12.1 General Perspectives on Third-Party Rights

Ordinarily only the parties to a contract have the right to enforce that contract. To this point in our studies, we have focused on the rights and duties of the two parties to a contract. The laws surrounding third-party rights govern the ability of third parties or outsiders to enforce contractual rights or to be bound by contractual obligations even though they are not a party to a contract. This allows individuals or entities that are not directly involved in a contract to benefit from or be bound by the contract’s terms.

There are several reasons why third-party rights in contracts exists. One reason is to ensure fairness and equity in contractual relationships. In many cases, outsiders may have a legitimate interest in the performance of a contract, and allowing them to enforce their rights or obligations under the contract can prevent injustice and promote the overall fairness of the legal system. Another is to promote efficiency and convenience in contractual relationships. By allowing outsiders to enforce their rights or obligations under a contract, parties to a contract can avoid the need for multiple contracts or legal actions, which can save time and resources. Finally, third-party rights can be used to facilitate economic transactions. In many industries, such as construction and real estate, contracts often involve multiple parties with different interests and responsibilities. Allowing outsiders to enforce rights or obligations under a contract can help ensure that everyone involved in a transaction is held accountable and that the transaction proceeds smoothly. This Chapter explores contracts where outsiders acquire rights or duties or both by considering: