## Facts

- Basic Capital Management, Inc. managed American Realty Trust, Inc. (ART) and Transcontinental Realty Investors, Inc. (TCI), which acquired real estate through single-asset, bankruptcy-remote entities (SABREs).
- Dynex Commercial, Inc. was a real-estate lender; Dynex Capital, Inc. was its parent.
- Dynex agreed to fund approximately $37 million in loans to three TCI-owned SABREs for New Orleans properties.
- Separately, Dynex issued a two-year “Commitment” to provide up to $160 million of financing for future real estate investments to be held in SABREs that would be formed as opportunities arose.
- Basic agreed to propose additional ART- and TCI-owned SABRE borrowers to use the Commitment up to the $160 million cap during the commitment period.
- Dynex funded the initial New Orleans loans but later refused further advances and declined to fund additional loans under the $160 million Commitment after interest rates increased.
- Plaintiffs alleged Dynex’s refusal breached the Commitment and related loan arrangements and caused lost profits from unrealized real-estate transactions.
- A jury found for plaintiffs and awarded damages, including lost profits to Basic as consequential damages.
- The trial court granted judgment notwithstanding the verdict (JNOV) for Dynex, setting aside the jury’s verdict; the court of appeals affirmed, rejecting third-party beneficiary status and foreseeability of lost-profit damages.

## Issues

1. Whether ART and TCI, as corporate owners of the contemplated SABRE borrowers, were intended direct third-party beneficiaries of Dynex’s $160 million lending Commitment.
2. Whether Basic’s claimed lost profits from unrealized transactions were foreseeable consequential damages recoverable for breach of the Commitment.

## Decision

- The Texas Supreme Court reversed the court of appeals’ judgment and remanded.
- The Court held ART and TCI were intended, direct third-party beneficiaries of the $160 million Commitment, even though the contemplated SABRE borrowers did not yet exist when the Commitment was made.
- The Court held Basic’s lost profits could qualify as foreseeable consequential damages of a breach of the Commitment.
- The case was remanded for consideration of unresolved matters, including challenges to the legal sufficiency of the evidence supporting the jury’s findings.

## Legal Principles

- In Texas, a nonparty may enforce a contract only if the contracting parties intended to confer a direct benefit on the nonparty; the intent must be clear from the agreement and relevant context.
- Third-party beneficiary status does not require the beneficiary to be expressly named if the contract’s structure and surrounding circumstances show the contract was made directly for that party’s benefit.
- The use of special-purpose entities as nominal borrowers does not bar third-party beneficiary rights for the sponsor/owner when the contract’s purpose is to finance the sponsor’s acquisitions through those entities.
- Consequential damages are recoverable for breach if foreseeable and within the parties’ contemplation at contracting; the inquiry turns on the contract’s nature, purpose, and what the breaching party knew or should have known.
- Lost profits may be foreseeable consequential damages when a financing commitment is intended to enable profitable transactions and the lender understands that the related parties’ earnings depend on the financing being available.

## Conclusion

The Texas Supreme Court held that ART and TCI could enforce Dynex’s lending Commitment as intended third-party beneficiaries and that Basic’s claimed lost profits were not categorically too remote because they could be foreseeable consequential damages given the Commitment’s purpose and the parties’ knowledge at the time of contracting.


Basic Capital Management, Inc. v. Dynex Commercial, Inc., 348 S.W.3d 894 (Tex. 2011)