Thomson v. Espey Huston & Associates, Inc.

• Decision Date: 24 May 1995
• Docket Number: No. 03-94-00040-CV,03-94-00040-CV
• Citation: 899 S.W.2d 415
• Parties: M.D. THOMSON and Austin Banister Joint Venture, Appellants, v. ESPEY HUSTON & ASSOCIATES, INC., Appellee.
• Court: Texas Court of Appeals

Page 415

899 S.W.2d 415

M.D. THOMSON and Austin Banister Joint Venture, Appellants, v. ESPEY HUSTON & ASSOCIATES, INC., Appellee.

No. 03-94-00040-CV.

Court of Appeals of Texas Austin.

May 24, 1995.

Earl L. Yeakel, III, Clark, Thomas & Winters, Austin, for appellants.

Diane M. Henson, Austin, for appellee.

Before JONES, KIDD and B.A. SMITH, JJ.

JONES, Justice.

Appellants M.D. Thomson and Austin Banister Joint Venture (collectively "Thomson") sued appellee Espey Huston & Associates, Inc. ("Espey") for breach of contract and negligence arising out of Espey's role in the construction of an apartment complex. The trial court granted summary judgment in favor of Espey on all causes of action. We will affirm in part and reverse in part.

FACTUAL AND PROCEDURAL BACKGROUND

In June 1985, M.D. Thomson entered into a joint venture with Gary Woodard and Morris Hamilton for the purpose of developing real estate. The resulting entity, Austin Banister Joint Venture, contracted with the Hamilton-Woodard Company, a partnership between Woodard and Hamilton, for the construction of an apartment complex on a tract of land owned by Thomson. Hamilton-Woodard, in turn, entered into two contracts with Espey, an engineering consulting firm.

The first of these contracts, the "Scope of Services Contract," engaged Espey to perform a variety of engineering and design services in connection with the construction. Among other functions, Espey was responsible for designing drainage structures, facilities for controlling storm water runoff, and "on site" water and wastewater distribution and collection systems. Espey was also responsible for testing soil quality and providing certain foundation and pavement recommendations.

The second contract, the "Draw Inspection Contract," was required by a loan agreement between Austin Banister Joint Venture and one of its creditors. The agreement required the joint venture to hire an independent contractor to periodically inspect the construction site and report on whether the construction was proceeding according to plan. Satisfactory inspection reports were a condition to continued financing. Under the Draw Inspection Contract, Espey agreed to perform these inspections for approximately $120.00 to $150.00 per draw application.

By July 1986, Espey had performed all of its services, and the apartment complex was substantially complete. Over the next two years, Thomson says, it became apparent that the complex was riddled with design and construction defects. ¹ These defects included problems related to drainage and water runoff.

On October 6, 1988, Thomson, on his own behalf and on behalf of the joint venture, filed suit against Espey ² alleging breach of both the Scope of Services Contract and the Draw Inspection Contract, and also alleging that Espey was negligent in performing its

duties under those contracts. Espey moved for summary judgment, arguing that: (1) neither Thomson nor the joint venture were in privity with Espey or were third-party beneficiaries, and therefore neither could sue Espey for breach of contract; (2) Thomson's negligence claims were barred by the economic loss rule; (3) Thomson's negligence claims were barred by the statute of limitations; and (4) Thomson's claims based on faulty construction were barred by the doctrines of waiver and estoppel. The trial court granted summary judgment in favor of Espey on all causes of action. Thomson challenges the summary judgment in six points of error.

DISCUSSION

The standards for reviewing a summary judgment are well established: (1) The movant for summary judgment has the burden of showing that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law; (2) In deciding whether there is a disputed material fact issue precluding summary judgment, evidence favorable to the non-movant will be taken as true; (3) Every reasonable inference must be indulged in favor of the non-movant and any doubts resolved in its favor. Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 548-49 (Tex.1985). The purpose of summary judgment is to eliminate patently unmeritorious claims or untenable defenses, not to deprive litigants of their right to a full hearing on the merits of any real issue of fact. Gulbenkian v. Penn, 151 Tex. 412, 252 S.W.2d 929, 931 (Tex.1952).

