Contract Case Shows That Intent of the Parties is Paramount

November 30, 2009 | Erin Herbold

A person that is not a party to a contract may sue a contracting party based on their contract only if the outside party can show that they were an intended beneficiary of the contract.  This concept is known as “privity” - if the contracting parties intended to convey a benefit to another party, then the benefitted party may be deemed in privity.  The privity concept was involved in this case.

In 1987, a county soil and water conservation district bought a parcel of farmland from private parties for purposes of erosion control. The purchase agreement contained a stipulation that the conservation board would not file a soil loss complaint against any of the sellers’ land that adjoined the parcel. However, the general warranty deed that conveyed the property to the board did not contain any mention of this provision. Immediately after the sale to the board was finalized, the sellers sold their remaining land adjoining the board’s parcel to a family member. 

Some 18 years later, the conservation district filed a complaint against the new owners alleging soil erosion. The buyers remembered the language in the original purchase agreement with the county and maintained that the county could not bring such a complaint.  However, the county initiated the administrative process, investigated, and found the buyers were in violation of the district’s erosion policy. The district issued an order for the buyers to correct the erosion problem and the buyers failed to comply. Following the proper procedure, the district petitioned the trial court for enforcement and the buyers answered, citing the 1987 purchase agreement. 

At trial, the court found that the buyers were in violation of the erosion control policy and that there was no breach of the 1987 contract, because the buyers were not the original parties to the contract and they were not the intended beneficiaries of the contract. On appeal, the Iowa Court of Appeals agreed and stated that enforcing the purchase agreement as to the outside parties would violate public policy and basic principles of contracting.  The court believed that it was clear from the purchase agreement that the board did not intend to benefit the buyers.  Harrison County Soil and Water Conservation District v. Ganzhorn, No. 9-809/09-302, 2009 Iowa App. LEXIS 1563 (Iowa Ct. App. Nov. 25, 2009).