Corrugated Paper Products, Inc. v. Longview Fibre Co.

• Decision Date: 31 January 1989
• Docket Number: No. 88-1668,88-1668
• Citation: 868 F.2d 908
• Parties: CORRUGATED PAPER PRODUCTS, INC., Plaintiff-Appellant, v. LONGVIEW FIBRE CO., Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 908

868 F.2d 908

CORRUGATED PAPER PRODUCTS, INC., Plaintiff-Appellant, v. LONGVIEW FIBRE CO., Defendant-Appellee.

No. 88-1668.

United States Court of Appeals, Seventh Circuit.

Argued Oct. 31, 1988.

Decided Jan. 31, 1989.

R. Wyatt Mick, Jr., Bingham, Loughlin, Mick & Bent, Mishawaka, Ind., Edward J. Murphy, Notre Dame Law School, Notre Dame, Ind., for plaintiff-appellant.

Richard M. Esenberg, Foley & Lardner, Milwaukee, Wis., for defendant-appellee.

Before CUMMINGS and CUDAHY, Circuit Judges, and PELL, Senior Circuit Judge.

CUDAHY, Circuit Judge.

Plaintiff-appellant, Corrugated Paper Products, Inc. ("Corrugated"), appeals the grant of summary judgment in favor of the defendant-appellee, Longview Fibre Company ("Longview"). Corrugated's complaint in this diversity case alleges that it is a third-party beneficiary of a contract for the sale of certain used industrial equipment entered into by Longview and Atlas Corrugated Machinery, Inc. ("Atlas"). Since we agree with the district court that Corrugated has not put forward any facts which would entitle it to third-party beneficiary status, we affirm.

I.

Corrugated and Longview are manufacturers of cardboard and other paper products. Atlas buys and sells used machinery employed in the paper products industry. During the latter part of 1983, Corrugated informed Atlas that it was interested in purchasing a used "cut-off" knife for its Mishawaka, Indiana facility. On February 17, 1984, Atlas received a letter from Longview indicating that Longview had a used cut-off knife for sale. Shortly thereafter, Atlas employee Berneice Gurley contacted Longview's Russell Reeve and indicated that Atlas was interested in purchasing the knife. During this phone conversation, Gurley told Reeve that Atlas had a prospective buyer for the equipment. According to their depositions, Reeve asked Gurley for assurances that Atlas would purchase the equipment "for its own account," whatever the outcome of Atlas' further business dealings with the (unidentified) subsequent purchaser. Gurley assured Reeve that Atlas would acquire the knife irrespective of the status of the further sale.

Between February 22 and March 30, 1984, Corrugated employees spoke directly with employees at Longview regarding the knife's technical specifications, performance and condition. On April 3, 1984, a Corrugated representative visited Longview's plant in Cedar Rapids, Iowa, to inspect the knife in operation. As a result of this visit, on April 10, 1984, Corrugated and Atlas entered into a written agreement for the purchase of the knife. Corrugated sent Atlas a deposit of $5,000 on May 1, 1984. After cashing the deposit check, Atlas sent a written purchase order for the knife to Longview on May 17, 1984, together with its own check in the amount of $5,000. The purchase order stated that the knife would be shipped F.O.B. to Corrugated's Mishawaka plant. The purchase order also provided that the knife would be shipped "approximately June 15, 1984 upon installation of new replacement machinery." Between the Corrugated visit to Cedar Rapids and the execution of the purchase order, Gurley again assured Reeve that Atlas was purchasing the knife for itself and that the deal was not contingent on Atlas' success in reselling the equipment.

During the summer of 1984, Corrugated contacted Longview on several occasions to determine the shipping date of the equipment. Longview informed Corrugated that shipping had been delayed due to Longview's difficulties in securing satisfactory replacement machinery. On September 10, 1984, Atlas sent an amended purchase order to Longview, directing that the equipment be sent to a different buyer. Longview complied with Atlas' request. ¹ On September 28, Corrugated learned from Longview employees that the knife would not be shipped to Corrugated.

On March 26, 1985, Corrugated filed suit against both Atlas and Longview, alleging breach of contract. Summary judgment was granted to Corrugated against Atlas, but this judgment is apparently uncollectible. The district court also entered summary judgment in favor of Longview, finding that Corrugated was not a third-party beneficiary of the Atlas-Longview agreement. Corrugated appeals from the summary judgment in favor of Longview.

II.

