Third Party Beneficiary Law and Legal Definition

A third party is someone who has an enforceable right by reason of a contract made by two others, though he/she/it is not a party to the contract and gave no consideration. Third party beneficiaries may be found to exist if (1) he/she/it is a creditor of the promisee or some other person and the contract calls for a performance by the promisor in satisfaction of the obligation; or (2) the promised performance will be of pecuniary benefit to the third party and the contract is so expressed as to give the promisor reason to know that the promisee was motivated to enter the contract by an intention to confer such a benefit on the third party.

A third party beneficiary is an intended, and not just an incidental, beneficiary of a contract. If the intent to benefit a third party is not expressed in the contract, then intent may be shown using other evidence. The nature of the agreement, the identity of the alleged intended beneficiaries, and the specific duty said to have been created toward them are all factors for consideration. The beneficiary may recover if he or she can show that he or she is one of a class of persons for whose benefit the contract was made.

For example, one court has held that a third party is an intended third-party beneficiary of a contract, and thus is entitled to enforce the contract's terms, if

  1. The parties to the contract have not otherwise agreed;
  2. Recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties; and
  3. The terms of the contract or the circumstances surrounding performance indicate that either:
  1. the performance of the promise will satisfy an obligation or discharge a duty owed by the promisee to the beneficiary; or
  2. the promisee intends to give the beneficiary the benefit of the promised performance.