Parkway Co. v. Woodruff

Decision Date21 July 1995
Docket NumberNo. D-4185,D-4185
Citation901 S.W.2d 434
CourtTexas Supreme Court
Parties38 Tex. Sup. Ct. J. 828 The PARKWAY COMPANY, Parkway Company of Texas, Inc. and Sugar Creek Corporation, Petitioners, v. Ray WOODRUFF and Constance Woodruff Presley, Mickelson & Klein, Inc., and Vansickle, Mickelson & Klein, Inc., Respondents.

Randall D. Wilkins, Edward J. Hennessy, Houston, for petitioners.

Amy Dunn Taylor, Linda Foreman Clark, Michael T. Powell, Houston, for respondents.

Justice CORNYN delivered the opinion of the Court, joined by Chief Justice PHILLIPS, Justice GONZALEZ, Justice HIGHTOWER, Justice HECHT, Justice ENOCH, Justice SPECTOR and Justice OWEN.

We decide in this case whether a real estate development company violated the Texas Deceptive Trade Practices--Consumer Protection Act (DTPA), TEX.BUS. & COM.CODE § 17.41-.63, when it sold a vacant lot in a master-planned community and years later negligently caused a home built on that lot to be flooded. The homeowners argue that the developer breached an implied warranty that its future development services would be performed in a good and workmanlike manner and that it acted unconscionably. Because we reject both of these theories of DTPA liability in this case, we reform the judgment of the court of appeals to delete any award of damages based on the DTPA. We also conclude that the homeowners received a double recovery for their property damage, and delete the duplicative part of the award. We affirm the remainder of the judgment for negligence-based damages, which were not challenged by the developer, and for out-of-pocket expenses. Finally, we agree with those parts of the court of appeals' opinion that find no evidence to support the mental anguish damages awarded and that affirm the directed verdict rendered on Parkway's claims against its engineers.

I. Facts

The Sugar Creek Corporation and its successor-in-interest, the Parkway Company (collectively, Parkway), created a real estate development known as Sugar Creek on the south side of Houston. Parkway prepared the land for homebuilding by platting, surveying, regrading, building roads, and dealing with local regulatory and utility authorities. The Sugar Creek community was developed over a period of years, and included plans for retail and recreational areas.

In 1977 Harrington Homes purchased the lot at issue, in section 24 of the development, and built a house on it. After Harrington Homes sold it to the original occupants, the house was resold and occupied by another homeowner before Ray and Constance Woodruff bought it and moved in during April 1981.

In 1983 Parkway began to develop Sugar Creek section 34, which lies immediately to the east of the Woodruffs' lot and the Kaneb tract, a large commercial tract that lies to the north of the Woodruffs' lot and the rest of section 24. During the course of its work in early 1983, Parkway began constructing a wall along the line dividing section 34 from the Kaneb tract and section 24.

NOTE: OPINION CONTAINS TABLE OR OTHER DATA THAT IS NOT VIEWABLE

Ray Woodruff, who holds an engineering degree, advised Parkway by letter on February 3, 1983, that the wall might alter drainage patterns on his lot. Six days later, during a heavy rainstorm, the Woodruffs observed that regrading activities on section 34 had diverted runoff from the Kaneb tract onto their land.

After investigation, Parkway's engineers proposed a new drainage system, but Mr. Woodruff objected to the proposal because it called for the construction of an earthen berm across the back of his lot. Instead Woodruff installed another type of drainage system. Parkway offered to pay for Mr. Woodruff's drainage system on the condition that the Woodruffs release Parkway from any future liability. The Woodruffs objected to the release, however, and covered the construction costs themselves. Parkway finished the wall in July 1983.

When Hurricane Alicia struck the Texas coast on August 18, 1983, run-off from the Kaneb tract flooded the Woodruffs' sun room. The house flooded again in 1986, 1987, and 1989. As a result, the house suffered a cracked foundation and other structural damage.

The Woodruffs filed suit in 1984 for negligence, gross negligence, nuisance, trespass, and Water Code violations. They also alleged that Parkway was liable under the DTPA for: (1) unconscionable conduct; (2) false, misleading, or deceptive acts or practices; and (3) the knowing breach of an implied warranty to perform "development services" in "a good and workmanlike manner." Parkway, in turn, filed third-party claims against its engineers, the owners of the Kaneb tract, and Harrington Homes. The Woodruffs later amended their petition to sue directly these additional parties.

