12/21/2018 by Andrew Selman
In initially answering the question of who benefits from your design or consulting services contract, you might conclude that your contract benefits several parties. For example, a contractor “benefits” from the quality designs of the architect’s design consultant in performing its work even though it was not a party to the contract between the architect and the design consultant. Similarly, an owner of a project “benefits” from the design consultant’s work because the owner enjoys the finished product of the project. Depending on the project, perhaps even the public at large may “benefit” from the work that results from the contract.
But can these same parties make a breach of contract claim against you if something goes wrong and they don’t enjoy a benefit they were anticipating?
There are of course many factors that go into answering this question, and each situation is unique, so you should consult with an attorney to get an answer specific to your case.
For example, one factor to consider is whether the party bringing the claim is a “third-party beneficiary” of the contract. A third-party beneficiary can generally make a breach of contract claim against one of the parties to the contract—even though it itself was not a party to the contract—because the contract was intended to benefit that individual or entity.
However, just because a party “benefits” from your contract in the general sense of the word does not mean that that same party is a third-party beneficiary of the contract under the law. Broadly speaking, a third-party beneficiary under the law must prove itself as an intended beneficiary and not just an incidental beneficiary.
What this showing looks like varies from state to state. In Virginia, for example, the parties to the contract must have “clearly and definitely intended” the contract to confer a benefit on the third party. In West Virginia, by contrast, a party must show that the contract was made for its “sole benefit” before it can be considered a third-party beneficiary and make a claim under the contract. As a result, a claim may be viable in one state but not in another. For example, in Virginia the owner does not have a third-party beneficiary cause of action against a design-build designer. In North Carolina, the law provides such a third-party remedy.
The possibility of a third-party beneficiary being able to make a breach of contract claim demonstrates why it’s important to work with an attorney when possible while drafting and entering into agreements to properly assess who you may be liable to—or who you can seek damages from—in the event of a contract breach. Additionally, different legal principles apply to obligations separate from those arising under contract law that are also important to consider.