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A developer contracted with B&R Construction Management (B&R) for the demolition a redevelopment and housing authority facility (hereafter referred to as the Contract). B&R subcontracted some of the demolition work to Beamon Enterprises (Beamon). Beamon, in turn, subcontracted with Environmental Staffing Acquisition Corporation (En-Staff) to provide labor. After Beamon failed to pay En-Staff for the work performed, En-Staff filed a complaint against B&R seeking the amount it was owed under its contract with Beamon. En-Staff asserted it had standing to bring a breach of contract claim against B&R as a third-party beneficiary of the Contract. B&R filed a demurrer disputing En-Staff's status as a third-party beneficiary. The circuit court sustained B&R's demurrer and dismissed En-Staff's claims against B&R with prejudice. The Supreme Court affirmed, holding (1) the trial court erred in finding that the language of the Contract precluded third-party action against B&R, but the error was harmless; and (2) En-Staff was not a third-party beneficiary of the Contract because it benefitted only incidentally from the Contract.
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PRESENT: All the Justices
ENVIRONMENTAL STAFFING ACQUISITION
JUSTICE CLEO E. POWELL
April 20, 2011
Record No. 111067
B & R CONSTRUCTION MANAGEMENT, INC.
FROM THE CIRCUIT COURT OF THE CITY OF PORTSMOUTH
Kenneth R. Melvin, Judge
In this appeal, Environmental Staffing Acquisition Corp.
(“En-Staff”) argues that the trial court erred in sustaining the
demurrer filed by B&R Construction Management, Inc. (“B&R”),
because En-Staff is a contractual and statutory third-party
beneficiary of the contract B&R entered into.
that the parties to the contract did not intend to confer any
third-party benefits and that En-Staff only benefits
incidentally from the contract, we will affirm the judgment of
the trial court.
On March 25, 2009, Cornerstone Jeffry Wilson, L.L.C. (the
“Developer”) contracted with B&R for the demolition and
abatement of a Portsmouth Redevelopment and Housing Authority
(“PRHA”) facility in the City of Portsmouth (hereafter referred
to as the “PRHA Contract” 1).
Section 4 of the PRHA Contract
included the following language:
[B&R] shall provide, at a minimum . . .
performance and payment bonds in the full amount
of the Contract Lump Sum and remaining in place
for the entire term of the agreement, or in lieu
thereof, letter(s) of credit reasonably
satisfactory to PRHA and DEVELOPER.
In addition to language regarding the performance and
payment bond, Section 4 included the following language: “All
rights under this Contract Agreement shall be for the benefit of
DEVELOPER and its successors and assigns, including PRHA, as
The PRHA Contract also included a “Standard
Addendum to Construction Agreement” (the “Addendum”).
2.4 of the Addendum, titled “No Third Party Rights,” stated:
Nothing in the Contract Documents shall be deemed
to create a joint venture or partnership between
the PRHA and Developer and [B&R] or and [sic]
direct or indirect contractual relationship between
the PRHA and any of the contractors, subcontractors
or subsubcontractors nor shall anything contained
in the Contract Documents be deemed to give any
third party any claim or right of action against
PRHA or HUD; nor shall anything contained in the
Contract Documents be deemed to cause Contractor to
become the agent of PRHA or HUD.
B&R procured a performance and payment bond from Genesis
Capital Corporation (“Genesis”), as required under Section 4 of
the PRHA Contract.
Additionally, B&R subcontracted some of the
Although PRHA is not a party to the PRHA Contract, the
PRHA Contract directly relates to an underlying contract between
PRHA and the Developer.
demolition work to Beamon Enterprises, Inc. (“Beamon”).
in turn, subcontracted with En-Staff to provide labor for
At some point thereafter, Beamon failed to pay En-Staff for
much of the work performed.
On August 17, 2009, En-Staff
notified B&R that it would be filing a claim on the performance
and payment bond.
En-Staff then learned that Genesis was not
authorized to provide insurance or bonding in Virginia and was
no longer in business.
En-Staff subsequently filed a complaint against B&R seeking
the amount it was owed under its contract with Beamon.
amended complaint, En-Staff claimed that B&R had breached the
PRHA Contract because Genesis was insolvent and had not been
authorized to do business in Virginia.
En-Staff asserted that
it had standing to bring the breach of contract claim against
B&R as a third-party beneficiary of the PRHA Contract based on
the plain language of the contract and Code § 2.2-4337.
B&R filed a demurrer disputing En-Staff’s status as a
Finding that there was no evidence
that the parties to the PRHA Contract intended to make En-Staff
a third party beneficiary and that the PRHA Contract contained
plain and unambiguous provisions denying and disclaiming any
third party claims, the circuit court sustained B&R’s demurrer
and dismissed En-Staff’s claims against B&R with prejudice.
