Waters, The Property in the Promise: A Study of the Third Party Beneficiary Rule. 98 Harv. L. Rev. 1109, 1192-1199 (1985) | Kessler, Gilmore & Kronman | November 01, 2012


This is the old version of the H2O platform and is now read-only. This means you can view content but cannot create content. You can access the new platform at https://opencasebook.org. Thank you. Waters, The Property in the Promise: A Study of the Third Party Beneficiary Rule. 98 Harv. L. Rev. 1109, 1192-1199 (1985)

by Kessler, Gilmore & Kronman

WATERS, THE PROPERTY IN THE PROMISE: A STUDY OF THE THIRD PARTY BENEFICIARY RULE, 98 Harv. L. Rev. 1109, 1192-1199 (1985) (footnotes have been omitted): "During the past twenty years or so, the federal courts have recognized and developed a theory of constitutionally protected property that was first fully articulated by Charles Reich in his influential 1964 article, 'The New Property.' This 'new property' consists of governmentally created rights, typically the right to the tangible and intangible benefits of social welfare programs. Reich argued that such new property rights should be afforded procedural safeguards. Soon thereafter, the Supreme Court embraced the new property concept, according procedural due process protection to certain statutory entitlements.


"In the twenty years since Reich's article was published, much ink has been spilled in discussing the contours of the new property, but there seems to be general agreement among commentators about one thing: it has developed in an overtly teleological fashion. In this analysis, the first question a court asks, in one way or another, is whether the claimed right merits constitutional protection. If the court concludes that it does, it will articulate the right, as a means to this end — for the sake of the remedy, if you will — as a constitutionally protected property right.


"'New property' plainly has more to do with the broad set of values thought to be pertinent to constitutional adjudication than with the common law definition of property, particularly where intangible benefits are involved. This claim is borne out by the fact that when the Court has limited its recognition of 'new property,' it has done so by moving away from a broadly equitable property notion — a property right that is recognized because it ought to be — toward the more traditional common law property idea.


"Constitutionally protected rights to intangible property, many of which are not 'property rights' within the common law meaning of that term, are by now well established. Those that concern us here are the 'new property' rights created by the government for the benefit of particular groups — specifically, what have come to be called statutory entitlements. Where such rights are protected as 'property,' it is the statute that creates the property and the due process clause that protects it. Examples of statutory entitlements that have passed muster in the Supreme Court are welfare benefits, old-age benefits, federal civil service employment, and social security benefits.


". . . The origin of the rule that enables third party beneficiaries to secure compliance with federal statutes lies in quasi-contract, specifically, in the old common count for 'money had and received for and to the use of the plaintiff.' Yet this action was not precisely a property claim. A plaintiff stating a claim for money had and received did not, for example, have to identify specific funds, but the defendant's right to act other than as trustee of the money would defeat the claim. The courts permitted all manner of 'tracing' when the money held had been mingled with other funds and identification of the specific property had become impossible. In holding that an action for money had and received is not defeated by 'incidental legal relationships' that arise when the money is passed from bank account to bank account, a modern English court described the claim as one 'of substance, founded in equity, which fastens upon the conscience of the recipient.' Professor Scott has explained the outcome in cases of this kind in terms of the plaintiff's having 'an equitable interest in the mingled fund.' On this analysis, what is involved is a kind of 'equitable property,' as distinct from the common law notion of property.


"The doctrinal innovation involved in Lawrence v. Fox was the substitution of the promise to pay money for the equitable property in the money itself. The rule of Lawrence v. Fox made the defendant a 'constructive trustee' of the benefit of the promise, extending the potential of the action considerably. So long as the promise remained a promise to pay money, this legal sleight of hand did not matter very much. But once courts developed a generalized right of 'intended beneficiaries' to enforce promises of all kinds, this type of 'equitable property' was enlarged enormously.


"This analysis of the role now being played by the third party beneficiary rule is supported not only by the history of the rule, but also by the nature of the rights it secures. Rights acquired by third party beneficiaries under contracts that are a part of statutory schemes of distribution and protection have a great deal in common with the kinds of rights the Supreme Court has held to be protected property under the due process clauses. This similarity is especially obvious with respect to intangible, 'new property' rights, which are not encompassed by traditional legal concepts of property.


"Setting aside for a moment the notion that the third party's right, thus created, is a 'contract right,' the right may be thought of in terms of its restitutionary, quasi-contractual origins. Quasi-contractual rights were dependent on the fiction of a promise 'implied by law' from the facts of the case facts such as the receipt of money by the defendant for and to the use of the plaintiff. If a federal agency pays a subsidy to a provider of low-income housing to be credited toward the rent of an identified tenant, the tenant could maintain an action for money had and received, were it available, against the recipient of the funds if they were not so applied and could certainly recover as an intended beneficiary of the contract under which funds were paid. Thus, where money earmarked for the plaintiff's use or credit is the object of the claim, the grievance is virtually identical to that involved in Lawrence v. Fox.


"The same analysis applies where an apartment house owner charges rents in excess of the maximum permitted under its mortgage agreement with the federal government, and the tenants sue for a refund. The plaintiffs' claim is rather straightforward: 'We want our money back!' But the response of the law can be rather sophisticated, offering several formally distinct avenues to the same remedy. That which most accurately describes the grievance is the action for money had and received, which is as straightforward and as primitive as the claim itself. But this simple tool from yesteryear has been mislaid in the process of doctrinal development; an action 'on the promise' or another 'on the statute' must be made to do the job.


"Turning from the particular case of money paid to the credit of an identified beneficiary to cases of federal funding contracts generally, we move away from something very much like the 'old property' idea toward something that more closely resembles the 'new property.' Indeed, that so many modern third party beneficiary cases are class actions — status-based actions that straddle the divide between public and private law by making a nominally private law claim on behalf of a class created by statute — emphasizes the similarity between these cases and those involving statutory entitlements considered property for due process purposes. . . .


"The third party beneficiary's right, then, is better understood, and more precisely classified, as a restitutionary right to intangible property — the benefit of a promise than as a contract action. This characterization is not limited to those cases in which the benefits being sought happen to resemble intangible benefits that have been constitutionally protected as property, but those cases do illustrate one point particularly well: there is sometimes a marked similarity between the kinds of rights constitutionally protected as property and those secured by the third party beneficiary rule that derives historically from a private law notion of equitable property. Given that both notions of property developed teleologically, one to protect due process values as they affect groups of citizens, the other for the more limited purpose of achieving 'justice as between man and man' in the form of restitution, it is not surprising that each should now address the same contemporary social concern over intangible property rights."


Annotated Text Information

June 02, 2014 Waters, The Property in the Promise: A Study of the Third Party Beneficiary Rule. 98 Harv. L. Rev. 1109, 1192-1199 (1985) Waters, The Property in the Promise: A Study of the Third Party Beneficiary Rule. 98 Harv. L. Rev. 1109, 1192-1199 (1985)

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