Third-Party Right

In one sentence

A legal right or benefit that belongs to someone who is not a party to the original contract.

Plain English

When two people make a contract, they usually create rights and duties just for themselves. But sometimes a contract can give rights to a third person—someone who didn't sign the agreement. For example, if you buy life insurance and name your child as the beneficiary, your child has a right to the insurance money even though they weren't part of the contract between you and the insurance company. Third-party rights can be created intentionally or sometimes arise by operation of law.

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Example

Sarah buys a house and takes out a mortgage. The mortgage contract says that if she doesn't pay, the bank can foreclose. Sarah's neighbor has no rights under that contract, but if Sarah's lender sells the mortgage to another bank, that new bank gains third-party rights to enforce the loan.

Used in a sentence

“The life insurance policy granted third-party rights to the named beneficiary, allowing her to collect the death benefit.”

Related terms

Creditor Beneficiary

A third party who benefits from a contract because it pays off their debt.

Mutual Assent

Both parties agree to the same contract terms at the same time.

Performance

The act of doing what a contract requires, such as delivering goods or paying money.

Discharge

The release of a party from their contractual obligations.

Merger Clause

A contract statement that the written agreement supersedes all prior negotiations and understandings.

Good Faith and Fair Dealing

A legal duty to act honestly and fairly when making and performing contracts.

Offer

A proposal to enter into a binding agreement on specific terms.

Acceptance

Agreeing to the exact terms of an offer, creating a binding contract.

This page is a plain-English reference and is not legal advice. Laws vary by jurisdiction and change over time. For specific situations consult a licensed attorney.