The test for determining whether a third-party has an actionable right under a contract is whether the contracting parties intended that the third-party should receive a benefit which might be enforced in the court. "The contractual intent to recognize a right to performance in the third person is the key." Broadway Maint. Corp. v. Rutgers, The State Univ., 90 N.J. 253, 259 (1982). "If that intent does not exist, then the third person is only an incidental beneficiary, having no contractual standing." Id.
The foregoing rule (1) is especially applicable where there is litigation between the parties involved in a large-scale industrial construction project, where the sub-subcontractor shares no privity with the EPC contractor or owner. The New Jersey legislature has already provided a remedial scheme for allegedly unpaid sub-subcontractors and other indirect suppliers, namely, the construction lien law. For example, in Insulation Contracting, Inc. v. Kravco, 209 N.J. Super. 367 (App. Div. 1986), plaintiff, Insulation Contracting, a sub-subcontractor, entered into a contract with Peyton Contractors to supply and install insulation. Peyton was a subcontractor of general contractor, Kravco. After the default in performance by subcontractor Peyton, Kravco terminated Peyton. Plaintiff instituted an action against the owner, Peyton and Kravco, for the balance due under its sub-subcontract. Id. at 369-70. The court analyzed each of the contract provisions and noted that in none of the contracts did either Kravco or the owner assume the obligations of defendant Peyton in the case of default.
Significantly, the Kravco court also rejected the claim that plaintiff was a third-party beneficiary of the remaining contracts, concluding that the language in the contracts did not indicate that there was an intent to confer a benefit on Insulation Contracting and, thus, it was not a third-party beneficiary that could seek redress directly against Kravco. Id. at 375-76; see, also, F. Bender, Inc. v. Muscarelle, Inc., 304 N.J. Super. 282, 285 (App. Div. 1997) (Sub-subcontractor could not recover against contractor or owner based upon quasi-contract claims since such actions, if permitted, would undermine the mechanic’s lien system and disrupt the construction industry).
Therefore, the sub-subcontractor’s third-party beneficiary claims against the EPC contractor and owner will not support any cognizable claim for relief, and must be dismissed. Printing Mart-Morristown v. Sharp Electronics Corp., 116 N.J. 739, 746 (1989); Leon v. Rite Aid Corp., 340 N.J. Super. 462, 466 (App. Div. 2001); Rule 4:6-2(e). The sub-subcontractor is thus left to seek redress under the statutory provisions of the construction lien law, and through its direct contractual claims against the subcontractor.
(1) One significant exception to this general rule arises when the EPC contractor chooses to pay the sub-subcontractor through a joint check arrangement. In such cases, the sub-subcontractor must show that: 1) the joint check agreement was specifically made for the benefit of the sub-subcontractor; 2) the EPC contractor indicated that it specifically intended to be responsible for ultimate payment to the sub-subcontractor; 3) the sub-subcontractor supplied consideration on its part; and 4) the agreement contained clear provisions vis-a-vis the sub-subcontractor, such as directing payment of a sum certain to the sub-subcontractor. See Onorato Const., Inc. v. Eastman Const. Co., 312 N.J. Super. 565, 572-3 (App. Div. 1998) (Only under certain circumstances may an agreement by a general contractor to pay sub-subcontractors or suppliers directly or with joint checks result in the general contractor’s assumption of liability for those payments despite a prior lack of privity); see, also, Maccaferri Gabions, Inc. v. Dynateria Inc., 91 F.3d 1431, 1439 (11th Cir. 1996) (General contractor, by entering into joint-check agreement with subcontractor, did not assume subcontractor’s duty to pay materialman directly for all materials that it delivered to site of federal construction project; joint-check arrangement had to be interpreted in accordance with entire agreement between parties, so as not to create conflict with other provisions which clearly required subcontractor, and not general contractor, to pay materialmen, and which authorized general contractor to withhold payment from subcontractor if it did not secure releases from those materialmen).