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Third Party Lawsuits

by | Apr 16, 2022 | Firm News |

Breach of contract cases generally involve disputes between the parties to the contract. After all, a contract is an exchange of enforceable promises, and it is normally one of the parties to whom a promise has been made that is claiming the promise was not kept. For this reason, it is said that there has to be “privity” of contract, a direct promise made to the party who is claiming the breach, in order to for someone to sue for breach of contract. However, there a certain times when a non-party is permitted to sue for a breach of contract. One of them, is where the claim is being asserted by an “intended third-party beneficiary of the contract.” As a general matter, an intended third-party beneficiary is someone who, though not a party to the contract, is anticipated by the parties to the contract to be someone who will receive the benefit from the parties’ contractual performance. A timely example of this would be if Party A pays Party B (an accountant) to prepare and timely file C’s tax returns. Party A makes the payment, which is accepted by Party B, but Party B fails to perform its obligation to prepare C’s tax returns. Under these circumstances, Party A has a claim against Party B for the return of the payment. But because C, a non-party to the contract, was an intended beneficiary of the contract, C is also likely to be permitted to assert a direct action against Party B for the damages, such as for the penalties imposed by the IRS for late filing.

If you are not an intended beneficiary, and you do not have contractual privity, you are unlikely to be able to assert a claim for breach of contract, even if you actually suffer some damage that would not have occurred if the parties’ contract had been performed. These issues can be subtle and finding a legal approach to asserting your claim makes all the difference.