February 8, 2017
Petition for Review from the Court of Appeals for the
Fourteenth District of Texas
Jeffrey S. Boyd Justice
a general rule, parties in Texas may contract as they wish,
" Phila. Indemn. Ins. Co. v. White, 490 S.W.3d
468, 475 (Tex. 2016), and only "the parties to an
agreement determine its terms, " Royston, Rayzor,
Vickery, & Williams, LLP v. Lopez, 467 S.W.3d 494,
503-04 (Tex. 2015). In this case, a plaintiff who was not a
party to a written contract claims that the contract permits
him to enforce the agreement as a third-party beneficiary. We
hold that the contract is unambiguous and does not make the
plaintiff a third-party beneficiary. We also hold that the
trial court erred by submitting that issue to the jury and by
instructing the jury that it could consider extrinsic
evidence to add a third-party-beneficiary term to the
unambiguous written agreement. We reverse the court of
appeals' judgment and remand the case to that court for
further consideration of the plaintiffs other claims.
case arises from the unsuccessful sale of a Houston-area
information-technology company called Southway Systems,
Richard Brumitt, who owned Southway, agreed to sell his stock
to another Houston-area information-technology company, DTSG,
DTSG's owner and president, Don Oprea, initially wanted
to purchase Brumitt's stock in two companies, Southway
and NetStar Telecommunications. Seeking financing for the
purchases, Oprea met with Tim Duffy, president of First
Bank's division that handled federal Small Business
Administration (SBA) loans. Oprea selected First Bank because
he and DTSG already had an ongoing banking relationship with
the bank. Shortly after their first meeting in September
2007, Duffy reviewed the companies' financial records and
concluded that DTSG could have difficulty qualifying for the
amount needed to purchase both of Brumitt's companies.
Oprea and Brumitt then agreed that DTSG would acquire
Southway but not NetStar.
their first meeting, Oprea explained to Duffy that "a
sense of urgency" existed and he needed to close on the
loan by year's end because Brumitt was anxious to sell
Southway and already had pending offers from other interested
buyers. Duffy told Oprea that they could close the loan by
then because First Bank was a "preferred lender"
and had "streamlined the [SBA-lending] process."
Unfortunately, things did not go as planned. Over the next
fourteen months, First Bank scheduled and postponed numerous
closings. By November 2008, the loan still had not closed,
and Oprea decided to seek financing elsewhere. Ultimately,
Oprea never obtained a loan and DTSG never acquired Southway.
By the time of trial in March 2013, Southway no longer had
any employees and had essentially failed.
parties dispute the reasons for the delays in the loan
process. Duffy contends that he and others at First Bank
worked diligently to close the loan, but numerous unexpected
obstacles arose that were beyond First Bank's control.
Although Duffy admits that First Bank made some mistakes in
the process, he attributes the various delays to several
other events that occurred along the way: Oprea allowed
DTSG's registration to expire and made changes to its
corporate name and structure; SBA changed the rules that govern
its approval process; First Bank's attorney delayed
preparing the loan documents; First Bank discovered that
Southway had a line of credit with Wells Fargo that had to be
included in the loan amount and paid off; DTSG fell behind on
payments on its own line of credit with First Bank; the
parties agreed to various changes in the loan amount; and
First Bank had to "take care of some internal
contends that most of Duffy's reasons for the delays were
merely excuses and that First Bank never gave the transaction
the attention it required. Instead, according to Oprea, Duffy
repeatedly made promises that the loan would close, each of
which was followed by misrepresentations about why he could
not keep those promises. After promising in September 2007 to
close the loan by the end of the year, Duffy said in November
that it might take until early January 2008. In December
2007, Duffy said the loan "is in approval, " and
Oprea understood it would still be completed by year's
end. In early January 2008, Oprea emailed Duffy for an update
and Duffy's reply encouraged Oprea to "hold tight;
it's not over til it's over." In late February,
Duffy said the closing would occur in early March. In April,
Duffy told Oprea that First Bank could commit to closing the
loan in April or May if DTSG reduced the loan amount. In late
June, Duffy said they would close no later than July 15. On
July 28, Duffy promised to close on August 4. On August 6,
Duffy sent an email saying he had to change some things, and
although it was "not [his] happiest hour, . . . [the
loan] will get done." Finally, after Oprea complained to
First Bank's senior vice-president, Duffy texted Oprea in
September, saying "you are approved." By October,
however, no closing was scheduled and Duffy was still
promising that the loan would close soon. In short, Oprea
claimed that Duffy "continued to make . . . promises
week by week- actually on a weekly basis-that they were going
to get the loan closed, " but always had an excuse for
why the closing could not occur.
