Third Party Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Third Party, written in plain English, along with examples of how it is used.
What is Third Party?
It is somone other than the first two principals who have entered into a contract or an agreement. Third party are not a direct party in the agreement or contract,but they may be present as a beneficiary to the contract or somone affected by the contract between the first two principals ( first party and second party). This could be the case of third party insurance in automobile industry where if one of the principle is insurance company and another is the automobile owner. The automobile owner if, damages the the third party’s ( someone else’s) car by an accident, and has a third party insurance cover, the insurance company covers up for the damage for the third party’s car.
History and Meaning of Third Party
The term "Third Party" originated from contract law and refers to someone who is not a direct party to a transaction or agreement, but has an interest in its outcome. The term can also apply to legal proceedings, where a third party seeks to participate in a case, despite not being a direct party to the matter.
If an individual or organization is not directly involved in a legal contract, they may still be affected by it. Third parties may be present as beneficiaries, who will receive some sort of benefit from the agreement between the first two principals. Additionally, third parties may be affected by the contract between the first two principals, such as in cases of property damage, where a third party may be impacted by the actions of the first two principals.
Examples of Third Party
Mary signed a lease for an apartment with her landlord Jim. When Mary moved out, she hired a professional cleaning company to clean up her apartment, but the company did not complete the work satisfactorily. Mary had paid the company, but to resolve the dispute, the company would have to deal directly with Jim, who was not involved in their original contract, making him a third party.
When a company initiates a merger or acquisition, it may have to consult a third party to obtain regulatory approval from the government or some other regulatory body.
An individual who provides a reference for someone they are not employed by can be considered a third party.
Legal Terms Similar to Third Party
Indemnitor - A person or entity that guarantees the performance or actions of another party in a contract.
Beneficiary - Any person or entity that receives a benefit from a contract without being a direct party to the agreement.
Surety - A party that takes responsibility for fulfilling the obligation of another, such as debt or promise made by the original party, if that party fails to do so.