Opinion
No. C2-00-1543.
Filed April 20, 2001.
Appeal from the District Court, Wright County, File No. C100835.
Kyle E. Hart, Patrick W. Noaker, (for appellant)
Ernest F. Peake, Eric D. Cook, (for respondent)
Considered and decided by Klaphake, Presiding Judge, Amundson, Judge, and Willis, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2000).
UNPUBLISHED OPINION
Appellant subcontractor challenges the district court's dismissal pursuant to Minnesota Rule of Civil Procedure 12.02(e) of its third-party-beneficiary claim against respondent real-estate developer. Because we conclude that, presuming the facts alleged in appellant's complaint to be true, the complaint sets forth a legally sufficient claim for relief, we reverse and remand.
FACTS
Respondent Pilot Land Development (Pilot), a real-estate developer, owns land in Wright County referred to as Cedar Creek South. In 1997, Pilot began to develop Cedar Creek South as a golf course and residential lots. To solicit bids for a preliminary grading project, Pilot released project specifications to contractors. The parties agree that the project specifications required the successful bidder to obtain a performance bond and a labor-and-materials payment bond before signing the contract. Pilot awarded the grading contract to DM of Buffalo, Inc. (DM), a land excavator. The parties agree that the Pilot-DM contract incorporated the project specifications, and thus the bond requirements. Pilot and DM subsequently modified their agreement by a change order, under which Pilot agreed to waive the bond requirements in exchange for a reduction in the contract price.
At some point after Pilot released the project specifications, DM accepted a bid from a subcontractor, appellant Hennen Construction Company (Hennen), to install sewers and water mains. Hennen alleges that it prepared its bid in reliance on the bond requirements in the project specifications and in the Pilot-DM contract. Hennen performed in excess of $350,000 in work on the Cedar Creek South project, for which DM made one payment of $165,000 and forgave a $57,000 debt from an unrelated project. DM subsequently filed for Chapter 11 bankruptcy protection, which was later converted to Chapter 7 bankruptcy. Because DM's bankruptcy estate had inadequate assets to pay the balance Hennen was owed, Hennen commenced an action against Pilot, arguing that Hennen was a third-party beneficiary of the Pilot-DM contract. Pilot moved to dismiss the action pursuant to Minnesota Rule of Civil Procedure 12.02(e) for failure to state a claim on which relief can be granted. Hennen submitted to the court an affidavit from Harold Hennen, the company's president, as well as a standard labor-and-materials payment bond from the American Institute of Architects and a standard design-build payment bond from the Associated General Contractors of America. The district court granted Pilot's motion to dismiss but its order did not include any findings, conclusions of law, or other indication of the grounds for dismissal. Hennen appeals.
DECISION
Generally, in reviewing cases dismissed pursuant to Minnesota Rule of Civil Procedure 12.02(e), the only question before the appellate court is whether the complaint sets forth a legally sufficient claim for relief. Elzie v. Commissioner of Pub. Safety, 298 N.W.2d 29, 32 (Minn. 1980). But when matters outside the pleadings are presented to the court considering a motion to dismiss,
and those external matters are not excluded by the court when it makes its determination, the motion to dismiss shall be treated as one for summary judgment.Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993) (treating district court's grant of motion to dismiss as summary judgment where court considered matters outside the pleadings, including depositions) (citing Minn.R.Civ.P. 12.02). Here, Hennen submitted to the district court an affidavit from its president and two standard bonds. During the hearing, the court stated that it was "going to rely on the affidavit" in determining when Hennen entered into its contract with DM. Hennen did not allege that the standard bonds were part of the Pilot-DM contract and at the hearing used them only to illustrate the requirements imposed by such bonds. The court made no statements regarding the standard bonds at the hearing. Because the court's order does not indicate the basis for dismissal, it is unclear whether the court excluded the affidavit and standard bonds when it made its determination. Further, the parties agree that the motion should be treated as one for dismissal. Because we are unable to determine whether, in making its determination, the court excluded the affidavit and bonds submitted by Hennen, and because the parties agree that our standard of review should be that for dismissal pursuant to rule 12.02(e) rather than that for summary judgment, we review the court's order as a dismissal pursuant to rule 12.02(e).
