Brunswick Corp. v. Bush

• Decision Date: 24 May 1985
• Parties: BRUNSWICK CORPORATION and ICO Transitory, Inc., Appellants, v. Alan H. BUSH, Wilford B. Fultz, Michael W. Milner, C.O. Ted Collins, Jr., and Richard L. Lowe, for Themselves and on Behalf of a Class Comprised of all Shareholders of ICO, Inc. on
• Court: Texas Court of Appeals

Page 352

829 S.W.2d 352

BRUNSWICK CORPORATION and ICO Transitory, Inc., Appellants, v. Alan H. BUSH, Wilford B. Fultz, Michael W. Milner, C.O. Ted

Collins, Jr., and Richard L. Lowe, for Themselves and on

Behalf of a Class Comprised of all Shareholders of ICO, Inc.

on May 24, 1985, Appellees.

No. 2-91-121-CV.

Court of Appeals of Texas,

Fort Worth.

April 15, 1992.

Carrington, Coleman, Sloman & Blumenthal and Fletcher L. Yarbrough, Corbet F. Bryant, Jr., Ken Carroll, Dallas, for appellants.

Cantey & Hanger, and Cecil E. Munn, S.G. Johndroe, Sloan B. Blair, Fort Worth, for appellees.

Before JOE SPURLOCK, II, FARRIS and LATTIMORE, JJ.

OPINION

FARRIS, Justice.

Brunswick Corporation and ICO Transitory, Inc. (collectively Brunswick) appeal an order of the trial court certifying as a class the shareholders of ICO, Inc. (ICO). See TEX.R.CIV.P. 42. Brunswick appeals for essentially three reasons: (1) this court's prior opinion in Bush v. Brunswick Corp., 783 S.W.2d 724 (Tex.App.--Fort Worth 1989, writ denied) is not controlling with regard to all shareholders of ICO; (2) all shareholders of ICO are not third-party beneficiaries with a right to sue under the Merger Agreement; and (3) holding that all shareholders of ICO are not third-party beneficiaries will not lead to inequitable results. We sustain Brunswick's point of error and hold that all shareholders of ICO are not intended third-party beneficiaries of the Merger Agreement and thus, are not entitled to class certification.

This case arises out of a lawsuit in which ICO originally sued Brunswick for damages for anticipatory breach of a Merger Agreement in which ICO agreed to merge with ICO Transitory, Inc., a wholly owned subsidiary of Brunswick Corporation. After the suit was filed, seven of ICO's shareholders (Major Shareholders) sought intervention and class certification for all shareholders of ICO to pursue a cause of action for money damages due to the decrease in market price of their stock after the merger was called off. The trial court struck the plea in intervention and original class action petition, finding that the Major Shareholders were not parties to the Merger Agreement or third-party beneficiaries of the Merger Agreement entitled to bring suit to enforce it. The Major Shareholders appealed to this court claiming the trial court had erred in holding that the Major Shareholders were not intended third-party beneficiaries of the Merger Agreement, and in construing the Merger Agreement to mean that the Major Shareholders had no rights or remedies under the Merger Agreement. This court agreed and reversed, holding that the Major Shareholders were intended third-party beneficiaries of the Merger Agreement by virtue of analyzing the Merger Agreement in connection with a Shareholder Agreement ¹ entered into by the Major Shareholders and Brunswick. Bush, 783 S.W.2d at 728, 730-31. On remand, the trial court ordered class certification for all shareholders of ICO with five of the Major Shareholders as class representatives. It is of this order that Brunswick now complains. The prior opinion of this court does not discuss the class certification issue before us today.

Brunswick's position is that only the Major Shareholders are third-party beneficiaries of the Merger Agreement entitled to sue for damages. Brunswick's argument centers around the fact that the remaining shareholders of ICO never entered into any agreement with Brunswick, as did the Major Shareholders. Therefore, this court's prior opinion did not decide the rights of the remaining ICO shareholders because only the Major Shareholders were parties to the prior appeal. We note that the remaining shareholders could not have been parties to the prior appeal because the class certification issue was not reached by the trial court.

Asserting a contrary position, the class of shareholders argues that the Merger Agreement inured to the benefit of all of ICO's shareholders, and that this court's prior opinion merely looked to the Shareholder Agreement to show additional consideration for the Merger Agreement.

The general rule is that shareholders have no individual right to recovery where an injury to the corporation results in a depreciation of the value of their stock. Massachusetts v. Davis, 140 Tex. 398, 168 S.W.2d 216, 221 (1942); Stinnett v. Paramount-Famous Lasky Corp., 37 S.W.2d 145, 149 (Tex.Comm'n App.1931, holding approved); Bush, 783 S.W.2d at 727. However, where a wrongdoer violates a duty arising from contract or otherwise, and owing directly by the wrongdoer to the shareholder, the shareholder may maintain an action. Davis, 168 S.W.2d at 222; Stinnett, 37 S.W.2d at 149; Bush, 783 S.W.2d at 727. "[I]f there is a contract or other liability of which the stockholder personally is the beneficiary, the cause of action arises to him as would any other cause of action he might have under the same circumstances." Cullum v. General Motors Acceptance Corp., 115 S.W.2d 1196, 1201 (Tex.Civ.App.--Amarillo 1938, no writ).

