Summer 2018

Virginia Contracts: Owner as Third-Party Beneficiary

The potential for a third-party claim exists in almost any contractual agreement because any time two parties contract, some third party will usually be affected by the performance or breach of the agreement. Third-party beneficiary rights can be, and often are, used to enforce the contract or to pursue remedies for wrongful conduct arising from the contract.

In Virginia, the right to sue as a third-party beneficiary is governed by Code of Virginia § 55-22, which provides, in relevant part, that:

(I)f a covenant or promise be made for the benefit, in whole or in part, of a person with whom it is not made, or with whom it is made jointly with others, such person, whether named in the instrument or not, may maintain in his own name any action thereon which he might maintain in case it had been made with him only and the consideration had moved from him to the party making such covenant or promise. * * *

For example, a property owner can sue a subcontractor as third-party beneficiary of the contract between the general contractor and the subcontractor, if the owner can show that the “parties to the contract clearly and definitely intended to confer a benefit on him. Valley Landscape Co. v. Rolland, 218 Va. 257, 237 S.E.2d 120 (1977). However, “it must be shown that the contract was intended at least in part to benefit the non-contracting party.” Valley Landscape Co., 218 Va. 257 at 259, 237 S.E.2d 120 at 122. A party who is merely an incidental beneficiary to a contract may not sue on it. Richmond Shopping Ctr., Inc. v. Wiley N. Jackson Co., 220 Va. 135, 255 S.E.2d 518 (1979).

Virginia third-party beneficiary claims have also arisen in the following contexts:

  • Where a homeowner’s warranty insurance policy was issued to builder, the purchaser was found to be an intended beneficiary under the contract. See Cobert v. Home Owners Warranty Corp., 239 Va. 460, 391 S.E.2d 263 (1989).
  • In a suit for non-delivery of goods by a carrier, the purchaser was third-party beneficiary entitled to bring suit. See Sydnor & Hundley v. Wilson Trucking, 213 Va. 704, 194 S.E.2d 733 (1973).
  • A judgment creditor who sued an insurance company as a third-party beneficiary was found to have rights no greater than those of the insured under the policy—which was effectively cancelled before the date the judgment creditor’s vehicle was damaged. See Ampy v. Metropolitan Cas. Ins. Co., 200 Va. 396, 105 S.E.2d 839 (1958).

For more information regarding defending a third-party beneficiary claim in any of these or other contexts, please contact Elena G. Patarinski in our Richmond, Virginia office at 804.932.1996.