Defenses and Counterclaims
§ 17.1:1Accord and Satisfaction Generally
An accord is an agreement in which, in satisfaction of a claim, one of the parties undertakes to give or perform, and the other to accept, something other than that to which the claimant is or considers himself to be entitled. Satisfaction is the execution or performance of the agreement. Hunt v. Facility Insurance Corp., 78 S.W.3d 564, 568 (Tex. App.—Austin 2002, pet. denied) (citing Stevens v. State Farm Fire & Casualty Co., 929 S.W.2d 665, 673 (Tex. App.—Texarkana 1996, writ denied)); Texas Commerce Bank National Ass’n v. Geary, 938 S.W.2d 205, 214 (Tex. App.—Dallas 1997), rev’d on other grounds, Geary v. Texas Commerce Bank, N.A., 967 S.W.2d 836, 837 (Tex. 1998) (per curiam) (citing Fortner v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 687 S.W.2d 8, 13 (Tex. App.—Dallas 1984, writ ref’d n.r.e.)). Accord and satisfaction rests on a new contract, express or implied, in which the parties agree to the discharge of the existing obligation by tender and acceptance of the lesser amount. Lopez v. Munoz, 22 S.W.3d 857, 863 (Tex. 2000); Jenkins v. Henry C. Beck Co., 449 S.W.2d 454, 455 (Tex. 1969); Gammon v. Hodes, No. 03-13-00124-CV, 2015 WL 1882274, at *8 (Tex. App.—Austin Apr. 24, 2015, pet. denied) (mem. op.).
Accord and satisfaction requires proof of a dispute and an unmistakable communication to the creditor that tender of the reduced sum is on the condition that acceptance will satisfy the underlying obligation; the parties must specifically and intentionally agree to the discharge of one of the party’s existing obligations. Lopez, 22 S.W.3d at 863 (to prevail on its defense, defendant required to present summary judgment evidence that fee was disputed and claimants specifically and intentionally agreed to relinquish any claims they might have against defendant for its alleged overcharge); (Hairston v. Southern Methodist University, 441 S.W.3d 327, 337 (Tex. App.—Dallas 2013, pet. denied) (accord and satisfaction established where plaintiff signed agreement to accept partial satisfaction of amount claimed under alleged oral contract).
The bona fide dispute must be to the claim itself. Vaughn Excavating & Construction, Inc. v. Centergas Fuels, Inc., 223 S.W.3d 591, 592–93 (Tex. App.—Amarillo 2007, no pet.) (no dispute where defendant paid agreed amount for fuel he later claimed was defective and evidence suggested that truck’s mechanical problems had causes other than fuel at issue; defendant’s at-tempt at offset by way of accord and satisfaction was more in nature of counterclaim); Klemp Corp. v. Thompson, 402 S.W.2d 257, 261 (Tex. Civ. App.—Waco 1966, no writ). See also Tex. Bus. & Com. Code § 3.311 (statutory defense of accord and satisfaction does not apply to a liq-uidated amount not subject to a bona fide dispute; see section 17.1:5).
A document in which the parties expressly provide that each retains rights under the original contract and that only part of the contract is canceled cannot qualify as an accord and satisfaction. Stewart & Stevenson Services v. Enserve, Inc., 719 S.W.2d 337, 342 (Tex. App.—Houston [14th Dist.] 1986, writ ref’d n.r.e.), disapproved on other grounds, Casu v. Marathon Refining Co., 896 S.W.2d 388 (Tex. App.—Houston [1st Dist.] 1995, writ denied).
Parties may vary the effect of accord and satisfaction by contract. See Milton M. Cooke Co. v. First Bank & Trust, 290 S.W.3d 297, 304–05 (Tex. App.—Houston [1st Dist.] 2009, no pet.).
§ 17.1:2Sufficiency of Consideration
The mere payment of part of a debt that is liquidated and undisputed is not consideration that supports a promise to accept the same in full payment of the debt. Petty v. Citibank (South Dakota) N.A., 218 S.W.3d 242, 247 (Tex. App.—Eastland 2007, no pet.); Jeanes v. Hamby, 685 S.W.2d 695, 697–98 (Tex. App.—Dallas 1984, writ ref’d n.r.e.); DeLuca v. Munzel, 673 S.W.2d 373, 375 (Tex. App.—Houston [1st Dist.] 1984, writ ref’d n.r.e.).
Additional consideration, however slight, technical, or insignificant, has been held to be valuable consideration that supports an accord and satisfaction by part payment of a liquidated and undisputed claim. See, e.g., Brunswick Corp. v. Suburban Bowling, Inc., 398 S.W.2d 294 (Tex. Civ. App.—Eastland 1965, no writ) (removal of bowling equipment supplied sufficient additional consideration for accord and satisfaction on unpaid balance of promissory notes).
If the claim is unliquidated or there is a dispute regarding liability, acceptance of less than what the claimant believes he is owed is a valid accord and satisfaction. Industrial Life Insurance Co. v. Finley, 382 S.W.2d 100, 106 (Tex. 1964).
If one of the two different amounts is due but there is a genuine dispute as to which is the proper amount, the entire demand is unliquidated and payment of the undisputed amount or liability on the condition that it is in full satisfaction of the entire claim will discharge the entire debt if the creditor accepts it. Grindstaff v. North Richland Hills Corp. No. 2, 343 S.W.2d 742, 745 (Tex. Civ. App.—Fort Worth 1961, writ ref’d n.r.e.).
Accord and satisfaction requires mutual assent, either expressly or tacitly. There must be an unmistakable communication to the creditor that tender of the lesser sum or alternative satisfaction is on the condition that acceptance constitutes full satisfaction of the underlying obligation. Republic Underwriters Insurance Co. v. Mex-Tex, Inc., 150 S.W.3d 423, 427 (Tex. 2004) (quoting Jenkins v. Henry C. Beck Co., 449 S.W.2d 454, 455 (Tex. 1969)). The condition must be plain, definite, and certain; the statement accompanying tender must be “so clear, full and explicit that it is not susceptible of any other interpretation”; and the offer must be accompanied by acts and declarations that the creditor is “bound to understand.” Jenkins, 449 S.W.2d at 455.
An accord and satisfaction may be set aside based on mistake. To prove unilateral mistake, a party must show that (1) the mistake is of so great a consequence that enforcement of the con-tract as made would be unconscionable, (2) the mistake relates to a material feature of the contract, (3) the mistake was made regardless of the exercise of ordinary care, and (4) the parties can be placed in status quo in the equity sense. Boland v. Mundaca Investment Corp., 978 S.W.2d 146, 149 (Tex. App.—Austin 1998, no pet.). If the defense of mistake is established, there is no mutual assent, and the creditor may recover the balance due. Hines v. Massachusetts Mutual Life Insurance Co., 174 S.W.2d 94, 97–98 (Tex. Civ. App.—Fort Worth 1943, no writ); see also International Life Insurance Co. v. Stuart, 201 S.W. 1088 (Tex. Civ. App.—Fort Worth 1918, no writ).
§ 17.1:5Known Insolvency of Debtor Exception
If (1) the debtor (or guarantor) was insolvent or seriously “financially embarrassed,” (2) the debtor’s insolvency or “financial embarrassment” was known to the creditor on the date of the payment, and (3) the creditor accepted his payment on that date in consideration of the debtor’s insolvency or seriously embarrassed financial condition in full settlement and release of the debtor’s liability, there is a valid accord and satisfaction, even if the claim is liquidated and undisputed. Prather v. Citizens National Bank, 582 S.W.2d 903, 906–07 (Tex. Civ. App.—Waco 1979, writ ref’d n.r.e.).
§ 17.1:6Third Parties and Guarantors
A liquidated claim as well as an unliquidated or disputed claim may be discharged by an accord and satisfaction on acceptance by the creditor of a lesser amount from a third person. Thompson v. Pechacek, 365 S.W.2d 207, 211 (Tex. Civ. App.—Fort Worth 1963, no writ). The substitution by a debtor of the obligation of an independent third party is a sufficient consideration to sustain a contract on the part of the creditor to release a part of the debt. Ralston v. Aultman, Miller & Co., 26 S.W. 746 (Tex. Civ. App.—Fort Worth 1894, no writ); but see Johnson v. Hoover & Lyons, 165 S.W. 900 (Tex. Civ. App.—Amarillo 1914, writ dism’d).
A guarantor may enter into an accord and satisfaction, and acceptance of partial payment with knowledge of a guarantor’s insolvency will extinguish a debt. Diamond Paint Co. v. Embry, 525 S.W.2d 529, 532 (Tex. Civ. App.—Houston [14th Dist.] 1975, writ ref’d n.r.e.).
Accord and satisfaction can be either executory (the promise must be performed before the old obligation is discharged) or executed (the accord is fully paid or the promise itself is taken as satisfaction). DoAll Dallas Co. v. Trinity National Bank, 498 S.W.2d 396, 401 (Tex. Civ. App.—Texarkana 1973, writ ref’d n.r.e.).
An accord without complete satisfaction does not bar a suit on the original cause of action. Rutherford v. Page, Southerland & Page, 429 S.W.2d 602, 609 (Tex. Civ. App.—Austin 1968, writ ref’d n.r.e.). However, an executory accord may be enforced in favor of a debtor who, in accordance with the terms of an agreement with the creditor, tenders performance that the creditor refuses to accept. Alexander v. Handley, 146 S.W.2d 740, 743 (Tex. 1941). An accord that is unbreached by the debtor is a defense against suit on the claim. Pacific Employers Insurance Co. v. Brannon, 242 S.W.2d 185 (Tex. 1951).
The satisfaction may be the new promise itself. If the parties expressly agree that the promise itself is accepted as satisfaction of the underlying obligation, the accord and satisfaction is fully executed by a novation that bars an action on the underlying debt. DoAll Dallas Co., 498 S.W.2d at 400. See section 17.3 below for a discussion of novation.
Once tender of payment or other substituted performance has been accepted and nothing re-mains to be done by either party to the agreement, the settlement is fully executed and not executory. Thompson v. Pechacek, 365 S.W.2d 207, 209 (Tex. Civ. App.—Fort Worth 1963, no writ).
Accord and satisfaction is an affirmative defense that must be specifically pleaded. Tex. R. Civ. P. 94. The burden of proof is on the party asserting the defense. Harris v. Rowe, 593 S.W.2d 303, 306 (Tex. 1979).
