Southwestern Bell Telephone Co. v. FDP Corp.

• Citation: 811 S.W.2d 572
• Decision Date: 19 June 1991
• Docket Number: No. C-7551,C-7551
• Court: Supreme Court of Texas
• Parties: 15 UCC Rep.Serv.2d 765 SOUTHWESTERN BELL TELEPHONE COMPANY, Petitioner, v. FDP CORPORATION, Respondent.

Page 572

811 S.W.2d 572

15 UCC Rep.Serv.2d 765

SOUTHWESTERN BELL TELEPHONE COMPANY, Petitioner, v. FDP CORPORATION, Respondent.

No. C-7551.

Supreme Court of Texas.

June 19, 1991.

Richard P. Keeton, Houston, Steve Selby, W. Page Keeton, Austin, Alex Guevara, Jr., Houston, for petitioner.

Theodore C. Flick, Jon Mercer, Houston, for respondent.

OPINION ON MOTION FOR REHEARING

PHILLIPS, Chief Justice.

Respondent's motion for rehearing is granted. Our opinion of March 6, 1991 is withdrawn, and the following is substituted in its place.

The issue in this case is whether a seller's partial failure to perform under a sales agreement may serve as the basis for a breach of warranty claim under the Texas Deceptive Trade Practice--Consumer Protection Act, TEX.BUS. & COM.CODE §§ 17.41-17.63 (the "DTPA"). The court of appeals held that certain oral statements made by the seller to induce a sale constituted an express warranty, and that the seller's failure to perform one of the items in the contract was a breach of that warranty. 749 S.W.2d 569. The court further held that a contractual limitation of damages clause could not limit the buyer's recovery under the DTPA for the breach of warranty. We disagree with the latter conclusion. We hold that the limitation clause was part of the warranty upon which the buyer's claim is based and it therefore limits his recovery. We reverse the judgment of the court of appeals and render judgment that FDP Corporation take nothing.

Frank Prasek, the president of FDP Corporation, met with Max Williams, a Southwestern Bell representative, in early 1980 to discuss advertising in the next edition of the Houston Yellow Pages. During this meeting, Prasek complained that a previous Yellow Pages advertisement for FDP had contained an error in its text. Williams assured Prasek that the new advertisement would be published correctly. Bell and FDP then executed a written advertising contract calling for a boldface listing of FDP's hair design business under "BARBERS," a boldface listing under "BEAUTY SALONS," a double quarter column display under "BARBERS," and a cross reference under "BEAUTY SALONS" to that display.

When the Yellow Pages was published in June, 1980, the boldface listings and the cross reference appeared without error, but the display was not included. Bell nevertheless billed FDP for all the items. Under protest, FDP made several installment payments. In January 1981, Bell finally realized its mistake and returned the sums previously paid by FDP for the omitted display. Thereafter, FDP's attorney made a written demand that Bell reimburse FDP for lost profits allegedly caused by Bell's failure to publish the advertisement. When Bell did not meet this demand, FDP filed suit, alleging negligence and violation of the DTPA.

FDP's claims were tried to a jury, which returned a verdict generally favorable to Bell. The jury failed to find that the omission of the advertisement was caused by Bell's negligence, that Bell committed any "laundry list" violations under the DTPA, or that Bell was responsible for any unconscionable action or course of action under the DTPA. ¹ See TEX.BUS. & COM.CODE §§ 17.46(b), 17.50(a)(3). The jury did find, however, that Bell expressly warranted that it would publish FDP's advertisement, that Bell breached the warranty, and that the breach was a producing cause of damages to FDP. Nevertheless, the jury found that FDP incurred no lost profits, which was the only element of damages submitted. Based on this verdict, the trial court rendered judgment that FDP take nothing, and FDP appealed.

The court of appeals reversed the judgment of the trial court. The court found sufficient evidence to support the jury's findings of breach of warranty and producing cause, and held that the jury's failure to find damages was against the great weight and preponderance of the evidence. The court of appeals therefore remanded the cause for a new trial, and Bell appealed to this court.

Bell argues that FDP's only claim is for breach of contract, not breach of warranty. It asserts that a warranty is a guarantee to accomplish a result or a guarantee of the truth of an assertion. According to Bell, Williams' statements at most constitute a promise to perform in the future, not a guarantee of performance. Thus, Bell concludes, no express warranty was made. If a warranty was created, Bell asserts that its liability for breach is limited under the advertising contract to return of the money FDP paid for the display.

