Question

Carlos wants to buy a new car for his daughter, Elise, as a college graduation present. He enters into a purchase contract with ABC Auto Sales, which specifies delivery of the car to Elise’s home. Carlos gives the dealer $15,000 as a down payment on the car, and signs financing documents on the car. Elise is not a party to the contract between her father and ABC Auto Sales. However, she hears that her dad is giving her a sparkly new car, so she sells her old car to a friend. On Elise’s birthday, the dealer fails to deliver the car, and when Carlos checks back, he discovers ABC never ordered the car in the first place.

What type of 3rd party is Elise and why?

Does Elise have a right to enforce the contract between Carlos and ABC Auto Sales? Why or why not?

Answer 1

• A third party beneficiary is a person who benefits from the contract which is made between two other parties.
• A third party beneficiary is not a direct party to contract, but benefits from the contract.
• Whether or not Elise can sue the car dealer for specific performance i.e. to force ABC Auto Sales to deliver the vehicle, depends on whether she knew about the benefit she was to receive from the contract, and also whether she relied on that belief.
• Since Elise had been informed about the car, and believing the gift was coming, she sold her old car, hence she becomes a third party beneficiary, with the right to enforce the contract against ABC Auto Sales.