# Martinez v. Socoma Companies, Inc.

> California Supreme Court · May 1, 1974 · 20 Cont. Cas. Fed. 83,050

URL: https://www.frixlaw.com/law-library/cases/9599559

## Case

- **Full name:** IGNACIO MARTINEZ Et Al., Plaintiffs and Appellants, v. SOCOMA COMPANIES, INC., Et Al., Defendants and Respondents
- **Court:** California Supreme Court
- **Decided:** May 1, 1974
- **Citations:** 20 Cont. Cas. Fed. 83,050; 11 Cal. 3d 394; 113 Cal. Rptr. 585; 521 P.2d 841; 1974 Cal. LEXIS 305
- **Precedential status:** Published
- **Opinion:** Dissent by Burke
- **Judges:** Wright, Burke
- **Cited by:** 64 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/9599559

## How later opinions describe it (automated extraction)

- holding a “donee” third-party beneficiary may recover only against the party that undertook a promise under the contract for the benefit of the beneficiary

## Opinion text

BURKE, J.
I dissent. The certified hard-core unemployed of East Los Angeles were the express, not incidental, beneficiaries of the contracts in question and, therefore, have standing to enforce those contracts.
*408 As the majority point out, we must reverse the order sustaining the demurrer in this case if we determine the written contracts incorporated into the complaint support plaintiffs’ claim either on their face or under any interpretation to which the contracts are reasonably susceptible {ante, pp. 399-400). Furthermore, at this stage of the proceedings, the question of plaintiffs’ ability to prove these allegations does not concern us, for plaintiffs need only plead facts showing they may be entitled to some relief. (Alcorn v. Anbro Engineering, Inc., 2 Cal.3d 493, 496 [ 86 Cal.Rptr. 88 , 468 P.2d 216 ].)
Civil Code section 1559 provides that “A contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it.” The general principles applicable to such contracts are set forth in Shell v. Schmidt, 126 Cal.App.2d 279, 290-291 [ 272 P.2d 82 ], as follows: “[A] third party beneficiary may maintain an action directly on such a contract. [Citation.] The promise in such a situation is treated as having been made directly to the third party. [Citation.] It is no objection to an action by the third party that the contracting party (here the government) could also sue upon the contract for the same breach. [Citation.] Of course, the beneficiary must be more than incidentally benefited by the contract. An incidental beneficiary cannot successfully maintain an action. [Citation.] Whether the beneficiary is or is not an incidental one, or a beneficiary for whose express benefit the contract was entered into, is a question of construction. [Citation.] It is not required that the third party beneficiary be specifically named as a beneficiary. All that section 1559 requires is that the contract be ‘made expressly for the benefit of third parties,’ and ‘expressly’ simply means ‘in an express manner; in direct or unmistakable terms; explicitly; definitely; directly.’ [Citation.] [11] Where the contract is for the benefit of a class any member or members of the intended class may enforce it. [Citation.] The fact that the government is one of the contracting parties does not change the rule.” (Italics added.)
Applying the foregoing principles to the instant case I conclude that plaintiffs are express beneficiaries of the contracts between defendants and the government and are therefore entitled to enforce, the contracts.
The majority contend that the congressional purpose in enacting the Economic Opportunity Act of 1964 (including the subsequent amendments thereto creating the Special Impact Program), and the government’s purpose in executing the instant contracts with defendants pursuant to the act, was to benefit only the general public and particularly the local neighborhoods where these programs were to be implemented. Although mem *409 bers of plaintiffs’ class “were among those whom the Government intended to benefit . . . ,” (ante, p. 401) the benefits accruing to plaintiffs’ class, according to the majority, were merely “means of executing the public purposes stated in the contracts and in the underlying legislation.” (ante, pp. 397-398, italics added.)