FDP argues that a warranty need not be an absolute guarantee and the seller need not intend to create a warranty. According to FDP, a promise to perform an act in the future can be a warranty just like any other promise or affirmation. FDP further argues that it relied on Williams' statements and it would be unfair not to enforce them. Finally, FDP asserts that the contractual liability limitation is unenforceable either because it is an invalid liquidated damages provision or because such a waiver violates the policy of the DTPA. TEX.BUS. & COM.CODE § 17.42.

Our first inquiry is whether FDP's allegations state a claim for breach of warranty, which is actionable under the DTPA, or merely a claim for breach of contract. Because Bell's sale of advertising is predominantly a service transaction, not a sale of goods, the warranty provisions of Article Two of the Uniform Commercial Code ("UCC") do not explicitly govern this case. See TEX.BUS. & COM.CODE § 2.102 (Tex. UCC). Therefore, we begin this inquiry by examining the common law of warranty.

Although it is well-established that express warranties are enforced in service transactions, see Hawkins v. McGee, 84 N.H. 114, 146 A. 641 (1929), warranty law has primarily developed in the context of the sale of goods. Scholars have traced its historical roots back to 13th and 14th century England. See, e.g., B. CLARK & C. SMITH, THE LAW OF PRODUCT WARRANTIES 1-1 to 1-13 (1984); Sullivan, Innovation in the Law of Warranty: The Burden of Reform, 32 HASTINGS L.J. 341, 343-351 (1980). Early English courts, established specifically to resolve disputes among traders, required sellers to rectify any defect in the goods they sold, even if the sellers were unaware of the defect when they sold them. Hamilton, The Ancient Maxim Caveat Emptor, 40 YALE L.J. 1133, 1158-59 (1931). By the middle of the nineteenth century, however, most courts embraced a doctrine more conducive to an expanding market economy. As William Wetmore Story wrote in 1844, "The general rule of law, applicable to all sales, is, that the buyer buys at his own risk; caveat emptor. " W. STORY, 2A TREATISE ON THE LAW OF CONTRACTS 333 (4th ed. 1856).

During this period, a seller could still be held liable for a defect inconsistent with an express warranty, but such warranties were created only if the seller used the particular words warrant or guarantee. As one commentator noted, "mere affirmations or general expressions of quality would not suffice." Sullivan, supra, at 347. Moreover, even when a seller gave an explicit express warranty, such a warranty was viewed as collateral to the main contract. Indeed, Story introduced his chapter on warranties by stating: "The question which comes naturally next in order, after the contract of sale is completed, and the goods are reduced to the possession of the vendee, is, whether the goods are the quality and nature which the vendee intended to buy." STORY, supra, at 333 (emphasis added).

As the twentieth century approached, the doctrine of caveat emptor no longer seemed to fit the changing American commercial setting. Sullivan, supra, at 355-58. Mass production and transactions between distant parties limited buyers' opportunities to inspect. "The law responded to these changes by a gradual recession of the doctrine of caveat emptor and expansion of implied warranties." Id. at 356. Along with the adoption of implied warranties came a relaxation of the requirements for creating express warranties.

Just after the turn of the century, the Uniform Sales Act (USA) codified the trend toward increased warranty liability. The USA, which was never adopted in Texas, provided for the implied warranties of merchantability and fitness for a particular purpose. USA § 15 (1906). It also codified the concept that no particular words are necessary to create an express warranty. Id. at § 12. Nearly fifty years later, the UCC carried forward the USA's codification of warranty law. Article Two of the Code has been adopted by every state except Louisiana, and it is the primary influence on modern warranty law. Sullivan, supra, at 389.

This historical review illustrates that, although they may have helped accelerate emerging, pro-consumer trends, the two uniform acts upon which most twentieth century warranty cases are based essentially codified the common law of warranty. See also TEX.BUS. & COM.CODE § 1.103. This observation is especially true with respect to express warranties, ² which never faced the degree of judicial antipathy with which implied warranties were viewed in the nineteenth century. Thus, although the case at bar involves a service transaction, reference to the Code is instructive. See also TEX.BUS. & COM.CODE § 2.313 (Comment 2); 1 J. WHITE & R. SUMMERS, UNIFORM COMMERCIAL CODE 25 (3rd ed. 1988); Special Project Article Two Warranties in Commercial Transactions: An Update, 72 CORNELL L.REV. 1159, 1201 (1987).

The UCC recognizes that breach of contract and breach of warranty are not the same cause of action. The remedies for breach of contract are set forth in section 2.711, and are available to a buyer "[w]here the seller fails to make delivery." TEX.BUS. & COM.CODE § 2.711(a). The remedies for breach of warranty, however, are set forth in section 2.714, and are available to a buyer who has finally accepted goods, but discovers that the goods are defective in some manner. TEX.BUS. & COM.CODE § 2.714, § 2.711 ...