Third Party Beneficiary Beware…

 

breach of a contract can be frustrating for both parties

Angry businessman tearing up a document, contract or agreement

A recent decision in United States District Court deals with the problem of contracts with third-party beneficiaries.  Most of us are familiar with simple two-party contracts, but when a third party becomes involved, breach of contract issues become more complicated.  The Hon. Judge Richard G. Stearns issued a judgment on an interesting case on March 11, 2016 in the U.S. Court District of Massachusetts.

There are three parties involved in this civil action.  Arabian Support & Services Company, Ltd. (ASASCO) was a Riyadh, Saudi Arabia based consulting firm.  Textron Systems Corp. is a major U.S. defense contractor, selling arms worldwide.  Blenheim Capital Partners is an English consulting firm that facilitates arms sales by investing in the buying country.  Many countries require local investment before armaments may be sold to them.

This case involves a sale of cluster bombs made by Textron to the Saudi Arabian government.  ASASCO represented Textron’s product to the Saudis, Blenheim supplied capital for the local investment, and the sale was made.

This case involves two separate contracts.  One contract involved Textron paying Blenheim a percentage of sales for supplying investment funds.  The other involved Blenheim then paying ASASCO a commission on the sale.  The second contract was entirely dependent on the first.  Textron and Blenheim terminated their contract in January of 2012, which effectively voided the Blenheim-ASASCO contract as well.  The cluster bomb sale was finalized in August 2013.  When they did not receive a commission on the sale, ASASCO filed a civil lawsuit for breach of contract against Textron in the U.S. District Court of Massachusetts.

In his summary judgment, Judge Stearns noted that Textron had acted in good faith with respect to its relationship with ASASCO.  He also noted that the actions of Blenheim when voiding their contract with Textron effectively cut ASASCO out of the sale.  In his opinion, Judge Stearns stated that ASASCO should have brought the lawsuit against Blenheim, the party who had damaged ASASCO’s interests, not Textron.

This case is a good example of contracts regarding third-party beneficiaries and commissions.  Subcontracts dependent on other contracts should be entered into with caution.  Breach of contract issues with third-party beneficiaries can be very complex.  When entering into these types of contracts or filing a breach of contract lawsuit, always consult a legal professional.

If you need help drafting or reviewing a contract, please get in contact.

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Arthur Hardy-Doubleday

Author Arthur Hardy-Doubleday

Arthur Hardy-Doubleday practices law in Cambridge and Martha's Vineyard Massachusetts. He works in the areas of Real Estate, Personal Injury, and Consumer Protection Law. When not practicing law, Arthur enjoys sailing, hanging out with friends on the beach, and waking his dog "Ridiculous."

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