Two is Party, Three is a Crowd: A Deeper Look at Third Party Contract Rights

Imagine a situation in which your decorating business is hired by the Mother of the Bride to decorate her daughter’s wedding venue. Before signing a contract, you set up a meeting with the Mother to further understand the needs and scope of this decorating job. The Mother tells you all about what her daughter, the Bride, wants at her venue: the balloon arch, the hanging flowers, and the teardrop chandelier directly above the altar. After meeting with the Mother, who is paying for the wedding, you enter into and sign a contract with the Mother detailing the scope of your contract to decorate the daughter’s wedding venue. Six months after the wedding, you are served with a Complaint for breach of contract. The person who sues you is not the Mother, who showered you with compliments about the job you did, but instead is the Bride, the daughter. But how is that possible? Your contract wasn’t with the daughter. In fact, the only people who signed that contract were your company and the Mother!

This is a situation that many business owners unknowingly can find themselves in. Generally, the only people who are permitted to sue to enforce a contract are the signatories of that contract. However, there is a contract principle, which permits non-signatories, called “third party beneficiaries,” to sue to enforce the terms of the contract under certain circumstances. Mendez v. Hampton Court Nursing Ctr., 203 So. 3d 146 (Fla. 2016). When the contract is intended to primarily and/or directly benefit a third party, that party may be considered an “Intended Third Party Beneficiary,” and may be endowed with the rights under a contract that were not necessarily agreed to by the parties to the contract. In order to be considered a third party beneficiary with the rights to sue to enforce the terms of the contract, the court must find that the following elements are met: (1) existence of a contract; (2) the clear or manifest intent of the contracting parties that the contract primarily and directly benefit the third party; (3) breach of the contract by a contracting party; and (4) damages to the third party resulting from the breach. Id.

However, the circumstances in which a non-party can be considered a “third-party beneficiary” are very limited and strictly construed. Merely conferring a benefit is usually not enough to provide that person with contract rights when they are not a signatory. Taylor
Woodrow Homes Fla., Inc. v. 4/46–A Corp., 850 So.2d 536 (Fla. 5th DCA 2003). Further, you can insert provisions into your contract to pre-empt any potential third-party claims and/or limit the rights of those individuals who are not parties to the contract.

These third-party claims and rights can be mitigated and pre-empted by simply including such a term in the contract itself. However, in many circumstances, business owners do not think to include such terms, even when they are aware that the services they are providing are to benefit a third party, because it is counterintuitive—the third party is not the one agreeing to or negotiating the terms of the contract. In those cases, it is best to hire an attorney to review the terms of your contract to ensure that you are protected. If you have any concerns about whether you may be subject to any unwanted third-party claims, or are in the midst of dealing with one, you can reach out to Haber Law for any of your litigation needs.