Tag Archives: third-party beneficiary

Additional Thoughts on Pre-Existing Duty Rule and Third Parties

Our last post, concerning PDI Group, Inc. v. The Desco Group, Inc., involved the application of the pre-existing duty rule to a circumstance where the pre-existing duty was under a contract with a third party. In that post it was noted that additional detail of the context would be helpful. Let us expand by illustration.

As previously noted, the function performed by the pre-existing duty rule is to make unenforceable a promise made in circumstances indicating the promise was not voluntary, without the need for separately proving the generally applicable elements of duress. When the pre-existing duty is owed to a third party, the circumstance may not suggest the same level of lack of volition. We can, however, provide an illustration of a context where a lack of volition may be present:

With three parties, the language can be confusing. So let’s say:

Current Contract: Promisor P promises to render performance to O, with putative consideration being performance C. It is alleged that O was already obligated under an old contract (“Old Contract”) between O and TP to render performance C.

An argument that P’s promise to render performance to O was not really voluntary (and was not supported by consideration) is supported by a conclusion P was an intended beneficiary of O’s duties under the Old Contract. So, one may want to consider that issue.

 

Third-Party Beneficiary and Contracts with Architects–Captiva Lake Investments, LLC v. AmeriStructure, Inc.

In Captiva Lake Investments, LLC v. AmeriStructure, Inc., 2014 WL 1227739 (Mo. App., E.D.), we have a client (MPDC) that engaged a firm (KCI, whom we’ll call the prime), in which the prime agreed to provide design and construction services (a design-build contract). The prime engaged a firm (AmeriStructure, whom we’ll call sub) to provide architectural services. The client obtained financing and subsequently defaulted. The clients’ rights under various pertinent contracts allegedly became owned by plaintiff, one Captiva.

The case raises interesting issues about the economic loss rule. We will put those aside for now. The aspect of interest is whether the plaintiff, now standing in the shoes of the initial client, is permitted to maintain a breach of contract claim against the sub for alleged violation of the sub’s agreement with the prime. Here’s the part of the brief for the sub addressing third-party beneficiary status:

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Third-Party Beneficiaries of Municipal Contracts–More on Drury Co. v. Jackson R-2 School District

There does not appear to be an inherent inability at common law for an intended beneficiary to maintain a claim as a third-party beneficiary under a local government contract:

Whenever local law permits third-party beneficiaries to sue on contracts between others, they can sue on comparable local government contracts.

Chester James Antieau, Antieau on Local Government Law, § 32.12  (Sandra M. Stevenson, ed.) (2d ed., Lexis database, through December 2013; Release No. 126).  Were one to review 10A Eugene McQuillen, The Law of Municipal Corporations § 29:136 (3d ed. 2009 rev. vol), one would see, “The right of a third person to sue on a municipal contract has been denied in several decisions. However, in some circumstances such an action may be maintained ….”  McQuillen’s footnotes have such authority as referencing no recovery by an “incidental beneficiary” or “ordinarily, under New Mexico law, the obligations arising out of a contract are due only to those with whom it was made”.  So, without attempting to read each case cited by McQuillen, it would appear that Antieau has better-expressed the view.

Law Mo. Stat. 432.070 states:

No county, city, town, village, school township, school district or other municipal corporation shall make any contract, unless the same shall be within the scope of its powers or be expressly authorized by law, nor unless such contract be made upon a consideration wholly to be performed or executed subsequent to the making of the contract; and such contract, including the consideration, shall be in writing and dated when made, and shall be subscribed by the parties thereto, or their agents authorized by law and duly appointed and authorized in writing.

The school district in Drury Co. v. Jackson R-2 School District, 2014 WL 462916 (Mo. Ct. App., E.D. 2014), takes the position that the statute prevents third-party beneficiary claims against counties, etc.

An initial step in construing a provision, a statute as well as a contract, is ascertainment of the evident sense of the provision as a whole.  Let’s see if the argument is persuasive, particularly in regards to:

  • What particular language in the statute does the school district identify as the basis for holding third-party beneficiaries cannot enforce a written contract?
  • What statutory purposes does the school district identify that would be inhibited by allowing third-party beneficiaries to maintain actions?

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Duty to Obtain Insurance and Third-Party Beneficiary Status–Drury Co. v. Jackson R-2 School District

In the ongoing saga of a governmental entity’s claims a subcontractor cannot sue the governmental entity for failure to obtain insurance covering the subcontractor (discussed previously concerning a brief at 2013 WL 6169464), we now have a brief on behalf of the governmental entity.  Drury Co. v. Jackson R-2 School District, 2014 WL 462916 (Mo. Ct. App., E.D. Jan. 13, 2014). The brief discusses a claim brought by a subcontractor against the governmental entity.  The basis for the claim on which we will focus is the entity entered into a written contract with a prime contractor.  According to the subcontractor’s brief, the written contract provides:

[Respondent] shall purchase and maintain… insurance written on a builder’s risk “all-risk” or equivalent policy… [that] shall include the interests of the. . Subcontractors… in the Project.

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