§ 17.2Accord and Satisfaction by Use of Instrument under Texas Business and Commerce Code
A person against whom a claim is asserted may also establish a defense of accord and satisfaction by using a check and following the steps set forth in Tex. Bus. & Com. Code § 3.311. See Baeza v. Hector’s Tire & Wrecker Service, Inc., 471 S.W.3d 585, 591 (Tex. App.—El Paso 2015, no pet.) (“A party may assert the defense of accord and satisfaction under a common law doctrine, under statutory authority, or both.”). The elements are similar to those in the common law, but the statutory defense also requires the use of a negotiable written instrument sent with a “good faith” intent for it to be a full settlement of a dispute. Baeza, 471 S.W.3d at 593; Tex. Bus. & Com. Code § 3.311(a)(1); Leach v. Wilbur-Ellis Co., No. 07-14-00022-CV, 2014 WL 4553204, at *2 (Tex. App.—Amarillo Sept. 15, 2014, no pet.) (mem. op.). Section 3.311 is meant to encourage “informal dispute resolution by [use of] full satisfaction checks” (see section 17.1:5). Tex. Bus. & Com. Code § 3.311 cmt. 3.
Section 3.311 does not conflict with the common-law doctrine of accord and satisfaction; it is “based on a belief that the common-law rule produces a fair result.” Flores v. Hansen, No. 2-09-465-CV, 2010 Tex. App. LEXIS 7663 (Tex. App.—Fort Worth, September 16, 2010, no pet.); Milton M. Cooke Co. v. First Bank & Trust, 290 S.W.3d 297, 304 (Tex. App.—
Houston [1st Dist.] 2009, no pet.); Tex. Bus. & Com. Code § 3.311 cmt. 3.
Like the common-law doctrine, accord and satisfaction under Tex. Bus. & Com. Code § 3.311 can be altered by contract. See Tex. Bus. & Com. Code § 1.302; Leach, 2014 WL 4553204, at *2.
Accord and satisfaction exists under Tex. Bus. & Com. Code § 3.311 if—
1.the debtor in good faith tendered an instrument to the creditor in full satisfaction of the claim;
2.the instrument or an accompanying writing contained a conspicuous statement to the effect that the instrument was tendered as full satisfaction of the claim;
3.the amount of the claim was unliquidated or subject to bona fide dispute; and
4.the creditor obtained payment of the instrument.
Tex. Bus. & Com. Code § 3.311(a), (b); Leach v. Wilbur-Ellis Co., No. 07-14-00022-CV, 2014 WL 4553204, at *2 (Tex. App.—Amarillo Sept. 15, 2014, no pet.) (mem. op.).
Restrictive endorsements do not need to be on the check itself but can be in an accompanying written communication. In Custom Transit, LP vs. Richway Cartage, Inc., 375 S.W.3d 337, 347–48 (Tex. App.—Houston [14th Dist.] 2012, pet. denied), the court held that the creditor’s oral agreement to accept “full payment” for less than the total amount owed was sufficient to find accord and satisfaction.
§ 17.2:2Requirement for Liquidated Claim or Bona Fide Dispute
Importantly, a statement on the instrument that the check is being tendered in full satisfaction or marked “paid in full” is not sufficient to constitute an accord and satisfaction if the claim is liq-uidated and not subject to a bona fide dispute. Petty v. Citibank (South Dakota) N.A., 218 S.W.3d 242, 246 (Tex. App.—Eastland 2007, no pet.) (mere payment of part of debt that is undisputed is not sufficient consideration to support promise to accept same in full payment of entire debt and does not bar creditors suit to recover balance) (quoting Tex. Bus. & Com. Code § 3.311 cmt. 4: “Section 3–311 does not apply to cases in which the debt is a liquidated amount and not subject to a bona fide dispute”).
§ 17.2:3Defeating Debtor’s Attempt at Accord and Satisfaction
The debtor’s attempt at accord and satisfaction will be defeated if—
1.a creditor organization, within a reasonable time before the tender, sends a conspicuous statement to the debtor that communications concerning disputed debts, including an instrument tendered as satisfaction, be sent to a designated person, office, or place and the instrument or accompanying communication is not sent there; or
2.the creditor, whether an organization or not, tenders repayment of the amount of the instrument to the debtor within ninety days after payment.
Tex. Bus. & Com. Code § 3.311(c). See also Leach v. Wilbur-Ellis Co., No. 07-14-00022-CV, 2014 WL 4553204, at *3 (Tex. App.—Amarillo Sept. 15, 2014, no pet.) (mem. op.) (conspicuousness requirement of section 3.311(c)(1)(A) does not apply to an express provision of a note). Even if the creditor takes these preventive actions, however, the court may still find an accord and satisfaction if, within a reasonable time before collection of the instrument was initiated, the creditor or his agent having direct responsibility with respect to the disputed debt knew that the instrument was tendered in full satisfaction of the claim. Tex. Bus. & Com. Code § 3.311(d). See also Khoury v. Bekins Moving & Storage Co., No. 05-98-00619-CV, 2000 WL 1073607, at *2 (Tex. App.—Dallas Jul. 24, 2000, no pet.) (not designated for publication) (in order to avoid accord and satisfaction, the check must be returned to the maker); Metromarketing Services, Inc. v. HTT Headwear, Ltd., 15 S.W.3d 190, 197 (Tex. App.—Houston [1st Dist.] 2000, no pet.) (“to repudiate a transaction that purports to fully satisfy a claim, a creditor should return the check”); Indiana Lumbermen’s Mutual Insurance Co. v. State of Texas, 1 S.W. 3d 264, 267 (Tex. App.—Fort Worth 1999, pet. denied) (state was required to return checks without cashing them to avoid accord and satisfaction).
Comment 7 to section 3.311 describes the situation when a debtor sends a “full payment” check to a lock box: “If a full satisfaction check is sent to a lock box or other office processing checks sent to the claimant, it is irrelevant whether the clerk processing the check did or did not see the statement that the check was tendered as full satisfaction of the claim. Knowledge of the clerk is not imputed to the organization because the clerk has no responsibility with respect to an ac-cord and satisfaction. Moreover, there is no failure of ‘due diligence’ under [Tex. Bus. & Com. Code § 1.202(f)] if the claimant does not require its clerks to look for full satisfaction statements on checks or accompanying communications. Nor is there any duty of the claimant to assign that duty to its clerks. [Section 3.311(c)] is intended to allow a claimant to avoid an inadvertent accord and satisfaction by complying with either subsection (c)(1) or (2) without burdening the check-processing operation with extraneous and wasteful additional duties.” Tex. Bus. & Com. Code § 3.311 cmt. 7.
Practice Note: Despite the legal bases to defeat an accord and satisfaction defense based on a “full payment” check, the creditor and creditor’s counsel should consider not cashing the “full payment” check and returning it to the debtor. Alternatively, one should attempt to obtain an express confirmation from the debtor (by letter or electronically) confirming rescission of the restrictive endorsement, and permitting the creditor to negotiate the check as an unconditional payment against a specific outstanding debt.
Novation is the substitution of a new agreement between the same parties or the substitution of a new party with respect to an existing agreement. When a novation occurs, only the new agreement can be enforced. Supply Pro, Inc. v. Ecosorb International, Inc., No. 01-15-00621-CV, 2016 WL 4543136, at *7 (Tex. App.—Houston [1st Dist.] Aug. 30, 2016, no pet.) (mem. op.); New York Party Shuttle, LLC v. Bilello, 414 S.W.3d 206, 214 (Tex. App.—Houston [1st Dist.] 2013, pet. denied). “A novation agreement need not be in writing or evidenced by express words of agreement, and an express release is not necessary to effect a discharge of an original obligation by novation. . . . The intent to accept the new obligation in lieu and in discharge of the old one may be inferred from the facts and circumstances surrounding the transaction [and] the conduct of the parties.” Supply Pro, 2016 WL 4543136, at *7 (quoting Bank of North America v. Bluewater Maintenance, Inc., 578 S.W.2d 841, 842 (Tex. Civ. App.—Houston [1st Dist.] 1979, writ ref’d n.r.e.)).
Novation requires—
1.a previous valid obligation;
2.a mutual agreement of all parties to the acceptance of a new contract;
3.the extinguishment of the old contract; and
4.a valid new agreement.
Vickery v. Vickery, 999 S.W.2d 342, 356 (Tex. 1999); Farkooshi v. Afisco Interest, LLC, No. 14-13-00201-CV, 2014 WL 4161708, at *4 (Tex. App.—Houston [14th Dist.] Aug. 21, 2014, no pet.) (mem. op.).
An express release is not necessary to discharge an original obligation by novation, because the intent or agreement to discharge the old obligation by the new one may be inferred from the facts and circumstances and conduct of the parties. A novation agreement need not be in writing or evidenced by express words because, like any other ultimate fact, it may be inferred from the acts and conduct of the parties and from other facts and circumstances. Computed Imaging Service v. Fayette Memorial Hospital, No. 03-00-232-CV, 2001 WL 23188, at *2 (Tex. App.—Austin Jan. 11, 2001, no pet.) (mem. op.) (citing Commercial Credit Corp. v. Brown, 471 S.W.2d 914, 919 (Tex. Civ. App.—Amarillo 1971, writ ref’d n.r.e.). Nonetheless, the parties’ intent is a key factor in novation. Dodson v. Sizenbach, 663 S.W.2d 13 (Tex. App.—Houston [14th Dist.] 1983, no writ). Economic duress vitiates a novation. Dodson, 663 S.W.2d at 16 (citing Thomas Construction Co. v. Kelso Marine, Inc., 639 F.2d 216 (5th Cir. 1981)).
In the absence of express agreement, whether a new contract operates as a novation of an earlier contract is usually a question of fact and can only become a question of law when the state of the evidence is such that reasonable minds cannot differ as to its effect. Goldman v. Olmstead, 414 S.W.3d 346, 358 (Tex. App.—Dallas 2013, pet. denied).
§ 17.3:3Novation Compared with Accord and Satisfaction
An accord and satisfaction may or may not also be a novation. The satisfaction in an accord and satisfaction is usually the performance of the new promise and not the new promise itself. DoAll Dallas Co. v. Trinity National Bank, 498 S.W.2d 396, 400 (Tex. Civ. App.—Texarkana 1973, writ ref’d n.r.e.). It is the execution or performance of the new agreement. Stevens v. State Farm Fire & Casualty Co., 929 S.W.2d 665, 673 (Tex. App.—Texarkana 1996, writ denied); Fortner v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 687 S.W.2d 8, 13 (Tex. App.—Dallas 1987, writ ref’d n.r.e.). However, the satisfaction may be the new promise itself. A novation is the acceptance of the new promise in lieu of and in extinguishment of the old obligation. If the new promise itself is accepted as satisfaction, the transaction is more properly termed a novation. DoAll Dallas Co., 498 S.W.2d at 400. For a discussion of accord and satisfaction, see section 17.1 above.
Novation must be specifically pleaded; it cannot be shown by a general denial. Tex. R. Civ. P. 94; Farkooshi v. Afisco Interest, LLC, No. 14-13-00201-CV, 2014 WL 4161708, at *4 (Tex. App.—Houston [14th Dist.] Aug. 21, 2014, no pet.) (mem. op.).
