Cengage Advantage Books: Law for Business 18th Edition by John Ashcroft ,Janet Ashcroft

Exercise 1

AutoLife Acquisition Corp. engaged in transactions that left it owing secured creditors about $5.5 million due in two months. It contracted with Kann Capital, Ltd. to seek $9 million in financing and "advise and assist AutoLife in devising and executing a program to secure" the financing The agreement had an arbitration clause for any controversy arising out the agreement or breach, termination, interpretation, or validity of it. The financing did not materialize, but the secured creditors did not fore-close because the owners of AutoLife and Kann repeatedly represented that financing would soon be obtained. AutoLife went into bankruptcy, and the secured creditors sued Kann. Kann alleged that the creditors were third-party beneficiaries of its contract with AutoLife and therefore that the arbitration clause governed. Were the creditors third-party beneficiaries of the contract between AutoLife and Kann?