Opinion ID: 1235229
Heading Depth: 1
Heading Rank: 4

Heading: The Contract Suit.

Text: A & A contends that the court should not have submitted the plaintiffs' claim for breach of contract because (1) the plaintiffs were not third-party beneficiaries under the contract and therefore lacked standing to sue on the contract, and (2) in any event there was insufficient evidence to find a breach of the agreement by A & A. A. The plaintiffs' standing. The contract language at the heart of this claim is set out in the statement of the facts. The specific language claimed by the plaintiffs to give them a claim against A & A as third-party beneficiaries is this: Contractor [A & A] agrees that the Hospital [Genesis] may contract with the Independent Contractors [identified by name including these plaintiffs] to provide anesthesia services in the [surgery] department, provided that such agreement shall [be executed] no later than January 31, 1995, ... [and] shall expire no later than June 30, 1996. Contractor [A & A] agrees that it shall not unreasonably withhold its consent to the Hospital's request for an extension of time to execute the agreement with the Independent Contractors, contemplated above.... The agreement was signed by A & A and Genesis. The plaintiffs were identified as independent contractors in an exhibit attached to the agreement, but the plaintiffs did not participate in the drafting of the agreement, and they did not sign it. Nevertheless, the plaintiffs claim the right to sue for the enforcement of the agreement because, they claim, they are third-party beneficiaries. We have adopted the following principles applicable in third-party beneficiary cases as set out in the Restatement (Second) of Contracts: (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 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. (2) An incidental beneficiary is a beneficiary who is not an intended beneficiary. Midwest Dredging Co. v. McAninch Corp., 424 N.W.2d 216, 224 (Iowa 1988) (quoting Restatement (Second) of Contracts § 302 (1979)). As we observed in Midwest Dredging, the primary question is whether the contract manifests an intent to benefit a third party. Id. Using the terms of the Restatement of Contracts, A & A is the promisor, the party sought by a third party to be bound by the agreement. Genesis is the promisee which, for reasons later discussed, stood to benefit from being able to sign a service agreement with the independent contractors. A & A argues that there is no intent shown in the agreement to benefit these plaintiffs and that the agreement was solely for A & A to provide anesthesiology services in exchange for compensation by Genesis. There simply is no promise to enter into contract with plaintiffs, nor does the language convey an intent that Plaintiffs have a contractual right to such an agreement, according to A & A. We believe A & A misperceives the nature of the intent required for enforcement of a contract by a third-party beneficiary. The intent need not be to benefit a third party directly. As one writer explains, [w]hen a contract is made, the two or more contracting parties have separate purposes; each is stimulated by various motives, some of which he may not be acutely conscious. The contract itself has no purpose, motive, or intent. The two parties have purposes, motives and intentions; but they never have quite the same ones. In third-party cases, the right of such party does not depend upon the purpose, motive, or intent of the promisor. The motivating cause of his making the promise is usually his desire for the consideration given by the promisee. In few cases will he be moved by a desire to benefit a third person. If A buys Blackacre of B and promises B to pay the price to C, he makes this promise in order to get Blackacre, not to benefit C; and this is true whether C is a creditor of B's or is B's dearly beloved daughter or is a home for imbeciles. 4 Arthur Linton Corbin, A Comprehensive Treatise on the Working Rules of Contract Law § 776, at 15-16 (1951) [hereinafter Corbin]. In the present case, Genesis desired to retain its right to hire additional anesthesiologists because Genesis needed their services. Genesis therefore negotiated with A & A for the right to hire independent contractors, and that agreement became a part of the Genesis-A & A contract. This authority continues: A third party who is not a promisee and who gave no consideration has an enforceable right by reason of a contract made by two others ... if the promised performance will be of pecuniary benefit to [the third party] and the contract is so expressed as to give the promisor reason to know that such benefit is contemplated by the promisee as one of the motivating causes of his making the contract. Corbin § 776, at 18. The bargaining by Genesis to preserve the rights of the independent contractors did not arise out of the kindness of its corporate heart. Evidence at trial established that Genesis' anesthesiology department had been criticized for several reasons. Genesis needed more anesthesiologists than A & A could furnish, so Genesis needed the right to contract with additional anesthesiologists. The agreement in question was clearly meant to apply to the plaintiffs; their names were included as independent contractors listed on a sheet attached to the agreement. The plaintiffs qualify as third-party beneficiaries of the agreement and therefore have standing to enforce A & A's promise not to unreasonably withhold its consent to the Hospital's request for the extension. B. Evidence of the breach by A & A. A & A argues that, even if the plaintiffs qualify as third-party beneficiaries, A & A did not breach its agreement with Genesis by refusing to grant another extension of the deadline. The key language in the agreement is that A & A agrees that it shall not unreasonably withhold its consent to the Hospital's request for an extension.... Unreasonableness is clearly a fact issue uniquely suited for resolution by a jury. The jury apparently concluded that A & A did act unreasonably in withholding its consent for an extension. The plaintiffs presented evidence of possible retaliation by A & A and suggests that this was the reason for its refusal to consent to the extension. The plaintiffs' evidence showed that the plaintiffs had been critical of A & A in connection with peer reviews at the hospital. One plaintiff testified that A & A had excluded him from practicing anesthesiology at Genesis because the plaintiff had a lucrative practice and had voiced concerns about the peer-review system at the hospital, which plaintiffs characterized as dysfunctional. The plaintiffs introduced evidence that their activism in connection with the peer-review process caused them problems with A & A. The plaintiffs also introduced evidence concerning the reasons they were unable to comply with the deadlines imposed by the agreement. The eight outside anesthesiologists wrote a memorandum to Genesis on February 15, 1995, stating: Thank you for your communication received February 14, 1995. We would like to cooperate and facilitate this process, but are waiting for a response to our proposals both by the hospital and Anesthesia and Analgesia. We are unable to sign any documents by (6:00 PM) tonight. We look forward to discussion of our fair and pragmatic proposals. Genesis' medical staff requested that A & A and Genesis not close the door on the plaintiffs and the other independent anesthesiologists. A letter of February 9 to the president of Genesis from its medical staff stated that, at a special meeting of the staff, the motion was made that the Medical Staff would support the independent anesthesiologists to proceed to negotiate a mutually agreeable contract without a deadline. The motion was seconded and passed by direction.... In addition, the record includes a letter from the chairman of the surgery department noting that this department passed a resolution stating: The Surgery Department strongly advises every member of Anesthesia & Analgesia to act in the spirit of their contract and allow independent providers to sign the 18-month hospital contract by 3/1/95.... [T]here was a very strong consensus among department members that not allowing the independent anesthesia providers to sign the contract would not be in the best interest of the Medical Staff or in the best interest of patient care. A memo from one of the other outside anesthesiologists gave reasons for their inability to comply with the last extended deadline of February 15: We felt we were attempting rapid discussion and needed more time to discuss matters with A&A and were waiting for a response in good faith and communicated that to Dr. Swearingen around 1:00PM February 15, 1995 well before the 6:00PM deadline. What followed was absolute advantage given to A&A with no concern for the service provided to patients, the surgeons and obstetricians, the hospital and community by these eight practitioners. In considering the reasonableness of A & A's refusal of the last requested extension, we note that from the original deadline of January 31, 1995, to the end of the last extension agreed to by A & A, February 15, 1995, it was only fifteen days. The reasons given by A & A for its refusal to further extend the deadline (that A & A had begun negotiations with other providers and thus acted to protect itself under its contractual obligation to Genesis) apparently failed to persuade the jury. We believe that substantial evidence supports the jury's finding that A & A had acted unreasonably in denying the last extension.