Third Party Beneficiaries in Outsourcing
Summary.
Suppose you hire a service provider to perform some business process for you. Then someone else, whom you hire, fails to provide the necessary cooperation to enable a seamless delivery of services. Does this sound familiar? What rights do you have? What rights does the each of your service providers have? This section consider third party beneficiary issues in outsourcing. The issue is one that we can all sympathize with.
Case Study: Alleged Failures by a Utility to Assist Electricians, with Resulting Lost Time by a Service Provider.
An electrician’s company sued the electric utility for failure to appear at scheduled appointments for various customers that the two companies both served. The electric utility’s assistance was necessary to shut off electricity and then reconnect it after the electrician’s company performed various services to homeowners. The electrician’s company sued the electric utility for the value of lost time. Who wins?
Contractual Rights.
In this case, both service providers owed a duty to serve the common customers. But there was no agreement between the service providers. Their agreements with the homeowners did not provide any requirement for collaboration. In the absence of a contract, there is no breach of a contractual duty.
Tort Theory: Negligent Interference with Contract.
If the electrician company could prove that the utility negligently interfered with the business relationship with the homeowners, then the lawsuit could result in compensable damages. But negligent interference with contract is a tort that is not recognized in New York. Rosario-Suarz v. Wormuth Bros. Foundry, Inc., 233 AD2d 575 (3d Dept. 1996).
Tort Theory: Intentional Interference with Contract.
The electrician company could potentially prove intentional interference with contract, thereby obtaining compensable damages from the utility. Loftus v. White, 150 AD2d 857 (3rd Dept. 1989). To show intentional interference, the electrician’s company would need to prove four elements:
- the existence of a valid contract between itself and a third party;
- the defendant had knowledge of that contract;
- the defendant’s intentional interference with the contract cause a breach by the electrician’s company; and
- damages sustained by the electrician’s company.
See: White Electric Inc. v. Con Edison, __ N.Y.S. 2d __, NYLJ Feb. 3, 2003 (White Plains City Ct. 2003), Judge Brotmann (electrician’s company failed to allege necessary elements for recovery of damages).