When it comes to contract and enterprise law, legal experts often refer to entities involved in a transaction as primary, intended, and incidental beneficiaries, so it’s important to understand how each of those roles differ. An incidental beneficiary, also known as an assignment beneficiary, is someone or an entity that receives a benefit from a contract or transaction, although they were not originally a party to the agreement.
In other words, an incidental beneficiary is a person who gains a benefit out of a contract that was not necessarily intended for them. This could be from an agreement between two unrelated parties. For example, imagine two friends decide to purchase a rental property together and agree on terms in a contract. The landlord of the property is not a party to the contract, but they would be considered an incidental beneficiary as they are being paid rent assuming the terms of the contract are met.
Alternate Names and Common Misconceptions
An incidental beneficiary is often also referred to as a stranger to a contract, non-contractual beneficiary, or an external beneficiary. It’s important to note that an incidental beneficiary does not actually have to be a stranger to the initial transaction. It’s possible to be both the primary beneficiary of the original contract and also an incidental beneficiary of a related contract.
It’s also important to note that an incidental beneficiary is not the same thing as an incidental loss or damage. Incidental loss and damage is an unrecognized term in law and simply covers any potential downsides of a contract that were not particularly intended by either party. For example, you would expect a shop to be relatively quiet but may experience noise disruption if the space is located in a busy area, which could be classified as an incidental loss or damage.
When Are Incidental Beneficiaries Protected by a Contract?
Although incidental beneficiaries are not parties to the original contract, they still have some limited protections under the agreement. That being said, not all contracts will include provisions that will give incidental beneficiaries rights or protection, this will depend on the agreement itself.
Since incidental beneficiaries are often not a party to the original agreement, the law is clear that they cannot sue for any breach of the contract. The only exception to this rule is if certain provisions in the contract specifically state that incidental beneficiaries may have rights related to the agreement. The legal term for this type of protection is “privity of contract”.
Conclusion
Incidental beneficiary is a term used in the legal world to refer to entities or people who benefit from a contract or transaction but were not a party to the initial agreement. Although they do not have the same protection as an intended beneficiary, there may be certain circumstances where incidental beneficiaries have rights based on privity of contract.
It’s essential to ensure any contract is entered into with clear expectations and an understanding of who is a party to the agreement and the rights of any potential incidental beneficiaries, in order to avoid costly legal disputes further down the line.