Surprise! There’s an unknown party to your contract. It’s not exactly as much fun as the surprise party your friends threw for your 30th birthday. And hangover aside, the consequences are more severe. “Courts are increasingly granting third parties the right to enforce a contract, even when they are strangers to said contract,” warn Michael Polentz and Payvand Abghari of Manatt Phelps & Phillips in this recent blog post.
The authors note that courts throughout the country deal with this “third-party beneficiary doctrine” differently. But the big question is whether the contracting parties intended a third party to benefit. To help deal with these “surprise guests,” some contracts have an explicit “no third-party beneficiary” clause. But Polentz and Abghari explain that other clauses, such as a “flow-down clause,” can render this useless.
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