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Colonial Disc. Co. v. Avon Motors, Inc. - 137 Conn. 196, 75 A.2d 507 (1950)

Rule:

The ultimate test to be applied in determining whether a third party beneficiary under a contract may sue for a breach of that contract is whether the intent of the parties to the contract was that the promisor should assume a direct obligation to the third party and that that intent is to be determined from the terms of the contract read in the light of the circumstances attending its making, including the motives and purposes of the parties. 

Facts:

Defendant Avon Motors, Inc. (Avon) was engaged in the business of buying and selling used automobiles. Avon leased its place of business and all of its equipment to lessee (defendant Levin), who planned to operate his own used automobile business at the site. Under the terms of the lease, Levin agreed to finance his inventory through a subsidiary of the assignee, plaintiff Colonial Discount Company (Colonial). However, Levin did not at any time finance any motor vehicles acquired or sold by him in the conduct of his business; rather, he did all of his financing with the Associates Discount Corporation. The subsidiary assigned its rights under the lease to Colonial, which then filed an action alleging breach of contract. Defendants Avon and lessee Levin contended that the contract was not of such a nature that Colonial could file suit thereon as a third-party beneficiary. The superior court disagreed, concluding that the provisions of the lease between Avon and Levin bound Levin to do his financing with the subsidiary of Colonial; that those provisions exclusively were intended for the benefit of the subsidiary; that those provisions could be enforced by its assignee Colonial; that Levin had breached the lease; and that Avon, acting through its president, had caused that breach. The superior court entered a judgment in favor of Colonial. Defendants Avon and Levin sought appellate review of the judgment entered by the superior court.

Issue:

Can a plaintiff, who maintained that it was an assignee of a third-party beneficiary to defendants' lease, maintain an action?

Answer:

No.

Conclusion:

In determining whether a party is a third-party beneficiary to a contract between two other parties, the final test is whether the intent of the parties to the contract was that the promisor should assume a direct obligation to the third party. After applying that test to the lease between Avon and Levin, the appellate court concluded that is was quite apparent from the contract itself, viewed in the light of the motives of the parties and the purposes they sought to accomplish, that it was not the parties' intent to create a direct obligation from Levin to Colonial's subsidiary. Thus, the appellate court reversed, concluding that plaintiff Colonial did not have enforceable rights under the lease because neither Avon nor lessee Levin intended to create a direct obligation that required Levin to finance his inventory exclusively through the subsidiary.

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