§ 17.4:1Application of Payments to Open Account
Generally, when a contract does not specify how payments shall be applied to a running account, payments shall be applied to the oldest portion of the account. W.E. Grace Manufacturing Co. v. Levin, 506 S.W.2d 580 (Tex. 1974); Mazelheri v. Simons Petroleum, Inc., No. 05-05-00719-CV, 2006 WL 1738275, at *4 (Tex. App.—Dallas June 27, 2006, pet. denied) (mem. op.). Where there is a running account with various items of charges and credits occurring at different times and no direction of payment has been made by the debtor, payments on account as whole are applied by law to oldest unpaid portion of account, even if oldest part of account is barred by limitations. Watson v. Cargill, Inc., 573 S.W.2d 35, 39 (Tex. Civ. App.—Waco 1978, writ ref’d n.r.e.). However, there is an exception to this rule. If the parties have agreed that a payment shall be applied to a certain indebtedness or the debtor has directed such application, the agreement or direction is controlling. Victor v. Harden, No. 01-97-00250-CV, 1998 WL 285947, at *6 (Tex. App.—Houston [14th Dist.], June 4, 1998, no pet.) (not designated for publication); Watson, 573 S.W.2d at 39.
§ 17.4:2Pleading Requirements for Payment as Defense
Payment must be specifically pleaded; it cannot be shown by a general denial. See Tex. R. Civ. P. 94; Southwestern Investment Co. v. Allen, 328 S.W.2d 866, 868 (Tex. 1959). A defendant pleading payment as a defense must file with his plea an account itemizing the payments. Otherwise, he will not be allowed to prove payment unless it is so plainly and particularly described in the plea as to give the plaintiff full notice of the defense. Tex. R. Civ. P. 95.
The parties may rescind their contract by mutual agreement, discharging themselves from their respective duties. The mutual release of their rights is sufficient consideration for the rescission agreement. The other party must accept an offer of rescission either affirmatively or by acquiescence in a manner and under circumstances sufficient to constitute an election to treat the contract as terminated. A mere expression of repudiation by one party is not an offer of rescission. Texas Gas Utilities Co. v. Barrett, 460 S.W.2d 409, 414 (Tex. 1970).
A signed sales agreement that by its terms excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded. Tex. Bus. & Com. Code § 2.209(b). See the discussion of oral modification under Code section 2.209(b) at section 17.7:3 below.
Rescission is a matter constituting an avoidance or affirmative defense and must be affirmatively pleaded. Tex. R. Civ. P. 94; Wilson v. Remmel Cattle Co., 542 S.W.2d 938, 942 (Tex. Civ. App.—Amarillo 1976, writ ref’d n.r.e.).
§ 17.5:3Rescission as Equitable Contractual Remedy
An otherwise valid contract may be rescinded to avoid unjust enrichment. Helms v. Swanson, No. 12-14-00280-CV, 2016 WL 1730737, at *5 (Tex. App.—Tyler, Apr. 26, 2016, pet. denied); Neese v. Lyn, 479 S.W.3d 368, 369 (Tex. App.—Dallas 2015, no pet.). Grounds for rescission include the following:
1.Fraud. Dallas Farm Machinery Co. v. Reaves, 307 S.W.2d 233, 238–39 (Tex. 1957). See also section 17.42 below.
2.Mutual mistake. Myrad Properties, Inc. v. LaSalle Bank, N.A., 300 S.W.3d 746, 750 (Tex. 2009). See also section 17.12 below.
3.Unilateral mistake. James T. Taylor & Son, Inc. v. Arlington Independent School District, 335 S.W.2d 371, 373 (Tex. 1960). See also section 17.12:4 below.
4.Duress. Country Cupboard, Inc. v. Texster Corp., 570 S.W.2d 70, 74 (Tex. Civ. App.—Dallas 1978, writ ref’d n.r.e.). See also section 17.19 below.
5.Incapacity. James v. Barnett, 404 S.W.2d 886, 888 (Tex. Civ. App.—Dallas 1966, writ ref’d n.r.e.) (incapacity due to minority); Hays v. Spangenberg, 94 S.W.2d 899, 902 (Tex. Civ. App.—Austin 1936, no writ) (mental incapacity). See section 17.8 below.
To be entitled to rescission, a party must show either (1) that it and the other party are in the status quo (e.g., that it is not retaining a benefit received under the contract without restoration to the other party), or (2) that there are special equitable considerations that obviate the need for the parties to be in the status quo. Helms, 2016 WL 1730737, at *5.
§ 17.6Merger and Parol Evidence Rule
§ 17.6:1Merger and Parol Evidence Rule Generally
Merger is the absorption of one contract into another contract, extinguishing the former. It is largely a matter of intention of the parties. Capstone Building Corp. v. IES Commercial, Inc., No. 10-15-00182-CV, 2016 WL 1722665, at *2 (Tex. App.—Waco Apr. 28, 2016, pet. denied); Texland Petroleum, L.P v. Scythian, Ltd., No. 07-11-00141-CV, 2012 WL 1252967, at *2 (Tex. App.—Amarillo, Apr. 13, 2012, no pet.) (mem. op.) (“As a general principle, when two contracts are entered into by the same parties, covering the same subject matter, but containing terms which are so inconsistent that the terms of the two contracts cannot subsist together, the legal effect of the subsequent contract is to rescind the earlier contract.”) (citing South Plains Lamesa Railroad, Ltd. v. Kitten Family Living Trust, No. 07-06-0209-CV, 2008 WL 223847, at *2 (Tex. App.—Amarillo Jan. 28, 2008, pet. denied) (mem. op.). However, a prior agreement is not superseded by or merged into a subsequent agreement relating to the same subject matter if the first agreement could constitute a separate agreement or where the first agreement is not fully integrated into the second agreement but merely modifies the first agreement in some respect. Stated another way, when the parties manifest an intent to have any of the original contract’s provisions survive, merger is inapplicable. Thus, application of the doctrine of merger completely discharges the earlier, inconsistent contract. Texland Petroleum, 2012 WL 1252967, at *2. See also Hubacek v. Ennis State Bank, 317 S.W.2d 30, 32 (Tex. 1958) (oral agreement that was not inconsistent with written agreement was enforceable as not superseded by or merged with written agreement).
The doctrine of merger is closely allied with the parol evidence rule. If parties have entered into a valid, integrated agreement dealing with the subject matter of the contract, the parol evidence rule prevents enforcement of prior or contemporaneous agreements inconsistent with the integrated agreement. Unless there is ambiguity, fraud, or accident, it is presumed that all prior agreements of the parties relating to the transaction have been merged into the instrument. Greater Houston Development, Inc. v. Harris County, No. 14-10-00364-CV, 2010 WL 4950634, at *5 (Tex. App.—Houston [14th Dist.] Dec. 7, 2010, no pet.) (mem. op.); Adams v. McFadden, 296 S.W.3d 743, 752 (Tex. App.—El Paso 2009, pet. granted, judgment vacated, and remanded by agreement); Edascio, L.L.C. v. NextiraOne L.L.C., 264 S.W.3d 786, 796 (Tex. App.—Houston [1st Dist.] 2008, pet. denied).
Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented:
1.by course of performance, course of dealing, or usage of trade (defined in Tex. Bus. & Com. Code § 1.303), and
2.by evidence of consistent additional terms, unless the court finds that the writing was intended also as a complete and exclusive statement of the terms of the agreement.
Tex. Bus. & Com. Code § 2.202.
Modification in a contract is some change in an original agreement that introduces a new or different element into the details of the agreement but leaves the general purpose and effect of the subject matter undisturbed. Archibald v. Act III Arabians, 755 S.W.2d 84, 86 (Tex. 1988), citing Webb v. Finger Contract Supply Co., 447 S.W.2d 906, 908 (Tex. 1969). See also Shores Ag-Air, Inc. v. MPH Products Co., No. 13-15-00525-CV, 2016 WL 2955066, at *4 (Tex. App.—Corpus Christi May 19, 2016, no pet.) (“Parties may agree to alter their original contract”) (citing Mid Plains Reeves, Inc. v. Farmland Industries, 768 S.W.2d 318, 321 (Tex. App.—El Paso 1989, writ denied)). There must be mutual assent to any modification, because one party cannot unilaterally remake a contract. Hill v. Heritage Resources, Inc., 964 S.W.2d 89, 114 (Tex. App.—El Paso 1997, pet. denied); Kitten v. Vaughn, 397 S.W.2d 530, 533 (Tex. Civ. App.—Austin 1965, no writ).
Generally, modification of an existing contract must be supported by consideration. Hathaway v. General Mills, Inc., 711 S.W.2d 227, 228 (Tex. 1986); Liberty Mutual Insurance Co. v. Sims, No. 12-14-00123-CV, 2015 WL 7770166, at *7 (Tex. App.—Tyler Dec. 3, 2015, pet. denied); Dupree v. Boniuk Interests, Ltd., 472 S.W.3d 355, 367 (Tex. App.—Houston [1st Dist.] 2015, no pet.); Hill v. Heritage Resources, Inc., 964 S.W.2d 89, 113 (Tex. App.—El Paso 1997, pet. denied) (“To conclude that there was a valid modification, the jury had to favorably determine . . . that the modification is based upon new consideration.”). Consideration may consist of a benefit that accrues to one party, or, alternatively, a detriment incurred by the other party. Walden v. Affiliated Computer Services, Inc., 97 S.W.3d 303, 315 (Tex. App.—Houston [14th Dist.] 2003, pet. denied); see also Roark v. Stallworth Oil & Gas, Inc., 813 S.W.2d 492, 496 (Tex. 1991) (“Consideration is a present exchange bargained for in return for a promise. It consists of either a benefit to the promisor or a detriment to the promisee. The detriment must induce the making of the promise, and the promise must induce the incurring of the detriment.”). A promise to fulfill a pre-existing obligation cannot serve as new consideration for an amendment to a contract. Walden, 97 S.W.3d at 319.
An exception exists for contracts for the sale of goods, which require no consideration to be modified. Tex. Bus. & Com. Code § 2.209(a). See also El Paso Natural Gas Co. v. Minco Oil & Gas, 8 S.W.3d 309, 314 (Tex. 1998) (quoting comment 2 to Uniform Commercial Code § -2-209; “modifications made [under subsection 2.209(a)] must meet the test of good faith imposed by this Act. The effective use of bad faith to escape performance on the original contract terms is barred, and the extortion of a ‘modification’ without legitimate commercial reason is ineffective as a violation of the duty of good faith. . . . The test of ‘good faith’ between merchants or as against merchants includes ‘observance of reasonable commercial standards of fair dealing in the trade’ (Section 2-103), and may in some situations require an objectively demonstrable reason for seeking a modification.”).
