Opinion
CIVIL ACTION NO. 02-T-819-N
July 21, 2003
Randy A. Myers, Jordan, Myers Locklar, P.C., Montgomery, AL, for plaintiff QUALITY NETWORKS, INC.
George Lamar Beck, Gregory M. Biggs, Terrie Scott Biggs, George L. Beck Jr., Montgomery, AL, for defendant CYRUS W. SMITH
Michael Alan Dailey, Anderson Dailey LLP, Atlanta, GA, for defendant CYRUS W. SMITH
SBC Communications, Inc, Dallas, TX, for defendant pro se SBC COMMUNICATIONS, INC aka SBC Communications, Inc.
Robin Garrett Laurie, Allison Marshall Wright, Paul Anthony Clark, Balch Bingham, Montgomery, AL, for defendant SOUTHWESTERN BELL TELEPHONE COMPANY
Robin Garrett Laurie, Allison Marshall Wright, Balch Bingham, Montgomery, AL, for cross-claimant SOUTHWESTERN BELL TELEPHONE COMPANY
OPINION
Plaintiff Quality Networks, Inc. (QNI) brings this action against defendant Shepherd Systems, Inc., formerly known as Advance Technology Consultants, Inc. (hereinafter referred to collectively as "ATC/SSI"), and defendant Cyrus Smith to recover money owed on a promissory note, and against ATC/SSI and Southwestern Bell Telephone Company for breach of contract. QNI expended approximately $533,000 when it was hired as a subcontractor by ATC/SSI to produce parts for a Southwestern Bell project. QNI contends that ATC/SSI has failed to pay a promissory note in the amount of $194,745.32; QNI further maintains that Smith is responsible for this debt as he personally guaranteed the note. QNI alleges that ATC/SSI and Southwestern Bell are liable for the remainder of the debt on an agency theory and by the terms of the contract between Southwestern Bell and ATC/SSI which it seeks to enforce as a third-party beneficiary.
Southwestern Bell filed a cross-claim against ATC/SSI on the grounds that ATC/SSI must indemnify Southwestern Bell for any sum which may be recovered in this action pursuant to a settlement agreement reached in a previous suit between ATC/SSI and Southwestern Bell. Smith filed a cross-claim against Southwestern Bell and claims that Southwestern Bell is liable to him for any contribution he is adjudicated to owe QNI on the grounds that Southwestern Bell breached its agreement to pay ATC/SSI's subcontracting costs.
Jurisdiction is proper under 28 U.S.C.A. § 1332 (diversity of citizenship).
The matter is now before the court on Southwestern Bell's motion for summary judgment on the claims of both QNI and Smith. For the reasons that follow, the motion will be granted in part and denied in part.
I. SUMMARY-JUDGMENT STANDARD
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Under Rule 56, the party seeking summary judgment must first inform the court of the basis for the motion; the burden then shifts to the non-moving party to demonstrate why summary judgment would not be proper. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553 (1986); see also Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1115-17 (11th Cir. 1993) (discussing burden-shifting under Rule 56). The non-moving party must affirmatively set forth specific facts showing a genuine issue for trial and may not rest upon the mere allegations or denials in the pleadings. Fed.R.Civ.P. 56(e).
The court's role at the summary-judgment stage is not to weigh the evidence or to determine the truth of the matter, but rather to determine only whether a genuine issue exists for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 2511 (1986). In doing so, the court must view the evidence in the light most favorable to the non-moving party and draw all reasonable inferences in favor of that party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356 (1986).
II. FACTS
In 1996, ATC/SSI developed a combination of hardware and software that provided companies with the ability to track technicians or vehicles by placing a global positioning system unit in each vehicle. In September 1997, Southwestern Bell and ATC/SSI entered into an agreement under which ATC/SSI would provide Southwestern Bell with "In Vehicle Alarm System" (IVAS) materials and services.
In 1997, ATC/SSI asked QNI to manufacture wire harnesses for use in the systems. The initial orders were relatively small, but, in December 1997, Southwestern Bell requested ATC/SSI to increase the number of IVAS units delivered each year. The increase caused a corresponding increase in orders of QNI's product; QNI refused to extend additional credit to ATC/SSI for the larger order, however, without assurances that Southwestern Bell would pay the costs incurred.