There is a presumption against third-party beneficiary agreements. MJR Corp. v. B & B Vending Co., 760 S.W.2d 4, 12 (Tex.App.--Dallas 1988, writ denied). The intent of the contracting parties is controlling when determining whether parties are third party beneficiaries of a contract. Corpus Christi Bank & Trust v. Smith, 525 S.W.2d 501, 503 (Tex.1975); see also Sowell v. Northwest Cent. Pipeline Corp., 703 F.Supp. 575, 581 (N.D.Tex.1988). In determining intent, courts presume that the parties contracted only for themselves and not for the benefit of third parties, unless the obligation to the third party is clearly and fully spelled out. Corpus Christi Bank & Trust, 525 S.W.2d at 503-04; MJR Corp., 760 S.W.2d at 10. In other words, the party claiming third-party beneficiary status will succeed or fail according to the terms of the contract. Greenville Indep. School Dist. v. B & J Excavating, Inc., 694 S.W.2d 410, 412 (Tex.App.--Dallas 1985, writ ref'd n.r.e.).

Moreover, only donee and creditor beneficiaries have enforceable rights. Sun Oil Co. v. Employers Casualty Co., 550 S.W.2d 348, 349 (Tex.Civ.App.--Dallas 1977, no writ); Cumis Ins. Soc'y, Inc. v. Republic Nat'l Bank, 480 S.W.2d 762, 766 (Tex.Civ.App.--Dallas 1972, writ ref'd n.r.e.). Incidental beneficiaries have no enforceable rights. Sun Oil, 550 S.W.2d at 349; Cumis, 480 S.W.2d at 766. However, distinguishing between these types of beneficiaries is not always clear. "If the performance promised ... will, when rendered, come to the third person as a pure donation, he is a donee beneficiary. If, on the other hand, that performance will come to him in satisfaction of a legal duty owed to him by the promisee, he is a creditor beneficiary." Breaux v. Banker, 107 S.W.2d 382, 389 (Tex.Civ.App.--Beaumont 1937), rev'd on other grounds, 133 Tex. 183, 128 S.W.2d 23 (1939). Incidental beneficiaries are all those who are not donees or creditors. 4 CORBIN ON CONTRACTS, § 779C (1951). Therefore, we must look to the language contained in the Merger Agreement and decide whether the remaining shareholders of ICO were intended third-party beneficiaries.

The preamble to the Merger Agreement states that ICO and Brunswick "desire to facilitate a transaction whereby Brunswick is to acquire, either directly or through a subsidiary, all shares of ICO's common stock ...." [Emphasis added.] The section of the Merger Agreement setting forth the conversion of the shares provides that:

Each Share which is issued and outstanding immediately prior to the Effective Date (other than Shares held by Brunswick or Transitory or any direct or indirect subsidiary thereof) shall by virtue of the Merger be converted into the right to receive $7.00 in cash. On the Effective Date, all rights with respect to such Shares (other than the foregoing right to receive $7.00 per Share) shall forthwith cease to exist and each such Share shall be cancelled [sic] ... [E]ach holder of certificates which formerly represented Shares ... outstanding on the Effective Date (other than Shares held by Brunswick or Transitory or any direct or indirect subsidiary thereof) shall be entitled ... to receive $7.00 for each Share.... [Emphasis added.]

In addition, the Merger Agreement contained a provision whereby ICO granted Brunswick an option to purchase, for $7.00 cash per share, the authorized but unissued shares or treasury shares, and if the option was exercised, the Agreement further provided that "[Brunswick] will cause the other stockholders of ICO to be offered ... $7.00 per Share in cash for their Shares." [Emphasis added.] The Merger Agreement, in only one instance, which is contained in section 4.10, delineated some difference between the shareholders who entered into the Shareholder Agreement and the remaining shareholders ("and the ICO shareholders who are entering into the Shareholder Agreement").

The provision providing for the effect of termination of the Merger Agreement either by its own terms or due to invalidity or unenforceability, section 9.3, contemplates all of the shareholders, as it states " ... no party hereto shall have any liability to any other party hereto or its shareholders or directors or officers...." [Emphasis added.] Lastly, section 10.8 of the Merger Agreement states, "This Merger Agreement ... is not intended to confer upon any other person any rights or remedies hereunder." [Emphasis added.] The Plan of Merger, which is appended to the Merger Agreement, contains some of...