An intended beneficiary refers to a third party who is designated to benefit from a contract between two other parties. This means that the two contracting parties intended to benefit the third-party beneficiary, and the creation of such a relationship was intended from the outset of the contract.
In order for a third party to be considered an intended beneficiary, there are certain requirements that must be met.
- First, the contracting parties must clearly express their intention to create a contractual relationship with the third party.
- This can be done through explicit contract language, or through the circumstances surrounding the contract.
- Secondly, consideration must be provided by one of the parties to the contract to insure that the other party performs in a way that benefits the intended beneficiary.
- This means that the third party must have some sort of legal interest in the performance of the contract, and that their benefit must be a significant factor in the negotiation and execution of the contract.
The concept of an intended beneficiary is discussed in Lawrence v. Fox (1859), in which the court held that a third party could only be considered an intended beneficiary if the contracting parties had a clear and specific intent to benefit that party.
[Last updated in March of 2023 by the Wex Definitions Team]