Accordingly, Southwestern Bell issued a letter agreement in December to ATC/SSI which addressed the issue of ATC/SSI's subcontracting costs ("the December letter agreement"). The letter provided that upon termination of the agreement, Southwestern Bell would be liable for: (1) ATC/SSI's actual costs of materials, components, equipment and engineering work; (2) ATC/SSI's "actual costs incurred in procuring"; and (3) reasonable termination charges actually paid by ATC/SSI to its suppliers. The letter required suppliers to stop production upon termination and provided that title to all work done or products purchased under the agreement would vest in Southwestern Bell.
In the summer of 1998, disputes arose between Southwestern Bell and ATC/SSI. In August 1998, Southwestern Bell informed QNI that it had cancelled the contract between Southwestern Bell and ATC/SSI. QNI halted production, but, at the time, was owed approximately $533,000 for invoices and cancellation charges. QNI contacted Southwestern Bell to inquire whether the invoices would be paid by Southwestern Bell and was informed that they would not.
ATC/SSI filed suit against Southwestern Bell in September 1998 in Texas state court ("the Texas action"). ATC/SSI asked QNI not to become involved in the litigation as it anticipated a quick resolution. By August 1999, the lawsuit had still not settled; Kara Davis, the president of QNI, contacted Southwestern Bell again regarding payment under the December letter. Southwestern Bell responded that it had no obligation to pay QNI under the terms of the December letter. ATC/SSI again asked QNI to delay intervening in the suit, and in exchange for QNI's patience, ATC/SSI entered into an indebtedness agreement with QNI on August 31, 1999. The agreement provided that, in return for a promissary note personally guaranteed by Smith, QNI would allow ATC/SSI to delay payment until its suit against Southwestern Bell settled or was tried. In January 2001, QNI learned that the suit settled; QNI was not paid, however.
The settlement agreement between ATC/SSI and Southwestern Bell requires ATC/SSI to indemnify Southwestern Bell for any and all expenses for claims and liability, including costs and attorneys' fees, resulting from claims made against Southwestern Bell in any manner resulting from or derivative of ATC/SSI's dealings with Southwestern Bell or ATC/SSI's dealings with its own suppliers and/or contractors, such as QNI.
Because ATC/SSI failed to answer or otherwise defend the instant lawsuit brought by QNI, default judgment was entered against it on April 7, 2003.
III. DISCUSSION A. Propriety of Summary Judgment on QNI's claim
Southwestern Bell claims that it is entitled to summary judgment on QNI's claims on three grounds. First, it asserts that QNI is not a third-party beneficiary of the December letter agreement and cannot enforce the agreement. Second, it argues that it discharged all payment obligations under the December letter agreement pursuant to the settlement agreement reached between ATC/SSI and Southwestern Bell in the Texas action. Third, it claims that it is not bound by the actions of ATC/SSI as ATC/SSI was not its agent.
1. Whether QNI is a third-party beneficiary to the agreement between Southwestern Bell and ATC/SSI
The parties agree that the December letter agreement is governed by the terms of the original contract between Southwestern Bell and ATC/SSI, which provides that Missouri law shall be the law of the contract. Thus, the court will analyze parties' arguments according to Missouri law.
QNI contends that the December letter agreement specifies that Southwestern Bell will be liable for the debts ATC/SSI incurred in increasing production of the IVAS units. QNI maintains that it is, therefore, a third-party beneficiary to the contract and may enforce the terms of the contract against Southwestern Bell. Under Missouri law, a third-party beneficiary may enforce the terms of a contract, but it is "only those third parties for whose primary benefit the parties contract [who] may maintain an action." L.A.C. v. Ward Parkway Shopping Ctr. Co., 75 S.W.3d 247, 260 (Mo. 2002) (en banc) (internal quotations and citations omitted). While "it is not necessary for the parties to the contract to have as their `primary object' the goal of benefitting the third parties,. . . the third parties [must] be primary beneficiaries."Id. "Although it is not necessary that the third-party beneficiary be named in the contract, the terms of the contract must express directly and clearly an intent to benefit an identifiable person or class." Id.
