Texas Cookie Co. v. Hendricks & Peralta, Inc.

• Decision Date: 18 February 1988
• Docket Number: No. 13-86-516-CV,13-86-516-CV
• Court: Texas Court of Appeals
• Parties: TEXAS COOKIE COMPANY, et al., Appellants, v. HENDRICKS & PERALTA, INC., Appellee.

Page 873

747 S.W.2d 873

TEXAS COOKIE COMPANY, et al., Appellants, v. HENDRICKS & PERALTA, INC., Appellee.

No. 13-86-516-CV.

Court of Appeals of Texas,

Corpus Christi.

Feb. 18, 1988.

Rehearing Denied March 17, 1988.

Richard W. Crews, Jr., Frank E. Weathered, Brin & Brin, Corpus Christi, for appellants.

Robert C. Wolter, Wood, Boykin, Wolter, Smith & Keys, Corpus Christi, for appellee.

Before KENNEDY, UTTER and BENAVIDES, JJ.

OPINION

KENNEDY, Justice.

The appellants, Texas Cookie Company (TCC), Joel Wahlberg and Shirley Venable, bring this appeal from a judgment against them in favor of appellee, Hendricks and Peralta, Inc. (H & P), for violations of the Texas Deceptive Trade Practices-Consumer Protection Act (DTPA), Tex.Bus. & Com.Code Ann. § 17.41-.63 (Vernon 1987).

TCC is a corporation established by Venable and Wahlberg for the purpose of supplying and supervising a network of retail outlets for the sale of cookies in malls and shopping centers. Lamont Hendricks, vice president of H & P, became interested in going into business with her daughter, Olive Peralta, president of H & P, by opening up such a store in South Texas. In the Spring of 1983, Hendricks and Venable discussed the possibility of franchising and visited potential locations. Hendricks had no prior business experience. In March or April of 1983, Venable and Wahlberg showed her a pro forma ¹ which had income projections for the stores Hendricks wanted to open. Hendricks testified that Venable and Wahlberg assured her that her stores would reach at least the profit figures on the pro forma. In May of 1983, Hendricks and Peralta decided to obtain two franchises and incorporated H & P to control them. In June they signed franchise agreements for TCC stores in Corpus Christi and Kingsville. The Kingsville store was opened in August and the Corpus Christi store in October of 1983.

Subsequently, however, the stores did not perform as expected. Among other things, appellees claim that: the stores did not attain the profits represented to them on the pro forma; inadequate training in cookie baking was provided; inadequate cookie batter was supplied; and "build-out" costs for the stores exceeded the represented amount. After the stores proved unprofitable, both were closed in December of 1984. H & P brought the present action against appellants based on fraud, and under the DTPA on misrepresentations, failure to disclose and breach of warranty. A jury trial was held and based on the jury's answers to special issues, the trial court entered judgment for H & P, awarding it an aggregate amount of $433,893.80 in damages, interest and attorney's fees against the appellants.

Appellants' primary complaint in points of error one, two, four, seven, and fifteen through seventeen is that the franchise and assorted collateral services it contracted with appellee for are neither "goods" nor "services" under the definitional section of the DTPA, § 17.45. Appellant points us to Crossland v. Canteen Corp., 711 F.2d 714, 721 (5th Cir.1983), for the proposition that a franchise is an intangible interest which is not covered by the DTPA. Crossland, however, concerned a transaction occurring under the 1973 version of the DTPA, which specifically excluded services for business or commercial use from its purview. The 1977 amendment to the DTPA eliminated this exclusion. See Farmers & Merchants State Bank v. Ferguson, 617 S.W.2d 918, 920 (Tex.1981).

The DTPA still excludes those transactions which convey wholly intangible property rights, such as money or accounts receivable, which are not associated with any collateral services. See Riverside National Bank v. Lewis, 603 S.W.2d 169, 174-75 (Tex.1980); Snyders Smart Shop, Inc. v. Santi, Inc., 590 S.W.2d 167, 170 (Tex.Civ.App.--Corpus Christi 1979, no writ). A more difficult case arises when the intangible transferred carries with it a host of collateral services on which the customer relies. In First Federal Savings & Loan Association v. Ritenour, 704 S.W.2d 895, 898-900 (Tex.App.--Corpus Christi 1986, writ ref'd n.r.e.), this Court held that the purchaser of a certificate of deposit was a consumer covered by the DTPA, in view of the full range of financial services that the defendant offered its customers in relation to their deposits, including the right to place a "hold" order on an account which was later dishonored and formed the basis of that suit. See also La Sara Grain Co. v. First National Bank of Mercedes, 673 S.W.2d 558, 564 (Tex.1984); Farmers & Merchants State Bank v. Ferguson, 605 S.W.2d 320, 324 (Tex.Civ.App.--Fort Worth 1980), aff'd on other grounds, 617 S.W.2d 918 (Tex.1981). The reasoning of Ritenour was further refined in Federal Deposit Insurance Corp. v. Munn, 804 F.2d 860, 865 (5th Cir.1986):

Consequently, when a transaction's central objective is the acquisition of an intangible, Texas law requires a plaintiff to produce uncontroverted evidence similar to that produced in Ritenour in order to establish as a matter of law that a collateral service was an objective of the transaction and not merely incidental to the performance of a transaction excluded under the DTPA.

