California Civil Code Section 1717 Provides for Mutuality of Remedy in Favor of a Third Party Beneficiary


In Cargill Inc. v. Souza, 2011 DJDAR 17680 (2011), the California Court of Appeal for the Fifth Appellate District decided a novel case relating to the attempt by a litigant’s attempt to enforce a fee clause in a contract against a purported third party beneficiary of the agreement.

The Teixeiras borrowed $1 million from the Souzas to buy cattle and farm equipment. The Teixeiras executed a promissory note (the “Note”) and a security agreement (the “Agreement”) in favor of the Souzas. The Note and the Agreement created a security interest on behalf of the Souzas in the cattle and farm equipment. In addition, the Teixeiras bought feed from Cargill Inc. The feed purchase resulted in a further unsecured indebtedness in favor of Cargill in the sum of $262,000.

The Teixeiras soon defaulted on the promissory notes.

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