In this appeal, En-Staff raises the following assignments
1. The trial court misinterpreted Virginia law by
failing to hold that Va. Code § 2.2-4337(B)
requires that Environmental Staffing Acquisition
Corporation is a third party beneficiary of the
contract between PRHA and B&R Construction
2. The trial court erred when it held that the
provisions of the PRHA/B&R Construction
Management contract requiring a payment bond did
not make Environmental Staffing Acquisition
Corporation an intended third party beneficiary.
3. The trial court erred when it determined that
language limiting third party action against PRHA
or HUD precludes third party action against B&R
Construction Management, Inc.
4. The trial court erred when it sustained
Appellee’s Demurrer and dismissed Count III of
the Amended Complaint.
Rule 5:17(c)(1)(iii) requires that assignments of error
“address the findings or rulings in the trial court or other
tribunal from which an appeal is taken.”
This is because “[t]he
purpose of assignments of error is to point out the errors . . .
on which [an] appellant intends to ask a reversal of the
judgment, and to limit discussion to these points.”
Murray, 249 Va. 285, 290, 455 S.E.2d 18, 21 (1995).
We note that En-Staff’s first and second assignments of
error reference a contract between PRHA and B&R.
at issue in this case was between the Developer and B&R.
these assignments of error fail to accurately address the facts
of the trial below, they must be deemed insufficient.
En-Staff’s third assignment of error addresses the trial
court’s interpretation of specific language limiting third-party
action against PRHA or HUD.
En-Staff correctly points out that
the trial court misinterpreted Section 2.4 of the Addendum as
limiting the rights against B&R.
The plain language of this
section establishes that it only limits a “claim or right of
action against PRHA or HUD.”
Having determined the trial court
misinterpreted the limiting language of the PRHA contract, we
must address whether the trial court's error was harmless.
En-Staff argues that the trial court erred in finding that
En-Staff was not an intended third-party beneficiary of the PRHA
“It is well established in this Commonwealth that
under certain circumstances, a party may sue to enforce the
terms of a contract even though he is not a party to the
Levine v. Selective Ins. Co. of Am., 250 Va. 282,
285, 462 S.E.2d 81, 83 (1995); see also Code § 55-22. 2
Code § 55-22 states, in relevant part:
[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
essence of a third-party beneficiary’s claim is that others have
agreed between themselves to bestow a benefit upon the third
party but one of the parties to the agreement fails to uphold
his portion of the bargain.”
Copenhaver v. Rogers, 238 Va. 361,
367, 384 S.E.2d 593, 596 (1989).
“[W]hether a contract [is]
intended for the benefit of a third person [is] generally
regarded as [an issue] of construction and . . . the intention
of the parties is determined by the terms of the contract as a
Valley Landscape Co. v. Rolland, 218 Va. 257, 261, 237
S.E.2d 120, 123 (1977).
It is readily apparent that the bond provision in this case
benefits En-Staff and other subcontractors.
question before this Court, however, is whether En-Staff was an
intended beneficiary under the contract.
We have recognized a
specific limitation to the third-party beneficiary doctrine in
that “the third party must show that the contracting parties
clearly and definitely intended that the contract confer a
benefit upon him.”
Collins v. First Union Nat’l Bank, 272 Va.
744, 751, 636 S.E.2d 442, 446-47 (2006).
“It would be difficult to imagine a more
unequivocal mode of negativing any . . .
intention to benefit third parties than an
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.
express stipulation in the instrument to the
effect that it is for the sole benefit of the
obligee named therein.”
Century Indem. Co. v. Esso Standard Oil Co., 195 Va. 502, 509,
79 S.E.2d 625, 629 (1954) (quoting R.T. Kimbrough, Annotation,
Right of Person Furnishing Material or Labor to Maintain Action
on Contractor’s Bond to Owner or Public Body, 77 A.L.R. 21
The trial court found that the PRHA Contract contained two
provisions that “counsel against the conclusion that En-Staff
was an intended third party beneficiary.”
We have already
addressed the fact that the trial court misinterpreted one of
these two provisions, Section 2.4 of the Addendum.
of these provisions, Section 4 of the PRHA Contract, states:
“All rights under this Contract Agreement shall be for the
benefit of DEVELOPER and its successors and assigns, including
PRHA, as applicable.”
When the terms in a contract are clear and
unambiguous, the contract is construed according
to its plain meaning. Words that the parties
used are normally given their usual, ordinary,
and popular meaning. No word or clause in the
contract will be treated as meaningless if a
reasonable meaning can be given to it, and there
is a presumption that the parties have not used
PMA Capital Ins. Co. v. US Airways, Inc., 271 Va. 352, 358, 626
S.E.2d 369, 372-73 (2006) (internal quotation marks and
The plain language of the PRHA Contract establishes that
the parties to the contract did not intend to confer any rights
upon a third party.
Section 4 of the PRHA Contract is an
express stipulation that identifies the only beneficiaries to
any rights created under the contract: the Developer and its
successors or assigns.
Thus, En-Staff cannot claim that it has
a right of action under the PRHA Contract.
