Republic Nat. Bank of Dallas v. National Bankers Life Ins. Co.

• Citation: 427 S.W.2d 76
• Decision Date: 29 March 1968
• Docket Number: No. 17077,17077
• Parties: REPUBLIC NATIONAL BANK OF DALLAS, Appellant, v. NATIONAL BANKERS LIFE INSURANCE COMPANY, Appellee. . Dallas
• Court: Texas Court of Appeals

Page 76

427 S.W.2d 76

REPUBLIC NATIONAL BANK OF DALLAS, Appellant, v. NATIONAL BANKERS LIFE INSURANCE COMPANY, Appellee.

No. 17077.

Court of Civil Appeals of Texas Dallas.

March 29, 1968.

Rehearing Denied April 19, 1968.

Larry M. Lesh, of Locke, Purnell, Boren, Laney & Neely, Dallas, for appellant.

Edward J. Kolb, of Hultgren, Vaughan, Jewell, Kolb & Ivy, Dallas, for appellee.

CLAUDE WILLIAMS, Justice.

Republic National Bank of Dallas brought this action against National Bankers Life Insurance Company asking for the recovery of damages allegedly sustained as a result of the repudiation by National Bankers Life Insurance Company of an agreement between Interstate Life Insurance Company and International Mortgage Corporation. It was alleged that National Bankers Life Insurance Company (hereinafter referred to as National Bankers) had acquired Interstate Life Insurance Company (hereinafter referred to as Interstate Life) by merger and had succeeded to all of the liabilities of such company. Republic National Bank of Dallas (hereinafter referred to as Republic) claimed that it was entitled to bring the action because it was a third-party beneficiary to the agreement between Interstate Life and International Mortgage. The trial court sustained the motion for summary judgment filed by National Bankers thereby decreeing that Republic take nothing by its cause of action.

The prime question presented by this appeal is whether, as a matter of law, Republic was such a third-party beneficiary to the contract as would justify it in maintaining an action based upon such agreement. We hold that it was not and therefore affirm the judgment of the trial court.

FACTS

Robert L. Sonfield, Jr., attorney for International Mortgage, testified by deposition that he, on behalf of International Mortgage, contemplated obtaining a permanent loan commitment from Interstate Life; that such loan was contemplated to be closed sometime in the future and would be funded on an interim basis by some bank or other commercial lending institution. On February 2, 1965 he requested such a loan commitment from Interstate Life through its President, E. J. Stone, who advised him that they would be interested in making such a loan but would not do so unless the interim finance was funded by a commercial bank. Sonfield then contacted Mr. George T. McGuffey, Vice-President of Republic, and requested if such bank would handle the interim financing on the commitment of Interstate Life. He testified that McGuffey gave his consent to such an arrangement. He said that McGuffey advised both him and Mr. Stone that Republic would take care of the interim financing based upon a letter of commitment. The letter of commitment, dated February 3, 1965, and which is the agreement sued upon, reads as follows:

'Mr. Robert W. Oldham, Vice President

International Mortgage Corporation

410 Pierce Street

Houston, Texas 77002

Re: Legal Description:

Lots Eight (8), Eleven (11), and Twelve (12), in Block Four (4), of North MacGregor Oaks, a subdivision in Harris County, Texas, according to the map thereof, recorded in Volume 998, at page 379, of the Deed Records of Harris County, Texas, SAVE AND EXCEPT 5574 square feet off the Southerly side of Lot 11 and SAVE AND EXCEPT 914 square feet off the Southerly side of Lot 12, condemned by Harris County Flood Control District.

Dear Sir:

It is with pleasure that we advise you that we have approved your request for a loan of Ninety-Two Thousand, Five Hundred ($92,500.00) Dollars. The loan is to be secured by a first and valid lien upon the captioned property.

Our commitment is subject to the following conditions:

1. The loan is to be closed 100% Par.

2. The interest rate is to be 9% Payable on a monthly amortized basis with maturity not to exceed five years.

3. The Deed of Trust is to provide an escrow fund for taxes and insurance. Taxes accrued but not due are to be collected at closing .

4. The Mortgagee's Title Policy is to contain no exceptions which are not approved by this company.

5. Survey of tract.

6. The loan is to carry the full personal guarantee of Thomas H. Sullivan.

7. All expenses in connection with this loan are to be paid by you.

8. We agree to close this loan on or before August 3, 1966, but not sooner than July 23, 1966. The note and mortgage will provide that interest, to be paid monthly in advance, will commence upon closing of this loan. The first installment of principal will be due September 3, 1966. As a prerequisite to our obligation to make this loan, you must notify us at least ninety days prior to the said closing date of August 3, 1966, that you do wish to avail yourself of our loan offering. Such notice must be in writing and delivered to the home office of this company at Houston, Texas by U.S. registered mail.

