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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: November 13, 2019

Allegations Fail to Establish that Plaintiff Was Third-Party Beneficiary of Contract

On October 30, 2019, Justice Sherwood of the New York County Commercial Division issued a decision in Marshall Broadcasting Group, Inc. v. Nexstar Broadcasting, Inc., 2019 NY Slip Op. 33240(U), holding that a plaintiff’s allegations failed to establish that the plaintiff was a third-party beneficiary of a contract, explaining:

Nexstar asserts the second count for breach of the GA should be dismissed because MBG is not a party, third-party beneficiary, or closely related party to that agreement. Accordingly, it lacks privity and cannot invoke any of its provisions. For a nonparty to recover as a third party beneficiary, it must establish the specific intent of the parties to benefit the nonparty. A beneficiary is intended when:

recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either (a) the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or (b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.

MBG cannot satisfy these requirements because no such intention is stated in either Guarantee Agreement. The January 2017 GA provides: “[t]his Agreement shall be binding upon each Grantor and its respective successors and assigns and shall inure to the benefit of the Collateral Agent and its successors and assigns…. ” Nexstar concedes there is no per se rule that a guarantee agreement always has a third-party beneficiary. Instead, it must appear the parties to the agreement intended to recognize the third party as the primary party in interest and a privy to the promise. Nexstar concludes that because the Guarantee Agreement do not provide for compensation to MBG from any of the parties, MBG is not a third-party beneficiary.

Nexstar also argues that should MBG’s allegations suggest the existence of an unreferenced agreement, such evidence is improper parol evidence and should not be considered. Nexstar further points to the January 2017 GA’s integration clause which states it, along with other loan documents, represent the final agreement between the parties and that it may not be contradicted by other agreements of the parties. Finally, where as here, plaintiffs bare assertions are contradicted by documentary evidence, the motion to dismiss should be granted. Accordingly, the second count for breach of the GA must be dismissed.

(Internal quotations and citations omitted).

Usually, the only parties who have rights under a contract are the parties that signed the contract. As discussed here, sometimes a person who did not sign a contract nonetheless has rights under a contract that it can sue to enforce. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client face a situation where you are unsure how to enforce rights you believe you have under a contract.

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Posted in Commercial, Contracts
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