Thursday, May 30, 2013

Claim of third-party beneficiary status: two types under Texas law


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 for the third party's benefit. Stine v. Stewart, 80 S.W.3d 586, 589 (Tex. 2002). The mere fact that a person might receive an incidental benefit from a contract does not give that person a right of action to enforce the contract. Id. In determining whether a third party can enforce a contract, the intention of the contracting parties is controlling. S. Tex. Water Auth. v. Lomas, 223 S.W.3d 304, 306 (Tex.2007). The intention to confer a direct benefit to a third party must be clearly and fully spelled out, or enforcement by the third party must be denied. Id. Courts may not create third-party beneficiary contracts by implication. Stine, 80 S.W.3d at 589. There is a presumption in Texas against third-party beneficiary agreements. Tawes v. Barnes, 340 S.W.3d 419, 425 (Tex.2011).


Texas recognizes two forms of third-party beneficiary: creditor and donee.

A party is a creditor beneficiary if no intent to make a gift appears from the contract (which would make the party a donee beneficiary), but performance will satisfy an actual or asserted duty of the promisee to the beneficiary. Lomas, 223 S.W.3d at 306; Esquivel v. Murray Guard, Inc., 992 S.W.2d 536, 543 (Tex.App.-Houston [14th Dist.] 1999, pet. denied).[4] This duty may be an indebtedness, contractual obligation, or other legally enforceable commitment to the third party. Esquivel, 992 S.W.2d at 544. The promisee must intend that the beneficiary will have the right to enforce the contract. Id.

SOURCE: HOUSTON COURT OF APPEALS - Nos. 14-10-00821-CV, 14-10-00856-CV, 14-10-01145-CV – 5/17/12 375 - Garcia v. Bank of America Corporation, 375 S.W.3d 322 (2012)

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