Generally, when a party to the contract owes a debt to a third party and the third party claims to be an intended beneficiary of the contract, the contract must specify that the promisor will pay the third party directly in order for the court to find that the parties intended the contract to benefit the third party. Missouri has adopted the Restatement (First) of Contracts in defining third-party beneficiary relationships. United States v. Conservation Chemical Co., 653 F. Supp. 152, 209 (W.D. Mo. 1986); Wood v. Centermark Properties, Inc., 984 S.W.2d 517, 526 (Mo.Ct.App. 1999) ("TheRestatement of Contracts Section 133 [has been] adopted in Missouri as the classification and definition of third-party beneficiaries"). UnderRestatement (First) of Contracts § 133, "[a] promise to discharge an indebtedness of one whom the contract is made to benefit, will provide for payment to the creditor of the beneficiary, not to the beneficiary himself who owes the money." Thus, in a situation where "B promises A to pay whatever debts A may incur in a certain undertaking, [and] A incurs in the undertaking debts to C, D, and E . . .[i]f the promise is interpreted as a promise that B will pay C, D, and E, they are intended beneficiaries under Subsection (1)(a); if the money is to be paid to A in order that he may be provided with money to pay C, D, and E, they are at most incidental beneficiaries." Restatement (Second) of Contracts § 302 (1981), illustration 3 (essentially the same as Restatement (First) of Contracts § 133 (1932), illustration 9); see also H.H. Stephens v. Great Southern Savings Loan Ass'n, 421 S.W.2d 332 (Mo.Ct.App. 1967) (finding that the third party was an intended beneficiary based on Restatement (First) of Contracts § 133 (1932), illustration 9).
QNI's claim turns on whether the December letter agreement between Southwestern Bell and ATC/SSI provides for direct payment to QNI by Southwestern Bell. The December letter agreement provides that ATC/SSI was authorized to expend "necessary costs incurred to make purchases directly or through subcontractors." In addition, the December letter agreement provides that Southwestern Bell is liable for: "(1) ATC/SSI's actual costs or materials, components, equipment and engineering work (not terminable or usable in its other operations); (2) ATC/SSI's actual costs incurred in procuring at the date of expiration or receipt of notice of termination, less any salvage value thereof; and (3) reasonable termination charges actually paid by ATC/SSI to its suppliers."
Southwestern Bell argues that the agreement expresses only an intent to pay ATC/SSI and no other parties. Southwestern Bell further maintains that the December letter agreement is governed by the terms of the original agreement and that neither the original agreement nor the December letter agreement provides for payment to QNI. It is true that neither agreement explicitly states that Southwestern Bell will pay subcontractors directly, and is distinguishable from contracts in which third-party beneficiaries have recovered from contract parties. In Boone County Lumber Co. v. Niedermeyer, 173 S.W. 57 (Mo. 1915), a lumber company was able to recover against the defendant because the contract between the defendant and the lumber company's debtor specified that the defendant would pay the debtor's lumber bills. The court found that the contract was "intended to be for plaintiff's benefit . . . plaintiff knew of it, and sold the lumber in reliance thereon."Id. at 58-59. No analogous express agreement to pay ATC/SSI's subcontracting bills is contained within the December letter agreement or original contract.
Just as the agreements do not expressly state that Southwestern Bell will pay subcontractors directly, the agreements are also silent as to whom payment is to be made. The only language which references payment is a clause in the original agreement which specifies that ATC/SSI invoices will be paid 30 days after receipt and that Southwestern Bell agrees to pay such receipts. Under these terms, ATC/SSI could conceivably submit invoices from subcontractors and Southwestern Bell could directly pay those subcontractors. The agreements contain no language specifying that payment will be made to any specific person, unlike the contract language in Stephens v. Great Southern Savings and Loan Association. In that case, the court found that the plaintiff had no basis of recovery against the defendant because the defendant explicitly stated that it would lend money to the plaintiff's debtor. 421 S.W.2d 332, 333-35 (Mo.Ct.App. 1967). Here, the agreements remain silent as to whom payments may be made, and are similar to the agreement in Kansas City N.O. Nelson Co. v. Mid-Western Constr. Co. of Mo., which simply stated that the defendant was obligated "to pay for all materials furnished and work and labor performed under the subcontract." 782 S.W.2d 672, 677 (Mo.Ct.App. 1989). In this case, the court found that the defendant was liable to a subcontractor's supplier under the terms of the contract.
