Understanding Third-Party Beneficiaries in Contracts
Learn what a third-party beneficiary is and their rights in contract agreements.
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A third-party beneficiary is someone who, while not a direct party to a contract, benefits from the agreement made between two other parties. This means they have the right to enforce the contract if the agreement explicitly recognizes their benefit. For example, in a life insurance policy, the designated beneficiary is a third-party who can claim the insurance proceeds.
FAQs & Answers
- What is a third-party beneficiary in contract law? A third-party beneficiary is an individual or entity that benefits from a contract made between two other parties, even though they are not a direct part of that contract.
- Can a third-party beneficiary enforce a contract? Yes, a third-party beneficiary can enforce a contract if the contract explicitly states their right to do so.
- What is an example of a third-party beneficiary? A common example is a life insurance policy, where the designated beneficiary is a third party entitled to receive the insurance proceeds upon the policyholder's death.
- Are all beneficiaries considered third-party beneficiaries? Not necessarily. Only those beneficiaries recognized explicitly in the contract as having rights can be classified as third-party beneficiaries.