Sisters of ST Joseph of Peace health, and hospital services v. Russell
Sisters of ST Joseph of Peace health, and hospital services v.
Russell -Nature of case: appeal from judgment granting insurer’s motion for directed verdict in action to recover cost of hospital care. -Fact summary: Sisters of St. Joseph of Peace, Health, and Hospital Services (P) sued Aetna (D) to recover payment for medical care provided to Russell (D) based on its right as a third-party beneficiary of an agreement between Aetna (D) and Russell (D). Concise rule of law: A creditor beneficiary may directly enforce a contractual promise intended for its benefit, even though it is a stranger to the contract. -Fact: Russell (D) was severely injured at work, and Sacred Heart General Hospital (P) provided medical treatment. Russell, uncertain who his employer was at the time of the injury, filed workers; compensation claims against each purported employer.
The four purported employers and their insurers, including Aetna (D), subsequently entered into a Disputed Claim Settelement (DCS) agreement with Russell (D).
The DCS agreement provided the certain sums and expenses would be the sole responsibility of Aetna (D), while Russell (D) would be responsible for his own temporary and permanent disability plus future medical expenses. The Hospital (P), then, brought sult to recover payment for Russell’s (D), medical care, claiming an implied-in-fact contract and account stated against Russell (D), and third party beneficiary status under the DCS agreement against Aetna (D). At the close of evidence, Aetna (D) made a motion for a directed verdict, which was denied.
The jury relieved Russell (D) of the claim against him, but rendered judgment against Aetna (D). Aetna (D) appealed, claiming it was error to deny its motion for directed verdict.
The court of appeal reversed. The hospital (P) appealed. -Issue: May a creditor beneficiary directly enforce a contractual promise intended for its benefit even though it is a stranger to the contract? -Holding and decision: (Graber. J) Yes. A creditor beneficiary may directly enforce a contractual promise intended for its benefit, even though it is a stranger to the contract.
For a third party to be considered a creditor beneficiary, the promisor’s performance due under the contract must be to satisfy an actual, supposed or asserted duaty that the promise owes to the third party. Moreover, a third party creditor beneficiary’s right to recover against the promisor is subject to any claim or defense arising from the beneficiary’s own conduct or agreement. Here, at the time the DCS agreement was signed, the Hospital (P) had given something of value to Russell (D) and was asserting that Russell (D) had a duty to pay for it.
Moreover, the DCS agreement contains a paragraph suggesting that the parties to the agreement recognized that Russell’s (D) medical expenses were in fact owed. Further, the agreement and the circumstances leading thereto suggest that the parties intended the Hospital (P) to receive payment.
As such, the jury had ample evidence to award judgment to the Hospital (P). Reversed. -Editor’s analysis: Generally, a third party’s right to enforce a contractual promise arises upon a finding that the contracting parties intended to create such rights.
As such, only intended beneficiaries are protected and can enforce promises. The law generally recognizes two categories of intended beneficiaries: donee beneficiaries and creditor beneficiaries.
However, another type of beneficiary exists. They are incidental beneficiaries. An incidental beneficiary is a third party who was not consciously considered by the parties and was not intended to be benefited by the contract. Such beneficiaries have no rights under the contract and may not sue to enforce it. (for more information on creditor beneficiaries see Casenote Law Outline on Contracts, Chapter 3. the status and right of a intended beneficiary) Intended and incidental beneficiaries (1) Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either.
(a) The performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary or (b) The circumstances indicate that the promisee intends to give beneficiary the benefit of the promised performance. 2) An incidental beneficiary is a beneficiary who is not an intended beneficiary. 2. Distinguishing Intended from incidental beneficiaries Study guide: you will recall that in Kelly health care, the hospital sought to recover from an insurance company as an assignee.
In the next case, a hospital asserts rights against an insurance company as a third party beneficiary of a settlement agreement between the insurance company and the patient. In addition, the court considers briefly one circumstance in which a promisor may assert a defense against a beneficiary.