Taken together, the provisions of the December letter agreement could be interpreted as expressing an intent to make Southwestern Bell directly liable to ATC/SSI's subcontractors. In the December letter agreement, Southwestern Bell authorizes ATC/SSI to incur "necessary costs." Those costs are defined as purchases made "directly or through subcontractors." The December letter agreement then goes on to state that Southwestern Bell is liable for "(1) ATC/SSI's actual costs or materials, components, equipment and engineering work (not terminable or usable in its other operations); [and] (2) ATC/SSI's actual costs incurred in procuring at the date of expiration or receipt of notice of termination, less any salvage value thereof." Given that the definition of "necessary costs" contemplates costs incurred by subcontractors, and given that the letter agreement specifies that Southwestern Bell is liable for "actual costs," the letter agreement could reasonably be interpreted to mean that Southwestern Bell is liable for those costs incurred in purchases made by ATC/SSI themselves or by subcontractors.
This interpretation is supported by other provisions of the agreement. For example, the agreement states that, in addition to ATC/SSI's actual costs, Southwestern Bell is also liable for "reasonable termination charges actually paid by ATC/SSI to its suppliers." (Emphasis added). In defining the extent of Southwestern Bell's liability for termination charges, the agreement limits liability to only those charges "actually paid" by ATC/SII and does not make Southwestern Bell liable for all "actual" termination charges incurred. That is, the agreement differentiates between termination charges that were actually incurred and termination charges that were actually paid. Southwestern Bell could have similarly limited its liability for ATC/SSI's costs, only agreeing to pay those costs which ATC/SSI had "actually paid" to subcontractors. The agreement does not set forth such a limitation, however, and instead, makes Southwestern Bell liable for all of ATC/SSI's "actual costs." Considering the provisions of the December letter agreement cumulatively, the agreement could be interpreted as an intent by Southwestern Bell to be liable for all necessary costs incurred by ATC/SSI, including purchases made by subcontractors.
While "[t]he intention of the parties is to be gleaned from the four corners of the contract," when intent is "uncertain or ambiguous," the parties intent may be understood "from the circumstances surrounding its execution." L.A.C., 75 S.W.3d at 260 (internal quotations and citation omitted). QNI argues that the circumstances surrounding the December letter agreement's execution demonstrate an intent by Southwestern Bell and ATC/SSI to benefit subcontractors. First, QNI cites the deposition of Cyrus Smith, then-president of ATC/SSI, who testified that, due to the accelerated production pace, subcontractors would also have to increase production. Smith testified that Southwestern Bell sent the December letter agreement to him so that he might give it to suppliers to provide them assurances of payment. The letter was provided to QNI when QNI expressed an unwillingness to extend credit to ATC/SSI on the financial strength of ATC/SSI alone. Second, QNI asserts that its position is further supported by the deposition of Chris Vilcinskas, who signed the December letter on behalf of Southwestern Bell. In her deposition, Vilcinskas acknowledged that the letter was meant to provide assurance to subcontractors; she stated, however, that the letter agreement was only meant to provide subcontractors assurances that Southwestern Bell would be placing more orders with ATC/SSI. QNI argues that these circumstances demonstrate the parties intent to assure subcontractors that Southwestern Bell would be directly liable to them for the costs incurred in IVAS production.
Considering the terms of the contract and the circumstances surrounding its execution, QNI has provided evidence sufficient to create a genuine issue of material fact that ATC/SSI and Southwestern Bell intended the December letter agreement to directly benefit subcontractors. Therefore, summary judgment is not warranted on this ground.
2. Whether Southwestern Bell discharged its obligation through its settlement agreement with ATC/SSI
Southwestern Bell contends that, even if QNI is a third-party beneficiary to the December letter agreement, any obligations to QNI it may have had under the agreement were released by the terms of the settlement agreement reached in the Texas action. More specifically, Southwestern Bell argues that the December letter agreement is governed by the terms of the original agreement, that the original agreement was terminated and amended pursuant to the settlement agreement, and that the settlement agreement released Southwestern Bell from any obligations it may have had under the terms of the settlement agreement. The settlement agreement provided, in part, that the parties "fully and finally acquit, release, and forever discharge each other, together with all of their respective current and former employees, officers, directors, agents, attorneys, legal representatives, administrators . . . of and from any and all claims, demands, causes of action, liabilities, obligations, costs, expenses or damages of every kind of nature."
