Contracts: Terminating Third-Party Beneficiary Rights

Certain third-party beneficiaries to a contract may sue for breach of contract. This is true even though they are not a signer to the contract. There are three types: donee, creditor, and incidental. Donee and creditor beneficiaries may sue as a third-party for breach of contract, but incidental beneficiaries cannot.

There are certain situations when the principal, contracting parties cannot vary the rights of a donee or creditor beneficiary. For example, the parties may be written agreement retain the rights to vary the third-party beneficiary. Lunceford v. Houghtlin, 326 S.W.3d 53, 78-79 (Mo. Ct. App. 2010). Independently, the power to terminate the third-party rights terminates if the beneficiary, before receipt of a discharge or modification, “materially changes his position in justifiable reliance on the contract.” Id.

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