Case Problem Analysis: Third Party Beneficiaries

Ava Flavell and other owners (Flavell) contracted with F.E.B. General Contractors, Inc. (FEB) to conduct renovations on their historic residence. FEB subcontracted with Maxim Jakes Home Remodeling and Repair (Jakes) to perform the roofing work on the project. Jakes in turn subcontracted with Cal Bruce Home Improvements (Bruce), to conduct the roofing work on Jakes's behalf. When Bruce performed work on the roof, he "botched the job" and caused extensive leaking inside the house.

FEB and Jakes attempted to correct the problems, but eventually abandoned the project, leaving Flavell to hire others to complete the renovations. Flavell sued FEB, Jakes, and Bruce for breach of contract. Jakes sought to dismiss Flavell's claim against it, arguing no privity of contract existed between themselves and Flavell, and therefore Jakes should not be liable for any damages.

Identifying the Facts and Issues

The principle that one who is not a direct party to a particular contract normally does not have rights under that contract is known as

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which FEB

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have with Flavell and which Jakes

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have with Flavell.

Assessment question

An exception to the doctrine of privity of contract arises when a contract is intended to benefit a

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party. A third party that is considered an intended beneficiary to a contract

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sue the promisor for breach of contract. A third party that is considered an incidental beneficiary to a contract

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sue the promisor for breach of contract.

Assessment question

In determining whether a beneficiary is an intended or incidental beneficiary, the presence of one or more of the following factors strongly indicates that the third party is an intended beneficiary to the contract:

• whether performance is renderedto the third party,

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• if the third party has a right to, and

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• if the third party is.

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Assessment question

As a result of performance being rendered directly to Flavell, and Flavell's right to control the details of performance, Flavell will likely be considered an

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beneficiary. Therefore, Flavell

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sue to enforce the contract. It

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likely that the court would have ruled in favor of Flavell.

Assessment question

What If the Facts Were Different?

Assume that Jakes, instead of providing roofing repair to the residence, is a supplier of materials such as wood, nails, and sealant to FEB. FEB conducts all the work on the roof without assistance from Jakes.

As a supplier to FEB, Jakes's performance

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directly to Flavell, and Flavell

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have the right to control the details of Jakes's performance. Flavell

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have rights in the contract between Jakes and FEB, and Flavell is thus likely an

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beneficiary to the contract between Jakes and FEB. It

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likely that the court would have ruled in favor of Flavell against Jakes.