Outdoor Services, Inc. v. Pabagold, Inc

In Outdoor Services, Inc. v. Pabagold, Inc. (1986) 185 Cal.App.3d 676, a manufacturer contracted with an advertising agency to plan and place an advertising campaign for its product. (Id. at p. 679.) The agreement authorized the advertising agency to contract with third parties for the purpose of carrying out the campaign and to compensate such parties for their services on the manufacturer's behalf. (Ibid.) When one of the third parties, a purchaser of outdoor advertising space, was not paid for its work, it filed an arbitration demand against the manufacturer pursuant to a provision in the manufacturer's agreement with the agency. (Id. at p. 680.) The Court of Appeal held that the purchaser could enforce the arbitration clause as a third party beneficiary of the contract. (Id. at p. 684.) The Court explained that, because the manufacturer had assumed a contractual duty to pay the advertising agency for its expenses on the campaign, including those incurred in contracting with third parties, the purchaser was the intended beneficiary of that promise to pay, and as such, was entitled to enforce the terms of the agreement. (Id. at p. 683.)