The collateral services which TCC was to provide H & P included a company training program, a confidential operating manual, and what was vaguely referred to in the franchise agreement as a "unique system," the characteristics of which are:

special merchandising, marketing and specially designed facilities, interior and exterior layout and trade dress; standards and specifications for fixtures and equipment, methods for keeping books and records, inventory control system and training and supervision....

These services were clearly an objective of the transaction and not merely incidental to it. Without them, the franchise would have been little more than the right to sell products under the "Texas Cookie Company" name.

A similar situation arose in Wheeler v. Box, 671 S.W.2d 75, 78 (Tex.App.--Dallas 1984, writ ref'd n.r.e.), which involved the sale of a word processing franchise consisting of an operations manual, company training program and various advertising materials and supplies. Upholding the plaintiff's DTPA claim, the Court noted:

[A]lthough the business entity itself was an intangible, it encompassed both tangible personal property and services purchased for use in the function of the business. Indeed, we would have to adopt a very narrow and strained interpretation, to conclude that the Boxes purchased neither tangible goods nor services.

Id., 671 S.W.2d at 78-79; see also Woo v. Great Southwestern Acceptance Corp., 565 S.W.2d 290 (Tex.Civ.App.--Waco 1978, writ ref'd n.r.e.).

We hold that the franchise agreement in the present case involved the transfer of "goods or services" for purposes of the DTPA.

In addition, appellants complain that the failure to disclose upon which appellee relies for one of its DTPA claims is based solely on failure to give written disclosures required by the Federal Trade Commission, and that, since there is no private federal remedy, the failure to disclose cannot give rise to a DTPA claim either. Appellee brought this action on the ground that failure to make such written disclosures was a deceptive act under § 17.46(b). Appellee clearly did not bring an action under federal law. Appellants' violation of federal law was merely used as a basis for finding an independent violation of the DTPA. The DTPA itself provides in § 17.49(b) that: "The provisions of this subchapter do apply to any act or practice prohibited ... by a rule or regulation of the Federal Trade Commission." See Woo, 565 S.W.2d at 293; Ferguson, 605 S.W.2d at 325; Hennigan v. Heights Savings Ass'n., 576 S.W.2d 126, 129 (Tex.Civ.App.--Houston [1st Dist.] 1978, writ ref'd n.r.e.).

We overrule points one, two, four, seven, and fifteen through seventeen.

In points of error three, five and six, appellants complain that the trial court erred in its submission of certain special issues because, as worded, they fail to instruct the jury on the proper elements of damages. Special issue 11 asks:

What sum of money, if paid now in cash, would fairly and reasonably compensate Henricks & Peralta, Inc. from the damages, if any, that you found were caused by Texas Cookie Company in your answers to Special Issues Nos. 2, 4, 6, 8 and 10?

Special issues 2, 4, 6 and 10 each asked:

Do you find from a preponderance of the evidence the representations found in [the preceding special issue] were a producing cause of damages to Hendricks & Peralta, Inc.?

Special issue 8 asked:

Do you find from a preponderance of the evidence that the failure to disclose, found in Special Issue No. 7 was a producing cause of damages to Hendricks & Peralta, Inc.?

Appellants objected to all of these issues on the ground that they failed to limit the jury's consideration of damages to goods and services under the franchise agreement or matters which would be covered under the DTPA.

In general, the court's charge should limit the jury's consideration of damages by an instruction on the proper legal measure of damages. Jackson v. Fontaine's Clinics, Inc., 499 S.W.2d 87, 90 (Tex.1973); Sawyer v. Fitts, 630 S.W.2d 872, 875 (Tex.App.--Fort Worth 1982, no writ). However, where the court has failed to include a limiting instruction, it is the complaining party's responsibility both to object to the charge and to tender written instructions on the proper measure of damages in substantially correct form. Tex.R.Civ.P. 279 ²; Cameron v. Terrell & Garrett, Inc., 618 S.W.2d 535, 538 (Tex.1981); Donnelley Marketing v. Lionel Sosa, Inc., 716 S.W.2d 598, 602 (Tex.App.--Corpus Christi 1986, no writ); Texas Power and Light Co. v. Barnhill, 639 S.W.2d 331, 335 (Tex.App.--Texarkana 1982, writ ref'd n.r.e.). By failing to tender instructions, appellants have waived error. We overrule points three, five and six.

In points of error eight through twelve, appellants complain...