Texas common law generally permits oral modification of a written contract that does not have to be in writing under the statute of frauds even if the contract contains a no-oral-modification clause, because such a written contract is of no higher legal degree than an oral contract. Hobby Lobby Stores, Inc. v. Standard Renewable Energy, LP, No. 02-15-00124-CV, 2016 WL 4247969, at *5 (Tex. App.—Fort Worth Aug. 11, 2016, pet. denied) (mem. op.); Hyatt Cheek Builders-Engineers Co. v. Board of Regents of the University of Texas System, 607 S.W.2d 258, 265 (Tex. App.—Texarkana 1980, writ dism’d) (“Such a written bargain is of no higher legal degree than an oral one, and either may vary or discharge the other.”).
Not every oral modification to a contract within the statute of frauds is barred. American Garment Properties v. CB Richard Ellis-El Paso, L.L.C., 155 S.W.3d 431, 437 (Tex. App.—El Paso 2004; no pet.); Group Hospital Services, Inc. v. One & Two Brookriver Center, 704 S.W.2d 886, 890 (Tex. App.—Dallas 1986, no writ.). Contracts that must be written to be enforceable may be modified by oral agreement to extend the time of performance of the contract if the parol agreement is made before the contract expires. Gulf Production Co. v. Continental Oil Co., 164 S.W.2d 488, 491 (Tex. 1942); Voss Road Exxon LLC v. Vlahakos, No. 01-10-00146-CV, 2011 WL 2623989, at *6 (Tex. App.—Houston [1st Dist.] June 30, 2011, no pet.) (mem. op.). The critical determination is whether the modification materially effects the obligations of the underlying agreement. American Garment Properties, 155 S.W.3d at 437; see also Dracopoulas v. Rachal, 411 S.W.2d 719, 721 (Tex. 1967) (exception to general rule against oral modification of contracts permits parties to agree orally to extend time of performance of contract required to be in writing, so long as oral agreement is made before expiration of written contract). Where the character or value of the underlying agreement is unaltered, oral modifications are enforceable. American Garment Properties, 155 S.W.3d at 437; Group Hospital Services, Inc., 704 S.W.2d at 890. Nevertheless, the parties to contracts that must be in writing may not create a new contract by oral agreement that is partly written and partly oral. English v. Marr, 506 S.W.2d 333, 336 (Tex. Civ. App.—Houston [1st Dist.] 1974, no writ).
A signed agreement for the sale of goods that excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded. But except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party. Tex. Bus. & Com. Code § 2.209(b). The requirements of the statute of frauds (section 2.201) must be satisfied if the contract as modified is within its provisions. Tex. Bus. & Com. Code §§ 2.201, 2.209(c). Although an attempt at modification or rescission does not satisfy the requirements of subsections (b) or (c), it can operate as a waiver. Tex. Bus. & Com. Code § 2.209(d). A party who has made a waiver affecting an executory portion of the contact may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver. Tex. Bus. & Com. Code § 2.209(e).
§ 17.8:1Minority and Removal of Disabilities of Minority
The age of majority in Texas is eighteen. Tex. Civ. Prac. & Rem. Code § 129.001. Except as otherwise expressly provided by statute or by the constitution, every person who has been married in accordance with the law of Texas, regardless of age, has the power and capacity of an adult, including the capacity to contract. Tex. Fam. Code § 1.104. A minor of at least seventeen, or at least sixteen if self-supporting and living separate and apart from his parents, managing conservator, or guardian, may petition the court to have his disabilities of minority removed for limited or general purposes. Tex. Fam. Code § 31.001(a).
The contract of a minor is not void but is merely voidable at his option. The minor may set aside the entire contract at his option, but he is not entitled to enforce portions that are favorable to him while disaffirming other provisions that he finds burdensome. See Seger v. Yorkshire Insurance Co., 503 S.W.3d 388, 406 (Tex. 2016); Dairyland County Mutual Insurance Co. v. Roman, 498 S.W.2d 154, 158 (Tex. 1973); PAK Foods Houston, LLC v. Garcia, 433 S.W.3d 171, 176 (Tex. App.—Houston [14th Dist.] 2014, pet. dism’d). A minor at the time of contracting can ratify the contract after attaining majority. If he does, he is bound by its terms. PAK Foods Houston, 433 S.W.3d at 176. A minor cannot disaffirm a contract if he induced the seller to enter the contract by fraudulently representing himself as an adult. Cain v. Coleman, 396 S.W.2d 251, 253 (Tex. Civ. App.—Texarkana 1965, no writ) (citing Evans v. Henry, 230 S.W.2d 620, 621 (Tex. Civ. App.—San Antonio 1950, no writ)).
A minor disaffirming his contract must restore property still in his possession or control. As a general rule, however, a minor may repudiate his contract for the purchase of property and is entitled to the return of the money that he has paid under the contract even if he cannot tender return of the property because he has squandered or dissipated it or the proceeds from its sale. Bullock v. Sprowls, 54 S.W. 661, 662–63 (Tex. 1899); James v. Barnett, 404 S.W.2d 886, 888 (Tex. Civ. App.—Dallas 1966, writ ref’d n.r.e.).
Minors can be bound to contracts for necessaries, although they are bound only to the extent of the reasonable value of those necessaries. Parsons v. Keys & McKnight, 43 Tex. 557 (1875); Johnson v. Newberry, 267 S.W. 476, 481 (Tex. Comm’n App. 1924, judgm’t adopted); see Bowman v. Bowman, 96 S.W.2d 667, 668 (Tex. Civ. App.—Eastland 1936, no writ).
§ 17.8:3Determination of Incapacity
A person has the mental capacity to contract if he appreciates the effect of what he is doing and understands the nature and consequences of his acts and the business he is transacting. Mandell & Wright v. Thomas, 441 S.W.2d 841, 845 (Tex. 1969); Rowland v. Herrin, No. 03-07-00247-CV, 2010 WL 566881, at *2 (Tex. App.—Austin Feb. 14, 2010, no pet.) (mem. op.). A provision of court-ordered, emergency, or voluntary mental health services to a person is not a determination or adjudication of that person’s mental competence and does not limit that person’s legal capacity or property rights. Tex. Health & Safety Code § 576.002(a). Mental capacity, or a lack thereof, may be shown by circumstantial evidence, including: (1) a person’s outward conduct, “manifesting an inward and causing condition”; (2) any pre-existing external circumstances tending to produce a special mental condition; and (3) the prior or subsequent existence of a mental condition from which a person’s mental capacity (or incapacity) at the time in question may be inferred. Bach v. Hudson, 596 S.W.2d 673, 676 (Tex. Civ. App.—Corpus Christi 1980, no writ.). But see Riggins v. Hill, No. 14-09-00495-CV, 2011 WL 5248347 at *9 (Tex. App.—Houston [14th Dist.] Nov. 3, 2011, pet. denied) (mem. op.) (stating that “[m]ere nervous tension, anxiety or personal problems do not amount to mental incapacity sufficient to raise a fact issue to defeat a summary-judgment motion”). See also Tex. Health & Safety Code § 576.002(b) (a person is presumed mentally competent unless a judicial finding to the contrary is made under the Texas Estates Code.
In general, the question of whether a person knows or understands the nature and consequences of his act at the time of making a contract is a question of fact. See Fox v. Lewis, 344 S.W.2d 731, 739 (Tex. Civ. App.—Austin 1961, writ ref’d n.r.e.). The burden of proving incapacity is on the party seeking to rescind the contract. Rowland v. Herren, 2010 WL 566881, at *2.
§ 17.8:4Effect of Incapacity on Power to Contract
If a person was incompetent when he made a contract, the contract is voidable. Cole v. McWillie, 464 S.W.3d 896, 900 (Tex. App.—Eastland 2015, pet. denied). But see Smith v. Christley, 755 S.W.2d 525, 532–33 (Tex. App.—Houston [14th Dist.] 1988, writ denied) (relying on the Restatement (Second) of Contracts (1981) § 15 to say that if contract is made by incompetent party on fair terms and other party has no reason to know of incompetency and because of partial or complete performance equities would not best be served by avoidance of contract, contract will cease to be voidable).
A contract made by a person who was sane at the time the contract was made can be enforced regardless of subsequent insanity. Kern v. Smith, 164 S.W.2d 193, 195 (Tex. Civ. App.—Texarkana 1942, writ ref’d w.o.m.). Mental incapacity, to the extent it nullifies the obligor’s obligation, is a defense against a holder in due course. Tex. Bus. & Com. Code § 3.305(a)(1)(B).
A contract for necessaries entered into by an insane person is enforceable to the extent of the value of the goods or services furnished. Legler v. Legler, 189 S.W.2d 505, 512 (Tex. Civ. App.—Austin 1945, writ ref’d w.o.m.). Even if there is no express contract, one will be implied for the reasonable value of the goods or services provided if necessaries are furnished to the insane person. Chandler v. Warlick, 321 S.W.2d 897, 901 (Tex. Civ. App.—Eastland 1958, writ ref’d n.r.e.).
§ 17.9Lack or Failure of Consideration
§ 17.9:1Lack or Failure of Consideration Generally
A lack (or want) of consideration is different from a failure of consideration. Both are grounds for cancellation or rescission of a contract, because the transaction operates as constructive or legal fraud as to one who receives nothing of value in exchange for property. Radford v. Snyder National Farm Loan Ass’n, 121 S.W.2d 478, 480 (Tex. Civ. App.—Amarillo 1938, no writ).
A failure-of-consideration defense presupposes that there was consideration for the agreement in the first place, but that it later failed. Cheung-Loon, LLC v. Cergon, Inc., 392 S.W.3d 738, 748 (Tex. App.—Dallas 2012, no pet.) (a failure of consideration occurs when, because of some supervening cause arising after the contract is formed, the promised performance fails); Bassett v. American National Bank, 145 S.W.3d 692, 696 (Tex. App.—Fort Worth 2004, no pet.).
A complete failure of consideration constitutes a defense to an action on a written agreement. Parker v. Dodge, 98 S.W.3d 297, 301 (Tex. App.—Houston [1st Dist.] 2003, no pet.). Breach of contract, however, does not constitute a “supervening cause” that would prevent performance. Bernal v. Garrison, 818 S.W.2d 79, 84 (Tex. App.—Corpus Christi 1991, no writ).
