“Privity of Contract” is a principle of contract law where only the parties who have signed the contract can bring claims on it. An exception to this rule is where the contract involves a third party beneficiary.
What Is a Third Party Beneficiary?
A third party beneficiary is a person who is benefited by the contract even though he or she has not signed it and is not a party to it. The third party is not in “privity of contract” with the other parties.
When Can a Third Party Beneficiary Sue on a Contract?
Determining whether or not the third party beneficiary can sue depends on whether the party is an intended or an incidental beneficiary:
- Intended Beneficiary – where it is clear that the intent of the contracting parties directly and predominantly benefits a third party, that third party is an intended beneficiary and may be able to bring suit.
- Incidental Beneficiary – where a party is benefited as a result of the contract, but not because the contracting parties intended it, the party is an incidental beneficiary and has no enforceable rights under the contract.
Does the Intent to Benefit have to be Written in the Contract?
No, the intent to benefit does not necessarily have to be in writing in the contract. The intent to benefit the third party can be implied based on the language and nature of the contract. The intent does have to be clear, however.
Do I Need a Lawyer for Third Party Beneficiary Issues?
Contracts are a complicated area of law. A business attorney experienced in contract law can help you determine if someone is a third party beneficiary, and if so, whether that person is intended or incidental.