Stine v. Stewart
2002 Tex. LEXIS 105, 80 S.W.3d 586, 45 Tex. Sup. Ct. J. 966 (2002)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A third party is an intended creditor beneficiary of a contract if the contracting parties' intent to discharge an obligation owed to that third party is clearly expressed in the agreement, even if the original obligation was barred by the statute of limitations, as long as the agreement constitutes a valid acknowledgment of the debt.
Facts:
- On April 26, 1984, Mary Nelle Stine loaned her daughter and son-in-law, William Stewart, $100,000 to purchase a home, for which they executed a promissory note.
- The Stewarts made partial payments on the note, leaving an outstanding principal balance of $50,000.
- On October 1, 1992, the Stewarts executed an Agreement Incident to Divorce, which stipulated that upon the sale of their Lago Vista property, the $50,000 principal owed to Stine was to be paid from the proceeds.
- The agreement further provided that if the proceeds were insufficient to cover the $50,000, the remaining balance would be split equally between the two Stewarts and become immediately due and payable.
- On November 17, 1995, William Stewart sold the Lago Vista property, which yielded net proceeds of $6,820.21.
- Stewart did not pay the proceeds to Stine or make any further payments on the $50,000 principal.
Procedural Posture:
- Mary Nelle Stine sued William Stewart in trial court for breach of the Agreement Incident to Divorce.
- After a bench trial, the trial court entered judgment in favor of Stine, concluding she was an intended third-party beneficiary.
- Stewart, as appellant, appealed the decision to the intermediate court of appeals.
- The court of appeals reversed the trial court's judgment, holding that Stine was merely an incidental beneficiary.
- Stine, as appellant, sought review from the Supreme Court of Texas.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Is a creditor an intended third-party beneficiary with the right to enforce a contract when the contracting parties explicitly name the creditor and detail how and when an existing debt to that creditor will be satisfied from specific proceeds?
Opinions:
Majority - Per Curiam
Yes. A creditor is an intended third-party beneficiary when the contract expressly states the parties' intent to satisfy an obligation owed to that creditor. The Agreement Incident to Divorce was not merely an allocation of debt between the Stewarts; it specifically provided that the proceeds from the house sale would be used to pay Stine the "current principal sum of $50,000.00." The court reasoned that to be an intended beneficiary, a third party must be either a donee or a creditor beneficiary. While Stine was not a donee beneficiary (as the payment was not a gift), she was a creditor beneficiary because the agreement's performance was intended to satisfy a legal duty owed to her. The language of the agreement clearly and fully expressed the intent to confer a direct benefit upon Stine by naming her, specifying the debt amount, and designating the source of payment. Furthermore, even if the statute of limitations had run on the original promissory note, the divorce agreement constituted a written acknowledgment of the debt under Texas law, which revived the obligation and created a new, enforceable contract. Therefore, Stine had standing to sue for breach of this new agreement.
Analysis:
This decision reinforces the principle that courts must look to the express language of a contract to determine the intent to create a third-party beneficiary. It clarifies that a mere allocation of liabilities in a divorce decree does not create third-party rights, but a specific promise to pay a named creditor from designated funds does. The case is also significant for its application of the debt acknowledgment doctrine, confirming that a contract like a divorce agreement can revive an otherwise time-barred debt, creating a new and independent cause of action for the creditor. This provides a clear avenue for creditors named in such agreements to directly enforce payment.
