Legal Memorandum: Third-party Beneficiaries in a Contract

Issue: Under the laws of the state of Michigan, where employees are hired in order for a promisor to fulfill his or her obligations under a contract, are the employees third-party beneficiaries under that contract?

Where a class of strangers to the contract must be hired to provide part of a party’s performance in order to comply with licensing or other laws, members of this class of strangers do not ipso facto become third-party beneficiaries of the contract.  For example, in Paul v Bogle, 193 Mich App 479; 484 NW2d 728 (1992), the main contract required a carrier to comply with certain ICC regulations regarding indemnification.  The driver was denied third-party beneficiary status under the indemnification agreement between the carrier and the owner of the truck, even though it was obvious that to use the truck, the carrier would have to hire drivers, and that drivers therefore might be incidental beneficiaries of the agreement.  Paul, 193 Mich App 479; 484 NW2d at 734-35.  The classic illustration of this is construction contracts where there is a contract between a project owner and a general contractor, which as a matter of course will involve contractors, subcontractors, and their employees.  These latter persons are not third-party beneficiaries of the prime contract. Dynamic Constr Co v Barton Malow Co, 214 Mich App 425; 543 NW2d 31, 31 (1995); see also National Sand, Inc v Nagel Constr, Inc, 182 Mich App 327; 451 NW2d 618 (1990) (subcontractor could not recover against drain commission that contracted with construction company that hired the subcontractor, because there was no contractual relationship between  subcontractor and commission); Michigan Bell Tel Co v C&C Excavating Co, 87 Mich App 758; 276 NW2d 487, 491-92 (1979) […]