A common provision in merger agreements is denial of the right of non-parties to the agreement to assert third-party beneficiary claims. The use of this provision left open the question whether stockholders of a disappearing target company could enforce contractual undertakings of the acquirer following the closing of the merger. The U.S. Court of Appeals for the Second Circuit answered that question in Consolidated Edison v. Northeast Utilities by denying under New York law the right of stockholders to enforce claims under the merger agreement because they were not parties to the agreement and any third-party beneficiary claims were barred by the “no-third party beneficiaries” clause in the agreement. As a result, properly drafted merger agreements have provided for carve outs from the no-third party beneficiaries clause for claims that stockholders were entitled to assert following the closing.
The Delaware Court of Chancery has addressed this issue in two recent decisions that confirm the right of stockholders to enforce rights as third-party beneficiaries in certain circumstances.
These decisions are a reminder that, although the Delaware courts may in the right circumstances recognize the third-party beneficiary rights of stockholders, it continues to be important to draft agreements with care to specify which undertakings survive the closing and who has the right to enforce those undertakings. This is especially true for merger agreements when the target disappears or becomes controlled by the acquirer and it is only the former target stockholders who are in a position to assert those rights. Correspondingly, from the perspective of an acquirer, if undertakings are not meant to be enforced post-closing or target stockholders are not intended to have enforcement rights, the agreement should express that understanding clearly and not rely on general language alone.
As with many arrangements, the Delaware courts will give the parties broad leeway to define their understanding contractually. However, it is up to the parties and their advisers to do so clearly so that their understanding will be enforced as intended.
 426 F.3d 524 (2d Cir. 2005).
 2019 WL 2714331 (Del. Ch. June 28, 2019).
 2019 WL 2711280 (Del. Ch. June 27, 2019).
 Amirsaleh v. Bd. of Trade of City of New York, Inc., 2008 WL 4182998 (Del. Ch. Sept. 11, 2008).
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