What is the definition of a "third-party beneficiary"?

A third-party beneficiary refers to an entity that is not one of the original parties involved in a contract but stands to benefit from the performance of that contract. This concept is significant in contract law because it recognizes that contracts can create legal rights or benefits for individuals or entities that are not direct stakeholders.

In many scenarios, a third-party beneficiary might be someone who is intentionally included within the contract's terms, such as a person for whom the contract is made to provide a benefit. The law generally allows third-party beneficiaries to enforce the contract if it was clear that the parties meant to benefit them.

This understanding is crucial in contract management as it affects how contracts are structured and executed; knowing who qualifies as a third-party beneficiary can have legal implications regarding enforcement and rights to claim damages.