When do joint payment provisions create third-party beneficiary rights? Blosch v. Natixis Explained

In Blosch v. Natixis Real Estate Capital, Inc., 2013 UT App 214, the Utah Court of Appeals addressed a crucial question for commercial lending practitioners: when does a joint payment provision create enforceable third-party beneficiary rights?

Background and Facts

Natixis loaned $7.8 million to Schoolhouse Downtown, LLC, with $1.2 million held in escrow pending completion of a restaurant space. When Borrower couldn’t access the escrowed funds, he solicited Blosch for a $1 million bridge loan. To secure Blosch’s loan, Natixis issued a “Joint Check Letter” stating it would release escrowed funds “via a check issued to both [Borrower] and Mr. Blosch.” However, when Natixis later assigned the loan, the new servicer released the funds directly to Borrower, leaving Blosch unpaid on his bridge loan.

Key Legal Issues

The central issue was whether the Joint Check Letter created third-party beneficiary rights for Blosch under the original Loan Agreement. This required determining whether the parties clearly expressed an intention to confer a separate and distinct benefit on Blosch as a third party.

Court’s Analysis and Holding

The Court of Appeals held the Joint Check Letter was facially ambiguous as to the parties’ intent to make Blosch a third-party beneficiary. The court distinguished between joint payment provisions that merely direct payment mechanics versus those that clearly express intent to benefit a third party. The Joint Check Letter’s language—”will release the escrow funds…via a check issued to both [Borrower] and Mr. Blosch”—contained no expression of intent to benefit Blosch directly. This “facial deficiency” made the parties’ intent a factual question for the jury, which found no third-party beneficiary relationship existed.

Practice Implications

This decision highlights the critical importance of precise drafting in commercial agreements. Practitioners seeking to create enforceable third-party beneficiary rights must include explicit language expressing the parties’ intent to directly benefit the third party, not merely accommodate payment procedures. The court’s analysis of comparative cases shows that successful third-party beneficiary provisions typically explain why the third party should receive direct payment, referencing their work, investment, or other consideration justifying the benefit.