Which statement correctly distinguishes intended beneficiaries and incidental beneficiaries in contract law?

Study for the MBE Critical Pass Test. Enhance your knowledge with flashcards and multiple choice questions. Prepare thoroughly for your exam with detailed hints and explanations.

The key idea is who the contract is meant to benefit and who has enforceable rights when the contract is breached. An intended beneficiary is someone the contract was specifically designed to help. Because the promisee and promisor agreed to confer a direct benefit on that person, the law gives the intended beneficiary the right to sue the promisor if the contract isn’t performed. For example, if a life insurance policy pays a named beneficiary, that person can enforce the contract against the insurer.

An incidental beneficiary, on the other hand, benefits only as a side effect of the contract. The agreement wasn’t made for their direct benefit, so they don’t have standing to sue the promisor for breach. They’re not in privity with the promisor in a way that creates enforceable rights.

Historically, the privity rule limited enforcement to the immediate parties, but the concept of intended third-party beneficiaries allows those with a direct contractual benefit to enforce, while incidental beneficiaries remain outside that right. This distinction—intended beneficiaries can enforce; incidental beneficiaries cannot—is what the correct statement captures.