Third Party Beneficiaries By Larry R. Leiby, Esq. and David S. Hawkins It is pretty clear that a contract gives both parties to the contract rights and responsibilities as described in the contract. Are there people other than parties to the contract who may have rights under the contract? The answer is, “yes.” An “intended third party beneficiary,” although not a party to the contract, may have rights enforceable pursuant to the contract. There are two categories of third party beneficiaries. There are intended beneficiaries or incidental beneficiaries. An intended beneficiary may bring an action for breach of a third party beneficiary contract. In order to bring an action for breach of a third party beneficiary contract the third party must establish; (1) a contract between A and B; (2) the “clear” or “manifest” intent of A and B that the contract primarily and directly benefit the third party (or class of persons to which that party belongs); (3) breach of the contract by either A or B; and, (4) damages to the third-party resulting from the breach. An incidental beneficiary has no enforceable rights under a contract. Normally an owner is not a third party beneficiary of a subcontract. If the subcontract says that the owner is a third party beneficiary, then that would control. By example, in Jenne v. Church & Tower, Inc. 814 So. 2d 522 (Fla. 4th DCA 2002) the court found that the Sheriff of Broward county was not an intended third party beneficiary to a contract between the County and a contractor for the construction of a detention facility owned by the County. The contractor entered into a contract with Broward County to design and build a detention center. The contract provided that the facility was to be substantially complete within 548 days after “project initiation” which would have been October 4th, 1997. Broward County began to occupy the facility in February 1998 and the final certificate of occupancy was issued on October 28th, 1998. The Sheriff asserted that as a result of the delay in delivery of the project that he suffered $13 million in damages due, in part, to the costs of transporting inmates to detain in other counties. In order to establish that the sheriff was an intended third party beneficiary the Sheriff asserted (1) a federal court decree obligated him to develop a reorganization of the jail population, (2) the bid solicitation stated “It is the intent of the County and the Broward Sheriff’s Office that the program and schematic plans comply with the forgoing applicable laws”, (3) the contractor needed the Sheriff’s approval for work under the contract; and (4) the Sheriff purchased furniture, appointed personnel to the selection committee, and made decisions on site location and management. The court rejected the Sheriff’s arguments stating that a public contract is “intended to directly and primarily benefit the citizens . . . not the Sheriff, the public servant charged with operating the detention center.” The Sheriff was not able to establish that the intent of the parties was for him to receive a benefit and as such his claim necessarily had to fail. The Sheriff was an incidental beneficiary. The outcome would have been different if the contract recited that the Sheriff was an intended third party beneficiary of the agreement. |