The majority err in the above conclusion because the congressional purpose was to benefit both the communities in which the impact programs are established and the individual impoverished persons in such communities. 1 The benefits from the instant contracts were to accrue directly to the members of plaintiffs’ class, as a reading of the contracts clearly demonstrates. 2 These direct benefits to members of plaintiffs’ class were not merely the “means of executing the public purposes” as the majority contend (ante, p. 397, italics added), but were the ends in themselves and one of the public purposes to which the legislation and subsequent contracts were addressed. Accordingly, I cannot agree with the majority that “the contracts here were designed not to benefit individuals as such but to utilize the training and employment of disadvantaged persons as a means of improving the East Los Angeles neighborhood.” (Ante, p. 406, italics added.)
The intent of the contracts themselves is expressed in their preambles: “Whereas, the Secretary of Labor is authorized ... to enter into contracts to provide for Special Impact Programs . . . directed to the solution of the critical problems existing in particular communities and neighborhoods within urban areas of the Nation having especially large concentrations of low-income persons; and [Í] Whereas, the President of the United States on October 2, 1967, launched a major test program to mobilize the resources of private industry and the Federal Government to help find jobs and provide training for thousands of the Nation’s hard *410 core unemployed, or underemployed, by inviting private industry throughout the country to join with the agencies and departments of the Federal Government in assuming responsibility for providing training and work opportunities for such seriously disadvantaged persons. [$] Now therefore, pursuant to the aforesaid statutory authority, and the directive of the President, the parties hereto, in consideration of the mutual promises herein expressed, agree as follows: . . . .” (Italics added.) By these provisions, the contracting parties clearly state as one of their purposes their intent to find jobs for the hard-core unemployed.
In accord with this expressed intent, the substantive provisions of the contracts confer a direct benefit upon the class seeking to enforce them. The contracts call for the hiring of stated numbers of hard-core unemployed from the East Los Angeles Special Impact Area for a period of at least one year at a starting minimum wage of $2.00 per hour for the first 90 days and a minimum wage of $2.25 per hour thereafter, or for the prevailing wage for the area, whichever is higher. In addition to requiring appropriate job training for such employees, the contracts also require “That the Contractor will arrange for the orderly promotion of persons so employed into available supervisory-managerial and other positions, and will arrange for all contract employees to obtain a total ownership interest not exceeding thirty (30) percent in the Contractor through an appropriate stock purchase plan . . . .” The scope of the stock purchase plans is detailed in each of the contracts.
In Lucas v. Hamm, 56 Cal.2d 583, 590 [ 15 Cal.Rptr. 821 , 364 P.2d 685 ], we noted that one of the usual characteristics of a third party beneficiary contract is that performance is to be rendered directly to the beneficiary. The direct benefits to accrue to the beneficiaries as enumerated above renders inescapable the conclusion that these are third party beneficiary contracts.
Although the contracts may also benefit particular communities and neighborhoods, this fact does not preclude the maintenance of the action by plaintiffs as intended beneficiaries of the contracts. It is not necessary under Civil Code section 1559, supra, that a contract be exclusively for the benefit of a third party to give him a right to enforce its provisions. (Hartman Ranch Co. v. Associated Oil Co., 10 Cal.2d 232, 247 [ 73 P.2d 1163 ]; Ralph C. Sutro Co. v. Paramount, 216 Cal.App.2d 433, 437 [ 31 Cal.Rptr. 174 ].) And, as will be discussed more fully, infra, nor does the existence of a liquidated damages clause running in favor of the government defeat plaintiffs’ right to recover under the contract; the fact that the government may also bring an action for the same breach does not *411 bar the third party beneficiary from enforcing his rights. (Shell v. Schmidt, supra, 126 Cal.App.2d 279, 290 .) All that is necessary is that the third party show he is a member of a class for whose benefit the contract was made. {Shell v. Schmidt, supra; Ralph C. Sutro Co. v. Paramount, supra.) Thus, plaintiffs have standing to bring an action for the breach of defendants’ contracts with the government.
