Now it really depends on what type of beneficiary
each of these third parties is.
There are two types, intended beneficiaries and
incidental beneficiaries.
And depending on which type you are, you have different enforcement rights
to a contract when you're not a party to that contract.
So in our example, the library is what we call an intended beneficiary.
They're specifically called out in the contract between the company and
the city as receiving a benefit, right?
So the library gets some space to use in this community center,
they get to use it rent free.
It's in the contract that they get this benefit.
They are intended, by the parties to the contract to receive a benefit.
They are an intended beneficiary.
Now incidental beneficiaries are all other third parties who receive
some benefits from a contract but is just kind of a coincidence.
They're not specifically identified in the contract as receiving those benefits.
So examples are, if you build a brand new headquarters building.
If there are gas stations close by, restaurants in the neighborhood.
I mean they all get benefits from the increased traffic, the increased business,
the boost of the economy, but they are not intended beneficiaries.
So only intended beneficiaries can enforce agreements as third parties.
Now when we say enforce agreements we mean, well, if one of the parties decides
not to perform its obligations under that contract,
an intended third party beneficiary can actually take that party to court and
force them to perform their contractual obligations.
But, the third party's rights must have vested.
Now when we say rights must have vested, we mean the third party has to either have
known about their intended benefits and taken some action to accept it.
So in our example of the library receiving space rent free, the library has to have
known that the contract between the company and the city called for
this space to be given to the library, and the library has to have accepted it.
It can be as simple as saying, that's great,
we're looking forward to moving into this space once it's constructed.
It could be as complicated as them signing some sort of document
affirmatively accepting the offer of this rent free space.
But the important thing that the intended beneficiary knew of
the benefits and accepted that benefit.
The other way an intended beneficiary's rights can vest is,
if even if they don't make any sort of affirmative acceptance, if the beneficiary
materially alters its position and anticipation of receiving the benefit.
So on our example, suppose the library never had any sort of formal acceptance
of the offer of rent fee space.
But, maybe the library bought a whole bunch of new books, or
computers, or office equipment that it was intending to put into this new space.
It materially altered its position, it spent money,
it acquired capital, it hired employees.
Whatever it did in anticipation of receiving the benefit.
In that case, its rights have vested and it can enforce the agreement.
Now with regards to incidental beneficiaries,
they have no rights to enforce agreements to which they are not parties.
So if you own a restaurant across the street from the new football stadium
that's being built in your neighborhood, hey,
that's great you're going to get a lot of business.
But if they decide not to build it, tough luck, you can't enforce it.
You're an incidental beneficiary,
your benefit is not contemplated by the parties to the agreement.
So you can only sit back and hope that they fulfill their obligations,
because you have no right to enforce it.