A claim will prevail against a rule 12.02(e) motion to dismiss if it is possible to grant the demanded relief on any evidence that might be produced consistent with the complainant's theory. Martens v. Minnesota Min. Mfg. Co., 616 N.W.2d 732, 739-40 (Minn. 2000). It is "immaterial whether or not the plaintiff can prove the facts alleged." Id. at 739. And "all assumptions and inferences must favor the party against whom the dismissal is sought." St. James Capital Corp. v. Pallet Recycling Assoc. of North America, Inc., 589 N.W.2d 511, 514 (Minn.App. 1999).
The Minnesota Supreme Court, in setting forth criteria for the recognition of third-party beneficiary rights, has adopted the "intended beneficiary" approach in the Restatement (Second) of Contracts § 302 (1979). Cretex Cos. v. Construction Leaders, Inc., 342 N.W.2d 135, 139 (Minn. 1984). Section 302(1) provides:
Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties * * *.
For a party to be an intended third-party beneficiary, there must be a promise of which that party can be a beneficiary. Pilot argues that Hennen failed to allege the existence of such a promise. The parties agree that (1) before Pilot accepted DM's bid for the grading contract, there was no promise between Pilot and DM because the project specifications sent to contractors to solicit bids were an invitation to make offers, not a contract; (2) after Pilot and DM signed the change order, their agreement no longer contained bond requirements of which Hennen could be a beneficiary; and (3) the only period during which there was an agreement incorporating bond requirements of which Hennen could have been a beneficiary was between the signing of the original Pilot-DM contract and the change order.
The original contract between Pilot and DM was signed on February 11, 1998, and the change order was signed on March 20 of that year. As Pilot notes, Hennen did not specifically allege that it entered into its subcontract with DM during this period or, for that matter, assert when it entered into its subcontract with DM. But in its complaint, Hennen alleges that
[w]hen bidding its portion of the Project and when executing the subcontract agreement with DM, Hennen reasonably relied upon the requirement in the DM Contract for DM to provide a payment bond for the Project.
Making all assumptions and drawing all inferences in Hennen's favor, its complaint alleges that Hennen relied on the original Pilot-DM contract, which contained bond requirements.
Pilot argues that, even if Hennen alleged the existence of a contract containing bond requirements of which it could be a beneficiary, Hennen was not the intended beneficiary of those requirements. A third party can recover as an intended beneficiary if either the "duty-owed" or "intent-to-benefit" test is met. Cretex, 342 N.W.2d at 139. "The duty-owed test is satisfied if `the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary.'" Mears Park Holding Corp. v. Morse/Diesel, Inc., 427 N.W.2d 281, 285 (Minn.App. 1988) (quoting Restatement (Second) of Contracts § 302(1)(a)). "The intent-to-benefit test is satisfied if `the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.'" Id. (quoting Restatement (Second) of Contracts § 302(1)(b)).
Both tests require the court to review the terms of the contract of which a party claims to be a beneficiary. See, e.g., In re Hennepin County 1986 Recycling Bond Litigation, 540 N.W.2d 494, 499 (Minn. 1995) (stating that rights of third-party beneficiaries "depend upon, and are measured by," terms of contract); Chard Realty, Inc. v. City of Shakopee, 392 N.W.2d 716, 720-21 (Minn.App. 1986) (analyzing agreements between parties to determine whether intent-to-benefit or duty-owed test was met), review denied (Minn. Nov. 19, 1986); Julian Johnson Constr. Corp. v. Parranto, 352 N.W.2d 808, 811 (Minn.App. 1984) (noting that to establish that parties intended to benefit a third party at the time they entered their contract, contract must express some intent by parties to benefit third party through contractual performance). Here, the district court did not review the terms of the Pilot-DM contract to determine Hennen's rights, if any, as a third-party beneficiary; because Hennen's claim was dismissed on the pleadings, the contract was not submitted to the court.
We conclude that Hennen has alleged the existence of a contract of which it could be a third-party beneficiary. We therefore reverse the district court's dismissal of Hennen's complaint and remand for further proceedings.