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Superior Court Finds that Both Parties to a Contract Must Contractually State an Intention to Benefit a Third Party to Create a Third Party Beneficiary

Street Search Partners, L.P. v. Ricon Int'l, L.L.C., C.A. No. 04C-09-156 PLA, 2005 WL 1953094 (Del. Super. Ct. Aug. 1, 2005). The plaintiff brought a breach of contract action against two defendants on the theory that the plaintiff was a third party beneficiary to the contract between the defendants. One of the defendants moved to dismiss the suit for failure to state a claim. The court determined that one defendant subjectively intended for the plaintiff to benefit from the contract. However, the court determined that the other contracting party did not intend to benefit the plaintiff. Furthermore, there was no evidence from the contract that the parties intended for the plaintiff to be a beneficiary. Consequently, the court dismissed the plaintiff's claims that were based on it being a third party beneficiary to the contract. Plaintiff Street Search Partners ("Street Search") brought a breach of contract action against Ricon International, L.L.C. ("Ricon") and Enviro Board Corporation. In June 2001, EBC and Ricon entered into a financing agreement. Under the terms of the contract, Ricon was to loan EBC $250,000 in exchange for a bond promising to repay the loan at 24% annual interest. After making interest payments in June and July of 2001, EBC stopped paying. Ricon had obtained the money to loan EBC by borrowing the money from Street Search. Ricon had agreed to repay Street Search on the same terms as the loan between Ricon and EBC. Ricon essentially functioned as a middleman. Ricon only made money on the deal from the commission for brokering it. Street Search sued Ricon for breach of contract, and it also sued EBC, alleging that Street Search was a third party beneficiary of the deal between Ricon and EBC. EBC moved to dismiss the claims brought by Street Search. The court acknowledged that some case law suggested that only the promise had to intent to confer a benefit on a third party to create a third party beneficiary, while other cases found that both parties must intend to create a third party beneficiary. The court found that both parties must contractually intent for a non-contracting party to benefit from the agreement for that party to qualify as a third party beneficiary. In this case, the court determined that the contract between Ricon and EBC did not even acknowledge Street Search's existence. Accordingly, because there was no contractual intent by both parties to benefit a third party, the court dismissed Street Search's claims against EBC. Authored by: Jason C. Jowers 302-888-6860 jjowers@morrisjames.com