The US Court of Appeals for the Eighth Circuit has found that the estate of an alleged third party beneficiary was not bound by an arbitration agreement where there was no valid contract because the parties named in the contract never signed it.

The appellee (Payich), whose deceased mother had stayed at a nursing home owned by Sorenson, sued Sorenson for negligent care in Payich's capacity as administrator of the estate. Sorenson filed an application to compel arbitration, based on the arbitration agreement that Payich signed when his mother was admitted to the nursing home. The arbitration agreement named Payich's mother and the nursing home as parties, and Payich wrote "son" after his signed name.

The district court denied the motion to compel arbitration. It found no evidence that Payich had authority to sign the arbitration agreement on his mother's behalf. It further found that Sorenson could not prove there was a validly executed contract with Payich, as he had no authority to sign, so Payich's mother could not be a third party beneficiary of the agreement.

Sorenson appealed, arguing that Payich's mother was a third party beneficiary of the arbitration agreement. The Court of Appeals explained that, for the arbitration agreement to have a third party beneficiary, the arbitration agreement must have been validly executed. Sorenson argued that, because Payich's mother accepted benefits under the contract, her estate was bound by the terms of the agreement.

The Court of Appeals rejected this argument. The acceptance of benefits did not prove a contract. Further, the contract specifically listed the nursing home and Payich's mother as parties, but not Payich. Therefore, based on the face of the agreement, the parties intended for Payich's mother and the nursing home to be parties, and not Payich. The court concluded that Payich, suing on behalf of the estate, was not bound by the arbitration agreement.

This case demonstrates the requirements for a third party beneficiary to be bound by an arbitration agreement. It is not enough to accept benefits under the terms of the contract: the contract itself must be valid.

Case: GGNSC Omaha Oak Grove, LLC v Payich, (8th Cir. Mar. 4, 2013).