When one party fails to uphold their end of the bargain, it can impact others involved.
These others, often referred to as third parties, may have rights and duties affected by the breach of contract.
What are third-party rights?
Third-party rights in breach of contract cases refer to the rights of someone who is not directly involved in the contract. These rights can arise when the contract contains provisions that benefit or impose obligations on third parties. For instance, imagine that Party A promises to pay Party B for services rendered, and Party B then agrees to use part of that payment to purchase goods from Party C. Here, Party C becomes a third-party beneficiary with rights under the contract.
Intended third-party rights
When the parties of a contract specifically confer rights upon a third party are intended third-party rights. In our example, Party C is an intended third-party beneficiary because the contract between Party A and Party B was intended to benefit Party C.
Incidental third-party rights
These rights are not intended by the contracting parties but may still arise due to the circumstances of the contract. For example, if Party A’s failure to pay Party B causes Party B to default on their payment to Party C, then Party C may have incidental rights against Party A.
Duties of third parties
While third parties may have rights in breach of contract cases, they can also have duties based on their involvement in the contract. For example, if Party C is aware of the contract between Party A and Party B, they may have a duty not to interfere with the contract’s performance.
When a breach of contract occurs, affected third parties may have legal recourse to seek damages for losses the breach caused.
