2:04 Third Party Beneficiaries
  • 4:25 Lesson Summary
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Lesson Transcript
Instructor: Kat Kadian-Baumeyer

Kat has a Master of Science in Organizational Leadership and Management and teaches Business courses.

There are at least two parties involved in a contract: the promisor, promisee and, sometimes, a third party beneficiary may be named. Each party has a different obligation to the contract terms. The beneficiary in a contract generally does not have the same level of responsibility for the contract's performance.

Contract Party Roles and Relationship

Whether it is buying or selling a home or checking into a hotel, most people will enter into a legally binding agreement with another party at some point in their lives. This legally binding agreement is known as a contract, and for a contract to be an enforceable instrument, it must contain an agreement between two parties, intent to fulfill its promises and consideration. Also, both parties must have capacity or mental ability, which means being free of mental illness.

A party to a contract is one who holds the obligations and receives the benefits of a legally binding agreement. When two parties enter into an agreement, there are two distinct roles each play: the promisor and the promisee. The promisor is the party that makes the promise, while the promisee is on the receiving end of the promise.

To put this into action, let's say Cathy Smith is planning a family reunion at a local park. Her first call is to High Hat Catering. Chef Fernando and Cathy carefully choose the culinary creations for the party. Once they agree on the tasty tidbits and the price, a contract will be formed. The contract will include the important details about the event, like the date, location and menu choice. But the information that creates a legally binding agreement includes:

  • Names of the parties
  • Price
  • A clause that expressly states agreement to the terms of the contract

Stated a different way, the agreement between Cathy and High Hat Catering must contain two or more parties, an offer, agreement and consideration. These elements obligate both parties to the terms and conditions. The elements also provide the agreed upon benefits, like food and payment.

The promisor and the promise are not the only parties who benefit from a contract. Sometimes there are intended and incidental parties. These third party-beneficiaries gain reward from the terms of a contract.

Third-Party Beneficiaries

Sometimes a contract benefits others who are not party to the agreement. These third-party beneficiaries receive benefits of a contract, while not owing any obligation. There are two types of third-party beneficiaries: intentional beneficiaries and incidental beneficiaries.

A person whose benefit is intended is called a intended beneficiary and receives benefits from a contract and is generally stated or named within the contract.

Let's re-visit Cathy Smith and her family reunion. Cathy wants to surprise her favorite aunt and matriarch of the family, Phoebe Jones, with a helicopter ride to the event. Cathy contacts Flying High Helicopter Tours to arrange for transportation for Phoebe from her local airport to the park where the event is being held. In the contract, Cathy and Flying High decide on a price, a time and the name of the passenger, Phoebe. Phoebe is the intended beneficiary of a contractual agreement between Cathy and Flying High. Even though Phoebe is not a party to the contract, she receives the benefit of the helicopter ride. Phoebe also possesses the right to sue for breach of contract or non-performance should Flying High forget to pick her up.

Similarly to an intended beneficiary, an incidental beneficiary benefits from a contract indirectly with the difference being intent. The incidental beneficiary benefits but cannot sue if the contract performance has not been met.

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