Third Party


DEFINITION of 'Third Party'

An individual or entity that is involved in a transaction but is not one of the principals. The third party often has a lesser interest in the transaction than the principals.


An example of a third party would be the escrow company in a real estate transaction. The first two parties, the principals, are the buyer and seller. The escrow company acts as a neutral agent to collect the documents and money that the buyer and seller need to exchange to complete the transaction. While the escrow company receives a fee for performing its services, this fee is its only interest in the real estate transaction.

As another example, if a debtor owes a creditor a sum of money and hasn't been making the scheduled payments, the creditor is likely to hire a third party, a collection agency, to ensure that the debtor honors his agreement. The collection agency has an interest in the transaction because it gets paid for collecting debts, but it is arguably the two principals, the debtor and the creditor, that have the greatest interest in the transaction.

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