ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Monday, March 27, 2006

Payee Isn't TPB of Promissory Note

Georgia_flag_6 The payee of a promissory note is not a third party beneficiary of an assignment by his promisor, and cannot maintain an action on the note against the assignee, according to a recent decision by the Georgia Court of Appeals.

In the case, NitrOSystems, Inc. issued a promissory note to one of its employees, an inventor, as part of the compensation for one of his inventions.  NitrOSystems subsequently entered into an asset purchase agreement under which it transferred certain rights and obligations to Angiogenix, Inc.  One of the listed items was this:

Promissory Note from NitrOSystems, Inc. to Wayne H. Kaesemeyer dated January 20, 1998 in the original principal amount of $ 225,000 with interest accruing at the rate of 7% per annum.  [T]his note is due and payable one-year after the date of FDA approval of any of Seller products which are or would be covered by any of the Patents included as Initial Assets or Subsequent Assets.

Georgia’s third party beneficiary statute provides, “The beneficiary of a contract made between other parties for his benefit may maintain an action against the promisor on the contract.” Kaesemeyer argued that this made him a third party beneficiary of the assignment.

Guess again, said the court.  The statute doesn’t create third party liability where the contract does not.  The asset purchase agreement between NitrOSystems and Angiogenix specifically stated:

This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, and no other person shall have any right, benefit or obligation under this Agreement as a third party beneficiary or otherwise.

It was clear to the court that there was no intent to confer third-party beneficiary status on Kaesemeyer, and thus summary judgment on his claim was appropriate.

Kaesemeyer v. Angiogenix, Inc., 2006 Ga. App. LEXIS 246 (March 7, 2006).

[Frank Snyder]

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