Opinion ID: 1037090
Heading Depth: 2
Heading Rank: 2

Heading: Wamego’s Motion for Summary Judgment

Text: Wamego also contends it can sue Tri-State for breach of contract. The district judge concluded Wamego had no right to sue either as a matter of contract law or under the specific terms of the loan agreements. He reasoned Wamego was not a party to the loan agreement and, generally, a participant bank has no legal relationship with the borrower and the participant cannot look to the borrower for satisfaction of the debt. See First Bank of WaKeeney v. Peoples State Bank, 758 P.2d 236, 239 (Kan. App. 1988) pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition.” 7 We say “might” be precluded only because Pennsylvania does not apply issue preclusion to default judgments. McGill, 828 A.2d at 434. - 12 - (“[I]n the absence of a negotiated contract term, the lead bank exercises sole control over the collection and enforcement of the loan.”). The judge determined the loan agreement was not intended to grant third-party benefits to participants, the participation agreements conferred no rights to enforce the contracts, and the assignment conferred no additional rights to Wamego. As a result, he concluded, Wamego had no right to sue Tri-State even if the contracts were not rescinded. While Wamego acknowledges it was not a party to the loan contract, it argues the provision regarding the rights of participants gave it an independent right to sue. It is correct. As stated above, we apply Kansas law. “Where a plaintiff and defendant lack privity, Kansas law allows a qualified third-party beneficiary plaintiff to enforce a contract expressly made for his or her benefit even though he or she was not a party to the transaction.” State ex rel. Stovall v. Reliance Ins. Co., 107 P.3d 1219, 1230-31 (Kan. 2005). Kansas case law distinguishes third-party contract beneficiaries into the general classes of intended beneficiaries and incidental beneficiaries. Noller v. GMC Truck & Coach Div., 772 P.2d 271, 275 (Kan. 1989) (citing Fasse v. Lower Heating and Air Conditioning, Inc., 736 P. 2d 930 (Kan. 1987)). A beneficiary may sue to enforce a contract made by others only if he is an intended beneficiary, i.e., one who the contracting parties intended should receive a direct benefit from the contract. Id. “In determining whether a particular person is an intended beneficiary of a contract, - 13 - the court applies the general rules for construction of contracts.” Byers v. Snyder, 237 P.3d 1258, 1265 (Kan. Ct. App. 2010). It is not necessary for the third party to be the exclusive beneficiary of the contract; it may benefit the contracting parties as well. Fasse, 736 P.2d at 932. Nor is it necessary for the third party beneficiary to be personally named in the contract. It will suffice if he is a member of a designated class or otherwise identifiable as a person intended by the parties’ language to benefit from the contract. Hartford Fire Ins. Co. v. Western Fire Ins. Co., 597 P.2d 622, 632 (Kan. 1979). “Before the issue is reached of whether a third party may directly enforce a contract from which he would benefit, the third party must show the existence of some provision in the contract that operates to his benefit.” Stovall, 107 P.3d at 1231. Wamego points to the contractual provision specifically relating to the participants to the loan. In that provision, Tri-State permitted Aleritas to sell participating interests and waived any notice of the sale. Further, the parties “agree[d] that the . . . purchasers of any participation interests may or will be considered as the absolute owners of such interests in the Loan” and “unconditionally agree[d] that such . . . purchaser may enforce Borrower’s obligations under the Loan irrespective of the failure of insolvency of any holder of any interest in the Loan.” (Vol. 1 at 22.) Finally, Tri-State “agree[d] that the . . . purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender.” Id. According to Wamego, this language clearly expresses Tri-State’s agreement to allow participants the benefit of directly enforcing Tri-State’s contractual obligations. - 14 - Tri-State argues as follows. It did not intend to benefit Wamego and was unaware of the existence of participants for two years. Moreover, “[c]ontracting parties are presumed to act for themselves and therefore an intent to benefit a third person must be clearly expressed in the contract.” Noller, 772 P.2d at 275. Because the court must consider the whole contract rather than just one isolated sentence or provision, the single provision relied on by Wamego is insufficient to defeat the presumption the parties did not intend to benefit Wamgeo. See Byers, 237 P.3d at 1265 (“Contracts should not be interpreted by isolating one particular sentence or provision, but by construing and considering the entire instrument.”). Tri-State’s assertions of its intent do not control. “The intention of the parties and the meaning of the contract are to be determined from the instrument itself where the terms are plain and unambiguous.” Fasse, 736 P.2d at 933. Where the provisions of a written contract are clear and unambiguous, there is no occasion for applying rules of construction. A contract must be enforced according to its terms so as to give effect to the intention of the parties, and that must be determined from the four corners of the instrument itself. Id. at 933-34. In two key cases, the Kansas Supreme court has illustrated the distinctions between an intended beneficiary and other beneficiaries. In Fasse, a provision of the contract provided the employer agreed to pay wages based on the scale derived from the Davis-Bacon Act, 40 U.S.C. § 278a et seq. 736 P.2d at 931. Without that provision, Kansas law would require only a lower minimum wage. Id. When the employer attempted to pay the Kansas wage scale, the employees filed suit. The court found the - 15 - wage provision in the contract unambiguously conferred a benefit on the employees and therefore, the employees were third-party beneficiaries of the contract between their employer and the owner of property. 