McGaffic v. City of New Castle
2013 Pa. Commw. LEXIS 269
| Pa. Commw. Ct. | 2013Background
- In 1966 the Redevelopment Authority (Authority) planned downtown New Castle redevelopment, including demolition of the Centennial Building; HUD-funded program required City to assume certain liabilities when projects transferred to municipalities.
- In July 1977 the City and the Authority signed a HUD form "Closeout Agreement." Paragraph 4 obligated the City to "bear" costs for "claims which are disputed, contingent, unliquidated or unidentified" when Authority funds were insufficient.
- The Authority’s actions (notices to tenants, etc.) effectively destroyed the Centennial Building’s value by April 12, 1973; Condemnees (McGaffic and Love) later obtained a de facto condemnation award against the Authority totaling over $2 million (after delay damages and interest).
- The Authority lacked assets to satisfy the judgment; Condemnees sued the City (1998) to enforce Paragraph 4 as third‑party beneficiaries. The trial court ruled for the City, finding no intent to benefit Condemnees and accepting extrinsic testimony that the Centennial Building was not intended to be acquired.
- On appeal the Commonwealth Court reversed: it construed Paragraph 4 as creating third‑party beneficiary rights in unnamed claimants whose claims arose from the redevelopment program, rejected the City’s laches and Cooperation Agreement defenses, and ordered reversal of the trial court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Third‑party beneficiary standing under the Closeout Agreement (Paragraph 4) | Paragraph 4 expressly covers "unidentified" claims arising from the program; Condemnees are intended beneficiaries and may enforce City’s promise. | Governmental contracts need explicit naming for third‑party beneficiaries; Paragraph 4 wasn’t intended to benefit Condemnees/the Centennial Building. | Condemnees are intended third‑party beneficiaries; Paragraph 4 covers unidentified claims like their de facto condemnation award. |
| Scope/interpretation of Paragraph 4 — does it cover de facto condemnation awards and claims not listed in Exhibit A/B? | Paragraph 4 obligates City to bear costs of claims "incurred in connection with the said program" even if unidentified; de facto takings are injuries "in connection" with redevelopment. | Paragraph 4 was meant to cover only claims for properties listed (or otherwise identified) in the plan/exhibits; Centennial Building wasn’t listed. | Paragraph 4 unambiguously (and per purpose) covers unidentified claims; listing in Exhibit A is not a limiting requirement; de facto taking fits the provision. |
| Laches (delay/prejudice) as a bar to Condemnees’ contract claim | Statute of limitations did not run until City refused to honor Paragraph 4 (1997); Condemnees sued within limitations and delay did not cause City prejudice. | Decades of delay prejudiced City (lost opportunity to secure HUD funding/reserves); equitable laches should bar relief. | Laches rejected: no due‑diligence failure shown; no cognizable prejudice proven; claim is legal (breach of contract), not equitable, so laches inappropriate. |
| Reliance on Cooperation Agreement — breach by Authority bars recovery under Closeout Agreement | N/A (Condemnees argue Paragraph 4 stands alone). | Authority breached Cooperation Agreement (failed to obtain City approval for acquisition), so City’s obligation under Closeout Agreement should be excused. | Rejected: Cooperation Agreement post‑dates the de facto taking or does not apply to de facto condemnations; Paragraph 4 imposes liability for unidentified claims regardless of such breaches. |
Key Cases Cited
- Guy v. Liederbach, 501 Pa. 47 (adopted Restatement (Second) of Contracts §302 for third‑party beneficiaries)
- Scarpitti v. Weborg, 530 Pa. 366 (describing prerequisites for third‑party beneficiary standing)
- Keefer v. Lombardi, 376 Pa. 367 (unnamed citizens/property owners can be intended beneficiaries of municipal contracts)
- Drummond v. Univ. of Pa., 651 A.2d 572 (government contracts require a stricter analysis for third‑party beneficiaries)
- Limbach Co., LLC v. City of Philadelphia, 905 A.2d 567 (applied §302 principles to a government contract and recognized third‑party enforcement)