Before the contracts (rights of third parties) act 1999, there was a regulation that those who have attested the contracts or only a party to an agreement could implement the stipulations bring up in the agreement. No third party could insist on the conditions of the contract. However, this rule had been changed by the Contracts (Rights of Third Parties) Act 1999, which states that the third parties can enforce terms in the contracts which are made in their favor. The Contracts (Rights of Third Parties) Act 1999 was passed upon the recommendations of the law commission report (1996).
The act grants a third party the authority to carry out a contract’s contractual obligations.
Suppose a contract between two parties particularly states that the third party can implement a term of the contract. In that case, the third party may work on it, even if the other is not a party to a contract.
When two parties agree to a contract, there is no need for a third party to exist. However, the third party’s name and particular description must be mentioned in the contract while signing the agreement.
In case of breach of contract, there must be a remedy or compensation available to the third party.
The Rights of a Third-Party Beneficiary
A third-party beneficiary is a person who is not a part of a contract but they have legal rights in the enforcement of the contract, or they can share benefits because the contract was signed for the benefit of the third party. For example, a father wants to buy a present for his son’s 20th birthday. He decided to purchase a jaguar from an automobile company, entering into a contract with Oldfield. Both the parties signed the contract, and then Oldfield asks them to pay a down payment. In this case, if Oldfield takes the down payment and then refuses to proceed with the sale, then the father’s son could sue Oldfield for breach of the contract as a third-party beneficiary. In this case, the third party also has rights for compensation as the terms in the contract were not fulfilled.
Can a Third Party Right be Canceled?
A third party will have the same powers as the other two parties when it comes to contract enforcement. The contracting parties cannot concur to terminate the contract or alter the third party’s rights devoid of the third party’s consent. If there’s anything already mentioned in the contract about the right to cancel, only then the third party’s right could change or be canceled in the contract. If there’s nothing mentioned in the contract, they have to apply to the court for an order. Further, the court will allow the cancellation of the rights of the third party. For example, an owner of a tech company wants to open a new office building. He signs a contract with a builder and asks him to lease five floors of space to him. After signing the contract with the giant tech company, the landlord further signed a contract with a coffee shop owner who wants to open his/her shop on the ground floor of the building. One day the owner of the coffee shop gets an idea, and he/she decided to ask for a steady stream of customers from the tech company. In return, he/she will provide cafeteria services to the company’s employees. Here, the third party is the owner of the coffee shop, who is getting benefits from the contract made between the landlord and the tech company. Now, both of these parties cannot change or cancel the rights of the coffee shop owner without his/her consent. It is possible only when it is already mentioned in the contract.
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