Court Opinion

ID: 9853492
Source: CourtListenerOpinion
Date Created: 2023-09-24 05:49:34.481477+00
Date Added: 2024-06-11T09:22:50.036015
License: Public Domain

DONALDSON, Justice,
dissenting.
I am unable to agree with the conclusion reached in Parts I through III of the majority opinion and consequently dissent therefrom.
The majority concludes that the “plaintiff is a member of the class of third persons intended to be benefitted by this contract and is entitled to sue for its breach.” Ante, p. 1002. With this I cannot agree. Having reached this conclusion, the majority reverses the decision of the district court and remands, authorizing the plaintiff-appellant to proceed in district court on the basis of a third party beneficiary contract. As the majority points out, Count I of the plaintiff-appellant’s complaint alleges that it was a third party beneficiary of the contract entered into between the City of Idaho Falls and the defendant-respondent, that the defendant-respondent had breached provisions of the contract, and that as a result of this breach plaintiff-appellant suffered $25,000 in damages. In essence, the plaintiff-appellant claims to have suffered a $25,000 loss in business profits as a result of the defendant-respondent’s breach. Presumedly, the majority remands the contract action to allow the plaintiff-appellant to prove breach and damages for lost business profits.
At first blush, the majority opinion appears to be supported by sound legal reasoning. Careful analysis of the contract in question and the pertinent rules of law and policies, however, uncover the basic infirmities contained in the majority opinion.
Every public works contract between a governmental unit and a contractor is, in reality, made for the benefit of the individual inhabitants of the governmental unit. This is true of any public works contract entered into between a contractor and a governmental unit, be the governmental unit a state, county, city or some special taxing or administrative district. In each of these contract situations, regardless of the size or type of governmental unit involved, individual members within the governmental unit receive benefits and pay taxes as a consequence of public works contracts entered into by the respective governmental units. Generally, however, principles of contract law prevent individual members of the public from enforcing the provisions of these contracts as third party beneficiaries. It is only under special circumstances that the individual members of the public are entitled to enforce the provisions of these contracts. Perhaps the best statement of this general principle of law and its exceptions is found in the Restatement (Second) of Contracts:
§ 145. GOVERNMENT CONTRACTS.
(2) In particular, a promisor who contracts with a government or governmental agency to do an act for or render a service to the public is not subject to contractual liability to a member of the public for consequential damages resulting from performance or failure to perform unless
(a) The terms of the promise provide for such liability; or
(b) The promisee is subject to liability to the member of the public for the damages and a direct action against the promisor is consistent with the terms of the contract and with the policy of the law authorizing the contract and prescribing remedies for its breach.
Restatement, (Second) of Contracts, § 145 (Tentative Draft No. 3, 1967): cf. Restatement of Contracts, § 145 (1932). This general rule and its exceptions are followed in *472Idaho. Yellowstone Pipe Line Co. v. Grant Construction Co., Inc., 95 Idaho 794, 520 P.2d 249 (1974); Stewart v. Arrington Construction Co., 92 Idaho 526, 446 P.2d 895 (1968); Davis v. Nelson-Deppe, Inc., 91 Idaho 463, 424 P.2d 733 (1967).
This rule which limits the class of persons who can recover from the contractor-promisor, was developed as a matter of policy. The early cases, such as H. R. Moch Co. v. Rensselaer Water Co., 247 N.Y. 160, 159 N.E. 896 (1928), formulated this rule and provided the foundation for § 145 of the Restatement (Second) by relying on what must be termed a “legal fiction.” These early cases relied on such ambiguous words as “secondary or incidental beneficiaries” in finding that these public works contracts were not for the benefit of the individual members of the public and thus could not be enforced by members of the public as third party beneficiary contracts. In reality, however, it must be concluded that the courts simply wanted to develop this limiting rule as a matter of policy and needed a legal reason or basis for the rule. In the H. R. Moch case, Chief Judge Benjamin Cardozo concluded that individual members of the public were only “incidental” or “secondary” beneficiaries to public contracts and thus could not enforce the contract provisions. The actual basis for his holding, however, is found later on in the opinion when he states:
An intention to assume an obligation of indefinite extension to every member of the public is seen to be the more improbable when we recall the crushing burden that the obligation would impose, [citation omitted] The consequences invited would bear no reasonable proportion to those attached by law to defaults not greatly different.
Id. 159 N.E. at 897-898.
In this appeal, the majority concludes that the plaintiff-appellant can enforce the provisions of the contract as a third party beneficiary. The majority concludes that the general rule limiting enforcement is not applicable because it was the intention of the contracting parties that property owners within the LID could enforce the contract. Presumedly, the majority relies upon the exceptions stated in 2(a) of the Second Restatement. The majority bases its decision upon two factors in finding that there was an intent to benefit or an intent to allow individual members to enforce the contract, the first being the general nature of the contract involved, i. e. the general nature of an LID contract. The majority’s casual concern for both the general rule limiting enforcement, articulated by the Second Restatement, and the policy considerations, set forth in H. R. Moch, have in part prompted my dissent. The second factor upon which the majority relies, i. e. a finding of intent within the provisions of the contract, also deeply concerns me.
