Contracts And Third Party Beneficiaries

Can A Party Form A Contract With The Intention Of Bestowing A Benefit Upon A Stranger To The Contract?

A party may form a contract with the intention of bestowing a benefit upon a stranger to the contract. The benefit may be intended as a gift or to satisfy a legal obligation. In either case, the party intended to receive the benefit is a third-party beneficiary of the contract and, as such, acquires rights under the contract.

Is There A Test For Determining Whether A Person Is A Third-Party Beneficiary?

The test for determining whether a person is a third-party beneficiary is objective and based on the contract language. In other words, the parties’ subjective intentions are irrelevant. Accordingly, before a third party is allowed to maintain an action for breach of contract, the party will have to demonstrate that it is a direct beneficiary of the contract and that the individual’s rights under the contract have accrued. Once accrual occurs, the third-party beneficiary must be consulted before the contract is modified or rescinded.

Who Is Not Considered To Be A Third-Party Beneficiary In Michigan?

In Michigan, contractors, subcontractors, their employees, and material suppliers are generally held not to be third-party beneficiaries of the contract between the general or supervisory contractor and the project owner. The Michigan Court of Appeals’ decision in Dynamic Const. Co. v. Barton Malow Co. has been cited and relied on by numerous courts. It is generally considered to be the controlling authority on the issue of third-party beneficiaries in construction litigation.

Do Construction Projects Typically Involve Many Contracts And Sub Contracts?

Construction projects typically involve different parties performing under several different contracts and subcontracts. A general contractor who has entered into a contract and provided a bond to the owner may contract with a number of subcontractors. Those subcontractors in turn may contract with others to complete portions of the subcontractors’ project. In this scenario, one party’s performance often depends on timely and complete performance by another party.