Prouty v. Gores Technology Group

In Prouty v. Gores Technology Group (2004) 121 Cal.App.4th 1225, an original stock purchase agreement contained a "no third party beneficiary" clause. Three months later, an amendment to the agreement conferred benefits on employees, giving them severance pay. In the amendment, the new parent company agreed to indemnify the merging company for any cost, expense, loss or liability recovered "by a third party" arising out of an employee termination. (121 Cal.App.4th at pp. 1227-1228.) Employees terminated after the merger sued for severance pay. The appellate court found that while the original agreement did "not provide any voluntary severance benefits . . . the amendment superseded the original agreement." (Id. at p. 1233.) "The language of the contract amendment and the facts surrounding its negotiation demonstrate the parties expressly intended plaintiffs to be third party beneficiaries." (Id. at p. 1234.)