What do you mean I cannot sue the subcontractor?
Construction law cases… you have to love them. Generally, we find a teaching moment or two in almost all the construction law decisions we review at the Idaho Land Law blog. The Idaho Supreme Court’s decision in DeGroot v. Standley is no exception. DeGroot is your standard general contractor, subcontractor, and supplier type construction defect case. Parties pointing fingers at each other and the owner left with a little less than they bargained for when they started the project.
In this case, Charles DeGroot and DeGroot Farms, LLC (collectively “DeGroot”) appealed the district court's grant of summary judgment in favor of Standley Trenching, Inc. (“Standley”), concerning the construction and installation of a manure handling system at the DeGroot dairy. Beltman Construction, Inc. (“Beltman”) was the general contractor for the project and subcontracted with Standley for the installation of the manure handling equipment.
At some point after the construction of the DeGroot dairy, DeGroot began experiencing issues with the manure handling equipment and sued both Standley and Beltman. Beltman brought a third party complaint against Standley, Beltman stipulated to a judgment and assigned its 3rd party rights against Standley to DeGroot. The district court dismissed Beltman, granted Standley summary judgment on its counterclaim against DeGroot, granted Standley summary judgment on DeGroot’s claims, and granted Standley summary judgment on Beltman’s assigned third-party complaint.
The case is an interesting read. From our perspective, the most interesting portion of the case is the Supreme Court’s treatment of the whether or not DeGroot was a third-party beneficiary of the contract between the Beltman (the general contractor) and Standley (the subcontractor). The Supreme Court held that DeGroot was not a third-party beneficiary to the subcontract between Beltman and Standley despite hearing evidence that Standley met with DeGroot prior to submitting its bid, listed DeGroot as the customer on its invoices, named the project “DeGroot”, and sent warranty information directly to DeGroot.
In reaching its decision, the Supreme Court looked at I.C. § 29-102 and stated that in order to establish a claim as a third-party beneficiary, “the contract itself must express an intent to benefit the third party.” The Court went on to state, “Idaho case law is clear that the party claiming to be a third-party beneficiary must show that the contract expressly indicates that it was made for his or her direct benefit.”
What does this mean for owners and general contractors?
Given this holding, the logical question is should owners require general contractors to include third-party beneficiary language (in favor of the owner) in their contracts with subcontractors and suppliers? Should general contractors require the same of subcontractors in the subcontractors' contracts with suppliers? I think the answer to both these questions is yes.
An owner will want to know that it can sue a subcontractor or supplier to a project under the theory that the owner is a third-party beneficiary to the general contractor’s contract. From the general contractor’s perspective, it too will want the ability to sue a material supplier to a subcontractor, as a third-party beneficiary, should a material supplier fail to meet its contractual obligations to the subcontractor.