AN OWNER’S “INTENDED THIRD PARTY BENEFICIARY” STATUS UNDER A SUBCONTRACT

Unknown-3Sometimes, during a dispute, there are arguments as to whether an owner is an INTENDED third party beneficiary of the subcontract by and between the general contractor and the subcontractor. There are instances where an owner desires to be an intended third party beneficiary of a subcontract so that it could pursue a breach of contract claim directly against the subcontractor. (These instances can relate to concerns over the solvency of the general contractor and/or the insurance coverage limits of the general contractor.)

 

A party is an intended [third party] beneficiary only if the parties to the contract clearly express, or the contract itself expresses, and intent to benefit the third party or a class of persons to which that party claims to belong.” Dingle v. Dellinger, 2014 WL 470679, *1 (Fla. 5th DCA 2014).  In other words, an intended third party beneficiary is not a signatory or party to the contract. Rather, it is expressly clear from the contract that the contract’s intent is to directly benefit that third party. Dingle, 2014 WL at *1 (finding to assert a breach of an intended third party beneficiary contract, the third party must show an intent that the contract was to directly and primarily benefit the third party). Because the intent of the contract is to directly benefit the third party, the third party is entitled to enforce the contract and, thus, sue for a breach of that contract.

 

However, if a third party is not an intended third party beneficiary of the contract, it will be deemed an incidental beneficiary that maintains no rights whatsoever to enforce the contract. McKinney-Green, Inc. v. Davis, 606 So.2d 393, 396 (Fla. 1st DCA 1992).

 

Now, a property owner is typically not regarded as an intended third party beneficiary of a subcontract between a general contractor and subcontractor. See J.W. Hodges Drywall, Inc. v. Mizner Falls, LLP, 865 So.2d 681 (Fla. 4th DCA 2004) (owner could not enforce arbitration provision in subcontract between general contractor and drywall subcontractor); accord Lillibridge Health Care Services, Inc. v. Hunton Brady Architects, P.A., 2010 WL 3788859 (M.D. Fla. 2010) (owner not intended third party beneficiary of mechanical engineer’s subconsultant agreement with architect); City of Tampa v. Thornton-Tomasetti, P.C., 646 So.2d 279 (Fla. 2d DCA 1994) (public owner not intended third party beneficiary of subconsultant’s agreement between subconsultant and architect); Vogel Bros. Bldg. Co. v. Scarborough Constructors, Inc., 513 So.2d 260 (Fla. 2d DCA 1987) (public owner not intended third party beneficiary of subcontract). Indeed, the Fifth District of Florida maintained: “As one court put it, ‘[a]lthough the work performed by subcontractors ultimately accrues to the property owner, the owner is ordinarily regarded as only an incidental beneficiary of the subcontract.” Publix Super Markets, Inc. v. Cheesbro Roofing, Inc., 502 So.2d 484, 488 (Fla. 5th DCA 1987) (superseded on other grounds) quoting National Cash Register Co. v. Unarco Indus., Inc., 490 F.2d 285, 286 (7th Cir. 1974). In addition, a subcontractor is not going to be deemed an intended third party beneficiary between the prime contract between the owner and the general contractor that would entitle it to assert a breach of contract claim against the owner. Esposito v. True Color Enterprises Const., Inc., 45 So.3d 554 (Fla. 4th DCA 2010).

 

If an owner wants to be an INTENDED third party beneficiary of the subcontracts, it should require the general contractor to include certain buzz language in the subcontracts that expressly sets forth this intent. Such buzz words would be something to the effect:

 

“It is understood and agreed that this subcontract is to primarily and directly benefit the Owner; therefore, the Owner is deemed an intended third party beneficiary of the subcontract and can enforce the subcontract as an intended third party beneficiary.”

 

 

This language clearly indicates the required intent for the intended third party beneficiary status that will enable the owner to enforce the subcontract. Without such language that clearly articulates this intent, an intended third party beneficiary status should not be extended to all situations where an owner decides to sue a subcontractor for breach of subcontract when the subcontractor was not hired by the owner. Although the owner will make the argument that the subcontractor’s work is to benefit the owner under the subcontract, the subcontractor could make a similar argument that the owner’s payment obligations to the general contractor under the prime contract is to benefit the subcontractors since the owner knew that the general contractor was not self-performing the work. If however the owner is an intended third party beneficiary of the subcontract and enforces the subcontract, it should be deemed bound by all of the terms, conditions, and burdens of the subcontract. See Woods v. Christensen Shipyards, Ltd., 2005 WL 5654643 (S.D.Fla. 2005); accord Consolidated Bathurst, Ltd. v. Rederiaktiebolaget Gustaf Erikson, 645 F.Supp. 884, 886 (S.D.Fla. 1986).

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

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