Supreme Court of Louisiana.
Dr. Willie John JOSEPH, III, Dr. Michelle T. Brumfield, and St. Mary Anesthesia
Associates, Inc.
v.
HOSPITAL SERVICE DISTRICT NO. 2 OF the PARISH OF ST. MARY, State of Louisiana,
Our Lady of the Lake Hospital, Inc., Melvin Bourgeois, M.D., James Broussard,
John Guarisco, Sharon Howell, Y. George Ramirez, Clifford M. Broussard,
National Union Fire Insurance Company of Louisiana and Louisiana Hospital
Association Malpractice and General Liability Trust.FN1
FN1. Retired Judge Moon Landrieu, sitting
ad hoc for Justice Chet D. Traylor, recused.
No. 2005-C-2364.
Oct. 15, 2006.
Background: Doctors and medical corporation with which they were affiliated sued hospital
and others for breach of an anesthesia service agreement between hospital
and medical corporation. Hospital filed exceptions of no right of action
regarding the claims asserted by the doctors. The 16th Judicial District
Court, St. Mary Parish, No. 111,233, Paul J. deMahy, J., granted the exceptions
and dismissed doctors’ claims with prejudice. Doctors appealed. The Court
of Appeal, McDonald, J., 923 So.2d 27, reversed. Certain defendants filed
application for writ of certiorari.
Holdings: The Supreme Court, Weimer, J., held that:
(1) doctors were not third party beneficiaries of agreement and, thus,
had no right of action against defendants;
(2) there is no general requirement that stipulations pour autrui be in
writing; and
(3) parties contractually limited themselves to a written contract, and
thus stipulations pour autrui had to be in writing.
Decision of Court of Appeal reversed; judgment of District Court reinstated.
Johnson, J., concurred in result.
West Headnotes
[1]
Pleading 302 
228.12
302 Pleading
302V Demurrer or Exception
302k228.8 Peremptory Exceptions
302k228.12 k. No Right of Action. Most Cited Cases
An exception of no right of action is a threshold procedural device used
to terminate a suit brought by a person who has no legally recognized
right to enforce the right asserted.
[2]
Pleading 302 228.12
302 Pleading
302V Demurrer or Exception
302k228.8 Peremptory Exceptions
302k228.12 k. No Right of Action. Most Cited Cases
The function of the exception of no right of action is to determine whether
plaintiff belongs to the class of persons to whom the law grants the cause
of action asserted.
[3]
Insurance 217 3593
217 Insurance
217XXXII Reinsurance
217k3591 Nature of Reinsurance
217k3593 k. Definitions. Most Cited Cases
“Reinsurance” is a contract by which one insurance company
agrees to indemnify another in whole or in part against loss or liability
which the latter has incurred under a separate contract as insurer of
a third party.
[4]
Insurance 217 3614
217 Insurances
217XXXII Reinsurance
217k3613 Coverage
217k3614 k. In General. Most Cited Cases
Reinsurance indemnifies the insurer for a loss which is actually sustained.
[5]
Contracts 95 187(1)
95 Contracts
95II Construction and Operation
95II(B) Parties
95k185 Rights Acquired by Third Persons
95k187 Agreement for Benefit of Third Person
95k187(1) k. In General. Most Cited Cases
A contract for the benefit of a third party is commonly referred to as
a “stipulation pour autrui.” LSA-C.C. art. 1978.
[6]
Contracts 95 187(1)
95 Contracts
95II Construction and Operation
95II(B) Parties
95k185 Rights Acquired by Third Persons
95k187 Agreement for Benefit of Third Person
95k187(1) k. In General. Most Cited Cases
Each contract must be evaluated on its own terms and conditions in order
to determine if the contract stipulates a benefit for a third person.
LSA-C.C. art. 1978.
[7]
Contracts 95 187(1)
95 Contracts
95II Construction and Operation
95II(B) Parties
95k185 Rights Acquired by Third Persons
95k187 Agreement for Benefit of Third Person
95k187(1) k. In General. Most Cited Cases
There are three criteria for determining whether contracting parties have
provided a benefit for a third party: (1) the stipulation for a third
party is manifestly clear; (2) there is certainty as to the benefit provided
the third party; and (3) the benefit is not a mere incident of the contract
between the promisor and the promisee. LSA-C.C. art. 1978.
