San Pedro State Bank v. Engle

OPINION ESQUIVEL, Justice. This is a suit for breach of contract. Ap-pellees Robert L. Engle and Lawrence D. Garrison brought suit as third party beneficiaries against San Pedro State Bank alleging that the Bank breached an “escrow agreement” by disbursing funds deposited in an “escrow account” to persons other than the appellees. The appellant Bank filed a cross-action against Grissom Apartments, Ltd. and Richard E. Snell which was severed from the present case. The material facts are not in dispute. In a bench trial, the lower court found and the testimony reflected that the Bank and Grissom Apartments, Ltd. (hereafter partnership) executed an “escrow agreement,” Defendant’s Exhibit 2, on December 13, 1977. Pursuant to the “escrow agreement,” the partnership created a designated cheeking account which would receive deposits from persons such as the plaintiffs who, as limited partners, would authorize the partnership to deposit their capital contributions into the “escrow account.” According to the original terms of the “escrow agreement,” the Bank was obligated to pay the money on deposit according to the partnership’s instructions if (1) the partnership had deposited at least $200,000.00 into the account on or before midnight March 8,1978, and (2) the partnership delivered an “irrevocable commitment” to the Bank. Additionally, the “escrow agreement” required the Bank to return all monies which the partnership had deposited on behalf of the limited partners to each depositor if the partnership failed to deposit at least $200,000.00 on or before midnight March 8,1978. The agreement further provided that it could not be altered, modified or amended by the respective parties. Subsequently, on or about February 20, 1978, the Bank and the partnership agreed to change or modify1 the “escrow agreement” by extending the termination date from March 8 to April 15, 1978. The partnership agreed to reprint the second and fourth pages of the “escrow agreement,” the page which included the termination date of the agreement, and insert the changed agreement in the prospectus which the partnership would give to proposed limited partners. The evidence showed that this was not done as of February 28, 1978. The trial court also found that, on or about February 27, 1978, appellees Engle and Garrison became limited partners in the partnership when each appellee deposited $13,500.00 into the “escrow account.” Moreover, the trial court found that the appellees became third party beneficiaries when their capital contribution to the partnership was deposited in the “escrow account.” The trial court noted in the findings of fact that the appellees deposited their money in reliance upon the representation by the partnership that the termination date of the “escrow agreement” was March 8, 1978. It is undisputed that on or before March 8, 1978, the total amount of funds on deposit in the “escrow account” was less than $200,000.00. The evidence showed that the “escrow account” exceeded $200,000.00 on April 14, 1978. On that same date, a letter, signed by the president and managing partner of the partnership and addressed to the president of the Bank, was received by the Bank. The letter noted, in pertinent part: This letter is confirmation for the authorization of disbursements from the Gris-som Apartments, Ltd., Escrow Account. [452] As per this date, we have met the requirements of our escrow agreement and the following are instructions for your bank to disburse funds to the following individuals: A cashier’s check in the amount of $40,-000 to Stewart Title Company from Grissom Apartments, Ltd., Escrow Account, and a $25,000 bank-to-bank wire to the Imperial Bank of Los Ange-les, California, to the account of Escrow Management Company from Gris-som Apartments, Ltd. The Bank accepted this letter as the “irrevocable commitment” pursuant to its understanding of the “escrow agreement.” In points nine, ten and twelve of the findings of fact, the trial court specifically found that: 9. San Pedro State Bank knew or should have known that, before making their deposits, the plaintiffs had received copies of the writing titled “Escrow Agreement” which showed that the expiration date was March 8, 1978. 10. San Pedro State Bank knew or should have known that, in depositing the $13,500.00, the plaintiffs were relying upon the representation by Grissom Apartments, Ltd., that the termination date of the agreement (called “Escrow Agreement”) between San Pedro State Bank and Grissom Apartments, Ltd., was March 8, 1978. 12. San Pedro State Bank did not receive the “irrevocable commitment” before disbursing the funds from [the designated “escrow account.”] The trial court in its conclusions of law noted: 1. The change by San Pedro State Bank and Grissom Apartments, Ltd., of the termination date of the agreement (called “Escrow Agreement”) from March 8, 1978, to April 15, 1978, was not binding on the Plaintiffs under the facts of this case. 2. San Pedro State Bank improperly disbursed funds from [the account] to persons other than Plaintiffs because the agreement (called “Escrow Agreement”) between San Pedro State Bank and Grissom Apartments, Ltd., terminated on March 8, 1978, which date was before the Bank made the disbursements. 3. San Pedro State Bank improperly disbursed funds from [the account] to persons other than Plaintiffs because the Bank did not receive the “irrevocable commitment” before it disbursed the funds. 