The majority, relying on Restatement of Contracts section 145, and City & County of San Francisco v. Western Air Lines, Inc., 204 Cal.App.2d 105 , [ 22 Cal.Rptr. 216 ], contend that in the context of government contracts the intent to confer upon a third party a right of action against the promisor must be express; that intent “cannot be inferred simply from the fact that the third persons were intended to enjoy the benefits. . . .” {Ante, p. 401.) The majority insist that “The fact that plaintiffs were in a position to benefit more directly than certain other members of the public from performance of the contract does not alter their status as incidental beneficiaries.” (Ante, p. 406.) The majority conclude (ante, p. 404) that “section 145 of the Restatement of Contracts does preclude [plaintiffs’] recovery because the services which the contracts required the defendants to perform were to be rendered to ‘members of the public’ within the meaning of that section.” (Italics added by majority.)
• The majority’s reliance on Restatement of Contracts section 145, and City & County of San Francisco v. Western Air Lines, Inc., supra, 204 Cal.App.2d 105 , is misplaced. An analysis of section 145 of the Restatement (which also forms a part of the basis for the rule of Western Air Lines indicates that its provisions are not applicable to the case at hand. Section 145 provides in pertinent part, that “A promisor bound to the United States or to a State or municipality by contract to do an act or render a service to some or all of the members of the public, is subject to no duty under the contract to such members to give compensation for the injurious consequences of performing or attempting to perform it, or of failing to do so, unless, (a) an intention is manifested ... in the light of the circumstances surrounding its formation, that the promisor shall compensate members of the public for such injurious consequences. . . .” (Italics added.)
The express language of this provision indicates that it applies only to a promise to do an act or render a service to “some or all of the members of the public.” The section deals solely with the promisor’s duty to give compensation to “such” members of the public. The type of government contract to which section 145 applies is therefore distinguishable from the contracts in the instant case. Here, the contracts specify a particular class *412 of persons who are to receive a direct benefit. The beneficiaries of these contracts are to receive the promised performance because of their membership in a particularly defined and limited class and not simply because they are members of the public in general. Defendants are not bound to “do an act or render a service to some or all of the members of the public"; thus, by its own terms, section 145 of the Restatement is not applicable. ■
In addition, as indicated by comment a to section 145 of the Restatement, that section is merely a special application of the principles stated in Restatement section 133 which provides in part that “(1) Where performance of a promise in a contract will benefit a person other than the promisee, that person is, . . . (a) a donee beneficiary if it appears from the terms of the promise in view of the accompanying circumstances that the purpose of the promisee in obtaining the promise of all or part of the performance thereof is to make a gift to the beneficiary or to confer upon him a right against the promisor to some performance neither due nor supposed or asserted to be due from the promisee to the beneficiary . . . .” 3 Section 135 of the Restatement makes such a contract enforceable by the donee beneficiary. 4
The language of section 133, standing alone, could reasonably suggest that members of the general public are “donee beneficiaries” under any contract whose purpose is to confer a “gift" upon them. Section 145 qualifies this broad language and treats the general public merely as incidental, not direct, beneficiaries under contracts made for the general public benefit, unless the contract manifests a clear intent to compensate such members of the public in the event of a breach. Section 145 does not, however, entirely preclude application of the “donee beneficiary” concept to every government contract. Whenever, as in the instant case, such a contract expresses an intent to benefit directly a particular person or ascer *413 tamable class of persons, section 145 is, by its terms, inapplicable and the contract may be enforced by the beneficiaries pursuant to the general provisions of section 133. Thus, I would conclude that section 145 is consistent with the holding of Shell v. Schmidt, supra, 126 Cal.App.2d 279, and the City & County of San Francisco v. Western Air Lines, Inc., supra, 204 Cal.App.2d 105 . 5
In City & County of San Francisco v. Western Air Lines, Inc., supra, 204 Cal.App.2d 105, defendant airline was held to be merely an incidental beneficiary of contracts providing that an airport “ ‘will operate . . . for the use and benefit of the public, on fair and reasonable terms and without unjust discrimination.’” (P. 118, Italics added.) Nothing in the various contracts and assurances involved in the case “shows any intent of the contracting parties to confer any benefit directly and expressly upon air carriers such as the defendant.” (P. 120.) The court stated that “To recover as a third-party beneficiary, one must show that the contract in question was made expressly for his benefit. [Citations.]” (P. 120.)