[8]
Contracts 95 187(1)
95 Contracts
95II Construction and Operation
95II(B) Parties
95k185 Rights Acquired by Third Persons
95k187 Agreement for Benefit of Third Person
95k187(1) k. In General. Most Cited Cases
The most basic requirement of a stipulation pour autrui is that the contract
manifest a clear intention to benefit the third party; absent such a clear
manifestation, a party claiming to be a third party beneficiary can not
meet his burden of proof. LSA-C.C. art. 1978.
[9]
Contracts 95 175(1)
95 Contracts
95II Construction and Operation
95II(A) General Rules of Construction
95k175 Evidence to Aid Construction
95k175(1) k. Presumptions. Most Cited Cases
A stipulation pour autrui is never presumed. LSA-C.C. art. 1978.
[10]
Contracts 95 175(1)
95 Contracts
95II Construction and Operation
95II(A) General Rules of Construction
95k175 Evidence to Aid Construction
95k175(1) k. Presumptions. Most Cited Cases
The party claiming to be a third party beneficiary of a contract bears
the burden of proof. LSA-C.C. arts. 1831, 1978.
[11]
Contracts 95 187(1)
95 Contracts
95II Construction and Operation
95II(B) Parties
95k185 Rights Acquired by Third Persons
95k187 Agreement for Benefit of Third Person
95k187(1) k. In General. Most Cited Cases
There was no benefit in anesthesia service agreement between hospital and
medical corporation flowing directly to doctors who were affiliated with
corporation, such that a benefit was stipulated in their favor, and thus
doctors, as third parties, had no right of action against hospital for
breach of contract, where contract specifically provided there was no
intent to create an employer/employee relationship between the parties,
although contract granted corporation the exclusive right to provide anesthesiology
services at the hospital, it did not provide doctors the exclusive right
to provide anesthesiology services, and contract’s recognition of any
employee of corporation as a medical specialist for the purposes of providing
anesthesia services did not, in a manifestly clear fashion, confer a benefit
on the doctors as third parties. LSA-C.C. art. 1978.
[12]
Contracts 95 187(1)
95 Contracts
95II Construction and Operation
95II(B) Parties
95k185 Rights Acquired by Third Persons
95k187 Agreement for Benefit of Third Person
95k187(1) k. In General. Most Cited Cases
In the absence of a direct benefit conferred by the contract, a person
cannot be a third party beneficiary. LSA-C.C. art. 1978.
[13]
Contracts 95 187(1)
95 Contracts
95II Construction and Operation
95II(B) Parties
95k185 Rights Acquired by Third Persons
95k187 Agreement for Benefit of Third Person
95k187(1) k. In General. Most Cited Cases
A person may derive a benefit from a contract to which he is not a party
without being a third party beneficiary. LSA-C.C. art. 1978.
[14]
Corporations 101 189(1)
101 Corporations
101IX Members and Stockholders
101IX(A) Rights and Liabilities as to Corporation
101k189 Actions Between Members and Corporation
101k189(1) k. Right of Member or Stockholder to Sue Corporation in General.
Most Cited Cases
Corporations 101 319(5)
101 Corporations
101X Officers and Agents
101X(C) Rights, Duties, and Liabilities as to Corporation and Its Members
101k319 Actions Between Corporation and Its Officers or Agents
101k319(5) k. Capacity to Sue, and Parties. Most Cited Cases
Not every breach of a contract with a corporation provides a cause of action
to the employees or shareholders of that corporation.
[15]
Corporations 101 1.3
101 Corporations
101I Incorporation and Organization
101k1.3 k. Distinct Entity in General, Corporation As. Most Cited Cases
Once established, the separate nature of the corporate existence must be
respected. LSA-C.C. art. 24.
[16]
Contracts 95 187(1)
95 Contracts
95II Construction and Operation
95II(B) Parties
95k185 Rights Acquired by Third Persons
95k187 Agreement for Benefit of Third Person
95k187(1) k. In General. Most Cited Cases
There is no general requirement that stipulations pour autrui be in writing;
however, if the contract must be in writing, then the stipulation pour
autrui must also be in writing. LSA-C.C. arts. 1978-1982.
[17]
Contracts 95 187(1)
95 Contracts
95II Construction and Operation
95II(B) Parties
95k185 Rights Acquired by Third Persons
95k187 Agreement for Benefit of Third Person
95k187(1) k. In General. Most Cited Cases
Parties contractually limited themselves to a written contract, and thus
stipulations pour autrui had to be in writing, where contract provided
that “This Agreement contains the entire understanding of the parties
and shall be modified only by an instrument in writing signed on behalf
of each party hereto.” LSA-C.C. art. 1978.
