Phila. Indem. Ins. Co. v. White

• Citation: 490 S.W.3d 468
• Decision Date: 13 May 2016
• Docket Number: No. 14–0086,14–0086
• Parties: Philadelphia Indemnity Insurance Company, a/s/o Mirsan, L.P., d/b/a Sienna Ridge Apartments, Petitioner, v. Carmen A. White, Respondent
• Court: Supreme Court of Texas

490 S.W.3d 468

Philadelphia Indemnity Insurance Company, a/s/o Mirsan, L.P., d/b/a Sienna Ridge Apartments, Petitioner,

v.Carmen A. White, Respondent

No. 14–0086

Supreme Court of Texas.

Argued October 13, 2015

Opinion delivered: May 13, 2016

James Alan Hemphill, Graves Dougherty Hearon & Moody PC, Austin, TX, Paul Vigushin, Law Offices of Paul Vigushin, P.C., Richardson, TX, for Petitioner.

Jean Ann Kelly, Sherry G. Rasmus, The Rasmus Firm, Austin TX, for Respondent.

Charles (Chad) E. Baruch, Johnston Tobey Baruch, Dallas TX, for Amicus Curiae SMU Dedman School of Law Civil Legal Clinic.

John Sepehri, Texas Apartment Assocation, Austin TX, for Amicus Curiae Texas Apartment Association.

J. Lee Baldwin, Dallas TX, for Amicus Curiae Texas Tenants' Union.

JUSTICE GUZMAN

delivered the opinion of the Court, in which CHIEF JUSTICE HECHT, JUSTICE GREEN, JUSTICE JOHNSON, and JUSTICE BROWN joined.

Texas's strong public policy favoring freedom of contract is firmly embedded in our jurisprudence. Absent compelling reasons, courts must respect and enforce the terms of a contract the parties have freely and voluntarily entered. See, e.g., Royston, Rayzor, Vickery, & Williams, LLP v. Lopez, 467 S.W.3d 494, 503–04 (Tex.2015)

; Fairfield Ins. Co. v. Stephens Martin Paving, LP, 246 S.W.3d 653, 664 (Tex.2008) ; Wood Motor Co. v. Nebel, 150 Tex. 86, 238 S.W.2d 181, 185 (1951). In the residential-leasing context, privilege of contract is circumscribed by statute, but the restraint the Legislature chose is limited and exceptions exist. See Tex. Prop. Code §§ 92.006, .052; Churchill Forge, Inc. v. Brown, 61 S.W.3d 368, 370, 373 (Tex.2001) (observing that the Texas Property Code restricts freedom of contract in residential tenancies). Today, we determine, as a matter of first impression, whether public policy embodied in the Texas Property Code precludes enforcement of a residential-lease provision imposing liability on a tenant for property losses resulting from “any other cause not due to [the landlord's] negligence or fault.”

At issue here is a tenant's responsibility for property damage sustained in a fire that originated in a tenant-owned clothes dryer stuffed with dry, unwashed bedding and pillows. A jury failed to find the tenant negligent in causing the fire, but held the tenant contractually liable for the loss under the terms of the lease agreement. The tenant filed a motion for judgment notwithstanding the verdict, asserting several grounds for avoiding enforcement of the contract. The trial court granted the tenant's motion without stating the basis and rendered a take-nothing judgment. In a split decision, the court of appeals affirmed, concluding the lease provision broadly and unambiguously shifts liability for repairs beyond legislatively authorized bounds and is, therefore, void and unenforceable. 421 S.W.3d 252, 256, 258 (Tex.App.–San Antonio 2013)

.

Though we agree the lease language does not expressly incorporate statutory carve-outs, we cannot say the contract is unenforceable on public-policy grounds because (1) the disputed lease provision can be enforced without contravening the Property Code and (2) the record here does not conclusively establish the factual predicate necessary to preclude its enforcement. We therefore affirm the court of appeals' judgment as to ambiguity, but reverse in part and render judgment that, on the record before the Court, the lease provision is not void and unenforceable. Because the court of appeals did not address the tenant's other defenses to enforcement, we remand the case to that court for further proceedings.

I. FACTUAL AND PROCEDURAL BACKGROUND

Carmen White executed a Texas Apartment Association (TAA) form lease in which she agreed to reimburse her landlord for all property losses not resulting from the landlord's negligence or fault (the Reimbursement Provision). Section 12 of the lease provides, in pertinent part:

DAMAGES AND REIMBURSEMENT. You must promptly pay or reimburse us for loss, damage, consequential damages, government fines or charges, or cost of repairs or service in the apartment community due to: a violation of the Lease Contract or rules; improper use; negligence; other conduct by you or your invitees, guests or occupants; or any other cause not due to [the landlord's] negligence or fault. You will indemnify and hold us harmless from all liability arising from the conduct of you, your invitees, guests, or occupants, or our representatives who perform at your request services not contemplated in this Lease Contract. Unless the damage or wastewater stoppage is due to our negligence, we're not liable for–and you must pay for–repairs, replacements and damage to the following if occurring during the Lease Contract term or renewal period: (1) damage to doors, windows, or screens; (2) damage from windows or doors left open; and (3) damage from wastewater stoppages caused by improper objects in lines exclusively serving your apartment.

