Private Law Theory

ABSTRACT
While an increasing subset of litigated contracts cases in recent decades involve claims by third-party beneficiaries, the topic remains theoretically embarrassing. We claim that the responsibility for the embarrassment lies in the persistence of the traditional idea that contract is only about enforcing promises made in bilateral exchange transactions. We show contract law encompasses obligations not rooted in a formal promise from one person to another, as well as promises made in non-exchange relations. And (most pertinent to third party beneficiary law) contract law has been used to support fluid multilateral plans to which parties can come and go. We argue these uses of contract should not be marginalized and propose a liberal conception that gives contract the ambitious goal of facilitating all types of voluntary joint plans people make that can be facilitated by legal backing.

The major practical problem in third-party beneficiary law is determining when a possible beneficiary of a contract is a third-party beneficiary who can sue for breach. The intent-to-benefit test makes this turn on the intent of the promisor and the promisee, but often they do not explicitly say in their agreement whether a third party who is predictably harmed by nonperformance can sue the promisor. Traditional contract law makes this problem hard to solve because it insists terms must emanate from the parties. Liberal contract theory recognizes people’s plans often are general in nature and must be facilitated by the law supplying terms. In third party-beneficiary law, these default rules should be tailored to different types of multilateral plans. We show that these rules are best designed by relying on an autonomy calculus that considers the autonomy interests of third parties and not only of the promisor and the promisee.

In sum, liberal contract theory accounts for third-party beneficiary law and offers a firm foundation for its coherent elaboration. This foundation makes it possible to seamlessly integrate this doctrine in contract law, develop principled guidelines for its interpretation, and refine its generative potential in supporting voluntary multilateral joint plans.

Dagan, Hanoch and Gergen, Mark P, The Many Beneficiaries of Liberal Contract (June 1, 2025).