Opinion ID: 151845
Heading Depth: 2
Heading Rank: 1

Heading: Barnes Rights Under the WIUA and JOA

Text: As an initial matter, Tawes argues that the lower courts erred in holding that Barnes was a third-party beneficiary to the WIUA and the JOA. He claims that the JOA was not intended to be for the benefit of lessors and as a result, under Texas law, the JOA created no third-party liability. Under our reading of Texas law, a contract creates a third-party creditor beneficiary only if the signatories ( l ) intended to confer a benefit on that thirdparty and (2) entered the contract to confer that benefit on the third party. MCI Telecomm. Corp., 995 S.W.2d at 651. The language of the contract must be clear, and the intent of the contracting parties controls. Id. [A] presumption exists that parties contracted for themselves unless it `clearly appears' that they intended a third party to benefit from the contract. Id. For this purpose, there seems to be a distinction between direct or express benefit, on the one hand, and incidental benefit on the other hand. Stine, 80 S.W.3d at 586. That a contract incidentally benefits some third party is insufficient to establish an intent to create a third-party beneficiary. Id. The would-be third-party beneficiary has the burden of proof on this issue. MCI Telecomm. Corp., 995 S.W.2d at 651. The instant case seems to fall somewhere between Stine and MCI Telecommunications. In Stine, the would-be beneficiary was named in a couple's divorce agreement as a creditor to whom a debt was owed. Stine, 80 S.W.3d at 588. The divorce agreement also clearly defined the terms of the repayment due to the beneficiary. Id. The court noted that the divorce agreement was not solely intended to provide for repayment of the would-be beneficiary. Id. at 591. But the court held that express references to the beneficiary and the clear intent to ensure her repayment created more than an incidental benefit, and was sufficient to make her a third-party creditor beneficiary under the terms of the divorce agreement. Id. at 591-92. In MCI, however, that company sought to install fiber optic cable along a railroad right-of-way. MCI Telecomm. Corp., 995 S.W.2d at 648-49. Years before, Texas Utilities had installed transmission poles along that same right-of-way. MCI contractually agreed with the railroad to secure such permission as may be necessary on account of any other existing rights in any third party (including, without limitation, rights of ... licensees[) and] 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. Id. at 649. Texas Utilities claimed MCI's work damaged its transmission poles and sought to enforce its rights as a third-party creditor beneficiary under MCI's contract with the railroad. Id. The court in MCI held that the contract created no third-party beneficiary rights for licensees. Id. at 652. As in MCI, the JOA identifies a specific group of royalty owners that Barnes argues have third-party beneficiary rights. While the MCI contract seemingly identifies a definite group of potential third-party beneficiaries, an arguably significant difference between Stine and MCI may be that the MCI contract does not identify what rights of the class are to be respected. Unlike MCI, but like Stine, the contract here identifies a specific, limited group of individuals and identifies what rights are owed to the those individuals (payment of royalties). Further, in MCI, there was particular language in the contract that explicitly stated that the contract was not to be interpreted as conferring any benefits on non-signatory parties. Id. In fact, opinions in some Texas cases state that MCI turned on that express language in the contract. E.g., Pratt-Shaw v. Pilgrim's Pride Corp., 122 S.W.3d 825, 831 (Tex.App.Dallas 2003, pet. denied). No party has asserted that such a clause exists in either the WIUA or the JOA. Barnes also makes an alternative argument that even if she is not a third-party creditor beneficiary, she has a basis of recovery against Tawes because they are in privity of estate. Liability to the original lessor for the payment of rent or the performance of other lease covenants may arise from either privity of contract or privity of estate. Amco Trust Inc. v. Naylor, 159 Tex. 146, 149-50, 317 S.W.2d 47, 50 (1958). She argues that Tawes came into privity of estate with her by undertaking the obligation to pay royalty under the Barnes Lease. She further argues that when Tawes increased his interest in the Baker-Barnes Nos. 1 & 2 wells by acquiring a portion of Moose O&G's working interest, Tawes stepped into Moose O&G's privity of estate with Barnes and undertook the same obligation as Dominion to pay Barnes' royalty.