Smith v. Baldwin

• Decision Date: 31 December 1980
• Docket Number: No. B-8920,B-8920
• Citation: 611 S.W.2d 611,24 Tex. Sup. Ct. J. 149
• Parties: Roland D. SMITH, Petitioner, v. Alan BALDWIN, d/b/a Alan Baldwin, Builder, Respondent.
• Court: Texas Supreme Court

Page 611

611 S.W.2d 611

Roland D. SMITH, Petitioner, v. Alan BALDWIN, d/b/a Alan Baldwin, Builder, Respondent.

No. B-8920.

Supreme Court of Texas.

Dec. 31, 1980.

Rehearing Denied March 4, 1981.

Thomas E. Tiemann, Kirk Kuykendall, Austin, for petitioner.

Robinson, Felts, Starnes & Latting, James Meyers and Joseph H. Hart, C. Robert Dorsett, Austin, for respondent.

STEAKLEY, Justice.

On September 9, 1976, Alan Baldwin, d/b/a Alan Baldwin, Builder, contracted to build a house for Roland Smith. On the same day, Smith executed to Baldwin a promissory note for $31,300, payable within 180 days, Baldwin agreeing to pay all interim interest. Baldwin assigned the note to Mutual Savings Institution (Mutual) in order to obtain interim financing. The permanent financing was to be supplied by the Veteran's Administration (V.A.) which required a final V.A. inspection report prior to approval of the permanent loan. Smith began moving into the house prior to the date scheduled for completion. On March 28, 1977, the house remained uncompleted and unapproved by the V.A. and Smith, who had previously occupied the house, ordered Baldwin to leave the premises. In October, 1977, Baldwin attempted to obtain V.A. approval but this was refused on the basis of construction defects and a final V.A. inspection report and approval was not obtained.

Baldwin brought suit against Smith on the contract and the note, seeking the foreclosure of his lien and claiming additional expenses in construction of the house, and for interference with its completion. Smith generally denied and counterclaimed under the Deceptive Trade Practices Act. ¹ He alleged in his Fourth Amended Cross-Action that, among other things, Baldwin failed to obtain a V.A. inspection compliance report. ² Smith also sought attorney's fees on two theories: one based on the assignment to him of the rights of Mutual Savings Association under Smith's interim financing note; the other under the DTPA.

After a non-jury trial, the trial court rendered a take-nothing judgment against Baldwin. On the counterclaim of Smith, the court awarded him a recovery of $4,400 as actual damages sustained under the DTPA which consisted of the sum of $1,500 as the cost of remedying the defects in the house and the additional sum of $2,900 in interim interest, included in Smith's permanent financing note. The trial court trebled damages, awarding a total sum of $13,200. The court further awarded Smith the sum of $10,000 as reasonable attorney's fees ³ and additional attorney's fees in the sum of $2,500 in the event of an appeal through the Court of Civil Appeals, the sum of $1,000 in the event of the filing of an application for writ of error, and a final sum of $500 in the event writ of error is granted.

The trial court filed findings of fact describing numerous construction defects. Further, that:

Baldwin has never obtained a final inspection report which shows full and final compliance with V.A. requirements.

The court found, however, that as a matter of fact the contract was substantially performed and this conclusion has not been challenged by Smith.

Upon appeal by Baldwin the Court of Civil Appeals held that the unchallenged finding of substantial performance precluded the application of the DTPA. The court reversed the judgment of the trial court that had awarded Smith treble damages for interim interest and attorney's fees, and treble damages for the cost of correcting the defects in the house, and reform the judgment so as to award Smith the sum of $1,500 as the cost of remedying the defects in the house. 586 S.W.2d 624. We reverse the judgment below and render judgment as later set forth.

Smith, our petitioner, contends that substantial performance of a contract does not preclude liability under § 17.46(b)(7) of the DTPA which states that the term "false, misleading or deceptive acts or practices" includes:

(7) representing that goods or services are of a particular standard, quality, or grade, or that goods are of a particular style or model, if they are of another.

Baldwin argues that to hold builders liable for treble damages and attorney's fees notwithstanding a substantial performance of the building contract places an unreasonable burden on the builder. Whether this is so or not, the Legislature in the DTPA did not provide that substantial performance is a defense to an action under the statute and directed further that "This subchapter shall be liberally construed and applied to promote its underlying purposes, which are to protect consumers against false, misleading, and deceptive business practices, unconscionable actions and breaches of warranty and to provide efficient and economical procedures to secure such protection." § 17.44.

