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COURT FINDS THAT SUBCONTRACTOR NOT THIRD PARTY BENEFICIARY TO PRIME CONTRACT

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In Linde Corp. v. RKR Hess Assoc., Inc, and Pocono Twsp. No. 4252 CV 2012 (Comm. Pleas Monroe 2015) Judge Harlacher considered the preliminary objections of defendant Pocono Township to the claims asserted by additional defendant subcontractor Gabe's Construction Company ("Gabe's), by which Gabe's sought recovery for breach of contract and under the Prompt Payment Act, based on the theory that Gabe's was a third party beneficiary to the Prime Contract between the Township and plaintiff Linde Corp. ("Linde").

Linde and the Township entered into a prime contract for the performance of certain work. Subsequently Linde subcontracted Gabe's to perform a portion of that work. The subcontract between Linde and Gabe's apparently had a standard "pay when" or "pay if" paid clause. The court stated that "the subcontract was premised on the occurrence of [the Township] making payment to Linde for the performance of the Prime Contract . . . and that as the result of that payment, Linde would compensate Gabe's for its duties under the subcontract." In its claims against the Township under the Prime Contract, Gabe's asserted its status as an intended third party beneficiary.

The Court analyzed the issue of whether Gabe's came within the definition of a third party beneficiary to the Prime Contract under the test articulated in Guy v. Leiderbach, 459 A.2d 744 (Pa. 1983). Initially Judge Harlacher examined the terms of the Prime Contract and determined that no where in that document was there a mention of Gabe's, and therefore under Pennsylvania law, Gabe's could not satisfy either of the prongs of the test articulated in Guy that an intended beneficiary must either: 1. be explicitly mentioned in the contract or document as one to whom the parties intended to confer or third party right, or 2. be a person that the circumstances indicate the promisee intended to give the benefit of the promised performance. In analyzing the second prong of this test, the Court found that it also requires that the party seeking status as an intended third party beneficiary be expressly named in the document.

Interestingly, the Court made these findings and sustained the Township's preliminary objections in spite of an earlier ruling that found that the Township was in fact a third party beneficiary to the subcontract between Linde and Gabe's.

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