The beneficiary must be identifiable with adequate certainty by the contract but need not be in existence at the time the contract is made.
The parties may well wish to make a contract in which the identity of the third party is not known at the time the contract is made, but a mechanism is provided by which it will become known by the time performance is due. This might be by providing that the parties, or one of them, can identify the beneficiary at a later date, or by choosing a definition of the beneficiary, of which later circumstances will serve to make the identity clear.
1. A, a married man with children but no grandchildren, makes a contract with the XYZ insurance company under which A pays GBP 10 a month to the insurance company and they promise to pay GBP 10,000 to each of his grandchildren on his death. Grandchildren born after the date of the contract but before A’s death are entitled to GBP 10,000.
2. Company A launches a takeover bid for company B, a public company the shares of which are traded on leading stock exchanges. B engages C, a leading firm of accountants, to prepare a report on B for distribution to shareholders. The contract between B and C requires C to produce an honest, thorough and competent report. Owing to incompetence C produces a report that is much too favourable to B. As a result the majority of shareholders vote to reject A’s offer. Some shareholders show copies of the report to friends who buy shares in B. The old shareholders can acquire rights under the contract between B and C but the new shareholders cannot.