Failure of consideration is grounds for cancellation or rescission of a contract only when one receives nothing of value in exchange for the agreement. See Radford v. Snyder National Farm Loan Ass’n, 121 S.W.2d 478, 480 (Tex. Civ. App.—Amarillo 1938, no writ). Cancellation or rescission of consideration happens when, because of some supervening cause after an agreement is reached, the promised performance fails. Bernal, 818 S.W.2d at 84; Stewart v. U.S. Leasing Corp., 702 S.W.2d 288, 290 (Tex. App.—Houston [1st Dist.] 1985, no writ); O’Shea v. Coronado Transmissions Co., 656 S.W.2d 557, 563 (Tex. App.—Corpus Christi 1983, writ ref’d n.r.e.). Partial failure of consideration is a pro tanto defense and will not invalidate the entire contract or prevent recovery on it. Cheung-Loon, 392 S.W.3d at 748; Estate of Menifee v. Barrett, 795 S.W.2d 810, 815 (Tex. App.—Texarkana 1990, no writ); Huff v. Speer, 554 S.W.2d 259, 263 (Tex. Civ. App.—Houston [1st Dist.] 1977, writ ref’d n.r.e.). A contract that lacks consideration, lacks mutuality of obligation and is unenforceable. Federal Sign v. Texas Southern University, 951 S.W.2d 401, 408 (Tex. 1997).
Lack of consideration, on the other hand, occurs when a contract, at its inception, does not impose obligations on both parties. Without a mutuality of obligation, a contract is unenforceable. Cheung-Loon, 392 S.W.3d at 747; National Bank of Commerce v. Williams, 84 S.W.2d 691, 692 (Tex. 1935); Johnson v. Bond, 540 S.W.2d 516, 520 (Tex. Civ. App.—Fort Worth 1976, writ ref’d n.r.e.). But see 1464-Eight, Ltd. v. Joppich, 154 S.W.3d 101, 105–06, 110 (Tex. 2004) (adopting the Restatement (Second) of Contracts which provides that recital of nominal consideration in either a guaranty or an option contract supports the underlying promise regardless of whether the recital amount was ever paid).
Failure of consideration is a defense that must be affirmatively pleaded and verified. Tex. R. Civ. P. 93(9), 94; Philadelphia Indemnity Insurance Co. v. White, 490 S.W.3d 468, 485 (Tex. 2016). Want of consideration must also be affirmatively pleaded and verified. Tex. R. Civ. P. 93(9), 94; Cheung-Loon, LLC v. Cergon, Inc., 392 S.W.3d 738 (Tex. App.—Dallas 2012, pet. dismissed).
Contracts are construed in favor of mutuality of obligation, because it is presumed that parties to an agreement intend it to be effectual. Texas Gas Utilities Co. v. Barrett, 460 S.W.2d 409, 412 (Tex. 1970); Chan v. Montebello Development Co., LP, No. 14-06-00936-CV, 2008 WL 2986379, at *7 (Tex. App.—Houston [14th Dist.] July 31, 2008, pet. denied) (mem. op.).
The doctrine of mutuality of obligation does not apply to unilateral contracts. A unilateral contract is binding, therefore, if supported by independent consideration. An option supported by consideration is unilateral; it is not founded on mutual promises, but it is binding on the promisor who has received consideration for his promise and optional on the party who has purchased the option. See, e.g., Johnson v. Breckenridge-Stephens Title Co., 257 S.W. 223, 225–26 (Tex. 1924); Colligan v. Smith, 366 S.W.2d 816, 820 (Tex. Civ. App.—Fort Worth 1963, writ ref’d n.r.e.). Once the option is accepted, it then becomes a bilateral contract that is binding on both parties. Tye v. Apperson, 689 S.W.2d 320, 323 (Tex. App.—Fort Worth 1985, writ ref’d n.r.e.).
Waiver is an affirmative defense that may be asserted against a party who intentionally relinquishes a known right or engages in intentional conduct inconsistent with claiming the right. BMG Direct Marketing v. Peake, 178 S.W.3d 763, 780 (Tex. 2005); In re GE Capital Corp., 203 S.W.3d 314, 316 (Tex. 2006); Trelltex, Inc. v. Intecx, LLC, 494 S.W.3d 781, 790 (Tex. App.—Houston [14th Dist.] 2016, no pet.); Byrd v. Estate of Nelms, 154 S.W.3d 149, 162 (Tex. App.—Waco 2004, pet. denied); Continental Casing Corp. v. SIDERCA Corp., 38 S.W.3d 782, 789 (Tex. App.—Houston [14th Dist.] 2001, no pet.). Waiver may be established by a party’s express renunciation of a known right, or by silence or inaction for a reasonable time period as to show an intention to yield the known right. Byrd, 154 S.W.3d at 162; Continental Casing, 38 S.W.3d at 789.
In general, a waiver will occur when someone dispenses with the performance of something he has a right to do, or where one in possession of any right does or forbears to do something, conferred by law or contract, with full knowledge of the material facts. Nixon Construction Co. v. Downs, 441 S.W.2d 284, 286 (Tex. Civ. App.—Houston [1st Dist.] 1969, no writ). Nonetheless, a party may enforce a right it has previously waived by giving sufficient notice to the other party, so that the other party has reasonable time to comply. Rodriguez v. Classical Custom Homes, Inc., 176 S.W.3d 928, 932 (Tex. App.—Dallas 2005, no pet.).
Waiver is ordinarily a question of fact. But when the facts and circumstances are admitted or clearly established, the question becomes one of law. Tenneco, Inc. v. Enterprise Products Co., 925 S.W.2d 640, 643 (Tex. 1996); In re Estate of Downing, 461 S.W.3d 231, 241 (Tex. App.—El Paso 2015, no pet.).
To establish an implied waiver of a legal right, there must be clear, unequivocal, and decisive acts of the party showing such a purpose or acts amounting to an estoppel. Trelltex, 494 S.W.3d at 790. Therefore, waiver is a matter of intent; for an implied waiver to be found through a party’s actions, intent must be clearly demonstrated by the surrounding facts and circumstances pertaining to the particular case. In re General Electric Capital Corp., 203 S.W.3d at 316; Trelltex, 494 S.W.3d at 790; Continental, 38 S.W.3d at 789. Essentially unilateral in its character, waiver is a legal consequence from an act or conduct of the party against whom it operates, and no act of the party in whose favor it is made is necessary to complete it. Waiver need not be founded on a new agreement or be supported by consideration. Massachusetts Bonding & Insurance Co. v. Orkin Exterminating Co., 416 S.W.2d 396, 401 (Tex. 1967).
A waiver of a condition can be established by conduct occurring after the time for performance of the condition has expired if the allegedly waived condition “is not a material part of the agreed equivalent of the obligor’s promise and its nonperformance does not materially affect the value received by the obligor.” Bimco Iron & Metal Corp., 464 S.W.2d at 357. Silence or inaction, for a sufficient period to show an intention to yield the known right, is enough to prove waiver. Tenneco Inc., 925 S.W.2d at 643. Trelltex, 494 S.W.3d at 790. Such silence or inaction, however, must be coupled with knowledge of the right and with other circumstances, such as inaction for an unreasonable period of time, to evidence the intention to waive. Furr v. Hall, 553 S.W.2d 666 (Tex. Civ. App.—Amarillo 1977, writ ref’d n.r.e.).
Generally, once a right is waived, it is lost forever and cannot be reclaimed without the other party’s consent. Burton v. National Bank of Commerce, 679 S.W.2d 115, 118 (Tex. App.—Dallas 1984, no writ). However, under certain circumstances, a party may enforce a right it has previously waived by giving sufficient notice to the other party, so that the other party has reasonable time to comply. Rodriguez v. Classical Custom Homes, Inc., 176 S.W.3d 928 (Tex. App.—Dallas 2005, no pet.).
What is a reasonable time depends on the circumstances in each case and, therefore, is a question of fact. Continental Casing, 38 S.W.3d at 789. However, while waiver is ordinarily a question of fact, “where the facts and circumstances are admitted or clearly established, the question becomes one of law.” Tenneco Inc., 925 S.W.2d at 643.
A party who has made a waiver affecting an executory portion of a contract for the sale of goods may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver. Tex. Bus. & Com. Code § 2.209(e).
Estoppel generally prevents one party from misleading another to the other’s detriment or to the misleading party’s own benefit. Ulico Casualty Co. v. Allied Pilots Ass’n, 262 S.W.3d 773, 778 (Tex. 2008); Johnson & Higgins of Texas, Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 515–16 (Tex. 1998); Rice v. Metropolitan Life Insurance Co., 324 S.W.3d 660, 667 n.6 (Tex. App.—Fort Worth 2010 no pet.). A person who by his speech or conduct has induced another to act in a particular manner ought not to be permitted to adopt an inconsistent position to the loss or injury of the other. Burton v. National Bank of Commerce, 679 S.W.2d 115, 117 (Tex. App.—Dallas 1984, no writ).
Equitable estoppel is defensive in character. It is based on the principle that if one party by his conduct induces another to act in a particular manner, he should not be allowed to adopt an inconsistent position and thereby cause loss or injury to the other. Fabrique, Inc. v. Corman, 796 S.W.2d 790, 792 (Tex. App.—Dallas 1990), writ denied, 806 S.W.2d 801 (Tex. 1991) (per curiam). The linchpin for equitable estoppel is equity-fairness. Trammell v. Galaxy Ranch School, LP (In re Trammell), 246 S.W.3d 815, 826 (Tex. App.—Dallas 2006, no pet.) (quoting Grigson v. Creative Artists Agency L.L.C., 210 F.3d 524, 528 (5th Cir. 2000); City of Fredericksburg v. Bopp, 126 S.W.3d 218, 221 (Tex. App.—San Antonio 2003, no pet.); In re Shockley, 123 S.W.3d 642, 653 (Tex. App.—El Paso 2003, no pet.); Texas Enterprises, Inc. v. Arnold Oil Co., 59 S.W.3d 244, 249 (Tex. App.—San Antonio 2001, orig. proceeding).
To invoke the doctrine of equitable estoppel, a party must satisfy the following elements:
1.A false representation or concealment of material facts;
2.Made with actual or constructive knowledge of the facts;
3.To a party who had neither the knowledge nor the means to acquire knowledge of the real facts;
4.With the intention that the representation should be, and the result that it is, relied on or acted on by the party to whom it was made to the party’s prejudice.
Ulico Casualty Co. v. Allied Pilots Ass’n, 262 S.W.3d 773, 778 (Tex. 2008) (quoting Johnson & Higgins of Texas, Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 515–16 (Tex. 1998)). Failure to prove any of these elements is fatal to the defense.
Equitable estoppel may arise from silence or inaction, if one with a duty to speak or act fails to do so and the silence or inaction misleads the other party to his detriment. Smith v. National Resort Communities, Inc., 585 S.W.2d 655, 658 (Tex. 1979). Absent a fiduciary or confidential relationship between the parties, a mere contractual relationship does not impose an affirmative duty to disclose. Crim Truck & Tractor Co. v. Navistar International Transportation Corp., 823 S.W.2d 591, 594 (Tex. 1992); cf. Anderson, Greenwood & Co. v. Martin, 44 S.W.3d 200, 212–13 (Tex. App.—Houston [14th Dist.] 2001, pet. denied) (duty to disclose does exist if necessary to correct misleading information or false impression).
