Legal Definitions - intended beneficiary

An intended beneficiary is a person or entity who is not one of the original parties to a contract but whom the contracting parties specifically intended to benefit from their agreement. Because the contract was made with the express purpose of providing a benefit to this third party, the intended beneficiary gains legal rights under that contract and can often enforce those rights, even though they didn't sign the agreement themselves.

This concept is crucial because it allows a non-party to a contract to have legal standing and claim a benefit or enforce a promise made within that contract. The key element is the clear intention of the original contracting parties to confer a direct benefit upon the third party.

• Example 1: Life Insurance Policy

  Sarah purchases a life insurance policy from an insurance company. In the policy, she names her husband, David, as the sole beneficiary. If Sarah passes away, the insurance company is contractually obligated to pay the policy's proceeds to David.

  How it illustrates the term: David is an intended beneficiary because Sarah and the insurance company specifically entered into the contract with the express purpose of providing a financial benefit to David upon Sarah's death. David, though not a party to the original contract, has a legal right to claim the insurance payout.

• Example 2: Construction Project Payment

  A property developer (Developer Corp) contracts with a general construction company (BuildRight Inc.) to build a new apartment complex. The contract between Developer Corp and BuildRight Inc. explicitly states that BuildRight Inc. must use a specific, high-quality window supplier (GlassWorks LLC) for all windows and that Developer Corp will make a portion of the final payment directly to GlassWorks LLC for their services, rather than to BuildRight Inc. first.

  How it illustrates the term: GlassWorks LLC is an intended beneficiary. Even though GlassWorks LLC did not sign the contract between Developer Corp and BuildRight Inc., both contracting parties specifically agreed to a provision that directly benefits GlassWorks LLC by ensuring their payment. GlassWorks LLC could potentially enforce this payment provision if it were breached.

• Example 3: Charitable Scholarship Fund

  A wealthy alumnus (Mr. Chen) enters into a contract with his alma mater university. The contract stipulates that Mr. Chen will donate a substantial sum of money to establish an endowed scholarship fund, and in return, the university promises to award scholarships annually from this fund to deserving students pursuing degrees in engineering, based on specific academic and financial need criteria.

  How it illustrates the term: The future engineering students who meet the scholarship criteria are intended beneficiaries. While they are not individually named at the time the contract is formed, Mr. Chen and the university clearly intended for a specific group of third parties (qualifying students) to directly benefit from their agreement. These students, once identified and awarded, would have a right to receive the scholarship funds as per the contract's terms.