Opinion ID: 1658367
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Heading: Plaintiffs' Rights As Third Party Beneficiaries.

Text: From the inception of this foreclosure action the plaintiffs have contended that they are third party beneficiaries of the joint venture contract and acceptance agreement under which the assignee defendants Stevens, Fike, Greene, and Bibo agreed to be bound by the terms and conditions of the plaintiffs' contract with Currys. The assignee defendants responded, and the trial court found, that the assignments were not entered into for plaintiffs' benefit. The trial court held that the plaintiffs were gratuitous beneficiaries of such assignments who had no right to enforce the assignee defendants' promises to perform the Bridgman-Curry contract. We disagree. The decisive factor in determining whether a party may bring an action to enforce a contract between other parties is the intent of the contracting parties themselves. We recently emphasized the importance of the intent of the contracting parties, particularly the promisee, in Khabbaz v. Swartz, 319 N.W.2d 279 (Iowa 1982), where we stated: In order to enforce a contract, the third party beneficiary must show that the contract was made for his express benefit. Olney [ v. Hutt, 251 Iowa 1379, 1384-85, 105 N.W.2d 515, 519 (1960)]; 2 S. Williston, A Treatise on the Law of Contracts, § 356A at 836 (Jaeger ed. 1959) (`the authorities are in accord that one suing as a third party beneficiary has the burden of showing that the provision was for his direct benefit' and unless he can sustain this burden, he will not be permitted to sue on the agreement.). The real test is said to be whether the contracting parties intended that a third person should receive a benefit which might be enforced in the courts. Bailey v. Iowa Beef Processors, Inc., 213 N.W.2d 642, 645 (Iowa 1973), cert. denied, 419 U.S. 830, 95 S.Ct. 52, 42 L.Ed.2d 55 (1974). Id. at 285. This test for determining when third party beneficiaries may enforce contracts between other parties is consistent with the test of the Restatement (Second) of Contracts (1981), which in section 302 provides: Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if 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. Section 304 then provides: A promise in a contract creates a duty in the promisor to any intended beneficiary to perform the promise, and the intended beneficiary may enforce the duty. Under the test in Khabbaz, as well as the Restatement black-letter rules, the plaintiffs in this case are intended beneficiaries who have the right to enforce the promises the assignee defendants made to the Currys. Their joint venture contract, as well as their acceptance of the assignment, specifically provided that the assignees were to be bound by the terms of the Bridgman contract. Currys obviously intended that the assignee defendants, as joint venturers with Currys, would be obligated to share with them the burden of paying amounts due under the Bridgman-Curry contract. They thereby intended that plaintiffs be benefited to that extent. Our cases firmly establish that intended beneficiaries, like the plaintiffs here, may enforce an agreement between promisees like the Currys and promisors like the assignee defendants who have agreed to make the promisees' debt their own. See McGregor Subdivision Co. v. Mabie, 194 Iowa 1259, 1264, 191 N.W. 117, 119 (1922); Duntz v. Ames Cemetery Association, 192 Iowa 1341, 1345, 186 N.W. 443, 445 (1922). We recognize that a promisor may have defenses against a third party beneficiary's claim based on unenforceability of the contract at its formation or because of such infirmities as present or prospective failure of performance. See Restatement (Second) of Contracts § 309 (1981). The assignee defendants have raised no such defense here. The trial court erred in concluding that the contract between the assignee defendants and Currys was not entered into for plaintiffs' benefit and could not be enforced by them.