The doctrine of judicial estoppel is not strictly speaking estoppel at all, but arises from positive rules of procedure based on justice and sound public policy. Long v. Knox, 291 S.W.2d 292, 295 (Tex. 1956). It is to be distinguished from equitable estoppel based on inconsistency in judicial proceedings because the elements of reliance and injury essential to equitable estoppel need not be present for judicial estoppel to apply. Long, 291 S.W.2d at 295.
Under the doctrine of judicial estoppel, a party is estopped merely by the fact of having alleged or admitted either in his pleadings, in a former proceeding under oath, or in other statements made under oath in the course of a former judicial proceeding, a position contrary to the assertion sought to be made. See Miller v. Gann, 842 S.W.2d 641, 641 (Tex. 1992); Long, 291 S.W.2d at 295; Nine Syllables, LLC v. Evans, No. 05-13-01677-CV, 2015 WL 3932751, at *4 (Tex. App.—Dallas June 26, 2015, no pet.) (mem. op.); Byrd v. Estate of Nelms, 154 S.W.3d 149 (Tex. App.—Waco 2004, pet. denied). Furthermore, the person seeking the protection of the doctrine of judicial estoppel need not have been a party to the prior proceeding in which the statement was made. Swilley v. McCain, 374 S.W.2d 871 (Tex. 1964).
To establish the defense of a judicial estoppel, a party must show—
1.a sworn, prior inconsistent statement made in a judicial proceeding;
2.which was successfully maintained in the prior proceeding;
3.not made inadvertently or by mistake, or pursuant to fraud or duress; and
4.which is deliberate, clear, and unequivocal.
Long, 291 S.W.2d at 295; Nine Syllables, 2015 WL 3932751, at *4; Andrews v. Diamond, Rash, Leslie & Smith, 959 S.W.2d 646, 650 (Tex. App.—El Paso 1997, writ denied); Huckin v. Joseph P. Connor & Stern, Flanz, Carnley & Wilson, P.C., 928 S.W.2d 180, 182–83 (Tex. App.—Houston [14th Dist.] 1996, no writ).
In Jackson v. Hancock & Canada, L.L.P., 245 S.W.3d 51, 55–57 (Tex. App.—Amarillo 2007, pet. denied), the court held that the plaintiffs’ failure to list a legal malpractice cause of action in their bankruptcy schedule constituted judicial estoppel, notwithstanding that the bankruptcy was dismissed; inadvertence occurs only when the debtor lacks knowledge of the undisclosed claim or has no motive for its concealment.
Promissory estoppel is recognized as a defensive doctrine which permits one who has relied on a promise to prevent an attack on the enforceability of the promise. In re Weekley Homes, L.P., 180 S.W.3d 127, 133 (Tex. 2005); Hruska v. First State Bank of Deanville, 747 S.W.2d 783, 785 (Tex. 1998); Bechtel Corp. v. CITGO Products Pipeline Co., 271 S.W.3d 898, 926 (Tex. App.—Austin 2008, no pet.); Stanley v. Citifinancial Mortgage Co., 121 S.W.3d 811, 820 (Tex. App.—Beaumont 2003, no pet.); Robbins v. Payne, 55 S.W.3d 740, 747 (Tex. App.—Amarillo 2001, pet. denied). Promissory estoppel prevents a promisor who has induced substantial action or forbearance by another from denying that promise if injustice can be avoided only be enforcement, but it does not create a contract right that does not otherwise exist. Bechtel, 271 S.W.3d at 926 (citing Sun Oil Co. (Delaware) v. Madeley, 626 S.W.2d 726, 734 (Tex. 1981) and Hruska, 747 S.W.2d at 785). Rather, it merely “prevents a party from insisting upon his strict legal rights”—i.e., the right to avoid his promise as not contractually binding—“when it would be unjust to allow him to enforce them.” Bechtel, 271 S.W.3d at 926 (quoting In re Weekley Homes, L.P., 180 S.W.3d at 133).
The elements of promissory estoppel are—
1.a promise;
2.foreseeability of reliance thereon by the promise; and
3.substantial reliance by the promisee to his detriment.
See English v. Fischer, 660 S.W.2d 521, 524 (Tex. 1983); Gilmartin v. KVTV, 985 S.W.2d 553, 558 (Tex. App.—San Antonio 1998, no pet.).
Promissory estoppel does not apply to a promise covered by a valid contract between parties but does apply to a promise outside the contract. Barnett v. Coppell North Texas Court, Ltd., 123 S.W.3d 804, 805 (Tex. App.—Dallas 2003, no pet.); Richter v. Wagner Oil Co., 90 S.W.3d 890, 899 (Tex. App.—San Antonio 2002, no pet.); El Paso Healthcare System, Ltd. v. Piping Rock Corp., 939 S.W.2d 695, 699 (Tex. App.—El Paso 1997, writ denied). Where there is no actual contract, the promissory estoppel theory may be invoked, thereby supplying a remedy that will enable the injured party to be compensated for his foreseeable, definite, and substantial reliance. Wheeler v. White, 398 S.W.2d 93, 97 (Tex. 1965); Bechtel, 271 S.W.3d at 926; MCN Energy Enterprises, Inc. v. Omagro de Colombia, L.D.C., 98 S.W.3d 766, 774 (Tex. App.—Fort Worth 2003, pet. denied); Barnett v. Coppell North Texas Court, Ltd., 123 S.W.3d at 825.
§ 17.11:7Pleading Requirements
Waiver and estoppel are affirmative defenses and must be affirmatively pleaded. Tex. R. Civ. P. 94.
§ 17.12Mutual and Unilateral Mistake
§ 17.12:1Elements of Mutual Mistake
If parties to an agreement have contracted under a mutual misconception or ignorance of a material fact, the agreement will be avoided. Williams v. Glash, 789 S.W.2d 261, 264 (Tex. 1990). The elements of mutual mistake are: (1) a mistake of fact, (2) held mutually by the parties, and (3) which materially affects the agreed-on exchange. Both parties must have “the same misunderstanding of the same material fact.” In re Estate of Childs, No. 04-15-00623-CV, 2016 WL 3452624, at *4 (Tex. App.—San Antonio June 22, 2016, no pet.) (mem. op.) (quoting City of The Colony v. North Texas Municipal Water District, 272 S.W.3d 699, 735 (Tex. App.—Fort Worth 2010, no pet.)); Lacy v. Ticor Title Insurance Co., 794 S.W.2d 781, 784 (Tex. App.—Dallas 1990), writ denied, 803 S.W.2d 265 (Tex. 1991).
The parol evidence rule does not bar extrinsic evidence of mutual mistake. Glash, 789 S.W.2d at 264; Dyer v. Cotton, 333 S.W.3d 703, 718 (Tex. App.—Houston [1st Dist.] 2010, no pet.).
§ 17.12:2Remedies for Mutual Mistake
Reformation of the agreement is a proper remedy when the true agreement of the parties is shown and the provision erroneously written into the instrument is there by mutual mistake. Myrad Properties, Inc. v. LaSalle Bank, N.A., 300 S.W.3d 746, 751 (Tex. 2009); Cherokee Water Co. v. Forderhause, 741 S.W.2d 377, 379 (Tex. 1987) (“The underlying objective of reformation is to correct a mutual mistake made in preparing a written instrument so that the instrument truly reflects the original agreement of the parties.”); Goff v. Southmost Savings & Loan Ass’n, 758 S.W.2d 822, 826 (Tex. App.—Corpus Christi 1988, writ denied). Otherwise, mutual mistake is an equitable ground that excuses a party’s failure to perform. See Crump v. Frenk, 404 S.W.3d 146, 153 n.11 (Tex. App.—Texarkana 2013, no pet.); A.L.G. Enterprises v. Huffman, 660 S.W.2d 603, 606 (Tex. App.—Corpus Christi 1983), aff’d as reformed, 672 S.W.2d 230 (Tex. 1984) (per curiam).
§ 17.12:3Pleading Requirements for Mutual Mistake
Mutual mistake must be affirmatively pleaded, or it will be waived. Tex. R. Civ. P. 94; Flores v. Medline Industries, Inc., No. 13-14-00436-CV, 2015 WL 9257070, at *4 (Tex. App.—Corpus Christi Dec. 17, 2015, no pet.).
One party’s mistake usually will not constitute a ground for relief, if it was not known to or induced by an act of the other party. Flores v. Medline Industries, Inc., 2015 WL 9257070, at *4 (Tex. App.—Corpus Christi Dec. 17, 2015, no pet.).
However, equitable relief against a unilateral mistake will be granted if (1) the mistake is of so great a consequence that it would be unconscionable to enforce the contract as made, (2) the mistake relates to a material feature of the contract, (3) the mistake was made regardless of the exercise of ordinary care, and (4) the parties can be placed in status quo in the equity sense (that is, rescission must not result in prejudice to the other party except for the loss of his bargain). There may be other circumstances, such as the acts and extent of knowledge of the parties that will govern or influence the extension of relief. James T. Taylor & Son, Inc. v. Arlington Independent School District, 335 S.W.2d 371, 373 (Tex. 1960); Flores, 2015 WL 9257070, at *6.
Unilateral mistake must be affirmatively pleaded, or it will be waived. Tex. R. Civ. P. 94; see also Flores, 2015 WL 9257070, at *6 (characterizing unilateral mistake as an “affirmative defense”).
§ 17.13:1Statute of Frauds Generally
The phrase statute of frauds refers to a principle carried forward from English statutory law into several Texas statutes, providing that certain types of promises or agreements are not enforceable unless the promise or agreement or a memorandum of it is in writing and signed by the party to be charged or by someone lawfully authorized to sign for him.
The primary purpose of the statute of frauds is to remove uncertainty, prevent fraudulent claims, and reduce litigation. Givens v. Dougherty, 671 S.W.2d 877, 878 (Tex. 1984); Garza v. Robinson, No. 13-11-00015-CV, 2013 WL 3326465, at *4 (Tex. App.—Corpus Christi, June 27, 2013, no pet.) (mem. op.). See also Davis v. Crockett, 398 S.W.2d 302, 305 (Tex. Civ. App.—Dallas 1965, no writ) (statute of frauds prevents fraud and perjury in certain types of transactions by requiring the agreement to be evidenced by a signed writing). The party pleading the statute of frauds bears the initial burden of establishing its applicability. Once that party meets its initial burden, the burden shifts to the opposing party to establish an exception that would take the verbal contract out of the statute of frauds. Whether a contract comes within the statute of frauds is a question of law. See Tex. R. Civ. P. 94; Dynegy, Inc. v. Yates, 422 S.W.3d 638, 642 (Tex. 2013). Whether a contract falls within the statute of frauds is a question of law. Thomas v. Miller, 500 S.W.3d 601, 607 (Tex. App.—Texarkana 2016, no pet.).
