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SLATE PRINTING CO. v. METRO ENVELOPE CO.

January 8, 1982

SLATE PRINTING COMPANY, PLAINTIFF AND COUNTERDEFENDANT,
v.
METRO ENVELOPE COMPANY, DEFENDANT AND COUNTERPLAINTIFF. METRO ENVELOPE COMPANY, CROSS PLAINTIFF, V. ALLIED PAPER, INC., CROSS DEFENDANT.



The opinion of the court was delivered by: Shadur, District Judge.

MEMORANDUM OPINION AND ORDER*fn1

Slate Printing Company ("Slate") is plaintiff and counter-defendant in this action, and Metro Envelope Company ("Metro") is defendant and counter-plaintiff. Metro has filed a cross-complaint against Allied Paper, Inc. ("Allied"),*fn2 and Allied has now moved for its dismissal. Metro also seeks to impose on Slate the burden of alleged judicial admissions, with a consequent disposition of the entire litigation adversely to Slate. For the reasons stated in this memorandum opinion and order:

    (1) Allied's motion to dismiss Metro's
  cross-claim is granted.
    (2) Metro's motion for designation of judicial
  admissions and consequential relief is denied.

Facts

Each of Slate, Allied and Metro provided either goods or services for Metro's ultimate sale of printed envelopes to Montgomery Ward & Co. ("Ward"). Ward had contracted with Metro and Slate for the manufacture of envelopes by Metro from paper printed by Slate. To fulfill its obligations Slate contracted for purchase of paper stock from Allied, which was unaware of Slate's other arrangements. Metro's cross-claim however asserts that "Allied knew that Slate intended to sell the paper to another party."

Slate is suing Metro for non-payment under the contract to provide Metro with the printed paper. Metro counterclaims for damages because it asserts the paper failed to meet specifications. Metro's cross-claim asserts the same damages against Allied on the theories that (1) Metro was a third party beneficiary of the Slate-Allied contract (Count I), (2) Allied was negligent in manufacturing the paper (Count II) and (3) Allied breached the implied warranty of fitness for a particular purpose (Count III).

Dismissal of Metro's Cross-Claim Against Allied

Count I

Metro's third-party-beneficiary claim rests on its allegation that when Allied contracted with Slate "Allied knew that Slate intended to sell the paper [presumably after processing it] to another party" — a party that turned out to be Metro. Because the paper allegedly did not conform to Slate's specifications, Allied would have breached its contracts with Slate. Metro claims standing to recover from Allied for that breach. Allied moves to dismiss Count I on the ground that Metro was not a third-party beneficiary of the Allied-Slate contract.

  Under Erie principles state law provides the rule of decision
in this diversity case. Black-letter principles as to
third-party beneficiaries were stated by the Illinois Supreme
Court in Carson Pirie Scott & Co. v. Parrett, 346 Ill. 252,
257, 178 N.E. 498, 501 (1931) and have been quoted over and
over again for the past 50 years:

   . . if a contract be entered into for a direct
  benefit of a third person not a party thereto,
  such third person may sue for breach thereof. The
  test is whether the benefit to the third person is
  direct to him or is but an incidental benefit to
  him arising from the contract. If direct he may
  sue on the contract; if incidental he has no right
  to recovery thereon.

Application of the distinction between "direct" and "incidental" benefit is a function of the intent of the parties and must be made on a case-by-case basis. Vinylast Corp. v. Gordon, 10 Ill. App.3d 1043, 1049, 295 N.E.2d 523, 527 (1st Dist. 1973). More constructive than the direct-indirect dichotomy, which tends to be result-oriented rather than an analytical tool, is the recent reaffirmation in Midwest Concrete Products Co. v. LaSalle National Bank, 94 Ill. App.3d 394, 396, 49 Ill.Dec. 968, 418 N.E.2d 988, 990 (1st Dist. 1981):

  [I]nasmuch as people usually stipulate for
  themselves, and not for third persons, a strong
  presumption obtains in any given case that such
  was their intention, and that the implication to
  overcome that presumption must be so strong as to
  amount practically to an express declaration.

Certainly there was no such express declaration in this case. Nor were the circumstances of the Allied-Slate agreement such as to overcome the "strong presumption." Illinois cases that have reached the opposite result typically involve fact situations like those in Gothberg v. Nemerovski, 58 Ill. App.2d 372, 385-86, 208 N.E.2d 12, 19-20 (1st Dist. 1965) (automobile liability insurance policy construed to make person injured by policyholder a third-party beneficiary); Kravitz v. Lake County, 62 Ill. App.3d 101, 104-05, 19 Ill.Dec. 611, 379 N.E.2d 126, 128-29 (2d Dist. 1978) (land purchasers held able to sue for violation of agreement between their vendor and county providing that no water connection fee would be charged); or Mearida v. Murphy, 87 Ill. App.3d 87, 90, 42 Ill.Dec. 650, 409 N.E.2d 145, 148 (4th Dist. 1980) (adjoining landowners had standing to enforce an easement ...


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