The rationale for the Western Air Lines rule is set out in Ukiah v. Ukiah Water and Imp. Co., 142 Cal. 173, 180 [ 75 P. 773 ] [quoting from an earlier case] as follows, “ ‘The bar to such a recovery in each case is, that the contract was not for the protection of any particular property or *414 person, but was for the general benefit of all the property and persons within the municipal limits, and was entered into by the town as a public agency, solely for that purpose, and in the exercise of its power to furnish such general protection.’ ” (Italics added.)
Since in Western Air Lines the government contract at issue was not made expressly for the benefit of defendant but instead to benefit the general public, that case was correctly decided under Restatement of Contracts section 145. However, an interpretation to which the contracts in the instant case “are reasonably susceptible and which is pleaded in the complaint or could be pleaded by proper amendment” {ante, p. 400), in light of the legislative intent and the language of the contracts themselves, is that they were made expressly for the benefit of a particular class of persons, namely the class consisting of the certified hard-core unemployed of East Los Angeles.
Western Air Lines holds that a member of the general public cannot recover under a contract made for the public benefit unless there appears an intent in the contract that the promisor shall compensate the public for injuries caused by the promisor’s performance or failure to perform. (204 Cal.App.2d at pp. 120-121.) That case does not stand for the proposition that an express beneficiary, or a class of express beneficiaries, may not enforce the contract unless it expressly declares that the parties so intended. On the contrary, under the rules set forth in Shell v. Schmidt, supra, 126 Cal.App.2d 279, 290-291 , so long as the contract expressly declares an intent to benefit a particular individual or class of persons, such persons may enforce their rights under the contract notwithstanding the absence of a provision for damages for such beneficiaries in the event of breach. Therefore, the facts of the instant case are distinguishable from those of Western Air Lines and, furthermore, Restatement of Contracts section 145 is not applicable.
The majority contend that the inclusion of liquidated damage clauses in each of the contracts limits defendants’ financial risks and was intended to preclude the assertion of third party claims. {Ante, p. 402.) Yet, these clauses simply provide for various refunds of monies advanced by the government in the event of a default. These so-called “liquidated' damages” clauses nowhere purport to limit damages to the specified refunds. Nothing in the contracts limits the right of the government or, more importantly, plaintiffs’ class, to seek additional relief. As I noted above, the fact that the government could also sue for breach of the contracts does not affect the rights of third party beneficiaries. (Shell v. Schmidt, supra, 126 Cal.App.2d 279, 290 .)
*415 The majority also rely on the fact that, “The present contracts manifest no intent that the defendants pay damages to compensate plaintiffs or other members of the public for their nonperformance.” {Ante, p. 402.) Therefore, it assertedly follows that giving plaintiffs the right to monetary benefits in lieu of performance would give to plaintiffs and the class they.represent benefits never contemplated nor intended under the contracts. This argument disregards both the fact that the class was to receive a direct monetary benefit under the contracts in the form of wages, and that under well settled contract law, an aggrieved party is entitled to be compensated for all the detriment proximately caused by a breach of contract (Civ. Code, § 3300).
A contract of employment ordinarily confers upon the employee the expectation that he will obtain the work bargained for. The measure of damages for the breach of such a contract, however, is not the award of the job, but is the amount of salary the employee would have earned for the agreed-upon period of service less the amount which the employer affirmatively proves the employee has earned, or with reasonable effort might have earned, from other employment. (Parker v. Twentieth Century-Fox Film Corp., 3 Cal.3d 176, 181 [ 89 Cal.Rptr. 737 , 474 P.2d 689 , 44 A.L.R.3d 615 ].) Thus, the fact that plaintiffs’ class has been promised only jobs and job training does not prevent them from recovering an amount of money which will compensate them for the loss of such jobs ánd training, i.e., the damages proximately caused by defendants’ breach. (Civ. Code, § 3300, supra.)