When a contract confers rights on a third-party beneficiary, "the promisor and promisee retain power to discharge or modify the duty [to an intended beneficiary] by subsequent agreement." "Such a power terminates when the beneficiary, before he receives notification of the discharge or modification, materially changes his position in justifiable reliance on the promise." Restatement (Second) of Contracts §§ 311(2) and (3) (1981);see also Restatement (First) of Contracts § 143 (1932) (same); United States v. Conservation Chemical Co., 653 F. Supp. 152, 209 (W.D. Mo. 1986) (stating that Missouri has adopted the Restatement (First) of Contracts in defining third-party beneficiary relationships); Wood v. Centermark Properties, Inc., 984 S.W.2d 517, 526 (Mo.Ct.App. 1999) (same). QNI argues that it did not consent to the changes to the agreement and that its consent was necessary because it materially changed its position in justifiable reliance on the agreement. Southwestern Bell responds that: (a) QNI is not a third-party beneficiary; and (b) any reliance by QNI was unreasonable and unjustified.
The court has already found above that the issue of QNI's status as a third-party beneficiary is a jury question. Therefore, it will not address this issue again here and will instead focus on whether QNI reasonably relied on the December letter agreement. Southwestern Bell has acknowledged that the December letter agreement was intended to give subcontractors assurance; Southwestern Bell maintains, however, that it intended to limit this to an assurance to subcontractors that further orders would be placed. QNI argues that the December letter agreement was an assurance that Southwestern Bell would be directly liable to subcontractors for costs incurred by ATC/SSI. Relying on the assurance it believed was contained within the contract, QNI materially changed its position, allowing ATC/SSI to accumulate approximately $533,000 in charges. Were a jury to find that the December letter agreement was a promise to pay subcontractors for any costs incurred by ATC/SSI, a reasonable jury could also find that QNI was justified in relying on that assurance. Consequently, QNI has raised a genuine issue of material fact that Southwestern Bell could not discharge its duty to QNI under the December letter agreement without QNI's consent and Southwestern Bell's motion for summary judgment on the grounds that the Texas settlement agreement discharged any obligation it had to QNI is due to be denied.
At the end of this section of its brief, Southwestern Bell stated: "Moreover, QNI is now estopped from collecting those same sums from Southwestern Bell which it seeks in this case. Or, its claim for specific performance . . . is barred by laches." These two sentences represent, in their entirety, Southwestern Bell's arguments on these defenses. Southwestern Bell did not cite a single case, nor offer any law or argument in support of these defenses. Therefore, the court will not address these defenses.
3. Whether ATC/SSI was the agent of Southwestern Bell
QNI also brings its claim on an agency theory. A principal is responsible for the acts and agreements of its agents which are within their actual or apparent authority. Nichols v. Prudential Ins. Co. of Am., 851 S.W.2d 657, 661 (Mo.Ct.App. 1993). QNI argues that the December letter gave ATC/SSI actual authority, as Southwestern Bell's special agent, to make purchases on behalf of Southwestern Bell in furtherance of the completion of the IVAS materials; in the alternative, QNI contends that Southwestern Bell is liable to QNI because Southwestern Bell clothed ATC/SSI with the apparent authority to make purchases on Southwestern Bell's behalf.Southwestern Bell moved for summary judgment as at QNI's agency theory on the grounds that ATC/SSI was not its special agent and did not have the actual or apparent authority necessary to make Southwestern Bell liable to QNI.
a. Actual authority as a special agent
An agency relationship is "the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act." State ex rel. Ford Motor Co. v. Bacon, 63 S.W.3d 641, 642 (Mo. 2002), quoting Restatement (Second) of Agency § 1 (1958). "A special agent is an agent authorized to conduct a single transaction or a series of transactions not involving continuity of service." Restatement (Second) of Agency § 3 (1958); see also Hackney v. Fairbanks, Morse Co., 143 S.W.2d 457 (Mo.Ct.App. 1940) ("The purpose of a special agency is ordinarily for the accomplishment of a single transaction or a transaction with designated persons"). Authority to act pursuant to an agency relationship is created "by written or spoken words or other conduct of the principal which, reasonably interpreted, causes the agent to believe that the principal desires him so to act on the principal's account." Restatement (Second) of Agency § 26 (1958).
Southwestern Bell argues that ATC/SSI was not its special agent and that, even if ATC/SSI were its special agent, it is not liable to QNI because the December letter agreement does not provide for direct payment to QNI. Under the definitions of agent and special agent, ATC/SSI was Southwestern Bell's special agent if Southwestern Bell manifested consent that ATC/SSI would act on its behalf and subject to its control for purpose of a particular transaction, and ATC/SSI consented to so act.Bacon, 63 S.W.3d at 642; Restatement (Second) of Agency §§ 1 and 3 (1958);Hackney, 143 S.W.2d 457.