§ 17.13:2Transactions Covered by Various Statutes of Frauds
Texas law requires that certain transactions be memorialized by a signed writing, including the following:
1.A contract for the sale of goods for a price of $500 or more. Tex. Bus. & Com. Code § 2.201(a).
2.A loan agreement in which the amount involved exceeds $50,000. Tex. Bus. & Com. Code § 26.02(b). This does not apply to credit card, charge card, or open-end account agreements. Tex. Bus. & Com. Code § 26.02(a)(2). See section 17.13:3 below for further requirements.
3.A promise by an executor or administrator to answer out of his own estate for the debt or damage due from his decedent. Tex. Bus. & Com. Code § 26.01(b)(1).
4.A promise by one person to answer for the debt, default, or miscarriage of another. Tex. Bus. & Com. Code § 26.01(b)(2); Dynegy, Inc. v. Yates, 422 S.W.3d 638, 639–40 (Tex. 2013).
5.An agreement made on consideration of marriage or on consideration of nonmarital conjugal cohabitation. Tex. Bus. & Com. Code § 26.01(b)(3).
6.A contract for the sale of real estate. Tex. Bus. & Com. Code § 26.01(b)(4); Thomas v. Miller, 500 S.W.3d 601, 610 (Tex. App.—Texarkana May 6, 2016, no pet.).
7.A lease of real estate for a term longer than one year. Tex. Bus. & Com. Code § 26.01(b)(5).
8.An agreement which is not to be performed within one year from the making of the agreement. Tex. Bus. & Com. Code § 26.01(b)(6).
9.A promise or agreement to pay a commission for the sale or lease of an oil or gas mining lease, an oil or gas royalty, minerals, or a mineral interest. Tex. Bus. & Com. Code § 26.01(b)(7).
10.An agreement, promise, contract, or warranty of cure relating to medical care and results made by a physician or health care provider other than a pharmacist. Tex. Bus. & Com. Code § 26.01(b)(8).
11.A security interest in collateral other than property in the possession or under the control of the secured party or, if the collateral is a certified security, that has been delivered to the secured party under Tex. Bus. & Com. Code § 8.301. Tex. Bus. & Com. Code § 9.203(b)(3)(A)–(D). (Note that revised chapter 9 contemplates creation of a security agreement by “authentication,” which includes execution by means other than signing a writing. See Tex. Bus. & Com. Code § 9.102(a)(7); see also Tex. Bus. & Com. Code § 9.102(a)(70) (definition of “record”).
12.A trust in either real or personal property (with specified exceptions for personal property trusts). Tex. Prop. Code § 112.004.
13.A contract for a commission for the sale or purchase of real estate. Tex. Occ. Code § 1101.806(c).
14.A contract between a principal and a sales representative in which the sales representative is to solicit wholesale orders within the state. Tex. Bus. & Com. Code § 54.002.
15.A contingent fee contract for legal services between attorney and client. Tex. Gov’t Code § 82.065.
The rights and obligations of the parties to a loan agreement controlled by Tex. Bus. & Com. Code § 26.02 are determined solely from the terms of the written loan agreement. Any prior or contemporaneous oral agreements between the parties are superseded by and merged into the loan agreement. Tex. Bus. & Com. Code § 26.02(c), (d).
A financial institution (as defined in Tex. Bus. & Com. Code § 26.02(a)(1)) must give written notice to the obligor of the applicable statute of frauds and merger provisions of section 26.02. This notice must be either in a separate writing signed by the debtor or obligor or incorporated into one or more of the loan documents signed by him.
The notice must be in type that is bold-faced, capitalized, underlined, or otherwise set out from surrounding written material so as to be conspicuous and must state substantially as follows:
This written loan agreement represents the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties.
There are no unwritten oral agreements between the parties.
Tex. Bus. & Com. Code § 26.02(e). Although the statutory notice form above refers to subsequent agreements, the statute itself does not.
In addition to specific statutory exceptions to the statute of frauds, oral contracts governed by the statute of frauds may be enforced in the following situations.
Main Purpose: If the promise is to pay the debt, default, or miscarriage of another, an oral promise is enforceable if (1) the promisor intended to create primary responsibility in itself to pay for the debt, (2) there was consideration for the promise, and (3) the consideration given for the promise was primarily for the promisor’s own use and benefit. Dynegy, Inc. v. Yates, 422 S.W.3d 638, 642 (Tex. 2013). See also Haas Drilling Co. v. First National Bank, 456 S.W.2d 886, 890 (Tex. 1970), which seems to add a fourth element that obtaining the benefit is the promisor’s main or leading purpose in making the promise. The question of intent to be primarily responsible for the debt is a question for the finder of fact, taking into account all the facts and circumstances of the case. Dynegy, 422 S.W.3d at 642.
Promissory Estoppel: If the oral promise is to sign a written agreement that itself complies with the statute of frauds, it is enforceable if the promisor should have expected the promise to result in some definite and substantial injury to the promisee, the injury occurred, and the court must enforce the promise to avoid injustice. Nagle v. Nagle, 633 S.W.2d 796, 800 (Tex. 1982); “Moore” Burger, Inc. v. Phillips Petroleum Co., 492 S.W.2d 934 (Tex. 1972). See also Trammel Crow Co. No. 60 v. Harkinson, 944 S.W.2d 631, 636 (Tex. 1995) (promissory estoppel exception does not apply to Real Estate License Act).
Estoppel: If the oral promise is to sell or lease land, it is enforceable to avoid actual fraud if there has been payment of consideration, possession by the purchaser, and valuable and permanent improvements made by the purchaser. Nagle, 633 S.W.2d at 799, 800 (noting that promissory estoppel applies to sale of land only when promise is to sign document that itself complies with statute of frauds); Hooks v. Bridgewater, 229 S.W. 1114, 1116 (Tex. 1921).
Substantial (Partial) Performance: If one party has completed performance under the contract to an extent that she has suffered substantial detriment, has no adequate remedy, and it would perpetrate a fraud on her to permit the other party to plead the statute of frauds and reap an unearned benefit, an oral contract is enforceable. In order to establish the partial performance exception, the party alleging the exception must show that (1) she had performed acts unequivocally referable to the agreement, (2) the acts were performed in reliance on the agreement, (3) as a result of the acts she had experienced substantial detriment, (4) she has no adequate remedy for their loss, and (5) the other party would reap an unearned benefit such that not enforcing the agreement would amount to a virtual fraud. Thomas v. Miller, 500 S.W.3d 601, 609 (Tex. App.—Texarkana 2016, no pet.). The partial performance must be “unequivocally referable to the agreement and corroborative of the fact that a contract actually was made.” Miller, 500 S.W.3d at 610 (quoting Heritage Constructors, Inc. v. Chrietzbert Electric, Inc., No. 06-14-00048-CV, 2015 WL 3378377, at *6 (Tex. App.—Texarkana Dec. 9, 2014, no pet.) (mem. op.).
Fully Executed Contract: Contracts that have been fully executed cannot be invalidated by the statute of frauds. See Rozelle v. Fellows, No. 04-07-00600-CV, 2008 WL 4809214, at *2 (Tex. App.—San Antonio Nov. 5, 2008, pet. denied) (mem. op.) (citing Frost National Bank v. Burge, 29 S.W.3d 580, 595 (Tex. App.—Houston [14th Dist.] 2000, no pet.) (“It is well settled Texas law that the Statute of Frauds does not apply to a fully executed contract.”); Pou v. Dominion Oil Co., 265 S.W. 886, 888 (Tex. Comm’n App. 1924, judgm’t adopted).
Oral Modification to Extend Time of Performance: Even if the contract is covered by the statute of frauds, the parties may agree orally to extend the time of performance of a contract that is required to be in writing, if the oral modification is made before the expiration of the written contract. Voss Road Exxon LLC v. Vlahakos, No. 01-10-00146-CV, 2011 WL 2623989, at *6 (Tex. App.—Houston [1st Dist.] June 30, 2011, no pet.) (mem. op.).
Exceptions to the statute of frauds are strictly applied by the courts. See Hooks, 229 S.W. at 1116.
§ 17.13:5Pleading Requirements
A statute of frauds defense must be affirmatively pleaded. Tex. R. Civ. P. 94; First National Bank v. Zimmerman, 442 S.W.2d 674, 675–76 (Tex. 1969).
The basic test for unconscionability is whether, given the parties’ general commercial background and the commercial needs of the particular trade or case, the clauses involved are so one-sided as to be unconscionable under the circumstances existing when the parties made the contract. Tex. Bus. & Com. Code § 2.302 cmt. 1. See, e.g., Royston, Rayzor, Vickery & Williams, LLP v. Lopez, 467 S.W.3d 494, 502 (Tex. 2015) (arbitration clause not unconscionable); In re FirstMerit Bank, N.A., 52 S.W.3d 749, 757–58 (Tex. 2001, orig. proceeding) (arbitration clause not unconscionable). The principle is one of preventing oppression and unfair surprise and not of disturbing allocation of risks because of superior bargaining power. In re FirstMerit Bank, 52 S.W.3d at 757. If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract or it may enforce the remainder of the contract without the unconscionable clause as to avoid any unconscionable result. Tex. Bus. & Com. Code § 2.302(a). When it claims or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose, and effect to aid the court in making the determination. Tex. Bus. & Com. Code § 2.302(b).
§ 17.14:2Personal Property Leases
If the court as a matter of law finds a personal property lease or any clause of a lease to have been unconscionable at the time it was made, the court may refuse to enforce the lease contract, it may enforce the remainder of the lease contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable results, and refuse to enforce it. Tex. Bus. & Com. Code § 2A.108(a). With respect to a consumer lease, if the court as a matter of law finds that a lease contract or any clause of a lease contract has been induced by unconscionable conduct or that unconscionable conduct has occurred in the collection of a claim arising from a lease contract, the court may grant appropriate relief. Tex. Bus. & Com. Code § 2A.108(b). Before making a finding of unconscionability, the court, on its own motion or that of a party, shall afford the parties a reasonable opportunity to present evidence as to the setting, purpose, and effect of the lease contract, or clause thereof or the of the conduct. Tex. Bus. & Com. Code § 2A.108(c). In an action in which the lessee claims unconscionability with respect to a consumer lease, if the court finds unconscionability, the court shall award reasonable attorney’s fees to the lessee. If the court does not find unconscionability and the lessee claiming unconscionability has brought or maintained an action he or she knew to be groundless, the court shall award reasonable attorney’s fees to the party against whom the claim is made. In determining attorney’s fees, the amount of the recovery on behalf of the claimant under subsections (a) and (b) is not controlling. Tex. Bus. & Com. Code § 2A.108(d)(1)–(3).
