Third-Party Beneficiary

A third-party beneficiary contract arises when two parties enter an agreement to benefit the 3rd person.

Traditionally, the requirement of "privity" restricts the 3rd party from enforcing a contract where he is not a party.

The court eliminated the requirement for being in the contract by introducing a third-party beneficiary agreement.

Sometimes, the third party is not bound to any conditions in the contract and has independent rights in the deal. 

The recognition of third-party beneficiary rights can lead to certain problems. The 3rd party beneficiary law should allow equitable recovery without the enforcement rights where every party receives some benefits from the contract. 

• Secondly, it is important to preserve the original parties' rights to change the contract without nullifying the protection of 3rd party rights. 

• Earlier, the courts struggled to define and classify the basis for the third party.

• Later they found that such a beneficiary cannot be classified into the two, and to eliminate the confusion, the flexible term "intent to benefit" was added.

• Since the third party was not privy to the original parties, the court recognized its rights to maintain an action on a contract for its benefit.

• Some countries may use the term "intention" to justify decisions. 

Some of the terms/regulations are mentioned below -

Most of the early cases used in the background related to the beneficiaries of the insurance (or commodities insurance) contract, but earlier, they remained silent about the insured rights. Hence, the court stated the provision to prevent the insured from modifying the contract without the beneficiary's consent. 

The 3rd party was classified into Dones (the ones who received a gift promise) and creditors (those who received a promise to discharge the promisee's duty). 

Those who did not fall into any categories had no rights under the contract. 

The restatement structure was later modified as it could not provide a workable method to determine the rights of the 3rd party. 

The restatement Second features many conditions that allow recovery to Third-party beneficiaries (especially those who did not fit into the two categories). 

It introduced the "intent to benefit", which resolves many problems related to the initial approaches, and it also provided an appropriate opportunity to eliminate the automatic vesting provision applicable in the two categories. 

If the contract is silent, the power to modify terminates when the beneficiary materially changes his position. 

Many parties enter the third party contract with specific rights without giving the contract's primary purpose as the primary purpose will unnecessarily restrict the original parties' freedom of contract. 

Also, to benefit from such platforms, one should provide the basic reasons for the parties to enter the contract and recognize the third party's right to put in force the subjective intentions of both parties.