What is a third party beneficiary?
The two main parties to a contract are the promisor and the promisee. The promisor makes a promise to the promisee who in return can offer a promise or some type of performance. For example, A promises to buy B a car if B goes to college. In this situation, A is the promisor and B is the promisee. The promisee typically gets the benefit of the promise made by the promisor; in this case, B would get the benefit of A buying a car for B. In some contracts however, the benefit of the promise made by the promisor can go to a third party.
A contract with a third party beneficiary is a contract where a third party gets the benefit of the promise made by the promisor instead of the benefit going to the promisee. If the promisee performs their obligation, then the promisor must also give the benefit of the promise to the third party. Using our previous example, let’s say that A promises to B that A will buy a car for C if B goes to college.
In this example, A is the promisor because A is the one making the promise. B is the promisee because B is the party that is contracting with A by accepting A’s promise. C is a third party beneficiary because C is receiving the benefit of the promise. In this case C will receive a car if B performs. In other words, if B goes to college, then A must buy C a car.
What happens if a promisor never gives the benefit to a promisee?
Third party beneficiaries have rights under a third party contract. As such, third party beneficiaries can bring an action against both the promisor and promisee (with exceptions). To learn more about Express Contract vs. Implied Contract, read our previous blog post below.
If you believe that you are a third party beneficiary and have questions about your rights, please contact us for assistance.
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