Court Denies Motion To Dismiss Breach of Contract Counterclaim on Third-Party Beneficiary Theory

Posted: April 21, 2025 / Written by: Jeffrey M. Eilender, Thomas A. Kissane, Samuel L. Butt, Joshua Wurtzel, Channing J. Turner / Categories Commercial, Motion to Dismiss, Breach of Contract

Court Denies Motion To Dismiss Breach of Contract Counterclaim on Third-Party Beneficiary Theory

On January 30, 2025, Justice Andrea Masley denied plaintiff’s motion to dismiss defendant’s counterclaim for breach of contract. Canara Bank, London Branch v. MVP Group International, Inc., Index No. 654602/2023. The Court explained:

Borrower sufficiently alleges that Lender breached the September 2021 Sanction Letter (NYSCEF 17) and the September 2021 Master Restructuring Agreement (NYSCEF 18) by “assisting in and allowing the non-remittance of $22.2 million to MVP” under a third-party beneficiary theory.[] (NYSCEF 28, VAC ¶44[a].) Borrower, a nonparty to the September 2021 loan agreements, may assert a breach of contract claim “only if it is an intended, and not a mere incidental, beneficiary.” (LaSalle Natl. Bank v Ernst & Young LLP, 285 AD2d 101, 108 [1st Dept 2001] [citation omitted], rearg denied 2001 NY App Div LEXIS 11868 [1st Dept 2001].) Borrower will be considered an intended beneficiary if

“recognition of a right to performance in [Borrower] is appropriate to effectuate the intention of the parties and either (a) the performance of the promise will satisfy an obligation of [Primacy] to pay money to [Borrower]; or (b) the circumstances indicate that [Primacy] intends to give [Borrower] the benefit of the promised performance.” (Id. [internal quotation marks and citations omitted].)

Borrower asserts that it is the intended beneficiary of the September 2021 loan documents. (NYSCEF 28, VAC at 12 ¶23 [6th affirmative defense]; id. ¶¶24, 61, 62, 66, 77, 80.) The three-step process for remitting the $30 million and the allocation of the funds to Borrower, as outlined in the September 2021 Sanction Letter, was expressly incorporated into the September 2021 Master Restructuring Agreement. (Id. ¶¶12, 13, 16, 18, 20, 21, 26, 30, 75, 76.) Section 8.2 (g) of the agreement provides that $30 million “shall be infused in [Borrower] in accordance with the terms set out in the Sanctions Letters” to “enable [Borrower] to discharge the outstanding debt towards [Primacy]” and provide working capital in line with the restructuring plan. (NYSCEF 18, September 2021 Master Restructuring Agreement § 8.2 [g]; see NYSCEF 28, VAC ¶18.) Borrower’s allegations are sufficient to support that the parties intended for Borrower to benefit from the Primacy’s performance related to the restructuring.

Second, Borrower sufficiently alleges that Lender breached the May 2021 Canara Bank Restructuring Agreement by “refusing to permit loan payments to be made from the debt service reserve account [DSRA].” (NYSCEF 28, VAC ¶44[b]; see id. ¶19, 37.) Pursuant to § 5.33 of the agreement, which allows Lender to debit the DSRA at any time to satisfy loan payments, Lender initially agreed in the summer of 2022 to debit the DSRA for the next scheduled loan payment but later reversed its position. (Id. ¶38; see NYSCEF 19, May 2021 Canara Bank Restructured Credit Agreement § 5.33.)

Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning breach of contract or third party beneficiary theories.