1. Who Is a Third Party?
2. Third Party Rights

A 3rd party definition can be any person or legal entity that is not directly involved in the execution of a legal agreement, but may be indirectly involved in a number of different ways.

Who Is a Third Party?

A third party can be an individual or legal entity that is not directly involved in the execution of a legal agreement. However, they can be indirectly involved in a number of ways. In a nutshell, a third party is usually a person or firm that is hired from the outside to provide advice from an outsider's perspective when business leaders are having a hard time deciding how to handle certain situations. 

When you're facing difficulties making these important decisions, it can be helpful to bring in assistance in the form of a third party. In some cases, a company may choose to bring in a third party contractor to complete some work, due to the fact that they're working on a temporary basis. This removes the burden of paying benefits to the contracted workers from the company's shoulders.

In simple terms, a third party is involved, in one way or another, in an interaction that primarily happens between two other legal entities. Generally speaking, a contract will commonly involve two parties:

  • The first party
  • The second party

However, when another person or entity is brought into the picture, to consult or provide some sort of service in support of the contract, the involved parties now include the following:

  • The first party
  • The second party
  • The third party

The third party acts in some way to further the contract but is not directly involved in the contract itself. For example, say a software company creates a mobile app, the contract in this scenario is between the software company and the people that use the app. If you're viewing things from the company's point of view, they are the first party and the user is considered the second party. However, if you switch roles and view things as the end user, you become the first party and the company becomes the second party.

In this scenario, a marketing company that has been contracted to advertise the app may be considered a third party.

Third Party Rights

Third party rights were originally introduced in 1999 in an effort to protect the third party's interests when they become involved in a contract. The Rights of the Third Party Act offers protection for third party members who are not directly involved in the contract terms. 

This act also provides third parties with the right to enforce contracts even if they're not directly involved in the contract's execution due to the fact that they are considered to be indirectly involved in the contract. The act outlines the specific circumstances under which third parties have the right to enforce contracts that they may be directly or indirectly involved in. It also determines the scenarios in which contracts can be dissolved or withdrawn.

Also detailed in the Rights of the Third Party Act are the defensive rights that are available to the other two parties involved in the contract in the event that a third party chooses to contest the contract in question. The rights that a third party can claim can be broken down into distinct categories related to:  

  • The conditions under which the rights will vest  
  • Variations of the third party's rights  
  • Defenses against these rights, if any  
  • Exceptions to these rights

The Rights of the Third Party Act also provides certain conditions that allow a third party to contest an existing contract. If the third party is named as an intended beneficiary within the terms of the contract, they have immediate access to their rights to contest the contract. For the third party to be considered an intended beneficiary, however, they must meet two specific requirements:

  • They must be able to show that their direct involvement as a beneficiary will have a direct impact on the involved parties.
  • They must be able to demonstrate that the contract's performance will have a major impact on services or financial assets that the beneficiary may receive.

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