The December letter agreement stated that "this authorizes ATC/SSI to incur the necessary costs to make purchases either directly or through subcontractors to enable ATC/SSI to make timely delivery of the IVAS Material." This language could arguably be interpreted as a manifestation of Southwestern Bell's intent to authorize ATC/SSI to incur costs on Southwestern Bell's behalf. In addition, the December letter agreement specifically sets forth the manner in which the authority granted may be exercised. For example, the agreement requires, among other things, that "ATC/SSI shall commence immediately and pursue diligently the authorized activities and keep Southwestern Bell currently informed of its progress," that "[i]n making procurement arrangements with ATC/SSI's suppliers, ATC/SSI shall make reasonable efforts to minimize its liability," and that ATC/SSI maintain records on all purchases for three years. These clauses could reasonably be interpreted as indicating Southwestern Bell's intent to have some control over the way ATC/SSI made the authorized purchases. Given the language of the contract, a reasonable jury could find that Southwestern Bell manifested consent to have ATC/SSI act on its behalf and subject to its control for the limited purpose of making purchases for the timely delivery of the IVAS material. Furthermore, because ATC/SSI supplied the December letter agreement to its suppliers and acted in accordance with it, a reasonable jury could also find that ATC/SSI consented to act pursuant to the limited authority granted in the agreement. Moreover, a reasonable jury could find that ATC/SSI had the actual authority to make purchases from QNI on behalf of Southwestern Bell because the language of the December letter agreement, "reasonably interpreted, [could] cause the agent to believe that the principal desires him so to act on the principal's account." Restatement (Second) of Agency § 26 (1958). Thus, a genuine issue for trial exists that ATC/SSI had actual authority, as Southwestern Bell's special agent, to make purchases from QNI on its behalf.
Finally, the court also rejects, for the same reasons discussed in section III(A)(1) above, Southwestern Bell's argument that, even if ATC/SSI were its special agent, it is due summary judgment because the December letter agreement does not provide for direct payment to QNI. In sum, Southwestern Bell is not entitled to summary judgment on the issue of ATC/SSI's status as its special agent.
b. Apparent authority
As an alternative theory of recovery, QNI argues that ATC/SSI had apparent authority to make purchases from QNI on Southwestern Bell's behalf. "Apparent authority is the power to affect the legal relations of another person by transactions with a third person, professedly as agent for the other, arising from and in accordance with the other's manifestations to such third persons." Restatement (Second) of Agency § 8 (1958). Apparent authority is created "as to a third person by written or spoken words or any other conduct of the principal which, reasonably interpreted, causes the third person to believe that the principal consents to have the act done on his behalf by the person purporting to act for him." Restatement (Second) of Agency § 27 (1958);Graue v. Missouri Property Ins. Placement Facility, 847 S.W.2d 779, 783 (Mo. 1993) ("Missouri follows the Restatement of Agency rule that apparent authority exists only to the extent that it is reasonable for a third person dealing with the agent to believe that the agent is authorized."). "For apparent authority there is the basic requirement that the principal be responsible for the information which comes to the mind of the third person . . . The information received by the third person may come . . . from documents or other indicia of authority given by the principal to the agent." Restatement (Second) of Agency § 27 (1958), comment a.
QNI is a third party who received a document signed by the principal, Southwestern Bell. The document purported to "authorize ATC/SSI to incur the necessary costs to make purchases either directly or through subcontractors to enable ATC/SSI to make timely delivery of the IVAS Material." A reasonable jury could find that the language of the December letter agreement, reasonably interpreted, could cause QNI to believe that Southwestern Bell consented to have purchases from subcontractors made on its behalf by ATC/SSI. Therefore, a genuine issue of fact exists that ATC/SSI had the apparent authority to act as Southwestern Bell's special agent for purpose of making purchases in furtherance of manufacturing IVAS materials, and summary judgment is not appropriate as to this claim.
As with the court's discussion of actual authority, and for the same reasons, the court rejects Southwestern Bell's argument that it is not liable to QNI because the December letter agreement does not provide for direct payment to QNI.
