Contracts II, Pages 1265–1272

Martinez v. Socoma Companies, Inc.

Supreme Court of California, 1974

Facts:

The US government contracted with defendants to lease and renovate a vacant jail to establish a manufacturing facility to employ the disadvantaged in the community. Plaintiffs were certified as disadvantaged and qualified for employment under the contracts. Defendants failed to perform under their contracts, and plaintiffs sued for loss wages and training as a result of defendants' failure to provide jobs under their contracts.

Procedural History:

Trial court sustained defendants' demurrers without leave to amend and dismissed as to defendants.

Issue:

Were plaintiffs third-party beneficiaries of defendants' contracts?

Rule:

LexisNexis IconWestLaw LogoGoogle Scholar LogoPage 1267, Paragraph 3

A person cannot be a creditor beneficiary unless the promisor's performance of the contract will discharge some form of legal duty owed to the beneficiary by the promisee.

LexisNexis IconWestLaw LogoGoogle Scholar LogoPage 1267, Paragraph 4

A person is a donee beneficiary only if the promisee's contractual intent is either to make a gift to him or to confer on him a right against the promisor.

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Even though a person is not the intended recipient of a gift, he may nevertheless be "a donee beneficiary if it appears from the terms of the promise in view of the accompanying circumstances that the purpose of the promisee in obtaining the promise . . . is . . . to confer upon him a right against the promisor to some performance neither due nor supposed or asserted to be due from the promisee to the beneficiary."

Note:

The first Restatement is cited, which states that the promisee must intend to make a gift to a third party to make him a donee beneficiary. The Restatement Second does not use this language. The practical effect is the same here, but under the Restatement Second, a party must intend to "confer a right" rather than "make a gift."

See Also:

R2C § 302

See Also:

R2C § 313

Reasoning:

  • Plaintiffs clearly were not creditor beneficiaries as the government did not owe them the benefits of the facility contracted for.

  • Plaintiffs were also not donee beneficiaries the government did not intend to make a gift to plaintiffs. While plaintiffs were among those whom the government intended to benefit, this does not imply that these benefits were intended as gifts. The intention of the government's plan was the accomplishment of a larger public purpose than providing jobs to plaintiffs, namely establishing permanent industries in which local resident would be permanently employed.

    Part of this public purpose could have been intended to be accomplished by giving plaintiffs a right to benefits against defendants, but such an intention cannot be inferred simply by the fact that they were to be benefitted. It is also not expressed elsewhere in the contract. The government's retention of control over determination of disputes and limiting defendants' risks actually implies an intent to exclude plaintiffs of such a right.

Holding:

No, plaintiffs were not intended beneficiaries. Affirmed.

Dissenting Opinion:

Burke: The unemployed of East Los Angeles were the express beneficiaries of the contracts. Plaintiffs were part of this group and therefore intended beneficiaries. Directly benefiting these people was a purpose itself, not merely a means of benefiting the community as a whole. Because this benefit was intended to be gifted to plaintiffs, they were donee beneficiaries, and the trial court should be reversed.