Opinion ID: 475821
Heading Depth: 3
Heading Rank: 1

Heading: Third-Party Beneficiary Theory

Text: 33 The defendants argue that Bechtel and the IBEW, the parties to the Amended Specialty Agreement, had expressly reserved the right to modify the agreement, and that the Stabilization Agreement constitutes such a permissible modification. Local 640 contends that, while it was not a signatory to the Amended Specialty Agreement, no modification could occur without its consent because it was an intended beneficiary of that agreement and its rights under it had vested in the early 1970's when its members worked for Bechtel on other projects. 34 The defendants respond that the parties to the Amended Specialty Agreement did not intend to make Local 640 a third-party beneficiary of that agreement, third-party beneficiary principles have no application in a labor law context, and the agreement gave the signatories the right to modify. The district court did not reach the latter issues, but held, prior to trial, that Local 640 was not an intended beneficiary of the Amended Specialty Agreement. The district court did not otherwise explain the basis for its decision, but we need not remand for further explanation and findings. 35 We assume without deciding that third-party beneficiary principles apply here, and we also accept for purposes of this appeal that the signatories intended Local 640 to be a beneficiary. Even under these assumptions, however, Local 640 cannot prevent the modification of the Amended Specialty Agreement because the agreement expressly reserved to the signatories, Bechtel and the IBEW, the right to modify at any time by mutual consent. Principles of contract interpretation are legal issues subject to our de novo interpretation. Kemmis v. McGoldrick, 767 F.2d 594, 597 (9th Cir.1985). One established principle is that the rights of a third-party beneficiary are limited by the contract between the promisor and the promisee. Punikaia v. Clark, 720 F.2d 564, 570 (9th Cir.1983) (citing 4 A. Corbin, Contracts Secs. 810, 818 (1951); 2 S. Williston, Contracts Sec. 364A (3d ed. 1959)), cert. denied, 469 U.S. 816, 105 S.Ct. 83, 83 L.Ed.2d 30 (1984); see also Montana Bank of Circle, N.A. v. United States, 7 Cl.Ct. 601 (1985). In Punikaia, the parties intended the state's obligation to maintain a leprosarium would expire in twenty-one years. 720 F.2d at 570. Thus, at the end of that time patients who were third-party beneficiaries had no further rights under the agreement. In Montana Bank, a bank's claims as third-party beneficiary were rejected because the signatories of the contract had expressly provided that the contract could be terminated by mutual agreement of [the signatories]. This power was reserved expressly and could be exercised by [the signatories] without regard to its effect on Bank as a third party beneficiary. 7 Cl.Ct. at 611. 36 Here the parties to the Amended Specialty Agreement intended that its provisions were subject to modification when agreed to by the parties. [T]hird-party beneficiaries cannot exercise rights that the parties did not intend them to have. Punikaia, 720 F.2d at 570. Local 640, by accepting the benefits of the Amended Specialty Agreement, also accepted the limitations of the contract. See Trans-Bay Engineers & Builders, Inc. v. Hills, 551 F.2d 370, 378 (D.C.Cir.1976). 37 Local 640 contends that its rights under the Specialty Agreement were vested once it engaged in work for Bechtel on other contracts. Assuming that rights were vested for the purpose of those contracts, there were no vested rights acquired for the Palo Verde project because the Specialty Agreement provided for modification. The Stabilization Agreement constituted such a modification. Local 640 was well aware of the changed terms included in the Stabilization Agreement before any of its members accepted employment at Palo Verde. 38 We conclude that no third-party beneficiary rights of Local 640 were violated. We must next consider whether, by modifying that agreement through the execution of the Stabilization Agreement, the IBEW breached any other contract rights with Local 640 or whether, under its constitution, the IBEW lacked authority to enter into the Stabilization Agreement.