The following article addresses the role of contractual intent in determining the ability of third-party beneficiaries to enforce rights granted to them in a contract. Although it is well-established that only intended beneficiaries may sue to enforce contractually granted rights, there is no requirement that the intent be expressed on the face of the contract. As the author notes, ambiguous contact language or unexpressed intent may result in unexpected legal duties—and unanticipated liability-to third parties.
Owen J. Shean, Feature Editor
Cobstruction projects, with the multiple contracts they typically involve, provide fertile ground for liability to third parties. Even though third parties can rely on no contractual relationship with the contracting parties, they may still be able to enforce rights granted to them by the contract. When third-party rights are in fact intended, contracting parties will not be surprised when the third party makes a claim on the contract. When the parties did not intend to grant the third party any rights, however, litigation often results. Because it is possible to grant third-party rights inadvertently, it is absolutely necessary to review the contract to determine if a third party may have unanticipated rights.
A recent Pennsylvania case offers an example of how parties may face unexpected liability to a third party. In Scarpitti v. Weborg, 609 A.2d 147 (Pa. 1992), a developer sold lots in a new subdivision. Although purchasers were entitled to construct their own homes on the lots, they were required by subdivision restrictive covenants to build no less than a two-car garage nor more than a two-and-a-half-car garage. The restrictive covenants also required lot owners to obtain written approval of the plans from the architect prior to erecting any dwellings or structures.
Scarpitti and Hines, lot owners in the subdivision, submitted plans to the architect that envisioned a three-car garage, an obvious violation of the restrictive covenant. The architect rejected the plans. Scarpitti and Hines obtained approval for and constructed a dwelling with a two-and-a-half-car garage. Subsequently the architect approved plans that included three-car garages. The architect had designed these plans in his private capacity as a professional architect.
After the dwellings with the three-car garages were built, Scarpitti and Hines filed a breach of contract action against the architect, seeking damages for the architect's arbitrary enforcement of the subdivision restrictions. Although the trial court dismissed the action because there was no contract between Scarpitti and Hines and the architect, the Superior Court held that the lot owners had a valid cause of action as “third-party beneficiaries of the implied contract between [the architect] and the subdivision developer.
The Supreme Court of Pennsylvania agreed. The court found that the contract between the developer and the architect was intended to benefit the purchasers of the lots. The architect was to review all building plans to enforce the recorded subdivision restrictions. The architect's review would make the lots more appealing by assuring that other owners in the subdivision would conform to the restrictions. The court stated:
In this case, the architect is the promisor, promising to enforce deed restrictions which carry out the developer's intention to benefit the homeowners. The developer, the promisee, intends that the homeowners have the benefit of the architect's performance. Thus, it is patently clear that the parties, by establishing a vehicle for the enforcement of deed restrictions, intended to benefit the homeowners who purchased lots … at the time the contract was entered into. Although not individually named, [the] homeowners were ‘part of a limited class of persons intended to benefit from the agreement between [the architect] and [developer] … In fact, we have not been informed of any other purpose for the employment of appellant to review construction plans, but for the benefit of the homeowners in the subdivision.
Although it was not expressly provided in the contract, the court concluded that a third-party beneficiary relationship was envisioned by the contract between the developer and the architect. Scarpitti and Hines were entitled to recover for the architect's arbitrary enforcement of the subdivision restrictions.
The Scarpitti case demonstrates the importance of intent in establishing the rights of third parties. Certainly, the most important factor in determining the intent of parties to a contract is the language of the contract itself. Ambiguous contract language or unexpressed intent may lead to an unexpected legal duty to third parties. Therefore, contracting parties must evaluate their contractual language and ensure that it conveys their intent accurately. ■