(First emphasis added.)

Shortly after White moved into her apartment, she received a new washer and dryer as a gift from her parents. She successfully connected the washer, but abandoned her efforts to install the dryer because the cord sparked and the circuit breaker tripped when she attempted to plug it into the receptacle. At White's request, an apartment-complex employee later connected the dryer to the unit's pre-existing utility connections via a cord White supplied.

Within days of the dryer's installation, White's apartment and several adjoining units were severely damaged in a fire that originated in her apartment. White first detected the fire in the clothes dryer, which she had been using to remove allergens from dry and unwashed items, including a duvet, sheets, a blanket, decorative pillows, and a bed pillow. Though the fire started in the dryer drum, the source of ignition is unknown. White was unable to extinguish the fire, and the ensuing casualty loss exceeded $83,000.

Philadelphia Indemnity Insurance Co. paid the landlord's insurance claim and demanded reimbursement from White. White failed to remit payment, and Philadelphia Indemnity sued her for negligence and breach of contract for noncompliance with the Reimbursement Provision.

At trial, mechanical and electrical malfunction of the dryer, cords, power outlet, and circuit breaker were excluded as causes by a testifying expert. But the parties disputed whether some of the items placed in the dryer contained materials not suitable for mechanical drying, and a chemist testified that a sample of the dryer contents “consisted of cotton fibers, [was] negative for ignitable liquids, and contain[ed] 0.1 percent hexane extractible material by weight and contain[ed] the residue of a vegetable oil.” The dryer's instruction manual warns: “Do not place items exposed to cooking oils in your dryer. Items contaminated with cooking oils may contribute to a chemical reaction that could cause a clothes load to catch fire.”

Following the close of evidence, the following broad-form liability questions were submitted in the jury charge:

Question No. 1: Did the negligence, if any, of [White] proximately cause damages to the Sienna Ridge Apartments.

Question No. 2: Did [White] violate the terms of the Apartment Lease Contract....

Neither party requested a question to determine the fire's cause or whether it was attributable to non-negligent conduct on White's part.

The jury answered “no” to the first question, failing to find that White's negligence proximately caused the fire. In answering “yes” to the second question, the jury found White breached the lease agreement by failing to pay for the casualty loss and, in doing so, necessarily found the landlord did not negligently cause the fire. Based on the affirmative finding that White breached the lease agreement, the jury awarded $93,498 in actual damages and attorney's fees to Philadelphia Indemnity.

White moved for judgment notwithstanding the verdict, asserting a variety of grounds for avoiding enforcement of the Reimbursement Provision, including ambiguity and public policy.¹ The trial court granted the motion without specifying the grounds and rendered a take-nothing judgment.

A divided court of appeals affirmed, rejecting White's ambiguity defense, but holding the Reimbursement Provision void as against public policy. 421 S.W.3d at 256, 258

. In declining to enforce the parties' bargain, the majority found a fatal conflict between the Reimbursement Provision's broad language and Property Code provisions delineating particular circumstances under which landlords owning more than one rental dwelling and their tenants may contractually allocate repair responsibilities. See

id. at 257–58 (citing Tex. Prop. Code §§ 92.006, 92.052(b) and Churchill Forge, 61 S.W.3d at 370–73 ). The court declared the Reimbursement Provision void because it plainly “makes a tenant liable for damage to the entire apartment complex for accidental losses, acts of God, criminal acts of another, or any other act of someone or something unassociated with the tenant or [landlord],” id. at 256, whereas the Property Code prohibits landlords from waiving their repair duties under subchapter B, which covers conditions materially affecting the physical health or safety of the ordinary tenant, except for:

(1) conditions caused by the tenant or an affiliated party;²

(2) three specific categories of repairs set forth in section 92.006(f)

, subject to specificity, conspicuity, and other prerequisites; and

(3) any condition covered by subchapter B if the landlord owns only one rental dwelling at the beginning of the lease term and specificity, conspicuity, and other prerequisites are satisfied.

Id. at 258 & n. 3

(citing Tex. Prop. Code §§ 92.006(c) -(f), .052(b) and Churchill Forge, 61 S.W.3d at 373 ). Because the third category is inapplicable to the present dispute, the court of appeals observed that the Legislature has not sanctioned “the imposition of contractual liability on a tenant for...