736 P.2d 934. In light of the clear and unambiguous language of the loan addendum, the district judge erred in requiring more than one provision to establish the parties’ intent. We do not disagree with his observation that the loan agreement “demonstrate[s] the parties’ intent to benefit [Tri-State] by their receipt of the loan proceeds, and to benefit Aleritas by its receipt of interest on repayments of the loan.” (Vol. 5 at 1357.) But under Kansas law, this does not preclude the participants’ status as third-party beneficiaries. Fasse, 736 P.2d at 932 (“The contract may also benefit the contracting parties as well.”). The employees in Fasse were not the focus of the construction contract; it was the specificity of the provision granting them a certain benefit that conferred their third-party right to enforce the receipt of that benefit. Tri-State agreed to allow the sale of participating interests, to waive notice of the sale, and to consider the participants “as the absolute owners” of their interests. (Vol. 1 at 22.) And Tri-State “unconditionally agree[d] that such . . . purchaser may enforce Borrower’s obligations under the Loan irrespective . . . of any personal claims or defenses that Borrower may have against Lender.” (Id.) No one claims this language is ambiguous—and the benefit is obvious. Tri-State correctly quotes WaKeeney, “in the absence of a negotiated contract term, the lead bank exercises sole control over the collection and enforcement of the loan.” Wakeeney, 758 P.2d at 239. But the case is of no help to it because here the parties agreed that the participants would have the right to - 16 - enforce Tri-State’s obligations under the loan. The participants were intended beneficiaries of the loan agreement between Tri-State and Aleritas pursuant to the addendum to Loan # 5483. Stovall is not contrary to this result. There, the Kansas Supreme Court looked to the Restatement (Second) Contracts § 302, as support for its determination that the State was not an intended third-party beneficiary to the contract between its contractor and a subcontractor. The Restatement section provides in relevant part: (1) 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 . . . (a) the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary . . . . Stovall, 107 P.3d at 1232 (Restatement (Second) Contracts § 302). The Comment to this section defines “a ‘promisee’ as the person to whom a promise is addressed, and ‘beneficiary’ as a person other than the promisee who will be benefitted by performance of the promise.” Restatement (Second) comment a. “Both terms are neutral with respect to rights and duties: either or both or neither may have a legal right to performance.” Id. The Stovall court reasoned: While the State's plans and specifications are referenced within the subcontracts in question, there is no language clearly expressing an intent for the subcontractors to assume a direct duty to the State. The provisions referenced by the State do not include a promise or the specific intention to benefit the State, nor were the provisions made directly and primarily for the [State's] benefit. 107 P.3d at 1232 (quotation marks omitted). - 17 - Unlike the parties in Stovall, Aleritas, the promisee in this case, contracted with Tri-State to allow the participants to enforce their interests in the loan. It cannot be doubted that the performance of this promise will satisfy Aleritas’s obligation to pay the participants the money owed on their participation interests, placing the situation here directly within the Restatement’s parameters. The general rules limiting the rights of participants notwithstanding, the contract addendum between Aleritas and Tri-State unambiguously gave Wamego and the other participants the right to enforce the contractual obligations affecting their interests in Loan # 5483. Loan # 5484, however, did not include the addendum providing for the participants’ rights. And neither Wamego nor the Gibson Family signed a participation agreement with Aleritas securing an interest in that loan. Therefore, the only document which may grant Wamego a right to enforce Audet’s obligations under Loan # 5484 is the assignment of administrative duties from Aleritas to Wamego, but Wamego does not argue this point on appeal. In sum, Wamego makes no argument which would establish standing to sue on Loan # 5484. The district judge did not err in granting Tri-State summary judgment on Wamego’s claims relating to the loan to Audet. The grant of summary judgment in favor of Tri-State on Loan # 5483 is REVERSED, summary judgment in favor of Tri-State on Loan # 5484 is AFFIRMED, and this case is REMANDED to the district court. Entered by the Court: Terrence L. O’Brien