## Facts

- An owner contracted with a general contractor to complete interior construction for a children’s hospital in Delaware.
- The general contract included an AIA clause stating that nothing in the contract documents created any contractual relationship between the owner and any subcontractor.
- The general contractor entered a fixed-price mechanical subcontract with a subcontractor for HVAC, plumbing, and fire-protection work.
- The subcontract incorporated the same “no contractual relationship” clause and contained a “flow-down” provision binding the subcontractor to the general contractor and requiring the subcontractor to assume toward the general contractor the obligations the general contractor assumed toward the owner.
- The owner approved the subcontract while reiterating that the approval did not create any contractual relationship between the owner and the subcontractor.
- Construction was completed substantially late amid disputes.
- The owner sued the subcontractor directly for breach of the subcontract, asserting third-party beneficiary status.
- The district court held the owner was an intended third-party beneficiary and entered judgment against the subcontractor; the subcontractor and its surety appealed, and the owner cross-appealed on other issues.

## Issues

1. Whether, under Delaware law, an owner may sue a subcontractor for breach of the subcontract as an intended third-party beneficiary when the contract documents expressly disclaim any owner–subcontractor contractual relationship and the subcontract does not clearly grant the owner enforceable rights.

## Decision

- The court of appeals reversed the judgment for the owner on the third-party beneficiary claim.
- The court held the owner was not an intended third-party beneficiary of the subcontract and therefore lacked standing to sue the subcontractor directly for breach of that subcontract.
- The court treated the subcontract’s “flow-down” language as allocating obligations between the general contractor and subcontractor, not as granting the owner an independent right to enforce the subcontract.
- The court concluded the owner’s benefit from the subcontractor’s performance was incidental in the legal sense, given the repeated disclaimers and the absence of a clear contractual intent to confer enforceable rights on the owner.
- A dissent would have found the subcontract language and overall contract structure sufficient to infer intended third-party beneficiary status for the owner.

## Legal Principles

- Under Delaware law, a nonparty may enforce a contract only if the contracting parties intended to confer on that nonparty a benefit enforceable in court.
- In construction contracting, an owner generally may not maintain a breach-of-contract action against a subcontractor on a third-party beneficiary theory unless the subcontract clearly expresses an intent to confer enforceable rights on the owner.
- Express “no contractual relationship” clauses in the prime contract and subcontract weigh strongly against finding the owner an intended beneficiary of the subcontract.
- “Flow-down” provisions binding a subcontractor to a general contractor do not, without more, convert the owner into a direct promisee or create owner enforcement rights against the subcontractor.

## Conclusion

The court held that clear contractual disclaimers and the absence of an explicit intent to grant the owner enforceable rights made the owner, at most, an incidental beneficiary of the subcontract, requiring the owner to pursue contract remedies through the prime contract rather than a direct subcontract claim.


Pierce Assocs., Inc. v. Nemours Found., 865 F.2d 530 (3d Cir. 1988)