Nov 2011 , Vol. VI, No.1

The Third Wheel: How Unnamed Parties can find their way into your Contract Disputes

Authored by attorney Sean Golden

With the exception of negligent acts that cause personal injury or damage to property, parties in the A/E and construction fields typically will only be held liable to other parties with whom they have contracted.  As the Supreme Court of Virginia has stated, parties involved in construction projects “resort to contracts and contract law to protect their economic interests,” and the contracts they enter define their rights and duties.   In the case referenced, one in which a general contractor asserted a claim for professional negligence against the project architect with whom it did not have a contract, the Supreme Court stated that “the architect’s duties both to owner and contractor arise from and are governed by the contracts related to the construction project.”  Because there was no contract between the general contractor and the architect, the court dismissed the general contractor’s claim of professional negligence.
 

So this would mean that, in the typical owner-contractor-subcontractor relationship, an owner cannot sue a sub because the owner and sub have not directly contracted, right?  Not necessarily.  Virginia law allows, in certain situations, for one who is not a party to a contract to sue for breach of contract as a “third-party beneficiary.” 
 

In essence, if B and C enter into a contract, and the contract clearly intends to confer a benefit on A, A can sue B or C even if A was not a party to the contract.  The Supreme Court of Virginia has applied this concept regarding a general contractor’s contract with a subcontractor, allowing the owner to sue the subcontractor directly.
 

Parties entering a contract as a subcontractor or consultant should keep this concept in mind when entering their contracts.  When the terms of the contract expressly reference the owner, the owner may have a direct right of action under this third-party beneficiary theory against the subcontractor or consultant.  Some courts have held that, if a contract specifically provides that it is not made for the benefit of third-parties, then the contract creates no third-party claims,  but even those provisions cannot guarantee a third-party beneficiary claim from an owner will be prohibited.

1   Blake Construction Co. Inc. v. Alley, 233 Va. 31, 35, 353 S.E.2d 724, 727 (1987)

2  Specifically, the Court held that “no common-law duty requires an architect to protect the contractor from purely economic loss,” which is what the contractor was suing for.  When the alleged damages are for personal injury or property damage, the so called “economic loss rule” will not apply, and a cause of action for negligence will be allowed even in the absence of a contract.

3 See Aetna Cas. & Sur. Co. v. Fireguard Corp., 249 Va. 209, 455 S.E.2d 229 (1995).

4  Richmond Shopping center, Inc. v. Wiley N. Jackson Co., 220 Va. 135, 142-43, 255 S.E.2d 518, 523 (1979).

Authored by attorney Sean Golden, these articles are meant to bring awareness to these topics and are not intended to be used as legal advice.
For more information, contact Sean Golden at 757-446-8626 or Bill Franczek at 757-446-8600.
Visit www.vanblk.com, for our library of Construction Law Tips.  Suggestions for a topic? E-mail bfranczek@vanblk.com.