Business Law 13th Edition by Frank Cross, Kenneth Clarkson, Roger LeRoy Miller

تمرين 6

IN THE LA NGUAG E OF THE COURT
Presiding Justice BURKE delivered the judgment of the court, with opinion:
* * * * This action arises from construction work performed in two residential subdivisions in Antioch, [Illinois,] commonly known as the NeuHaven Subdivision and the Clublands Subdivision. Pursuant to the contract, Neumann [Homes, Inc.,] agreed to construct certain public improvements for the Village [of Antioch's] benefit. Thereafter, Neumann and plaintiff [Lake County Grading Company] entered into agreements for plaintiff to perform certain grading work required under the contract.
* * * Plaintiff completed the work in compliance with the contract but was not paid in full for its services.
* * * * Neumann was unable to complete the improvements or to pay plaintiff in full. On November 1, 2007, Neumann declared bankruptcy. Plaintiff filed a * * * complaint [in an Illinois state court] seeking to recover payment [as a third party beneficiary] from the Village [for breach of contract]. * * * Specifically, plaintiff alleged that Section 1 of the Bond Act [30 Illinois Compiled Statutes 550/1] and Section 3.2(a) of the contract conferred third-party beneficiary status upon plaintiff. Plaintiff alleged that the Village has breached its duty to require from Neumann a * * * payment bond for the benefit of plaintiff. * * * The trial court granted plaintiff summary judgment * * *. The Village timely appeals.
* * * * An individual not a party to a contract may only enforce the contract's rights when the contract's original parties intentionally entered into the contract for the direct benefit of the individual. There is a strong presumption that the parties to a contract intend that the contract's provisions apply only to them, and not to third parties. Without contract language, the contracting parties' knowledge, expectation, or even intention that others will benefit from their agreement is not enough to overcome the presumption that the contract was intended for the direct benefit of the parties.
A person's status as a third-party beneficiary turns on whether the contract language shows such an intent of the contracting parties. The contract language must show that the contract was made for the direct, not merely incidental, benefit of the third party. Such an intention must be shown by an express provision in the contract identifying the third-party beneficiary by name or by description of a class to which the third party belongs. If a contract makes no mention of the plaintiff or the class to which he belongs, he is not a thirdparty beneficiary of the contract. [Emphasis added.]
Plaintiff qualifies as a third-party beneficiary. The payment bond requirement found in Section 1 of the Bond Act is read into a public works contract between a public entity and a general contractor. Specifically, Section 1 states that, as part of its agreement with the general contractor, the public entity "shall require every contractor for the work to furnish, supply and deliver a bond," and the bond shall be conditioned for the completion of the contract, for the payment of material used in the work, and for all labor performed in the work, including work completed by subcontractors.
* * * The Village violated Section 1, and thus breached the contract, when it failed to require Neumann to procure such a payment bond.
A subcontractor is a third-party beneficiary of a contract between a public entity and a general contractor because, as a policy matter, it would be meaningless here to read the Bond Act requirements into the general contract without reading in thirdparty rights to enforce that statute.
Moreover, consistent with the payment bond provision, Section 3.2(a) of the contract provides that "the Village agrees that Neumann shall construct the public improvements using subcontractors and materialmen selected from time to time by Neumann in Neumann's sole discretion." The payment bond provision read into the contract as well as Section 3.2(a) of the contract itself show the intent of Neumann and the Village to make plaintiff a third-party beneficiary.
* * * * We hold that the Village breached the contract when it failed to require Neumann to furnish a payment bond for the benefit of subcontractors. Section 1 of the Bond Act requires the general contractor to post a payment bond, and that requirement is read into a public construction contract precisely to give the subcontractor a remedy; thus a payment bond became a term of the contract between Neumann and the Village. As a direct third-party beneficiary, plaintiff had the right to sue on the contract.
* * * * For the reasons stated, the summary judgment entered in favor of plaintiff is affirmed.
Legal Reasoning Questions
1. What do courts focus on when determining whether a third party beneficiary is an intended or an incidental beneficiary?
2. What right does the status of an intended beneficiary confer on a third party to a contract?
3. In this case, did the court conclude that the plaintiff was an intended or an incidental third party beneficiary? Why?
4. Did the plaintiff obtain the remedy that it sought in this case? Explain.