holding the economic loss rule precluded recovery where Dennis entered into a security contract with Chubb Security Systems, Inc., which subcontracted its monitoring obligations to Sonitrol, and Dennis sued Chub and Sonitrol on claims of negligence and breach of contract as a third-party beneficiary after Dennis's store was burglarized because the appellate court determined the subject matter of the security contract was to provide security, and the damages claimed were for the recovery of items stolen—which amounted to a claim for economic damages under the contractSummary of this case from Rio Grande City Consol. Indep. Sch. Dist. v. Edward Puentes, P.E.
Delivered and Filed: January 29, 2003.
The Honorable Shay Gebhardt, presiding judge of County Court at Law No. 3, presided over the trial on the merits.
Sitting: Alma L. LOPEZ, Chief Justice, Paul W. GREEN, Justice, Sandee Bryan MARION, Justice.
Appellant Dennis Jewelry Company (Dennis) appeals the trial court's judgment granting a directed verdict in favor of appellee Sonitrol Managment Company (Sonitrol). Because all issues of law are settled, our opinion only advises the parties of the court's decision and the basic reasons for it. See Tex.R.App. 47.4. We affirm the trial court's judgment.
In 1985, Dennis contracted with a predecessor of Chubb Security Systems, Inc. to install, maintain, and monitor a security system (the security contract). In 1995, Chubb subcontracted its monitoring obligations to all its subscribers to Sonitrol (the monitoring contract). Dennis was not a party to the monitoring contract between Chubb and Sonitrol nor was Dennis specifically identified in that agreement. In 1997, Dennis's jewelry store was burglarized, and numerous watches were stolen. Dennis sued both Chubb and Sonitrol but settled with Chubb prior to trial. Dennis proceeded to trial against Sonitrol on claims of negligence and breach of contract as third-party beneficiary. At the close of Dennis's case, the trial court granted Sonitrol's motion for directed verdict.
The trial court found: (1) Dennis was not a third-party beneficiary entitled to sue Sonitrol under the monitoring agreement; (2) the Texas economic recovery rule barred Dennis's negligence claim; and (3) Dennis's recovery, if any, is limited to $250 by the terms of the contract between Dennis and Chubb. Dennis appeals on all three issues.
Standard of Review
A directed verdict is proper when (1) a defect in the non-movant's pleading makes it insufficient to support a judgment; (2) the evidence conclusively proves a fact that establishes the movant's right to judgment as a matter of law, or negates the right of the non-movant to judgment; or (3) the evidence is insufficient to raise a fact issue on the cause of action at issue. Rudolph v. ABC Pest Control, Inc., 763 S.W.2d 930, 932 (Tex.App.-San Antonio 1989, writ denied). On appeal, we consider all of the evidence in the light most favorable to the party against whom the verdict was directed, disregarding all contrary evidence and inferences. Qantel Business Sys., Inc. v. Custom Controls Co., 761 S.W.2d 302, 303 (Tex. 1988).
A. Third Party Beneficiary
A party is presumed to contract only for its own benefit and any intent to benefit a third party must be clearly apparent and not assumed. Greenway Park Townhomes Condominium Ass'n, Inc. v. Brookfield MUD, 575 S.W.2d 90, 91 (Tex. Civ. App.-Houston [14th Dist.] 1978, no writ). Any doubt concerning intent should be resolved against the third party. Id. The requirements for a third party to recover as beneficiary of a contract are: (1) the contracting parties intended to benefit that party; and (2) 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).
However, a third-party beneficiary contract cannot be created by implication. MCI Telecomm. Corp. v. Texas Util. Elec. Co., 995 S.W.2d 647, 651 (Tex. 1999). Therefore, a third-party beneficiary will not be recognized unless the intent to make them so is clearly written or evidenced in the contract. Id. Thus, "the fact that a person is directly affected by the parties' conduct, or that he `may have a substantial interest in a contract's enforcement, does not make him a third party beneficiary.'" Loyd v. ECO Resources, Inc., 956 S.W.2d 110, 134 (Tex.App.-Houston [14 Dist.] 1997, no writ). Consequently, a presumption exists that parties contract for themselves unless it "clearly appears" that they intended a third party to benefit from the contract. MCI Telecomm., 995 S.W.2d at 651. "If there is any reasonable doubt as to an intent to confer a direct benefit, the third-party beneficiary claim must fail." MJR Corp., 760 S.W.2d at 11. The third party beneficiary need not be specifically named in the contract, but must be otherwise sufficiently described or designated. Knox v. Ball, 191 S.W.2d 17, 23 (Tex. 1945).
