Commercial Division Blog

Posted: August 5, 2015 / Categories Commercial, Contracts

Town May Be Third-Party Beneficiary of Power Supply Agreement Between LILCO and LIPA

On July 29, 2015, the Second Department issued a decision in Town of Huntington v. Long Island Power Authority, 2015 NY Slip Op. 06332, holding that a Long Island town had adequately alleged that is was a third-party beneficiary of an agreement between two utility companies.

In Town of Huntington, the plaintiff town sued two utility companies for, among other things, breach of contract. The utilities moved to dismiss on the ground that the town was not a party to the contract, which was between them. The trial court denied the motion and the Second Department affirmed, explaining:

A non-party to a contract may sue for breach of contract only if it is an intended, and not a mere incidental, beneficiary. However, the identity of a third-party beneficiary need not be set forth in the contract or, for that matter, even be known as of the time of its execution. A party asserting rights as a third-party beneficiary must establish (1) the existence of a valid and binding contract between other parties, (2) that the contract was intended for its benefit and (3) that the benefit to it is sufficiently immediate, rather than incidental, to indicate the assumption by the contracting parties of a duty to compensate it if the benefit is lost. In determining third-party beneficiary status it is permissible for the court to look at the surrounding circumstances as well as the agreement, and the obligation to perform to the third party beneficiary need not be expressly stated in the contract.

(Internal quotations and citations omitted) (emphasis added). The court went on to agree with the trial court that there was a factual question regarding whether the town was an intended third-party beneficiary of the defendants' agreement.