Dissolution of contract dissolves stipulation pour autrui

Judge Dennis wrote an interesting decision for the Fifth Circuit in Shaw Constructors v. ICF Kaiser Engineers, Inc., filed Dec. 30. The decision is a study of the interaction between the Louisiana Private Works Act and the Louisiana Civil Code articles governing third-party beneficiaries of contracts and dissolution of contracts.

What happened: A subcontractor performed its part of the work in building a facility at an industrial plant. In the subcontract with the general contractor, the subcontractor waived its right to file claims or liens against the owner’s property. When the general contractor materially breached its primary obligation to pay the subcontractor the balance due for its work on the owner’s facility, the subcontractor filed claims and privileges or liens against the owner’s property and sued the owner under the Louisiana Private Works Act (“LPWA”). The owner filed a counterclaim, as third party beneficiary of the subcontract’s lien waiver provision, seeking to enforce the lien waiver and to cancel the liens filed.

The Fifth Circuit reversed the magistrate court’s holding that the subcontractor may not raise against the owner third party beneficiary’s demand the defenses it could have raised against the general contractor. Instead, the Fifth Circuit rendered summary judgment sustaining the subcontractor’s right to regard the subcontract as dissolved and the parties restored to their pre-contract positions, due to the general contractor breach of the subcontract. Because the subcontract was dissolved, the owner and third-party beneficiary could no longer obtain the benefit of the lien waiver in the dissolved subcontract.

Posted by RPW at January 3, 2005 10:01 AM