It is my conclusion, therefore, that the trial court erred in sustaining the demurrer without leave to amend. I would order the trial court to determine the propriety of plaintiffs’ class action prior to proceeding upon the merits of the complaint.
Tobriner, J., and Mosk, J., concurred.
Evidence of Congress’ purpose to aid the individual impoverished persons in such communities can be gleaned from 42 United States Code Annotated section § 2701, wherein Congress declared that if our country is to achieve its full potential, “every individual" must be given “the opportunity for education and training, the opportunity to work, and the opportunity to live in decency and dignity.” Congress implemented this general policy of assisting our impoverished citizens in various ways, including the Special Impact Program involved in this case. Yet, contrary to the majority, nothing indicates that Congress’ exclusive purpose in doing so was to assist the neighborhoods and communities in which these persons live. It seems clear that Congress intended both the communities and the individuals to be direct beneficiaries of the program. It is incorrect to label one as an intended direct beneficiary and the other as merely incidental.
In the contracts, the defendants agreed to provide training and jobs to a specified class of persons, whom plaintiffs represent. The government’s express intent, therefore, was to confer a benefit, namely training and jobs, upon an ascertainable identifiable class and not simply the general public itself.
Comment c to section 133 of the Restatement of Contracts states in part that “By gift is meant primarily some performance or right which is not paid for by the recipient and which is apparently designed to benefit him.” Thus, section 133 states essentially the same rule as that enunciated in Shell v. Schmidt, supra, 126 Cal.App.2d 279, 290-291 . Section 133 has been followed by the California courts. (Hartman Ranch Co. v. Associated Oil Co., supra, 10 Cal.2d 232, 244 ; Southern Cal. Gas Co. v. ABC Construction Co., 204 Cal.App.2d 747, 752 [ 22 Cal.Rptr. 540 ].)
Section 135 of the Restatement of Contracts, supra, provides: “Except as stated in § 140 [giving the promisor the protection against the third party beneficiary of any defenses he has against the promisee], (a) a gift promise in a contract creates a duty of the promisor to the donee beneficiary to perform the promise; and the duty can be enforced by the donee beneficiary for his own benefit; (b) a gift promise also creates a duty of the promisor to the promisee to render the promised performance to the donee beneficiary.”
The tentative draft of section 145 in Restatement Second of Contracts (The American Law Institute, Restatement of the Law Second, Contracts, Tentative Draft No. 3 [April 18, 1967], p. 76), also supports the conclusion that this provision of the Restatement does not bar plaintiffs’ action. The tentative draft states: “In particular, 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 and with the policy of the law authorizing the contract and prescribing remedies for its breach.” (Italics added.) Comment a to the draft of section 145 explains the rationale for the section in part as follows: “Subsection (2) applies to a particular class of contracts the classification of beneficiaries in § 133. Government contracts often benefit the public, but individual members of the public are treated as incidental beneficiaries unless a different intention is manifested. ” (Italics added.)
Comment c to the tentative draft of section 145 states further that “Government contractors sometimes make explicit promises to pay damages to third persons, and such promises are enforced. If there is no explicit promise, and no government liability, the question whether a particular claimant is an intended beneficiary is one of interpretation, depending on all the circumstances of the contract.” (Italics added.) Thus, under the tentative draft, section 145 is not an outright prohibition of the enforcement of governmental contracts by third parties absent the enumerated conditions. Comment c makes it clear that the question as to a particular claimant is one of interpretation, and that, where, as here, the contract manifests an intent to benefit a particular third party, liability is properly imposed upon the promisee in favor of such third party.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9599559. Public record. Not legal advice.