Can You Sue for Breach if You Aren’t a Party to and Didn’t Sign a Contract?

If you have a contract, you may anticipate that if you do something wrong in breach of the contract, you could be sued by the other party or parties to that contract. But what you may not expect is getting sued by someone that isn’t a party to the contract—that is, they didn’t sign the contract, and perhaps weren’t even involved in the negotiations that originally formed that contract.

That sounds odd, but it does happen that someone who is not a party to a contract (someone who never signed it) can sue if the contract is breached, or to enforce the contract.

Third Party Beneficiaries

This is called a third party beneficiary. Third party beneficiaries are entities who aren’t signatories to an agreement, but because they stand to benefit from the performance of the agreement, and because they may have suffered a loss when the contract is breached, they can still sue for enforcement of the contract or for damages when it is breached.

Not everybody can claim they are third party beneficiaries. Usually, an agreement will have to name a person, entity or class of people, who may be third party beneficiaries to an agreement.

Alternatively, even if someone isn’t directly named in the agreement, the contract must show some intent for the third party to benefit. That intent can be shown from the contract itself, or from the dealings and negotiations of the contractual parties before the contract was signed, which show that some third party was intended to benefit from the execution and performance of the agreement.

A Typical Example

Let’s imagine that you pay a transportation service to take your elderly mother to work every day and sign an agreement that says that. Should the transportation service breach the agreement, your mother could sue the transportation company, given that the entire purpose and intent of the contract, and the party that benefits from the contract, is your elderly mother—even though she never signed any agreement.

What Damages are Available?

A third party beneficiary who does sue, can only get whatever damages that the person who actually signed the agreement could have gotten had he or she sued. In our example above, your elderly mother could only get the same damages that you could have gotten had you sued the transportation company, as the person who signed the actual agreement.

You Can Sue but Not Be Sued

Note that the right to sue only goes one way—the third party beneficiary can sue a party to the contract for breaching that contract. Conversely however, a party to a contract cannot sue a third party beneficiary.

So, in some ways, a third party beneficiary gets the benefits of being able to try to enforce an agreement, but will not have any liability for any performance or lack thereof, under an agreement that the third party never actually signed.

Did someone breach your business agreements or contracts? Let the West Palm Beach business litigation attorneys at Pike & Lustig help you with your breach of contract case.

Source:

investopedia.com/terms/t/third-party-beneficiary.asp