No single test exists for finding unconscionability; it is determined on a case-by-case basis by looking at the totality of the circumstances as of the time the contract was formed. Coonly v. Gables Residential Services, Inc., No. 04-12-00702-CV, 2013 WL 6022261, at *5 (Tex. App.—San Antonio Nov. 13, 2013, no pet.) (mem. op.); Pony Express Courier Corp. v. Morris, 921 S.W.2d 817, 821 (Tex. App.—San Antonio 1996, no writ). An inquiry into potential unconscionability begins with two broad questions: (1) how the parties arrive at the terms in controversy (the procedural aspect), and (2) are there legitimate commercial reasons justifying the terms of the contract (the substantive aspect)? Coonly, 2013 WL 6022261, at *5 (“In other words, in deciding the fairness of a contract’s substantive terms, the court must also consider whether there were ‘procedural abuses,’ such as an unfair bargaining position between the parties at the time the agreement was made”); Pony Express, 921 S.W.2d at 821; Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (Tex. App.—Waco 2005, pet. denied) (party asserting unconscionability bears the burden of proving both procedural and substantive unconscionability).
In determining whether a contract is unconscionable, a court examines (1) the “entire atmos-phere” in which the agreement was made; (2) the alternatives, if any, available to the parties at the time the contract was made; (3) the “non-bargaining” ability of one party; (4) whether the contract was illegal or against public policy; and (5) whether the contract is oppressive or unreasonable. Ski River Development, 167 S.W.3d at 136. Factors that may contribute to an unconscionable bargaining process include (1) knowledge of the stronger party that the weaker party will be unable to receive substantial benefits from the contract and (2) knowledge of the stronger party that the weaker party is unable reasonably to protect his interests by reason of physical or mental infirmities, ignorance, illiteracy or inability to understand the language of the agreement. Coonly, 2013 WL 6022261, at *5; Ski River Development, 167 S.W.3d at 136.
§ 17.15Negligent Misrepresentation
The elements of a claim for negligent misrepresentation are:
1.the representation is made by a defendant in the course of his business or in a transaction in which it has a pecuniary interest;
2.the defendant supplies false information for the guidance of others in its business;
3.the defendant did not exercise reasonable care or competence in obtaining or communicating the information; and
4.the plaintiff suffers pecuniary loss by justifiably relying on the representation.
Federal Land Bank Ass’n v. Sloane, 825 S.W.2d 439, 442 (Tex. 1991); D&R Constructors, Inc. v. Texas Gulf Energy, Inc., No. 01-15-00604-CV, 2016 WL 4536959, at *16 (Tex. App.—Houston [1st Dist.] Aug. 30,v 2016, pet. denied) (mem. op.); Scherer v. Angell, 253 S.W.3d 777, 781 (Tex. App.—Amarillo 2007, no pet.); Fondren Construction Co. v. Briarcliff Housing Development Associates, Inc., 196 S.W.3d 210, 218 (Tex. App.—Houston [1st Dist.] 2006, no pet.); Roof Systems, Inc. v. Johns Manville Corp., 130 S.W.3d 430, 438 (Tex. App.—Houston [14th Dist.] 2004, no pet.).
§ 17.15:2Misrepresentation in Course of Business
The plaintiff must prove that the defendant misrepresented an existing fact in the course of the defendant’s business. Miksch v. Exxon Corp., 979 S.W.2d 700, 706 (Tex. App.—Houston [14th Dist.] 1998, pet. denied); see also McCamish, Martin, Brown & Loeffler v. F.E. Appling Interests, 991 S.W.2d 787, 794 (Tex. 1999) (negligent misrepresentation cause of action available only when information is transferred by attorney to known party for known purpose); Trans-Gulf Corp. v. Performance Aircraft Services, Inc., 82 S.W.3d 691, 696 (Tex. App.—Eastland 2002, no pet.) (section 552(2) of Restatement of Torts requires actual knowledge of recipient’s identity and specific intent on part of alleged tortfeasor that claimant would rely on misrepresentation); Facciolla v. Linbeck Construction Corp., 968 S.W.2d 435, 443 (Tex. App.—Texarkana 1998, no pet.) (plaintiff never established that defendant ever made misrepresentation directly to plaintiff).
The “false information” contemplated in a negligent misrepresentation case is a misstatement of existing fact, not a promise of future conduct. Scherer v. Angell, 253 S.W. 3d 777, 782 (Tex. App.—Amarillo 2007, no pet.); Miller v. Raytheon Aircraft Co., 229 S.W.3d 358, 379 (Tex. App.—Houston [1st Dist.] 2007, no pet.); New York Life Insurance Co. v. Miller, 114 S.W.3d 114, 124 (Tex. App.—Austin 2003, no pet.); Allied Vista, Inc. v. Holt, 987 S.W.2d 138, 141 (Tex. App.—Houston [14th Dist.] 1999, pet. denied) (holding that defendant’s representations that it would provide plaintiff equipment needed to start a plant and pay plaintiff a salary while starting plant did not support negligent mis-representation claim because they were not misrepresentations of existing fact). A promise to act or not to act in the future cannot form the basis of a negligent misrepresentation claim. See Miksch v. Exxon Corp., 979 S.W.2d 700, 706 (Tex. App.—Houston [14th Dist.] 1998, pet. denied).
§ 17.15:4Relation to Existing Contract
It is questionable whether negligent misrepresentation applies to parties who have contracts with each other. See First Bank v. Burmitt, 519 S.W.3d 95, 112 (Tex. 2017) (holding that damages for misrepresentation are “not . . . recoverable under a breach-of-contract claim,” but remanding for further proceedings to determine sufficiency of plaintiff’s evidence that he suffered “an injury independent from economic losses recoverable under a breach-of-contract claim”); Scherer v. Angell, 253 S.W. 3d 777, 781 (Tex. App.—Amarillo 2007, no pet.) (“there must be an independent injury, other than a breach of contract, to support a negligent misrepresentation finding”) (citing D.S.A., Inc. v. Hillsboro Independent School District, 973 S.W.2d 662, 663 (Tex. 1998) (per curiam)); Bluebonnet Savings Bank, F.S.B. v. Grayridge Apartment Homes, Inc., 907 S.W.2d 904, 908 (Tex. App.—Houston [1st Dist.] 1995, writ denied) (“Negligent misrepresentation is a cause of action recognized in lieu of a breach of contract claim, not usually available where a contract was actually in force between the parties,” quoting Airborne Freight Corp. v. C.R. Lee Enterprises, Inc., 847 S.W.2d 289, 295 (Tex. App.—El Paso 1992, writ denied). But see Carousel’s Creamery, LLC v. Marble Slab Creamery, Inc., 134 S.W.3d 385, 392–93 (Tex. App.—Houston [1st Dist.] 2004, pet. dism’d) (finding no obligation for plaintiff to show injury independent of “hypothetical” contract claim when plaintiff had abandoned its claim for breach of contract against defendant).
Common law fraud and fraud in the inducement are one and the same; the latter term is merely used to describe the means by which the fraud is perpetrated. Fraud in the inducement has six elements. Those elements include:
1.a material representation;
2.that was false;
3.that was made with knowledge of its falsity or recklessly without any knowledge of its truth and as a positive assertion;
4.that was made with the intention that it be acted on by the party;
5.that the party acted in reliance on it; and
6.that he thereby suffered injuries.
In re FirstMerit Bank, N.A., 52 S.W.3d 749, 758 (Tex. 2001, orig. proceeding); Green International v. Solis, 951 S.W.2d 384, 390 (Tex. 1997); T.O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218, 222 (Tex. 1992); Eagle Properties, Ltd. v. Scharbauer, 807 S.W.2d 714, 723 (Tex. 1990); Stone v. Lawyer’s Title Insurance Corp., 554 S.W.2d 183, 185 (Tex. 1977); see also Formosa Plastics Corp. v. Presidio Engineers & Contractors, Inc., 960 S.W.2d 41, 46 (Tex. 1998) (legal duty not to fraudulently procure a contract is separate and independent from duties established by contract itself). The absence of any one of these elements prevents recovery. Stephanz v. Laird, 846 S.W.2d 895, 903 (Tex. App.—Houston [14th Dist.] 1993, writ denied) (to prevail on actionable fraud cause of action, party asserting the claim must satisfy all elements of the tort for each alleged misrepresentation); Mumphord v. First Victoria National Bank, 605 S.W.2d 701, 704 (Tex. Civ. App.—Corpus Christi 1980, no writ); Sawyer v. Pierce, 580 S.W.2d 117, 124 (Tex. Civ. App.—Corpus Christi 1979, writ ref’d n.r.e.).
§ 17.16:2Material Representation
“Material” information is that which a reasonable person would attach importance to and would be induced to act on in determining his choice of actions in the transaction in question. In re Media Arts Group, Inc., 116 S.W.3d 900, 910 (Tex. App.—Houston [14th Dist.] 2003, orig. proceeding [mand. denied]); Citizens National Bank v. Allen Rae Investments, Inc., 142 S.W.3d 459, 478–79 (Tex. App.—Fort Worth 2004, no pet.).
If a party claims fraud or misrepresentation based on a promise inconsistent with the terms of a contract, the parol evidence rule prevents enforcement of such additional terms. See Town North National Bank v. Broaddus, 569 S.W.2d 489, 491 (Tex. 1978); Hubacek v. Ennis State Bank, 317 S.W.2d 30, 32–33 (Tex. 1958); Hallmark v. Port/Cooper-T. Smith Stevedoring Co., 907 S.W.2d 586, 590 (Tex. App.—Corpus Christi 1995, no writ); Weinacht v. Phillips Coal Co., 673 S.W.2d 677, 679 (Tex. App.—Dallas 1984, no writ).
In the Town North National Bank case, the court held that a promissory note that is clear and express in its terms cannot be varied or contradicted by parol agreements or by representations of the payee that the maker would not be held liable according to the tenor of the instrument. The court reasoned that a party to a written agreement is charged as a matter of law with knowledge of its provisions and as a matter of law cannot claim fraud when he is bound to the provisions unless he can demonstrate that he was tricked into its execution. The court specifically held that under the facts of the case, the mere representation by a payee to the maker that the maker will not be liable on the note does not constitute fraud in the inducement so as to be an exception to the parol evidence rule. Town North National Bank, 569 S.W.2d at 491.
Texas courts have uniformly followed Town North in recognizing that fraud cannot be legally predicated in an instrument case on a representation which directly contradicts the terms of the writing itself. Simmons v. Compania Financiera Libano, S.A., 830 S.W.2d 789, 791 (Tex. App.—Houston [1st Dist.] 1992, writ denied); