Sussex Tool & Supply v. Mainline Sewer & Water

• Decision Date: 10 November 1999
• Docket Number: No. 98-2649.,98-2649.
• Citation: 231 Wis.2d 404,605 N.W.2d 620
• Parties: SUSSEX TOOL & SUPPLY, INC., Plaintiff-Appellant-Cross-Respondent, v. MAINLINE SEWER AND WATER, INC., Defendant-Respondent-Cross-Appellant-Additional-Appellant, VILLAGE OF LANNON, Defendant, TRANSCONTINENTAL INSURANCE COMPANY, Defendant-Additional-Respondent.
• Court: Wisconsin Court of Appeals

231 Wis.2d 404

605 N.W.2d 620

SUSSEX TOOL & SUPPLY, INC., Plaintiff-Appellant-Cross-Respondent, v. MAINLINE SEWER AND WATER, INC., Defendant-Respondent-Cross-Appellant-Additional-Appellant, VILLAGE OF LANNON, Defendant, TRANSCONTINENTAL INSURANCE COMPANY, Defendant-Additional-Respondent.

No. 98-2649.

Court of Appeals of Wisconsin.

Submitted on briefs September 14, 1999.

Decided November 10, 1999.

On behalf of the plaintiff-appellant-cross-respondent, the cause was submitted on the briefs of Cynthia M. Mack of Lichtsinn & Haensel, S.C. of Milwaukee.

On behalf of the defendant-respondent-cross-appellant-additional-appellant, the cause was submitted on the briefs W. Wayne Siesennop and Mary Susan Maloney of Hannan, Siesennop & Sullivan of Milwaukee.

On behalf of the defendant-additional-respondent, the cause was submitted on the brief of William P. Croke of Quale, Feldbruegge, Calvelli, Thom & Croke, S.C. of Milwaukee.

There was a nonparty brief filed by Donald J. Murn and Michelle E. Martin of Murn Law Offices of Waukesha for Wisconsin Underground Contractors' Ass'n.

There was a nonparty brief filed by Charles V. Sweeney, Raymond P. Taffora and Nia Enemuoh-Trammell of Michael Best & Friedrich LLP of Madison for Wisconsin Transportation Builders Ass'n. Before Brown, P.J., Nettesheim and Snyder, JJ.

¶ 1. BROWN, P.J.

In this case we decide whether a small business whose profits allegedly suffered due to decreased road accessibility during sewer construction may maintain a suit against the contractor for breach of contract and negligence. First, we conclude that the business does not have standing as a third-party beneficiary of the construction contract. The construction contract, like all municipal public works contracts, was made for the benefit of the public as a whole. Therefore, absent contractual language indicating otherwise, an individual member of the public is not entitled to damages for breach. Second, we decide that public policy bars the business's negligence claim. To allow area businesses to recover lost profits from the contractor would open a field of liability with no just or sensible stopping point. We affirm.

¶ 2. The facts are as follows. The Village of Lannon hired Mainline Sewer and Water, Inc. (Mainline) to install a sewer and water system. Under the terms of the contract, Mainline promised to: "provide vehicular access at all times to the properties affected by this project"; maintain one-way access during working hours and two-way access at all other times except as noted in specific permits; and "supply all necessary signs, flagmen and lights required according to the `MANUAL ON UNIFORM TRAFFIC CONTROL DEVICES.'" Sussex Tool & Supply, Inc. (Sussex) claims that Mainline failed to maintain access as promised and because of this it lost profits during the construction project.

¶ 3. Seeking to recover its lost profits, Sussex brought this action against Mainline and the Village. As to the Village, Sussex alleged negligence and statutory liability for failure to keep the road in repair. As to Mainline, Sussex alleged negligence and breach of contract. The Village cross-claimed against Mainline and its insurer, Transcontinental Insurance Company, for indemnification. All three defendants moved for summary judgment. Transcontinental claimed Sussex's business losses were not covered under its policy with Mainline. The Village denied any liability toward Sussex, reasoning that its acts were discretionary in nature. If Sussex's claim against it survived, the Village argued, the construction contract required indemnification from Mainline and Transcontinental. Mainline contended that Sussex's consequential damages were not of the sort recoverable and, even if they were, Mainline was shielded from liability by the Village's governmental immunity. The trial court granted the Village's motion against Sussex in its entirety, thus mooting the Village's cross-claims against Mainline and Transcontinental. Citing Sheeley v. Chippewa County, 217 Wis. 41, 258 N.W. 373 (1935), the trial court granted Mainline summary judgment against Sussex, ruling that Sussex could not sue for breach of a municipal contract in the absence of a statute extending it that right. This mooted Transcontinental's coverage claim. Sussex appeals only the dismissal of its action against Mainline.¹ [1-3]

