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Third-Party Beneficiary

Definition - What does Third-Party Beneficiary mean?

A third-party beneficiary is a person who is not one of the two primary parties in a contract, but who stands to benefit from the contract anyway.

In the context of the law, third-party beneficiaries have the right to sue in the event of a breach of contract by one of the first two parties.

Justipedia explains Third-Party Beneficiary

The reason why third-party beneficiaries have a right to sue is because they stand to gain from the contract, and they stand to lose if the contract is breached. Furthermore, contracts involving third-party beneficiaries are often created primarily for the benefit of the third-party beneficiary.

For example, a woman may create a contract with a car dealer in which she agrees to pay $10,000 for a car to give to her son. In this case, the son would be the third-party beneficiary, and he would have the right to sue the car dealer if the car dealer failed to live up to the contract.

This definition was written in the context of Contract Law
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