What is a contract for the benefit of a third party?

A contract for the benefit of a third party is regulated in Article 129 of the Turkish Code of Obligations. A contract in which the parties agree that performance is to be made to a third person is called a contract for the benefit of a third party. Here, the creditor and debtor sides of the contract agree on a performance for the benefit of a third person who is not a party to the contract. In a contract for the benefit of a third party, one of the parties, the debtor, undertakes to render a performance for the benefit of a third person to the other party, the creditor.

Contracts for the benefit of a third party are divided into two: the incomplete contract for the benefit of a third party and the complete contract for the benefit of a third party.

The incomplete contract for the benefit of a third party is regulated in Article 129/1 of the Turkish Code of Obligations. Such a contract gives rise to a right of claim only in favour of the promisee; no right of claim arises directly in favour of the third party. Under this contract, the third party has only the authority to accept the performance offered by the promisor, and has no right to demand performance of the debt from the promisor. In the incomplete contract, the right to demand performance of the debt to the third party belongs to the promisee. Such contracts give rise to a right of claim only in favour of the promisee. In the incomplete contract for the benefit of a third party, the third party is not a creditor in the true sense, but only the beneficiary of the owed performance and the addressee of the performance to be made. The right to sue the promisor on the claim belongs to the promisee. If the promisor does not perform the debt, the promisee can personally claim and sue for compensation of the resulting loss. On the other hand, if it is the third party and not the promisee who suffers a loss from non-performance of the debt, the promisee can also sue the promisor to compensate the loss suffered by the third party.

The complete contract for the benefit of a third party is regulated in Article 129/2 of the Turkish Code of Obligations. A contract in which the third party has the authority to demand performance of the promised performance is called a complete contract for the benefit of a third party. Here, although the third party cannot take part in the contract as a party, upon formation of the contract they acquire the claim directly and originally, and have the right, on their own, both to demand performance of the debt from the promisor and to accept the performance offered. According to the provision in Article 129/2 of the Turkish Code of Obligations, the third party or their successors may demand performance of the debt personally, that is, independently of the promisee, if this is in line with the purpose of the two parties or with custom and usage.

In the complete contract for the benefit of a third party, the debtor is the promisor. Here the debt arises from the contract made between the promisee and the promisor. For this reason, the debtor (the promisor) may raise against the third party demanding performance on the basis of this contract every objection and defence arising from the contractual relationship between itself and the promisee. Likewise, the promisor debtor may also raise against the third party the defences it has personally.