*1208 Leake & Andersson,
PeirceA.
Hammond, II, George D. Fagan, New Orleans, for applicant.
Breazeale, Sachse & Wilson, Scott N. Hensgens, Lauren M. Smith, Christine
Lipsey, Baton Rouge, Biggs, Supple, Cremaldi & Curet, James B. Supple,
Russel J. Cremaldi, Franklin, Nicholas F. LaRocca, Jr., Morgan City, Benjamin
L. Guelfo, for respondent.
WEIMER, Justice.
**1 We are called upon to determine whether a contract between a hospital
and a medical corporation provides a stipulation for a third party (also
referred to as a stipulation
pour autrui ) in the form of benefits for individual doctors affiliated with the medical
corporation. This matter is before the court on defendants’ exceptions
of no right of action, which contend the doctors are not third party beneficiaries
of the contract. The trial court granted defendants’ exceptions and dismissed
the plaintiff doctors’ claims with prejudice. The court of appeal reversed
and defendants filed an application for writ of certiorari. For reasons
that follow, we reinstate the judgment of the trial court finding the
contract at issue does not create a stipulation
pour autrui in favor of the plaintiff doctors. Consequently, the doctors have no right
of action.
**2FACTS AND PROCEDURAL BACKGROUND
On December 13, 1990, Hospital Service District No. 2 of the Parish of
St. Mary (Hospital), operator of Lakewood Medical Center, entered into
a contract with St. Mary Anesthesia Associates, Inc. (SMAA) for the purpose
of obtaining general anesthesia services for the hospital’s patients.
The contract was signed by Raymond J. Rowell, chief operating officer
of the Hospital, and Willie J. Joseph, III, M.D., president of SMAA. The
contract provided for automatic annual renewal unless terminated by the
Hospital for cause as defined in the contract or by SMAA giving no less
than 60 days notice prior to the end of the original term or any renewal period.
In November 2000, then chief operating officer of the Hospital, Clifford
M. Broussard, advised SMAA that the contact would terminate within 30
days from the date of the letter because the contract was not in the Hospital’s
best interest.
Dr. Willie John Joseph, III, Dr. Michelle T. Brumfield, and SMAA filed
suit on August 19, 2003, naming as defendants the Hospital, Our Lady of
the Lake Hospital, Inc., Melvin Bourgeois, M.D., James Broussard, John
Guarisco, Sharon Howell, Y. George Ramirez, Clifford M. Broussard, National
Union Fire Insurance Company of Louisiana, and Louisiana Hospital Association
Malpractice and General Liability Trust.
*1209 Alleging breach of contract, the petitioners sought damages, including,
but not limited to, past and future loss of earnings, costs of relocation
and “moral damages,” mental anguish, grief and anxiety on
behalf of the doctors, and future loss of earnings on behalf of SMAA.
Pursuant to a provision contained in the contract, plaintiffs also sought
attorney fees in connection with this litigation.FN2
FN2. A judgment granting the peremptory exception of prescription filed
on behalf of defendants against plaintiffs and dismissing the cause of
action in tort (including the intentional interference with contract and
the denial of due process rights) asserted on behalf of plaintiffs was
signed on July 7, 2004.
**3 Defendants filed exceptions of no right of action regarding the claims
asserted by the doctors contending that SMAA was the only party with a
real and actual interest in the contract and the doctors had no individual
right to sue for a corporate loss. The doctors argued the contract expressed
an intent to stipulate a benefit in favor of the doctors and that this
benefit was a material consideration for the contract.
At the hearing on the exceptions before the trial court, the contract in
question was introduced into evidence following which counsel argued their
respective contentions. Defendants argued the contract is clear and unambiguous,
thus parol evidence is not admissible to determine the intent of the parties.
Plaintiffs agreed the contract is unambiguous, but contended it clearly
contemplated third party beneficiaries.
Following argument, the trial court ruled the contract did not contain
a stipulation
pour autrui on behalf of the doctors and the contract was between the Hospital and
SMAA. The doctors were allowed to proffer evidence regarding the intent
of the contracting parties. Judgment was signed granting the peremptory
exceptions of no right of action filed on behalf of the defendants, dismissing
the doctors’ claims with prejudice and casting them with all costs of
the proceedings. The doctors appealed.
