MCI Telecommunications v. Texas Util. Elec. Co.

• Decision Date: 27 May 1999
• Citation: 995 S.W.2d 647
• Parties: (Tex. 1999) MCI TELECOMMUNICATIONS CORPORATION, PETITIONER v. TEXAS UTILITIES ELECTRIC COMPANY, RESPONDENT NO. 96-1080
• Court: Texas Supreme Court

Page 647

995 S.W.2d 647 (Tex. 1999)

MCI TELECOMMUNICATIONS CORPORATION, PETITIONER v. TEXAS UTILITIES ELECTRIC COMPANY, RESPONDENT

NO. 96-1080

IN THE SUPREME COURT OF TEXAS

Argued September 28, 1998

Decided May 27, 1999.

ON APPLICATION FOR WRIT OF ERROR TO THE COURT OF APPEALS FOR THE SECOND DISTRICT OF TEXAS

JUSTICE HANKINSON delivered the opinion of the Court in which CHIEF JUSTICE PHILLIPS, JUSTICE HECHT, JUSTICE ENOCH, JUSTICE OWEN, JUSTICE BAKER, JUSTICE O'NEILL and JUSTICE GONZALES join.

In this case, we address two issues: first, whether a licensee of rights to construct a transmission line along a railroad right-of-way was entitled to recover attorney's fees as a third-party beneficiary to a later contract; and, second, whether evidence presented at trial was legally sufficient to prove that construction along the right-of-way proximately caused poles in the transmission line to lean and would cause certain other poles to lean in the future.

Texas Utilities Electric Co. (TU) constructed a transmission line in the mid-1970s along the Missouri Pacific Railroad (MoPac) right-of-way pursuant to a 1973 license agreement between the predecessors of TU and MoPac. In 1985, MCI contracted with MoPac for use of the same right-of-way to install a fiber optic cable. In 1992, TU discovered that four of the utility poles located along the right-of-way were leaning. TU sued MCI for past and future replacement costs of the poles' foundations under breach of contract and negligence theories. Specifically, TU claimed that it was a third-party beneficiary to MCI's contract with MoPac and that MCI's laying of the fiber optic cable had interfered with the lateral support of the poles, causing them to lean. MCI contended that its contract with MoPac did not make TU a third-party beneficiary and that the defective installation of the poles at inadequate depths caused the poles to lean, not MCI's laying of its cable.

The trial court ruled that TU was a third-party beneficiary to the contract between MCI and MoPac, MCI breached its contract with MoPac, and MCI was negligent in its installation of the cable. The court awarded TU $362,755 in past and future damages for negligence, $20,244 in prejudgment interest, and $82,000 in attorney's fees for breach of contract. The court of appeals affirmed, holding that TU was, in fact, a creditor beneficiary of the contract and that sufficient evidence supported the trial court's finding of negligence. 993 S.W.2d 663.

On application for writ of error, MCI complains that (1) the plain language of its contract with MoPac explicitly disavows the existence of any third-party beneficiaries; (2) there was no evidence of proximate cause to support the trial court's negligence finding; and (3) there was no evidence to support the trial court's award of damages. While we agree that TU is not a third-party beneficiary to MCI's contract with MoPac, we conclude that legally sufficient evidence sustains the trial court's findings of proximate cause and future damages. Consequently, we affirm the award of past and future damages for negligence, but reverse and render judgment that TU take nothing on its attorney's fees claim.

To resolve the third-party beneficiary question, we start with the contract at issue. In 1973, TU's predecessor, Texas Electric Service Company (TESCO), entered into a "Wire Line License" with MoPac's predecessor, which gave TESCO the nonexclusive right to install an electric transmission line on the railroad's right-of-way. Thereafter, TESCO built a transmission line, supported by steel poles, attached to concrete and steel foundations, in a six-mile area generally parallel to the railroad tracks. In 1985, MCI and MoPac entered into a contract by which MoPac granted MCI the right to construct and operate its fiber optic system along the same right-of-way.

The contract between MCI and MoPac was executed twelve years after TU obtained the license rights to build the transmission line. Section 10 of the contract addressed the prior rights of third parties in the railroad right-of-way, including the prior rights of licensees such as TU:

MCI shall secure such permission as may be necessary on account of any other existing rights in any third party (including, without limitation, rights of . . . licensees . . .). . . . MCI hereby agrees to exercise the herein granted rights in such a manner as not to interfere in any way with any existing prior rights.

