Florida law permits a person or company to sue under a business contract which that party did not actually agree to because that person or business is a “third-party beneficiary” to the contract. A third-party beneficiary is an entity which receives a benefit under a contract but is not one of the parties that signed that contract. The status of third-party beneficiary permits the non-party standing to sue even though the third-party beneficiary has no obligations under the contract. Generally, for a third-party beneficiary to have standing to sue, the contract itself must clearly express that a benefit is intended to a non-party to the contract. If the contract expressly states that the parties are the only intended beneficiaries to the contract, then there can be no third-party beneficiary. A recent case before Florida’s Fourth District Court of Appeals upheld this principle. Peter Mavrick is a Miami business litigation lawyer, and also represents clients in business litigation in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, employment litigation, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.
“The doctrine of third-party beneficiaries provides that under certain circumstances, a person may sue to enforce a contract, even though the person is not a party to the contract.” Mendez v. Hampton Court Nursing Ctr., LLC, 203 So. 3d 146 (Fla. 2016). In business litigation, a non-party may qualify as a third-party beneficiary when 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.” Mendez v. Hampton Ct. Nursing Ctr., LLC, 203 So. 3d 146 (Fla. 2016).
The law of third-party beneficiaries is an issue of contract interpretation. Parties to a business contract are free to enter into nearly any kind of contract. Whether the parties intended to allow a third-party to sue under a contract is a ultimately a question as to whether the parties intended to give that third-party the right to sue for violations under the contract. Contracts cannot reasonably contemplate every possible dispute or circumstantial permutation which may arise. Thus, courts apply the “gap-filler” rules of contract interpretation when the contract does not directly address the dispute. “The parties’ intention governs contract construction and interpretation; the best evidence of intent is the contract’s plain language.” Whitley v. Royal Trails Prop. Owners’ Ass’n, Inc., 910 So. 2d 381 (Fla. 5th DCA 2005).
“A party is an intended beneficiary only if the parties to the contract clearly express, or the contract itself expresses, an intent to primarily and directly benefit the third party or a class of persons to which that party claims to belong.” Dingle v. Dellinger, 134 So. 3d 484 (Fla. 5th DCA 2014). However, “[a] person who is not a party to a contract may not sue for breach of that contract where that person receives only an incidental or consequential benefit from the contract.” Taylor Woodrow Homes Fla., Inc. v. 4/46–A Corp., 850 So.2d 536 (Fla. 5th DCA 2003).
“[T]he third-party beneficiary doctrine enables a non-contracting party to enforce a contract against a contracting party—not the other way around. The third-party beneficiary doctrine does not permit two parties to bind a third—without the third party’s agreement—merely by conferring a benefit on the third party.” Mendez v. Hampton Court Nursing Ctr., LLC, 203 So. 3d 146 (Fla. 2016).
Insurance contracts and agreements for the care of incapacitated persons frequently involve third-party beneficiaries. However, third-party beneficiaries can be created by nearly any type of contract, including leases, employment contracts, and commercial contracts. For example, general releases often release potential claims against parties other than those who are the signatory to the contract. Courts will generally enforce a release of claims against persons who are not parties to the contract. Enter. Leasing Co. v. Demartino, 15 So. 3d 711 (Fla. 2d DCA 2009) (“[T]his court and others have held that when a release clearly states that it releases “all other persons and/or corporations who are or may be liable” for the subject damages, the other persons and corporations may be third-party beneficiaries of that release and thus have standing to enforce the release”). Non-parties to a contract can enforce arbitration clauses if they are intended beneficiaries of the clause. Bolanos v. First Inv’rs Servicing Corp., 10-23365-CIV, 2010 WL 4457347 (S.D. Fla. Oct. 29, 2010) (“[I]t is well-settled that a nonparty can enforce an arbitration agreement if the language of the agreement is broad enough to permit the nonparty to invoke it”); Florida Power and Light Company v. Road Rock, Inc., 920 So. 2d 201 (Fla. 4th DCA 2006) (“Non-parties to a contract containing an arbitration clause cannot compel parties to a contract to arbitrate unless it is determined that they are a third party beneficiary to the contract”).
In the recent case, Reconco v. Integon National Insurance Company, 2021 WL 264186 (Fla. 4th DCA Jan. 27, 2021), the appellate court was evaluating whether a contract created a third-party beneficiary with standing to sue under the contract. In Reconco, a mortgage lender purchased insurance to protect its interest in the mortgaged property when the borrower failed to. The mortgaged property experienced losses, and the borrower attempted to sue the insurance company as a third-party beneficiary to the insurance contract. Reconco held that the borrower did not have standing. While the contract of insurance existed to insure property which was owned by the borrower, the terms of the contract exhibited the intention that the only parties’ losses covered under the contract was the mortgage lender. The contract itself explicitly stated that “The contract of insurance is only between the NAMED INSURED and [insurance company]. There is no contract of insurance between the BORROWER and [insurance company].” Reconco held that “[t]he Policy expressed a ‘clear or manifest intent’ in clear and unambiguous language that the Policy was intended not to benefit Appellant.”
Parties to a business contract that do not intend to create a third-party beneficiary should agree to a contractual clause which specifically provides that the contract is not intended for the benefit of any third-party. This would avoid potential uncertainty in litigation which may arise if the matter is left ambiguous. Peter Mavrick is a Miami-Dade business litigation attorney who also practices business litigation in Fort Lauderdale, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.