How to Void a Third-Party Contract
When you think of contracts, a deal between two parties usually comes to mind. In some situations, a third party can come into play. One of the most common examples of a third-party contract is life insurance. Even though the life insurance company contracts with one spouse, the other spouse, as a third party, has the right to the life insurance payments under the contract even if she never signed the contract. Thus, third-party contracts are voidable only when the third party's rights have not yet vested.
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Instructions
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Read the contract to ensure the terms have not already voided the contract. In other words, some contracts have a condition precedent that must occur before the contract becomes fully binding. For example, suppose two people enter into a business contract for the benefit of a third party, but only on the condition that performance stays below a certain cost. If abnormally high market prices prevent the parties from reaching the condition precedent, the contract does not take effect and is void.
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Analyze the third party's role in the contract. Third parties are either intended or unintended beneficiaries of the contract. Intended beneficiaries have rights that can vest and, therefore, cannot be voided once vested. Unintended beneficiaries, on the other hand, take benefits under the contract only incidentally. Such a party is not a party to the contract and has no rights under it. Thus, the two contracting parties are free to void the contract under their own terms.
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Void the contract before the third party learns of and assents to the contractual terms. Once the third party assents to the contract or otherwise detrimentally relies on the contract, the third party's rights vest, and the contract cannot be voided. On the other hand, the other two parties can work to void the contract before the third party learns of the contact. To illustrate this point, suppose two parties contract to benefit a third party and immediately regret the decision. Because the third party has not learned of the contract, the other parties can work to void the terms as they see fit.
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Tips & Warnings
Hire or consult an attorney to guide you through your contractual issues. Laws vary from state to state. An attorney in your state can ensure you follow all pertinent laws while working on your contract legal issues.
