JAMES B. THORSEN, ET AL.
RICHMOND SOCIETY FOR THE PREVENTION OF CRUELTY TO ANIMALS
FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND Paul M. Peatross, Judge Designate
PRESENT: Lemons, C.J., Goodwyn, McClanahan, Powell, and Kelsey, JJ., and Russell and Millette, S.JJ.
LEROY F. MILLETTE, JR. SENIOR JUSTICE
This appeal concerns whether an intended third-party beneficiary of a will contract, who failed to successfully take under the will instrument due to the drafting attorney's error, may sue the attorney for malpractice.
I. FACTS AND PROCEEDINGS
In 2003, Alice Louise Cralle Dumville, then a resident of Chesterfield County, met with James B. Thorsen, an attorney, at his office in Richmond, Virginia, in order to prepare her last will and testament. At the end of the initial meeting, Thorsen understood that Dumville wanted him to prepare a will that would, upon her death, convey all of her property to her mother if her mother survived her, and, in the event her mother predeceased her, to the Richmond Society for the Prevention of Cruelty to Animals ("RSPCA"). At the time, Dumville was forty-three and her mother was in her late seventies or early eighties. Dumville lived with three cats, which she desired to go to the RSPCA upon her death.
Thorsen prepared the will. At no time in the preparation of the will did Thorsen provide any tax advice, such as attempting to minimize tax burdens on the estate. On April 16, 2003, Thorsen wrote a letter to Dumville informing her of the completion of her will, and Dumville executed the will as drafted by Thorsen.
Dumville died on May 16, 2008, her mother having predeceased her. Thorsen, in his capacity as co-executor of the estate, notified the RSPCA that it was the sole beneficiary of Dumville's estate. Thorsen was subsequently informed that, in the opinion of the title insurance company, the will left only the tangible estate, not real estate, to the RSPCA.
Thorsen brought suit in a collateral proceeding to correct this "scrivener's error" based on Dumville's clear original intent. The Circuit Court of Chesterfield County, however, found the language unambiguously limited the bequest to the RSPCA to tangible personal property, while the intangible estate passed intestate to Dumville's heirs at law, Helen Boyle and Kathleen Davis. Thorsen v. Boyle, Rec. No. CL09-718 (April 9, 2010) (unpublished).
On April 14, 2011, the RSPCA brought suit against James B. Thorsen, Thorsen & Scher, LLP, and James B. Thorsen, P.C. (collectively, "Thorsen") for breach of contract-professional negligence, as a third-party beneficiary of the contract between Thorsen and Dumville. Thorsen demurred, arguing, among other things, that: (1) the RSPCA was not an intended third-party beneficiary of the contract and Thorsen undertook no obligation on its behalf, and so he could not be liable to the RSPCA; and (2) in the Commonwealth, an action by a third-party beneficiary arises under Code § 55-22 and requires a written agreement. Additionally, Thorsen filed a plea in bar premised on the statute of limitations. The circuit court overruled the demurrer and denied the plea in bar.
At trial, the parties stipulated that Thorsen, as Dumville's attorney, had a duty to incorporate her intent into her will accurately and that he did not accurately incorporate her intent as to the disposition of real property to the RSPCA. The RSPCA received $72, 015.60 from the tangible estate, but the ultimate bequest, less expenses, would have totaled $675, 425.50 absent the error.
The circuit court admitted Thorsen's testimony from the previous collateral proceedings regarding his understanding of Dumville's intent. After considering both this evidence and trial testimony, the court found for the RSPCA. The final order incorporated the proposed findings of fact and conclusions of law offered by the RSPCA and found damages for the RSPCA in the amount of $603, 409.90. Thorsen now appeals.
A. Requirement of a Written Contract
Thorsen assigns error to the circuit court's "ruling that Virginia Code § 55-22 applied to the oral contract between Alice Louise Cralle Dumville and James B. Thorsen." We agree with Thorsen that Code § 55-22 does not apply to the oral contract between Dumville and Thorsen. However, we do not agree that this is fatal to the RSPCA's claim.
This issue of statutory interpretation presents a pure question of law which we review de novo. Conyers v. Martial Arts World of Richmond, Inc., 273 Va. 96, 104, 639 S.E.2d 174, 178 (2007). "When the language of a statute is unambiguous, we are bound by the plain meaning of that language. Furthermore, we must give effect to the legislature's intention as expressed by the language used unless a literal interpretation of the language would result in a manifest absurdity." Id. (internal citations omitted).
Code § 55-22 states:
An immediate estate or interest in or the benefit of a condition respecting any estate may be taken by a person under an instrument, although he be not a party thereto; and if a covenant or promise be made for the benefit, in whole or in part, of a person with whom it is not made, or with whom it is made jointly with others, such person, whether named in the instrument or not, may maintain in his own name any action thereon which he might maintain in case it had been made with him only and the consideration had moved from him to the party making such covenant or promise.
Thorsen argues that the language of Code § 55-22 refers to the third-party beneficiary of an "instrument." An instrument is a "written legal document that defines rights, duties, entitlements, or liabilities, such as a statute, contract, will, promissory note, or share certificate." Black's Law Dictionary 918 (10th ed. 2014) (emphasis added). Thorsen therefore contends that, under the plain language of the statute, the oral nature of the contract in question is fatal to the RSPCA's cause of action, and the RSPCA has no recourse.
