Kmart Corp. v. Balfour Beatty - 994 F. Supp. 634 (D.V.I. 1998)

Rule:

Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either: (a) the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or (b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance. An incidental beneficiary is a beneficiary who is not an intended beneficiary. An intended beneficiary acquires a right under the contract. A promise in a contract creates a duty in the promisor to any intended beneficiary to perform the promise, and the intended beneficiary may enforce the duty. An incidental beneficiary does not. An incidental beneficiary acquires by virtue of the promise no right against the promisor or the promisee. Promises to render performances other than the payment of money require some expression of an intent by the parties to give the benefit of performance to the beneficiary.

Facts:

Defendant contractor entered into a contract with the landlord to design and construct a shopping center. The plaintiff tenant dictated the construction schedules, the design, and the warranties. The roof of the shopping center was damaged by winds which accompanied a hurricane. Contending that it was a third-party beneficiary of the construction contract, the plaintiff tenant instituted an action alleging breach of contract and negligence. The defendant contractor filed a motion to dismiss plaintiff tenant's action for breach of contract and negligence under Fed. R. Civ. P. 12(b)(6) on the basis that the tenant was not an intended third-party beneficiary of the construction contract between the contractor and the tenant's landlord. Alternatively, if the court found that the tenant was a party to the contract, the contractor sought a stay pending arbitration.

Issue:

Was the tenant an intended third-party beneficiary of the construction contract between the contractor and the tenant's landlord? 

Answer:

Yes.

Conclusion:

The court denied the contractor's motion to dismiss the tenant's complaint, ordered that all parties to the construction contract between the contractor and the landlord submit to arbitration, and stayed the action pending the outcome of arbitration. In staying the tenant's action pending arbitration, the court held that the tenant was a third-party beneficiary to the construction contract, could enforce any rights it had under the contract, and was bound by the contract's arbitration clause to submit its claims to arbitration. The tenant was a third-party beneficiary because the contractual duty of performance owed by the contractor to its promisee, the landlord, would have satisfied the landlord's duty to its beneficiary, the tenant. The contract conveyed an intent among the contracting parties to bestow a benefit upon the tenant given the lease and the tenant's extensive involvement in construction specifications. The contractor clearly had notice that the landlord intended to benefit the tenant.