When can a third party enforce a business contract?

This can happen in two main ways:

• Intended third-party beneficiary: If the contract clearly shows that it was meant to benefit someone else, that person may be able to enforce it. For example, if a contract promises payment to a charity, the charity could take action if it isn’t paid.
• Assignment of rights: A person or business who’s part of the contract can transfer their rights to someone else. The new party (called the assignee) then has the same right to enforce the contract.

Courts only grant enforcement rights to intended beneficiaries—those who are clearly named or meant to benefit from the deal. Incidental beneficiaries—people who benefit indirectly—usually have no rights to enforce anything.

If a third party is demanding benefits, review your contract for any beneficiary or assignment clauses to see if they have a valid claim.

What to consider in your specific situation

While these rules apply broadly, every contract and dispute is different. Key factors may include:

• Whether the contract names or benefits a third party.
• Whether rights were properly assigned.
• Industry norms on third-party rights.
• How state law treats such claims.
• The relationship between your business, the signer, and the third party.

Because every contract is different, you can use Rocket Copilot to get more information about your situation or request a Legal Pro review.