4. Either the conclusion numbered 2 or 3 will support a judgment for the Plaintiffs against San Pedro State Bank. The appellant’s first eight points of error raise two issues: (1) whether the original parties to a third-party beneficiary contract have the power to modify an agreement prior to the third-party beneficiary’s acceptance of the contract, and (2) whether the record supports the findings of fact and conclusions of law in view of the well-settled rule of modifications to third-party beneficiary contracts. We hold that the original parties to a third-party beneficiary contract hold the power to modify but, under the facts of this case, the modification was not binding on the appellees. It is undisputed that the Bank did not agree to the modification until the Bank (1) determined that no money had been deposited in the “escrow account,” and (2) the Bank obtained a verbal assurance from the partnership that no money was left with the partnership (by a limited partner) to be deposited in the Bank. The evidence reflected that no money was left with the partnership at the time the modification occurred. It is clear that the appellees En-gle and Garrison deposited their monies subsequent to the modification. The rule is well-settled that a third-party beneficiary contract may be rescinded or modified by the original parties prior to acceptance by the third party. Firestone Tire and Rubber Co. v. Fisk Tire Co., Inc., 131 Tex. 158, 113 S.W.2d 175 (1938); 14 [453] Tex.Jur.3d Contracts § 240 (1981). At first glance, there appears to be no basis upon which the trial court’s conclusions of law number one and two can stand. However, there is sufficient evidence to support the trial court’s findings of fact numbers nine and ten. The appellees place much emphasis upon the prospectus, a copy of which was introduced in part as Plaintiff’s Exhibit 3, which was in the possession of the Bank. On page 99 of the prospectus, a copy of the limited partner’s representation letter, the terms of which were never modified, was included which contained the following language: It is my understanding that all of my funds are being escrowed, until an irrevocable commitment is issued and received by the escrow agent and in the event that said irrevocable commitment is not issued and received in ONE HUNDRED TWENTY (120) days from the date of the Escrow Agreement, all my funds will be promptly returned to me by the escrow agent. (See Escrow Agreement) Although this representation letter was not one of the four pages of the “escrow agreement” actually signed by the Bank, the “escrow agreement” signed by the Bank was on pages 92 through 95 of the prospectus. The “escrow agreement” was not wholly separate from the prospectus. In fact, the “escrow agreement” was an integral part of the prospectus. The Bank argues that it would be manifestly unfair to charge the Bank with a duty the Bank did not accept by contract: namely, the duty of policing “secondary” agreements between depositors. The Bank stresses that this duty was not contemplated by the Bank. It would be manifestly unfair not to charge the Bank with the actual knowledge it had or knowledge it should have had, as found by the trial court in its findings of fact numbers nine and ten, merely because the Bank only signed a few pages of the prospectus. As the record reflects, the “escrow agreement” was included in the prospectus; the duties and obligations of all parties were delineated in the prospectus; and the Bank had a copy of the prospectus. In fact, John Massie, Jr., the individual charged with “running the Bank,” admitted that he “probably scanned over” the representation letter. Thus, the Bank accepted its status as a fiduciary of all the parties when it originally signed the “escrow agreement” through its agent Lindsay Graham, a bank lending officer, and when it modified the “escrow agreement” through its agent Mas-sie.2 Even though the Bank had knowledge of the modification and even though the Bank had ample opportunity to notify the appellees of the modification, the Bank remained silent when the appellees deposited their money. Without a doubt, the Bank did not act with the confidence and trust required as fiduciary of the appellees. Clearly, the trial court properly held that the modification of the “escrow agreement” was not binding upon appellees Engle and Garrison. Furthermore, in finding of fact twelve, the trial court specifically found that the Bank did not receive the “irrevocable commitment” prior to disbursing the funds from the “escrow account.” Thus it can be assumed that the trial court impliedly found (1) the letter from the partnership to the Bank dated April 14, 1978, was not received before the expiration of 120 days, which was April 11, 1978, pursuant to the representation letter, or (2) the letter from the partnership to the Bank, dated April 14, 1978, insufficiently satisfied the requirements of an “irrevocable commitment,” or (3) the letter, as a matter of law, did not constitute an “irrevocable commitment.” Assuming arguendo that the letter did constitute an “irrevocable commitment,” [454] the letter was not received until 3 days following the termination of the 120 day period which commenced on December 13, 1977. Thus the Bank’s actual or implied knowledge of the respective duties of the parties as stated in the prospectus and, in particular, the representation letter, as shown by the testimony of Massie, supports the findings of fact and conclusions of law by the trial court. Viewing the entire record, it is evident that sufficient evidence supports the trial court’s findings of fact nine, ten, and twelve and the trial court properly arrived at the conclusions of law one and two. Therefore, we overrule the Bank’s points of error regarding this issue. We do not reach nor do we suggest an opinion with regard to the compelling question of whether the letter dated April 14, 1978, constituted an “irrevocable commitment.” Therefore, the judgment of the trial court is affirmed with costs assessed against appellant Bank. Footnotes [1] The modification was effected by interline-ation. [2] It is absurd to believe that the Bank can hide behind the law of modifications of third-party beneficiary contracts and permit the representation that the “escrow agreement” cannot be “altered, modified or amended” to be given with nary a word uttered from the Bank. Under the facts of this case, the Bank certainly had a duty to have deleted the provision prohibiting alteration or modification from the “escrow agreement” when the agreement was modified and at least to have notified the appel-lees that the modification occurred.