It is our view that the doctrine of substantial performance is not relevant to the statutory cause of action under the DTPA asserted by Smith in his counterclaim. The portions of Smith's Fourth Amended Cross-Action alleging that Baldwin had violated the DTPA by misrepresenting that the house he would build for Smith would meet the requirements for a final V.A. inspection compliance report are distinct from the pleadings of Smith complaining of Baldwin's failure to fulfill his contractual commitments. ⁴ The judgment of the trial court awarding damages to Smith under the DTPA is not based on findings of a contract breach; the judgment is based on the misrepresentations of Baldwin as to the quality and standard of the goods and services in building the house, i. e., that the house when completed would qualify for V.A. approval so that Smith could obtain permanent financing.

Baldwin further argues that apart from the substantial performance defense, there has been no violation of § 17.46(b)(7) because: (1) Section 17.46(b)(7) is applicable to representations of quality of existing goods or services, not to representations of quality concerning goods or services not yet in existence; (2) false representations concerning future goods fall within subdivision (9), which requires intent; and (3) if subdivision (7) is applicable to the condition of goods and services in the future, there is a requirement of intent not to provide them as represented.

Section 17.46(b) declares that nine acts constitute false, deceptive or misleading practices with respect to goods and services. ⁵ The thrust of Baldwin's argument is that only two, subdivisions (9) and (10), are applicable to representations made concerning the future quality of goods or services. These subdivisions provide:

(9) advertising goods or services with intent not to sell them as advertised;

(10) advertising goods or services with intent not to supply a reasonable expectable public demand unless the advertisements disclosed a limitation of quality; ⁶

It is noted that these subdivisions expressly require an intent not to provide goods and services as advertised and it is Baldwin's position that these are applicable here and that there is no evidence that he did not intend to provide the goods and services he promised.

Black's Law Dictionary (5th ed. 1979) defines the verb "advertise" as follows:

Advertise. To advise, announce, apprise, command, give notice of, inform, make known, publish. On call to the public attention by any means whatsoever. Any oral, written, or graphic statement made by the seller in any manner in connection with the solicitation of business and includes, without limitation because of enumeration, statements and representations made in a newspaper or other publication or on radio or television or contained in any notice, handbill, sign, catalog, or letter, or printed on or contained in any tag or label attached to or accompanying any merchandise.

Id. at 50; see G. C. Murphy Co. v. Lack, 404 S.W.2d 853, 856 (Tex.Civ.App.1966, writ ref'd n. r. e.); and State v. Guardian Foundation of Texas, 128 S.W.2d 880, 882 (Tex.Civ.App.1939, no writ).

It is apparent that a primary purpose of subdivisions (9) and (10) is the prevention of "bait advertising," a practice by which a seller seeks to attract customers through advertising products at low prices which he does not intend to sell in more than nominal amounts. The customers who respond to the advertisement are switched to another product or service, at a higher price. D. Bragg, P. Maxwell, J. Longley, Texas Consumer Litigation, § 3.14 at 89 (1978). Maxwell, Public and Private Rights and Remedies Under the Deceptive Trade Practices Consumer Protection Act, 8 St. Mary's L.J. 617, 627 (1977). ⁷

There is nothing in the record which suggests that Baldwin's representations involved advertising, much less "bait advertising." See Lack, supra ; Pitofsky, Beyond Nader: Consumer Protection and the Regulation of Advertising, 90 Harv.L.Rev. 661 (1977). The representations concerning compliance with V.A. standards and regulations and the ability to complete the house as scheduled were not marketing devices designed to induce the public to patronize Alan Baldwin, Builder. Smith was not enticed to enter into a contractual relationship because of a public notice drawing attention to Baldwin's capabilities as a contractor. Neither subdivisions (9) nor (10) are intended to apply to the representations at issue in this cause.

Baldwin also contends that these are the only provisions of § 17.46(b) dealing with statements of future quality. If this position is followed to its logical conclusion, there would be no liability under § 17.46(b) for false, misleading or deceptive acts with respect to the future quality of goods or services; and it would further follow that relief from such acts must rest on the general provisions of § 17.46(a). ⁸ Baldwin thus argues that Smith is not entitled to any relief since he has neither alleged nor proved a violation of § 17.46(a).

Excluding the provisions on advertising previously discussed, there are seven other subdivisions which declare unlawful specific practices dealing with goods and services....