Any reliance on the fact that an LID contract is involved is misplaced. Such a contract should be treated no differently than any other public works contract. The majority outlines the theory behind LID contracts and highlights the fact that property owners-taxpayers located in the LID receive special benefits and pay special taxes because of the contract. With this general conclusion, I do not quarrel. The point is, the fact that an LID contract is in issue is irrelevant. The LID contract in question was entered into between the city and the contractor. In such a contract, the contracting governmental unit is the city, although the city acts in a limited capacity. Because of the nature of an LID and the circumstances surrounding its creation, the city is, in reality, only acting in behalf of and as a governing unit for those individuals within the LID. The statutory provisions which provide for the creation of LIDs limit the cities’ authority and also limit the city funds obligated as a consequence of the contract. I.C. § 50-1723. For simplicity sake, we will still refer to the city as the contracting governmental unit but actually the contracting governmental unit is the LID or a special subdivision of the city created for the purpose of administration and taxing. The special circumstances surrounding an LID contract should in no way alter the general principles of contract law that apply to public works contracts. The *473LID contract is still a contract between a governmental unit and a contractor. Applying the general rules heretofore stated, the contract was for the benefit of the contractor and the governmental unit as an entity, i. e. the LID as a whole. The contract was not for the benefit of the individual inhabitants of the LID. Consequently, the individual members who comprise the governmental unit, i. e. those within the LID, cannot enforce the provisions of the contract absent a manifestation of intent to the contrary.
My worry is that the majority opinion will open the door for numerous third party beneficiary suits involving governmental contracts. There are many special districts created in our Code which allow special taxation of a limited geographic area because special benefits are conferred on the area. E. g., I.C. § 22-2448 provides for special taxation for the control of noxious weeds; I.C. § 21-404 for air navigation facilities; I.C. § 22-206 for county fair board funds; I.C. § 31-864 for museum districts; I.C. § 33-2111 for junior colleges; I.C. § 33-2701 for libraries; I.C. § 39-2805 for mosquito abatement; I.C. § 31-1420 for fire protection in counties; I.C. § 40-1506 for good roads; I.C. § 50-303 for city recreational and cultural facilities; I.C. § 50-309 for city fire protection; I.C. § 50-320 for city cemeteries; I.C. § 67 — 4913 for public auditoriums. It is my fear that the majority opinion could be construed to allow individuals in these various taxation districts to enforce contracts as third party beneficiaries because a special tax was imposed and a special benefit was received. Such a result is neither correct nor advisable in my opinion.
The second factor relied upon by the majority in finding that the plaintiff-appellant was an intended beneficiary is the specific language in the contract itself which the majority believes shows a manifestation of intent to benefit individuals within the LID. With this conclusion I violently disagree. Thus, I turn to the language of the contract itself.
First, the language found in the contract does not clearly “manifest an intent” that the provisions of the contract can be enforced by individuals within the LID. The only case cited by the majority which presents a truly analogous fact situation is Yellowstone Pipe Line Co. v. Grant Construction Co., supra. In Yellowstone, the contract involved specially provided that:
The contractor shall be solely and directly responsible to the owners and operators of such properties for any damage, injury, expense, loss, inconvenience, or delay, or for any suits, actions or claims of any character brought on account of any injuries or damage which may result from the carrying out of the work to be done under the contract.
Id. at 794, 520 P.2d at 250. Contrast the contractual language in Yellowstone with the language from the contract involved in this appeal. The language from the contract in this case indicates only a general desire on the part of the city to limit disruption of business within the LID. It does not indicate that the contractor will be liable to businessmen-property owners in the area for non-performance and, in point of fact, if any inference can be drawn from the contract language, it would be that businessmen specifically cannot enforce the contract.
The majority opinion sets forth four provisions of the contract in support of the contention that businessmen within the LID were intended beneficiaries. Ante, p. 1000-1001. The provision relating to “dust abatement” is general and does not articulate a specific “intent to benefit.” Those provisions relating to “Business Access” and “Undersidewalks Basements, Freight Drops, and Coal Shutes” manifest an intent to benefit pedestrians and deliverymen, not an intent to benefit businessmen within the area. The critical provision, however, is that relating to “Scheduling of Work and Liquidated Damages”; analysis of this provision eliminates the need of arguing over the meaning of the other provisions. The majority quotes only a part of this contract provision. It is necessary that the whole provision be read to understand its true *474meaning. That portion of the provision which the majority fails to quote reads:
“Under-construction” status shall be considered as that time period between the time the first sidewalk, pavement, or pipe removal, etc. is started up to the time that the new sidewalk, curb and gutter and asphalt treated base is completed. The scheduling of the finished asphalt plantmix surfacing may be delayed so that the final plantmix surfacing may be done as continuously, as rapidly, and with as few joints as possible.
