Legal Definitions - incidental beneficiary

An incidental beneficiary is a person or entity who happens to benefit from a contract made between two other parties, but they were not the reason the contract was created, and the parties involved did not intend for them to receive a direct benefit.

Because their benefit is unintentional and indirect, an incidental beneficiary has no legal rights to enforce the contract or to sue if the contract is breached. They are simply a fortunate bystander.

• Example 1: Urban Development

  Imagine a city government contracts with a construction company to build a new public library in a downtown area. A local coffee shop owner across the street anticipates a significant increase in customers once the library is completed and brings more foot traffic to the area.

  How it illustrates the term: The coffee shop owner is an incidental beneficiary. The contract's primary purpose is for the city to get a library built and for the construction company to be paid for its work. While the coffee shop owner might benefit from increased business, this was not an intended purpose of the construction contract itself. If the library project is delayed or cancelled, the coffee shop owner cannot sue the city or the construction company for lost profits, as they have no legal rights under that contract.

• Example 2: Residential Services

  Consider a homeowner who hires a professional landscaping company to completely overhaul their backyard, including installing an elaborate water feature and exotic plants. The homeowner's next-door neighbor, who enjoys gardening and appreciates beautiful outdoor spaces, is thrilled because their view from their own patio will significantly improve.

  How it illustrates the term: The neighbor is an incidental beneficiary. The contract exists solely between the homeowner and the landscaping company. The neighbor's enjoyment of the improved view is a fortunate side effect, not a direct or intended purpose of the landscaping agreement. If the landscaping company fails to complete the work or does a poor job, the neighbor cannot sue the company based on the contract, as they were not an intended party to the agreement and have no legal standing.

• Example 3: Corporate Supply Chain

  A major automobile manufacturer signs a long-term agreement with a specific tire supplier to provide all tires for its new car models. A small, independent tire repair shop located near one of the manufacturer's assembly plants might see an increase in business from employees of the plant who need tire services, or from customers who bought the manufacturer's cars and prefer to use a local shop for tire maintenance.

  How it illustrates the term: The independent tire repair shop is an incidental beneficiary. The contract is between the automobile manufacturer and the tire supplier. The repair shop's potential increase in business is a secondary, unintended consequence of the larger supply agreement. If the manufacturer and supplier have a dispute and the supply contract is terminated, the repair shop cannot claim damages for lost potential business, as they were not an intended beneficiary of that specific contract.