See Van Dam v. Gay,
280 Va. 457, 460, 699 S.E.2d 480, 481 (2010) (“[A] right of
action is a remedial right to presently enforce an existing
cause of action.” (emphasis in original)).
As En-Staff cannot
point to any clear and definitive language in the contract
demonstrating a contrary intent, En-Staff cannot demonstrate it
is a third-party beneficiary of the PRHA Contract.
Moreover, recognizing that Code § 2.2-4337 is incorporated
into the PRHA Contract by operation of law, 3 such incorporation
does not create a third-party beneficiary relationship between
En-Staff and the parties to the contract.
explained, the parties’ stated intent is to preclude any thirdparty action on the PRHA Contract.
Mere incorporation of
statutory language cannot override the express intent of the
See Maxey v. American Casualty Co., 180 Va. 285, 290, 23
S.E.2d 221, 223 (1942) (“A pertinent statute is as much a part
of the contract as if it were incorporated in it”).
See White v. Boundary Ass’n, Inc., 271 Va. 50, 55, 624
S.E.2d 5, 8 (2006) (“[W]e determine the intent of the parties
from the words they actually expressed.” (emphasis added)).
Assuming, arguendo, that Section 4 does not act as an
express stipulation identifying the only beneficiaries to the
PRHA Contract, En-Staff nonetheless has no basis under the
operative provisions to allege that it is an intended
beneficiary of the contract.
We have recognized that “a person
That is not to say, however, that En-Staff is left without
options. We have recognized that “the intent of [Code § 2.24337] is to protect those who furnish supplies, material and
labor in and about the construction of the public buildings and
improvements mentioned in the act, whether they be furnished to
the principal contractor or to a subcontractor.” Thomas
Somerville Co. v. Broyhill, 200 Va. 358, 363, 105 S.E.2d 824,
828 (1958). The fact that the General Assembly intended to
protect subcontractors, however, does not, without more, make
them third-party beneficiaries to the underlying contract.
Indeed, when Code § 2.2-4337 is considered in conjunction with
its established enforcement mechanism, Code § 2.2-4341, it is
clear that the General Assembly only intended for subcontractors
to become third-party beneficiaries to the payment bond mandated
by Code § 2.2-4337.
While En-Staff is not a third-party beneficiary to the PRHA
contract, they are a third-party beneficiary to the bond
required under Code § 2.2-4337. Furthermore, it is worth noting
that the performance and payment bond B&R entered into with
Genesis specifically states that B&R, as principal, and Genesis,
as surety, are jointly and severally liable under the bond.
In its initial complaint, En-Staff brought an action on the
bond pursuant to Code § 2.2-4341 against both Genesis and B&R.
Upon discovering that Genesis was insolvent and not authorized
to do business in Virginia, En-Staff moved to amend its
complaint. In the amended complaint, En-Staff specifically
removed any mention of B&R from the action on the bond pursuant
to Code § 2.2-4341. Thus, while En-Staff could have brought an
action on the performance and payment bond against B&R, it chose
who benefits only incidentally from a contract between others
cannot sue thereon.”
Copenhaver, 238 Va. at 367, 384 S.E.2d at
“[T]he controlling principle of law here involved
is that one not a party to a contract can sue for
a breach thereof only when the condition which is
alleged to have been broken was placed in the
contract for his direct benefit. A mere
incidental beneficiary acquires by virtue of the
contractual obligation no right against the
promisor or the promisee.”
Valley Landscape Co., 218 Va. at 262, 237 S.E.2d at 123 (quoting
Engle Acoustic & Tile, Inc. v. Grenfell, 223 So. 2d 613, 620
Furthermore, “ ‘a third person cannot maintain
an action upon a contract merely because he would receive a
benefit from its performance or because he is injured by a
breach thereof.’ ”
Id. at 262, 237 S.E.2d at 123-24 (quoting
Engle Acoustic & Tile, 223 So. 2d at 620).
In an analogous
context we have noted the “critical difference” between merely
being a person or entity that will benefit from an agreement
between other parties, and the very different situation in which
a contract is entered into with the express purpose of
conferring a benefit on a third party.
Copenhaver, 238 Va. at 368-69, 384 S.E.2d at 597.
Here, En-Staff potentially derives a benefit from the bond
required under the PRHA Contract; it derives no direct benefit
from the PRHA Contract itself.
Thus, En-Staff is merely an
incidental beneficiary, and, as such, cannot maintain an action
as a third-party beneficiary of the PRHA Contract.
Although the trial court erred in finding that the language
of Section 2.4 of the Addendum precluded third-party action
against B&R, such error is harmless.
The plain language of the
PRHA Contract establishes that it was for the benefit of the
Developer and its successors and assigns.
only benefits incidentally from the PRHA Contract.
En-Staff is not a third-party beneficiary of the PRHA Contract.
Therefore, we will affirm the decision of the trial court.