It is herewith required that the construction of all portions of the project, excluding the tree and shrub planting and the construction of a V2 block portion of Shoup Avenue between Broadway Street and the alley South of “A” Street, shall be completed on or before October 15, 1972. The amount of liquidated damages for failure to complete the major portion of the project on time shall be $100.00 per day. (emphasis added)
First, it must be pointed out that the inclusion of a liquidated damages clause in a contract limits recovery in the event of a breach. In Idaho State University v. Mitchell, 97 Idaho 724, 727, 552 P.2d 776, 779 (1976), this Court stated:
[I]f parties to a contract have provided the measure of damages to be recoverable for breach of the duties imposed by the contract, they are bound by such provision and liability thereunder is restricted to the terms of the contract.
The contract in question provides for the measure of damages recoverable in the event of a breach. In addition, since the contract does not specify to the contrary, we must assume that the liquidated damages are to be paid to the contracting party, i. e. the city. Are we to somehow construe the language of the contract whereby the liquidated damages would be paid to the businessmen whose property had been in an “under-construction” status for greater than thirty days. Obvióusly not. The contract specifies what the measure of damages is to be and who is to receive the damages. Thus, under the clear and unambiguous wording of the contract, the plaintiff-appellant was clearly not an intended third party beneficiary under the contract and not entitled to sue the defendant-respondent for a breach of the contract. Had the parties intended that businessmen-property owners within the LID would sue on the contract it would seem logical that the contract would specify that the damages be paid to the aggrieved individual.
Aside from the fact that the language of the contract quite clearly forecloses a contract action by plaintiff-appellant, I am also compelled to attack the majority opinion on the basis of policy. Even assuming that the contract did not contain the liquidated damages provision which prevents plaintiff-appellant from bringing a contract action, I am troubled by the majority opinion because it could lead this Court down a road I feel we should not venture. The fact that the majority has labored to find inferences in the language of the contract which do not exist and which are specifically refuted by other language is not nearly as troublesome as the fact that the majority ignores the policies which prevent enforcement of public works contracts by members of the public.
From a policy standpoint, this Court should critically scrutinize these types of contracts and strictly construe the provisions contained therein. Finding that there is an intent to benefit individual members of the governing unit and thus allowing these individuals to sue not only for general damages, but also for consequential damages such as lost business profits, places an arduous burden on a contractor. The economic consequences to a contractor in such a situation could be catastrophic and most likely unconscionable unless the contractor was fully aware of the responsibility he was shouldering and was being justly compensated for such. Before a contractor is found to be open to such liability, the contract should be eminently clear. No court should subject a contractor to such liability through inference and implication as the majority has done in this case. The stakes are much too high and the consequences too *475great to allow recovery because of language which is anything short of unequivocal. The majority opinion is both dangerous and unfair and in light of the opinion, contractors who are adventurous enough to enter into public works contracts should be on notice that they proceed at their own risk. I would advise these adventuresome contractors to demand contracts with wording which clearly identifies and limits their liability.
The majority loses sight of and completely disregards the policy considerations which are the basis of the rule they attempt to avoid. By distinguishing this contract as a special public works contract, even though the distinction is irrelevant, and by finding that this contract impliedly manifests an intent, even though there is no good reason to find such an implication, the majority finds that this public works contract can be enforced by individuals from the general public. I would suggest to my colleagues that a much simpler and cleaner approach would simply be to refuse to follow the general rule stated by § 145 of the Second Restatement. Since § 145 is based on a “legal fiction,” the majority could simply refuse to follow the fiction. This approach would avoid the further contortion of an otherwise contorted area of the law. The majority should simply hold that as far as third party beneficiary enforcement is concerned, no special rules apply to public works contracts.
It is my feeling that the policies behind the rule provide sufficient justification for following the legal fiction. If it is the majority’s feelings that the policy considerations need not be followed when the size of the governmental unit is small, the possibilities of numerous lawsuits minimal, and the burden on the contractor not as great, I believe they should so indicate.
In addition to stretching the language of •the contract in question to find that property owners within the LID are intended beneficiaries under the contract, the majority goes one step further in finding that a property owner’s lessee (Just) is also an intended beneficiary under the contract. The majority justifies this holding by relying on the affidavit of the plaintiff-appellant Just which states that undoubtedly the costs of the LID will be reflected in his lease payments and therefore found that he had a property interest. The ramifications of such a holding are frightening. Under the facts in this case, allowing Just to stand in the shoes of his lessor will not subject the contractor-obligor to any more possible plaintiffs than merely making the contractor liable to all property owners within the LID. Presumedly, because the majority places special emphasis on the fact that an LID is involved, the majority, at least in part, believes that the general rules preventing enforcement of public works contracts by individual members of the public are not applicable in this case because of the limited number of individuals within the LID (i. e. a limited public). I can foresee a situation, however, where such a result will subject a contractor-obligor to suits from literally thousands of persons, e. g. a situation where a ten story apartment building is located in an LID. Are we to believe that under such a fact situation every tenant in the building could sue the contractor for a breach similar to that alleged in this appeal. In all good faith, I cannot concur in a decision which could lead this Court to such a holding in the future.
SHEPARD, C. J., concurs.