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 ius quaesitum tertio, arises when 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.

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

While the law on this subject varies, there is nonetheless a commonly accepted construction of third-party rights in the laws of most countries. A right of action arises only when it appears the object of the contract was to benefit the third party's interests and the third-party beneficiary has either relied on or accepted the benefit. A promisee nominates a third party usually for one of two reasons—either the promisee owes something to the third party and the performance of this new obligation will discharge it, or the promisee will somehow get a material benefit by giving something to the third party.

There are also two possible ways to explain the functioning of the contractual relationship: either,

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