Who Can Enforce a Contract?

By Dan Jacobson

If a person offers to pay a few bucks to the 7-11 cashier for a six-pack of Pepsi and the cashier accepts that offer, the now-formed contract can be enforced. But, in the practice of contract litigation, such stark and simple facts rarely present themselves when the issue is who can enforce a contract; sometimes that issue can be a real headscratcher.

Of course, contracting parties can enforce contracts between themselves, as can certain third-party beneficiaries. But, then the questions arise - who is a party to a contract, and what type of third-party beneficiary enjoys the right to enforce? How these questions are answered in practice is very important.

"If the first rule of medicine is 'Do no harm,' the first rule of contracting should be 'Read the documents."' Villacreses v. Molinari, 132 Cal.App.4th 1223, 1225 (2005). In Villacreses, the contracting parties agreed "'to have neutral arbitration of all disputes to which it applies....'" But turns out - there was no "it." "[T]he mysterious 'it'...is intended to refer to an arbitration provision that the parties [did not put into the contract]." So, while it was lovely that the parties agreed to arbitrate everything to which their arbitration agreement applied, their arbitration agreement applied to nothing, because - there was no arbitration agreement.

Likewise, it is not unusual to receive in discovery, or have attached to pleadings, unsigned, or partially signed "contracts." And someone who does not sign the contract "is not a party to the contract," Turner Gas Co. v. Workmen's Comp. Appeals Bd. 47 Cal. App. 3d 286, 291-292 (1975). This questions the worth of unsigned or partially signed documents on the issue of who can enforce a contract. On the other hand, an unsigned contract or a contract signed by someone other than the party attempting to enforce a contract can be golden in that it can prove who cannot enforce that contract.

The law of agency allows an agent, acting within authority, to bind a principal to a contract without binding himself. Civil Code Section 2337. In a 1859 case involving the First African Methodist Episcopal Church, the state Supreme Court observed, "If A says, 'On behalf of B, and for value received by him, I, A, as agent for B, promise to pay C one hundred dollars,' it would seem that this is the note of B." Haskell v. Cornish 13 Cal. 35 (1859). "Where the signature as agent and not as a principal appears on the face of the contract, the principal is liable and not the agent." Lippert v. Bailey 241 Cal.App.2d 376 (1996).

For example, in Carlesimo v. Schelbel, the court observed that had the purported agent "appended the preposition 'by' immediately before his signature, there would be no doubt at all that the contract would have disclosed, on its face, not only that appellant was dealing with the [principal], but that [the alleged agent] was signing as an agent and not as a principal. Where that appears on the face of the contract the [principal] is liable and the agent is not." (87 Cal.App.2d 482, 487 (1948).

In 1998, the Legislature abolished the best evidence rule. Law Revision Commission Comments to Evidence Code Section 1521. It was replaced with the secondary evidence rule, which allows that "[t]he content of a writing may be proved by otherwise admissible secondary evidence." Section 1521(a). However, the court must exclude such evidence if "[a] genuine dispute exists concerning material terms of the writing and justice requires the exclusion[; or] [a]dmission of the secondary evidence would be unfair." Sections 1521(a)(1), (a)(2).

"[T]he orthodox rule requires privity of contract between the parties in a [contract] action." Klein v. Duchess Sandwich Co. 14 Cal.2d 272, 277 (1939); see also Superior Gunite v. Ralph Mitzel Inc. 117 Cal.App.4th 301, 317(2004). Privity of contract is rarely defined in cases. Perhaps that is because some leave law school believing "privity" to be a never-ending circle: Privity is the relationship between contracting parties, and the relationship between contracting parties is privity.

The word "privity" is best understood if one knows that it and the word "private" share the Latin root "privus" The American Heritage College Dictionary, 3rd ed.); and, that a common definition of "privity" is: "Knowledge shared with another...regarding a private matter: usually implying consent or concurrence." (Funk & Wagnalls Standard Dictionary Comprehensive, International Edition.)

Black's Law Dictionary defines privity of contract, as "[t]hat connection or relationship which exists between two or more contracting parties." This legal definition, when understood with the foundational understanding of the root privus, and with the lay meaning of privity, is properly recognized as the consensual, private, consideration-supported relationship between parties to an agreement.

In addition, the Uniform Commercial Code has introduced the concept of vertical privity. Under California Commercial Code Section 2314, the implied warranty provision, a plaintiff asserting breach of warranty claims must stand in vertical contractual privity with the defendant. "The term 'vertical privity' refers to links the chain of distribution of goods." Anunziato v. eMachines Inc., 402 F. Supp. 2d 1133, 1141 (C.D. Cal. 2005).

Last, an intended beneficiary can enforce a contract as a third party. There are two types of such intended beneficiaries, a creditor beneficiary, and a donee beneficiary. City & Suburban Mgmt. Corp. v. First Bank 959 Fed.Supp. 660, 665 (1997). "A person cannot be a creditor beneficiary unless the promisor's performance of the contract will discharge some form of legal duty owed to the beneficiary by the promisee.... A person is a donee beneficiary only if the promisee's contractual intent is either to make a gift to him or to confer on him a right against the promisor." Martinez v. Socoma Cos. 11 Cal.3d 394, 400-402 (1974). An incidental beneficiary has no right to enforce a contract as a third party beneficiary. Martinez v. Socoma Cos. 11 Cal.3d 394, 408 (1974).

So read the documents. Read them critically, without any preconceived presumption that the litigating parties are bound. One might have a delightful, or a dreadful surprise.

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