The court of appeal found the contract as a whole clearly manifested an
express intent to benefit Dr. Joseph. Relying on the legal principles
that stipulations
pour autrui are favored and can be made for an undetermined person, the court found
the contract also manifested an intent to benefit Dr. Brumfield. The court
of appeal reversed the judgment of the trial court.
Joseph v. Hospital Service District No. 2 of the Parish of St. Mary,04-0781 (La.App. 1 Cir. 8/3/05), 923 So.2d 27.
**4 The court of appeal agreed that the contractual obligations of the parties
are clear and unambiguous. Thus, the question to be resolved is whether
the contract clearly manifested an intent to stipulate a benefit for a
third person. The court of appeal rejected the hospital’s argument that
the stipulation itself must be in writing to be valid and questioned the
validity of the statement in
Fontenot v. Marquette Casualty Co.,258 La. 671, 247 So.2d 572 (1971), requiring a stipulation
pour autrui to be in writing. The focus of the court’s concern involved the following
statement in
Fontenot: “In Louisiana contracts for the benefit of others, or the stipulation
pour autrui, must be in writing and clearly express that intent.”
Fontenot, 247 So.2d at 579. The
Fontenot court cited former Civil Code articles 1890 and 1902 as authority for
the statement.FN3
FN3. The substance of these articles was reproduced in LSA-C.C. art. 1978
when the Civil Code was amended in 1984. 1984 La. Acts No. 331 §
1, effective Jan. 1, 1985.
Defendants, National Union Fire Insurance Company of Louisiana and Hospital
*1210 Service District No. 2 of the Parish of St. Mary, applied for writ of
certiorari which this court granted.
Joseph v. Hospital Service District No. 2 of the Parish of St. Mary,05-2364, 05-2427 (La.4/24/06), 926 So.2d 527.
DISCUSSION
[1][2] An exception of no right of action is a threshold procedural device
used to terminate a suit brought by a person who has no legally recognized
right to enforce the right asserted. Unless otherwise provided by law,
an action can only be brought by a person having a real and actual interest
in the matter asserted. LSA-C.C.P. art. 681. An exception of no right
of action is a peremptory exception designed to test whether plaintiff
has a real and actual interest in the action. LSA-C.C.P. art. 927(A)(5).
The function of the exception is to determine whether plaintiff belongs
**5 to the class of persons to whom the law grants the cause of action asserted.
Industrial Companies, Inc. v. Durbin,02-0665, p. 11 (La.1/28/03), 837 So.2d 1207, 1216;Louisiana Paddlewheels v. Louisiana Riverboat Gaming Commission,94-2015, p. 4 (La.11/30/94), 646 So.2d 885, 888. Evidence is admissible
on the trial of the exception of no right of action to support or controvert
any of the objections pleaded. LSA-C.C.P. art. 931.
Collectively, the defendants contend the claims set forth in this case
belong to SMAA, not the doctors/employees, thus the exception of no right
of action is proper. Defendants also argue the decision of the court of
appeal conflicts with this court’s decision in Fontenot, as well as decisions
from other appellate courts and should be overturned. They claim the stipulation
pour autrui must be in writing and, thus an oral stipulation
pour autrui is unenforceable.
[3][4] It is plaintiffs’ position that the court of appeal was correct
in its interpretation of the
Fontenot decision.
Fontenot involved a reinsuring agreement
FN4 which is statutorily required to be in writing. Plaintiffs assert the
statement in
Fontenot requiring a stipulation
pour autrui to be in writing is merely dicta. In this case, plaintiffs argue the benefits
they were to receive were clearly contemplated by the parties to the contract
and were not merely incidental. They assert the court of appeal decision
is correct and should be affirmed.
FN4. Reinsurance is a contract by which one insurance company agrees to
indemnify another in whole or in part against loss or liability which
the latter has incurred under a separate contract as insurer of a third party.
Fontenot, 247 So.2d at 575. Reinsurance indemnifies the insurer for a loss which
is actually sustained. In
Fontenot, an insured of one insurance company filed suit claiming the contract
of reinsurance between his insurer and another company contained a stipulation
pour autrui inuring to his benefit. The court held the contract was governed by the
insurance code and the contract of reinsurance did not create any right
of action in third parties directly against the reinsurer.
Fontenot, 247 So.2d at 581.
**6 At the hearing on the exceptions, defendants introduced a copy of the
contract dated December 13, 1990. The contract, an anesthesia service
agreement, was executed by and between the Hospital and SMAA. Dr. Joseph
signed the contract on behalf of SMAA, but not in his individual capacity.