A. Breach of Contract Claims

Thomson alleges that Espey breached both contracts. However, Thomson is not a party to either of them; both are between Espey and Hamilton-Woodard. Thomson seeks recovery under his breach-of-contract theories solely as a third-party beneficiary. A third party may recover on a contract made between other parties only if the parties intended to secure some benefit to that third party, and only if the contracting parties entered into the contract directly and primarily for the third party's benefit. Dorsett Bros. Concrete Supply, Inc. v. Safeco Title Ins. Co., 880 S.W.2d 417, 421 (Tex.App.--Houston [14th Dist.] 1993, writ denied). Moreover, there is a presumption against third-party beneficiary agreements. Corpus Christi Bank & Trust v. Smith, 525 S.W.2d 501, 503-04 (Tex.1975) ("[W]e must begin with the presumption that parties contract for themselves, and a contract will not be construed as having been made for the benefit of third parties unless it clearly appears that such was the intention of the contracting parties."). For Thomson to prevail on his contract claims, the intent to benefit him must be clearly apparent; any doubt must be resolved against finding that he is a third-party beneficiary. See Dorsett Bros., 880 S.W.2d at 421.

With respect to the Scope of Services Contract, Thomson relies on two provisions. First, the contract required the joint venture to provide Espey with certain information necessary for its engineering services. Second, the contract's title indicates that the construction project in question is located on property owned by Thomson. ³ These aspects of the contract, he argues, designate him as a third-party beneficiary.

In support of his position, Thomson relies on Rudolph v. ABC Pest Control, Inc., 763 S.W.2d 930 (Tex.App.--San Antonio 1989, writ denied). In Rudolph, a home-seller agreed to provide the buyer with a written termite inspection report on the house. The seller hired ABC Pest Control, which inspected the premises and reported that there were no active termite infestations. Id. at 931. Later, the buyer discovered an infestation that had apparently been present at the time of the inspection. Id. at 931-32. The court held that the buyer was a third-party beneficiary of the contract between the seller and the inspector, reasoning that: "[A]lthough the contract did not specifically state that the plaintiffs were the intended beneficiaries of the contract, it was sufficient that the contract was evidently made for the benefit of third persons." Id. at 934 (quoting The standard used by the Rudolph court ("evidently made for the benefit of third persons"), incorporated from a North Carolina intermediate appellate court opinion, is arguably more liberal than other Texas case law, which stresses that the intent to benefit a third party must be clearly apparent from the contract itself. See, e.g., Corpus Christi Bank & Trust, 525 S.W.2d at 503-04; Tennessee Gas Pipeline Co. v. Lenape Resources Corp., 870 S.W.2d 286, 295 (Tex.App.--San Antonio 1993, writ granted); Brunswick Corp. v. Bush, 829 S.W.2d 352, 354 (Tex.App.--Fort Worth 1992, no writ); Bruner v. Exxon Co., U.S.A., 752 S.W.2d 679, 683 (Tex.App.--Dallas 1988, writ denied). Without deciding whether the standard applied by the Rudolph court may be correct in other contexts, we conclude that the present case is governed by the generally prevailing rule that, in the construction context, a property owner is ordinarily not a third-party beneficiary of a contract between the general contractor and a subcontractor.

Johnson v. Wall, 38 N.C.App. 406, 248 S.E.2d 571, 574 (1978)).

The relationships between property owners, general contractors, and subcontractors are well established under generally prevailing contract principles. A leading treatise on contract law explains:

Such contracts [between a principal building contractor and subcontractors] are made to enable the principal contractor to perform; and their performance by the subcontractor does not in itself discharge the principal contractor's duty to the owner with whom he has contracted. The installation of plumbing fixtures or the construction of cement floors by a subcontractor is not a discharge of the principal contractor's duty to the owner to deliver a finished building containing those items; and if after their installation the undelivered building is destroyed by fire, the principal contractor must replace them for the owner, even though he must pay the subcontractor in full and has no right that the latter shall replace them. It seems, therefore, that the owner has no right against the subcontractor, in the absence of clear words to the contrary. The owner is neither a creditor beneficiary nor a donee beneficiary; the benefit that he receives from performance must be regarded as merely incidental.

4 Arthur L. Corbin, Corbin on Contracts § 779D, at 46-47 (1951). The Restatement (Second) of Contracts endorses the same rule by way of an illustration: "A contracts to erect a building for C. B then contracts with A to supply lumber needed for the building. C is an incidental beneficiary of B 's promise, and B is an incidental beneficiary of C 's promise to pay A for the building." Restatement (Second) of Contracts § 302, illus. 19 (1979).

This general rule is grounded in the respective interests of the property owner, general contractor, and subcontractors. The contract between the property owner and the general contractor gives the property owner the right to a finished building. Subsequent contracts between the general contractor and subcontractors add nothing...