What is a third-party beneficiary?

A third-party beneficiary is a person or entity who is not a part of a contract, but who has the right to enforce the contractual obligations of the parties to the contract. In Virginia, the third-party beneficiary may be either an intended third-party beneficiary or an incidental third-party beneficiary. An intended third-party beneficiary is someone who the parties to the contract intend to benefit from the contract. For example, if two business owners sign a contract that states that one business will provide services to the other and stipulates that the recipient will pay the provider, that third-party beneficiary would be the intended third-party beneficiary of the contract. An incidental third-party beneficiary is someone who is not specifically named in the contract, but who stands to benefit from the contract. For example, if two business owners sign a contract that states that one business will provide services to the other and that the recipient will pay the provider, the employees of the provider business may be considered an incidental third-party beneficiary of the contract, as they will benefit from the payment received. In Virginia, third-party beneficiaries are legally recognized and are entitled to certain rights set forth by the contract. For example, a third-party beneficiary can enforce the contract or sue the parties to the contract if they fail to honor the contract’s terms.

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