In reviewing the district court's grant of summary judgment, we must examine the entire record to determine whether a genuine issue of material fact exists requiring a trial on the merits, construing all facts in the light most favorable to the nonmovant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-52, 106 S.Ct. 2505, 2509-11, 91 L.Ed.2d 202 (1986); Scherr v. Woodland Community Consol. Dist. No. 50, 867 F.2d 974, 981, 983, (7th Cir. 1988). However, if the nonmovant bears the burden of proof on an issue, it "may not simply rest on its pleadings, but must affirmatively demonstrate, by specific factual showings, that there is a genuine issue of material fact requiring trial." First Nat'l Bank of Cicero v. Lewco Securities Corp., 860 F.2d 1407, 1411 (7th Cir.1988); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-26, 106 S.Ct. 2548, 2552-55, 91 L.Ed.2d 265 (1986). Since Corrugated bears the burden of demonstrating it is a third-party beneficiary, we must determine whether Corrugated has identified specific facts to support the contention that it is entitled to enforce the Atlas-Longview contract.

Under New Jersey law, ² the intent of the contracting parties when executing the contract is the controlling factor in determining whether enforceable rights have been created in a third party. The New Jersey Supreme Court has only recently stated that

[t]he principle that determines the existence of a third party beneficiary status focuses on whether the parties to the contract intended others to benefit from the existence of the contract, or whether the benefit so derived arises merely as an unintended incident of the agreement.

In Brooklawn v. Brooklawn Housing Corp., 124 N.J.L. 73, 11 A.2d 83 (E. &amp A.1940), the Court of Errors and Appeals stated the proposition:

The determining factor as to the rights of a third party beneficiary is the intention of the parties who actually made the contract. Thus, the real test is whether the contracting parties intended that a third party should receive a benefit which might be enforced in the courts; and the fact that such a benefit exists, or that the third party is named, is merely evidence of this intention. [Id. at 76-77, 11 A.2d 83.]

The contractual intent to recognize a right to performance in the third person is the key.

Broadway Maintenance Corp. v. Rutgers, 90 N.J. 253, 259, 447 A.2d 906, 909 (1982); see also Dravo Corp. v. Robert B. Kerris, Inc., 655 F.2d 503, 510 (3d Cir.1981) (New Jersey law); Insulation Contracting & Supply v. Kravco, Inc., 209 N.J.Super. 367, 507 A.2d 754, 758 (App.Div.1986). Cf. Holbrook v. Pitt, 643 F.2d 1261, 1270 n. 17 (7th Cir.1981) (federal common law; "the central interpretative question involved in third-party beneficiary problems: did the contracting parties intend that the third party benefit from the contract?"); Restatement (Second) of Contracts Sec. 302 (1981).

In determining the intent of the contracting parties, the fact that a third party is named in the contract, or that performance is to run directly to the third party, is not conclusive. For example, in the Brooklawn case, the court found that a municipality was not a third-party beneficiary of a real estate sales contract, even though the agreement provided that the purchaser would pay past-due real estate taxes directly to the municipality. In Dravo Corp., the Third Circuit held that an equipment manufacturer could not enforce an agreement between a construction contractor and a subcontractor, despite the fact that the contract specifically provided for installation of the manufacturer's products, and the contracting parties had discussed selection of the manufacturer's equipment at length. See also F.W. Hempel & Co., Inc. v. Metal World, Inc., 721 F.2d 610 (7th Cir.1983) (Illinois law; "bare mention" of third party in contract insufficient to establish third-party beneficiary status).

In other jurisdictions, courts have also been reluctant to recognize third-party rights based solely on the fact that the contracting parties were aware of the third person's relationship to the transaction. For example, courts have generally held that a third party is not a beneficiary of a sales agreement merely because both contracting parties knew that the product would be resold to the third party, or to a class of which the third party was a member. Even where the subsequent purchaser is mentioned by name in the contract, such a third party is "no more than a known remote buyer" in the absence of further evidence of an intent to benefit the third party. Kaiser Aluminum & Chemical Corp. v. Ingersoll-Rand Co., 519 F.Supp. 60, 73 (S.D.Ga.1981). ³ Similarly, where a loan commitment is relied upon by persons dealing with the borrower, no third-party rights are recognized, even if the lender knew the identity of the third party (such as a home seller), or the lender directly communicated with the third party regarding the loan commitment. ⁴ And a property owner is generally not a third-party beneficiary of an agreement between a general construction contractor and a subcontractor, even though both contractor and sub knew that benefits were to be directly conferred on the property owner. ⁵

As these decisions indicate, there is an important difference between knowledge that a certain outcome will occur, and an intent to bring about that result. In order to establish third-party beneficiary status, a plaintiff must show more than that the contracting parties acted against a backdrop of knowledge that the plaintiff would derive benefit from the agreement. The plaintiff must show that the benefit to plaintiff was a consequence which the parties affirmatively sought;...