Dr. Brumfield is not mentioned in the contract. In the contract, SMAA
was referred to as the “Contractor.” The Hospital agreed to
retain the Contractor to exclusively provide anesthesia services. The
Hospital agreed to provide facilities, equipment, and supplies necessary
and proper for the administration of anesthesia to its patients. Additionally,
the Hospital agreed to recognize Dr. Joseph as a “medical specialist”
providing services on behalf of the Contractor. The Hospital also
*1211 agreed to recognize any employee of the Contractor (any duly licensed
and qualified physician trained in delivery of anesthesia services and
licensed to practice in Louisiana) as a “medical specialist”
on behalf of the Contractor, SMAA.
The contract further provided that the Contractor may from time to time
retain the services of other physician specialists who were to comply
with all of the terms and conditions of the agreement.
The contract specifically provided that the Contractor was an “independent
contractor” and clearly stated there was no intent to create an
employer/employee relationship, a joint venture relationship, or lease
or landlord/tenant relationship. The agreement was to be binding on the
Hospital and Contractors, their successors and assigns.
[5] Because the plaintiff doctors were not parties to the contract, they
can only avail themselves of the benefit of the Hospital/SMAA contract
if they are third party beneficiaries. LSA-C.C. art. 1978 provides:
**7 A contracting party may stipulate a benefit for a third person called
a third party beneficiary.
Once the third party has manifested his intention to avail himself of the
benefit, the parties may not dissolve the contract by mutual consent without
the beneficiary’s agreement.
The Revision Comments indicate this article reproduces the substance of
LSA-C.C. arts. 1890 and 1902 and the law was not changed. Under Louisiana
law, such a contract for the benefit of a third party is commonly referred
to as a “stipulation
pour autrui.”
FN5Paul v. Louisiana State Employees’ Group Benefit Program,99-0897, p. 5 (La.App. 1 Cir. 5/12/00), 762 So.2d 136, 140.
FN5. BLACK’S LAW DICTIONARY 1427 (7th ed.1999), refers to stipulation
pour autrui as a French civil law term meaning a stipulation “for other persons.”
Under Roman law, a stipulation for a third party was unenforceable, despite
the fact that the word “stipulation” comes from the Roman
stipulatio. Nevertheless, the French and Louisiana Codes set to rest any contention
that a third party could not recover on a contract merely because he was
not a party to the contract.
See discussion by Professor J. Denson Smith of the historical development
of this doctrine in his article
Third Party Beneficiaries in Louisiana: The Stipulation Pour Autrui at 11 Tul. L.Rev. 18, 18-28 (1936). Although the current Article 1978
had its underpinnings in the French Civil Code, the term “stipulation pour autrui ” was not employed in the Louisiana Civil Code. Professor Smith,
however, called the term a “well established part of our legal language.”
Smith, 11 Tul. L.Rev. at 23. The term remains a part of our legal language today.
There has been a codal provision in Louisiana recognizing a stipulation
for a third party since 1808.
SeeArticle 21 of the Louisiana Civil Code of 1808;
see alsoArt. 1890, La. C.C. Comp. Ed., in 16 West’s LSA-C.C. pp. 1076-1077 (1972).
**8 A true third party beneficiary is never a party to the contract in question;
he is never a promisee. Smith, 11 Tul. L.Rev. at 33. The promisee is the
stipulator and the promise runs to him and is merely in favor of the third party.
Id.
[6] The Louisiana Civil Code recognizes that a third party beneficiary
contract can exist, but provides few governing rules.
SeeLSA-C.C. arts. 1978-1982. The code provides no analytic framework for determining
whether a third party beneficiary contract exists. Professor Smith acknowledges
that a determination of the circumstances under which a stipulation
*1212pour autrui will exist is the “primary question” in any given case. Smith,
11 Tul. L.Rev. at 24. Thus, the code has left to the jurisprudence the
obligation to develop the analysis to determine when a third party beneficiary
contract exists on a case by case basis. Each contract must be evaluated
on its own terms and conditions in order to determine if the contract
stipulates a benefit for a third person.FN6
FN6. In
Andrepont v. Acadia Drilling Co.,255 La. 347, 231 So.2d 347 (1969), this court utilized the factors proposed
by Professor J. Denson Smith to be considered in deciding whether an advantage
for a third person has been provided by a contract between others. We
recognize Professor Smith’s test is an analytical tool to determine whether
a stipulation
pour autrui has been established-not a definitive analysis.
