Generally, someone who isn’t a party to a contract cannot sue to enforce the contract. However, there are exceptions. In a recent decision, the New York Appellate Division Second Department addressed this situation, finding that the plaintiff’s claim for breach of contract and unjust enrichment could move forward, despite the fact the plaintiff never became a party to the contract at issue in the case.

In Whitson’s Food Service, LLC vs. A.R.E.B.A-Casriel, Inc., the defendant entered into an agreement with another party wherein the other party provided services to the defendant. The agreement was non-assignable, expressly stating the following: 

“[t]his agreement and the rights granted hereunder may not be assigned by either party whether by operation of law, merger, change of ownership or otherwise, without the prior written consent of the other party and any unauthorized assignment shall be void ab initio.”

Several months after the agreement was entered into, the plaintiff merged with the party to the agreement. The plaintiff continued to provide services to the defendant under the agreement until it ended a few months later. However, the defendant refused to pay for such services. The plaintiff commenced an action for breach of contract and unjust enrichment seeking payment in excess of $400,000. The defendant moved to dismiss the action, claiming the plaintiff was not a party to the non-assignable contract and therefore lacked standing to maintain the action. 

The lower court denied the defendant’s motion to dismiss and the Appellate Division Second Department agreed. The Court found that the defendant had met its burden of establishing that the plaintiff lacked standing by showing the plaintiff was not a party to the contract and the defendant had not expressly consented to any assignment of the contract to the plaintiff. However, the plaintiff raised a question of fact as to its standing based on an affidavit from its Chief Financial Officer who swore that the merger was nothing more than a change of corporate form that had no impact on the beneficial ownership, possession, control or daily operations of the business. The Court held that such allegations raised an issue of fact and therefore, the case was sent back to the lower court for discovery as to whether the merger constituted an assignment that violated the contract.

The Appellate Division decision went on to state that even where no valid and enforceable contract between the parties can be established, a claim for unjust enrichment is an equitable, “quasi-contract claim” which covers this very circumstance and can be used to prevent injustice in the absence of an actual contractual relationship. Here the defendant did not claim that it did not receive the services. Instead, it took the position that it should not have to pay for the services due to a technicality. 

It appears the Appellate Division may have been sending the defendant a message that even if it prevails on the breach of contract claim on standing grounds, it may nonetheless have to answer for damages because it was unjustly enriched.

If you are in a contract dispute or have questions about the interpretation of a contract, please feel free to contact one of our attorneys.