Superior Court of Los Angeles County (California)

Procedural Posture

Defendant business associates appealed the judgment of the Superior Court of Los Angeles County (California), which held that plaintiff creditor was a third party beneficiary of a contract executed by the associates and a builder. If you face civil litigation issues then visit the best law firm and hire the best civil litigation lawyer.

Overview

The creditor advanced money to the builder to assist the builder in constructing homes on a specified tract. The associates were aware of some of the creditor's advancements to the builder, but the associates were not aware of the full extent of the builder's obligations to the creditor. The associates and the builder formed a corporation to develop the tract, and in conjunction with the formation of the corporation, the associates and the builder personally agreed to pay the creditor in full once certain lots were transferred to the corporation. Because of financing problems and the builder's dishonesty, the tract was never developed, and the creditor filed an action against the business associates seeking compensation as a third party beneficiary. The lower court held that the creditor was a third party beneficiary, and the court reversed. The court held that the agreement of the business associates was conditioned upon the transfer of certain lots to the corporation. Because the lots were never transferred to the corporation, a necessary condition precedent to the formation of the agreement did not occur. Therefore, the business associates had no obligation to the creditor.

Outcome

The court reversed the lower court's judgment, which held that the creditor was a third party beneficiary of a contract executed by the business associates.