In a study of the history, legislation, and jurisprudence which formed
the doctrine of stipulations in favor of third persons, Professor Smith
enumerated the following factors as being important in deciding whether
the contract provides a benefit for a third person:
(1) The existence of a legal relationship between the promisee and the
third person involving an obligation owed by the promisee to the beneficiary
which performance of the promise will discharge; (2) the existence of
a factual relationship between the promisee and the third person, where
(a) there is a possibility of future liability either personal or real
on the part of the promisee to the beneficiary against which performance
of the promisee [sic] will protect the former; (b) securing an advantage
for the third person may beneficially affect the promisee in a material
way; (c) there are ties of kinship or other circumstances indicating that
a benefit by way of gratuity was intended. See Smith, Third Party Beneficiaries
in Louisiana: The Stipulation Pour Autrui, 11 Tul.L.Rev. 18, 58 (1936).
Andrepont, 231 So.2d at 350-351.
[7] Our study of the jurisprudence has revealed three criteria for determining
whether contracting parties have provided a benefit for a third party: 1) the
**9 stipulation for a third party is manifestly clear; 2) there is certainty
as to the benefit provided the third party; and 3) the benefit is not
a mere incident of the contract between the promisor and the promisee.
In applying these criteria, we ultimately rely on the words of Article
1978 that the contract must “stipulate a benefit for a third person.”
[8][9][10] The most basic requirement of a stipulation
pour autrui is that the contract manifest a clear intention to benefit the third party;
absent such a clear manifestation, a party claiming to be a third party
beneficiary cannot meet his burden of proof.
Paul, 99-0897 at 7-8, 762 So.2d at 141-142;see also,Doucet v. National Maintenance Corporation,01-1100, pp. 6-7 (La.App. 1 Cir. 6/21/02), 822 So.2d 60, 66. A stipulation
pour autrui is never presumed. The party claiming the benefit bears the burden of proof.
SeeLSA-C.C. art. 1831;
FN7see alsoPaul, 99-0897 at 5, 762 So.2d at 140.
FN7.LSA-C.C. art. 1831 provides, in part:
A party who demands performance of an obligation must prove the existence
of the contract.
The second factor, certainty as to the benefit provided, is a corollary
of the requirement of a manifestly clear stipulation. “To create
a legal obligation enforceable by the beneficiary there must be certainty
as to the benefit to accrue to the beneficiary.”
Berry v. Berry,371 So.2d 1346, 1347 (La.App. 1 Cir.),
writ denied,373 So.2d 511 (1979).
In connection with the third requirement that the benefit cannot be a mere
incident of the contract, we find pertinent the discussion of “incidental
benefits” by Professor Smith, 11 Tul. L.Rev. at 28: “[N]ot
every promise, performance of which may be advantageous to a third person,
will create in him an actionable right. The
**10 problem is to separate the cases where an advantage has been stipulated
from those where the advantage relied*1213 upon is merely an incident of the contract between the parties.”
Illustrative is
City of Shreveport v. Gulf Oil Corporation,431 F.Supp. 1 (W.D.La.1975),
aff’d,551 F.2d 93 (5th Cir.1977). The city brought an action against the oil
company alleging that the oil company failed to provide over 670,000 gallons
of gasoline to the city pursuant to a contract existing between the oil
company and the State of Louisiana, thereby damaging the city. The court
found the oil company/state contract provided “some benefit”
to the city: in a time of serious inflation and energy shortage, Shreveport
could purchase its fuel needs at a modest cost when compared to the market
price. However, “[t]he contract was not made to obtain discharge
of any legal obligation owed by the State to Shreveport…. Furthermore,
the advantage which would accrue to the City would not beneficially affect
the State.” Thus, the advantage to the city was “an easily
seen … incidental benefit to the City”(Id. at 1210), which did not support a finding of third party beneficiary.
In
Allen & Currey Mfg. Co. v. Shreveport Waterworks Co.,113 La. 1091, 37 So. 980 (1905), a water company entered into a contract
with the city to furnish water and maintain hydrants in good repair. The
plaintiff sued the water company for damages sustained as a result of
the loss of its building due to fire because of an alleged breach of the
water company’s obligation to maintain the hydrants. The supreme court
held that the plaintiff had no right of action. The contract was between
the city and the water company. The plaintiff, as an inhabitant of the
city, was an
**11 incidental beneficiary
FN8 and as such had no right of action.