¶ 4. We first address Sussex's standing to maintain its breach of contract claim.² The general rule is that only a party to a contract may enforce it. See Schilling v. Employers Mut. Cas. Co., 212 Wis. 2d 878, 886, 569 N.W.2d 776, 780 (Ct. App. 1997). However, there is an exception when the contract was made specifically for the benefit of a third party. See id. The person claiming third-party beneficiary status must show that the contracting parties entered into the agreement for the direct and primary benefit of the third party, either specifically or as a member of a class intended to benefit from the contract. See id. at 886-87, 569 N.W.2d at 780. An indirect benefit incidental to the primary purpose of the contract is insufficient to confer third-party beneficiary status. See id. at 887, 569 N.W.2d at 780.

¶ 5. In Schilling, the court ruled that a student injured in shop class was not a third-party beneficiary under the employment contract between the shop teacher and the school district. See id. at 881, 569 N.W.2d at 778. The student argued that by referring to "rules, regulations and policies of the district," the contract incorporated the faculty handbook and safety rules. See id. at 887-88, 569 N.W.2d at 780-81. Under the student's theory, the incorporation of documents setting forth safety measures evidenced an intent to benefit students. The court disagreed. While students are certainly incidental beneficiaries of teacher employment contracts, since the job of the teacher is to educate students, "this does not satisfy the burden of showing that this teacher and this school board entered into this contract primarily and directly for the benefit of students." Id. at 890, 569 N.W.2d at 781. Thus, the student could not maintain a claim against the teacher for breach of the employment contract. See id. at 894, 569 N.W.2d at 783.

¶ 6. In contrast, the court held that the plaintiff in State ex rel. Journal/Sentinel, Inc. v. Pleva, 151 Wis. 2d 608, 445 N.W.2d 689 (Ct. App. 1989), aff'd, 155 Wis. 2d 704, 456 N.W.2d 359 (1990), did have standing to sue as a third-party beneficiary. There, Milwaukee World Festival, Inc. (Festival) leased the Milwaukee lakefront from the city of Milwaukee. The lease expressly required that Festival hold meetings in accord with Wisconsin's Open Meetings Law, §§ 19.81 to 19.98, STATS. While the trial court found this provision only incidental to the basic purpose of leasing the land, this court held that the provision "evidences a primary purpose of protecting the public interests it affects." Pleva, 151 Wis. 2d at 616, 445 N.W.2d at 692. Thus, representative members of the public had standing to sue under the lease. See id. at 617, 445 N.W.2d at 692-93.

¶ 7. Sussex could argue that this is a Pleva case, likening the road access clause in the sewer contract to the open meetings requirement in the Pleva lease. Both arguably evidence "a primary purpose of protecting the public interests." Id. at 616, 445 N.W.2d at 692. It would make sense for the Village representatives to consider the interests of local businesses when negotiating the sewer contract as it is in the representatives' best interest to promote local commerce and thus ensure a high tax base. But, the remedy Sussex seeks underscores the difference between Pleva and the present case. In Pleva, the newspaper sought specific performance of the lease; that is, its action was to force Festival to open its meetings. Here, Sussex seeks economic damages resulting from the alleged breach. Sussex seeks to be made whole as an individual, whereas the plaintiffs in Pleva sought to enforce a clause that would benefit all members of the public. Furthermore, as we discuss below, had the Village meant the contract to allocate the risk of economic damage to local businesses, it should have included contractual language to that effect. In short, this is not a Pleva case.

¶ 8. What makes Sussex's claim that it is a third-party beneficiary of the construction contract problematic is that the primary purpose of any public works contract is the benefit of the public. This characteristic has led courts and codifiers to fashion a more restrictive test to determine third-party rights in public contracts. See Robert S. Adelson, Third Party Beneficiary and Implied Right of Action Analysis: The Fiction of One Governmental Intent, 94 YALE L.J. 875, 878-79 (1985). The RESTATEMENT recognizes this by specifically addressing third-party beneficiary status under government contracts. See RESTATEMENT (SECOND) OF CONTRACTS § 313 (1981) [hereinafter RESTATEMENT]. The RESTATEMENT provides that:

(2) [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. . . .

Id. Comment a explains the rationale behind the rule:

Government contracts often benefit the public, but individual members of the public are treated as incidental beneficiaries unless a different intention is manifested. In case of doubt, a promise to do an act for or render a service to the public does not have the effect of a promise to pay consequential damages to individual members of the public unless the conditions of Subsection (2)(b) are met.

Thus, unless...