We acknowledge receipt of our commitment fee and this commitment is in full force and effective (sic).

ACCEPTED:

INTERNATIONAL MORTGAGE CORP.

By: /s/ Robert W. Oldman

Robert W. Oldham, Vice President

By: /s/ Thomas H. Sullivan

Thomas H. Sullivan, Individually'

INTERSTATE LIFE INSURANCE COMPANY

By: /s/ E. J. Stone

E. J. Stone, President Mr. E. J. Stone, testifying by deposition, related that it was customary and normal procedure to handle loan commitments in this fashion. He said that banks do not make long term loans but do make short term advancements, or interim financing agreements, and when the permanent loan is completed the bank would receive the proceeds. He further testified that the loan from Interstate Life would be made to International Mortgage, the people who signed the commitment. McGuffey, by affidavit, described the practice of Republic and banks generally by which applicants for interim loans are required to furnish 'take out commitments' from responsible lenders thus assuring a source of repayment of the interim loans. He described making the interim loan to International Mortgage and said that in doing so he acted in reliance upon the take-out commitment executed by Interstate Life. National Bankers acquired Interstate Life and all of its liabilities . National Bankers did not make the permanent loan to International Mortgage.

OPINION

By its first point of error, and the one controlling the disposition of this appeal, appellant contends that the summary judgment evidence demonstrated genuine issues of material fact with respect to whether Interstate Life and International Mortgage incorporated into their contract a usage which thereby caused appellant to become a third-party beneficiary to the agreement and consequently the right to bring an action on such agreement.

It is an elementary rule of law that privity of contract is an essential element of recovery in an action based on contractual theory. Thus generally in order to maintain an action to recover damages flowing from the breach of a written agreement it is ordinarily a necessary prerequisite that there be a privity existing between the party damaged and the party sought to be held liable for the repudiation of the agreement. Gehl Bros. Mfg. Co. v. Price's Producers, Inc., 319 S.W.2d 955 (Tex.Civ.App., El Paso 1958); 13 Tex . Jur.2d, Contracts, § 367, p. 643; 17A C.J.S. Contracts § 518, p. 940.

A well defined exception to the general rule thus stated is that one who is not privy to the written agreement may demonstrate satisfactorily that the contract was actually made for his benefit and that the contracting parties intended that he benefit by it so that he becomes a third-party beneficiary and eligible to bring an action on such agreement. 13 Tex.Jur.2d, Contracts, § 352, pp. 628-629; 17A C.J.S. Contracts § 519(1), p. 947, et seq.

Appellant Republic concedes that it was not privy to the written commitment agreement between International Mortgage and Interstate Life. Appellant argues that the contract, while made between two other parties, was really executed for its benefit and that the parties so intended. It also argues that parol evidence concerning usage and custom is admissible to illuminate the true intention of the parties to the written contract.

A correct resolution of this legal problem requires a restatement of and adherence to certain well established principles of law:

(1) Parties are presumed to contract for themselves and it follows that a contract will not be construed as having been made for the benefit of a third person unless it clearly appears that such was the intention of the contracting parties. Citizens Nat. Bank v. Texas & P. Ry. Co., 136 Tex. 333, 150 S.W.2d 1003 (1941); Calame v. Prudential Ins. Co. of America, 423 S.W.2d 940 (Tex.Civ.App., Waco 1968).

(2) The cardinal rule of construction as applied to all contracts is to ascertain the intention of the parties as expressed in the language used in the instrument itself. It is the intention and purpose of the contracting parties, as disclosed within the four corners of the instrument, which should control. In this connection it must be emphasized that it is not the intention which the parties may have had, but failed to express in the instrument, but it is the intention which by said instrument they did express. Stated another way, the question is not what the parties meant to say but the meaning of what they did say. 19 Tex.Jur.2d, Deeds, § 111, p. 401; Citizens Nat. Bank v. Texas & P. Ry. Co., supra; and Davis v. Andrews, 361 S.W.2d 419 (Tex.Civ.App., Dallas 1962, writ ref'd n. r. e.), and cases therein cited.

(3) Courts do not resort to arbitrary rules of construction where the intention of the parties is clearly expressed in unambiguous language. Magnolia Petroleum Co. v. Connellee, 11 S.W.2d 158 (Tex.Com.App.1928); Citizens Nat. Bank v. Texas & P. Ry. Co., supra.

(4) Beneficiaries of contracts to which they are not parties are divided into three classes: (a) donee beneficiaries, (b) creditor beneficiaries, and (c) incidental beneficiaries; and only those falling within the first two categories may enforce...