MCI Telecommunications Corporation v. Texas Utilities Electric Corporation

In MCI Telecomms. Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 42 Tex. Sup. Ct. J. 656 (Tex. 1999), Texas Utilities (TU) sought to recover attorney's fees for a breach of a contract between MCI and the Mis-souri Pacific Railroad (MoPac). Id. at 649. TU sued MCI for damages under breach of contract and negligence theories. Id. TU claimed that, as a li-censee, it was a third-party beneficiary of the MCI/MoPac contract. Id. The MCI/MoPac contract explicitly provided, however, that "neither this Agreement, nor any term or provi-sion hereof, nor any inclusion by reference, shall be construed as being for the benefit of any party not in signatory hereto." Id. at 649-50. The Texas Supreme Court held that the contract's disclaimer provision reflected that the parties had no intent to confer third-party benefits under the contract. Id. at 651-52. The court further observed that nothing in the contract indicated that MCI and MoPac ever intended to confer a direct benefit to TU. Id. at 652. Texas Utilities contracted with the Missouri Pacific Railroad to obtain a license to install an electric transmis-sion line on MoPac's right-of-way. 995 S.W.2d at 648-49. Twelve years later, MCI contracted with MoPac to use the right-of-way to install a fiber optic cable. Id. at 649. MCI's contract with MoPac contained a provision requiring MCI to exercise its contract rights "in such a manner as not to interfere in any way with any existing prior rights," such as the rights of existing licensees. Id. The contract also included a provision explicitly stating that no provision of the contract "shall be construed as being for the benefit of any party not in signatory hereto." Id. at 649-50. The Texas Supreme Court reversed both the trial court and the Fort Worth Court of Appeals and held that Texas Utilities was not a third-party beneficiary of MCI's contract with MoPac. Id. at 651. The court reasoned that, although the contract included a provision protecting Texas Utilities' rights as an earlier licensee, the contract did not provide a direct benefit to Texas Utilities and no contractual language indicated that MCI and MoPac contracted for Texas Utilities' benefit. Id. at 651-52. At best, Texas Utilities was an "incidental beneficiary" of the contract. Id. at 652. The court also noted that the contract explicitly stated that it "is not to be interpreted as conferring any benefits on nonsignatory par-ties" and that it "reflects the intention of the parties that there be no third-party beneficiary to the contract." Id. At best, Texas Utilities was an "incidental beneficiary" of the contract. Id. at 652. The court also noted that the contract explicitly stated that it "is not to be interpreted as conferring any benefits on nonsignatory parties" and that it "reflects the intention of the parties that there be no third-party beneficiary to the contract." Id. In sum, the contract contained an express provision in which the parties unambiguously agreed that the contract should not be interpreted as conferring any benefits on nonsignatory parties. See id. at 652. Though the MCI court could have crafted a legal standard limited to the determination of third-party-beneficiary status in the context of a contract containing such a clause, the MCI court did not do so. See id. at 651-52. Instead, after articulating the general rules for third-party-beneficiary status, the MCI court indicated that the intention of contracting parties to confer a direct benefit on a third party must be "clearly and fully spelled out" in the contract itself. See id. at 651-52 (stating that "there is simply no contractual language to indicate that MCI and MoPac entered into the contract directly for TU's benefit. Thus, TU is not a creditor or donee beneficiary of the contract and, at best, is an incidental beneficiary of the contract" and that "the contract between MCI and MoPac does not contain any such indication. Therefore, TU is not a third party-beneficiary")