Third-party Beneficiary

Third-party Beneficiary

A third party beneficiary, in the law of contracts, is a person who may have the right to sue on a contract, despite not having originally been an active party to the contract. This right, known as a jus tertii, arises where the third party (tertius or alteri) is the intended beneficiary of the contract, as opposed to a mere incidental beneficiary (penitus extraneus). It vests when the third party relies on or assents to the relationship, and gives the third party the right to sue either the promisor (promittens, or performing party) or the promisee (stipulans, or anchor party) of the contract, depending on the circumstances under which the relationship was created. This principle is known as ius quaesitum tertio. A contract made in favor of a third party is known as a third-party beneficiary contract or simply third-party contract (stipulatio alteri), and any action to enforce a ius quaesitum tertio is known as a third party action.

Under traditional common law, the ius quaesitum tertio principle was not recognized, instead relying on the doctrine of privity of contract, which restricts the rights, obligations, and liabilities arising from a contract to the contracting parties (said to be privy to the contract). However, a number of allowances and exceptions for ius quaesitum tertio were introduced into English law with the Contracts (Rights of Third Parties) Act 1999. Other common-law countries are also making reforms in this area, though America is unique in abandoning privity early in the mid-19th century.

Read more about Third-party Beneficiary:  Ius Quaesitum Tertio, Intended Vs. Incidental Beneficiary, Vesting of Rights, Breach and Defenses, Rights That Accrue To The Promisee