Third-Party Bound to the Clause of a Contract

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Third-Party Bound to the Clause of a Contract

Apr 07, 2008 6:44 PM PST

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By Sedo

When contracting parties enter into a contract, third parties generally do not find themselves legally bound to the provisions of an agreement they did not sign up for. However, in the unique case of Compana LLC v. Mondial Assistance SAS, the U.S. District Court for the Northern District of Texas held otherwise. Compana LLC, a domain name registrar, purchased the domain name “Mondial.com” from itself. French corporation Mondial Assistance SAS requested that Compana surrender “Mondial.com” because they believed that they were the rightful owners. Compana refused to surrender the domain, which prompted Mondial to begin the Uniform Domain-Name Dispute-Resolution Policy (UDRP) proceedings.

As a registrar, ICANN requires Compana to place UDRP provisions in the registry agreement it enters into with all registrants. The registry agreement also includes a forum selection clause in which both parties agreed that any disputes were to take place in a court in Dallas, TX. As a registrant - Compana was subject to [its own] registry agreement, and thus was obligated to enter into UDRP proceedings with any third-party that initiated arbitration of domain disputes.

Compana sued Mondial in Texas with the hopes of obtaining a judgment from the state court that its use of the “Mondial” mark was proper and in good faith. The court stated that a third party, although not a party to an agreement, can be bound by a contract’s forum selection clause under a theory called “direct benefits estoppel”. The theory of “direct benefits estoppel” sets forth the principle that a party who uses a contract to his benefit cannot later reject unfavorable portions with the argument that he is not bound because he did not sign. Therefore, under the theory of “direct benefits estoppel”, Mondial was not allowed to ignore the registry agreement’s forum selection clause, or any clause of the agreement, for that matter, after using the registry agreement to its benefit when it instituted UDRP proceedings.

Written by Keith J. Bae, Sedo Legal Team

Source Credit: This has been a featured post from Sedo, Leading Domain Name Marketplace. To learn more, visit this participant's full profile page.

More Under: DNS, Domain Names, Law

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