B. Propriety of Summary Judgment on Smith's counter-claim
QNI claims that, based on his personal guaranty, Smith is liable for ATC/SSI's failure to pay the promissory note. Smith filed a cross-claim against Southwestern Bell and claims that Southwestern Bell is liable to him for any contribution he is adjudicated to owe QNI on the grounds that Southwestern Bell breached its obligation of good faith underlying the December letter agreement when it breached the agreement and jeopardized ATC/SSI's ability to pay its suppliers. Southwestern Bell argues that it is entitled to summary judgment on Smith's counter-claim because Smith has no right to enforce the agreement, because the settlement agreement reached in the Texas action releases Southwestern Bell from the claim, and because Smith's counter-claim is barred by res judicata and collateral estoppel. The court agrees that Smith is without right to enforce the terms of the contract, and because summary judgment is due to be granted on these grounds, the court will not address the other grounds for summary judgment raised by Southwestern Bell.Under Missouri law, a claim for breach of the implied duty of good faith and fair dealing is a contract claim. Koger v. Hartford Life Ins. Co., 28 S.W.3d 405, 413 (Mo.Ct.App. 2000). To succeed on a breach-of-contract claim, a plaintiff must demonstrate "the making of a valid enforceable contract between the plaintiff and defendant, the right of the plaintiff and obligation of the defendant under the contract, a violation by the defendant, and damages resulting to the plaintiff from the breach." Id. Southwestern Bell maintains that Smith has no right to enforce the agreement because he is not a party to the agreement. Smith answers that he is entitled to raise the claim as a third-party beneficiary of the December letter agreement. As discussed above, third-party beneficiaries may enforce a contract.
Smith claims that he is a third-party beneficiary because "the guaranty obligation of Mr. Smith . . .[was] within the reasonable contemplation of ATC/SSI and Southwestern Bell when the December letter was made." A third-party beneficiary, however, is not one whom the parties merely contemplate will be benefitted by the contract, but one "for whose primary benefit the parties contract." L.A.C. v. Ward Parkway Shopping Center Company, L.P., 75 S.W.3d 247, 260 (Mo. 2002) (en banc) (internal quotations and citations omitted). "Although it is not necessary that the third-party beneficiary be named in the contract, the terms of the contract must express directly and clearly an intent to benefit an identifiable person or class." Id.
The court sees nothing in the December letter agreement, nor has Smith directed the court to any language, which "express[es] directly and clearly an intent to benefit [Smith]," nor is Smith "an identifiable person or class" within the contract. Smith's position is unlike the position of QNI with respect to the agreement. When considering QNI's status as a possible third-party beneficiary, the court found that the December letter agreement contained language which referenced an identifiable class, subcontractors, of which QNI was a member. No such language references Smith. Although ATC/SSI is specifically referenced in the agreement, no reference is made to ATC/SSI's corporate officers. In short, nothing in the agreement identifies Smith, much less suggests that the parties intended to benefit him. Therefore, the court finds that there is no genuine issue that Smith is a party or a third-party beneficiary to the contract, that he has no right to enforce the contract on a claim of breach of the implied duty of good faith and fair dealing, and that Southwestern Bell's motion for summary judgment is due to granted as to Smith's counter-claim.
IV. CONCLUSION
Southwestern Bell's motion for summary judgment is due to be denied as to the claim of QNI. The language of the December letter agreement creates a genuine issue of material fact that the parties intended that Southwestern Bell would be directly liable to subcontractors for costs incurred by ATC/SSI. There is also a genuine issue of material fact that the December letter agreement gave ATC/SSI the actual authority as Southwestern Bell's special agent, or gave ATC/SSI the apparent authority, to make purchases from subcontractors on behalf of Southwestern Bell. The language of the December letter agreement does not, however, create any triable issue that Smith was a third-party beneficiary to the agreement.
An appropriate judgment will be entered.
DONE.
JUDGMENT
In accordance with the opinion entered this date, it is the ORDER, JUDGMENT, and DECREE of the court that:(1) The motion for summary judgment filed by defendant Southwestern Bell Telephone Company on March 27, 2003 (Doc. no. 39), is granted as to the cross-claim of defendant Cyrus Smith and denied as to the claim of plaintiff Quality Networks, Inc.
(2) Judgment is entered in favor of defendant Southwestern Bell Telephone Company and against defendant Cyrus Smith on defendant Smith's cross-claim.
DONE.