Summary of a Recent
Judicial Development in
Commercial Transactions

Merely Incidental Beneficiary of Contract
Cannot Enforce Contract Terms

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In Jimenez v. J.G. Boswell Co., No. B205450, 2009 WL 1124944 (Cal. Ct. App. Apr. 28, 2009), the California Court of Appeals held that a plaintiff was merely an incidental beneficiary to an indemnification clause in a contract for the purchase of a cotton gin, and therefore could not enforce the contract terms.

Background

The plaintiff lost an arm in a cotton gin while working for J.G. Boswell Company (Boswell). Id. at *1. She recovered a default judgment against the manufacturer of the cotton gin, Consolidated Cotton Gin Company (Consolidated), in excess of $2 million, and then brought a breach of contract claim against Boswell for the same amount, claiming that she was a third party beneficiary of an indemnity clause in the cotton gin purchase agreement between Boswell and Consolidated. Id. She alleged that she had demanded that Boswell pay her and Boswell refused, thus breaching the contract. Id. The trial court found that the plaintiff was not a third party beneficiary to the indemnification contract and granted summary judgment for Boswell, reasoning that if she were a third party beneficiary she would essentially obtain a double recovery, and the plaintiff appealed. Id.

Analysis and Holdings

The appellate court explained that merely incidental benefits are not sufficient to create privity; the general rule is that if the contracting parties intended to confer a benefit on the third party, the third party may enforce the contract. Id. at *2. The court noted that the contract's terms showed "only that the parties intended the indemnity clause to benefit Consolidated, the manufacturer, by holding it harmless from any liability related to Boswell's installation, operation or use of the cotton gin." Id. at *3. The court found that Consolidated only intended to shield itself from liability, not to benefit Boswell's employees. Id. Therefore, the court affirmed and held that the plaintiff was "no more than an incidental beneficiary" and could not enforce the indemnity clause. Id.

The case was decided on April 28, 2009.