At trial, the district court granted a directed verdict in favor of Harrington Homes and Parkway's engineers. On the remaining claims, a jury found that Parkway was negligent but that the owners of the Kaneb tract were not. The jury also found that Parkway violated the Water Code, that it knowingly breached an implied warranty, and that it acted unconscionably. The jury declined, however, to find that Parkway was grossly negligent, that it engaged in any false, misleading, or deceptive acts or practices, or that it intentionally caused a trespass of the Woodruffs' property. The court rendered judgment for actual damages of $220,000, including $120,000 for diminution in value and $100,000 for repairs to the Woodruffs' house. Based on the DTPA findings, the trial court also rendered judgment for the Woodruffs for "additional" damages, a percentage-based award of attorney's fees, and mental anguish damages.

The court of appeals affirmed most of the trial court's judgment, but deleted any damages for mental anguish, and added $14,000 in out-of-pocket expenses claimed by the Woodruffs. 857 S.W.2d 903.

II. DTPA Violations

The Woodruffs allege that Parkway violated the DTPA by breaching an implied warranty to perform future development services in a good and workmanlike manner, or alternatively, by committing an unconscionable act. Assuming that the Woodruffs are consumers under the DTPA, 1 we analyze each basis for DTPA recovery.

A. Implied Warranty

The DTPA prohibits the breach of an express or implied warranty, see TEX.BUS. & COM.CODE § 17.50(a)(2), but it does not create warranties. The warranties, both express and implied, actionable under the DTPA must be recognized by the common law or created by statute. See La Sara Grain Co. v. First Nat'l Bank, 673 S.W.2d 558, 565 (Tex.1984). Unlike the implied warranties imposed on certain sales transactions under the Uniform Commercial Code, 2 the implied service warranty is a common law creation. See Melody Home Mfg. Co. v. Barnes, 741 S.W.2d 349, 353 (Tex.1987) ("An implied warranty arises by operation of law when public policy so mandates."). Before it was adopted by the court of appeals, the implied warranty to perform future development services was unknown to Texas jurisprudence. The question presented for our decision, then, is whether such an implied warranty 3 should be recognized under the facts of this case.

The judicial recognition of implied warranties in service transactions in Texas has had a short and somewhat uneven history. 4 Until 1987 this Court had never recognized a cause of action for breach of an implied warranty relating to services. In Dennis v. Allison, 698 S.W.2d 94 (Tex.1985), we declined to recognize an implied warranty in connection with medical services when a patient was sexually assaulted and beaten by her psychiatrist. The Court considered whether judicial recognition of an implied warranty was justified in light of existing remedies available to the patient. In denying recovery under an implied warranty theory, the Court concluded: "It is not necessary to impose an implied warranty theory as a matter of public policy because the plaintiff patient has adequate remedies to redress wrongs committed during treatment." Id. at 96.

Two years later, in Melody Home, this Court first recognized a limited implied warranty relating to services. Without retreating from its holding in Dennis v. Allison, the Court recognized "an implied warranty to repair or modify existing tangible goods or property in a good and workmanlike manner." 741 S.W.2d at 354.

At least two principles from Dennis and Melody Home apply in this case. First, an implied warranty will not be judicially imposed unless there is a demonstrated need for it. Second, the Melody Home implied warranty extends only to services provided to remedy defects existing at the time of the relevant consumer transaction. 5

These preliminary issues aside, we view the issue presented here to be whether consumers who are injured by substandard services can recover under an implied warranty theory when they neither sought nor acquired the services about which they complain. The requirement that a consumer urging an implied warranty for services seek or acquire that specific service flows from the historical definition of a warranty:

A warranty is an express or implied statement of something with respect to the article sold, which the seller undertakes shall be part of a contract of sale; and though part of the contract, yet collateral to the express object of it.

ARTHUR BIDDLE, A TREATISE ON THE LAW OF WARRANTIES IN THE SALE OF CHATTELS 1 (Philadelphia, Kay & Brother 1884) (emphasis added). 6 Therefore, to determine whether an implied warranty to provide future development services should be extended to the Woodruffs, we must first identify an underlying transaction upon which an implied warranty might be imposed. The parties identify three possible underlying transactions: the sale of the lot from Parkway to the homebuilder, the purchase of the home by the Woodruffs, and the regrading and drainage work performed by Parkway in 1983.

Of these three options, we find...

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