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What is a Third Party Beneficiary?

Typically, only parties who make a contract have the legal right to go to court and enforce it. The contract agreement creates private law binding both parties and either of the parties who signed the contract can pursue a claim for damages if a breach occurs.  Others who may be affected by the contract do not necessarily have the right to go to court if the agreement is not kept.

There is, however, an exception to the general rule that only parties to a contract can make a claim in the event of a breach. A third party beneficiary can also file a lawsuit if the agreement is not followed. A California Business lawyer can provide more information on when a third party beneficiary has rights created by a contract and can represent those who are third party beneficiaries and who need help going to court to protect their interests. Contact Brown & Charbonneau, LLP today to learn more.

What are Third Party Beneficiaries?

Traditional contract rules required privity of contract in order for someone to have standing to file a lawsuit based on nonperformance of an agreement. Essentially, this meant that contracts created rights, obligations and liabilities only in the parties who negotiated and signed the contract.  This changed over time, however, because there were many situations in which third parties were relying on contracts that involved them and getting hurt as a result of nonperformance.

Third party beneficiaries exist only when a contract is created for the benefit of someone who is not an active party to that agreement. A person who merely gets an incidental benefit from a contract is not a third party beneficiary because the contract was not created with this individual in mind.  For a third party beneficiary to have rights:

  • A valid contract must exist between two other people or entities.
  • The people who created the agreement must have specifically intended to confer a benefit on the third party and this intent must be expressed or implied. A third party simply having an interest in the contract is not enough.
  • The third party beneficiary must be referred to or named in the contract and the intent to provide a benefit to this third party must be irrevocable.
  • The third party must be somehow made aware the contract exists.

A third party beneficiary does not always have the right to sue any time a contract is created that is intended to benefit him.  His or her right right to take legal action based on the contract vests when he relies upon or assents to the relationship that is created in the agreement.  When this occurs, the third party can sue either of the individuals or entities who made the initial agreement and failed to live up to it.

To learn more about third party beneficiaries and their rights under contract law, or for help making a claim after a contract breach, contact Brown & Charbonneau, LLP today to speak with our business and contracts lawyers at 714-505-3000 or online to schedule an appointment.