Washington Court Holds Owner May Not Sue Subcontractor As Third Party Beneficiary Of Subcontract

Somerset Village Townhomes Condominium Owners’ Association v. Allied Construction, Inc.
2008 Wash App. LEXIS 2178 (September 2, 2008)

Developer, Far Northwest Development Co, LLC (“Far Northwest”) contracted with Steinvall Construction (“Steinvall”) for the construction of the Somerset Village Townhomes. The contract between Far Northwest and Steinvall stated that “[t]he Contract Documents shall not be construed to create a contractual relationship of any kind . . . between the Owner and a Subcontractor . . .” Steinvall subcontracted portions of its work. The subcontracts incorporated the general conditions of the Far Northwest –Steinvall contract and also imposed certain obligations on the subcontractors concerning Far Northwest, including, inter alia, obtaining insurance to protect its interests and indemnifying Far Northwest for certain claims.

After completion of construction, the Somerset Village Townhomes Condominium Association (“the Association”) filed suit against Far Northwest based on certain construction defects. Far Northwest filed suit against the subcontractors, contending that it was a third-party beneficiary of the subcontracts between Steinvall and the subcontractors. On summary judgment, the trial court dismissed Far Northwest’s claims against the subcontractors. The Association, as assignee of Far Northwest’s contract rights, appealed contending that Far Northwest was an intended third party beneficiary of the subcontracts between Steinvall and the subcontractors.

The Court noted that, in the construction context, an owner is not an intended third party beneficiary of a contract between a general contractor and a subcontractor, unless the intent to confer such third party rights appears in the contract documents. In the absence of words showing a clearly contrary intent, the subcontractors’ promises are intended to be for the benefit of the general contractor, not the owner, and the owner will not be deemed an intended third party beneficiary. Here, the Court held that, although certain of the subcontract provisions reflected a desire to benefit Far Northwest, none of the provisions clearly showed an intent to confer on Far Northwest a direct right of action against the subcontractors. Moreover, any doubts about whether the parties intended to create a third party beneficiary contract were dispelled by the express disclaimer of any contractual relationship between the Owner and subcontractors.

In sum, the Court held that by incorporating the “no contractual relationship” language into their contracts, Steinvall and the subcontractors unambiguously expressed their intent that there be no third party beneficiary relationship between Far Northwest and the subcontractors. Because the contract language did not manifest an intent by Steinvall and the subcontractors to create a third party beneficiary contract, the Court held that the Association lacked standing to maintain an action against the subcontractors.

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