The parties do not dispute, nor can they in good faith, that the plain meaning of the term "instrument" as employed in this statute refers to a written document. Because the benefit to the third-party referred to in the first phrase of the statute derives from an "instrument, " Code § 55-22 must refer to a benefit from a written document. This interpretation is bolstered by the second half of the statute: although the term "covenant or promise" is not preceded by a modifier specifying "written, " it is nonetheless closely followed by reference to "the instrument" (emphasis added). The definite article makes clear that the source of the benefit referred to in this statute must be a written agreement or other benefit that is memorialized in a written document.
While we agree with Thorsen's construction of the statute, we cannot agree that this statute abrogates the common law so as to prohibit the ability of third-party beneficiaries to sue upon oral contracts. We have previously noted:
At common law,
the general rule was that, whether the contract was express or implied, by parol or under seal, or of record, the action must be brought in the name of the party in whom the legal interest was vested, and that this legal interest was vested in the person to whom the promise was made, and consequently that he or his privy was the only person who could sue in a court of law upon such contract.
Thacker v. Hubard, 122 Va. 379, 387, 94 S.E. 929, 931 (1918); accord, Cemetery Cons[ultants] v. Tidewater Fun. Dir., 219 Va. 1001, 1003, 254 S.E.2d 61, 62 (1979). However, "in contracts not under seal, it has been held, for two centuries or more, that any one for whose benefit the contract was made may sue upon it." Thacker, 122 Va. at 387, 94 S.E. at 931 (emphasis in original).
Ward v. Ernst & Young, 246 Va. 317, 329, 435 S.E.2d 628, 634 (1993). Oral contracts are not under seal, and the Court has never held, in the centuries prior to Thacker or the century since, that the oral nature of a contract limits a third-party beneficiary's ability to sue upon it.
Code § 55-22 is silent as to oral contracts. By its plain terms, it applies only to written contracts. Its enactment therefore does not affect the ability of a third-party beneficiary to bring a common law action based on an oral contract made for his or her benefit, which remains intact.
Additionally, "statutes are not to be considered as isolated fragments of law, but as a whole, or as parts of a great connected, homogenous system, or a single and complete statutory arrangement." Prillaman v. Commonwealth, 199 Va. 401, 405, 100 S.E.2d 4, 7 (1957) (quoting 50 Am. Jur. Statutes § 349). Code § 11-2, entitled "When written evidence required to maintain action, " more commonly known as the Statute of Frauds, sets forth limitations on oral contracts under some circumstances. A third-party beneficiary cannot sue upon an oral promise to answer for his or her debt, for example. Code § 11-2(4). However, there is no prohibition in Code § 11-2 on the ability of third-party beneficiaries to sue upon oral contracts generally. To so hold would be to judicially amend the Statute of Frauds, an action we decline to take.
Neither the complaint in this case nor the final order invoke or rely on Code § 55-22. This issue is raised only on demurrer by Thorsen, who sought to apply Code § 55-22 due to his belief that it prohibited oral contracts and no common law cause of action existed.
Because the RSPCA had the authority to proceed under common law as a third-party beneficiary of an oral contract, and the circuit court had the authority to enter judgment accordingly, and nothing in the pleadings frustrates this authority, we therefore conclude that the demurrer was properly overruled and proceed to the next assignment of error.
Thorsen next assigns error to the circuit court's holding that the RSPCA has standing to sue for breach of contract while not party to the attorney-client relationship. Standing is a question of law which we review de novo. Kelley v. Stamos, 285 Va. 68, 73, 737 S.E.2d 218, 220 (2013).
This assignment of error requires us to consider two legal components: first, whether Virginia recognizes a cause of action for breach of contract against attorneys by third-party testamentary beneficiaries, and, if so, whether the RSPCA's pleadings were sufficient to accord it standing as a third-party beneficiary of the attorney-client contract.
1. The Cause of Action
While, as a general rule, strangers to a contract acquire no rights under such contract, third-party beneficiary contracts represent a well-recognized exception in our law under which a nonparty can nevertheless enforce the contract under certain circumstances. 13 Williston on Contracts § 37:1, at 14-15 (Richard A. Lord ed., 4th ed. 1990 & 2013 rev.); see supra Part II.A. A primary rationale for supporting third-party beneficiary claims was that donee contracts, of which testamentary instruments are one example, otherwise could rarely be enforced, as the promisee could recover only nominal damages upon nonperformance: "The party to the contract would have no action for its breach except nominal damages since he was not the one who suffered by the promisor's default. If the beneficiary could not sue there could be no adequate recovery even though the breach was established." Isbrandtsen Co. v. Local 1291 of Int'l Longshoremen's Ass'n, 204 F.2d 495, 497 (3d Cir. 1953). Thus, "through this travail . . . the common law has given birth to a distinct, new principle of law which takes its own place in the family of legal principles, and gives not only to a donee beneficiary, but also to a creditor beneficiary, the right to enforce directly the promise from which he derives his interest." Id. (quoting 2 Williston on Contracts § 357 (rev. ed. ...