The contract also addressed the rights of successors or assigns of MCI and MoPac. Section 26(a) provided that "[t]his agreement shall be binding upon and insure [sic] to the benefit of the parties hereto and their respective successors or assigns" with the "prior written consent of the other party." Section 26(b) provided that, "[n]otwithstanding the provisions of [section 26(a)]," MCI and MoPac had "the right to sublease or assign this Agreement to their wholly-owned subsidiaries, or affiliates, or to a parent company." Finally, section 26(c) stated:

Except as provided in this subparagraph, neither this Agreement, nor any term or provision hereof, nor any inclusion by reference, shall be construed as being for the benefit of any party not in signatory hereto.

During 1985, MCI constructed a buried fiber optic system along the railroad right-of-way by trenching, laying the cable, and repacking the ground. In some places, the cable was laid within a few feet of the foundations of TU's transmission poles. In 1992, TU discovered that four of its poles were leaning. When TU replaced the old foundations with new foundations, it learned that MCI's cable was near the foundations. TU alleged that the foundations had been damaged by MCI's trenching operations.

At trial, TU argued that it was a third-party beneficiary to the contract between MCI and MoPac and, therefore, entitled to recover its attorney's fees as a result of MCI's breach of the contract. The trial court determined that TU was a licensee with rights in existence prior to and at the time of the contract. Additionally, the trial court concluded that TU met the three requirements of third-party beneficiary status: (1) TU was not a signatory to the agreement; (2) MCI and MoPac made the agreement for the benefit of TU as a member of the mentioned class of licensees; and (3) MCI and MoPac intended that TU benefit by the agreement.

The court of appeals affirmed. In particular, the court of appeals interpreted section 10 of the contract to confer creditor beneficiary status on TU. It concluded that section 10 evidenced the clear intent of MCI and MoPac to confer a benefit upon TU as a third-party beneficiary in that MCI was required to perform the contract in such a manner as not to interfere with TU's rights. 993 S.W.2d at 668.

MCI argues that the court of appeals erred because section 26 of the contract operated in the opposite manner, showing a clear intent to confer no benefit upon anyone other than the signatories, MCI and MoPac. Moreover, MCI points out that TU is not mentioned by name in the contract and that the class of "licensees" and others, including those "occupying or using the property concerned with Railroad's permission," to which TU belongs, is too broad to allow TU, as a member of the class, to be a third-party beneficiary. Furthermore, even if the "licensee" language is interpreted as giving some benefit to TU, (namely, imposing a duty on MCI to obtain permission "as necessary" from TU in order to construct the cable line), MCI contends that such an obligation does not evidence a clear intent to contract for the direct benefit of TU, but rather, at most, confers an incidental benefit. Finally, in light of the unambiguous language of section 26 and the legal presumption that parties contract only for themselves and not for the benefit of third parties, MCI asserts that TU cannot be a third-party beneficiary of the contract between MCI and MoPac.

TU responds that the court of appeals correctly affirmed the trial court's ruling because TU met the three requirements of third-party beneficiary status. In particular, TU argues that the "licensee" language sufficiently describes a specific class to which TU belongs and gives TU the right to grant or deny MCI permission to do certain acts "as may be necessary." According to TU, this language indicates that the contract was made for the direct benefit of TU. TU also asserts that MCI and MoPac intended to confer creditor beneficiary status on TU by stipulating that MCI would be required to honor TU's legal right to lateral support, as granted by MoPac in the earlier license agreement. Alternatively, TU points out that MCI's narrow reading of section 26(c), as denying any benefits to nonsignatories, nullifies sections 26(a) and (b), which, together, allow a sublessee or assignee of MCI or MoPac to benefit from the contract upon prior written consent of the other party.

Our analysis of the third-party beneficiary issue requires us to interpret the contract between MCI and MoPac. When a contract is not ambiguous, the construction of the written instrument is a question of law for the court. See Coker v. Coker 650 S.W.2d 391, 393 (Tex. 1983); City of Pinehurst v. Spooner Addition Water Co., 432 S.W.2d 515, 518 (Tex. 1968); Myers v. Gulf Coast Minerals Management Corp., 361 S.W.2d 193, 196 (Tex. 1962). We review the trial court's legal conclusions de novo. See Barber v. Colorado Indep. Sch. Dist., 901 S.W.2d 447, 450 (Tex. 1995). In light of the clear language in the contract that the agreement not be construed as being for the benefit of any nonsignatory, we conclude that TU is not a third-party beneficiary.

The fact that a person might receive an incidental benefit from a contract to which he is not a party does not give that person a right of action to enforce the contract. See House v. Houston Waterworks Co., 31 S.W. 179, 180 (Tex. 1895); see also Merrimack Mut. Fire Ins. Co. v. Allied Fairbanks Bank, ...