Third-Party Contracts in Norwegian Law: When Outsiders Acquire Rights in Contractual Relationships

A fundamental principle in contract law is that an agreement binds only the parties who have entered into it. However, this principle of subjective limitation of the contract has important exceptions, where third parties who are not originally part of the agreement can acquire rights or obligations. This article focuses on third-party agreements - contracts that give a third party an independent right to demand the fulfillment of a promise made between two other parties.

What is a third-party agreement?

A third-party agreement is a contract between two parties (A and B) that grants a third party (C) an independent right. The key aspect is that the third party is not a participant in the contract but nonetheless has the right to demand the contract's fulfillment directly from the promisor (A).

This differs from situations where the third party merely benefits incidentally from the contract, and from cases where the third party's claim depends on the promisee (B) asserting the claim. In a third-party agreement, the third party (C) has an independent claim that can be directly asserted against the promisor (A).

When do third-party agreements arise?

Third-party agreements can arise in many different contexts, both of minor and major economic significance:

1. Small gifts or benefits: For instance, where A promises B to give a crate of wine to C.

2. Indirect benefits: Of greater economic significance are third-party agreements where the promise involves an indirect benefit from the promisee to the third party, such as insurance in favor of the third party.

3. Legally regulated cases: In some instances, legislation directly dictates that the third party shall have an independent right.

How to determine if the third party has an independent right?

Whether the third party has an independent right to assert the promise is not resolved in the contract law and must primarily depend on an interpretation of the agreement between the promisor (A) and the promisee (B). The issue becomes determining if the parties intended:

• only the promisee (B) to demand performance from the promisor (A) on behalf of the third party (C), or

• the third party (C) to have a direct right to demand the performance from the promisor (A) upon the due date.

There is possibly some presumption that the third party should have a direct right if the promisee has provided consideration to the promisor for the promise, but this should not be given too much emphasis.

Examples of third-party agreements in Norwegian law

Legally regulated third-party agreements

1. Insurance of a third party's interest: In such insurance, the third party will have a direct claim against the insurance company (cf. Insurance Contracts Act §§ 7-1, 7-2, and 7-5).

2. Direct claims in liability insurance: The injured party can assert a direct claim against the insurance company if the damage is covered by the tortfeasor's liability insurance (cf. Insurance Contracts Act § 7-6).

3. Deposits: According to the Deposit Act, a person can deposit an amount owed if he does not know who the creditor is. Depositing gives the third party (creditor) an independent right to demand fulfillment (cf. Deposit Act § 4).

Unwritten third-party agreements

1. Debt assumption: Under unwritten rules on debt assumption, the creditor (C) obtains a direct right to deal with the debt assumer (B) in the future, even though the creditor is not a party to the agreement. However, the creditor has no obligation to accept the debt assumer as a new debtor.

2. Sponsorship agreements in sports: An athlete may have an independent right to demand a share of the sponsor's payouts under "personal" sponsorship agreements concluded between a sports organization and a sponsor.

When does the third party not obtain an independent right?

There are several situations where the third party does not obtain an independent right, even if the agreement between two parties involves them:

1. Personal liability for mortgage debt: According to the Mortgage Act § 2-7, the mortgagee is not entitled to look to the buyer of the mortgaged property until the mortgagee has accepted a direct request to accept the buyer as a new debtor.

2. Gift promises: If the promise involves a gift for the third party, as a general rule, the third party has no independent right to demand fulfillment.

3. Bank deposits in another's name: The third party does not automatically gain an independent right to dispose of the account and withdraw the money (cf. Rt 1934 p. 161).

Limitations on third-party rights

Even when the third party has an independent right, this right is derived from and contingent upon the agreement between the promisor (A) and the promisee (B). This results in significant limitations:

1. Invalidity: If the agreement between A and B is invalid, the third party's right is also nullified.

2. Subsequent events: If subsequent events cause A not to be obligated to perform (fully) for B, this affects the third party's right.

3. Amendment: The third party's right is abolished if A and B agree to amend the agreement.

When does the third party's right become irrevocable?

The general rule is that the third party does not obtain an irrevocable right merely because there is a third-party agreement. For the right to be irrevocable, special disposition criteria must be present:

1. Independent promise to the third party: If the third party receives an independent promise directly from the promisor.

2. Standing offer: If the agreement between A and B should be interpreted as a standing offer to C that he can accept.

3. Legally regulated cases: In insurance relationships, there are rules ensuring that the third party's right is irrevocable (cf. Insurance Contracts Act § 15-2 second paragraph).

Practical significance

Third-party agreements have significant practical importance in Norwegian law. They make it possible to establish legal relationships where third parties gain rights without having to participate directly in the agreement. This simplifies many transactions and protects the interests of parties who would otherwise depend on others asserting claims on their behalf.

At the same time, it is important to remain aware of the limitations: Third-party rights are derived from the main agreement and can be affected by changes, invalidity, or amendments to it. To secure an irrevocable right for the third party, special terms often need to be added to the agreement.

Conclusion

Third-party agreements represent an important exception to the principle that contracts bind only the parties. Through such agreements, a third party can acquire independent rights based on agreements in which they are not a participant. This contributes to flexibility in contractual relationships and facilitates legal arrangements that would otherwise require more complex contract constructions.

Norwegian law recognizes third-party agreements both in legally regulated areas and on an unwritten basis, while also setting certain conditions for the third party to gain an independent and potentially irrevocable right.