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Breach: 04. Breach of Third-Party Beneficiary Contract

1 Elements and Case Citations

“A contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it.”  Cal. Civ. Code § 1559.

  1. Defendant and a third-party entered a valid contract;
  2. Plaintiff is not a party to the contract;
  3. The contracting parties expressly intended to benefit Plaintiff, as evidenced by the terms of the contract, even if Plaintiff is not specifically named;
  4. Defendant breached the contract; and
  5. Plaintiff suffered damages as a result of the breach.

A third-party beneficiary must be a creditor or donee beneficiary.  Epitech, Inc. v. Kann, 204 Cal. App. 4th 1365, 1372 (2012).

“‘A creditor beneficiary is a party to whom a promisee owes a preexisting duty which the promisee intends to discharge by means of a promisor's performance. . . ”. . . A person cannot be a creditor beneficiary unless the promisor's performance of the contract will discharge some form of legal duty owed to the beneficiary by the promisee.

Id.

A person is a donee beneficiary only if the promisee’s contractual intent is either to make a gift to him or to confer on him a right against the promisor.

Martinez v. Socoma Cos., 11 Cal. 3d 394, 400-01 (1974).

CALIFORNIA STATE COURTS

Supreme Court of California:  Martinez v. Socoma Cos., 11 Cal. 3d 394, 400-01 (1974).

California 1st Dist.: Lake Almanor Associates L.P. v. Huffman-Broadway Group, Inc.,178 Cal. App. 4th 1194, 1199 (2009).

California 2d Dist.: Epitech, Inc. v. Kann, 204 Cal. App. 4th 1365, 1371-72 (2012).

California 3d Dist.: Unite Here Local 30 v. Dep’t of Parks & Recreation, 194 Cal. App. 4th 1200, 1214-16 (2011); Grossmont Union High School Dist. v. State Dept. of Education, 169 Cal. App. 4th 869, 890-91 (2008).

California 4thDist.:  The H.N. & Frances C. Berger Foundation v. Perez, 218 Cal. App. 4th 37, 43-45 (2013).

California 5thDist.:  Cargill, Inc. v. Souza, 201 Cal. App. 4th 962, 967 (2011); Souza v. Westlands Water Dist., 135 Cal. App. 4th 879, 893-95 (2006).

California 6th Dist.:  Spinks v. Equity Residential Briarwood Apartments, 171 Cal. App. 4th 1004, 1022-23 (2009).

CALIFORNIA FEDERAL COURTS

United States Court of Appeal for the 9th Circuit:  Balsam v. Tucows Inc., 627 F.3d 1158, 1161 (9th Cir. 2010); Doe v. Wal-Mart Stores, Inc., 572 F.3d 677, 682 (9th Cir. 2009) (discussing creditor and donee third-party beneficiaries).

Central District:  Solid Host, NL v. Namecheap, Inc., 652 F. Supp. 2d 1092, 1117-18 (C.D. Cal. 2009).

Eastern District:  Grill v. BAC Home Loans Servicing LP, No. 10-CV-03057-FCD/GGH, 2011 U.S. Dist. LEXIS 3771, at *14-15 (E.D. Cal. Jan. 13, 2011).

Northern District:  State Nat’l Ins. Co. v. Khatri, No. C 13-00433 LB, 2013 U.S. Dist. LEXIS 132167, at *33-34 (N.D. Cal. Sept. 13, 2013).

Southern District:  Stocco v. Gemological Inst. of Am., Inc., No. 12-CV-1291 WQH (DHB), 2013 U.S. Dist. LEXIS 137942, at *22-23 (S.D. Cal. Sept. 24, 2013).

2 Defenses to Claim for Breach of Third-Party Beneficiary Contract

(1) Cal. Code Civ. Proc. § 431.30(b)(2) (pleading affirmative defenses), and other standard defenses.  See Chapter 1 for all defenses.

(2) See Chapter 10, Defenses to Breach of Contract.

(3) Statute of Limitations: Cal. Code Civ. Proc. § 337(1) (four years for written contracts);  Cal. Code Civ. Proc. § 339 (two years for oral contracts).  The third-party’s ignorance of the contract does not toll the statute of limitations.  Skylawn v. Superior Court, 88 Cal. App. 3d 316, 319 (1979).

(4) “[A] third party beneficiary ordinarily has no contractual rights greater than those of the promisee, because the promisor generally may assert against the beneficiary any defense the promisor has against the promisee.”  Ronay Family Ltd. P’ship v. Tweed, 216 Cal. App. 4th 830, 840 (2013).  However, “the rule that a promisor's defense against a promisee is also good against a third party beneficiary does not apply when the language of the contract or the circumstances surrounding its execution establish that the rights of the beneficiary are not subject to that defense.”  Id.

(5) The original parties to the contract rescinded it before the third-party beneficiary sought to enforce it.  Cal. Civ. Code § 1559; see Spinks v. Equity Residential Briarwood Apartments, 171 Cal. App. 4th 1004, 1024 (2009).

(6) The third-party is an incidental beneficiary, not an intended beneficiary.  Spinks v. Equity Residential Briarwood Apartments, 171 Cal. App. 4th 1004, 1022 (2009).