Opinion ID: 790690
Heading Depth: 2
Heading Rank: 2

Heading: The Enforceability of the Negating Clause

Text: 24 In its first opinion, the District Court reasoned that the specific identification of [Dalal] in the contract supersedes the general language in the Negating Clause, which explicitly excluded any third-party beneficiaries from recovery under the SPA. It found that the contractual provisions in question were not ambiguous, but, at the same time, concluded that to the extent that there is any ambiguity in this regard, Dalal and EasyLink specifically bargained for Dalal's inclusion in the SPA as an intended beneficiary of it. Thus, the District Court concluded that the identification of Dalal in Section 3.16 of the SPA and in Disclosure Schedule 3.16 together established him as a third-party beneficiary. 25 We disagree. The Negating Clause, entitled No Third Party Beneficiaries, clearly provided that no Schedule was intended to create any right, claim or remedy in favor of any person or entity other than the parties hereto for anyone other than the parties. A321. In other words, since the parties' intention to benefit the third-party must be apparent from the contract, the text of the SPA specifically foreclosed the theory of recovery on which Dalal and the District Court relied. See, e.g., In re Gulf Oil/Cities Serv. Tender Offer Litig., 725 F.Supp. 712, 733 (S.D.N.Y.1989); Port Chester Elec. Constr. Corp. v. Atlas, 40 N.Y.2d 652, 655, 389 N.Y.S.2d 327, 357 N.E.2d 983 (1976) (It is old law that a third party may sue as a beneficiary on a contract made for his benefit. However, an intent to benefit the third party must be shown, and, absent such intent, the third party is merely an incidental beneficiary with no right to enforce the particular contracts.) (internal citations omitted). 26 Dalal and the District Court were distracted by a line of New York cases addressing the issue of whether a broker's commission is due after a sale has been consummated. The cases typically hold that where a broker is expressly identified in a contract which references an obligation to pay a broker its commission, the broker is entitled to recover as a third-party beneficiary. See, e.g., Cauff, Lippman & Co. v. Apogee Fin. Group, 807 F.Supp. 1007, 1020 (S.D.N.Y.1992) (permitting recovery by a third-party beneficiary because the broker was expressly identified in the contract and the contract referenced the brokerage's obligation to pay his commission); Ambrose Mar-Elia Co. v. Dinstein, 151 A.D.2d 416, 543 N.Y.S.2d 658, 660-61 (1st Dep't 1989) (concerning the allocation of a commission once a sale had closed); Edward S. Gordon Co. v. Blodnick, Schultz & Abramowitz, P.C., 150 A.D.2d 212, 540 N.Y.S.2d 816 (1st Dep't 1989) (concerning a sublease transaction that had closed). These cases stand for the unremarkable proposition that, in the absence of negating language, the naming of a broker in a contract reflects an intention to benefit the broker, and thus confers third-party beneficiary status. They do not examine the issue, which is dispositive here, of the relationship between commission clauses and negating clauses. 27 Under New York law, the effectiveness of a negating clause to preclude third-party beneficiary status is well-established: [w]here a provision exists in an agreement expressly negating an intent to permit enforcement by third parties, ... that provision is decisive. Nepco Forged Prods., Inc. v. Consolidated Edison Co. of N.Y., Inc., 99 A.D.2d 508, 470 N.Y.S.2d 680, 681 (2d Dep't 1984); see Morse/Diesel, Inc. v. Trinity Indust., Inc., 859 F.2d 242, 249 (2d Cir.1988) (Under New York law, where a provision in a contract expressly negates enforcement by third parties, that provision is controlling.); Schuler-Haas Elec. Corp. v. Wager Constr. Corp., 57 A.D.2d 707, 395 N.Y.S.2d 272, 274 (4th Dep't 1977); see also Edward B. Fitzpatrick, Jr. Constr. Corp. v. County of Suffolk, 138 A.D.2d 446, 525 N.Y.S.2d 863, 866 (2d Dep't 1988) (finding that the construction company was merely an incidental beneficiary, not a third-party beneficiary, to a contract between an architect and the county). 28 For these reasons, we conclude that the mention of Dalal in the contract as a broker entitled to a commission is insufficient to confer third-party status where the parties themselves are explicit that they did not intend to create third-party beneficiaries. In Morse/Diesel we arrived at a similar conclusion. Although there were various provisions in subcontracts that reflect[ed] and envision[ed] coordinated effort by the various subcontractors, we concluded that these tangential references did not overcome the explicit negation of third-party beneficiary obligations found elsewhere in the subcontracts. Morse/Diesel, 859 F.2d at 249. We held that the contracts could not be construed to bestow third-party benefits on other subcontractors. Id. By the same token, Dalal is not a third-party beneficiary of the SPA.