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Pierce Associates, Inc. v. Nemours Foundation

    Brief Fact Summary.

    Plaintiff sued Defendant on a third party beneficiary theory when the construction of the interior of a hospital was completed twenty-one months late. The trial court ruled in favor of Plaintiff. Defendant appealed.

    Synopsis of Rule of Law.

    An owner with a general contractor may not maintain a breach of contract action against a subcontractor on a third party beneficiary theory unless the intent to confer a third party benefit to the owner is contained in the subcontract.

    Facts.

    Nemours Foundation (Plaintiff) hired Gilbane Building Company (Gilbane) to build the interior of a hospital. The contract stated that the agreement was under the following American Institute of Architects (AIA) guideline: “Nothing contained in the Contract Documents shall create any contractual relationship between the Owner [Plaintiff] or the Architect and any Subcontractor or Sub-subcontractor.” In addition, Exhibit A of the contract stated that Gilbane “shall have sole and total responsibility for completing the [general] contract . . . and is responsible to [Plaintiff] for the full, proper, and timely performance of all work under the contract.” Gilbane subcontracted with Pierce Associates, Inc. (Defendant) to perform the mechanical work necessary for the interior of the hospital. Section 6 of the subcontract stated that Defendant “agrees to be bound to [Gilbane] by the terms and conditions of the Agreement . . . and to assume toward [Gilbane] all the obligations and responsibilities that [Gilbane], by these documents, assumes toward [Plaintiff].” The subcontract also incorporated the AIA guideline quoted above. Plaintiff approved the subcontract, stating in the approval letter “nothing herein shall be deemed or construed to create any contractual relationship between [Plaintiff] and said subcontractor.” During the project, a number of disputes between the parties arose and the project was eventually completed twenty-one months late. Plaintiff sued Defendant on a third party beneficiary theory. The district court found in favor of Plaintiff. Defendant appealed.

    Issue.

    Whether an owner with a general contractor may maintain a breach of contract action against a subcontractor on a third party beneficiary theory if there is no intent to confer a third party benefit to the owner contained in the subcontract.

    Held.

    No. The trial court’s ruling is reversed. An owner with a general contractor may not maintain a breach of contract action against a subcontractor on a third party beneficiary theory unless the intent to confer a third party benefit to the owner is contained in the subcontract.

    Dissent.

    There is sufficient language in the contracts to infer an intent to confer upon Plaintiff third party beneficiary status. Specifically, as the majority recognizes, but then dismisses, the subcontract makes clear that Plaintiff will benefit from Defendant’s work to be performed under the subcontract.

    Discussion.

    Generally when the owner of a project hires a general contractor, there is a legal buffer between the owner and the general contractor’s subcontractors. Indeed, an owner with a general contractor may not maintain a breach of contract action against a subcontractor on a third party beneficiary theory unless the intent to confer a third party benefit to the owner is contained in the subcontract. The mere fact that the owner will benefit from the subcontractor’s performance of its duties is not alone enough to make the owner a third party beneficiary. In this case, Plaintiff may not maintain a breach of contract claim against Defendant on a third party beneficiary theory. There are many parts of the subcontract that make it clear that Plaintiff will benefit from Defendant’s work. But this benefit is not sufficient, without more, to establish a third party beneficiary relationship between Plaintiff and Defendant. There is no other indication of any intent in the contract or subcontract to confer a third party beneficiary benefit to Plaintiff. Indeed, with the inclusion of the AIA guideline, Exhibit A of the contract, section 6 of the subcontract, and the terms in the letter from Plaintiff approving the subcontract, it is clear that there is intent not to create such a relationship. Accordingly, Plaintiff’s suit against Defendant on a third party beneficiary theory must fail.


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