Martinez v. Socoma Companies, Inc.

Supreme Court of California · 1974 · Contracts

20 Cont. Cas. Fed. 83,050 (1974)

Updated July 26, 2026

ContractsThird-party beneficiariesGovernment contractsCivil Code section 1559third-party beneficiaryincidental beneficiarydonee beneficiarycreditor beneficiary

Facts

Under contracts with the Secretary of Labor, defendants agreed to lease and renovate space in the Lincoln Heights jail building, invest at least $5,000,000, and train and employ specified numbers of certified disadvantaged East Los Angeles residents for at least 12 months at minimum wage, with promotion opportunities and stock-purchase options. In return, the Government agreed to pay defendants stated sums in installments. Plaintiffs alleged they were members of a certified class of disadvantaged residents qualified for employment under the contracts and that defendants largely failed to perform, except for a limited number of jobs that were later terminated in some instances. The contracts also provided administrative dispute-resolution procedures and liquidated-damages provisions requiring refund of government payments and specified amounts per unprovided job.

Issue

Were plaintiffs, as certified disadvantaged unemployed residents intended to receive training and employment under the Government's contracts with defendants, express third party beneficiaries with standing to recover damages for defendants' nonperformance? More specifically, did the contracts manifest an intent to give such persons a direct right against the contractors for damages?

Rule

Under Civil Code section 1559, only a contract made expressly for the benefit of a third person may be enforced by that person; incidental beneficiaries may not sue. A person is a creditor beneficiary only if the promisee owes the person a legal duty discharged by the promisor's performance, and a person is a donee beneficiary only if the promisee intended to make a gift or to confer a right against the promisor. In the context of a government contract to render services to members of the public, no duty to compensate those persons for nonperformance arises unless the contract, interpreted in light of surrounding circumstances, manifests such an intention.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

The City of Cleveland contracted with North Shore Works, a private manufacturer, to open a training plant in a vacant municipal warehouse. The contract required North Shore Works to train and employ 200 certified low-income residents for one year, provided that factual disputes would be decided by the city's contract administrator, and required the company to refund city funds for each promised job not provided. The contract said nothing about liability to residents for breach.

If a certified resident sues North Shore Works for lost wages after the plant never opens, what is the strongest argument that the resident cannot recover as a third-party beneficiary?

Explanation. A person benefited by a government service contract is only an incidental beneficiary unless the contract, read in light of surrounding circumstances, manifests an intent to confer a direct right against the promisor, including compensation for nonperformance. Here, the administrative dispute mechanism and refund remedy to the city point away from any intent to let residents recover damages directly.