Allan and Koraev both owned condominiums in the same building. Koraev’s unit was directly above Allan’s. While Allan lived in her own unit, Koraev leased his.
The leasing of Koraev’s unit was managed by Nersesova. Between 2005 and 2007, plumbing problems in Koraev’s unit damaged Allan’s unit eight different times.
Thus, Allan sued Nersesova and Koraev, among other building executives. The terms of the lawsuit included breach of contract and negligence. All defendants excluding Koraev and Nersesova settled with Allan before the trial. The jury found on behalf of Allan for the negligence of both Koraev and Nersesova and, additionally, breach of contract of Koraev. Both parties were found responsible for damages as third parties. However, Koraev moved for judgment notwithstanding the verdict, arguing that there was no contract between Allan and Koraev that made Koraev a third party.
JUSTICE SMITH Having concluded a contract existed between Koraev and the Association, we next consider whether Allan could bring suit for breach of that contract. To have standing to bring a suit for breach of contract, the plaintiff must either be in privity of contract with the defendant or be a third-party beneficiary entitled to enforce the contract.
Allan’s contract claim was based on the text of the governing documents. Paragraph 1 of the Declaration provided that its terms apply to “any person acquiring or owning an interest in the property.” Paragraph 11 stated, “All present and future Unit Owners, tenants and occupants of Units shall be subject to and shall comply with the provisions of this Second Amended Declaration, the Amended Bylaws, and the Rules and Regulations, as they may be amended from time to time.”
Privity of contract is established by proving that the defendant was a party to an enforceable contract with either the plaintiff or a party who assigned its cause of action to the plaintiff. Allan was not a party to nor an assignee of the contract between Koraev and the Association. Accordingly, Koraev and Allan were not in privity of contract. Because Allan was not in privity of contract with Koraev, she has standing to bring a breach of contract claim only if she demonstrated she was a third-party beneficiary.
A third party, such as Allan, may sue to enforce a contract as a third-party beneficiary only if the contracting parties entered into the contract directly and primarily for the third party’s benefit. There is a presumption against conferring third-party-beneficiary status. There are three types of third-party beneficiaries—
donee, creditor, and incidental. Donee and creditor beneficiaries may bring suit to enforce a contract; incidental beneficiaries may not. A person is a donee beneficiary if the performance of the contract inures to his benefit as a gift. A person is a donee beneficiary only if a donative intent expressly or impliedly appears in the contract. A party is a creditor beneficiary if no intent to make a gift appears from the contract, but performance will satisfy an actual or asserted duty of the promisee to the beneficiary, such as an indebtedness, contractual obligation, or other legally enforceable commitment to the third party, and the promisee must intend that the beneficiary will have the right to enforce the contract. “The intent to confer a direct benefit upon a third party ‘must be clearly and fully spelled out or enforcement by the third party must be denied.’” “Incidental benefits that may flow from a contract to a third party do not confer the right to enforce the contract.”
Paragraph 1 of the Declaration stated, “The Association does hereby publish and declare that the covenants, limitations, and obligations contained herein shall be deemed to run with the land and shall be a burden and a benefit to the Association and any person acquiring or owning an interest in the property.” Paragraph 19 of the Declaration stated, “Each Owner shall comply strictly with the provisions of the Second Amended Declaration, the Amended Bylaws, Rules and Regulations, policies, and the decisions and resolutions of the Association adopted pursuant to the Second Amended Declaration or Amended Bylaws as the same may be lawfully amended from time to time. Failure to comply with any of the same shall be grounds for an action to recover sums due, for damages or injunctive relief or both, and for reimbursement of all attorney’s fees incurred in connection therewith, which action shall be maintainable by the Managing Agent or Board of Directors in the name of the Association, in behalf of the Owners or, in a proper case, by an aggrieved owner.”
Paragraph 38 of the Rules and Regulations required a unit owner to repair at his own expense any damage he (or his tenants) may cause to the condominium.
Allan’s testimony about the damages she suffered as a result of Koraev and his tenants’ breach of the governing documents established that she was an aggrieved owner. But there must be some evidence that this is a “proper case” under Paragraph 19 of the Declaration for Allan as an aggrieved owner to maintain an action to recover damages and be reimbursed for attorney’s fees. After reading paragraph 19 to his client, Allan’s attorney elicited the following testimony from his client at trial:
Q. Did your homeowners’ association take any action to recover the damages for your unit from the owner of Unit 234?
A. No.
Q. And based on their failure to act, did you have to act on your behalf?
A. Yes.
Allan then testified about having to hire attorneys to represent her in this case and stated that she had agreed to pay them a reasonable fee for their services. The Association’s failure to act is some evidence that this is a proper case for the aggrieved owner herself to bring suit for damages and for reimbursement of attorney’s fees, as authorized under Paragraph 19 of the Declaration.
Paragraph 1 imposed a contractual duty on Koraev to follow the requirements of the Declaration, Bylaws, and Rules and Regulations for the “benefit of the Association and any person acquiring or owning an interest in the property.” Allan was such a person. The contract between the Association and Koraev “clearly and fully express[ed] an intent to confer a direct benefit to” Allan and others owning an interest in the property. Thus, Koraev’s “performance will come to [Allan] in satisfaction of a legal duty owed to [her] by [Koraev].” Paragraph 19 gave authority to Allan as an aggrieved owner to bring an action against Koraev for his failure to follow the Declaration, Bylaws, and Rules and Regulations “in a proper case.” Therefore, Koraev’s failure to perform the contract between himself and the Association was a breach of his duty not to cause damage to Allan’s unit. As an intended creditor beneficiary, Allan had standing to bring suit against Koraev for his breach of the governing documents.
We conclude the governing documents made Allan an intended creditor beneficiary of the contract between Koraev and the Association and granted her authority to bring suit for Koraev’s breach of those documents. Accordingly, we conclude the trial court erred by granting Koraev’s motion for judgment notwithstanding the verdict on Allan’s claim for breach of contract. We sustain Allan’s first issue.
CRITICAL THINKING:
Was there ambiguity in the relevant portions of the declaration quoted in the opinion that made unit owners’ duties to other owners as a third party unclear? Or did Koraev simply not read the document carefully?
ETHICAL DECISION MAKING:
Should each condominium owner have a duty to the other owners who own adjacent properties? Why would Koraev feel he was not liable for the damage his property caused to another?