these months, Oprea and Brumitt became increasingly agitated,
but Oprea did not want to start the process over with another
bank. Meanwhile, Oprea and Brumitt had informed
Southway's employees of the impending ownership change
and were "putting something in place" for the
transition, but the continuing delays and increasing
uncertainty caused employees to leave. Morale at Southway was
"going downhill." In November 2008, Oprea retrieved
his file from First Bank, but he returned it a few days later
because Duffy promised he would find some way to get the loan
done. Although Duffy took steps to determine whether another
bank would provide the loan, he told others at First Bank
that the loan was a "dead deal" and never scheduled
another closing date.
and DTSG sued First Bank in October 2009. Brumitt soon
intervened as an additional plaintiff, alleging that he was a
third-party-creditor beneficiary of the three "loan
commitment letters executed by DTSG and First
Bank." At trial in 2013, the jury found First
Bank liable to both DTSG and Brumitt for breach of contract
and for negligent and grossly negligent misrepresentations.
The trial court entered judgment based on the jury's
verdict, awarding Brumitt $1, 006, 000 as breach-of-contract
damages, $250, 000 as damages for negligent
misrepresentation, and $250, 000 as exemplary damages for
gross negligence. Including attorney's fees and
pre-judgment interest, Brumitt's award totaled $1, 815,
460 plus court costs, post-judgment interest, and
attorney's fees on appeal.
Bank appealed. As to Brumitt's claims, the court of
appeals affirmed the judgment on the breach of contract
claim, expressly concluding that Brumitt was entitled to
recover as a third-party beneficiary of the agreement between
First Bank and DTSG. 472 S.W.3d 1, 19 (Tex. App.- Houston
[14th Dist.] 2015). The court reversed the judgment on the
negligent and grossly negligent misrepresentation claims,
however, concluding that Brumitt failed to establish any
injury independent from the economic loss he sustained as a
result of First Bank's contractual breach. Id.
First Bank filed a petition for review, arguing that the
court of appeals erred in holding First Bank liable to
Brumitt as a third-party beneficiary. Brumitt disagrees, and
alternatively urges us to affirm the judgment in his favor
based on negligent and grossly negligent misrepresentation.
In reply, First Bank asserts that Brumitt waived his
alternative argument and this Court must therefore render a
final judgment in First Bank's favor on all of
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.
principles govern our analysis of these issues. As a general
rule, the benefits and burdens of a contract belong solely to
the contracting parties, and "no person can sue upon a
contract except he be a party to or in privity with it."
House v. Hous. Waterworks Co., 31 S.W. 179, 179
(Tex. 1895). An exception to this general rule permits a
person who is not a party to the contract to sue for damages
caused by its breach if the person qualifies as a third-party
beneficiary. See, e.g., MCI Telecomms. Corp. v.
Tex. Utils. Elec. Corp., 995 S.W.2d 647, 651 (Tex.
1999). Absent a statutory or other legal rule to the
contrary,  a person's status as a third-party
beneficiary depends solely on the contracting parties'
intent. Stine v. Stewart, 80 S.W.3d 586, 589 (Tex.
2002). Specifically, a person seeking to establish
third-party-beneficiary status must demonstrate that the
contracting parties "intended to secure a benefit to
that third party" and "entered into the contract
directly for the third party's benefit."
