A third-party beneficiary in contractual law is an individual who has the right to file a lawsuit to enforce a contract even though such a person was not an active party in the signing of the contract. In this case, a person becomes a third-party to a contract if they are the intended beneficiary of the contract being signed by two individuals (Schwartz & Scott, 2015). If a contract is signed by two people with the intent to benefit another person, it is crucial for the involved parties to ensure that the contract agreements are followed to the latter. Failure to adhere to the contract agreement gives the third-party beneficiary the right to sue on the contract to ensure that he or she receives the intended benefit. Therefore, third party beneficiaries have the right to sue on a contract as much as the active parties of the contract.

It is a requirement for the parties involved in a contract to meet certain contractual criteria for a beneficiary to realize the third-party benefits. In this case, an active party has to name the beneficiary for that person to have the right to sue on a contract (Schwartz & Scott, 2015). For instance, an active party may name their children to be the beneficiaries of a health cover. In case the party offering the health cover fails to meet certain contractual requirements by failing to provide the health cover at the required time, the beneficiaries can sue the party providing the health cover citing a violation of a contract. The beneficiaries file a lawsuit since they fall under the category of an intended beneficiary. Contractual law asserts that beneficiaries can file a lawsuit if the purpose of a contract is not realized.

A third-party beneficiary has the right to sue on a contract if he or she was informed through writing of the existence of the valid contract. On the contrary, if the involved parties implied or expressed that a person was the beneficiary of a contract, such individuals have the right to file a lawsuit (Wenar, 2013). As such, it is a requirement for the active parties of a contract to be honest and truthful while establishing a contract to prevent any violations. Additionally, a third party has the right to make a lawsuit if the contract is irrevocable. For instance, a person may buy a car for a relative with specific features and performance. If the third-party who was bought the car finds the car has defects, they can sue the seller because the beneficiary is irrevocable.

In the case study, Rosita has the right to get a refund from Oscar’s Fine Diamonds. Rosita is a third-party beneficiary of the valid contract established when Harry was buying the engagement ring worth $2,000 from Oscar’s Fine Diamonds. The day when Harry went to buy the engagement ring, he was accompanied by Rosita. At the shop, Harry expressed or implied that he was purchasing the engagement for Rosita which makes Rosita a third-party beneficiary with the legal rights to sue Oscar’s Fine Diamonds in case the ring was fake (Wenar, 2013). Surprisingly, Rosita found out that the ring had a fake diamond. This meant that Oscar’s Fine Diamonds violated the contract agreement by selling the ring to Harry and Rosita despite having known that it was fake. Oscar’s Fine Diamonds should give Rosita a refund.

Rosita does not need Harry’s cooperation in seeking a refund. Rosita was aware of the existence of the contract as she was present when the $2,000 diamond ring was purchased. Moreover, the diamond ring, as well as the establishment of the contract, was for Rosita’s benefit which gives her the right to sue on the contract. Oscar’s Fine Diamonds sold a diamond ring $2,000 even though its actual worth was $50 which misled Rosita and Harry in believing the value of the engagement ring. Rosita would only have needed Harry’s cooperation is she was not present during the purchase of the ring and was not named a beneficiary by Harry during the establishment of the contract (Schwartz & Scott, 2015). Therefore, her presence, and the fact that Harry implied that she was the beneficiary gives her the right to file a lawsuit.

To conclude, contractual law differentiates between intended and incidental beneficiaries. Incidental beneficiaries are usually not involved in the establishment of a contract, or named as beneficiaries of a contract. On the contrary, intended beneficiaries suffice to be the persons whom an active party has designated as the beneficiaries of a contract. Intended third-party beneficiaries can be present during the establishment of a contract whereby an active party can imply or express that such a person is the beneficiary or even name them in the valid contract. Intended beneficiaries have the right to enforce a contract just like the active parties who signed the contract. Third-party beneficiaries can sue on a contract without the assistance of an active party because the contractual law gives them such a right. Therefore, Rosita as the intended beneficiary of the contract can get a refund from Oscar’s Fine Diamonds without seeking Harry’s cooperation.

References

Schwartz, A., & Scott, R. E. (2015). Third-party beneficiaries and contractual networks. Journal of Legal Analysis, 7(2), 325-361. doi:10.1093/jla/lav006

Wenar, L. (2013). The nature of claim-rights. Ethics, 123(2), 202-229. Retrieved from https://www.jstor.org/stable/pdf/10.1086/668707.pdf

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