Perez v. Briercroft Service Corp.
| Decision Date | 08 May 1991 |
| Docket Number | No. D-0220,D-0220 |
| Citation | 809 S.W.2d 216 |
| Parties | Eugene PEREZ, Petitioner, v. BRIERCROFT SERVICE CORPORATION, Respondent |
| Court | Texas Supreme Court |
In this action for damages arising from a home improvement project, the principal issue is whether a plaintiff-consumer is entitled to rescission or cancellation of a note when such relief was not specifically pleaded but the defendant asserted a defense or limitation of liability which raised the plaintiff's right to rescission or cancellation. The court of appeals held that rescission must be specifically pleaded. Under the facts of this case, we disagree. Consequently we affirm in part and reverse in part the judgment of the court of appeals and remand the cause to the trial court for rendition of judgment in accordance with this opinion.
Eugene Perez contracted with Perma-Stone to make improvements on his home. Perma-Stone provided financing for the improvements by executing a promissory note and retail improvement contract for $13,500 which was secured by a mechanics lien on Perez's home. Before the work was completed, Perma-Stone sold the note to Briercroft Service Corporation. 1 Several months later Perez began experiencing many problems with the work performed by Perma-Stone: the siding began to fall off the house, the replacement windows fell apart, the screen doors would not shut completely and the sewer vents terminated in the attic instead of extending through the roof, causing foul odors within the house. Perez stopped making payments on the note after Perma-Stone failed in its attempt to repair the home. Perez brought suit against Briercroft for breach of contract and DTPA damages resulting from home improvements that allegedly were not completed in a good and workmanlike manner. 2 Later, Perma-Stone and Glispin filed bankruptcy and were dismissed from the suit. Briercroft answered asserting that the Federal Trade Commission (FTC) rule limited its liability to the amount Perez had paid under the contract. After a trial, the jury found that the improvements had no value and awarded Perez $13,500 as actual damages. The trial court rendered judgment for Perez in conformance with the jury verdict. On appeal, Briercroft asserted that Perez was entitled only to a refund of the money paid and that he was not entitled to cancellation of the note because he had not specifically prayed for rescission. Based on the FTC rule, the court of appeals modified the judgment to reflect the amount of the money Perez had paid on the note prior to his default. Nevertheless, the court of appeals refused to cancel the note because Perez had not specifically pleaded rescission.
The FTC rule provides that when the proceeds of a consumer credit contract are used to purchase goods or services, the contract must contain the following provision:
NOTICE
ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER. (emphasis added).
This rule was enacted to protect consumers in situations where they financed the purchase of goods or services but the seller of the service and the holder of the note were separate entities. Statement of Basis and Purpose, 40 Fed.Reg. 53,506, 53,522 (1975). Prior to this rule, consumers found themselves liable to pay notes to finance payment of these goods or services, which at times were secured by their homes, even though the sellers failed to live up to their agreements. In these circumstances, the creditor, having purchased the note from the seller, was a holder in due course immune to defenses and claims that the consumer could have raised against the seller. Id.; see also Guidelines on Trade Regulation Rule Concerning Preservation of Consumers' Claims and Defenses, 41 Fed.Reg. 20,022, 20,023 (1976). The FTC rule remedied this situation by making the creditor subject to all claims and defenses that the debtor could assert against the seller. This rule transferred liability to consumer credit contract assignees, who the commission felt were "in a better position to absorb the loss or recover the loss from the guilty party--the seller," Home Sav. Ass'n v. Guerra, 733 S.W.2d 134, 135 (Tex.1987), but limited their liability to the amount paid by the consumer on the note and cancellation of the balance of the note.
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