See discussion in Smith, 11 Tul. L.Rev. at 50.
FN8. The Restatement of the Law of Contracts distinguishes intended beneficiaries
who have legal rights from incidental beneficiaries who have no legal
rights to enforce the contract. Restatement (Second) of Contracts, Introductory
Note to Chapter 14 at 439 and § 302 (1979).
[11] In this matter, the court of appeal found administration of anesthesia
service to the hospital’s patients was the object of the contract and
concluded that SMAA, as a juridical person only,FN9 was incapable of rendering such service. The court of appeal noted there
was no allegation of breach of fiduciary trust and the damages alleged
were personal to the doctors. The court of appeal found the contract clearly
manifested an express intent to benefit Dr. Joseph and also manifested
an intent to benefit Dr. Brumfield.
FN9. In a footnote the court noted the fact that SMAA was a corporation
was not relevant to a decision in this matter.
We disagree. Following a thorough review of the provisions of the contract,
we also conclude the contract is unambiguous. However, we find there are
no provisions included in the contract which establish a stipulation for
the doctors in a manifestly clear manner. We find no certainty as to the
benefit provided the doctors. We find any benefit to the doctors a mere
incident of the contract between the Hospital and SMAA.FN10
FN10. We note one exception which is not at issue in this litigation. The
contract does contain a stipulation
pour autrui in the section of the contract addressing recruitment. The Hospital agreed
to pay relocation costs incurred by a second physician specialist moving
to Morgan City. Thus, although the contract did provide a stipulation
pour autrui for the benefit of a doctor to be recruited by SMAA in the form of reimbursement
of relocation costs, that benefit was manifestly clear, and outlined in
the recruitment provision of the contract addressing relocation costs.
The contract could have included additional benefits to inure to the doctors;
however, it did not do so in a manifestly clear manner. Nevertheless,
after a review of the record and as acknowledged at oral argument, that
provision is not at issue.
*1214 Ultimately, we find there is no benefit in the contract flowing directly
to the doctors such that a benefit was stipulated in their favor. While
the contract imposed
**12 certain obligations on the doctors regarding their qualifications, there
was no benefit provided in the contract directly to the doctors that they
could demand from the Hospital. The doctors were not to be paid by the
Hospital. The doctors were not hired by the Hospital. The doctors had
no right to demand employment by the Hospital. In fact, the contract specifically
provided there was no intent to create an employer/employee relationship
between the parties. Based on our review of the contract, there is no
obligation owed by the Hospital to the individual doctors which will be
discharged by performance of the contract because the contract provides
no direct benefit to the doctors.
[12] While the doctors can perform the services to satisfy the contractual
obligations of the corporation, there are no direct benefits flowing to
the plaintiff doctors. Simply stated, in the absence of a direct benefit
conferred by the contract, the doctors cannot be third party beneficiaries
pursuant to LSA-C.C. art. 1978.
[13] A person may derive a benefit from a contract to which he is not a
party without being a third party beneficiary. In this case, any benefit
created by the contract in favor of the doctors was only incidental to
their employment with SMAA.
The doctors contend that they benefitted from the contract because the
Hospital granted them the exclusive right to provide anesthesiology services.
However, a review of the contract establishes it is SMAA as the Contractor
which is granted the exclusive right to provide anesthesia services. The
contract provides: “HOSPITAL hereby EXCLUSIVELY retains CONTRACTOR,
and CONTRACTOR hereby accepts such retention, to make available anesthesia
services and to provide such other services in accordance with this agreement.”
Thus, SMAA is specifically and clearly granted the exclusive right to
provide anesthesia services. Additionally, the contract provides SMAA
can “from time to time retain the services of other physician
**13 SPECIALISTS,” further indicating it is not the plaintiff doctors
which have exclusivity, but rather SMAA. Based on this clause, physicians
other than the plaintiff doctors could provide services on behalf of SMAA.
As such, the contract does not provide the plaintiff doctors the exclusive
right to provide anesthesia services at the hospital.
The contract goes on to recognize, not only Dr. Joseph, but any employee
of SMAA as a medical specialist for the purpose of providing anesthesia
services. However, that recognition merely establishes how the obligations
of the contract are to be discharged by SMAA and does not, in a manifestly
clear fashion, confer a benefit on the doctors as third parties. The doctors
further contend they were afforded exclusivity because the contract would
be terminated if, among other reasons, Dr. Joseph’s license to practice
medicine were suspended, revoked, or terminated. However, the termination
provision does not confer a benefit. Rather, this provision merely recognizes
conditions which serve to terminate the contract. Regardless, the language
from the contract, quoted above, establishes that the exclusivity provision
of the contract is in favor of SMAA and not the individual doctors.
