Seller not Deemed to be Third-Party Beneficiary of Loan Agreement
In First Bank v. Brumitt, 519 S.W.3d 95 (Tex. 2017), the Supreme Court of Texas, reversed the judgment of the Houston Court of Appeals and determined that the seller of a company was not a third-party beneficiary of a lending transaction.
Richard Brumitt (“Brumitt”), the owner of an information-technology company called Southway Systems, Inc. (“Southway”), agreed to sell his stock to another information-technology company, DTSG, Ltd. (“DTSG”), which was owned by Don Oprea (“Oprea”). In the fall of 2007, Oprea contacted Tim Duffy (“Duffy”) at First Bank to obtain a Small Business Administration loan to finance the transaction, and Oprea and Duffy confirmed the intent to close the loan by the end of 2007.
Over the next fourteen months, First Bank scheduled and postponed the closing date of the loan, with Duffy assuring Oprea that closing would be imminent. In the meantime, Oprea and Brumitt informed Southway’s employees of the proposed deal, but after continuing delays, morale declined and employees began to leave.
Oprea and DTSG sued First Bank in October 2009, and Brumitt intervened as an additional plaintiff, claiming third-party beneficiary status of the commitment letter executed by DTSG and First Bank. At trial in 2013, the jury found First Bank liable to both DTSG and Brummit for breach of contract and for negligent and grossly negligent misrepresentations. The trial court entered a judgment in favor of Brumitt and awarded him a total of $1,815,460 plus court costs, post-judgment interest and attorney’s fees.
On appeal, the court of appeals reversed the judgment regarding negligent and grossly negligent misrepresentation claims, but affirmed the judgment in Brumitt’s favor on the breach of contract claim, and expressly concluded that Brumitt was entitled to recover as a third-party beneficiary of the agreement between DTSG and First Bank. First Bank appealed again, and the Supreme Court of Texas held that (1) the agreement between First Bank and DTSG is unambiguous and did not make Brumitt a third-party beneficiary, (2) the trial court erred by submitting that issue to the jury, (3) the trial court erred by permitting the jury to consider extrinsic evidence when addressing that issue and (4) Brumitt cannot rely on any alleged oral agreement between First Bank and DTSG as a basis for claiming third-party beneficiary status. The court noted that, absent express language to the contrary, a contract should not be presumed to confer third-party beneficiary status. Since the commitment papers between First Bank and DTSG did not contain such language, the court concluded that Brumitt was not a third-party beneficiary and that the trial court erred in asking the jury to determine the issue. Furthermore, the court concluded that since the commitment papers between First Bank and DTSG were unambiguous, the trial court erred in permitting the jury to consider extrinsic evidence in determining whether Brumitt was intended to be a third-party beneficiary. Lastly, the court determined that Brumitt did not proffer evidence sufficient to prove the existence of an oral agreement regarding Brumitt’s status as a third-party beneficiary of the agreement between First Bank and DTSG.