Summary
The Texas Supreme Court held that unambiguous loan-commitment letters did not make the seller of a business a third-party beneficiary. The court further held that third-party-beneficiary status was a question of law for the court and that extrinsic evidence could not be used to add such a term to the parties’ unambiguous written agreement. The court reversed the court of appeals’ judgment and remanded for consideration of the plaintiff’s remaining claims.
Topics
Practice areas
Questions Presented
- Whether the loan-commitment letters clearly and unequivocally expressed First Bank's and DTSG's intent to make Brumitt a third-party beneficiary.
- Whether the third-party-beneficiary issue was a question of law for the court or a fact question for the jury.
- Whether the jury could consider extrinsic evidence to establish third-party-beneficiary intent when the written agreement was unambiguous.
- Whether Brumitt could rely on an alleged prior oral agreement as a basis for third-party-beneficiary status.
- Whether the misrepresentation claims should be remanded to the court of appeals for consideration of the sufficiency of the evidence.
Holdings
- The loan-commitment letters were unambiguous and did not clearly, fully, and unequivocally express First Bank's and DTSG's intent to make Brumitt a third-party beneficiary.
- Whether an unambiguous contract makes a nonparty a third-party beneficiary is a question of law for the court, not a question for the jury.
- When a written contract is unambiguous and does not clearly express an intent to create a third-party beneficiary, extrinsic evidence cannot be used to add that term to the agreement.
- Brumitt could not establish third-party-beneficiary status through the alleged oral agreement concerning payment of Southway's debt and release of his personal guaranty.
- The misrepresentation issues should be remanded to the court of appeals because Brumitt properly raised them under Texas Rule of Appellate Procedure 53.4 and the court of appeals had not decided the sufficiency-of-the-evidence issue.
Key quotations
“We begin by addressing the third-party-beneficiary issues. On those issues, we conclude that (A) the agreement between First Bank and DTSG is unambiguous and did not make Brumitt a third-party beneficiary; (B) the trial court erred by submitting that issue to the jury; (C) the trial court also erred by permitting the jury to consider extrinsic evidence when addressing that issue; and (D) Brumitt cannot rely on any alleged oral agreement between First Bank and DTSG as a basis for claiming third-party-beneficiary status.” (519 S.W.3d at 102)
“The parties’ intent to create a third-party-beneficiary is thus simply a contract term like any other of the contract’s terms. And as with all unambiguous contractual terms, the court must “construe the contract as a matter of law.”” (519 S.W.3d at 106)
“When a written contract is unambiguous and does not clearly express the parties’ intent to create a third-party beneficiary, extrinsic evidence is simply irrelevant and inadmissible on that issue.” (519 S.W.3d at 106-107)
“The agreement between First Bank and DTSG is unambiguous and did not clearly, wholly, and unequivocally express the parties’ mutual intent to make Brumitt a third-party beneficiary.” (519 S.W.3d at 113)
Factual background
Richard Brumitt agreed to sell his information-technology company, Southway Systems, to DTSG. DTSG sought financing from First Bank, which issued three loan-commitment letters describing a loan to finance the purchase of an existing business but never mentioning Brumitt, Southway, or the seller. The loan never closed, Southway substantially failed, and Brumitt claimed he was a third-party beneficiary of the letters.
Procedural history
Brumitt intervened in an action brought by DTSG against First Bank and claimed third-party-beneficiary status under loan-commitment letters between First Bank and DTSG. After a jury found First Bank liable for breach of contract and misrepresentation, the trial court awarded Brumitt damages. The court of appeals affirmed the contract judgment but reversed the misrepresentation damages. The Supreme Court of Texas reversed the court of appeals' judgment as to Brumitt's contract claim, rendered judgment for First Bank on that claim, and remanded the misrepresentation issues to the court of appeals.
Remand instructions
Render judgment for First Bank on Brumitt's breach-of-contract claim and remand Brumitt's negligent- and grossly-negligent-misrepresentation claims to the court of appeals for consideration of the sufficiency of the evidence.