1. Third Party Beneficiary
2. Intended Beneficiary

An intended beneficiary example is a person or legal entity that is explicitly named in a legal document, such as a contract, trust, or will, as the intended recipient of the benefits associated with execution of the agreement.

Third Party Beneficiary

Third party beneficiaries are people or legal entities that stand to benefit from the execution of a contract or legal agreement between two other people or entities. Every contract includes at least two basic types of parties:  

  • The promisor  
  • The promisee

Third party beneficiaries are not involved in the execution of a contract, but, if the contract in question is fulfilled, they can stand to benefit from its execution. In some situations, a third-party might have certain legal rights that they can exercise in order to enforce the execution of a contract or share in the benefits associated with it. If they can, for example, prove they are an intended beneficiary rather than an incidental beneficiary, they will have access to these rights.

According to the law of contracts, third-party beneficiaries have rights to sue on a contract, despite the fact that they were not involved in its formation or execution. This right comes into play when the third party beneficiary is named as the intended beneficiary in the contract, rather than an incidental beneficiary, and they rely on or agree to the contractual relationship, depending on the specific circumstances the agreement was made under.

If a parent chooses to purchase a car for their daughter, for example, and the dealership orders the car upon being notified of their agreement, the dealership has become a third-party beneficiary. If the parent then refuses to follow through on the purchase, the dealership has the right to pursue legal action for damages because they will experience a financial injury as a result of the failure to execute the agreement. 

As another example, consider a life insurance policy. The policy is between the insurance company and the agreed party, but neither of these is the beneficiary of the contract. The person who is to receive the benefit of the contract in the event that the insured party dies is considered the intended third-party beneficiary and has the right to sue either of the other two parties for failure to uphold the contract.

Intended Beneficiary

Intended beneficiaries are a specific type of third-party beneficiary. This is someone who is intended to directly receive benefits from an established agreement. Their name will typically be mentioned somewhere in the contract itself. Intended beneficiaries have just as much right to sue in the event of a breach of contract as the parties primarily involved in its execution. One of the main ways intended beneficiaries benefit from a contract is by acquiring certain rights under that contract. Intended beneficiaries also have the ability to enforce a contract once their rights have come into play. 

Intended beneficiaries are also sometimes referred to as "direct beneficiaries." Intended beneficiaries are justified in their reliance on a promise that they are named in regardless of whether they learn about the promise from any of the following:  

  • The promisor  
  • The promisee  
  • Third Parties

It also doesn't matter if the agreement is meant to satisfy the promisee's obligations, serve as the promise of a gift, or do something else. If a material change in the beneficiary's position is justified in their reliance on the agreement, that change of position will preclude, discharge, or modify the agreement without the consent of the beneficiary. Although there isn't any novation or any change of the beneficiary's position, the ability of the promisee and promisor's ability to vary the promisor's obligations to the intended beneficiary terminates when the beneficiary assents to the agreement in a way that they are invited by either of the other two parties.

In the event that the intended beneficiary decides to pursue legal action, the burden of proof falls on their shoulders in terms of whether or not they are actually an intended beneficiary of the contract. In scenarios such as this, the agreement needs to have been intended to benefit the third party in question by explicitly naming them in the terms of the contract.

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