[14][15] Not every breach of a contract with a corporation provides a cause
of action to the employees or shareholders of
*1215 that corporation. In essence, the court of appeal decision created an
implied right of action for employees of juridical entities to contest
any contract between the employing corporation and another entity if any
benefit flowed to the employee. In
Scaffidi and Chetta Entertainment v. University of New Orleans Foundation,04-1046 (La.App. 5 Cir. 2/15/05), 898 So.2d 491,writ denied,05-0748 (La.5/6/05), 901 So.2d 1102, Scaffidi and Chetta established a
corporation which entered into a contract with the University of New
**14 Orleans Foundation. The court denied the personal claims of shareholders
Scaffidi and Chetta finding they were not third party beneficiaries of
the contract. The court further found the cause of action belonged solely
to the corporation.FN11 This decision reflects an appropriate reluctance to find a stipulation
pour autrui in favor of each shareholder or officer or employee of a juridical person.
Once established, the separate nature of the corporate existence must
be respected.
FN11.See also Joe Conte Toyota, Inc. v. Toyota Motor Sales, U.S.A., Inc.,95-1630, (La.App. 4 Cir. 2/12/97) 689 So.2d 650,writ denied,97-0659 (La.4/25/97) 692 So.2d 1090, where the court affirmed the trial
court judgment granting an exception of no right of action ruling that
shareholders and officers of a corporation and a guarantor of corporate
obligations had no right to recover for acts committed against or causing
damage to a corporation. Only the corporation can sue for breach of a
contract to which the corporation is a party.
The doctors urge us to ignore the corporate status of SMAA because a medical
corporation can only act through a physician. We refuse to do so. As a
legal fiction, all corporations act through individuals. Dr. Joseph chose
to establish a medical corporation. This separate juridical entity cannot
be disregarded.
SeeLSA-C.C. art. 24.FN12 The breach of contract claim is a claim to be asserted by the corporation,
not the employees, officers or shareholders of the corporation.
FN12.LSA-C.C. art. 24 provides:
There are two kinds of persons: natural persons and juridical persons.
A natural person is a human being. A juridical person is an entity to which
the law attributes personality, such as a corporation or a partnership.
The personality of a juridical person is distinct from that of its members.
[16] Finally, we agree that the court of appeal was correct to question
the requirement of a writing to establish a stipulation
pour autrui. The statement in
Fontenot indicating that contracts for the benefit of others must be in writing
was dicta. The
Fontenot court cited former Civil Code articles 1890 and 1902 for that proposition.
Review of the former articles, as well as current articles related to a third
**15 party beneficiary contract (SeeArticles 1978-1982), indicates there is no statutory requirement that the
stipulation
pour autrui be in writing.FN13
FN13. There is no general requirement that stipulations
pour autrui be in writing. However, if the contract must be in writing (See e.g.,LSA-C.C. arts. 1536 and 2440.
See alsoLSA-C.C. art.1832.), then the stipulation
pour autrui must also be in writing.
We note the statement in
Fontenot that a stipulation
pour autrui must be in writing was criticized by Judge Covington in his dissent in
Berry, 371 So.2d at 1352-1353, and in Katherine Shaw Spaht & H. Alston Johnson, III,
The Work of the Appellate Courts for the 1975-1976 Term-Obligations, 37 La. L.Rev. 332, 346-347 (1977), which he cited.
[17] Although the appellate court correctly found it unnecessary for a
stipulation
pour autrui to be in writing, these parties contracted that their entire agreement
must be in writing. The contract provides: “This Agreement contains
the entire understanding of the parties and shall be modified only by
an instrument in writing signed on behalf of each party
*1216 hereto.” Thus, these parties contractually limited themselves to
a written contract.
CONCLUSION
For the foregoing reasons, the decision of the court of appeal is reversed
and the judgment rendered by the district court granting defendants exceptions
of no right of action is reinstated.
REVERSED. JUDGMENT GRANTING EXCEPTION REINSTATED.
JOHNSON, J., concurs in result.
La.,2006.
Joseph v. Hospital Service Dist. No. 2 of Parish of St. Mary
939 So.2d 1206, 2005-2364 (La. 10/15/06)
END OF DOCUMENT