Id.; see also S. Tex. Water Auth. v. Lomas,
223 S.W.3d 304, 306 (Tex. 2007) (per curiam) ("A third
party may only enforce a contract when the contracting
parties themselves intend to secure some benefit for the
third party and entered into the contract directly for the
third party's benefit."). It is not enough that the
third party would benefit-whether directly or indirectly-from
the parties' performance, or that the parties knew that
the third party would benefit. Sharyland Water Supply
Corp. v. City of Alton, 354 S.W.3d 407, 421 (Tex. 2011);
Lomas, 223 S.W.3d at 306; MCI, 995 S.W.2d
at 651. Nor does it matter that the third party intended or
expected to benefit from the contract, for only the
"intention of the contracting parties in this respect is
of controlling importance." Banker v. Breaux,
128 S.W.2d 23, 24 (Tex. 1939). To create a third-party
beneficiary, the contracting parties must have intended to
grant the third party the right to be a "claimant"
in the event of a breach. Corpus Christi Bank & Tr.
v. Smith, 525 S.W.2d 501, 505 (Tex. 1975).
determine whether the contracting parties intended to
directly benefit a third party and entered into the contract
for that purpose, courts must look solely to the
contract's language, construed as a whole. Southland
Royalty Co. v. Pan Am. Petroleum Corp., 378 S.W.2d 50,
53 (Tex. 1964); Citizens Nat'l Bank in Abilene v.
Tex. & P. Ry. Co., 150 S.W.2d 1003, 1006 (Tex.
1941). The contract must include "a clear and
unequivocal expression of the contracting parties' intent
to directly benefit a third party, " and any implied
intent to create a third-party beneficiary is insufficient.
Tawes v. Barnes, 340 S.W.3d 419, 425 (Tex. 2011);
see also Stine, 80 S.W.3d at 589; MCI, 995
S.W.2d at 651; Citizens Nat'l Bank, 150 S.W.2d
at 1006. Courts may not presume the necessary intent. To the
contrary, "we must begin with the presumption" that
the parties contracted solely "for themselves, "
and only a clear expression of the intent to create a
third-party beneficiary can overcome that presumption.
Corpus Christi, 525 S.W.2d at 503-04. If the
contract's language leaves any doubt about the
parties' intent, those "doubts must be resolved
against conferring third-party beneficiary status."
Tawes, 340 S.W.3d at 425. Although a contract may
expressly provide that the parties do not intend to
create a third-party beneficiary, see, e.g.,
MCI, 995 S.W.2d at 651- 52, the absence of such
language is not determinative. "Instead, the controlling
factor is the absence of any sufficiently clear and
unequivocal language demonstrating" the necessary
intent. Tawes, 340 S.W.3d at 428.
example, we have applied these principles to conclude that a
contract created a third-party beneficiary when:
- the contract expressly stated that one of its purposes was
to benefit the specific third parties and "directly
guarantee[d]" that the third parties would receive those
benefits, City of Hous. v. Williams, 353 S.W.3d 128,
145-46 (Tex. 2011) (quoting In re Moose Oil & Gas
Co., 613 F.3d 521, 528 (5th Cir. 2010)) (holding that
city's firefighters were third-party beneficiaries of
agreement between city and union); and
- the contract expressly provided that the parties intended
to satisfy a specific outstanding debt to a particular third
party and set forth the parties' agreement among
themselves as to how they would satisfy that debt,
Stine, 80 S.W.3d at 589-90 (holding that divorcing
parties intended to make wife's mother a third-party
beneficiary of their divorce agreement, which specified how
the parties would repay funds she loaned towards the purchase
of their home).
contrast, we have applied these same principles to conclude
that a contract did not create third-party beneficiaries
- the contract failed to identify any "specific, limited
group of individuals" to which the consenting parties
owed an obligation, Tawes, 340 S.W.3d at 428
(holding that oil-and-gas lessor was not a third-party
beneficiary to contract between lessee and investor);
- the contract merely provided that one party, which agreed
to purchase a product from the other party, intended to sell
the product to the third parties, Lomas, 223 S.W.3d
at 306-07 (holding that city's water customers were not
third-party beneficiaries of contract between city and water
- the contract prohibited one party from interfering with
third parties' "existing prior rights" but
expressly disclaimed any intent to create third-party
beneficiaries, MCI, 995 S.W.2d at 649-51 (holding
that electric transmission company that had a preexisting
right of way along railway was not a third-party beneficiary