To qualify as a third-party beneficiary, the party must show that he is either a donee or creditor beneficiary of the contract, not one who is benefitted only incidentally by the performance of the contract. MCI Telecomm., 995 S.W.2d at 651. A donee beneficiary is a party to whom the performance promised will, when rendered, come to him as a pure donation; a creditor beneficiary is one to whom the performance promised will come in satisfaction of a legal duty owed to him by the promissee. Id. This legal duty may include indebtedness, contractual obligations, or other legally enforceable commitments owed the third party. Id.
To qualify as a creditor beneficiary, the maker of the contract (here, Chubb) must not only intend to confer a benefit upon the third party, but it must further intend for the third-party to have the right to enforce the agreement. MJR Corp. v. B B Vending Co., 760 S.W.2d 4, 16 (Tex.App.-Dallas 1988, writ denied). "Unless both intents were exhibited on his behalf, the third party remains no more than an incidental beneficiary." Id.
In order for Dennis to recover as third-party beneficiary of the monitoring contract, Dennis had to overcome the presumption that Chubb and Sonitrol contracted for themselves alone, and instead, contracted for Dennis's benefit as well. Dennis claims it was designated sufficiently by reference to "subscriber." While Dennis does fall into the "subscriber" category, it cannot be said unmistakably that the benefit to Dennis was within the contemplation of the contracting parties. The law requires the intention of the contracting parties to benefit a third party to be "clearly and fully spelled out or enforcement by the third party must be denied." MCI Telecomm., 995 S.W.2d at 651. Here, the contract is devoid of any third-party benefit language, including benefits explicitly conferred on behalf of "subscribers." Furthermore, the contract does not allow Dennis, or any "subscriber," the right to enforce the contract. Therefore, the trial court properly determined that Dennis was not a third party beneficiary of the monitoring contract.
Texas Economic Loss Rule
A finding that Dennis was not a third party beneficiary to the monitoring contract does not necessarily bar a negligence action against Sonitrol. A party's actions may breach duties in tort, in contract, or in both. Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 618 (Tex. 1986). However, the economic loss rule precludes recovery of economic losses in negligence when the loss is the subject matter of a contract between the parties. See Southwestern Bell Tele. Co. v. DeLanney, 809 S.W.2d 493, 494 (Tex. 1991); Jim Walter Homes, 711 S.W.2d at 618; M.D. Thomson v. Espey Huston Assoc., Inc., 899 S.W.2d 415, 420-21 (Tex.App.-Austin 1995, no writ). On the other hand, if the defendant's conduct gives rise to liability independent of a contract's existence, the plaintiff's claim may sound in tort. M.D. Thomson, 899 S.W.2d at 421. Thus, the nature of the injury suffered determines whether a cause of action in tort exists. M.D. Thomson, 899 S.W.2d at 420-21.
We have already held that Dennis was not a third party beneficiary under the monitoring contract. Thus, the only contract Dennis had the right to enforce was the security contract between it and Chubb. To determine whether the economic loss rule precludes recovery on Dennis's negligence claim against Sonitrol, we must determine whether Sonitrol's alleged negligence caused damage to the subject matter of the security contract. The subject matter of the security contract was to provide security for the contents of Dennis's store. At trial, a Dennis representative testified to damage caused by vandalism to the store and the loss of certain watches resulting from the burglary. The representative conceded Dennis was suing Sonitrol for recovery of the watches only, and not for damages caused by the vandalism.
We hold that the theft of the watches amounted to economic damage to the subject matter of the security contract. Therefore, the trial court properly determined that Dennis's negligence claim was barred by the economic loss rule.
The trial court correctly concluded that Dennis was not a third party beneficiary to the monitoring contract and its negligence claim was barred by the economic loss rule. As a result, we do not consider whether Dennis's recovery for its losses were contractually limited. We affirm the trial court's judgment.