Third Party Wins Case Against the USG as a Third Party Beneficiary.

It is very unusual for a third party to a contract to be able to enforce the terms of a contract. The first hurdle is that the parties must have specifically intended that the third party benefit from the contract. Usually claims of a third-party beneficiary are defeated at this point because there is no language in the contract to show specific intent to benefit the third party.

Claims against the Government are equally as difficult, if not more so. So the recent case of FloorPro Inc. v. United States is unusual. The facts of the case are simple enough. GM&W was awarded a government contract install new floor coatings in some warehouse bays. GM&W sub-contracted with FloorPro and the latter was to be paid about ninety percent of the contract price -- $37,500 out of $42,000. FloorPro completed the work but was not paid. FloorPro complained to the Government contracting officer.

The Government then made an agreement with the parties that provided that a joint check was to be issued to both FloorPro and GM&W. In consideration for the amendment GM&W released the government from any claims. So far so good for FloorPro.

However, the government being the government made a mistake and issued the check to GM&W, who presumable cashed it promptly and of course did not pay FloorPro. FloorPro brought an action against the Government claiming that it was aThird-Party Beneficiary of the contract modification.

The court agreed. The contract modification was specifically intended to benefit FloorPro. While it is unusual to find a successful third party claimant to contract funds, in this case the result is certainly fair and predictable. The parties clearly intended to benefit FloorPro. Since the the law is clear on when a 3rd party can succeed with a claim, and the facts clearly show that FloorPro was the intended beneficiary, why would the government fight the claim instead of negotiating a settlement. This was not a large claim, and the government made the mistake.

Thanks to the Contracts Prof Blog for reporting this unusual case. 

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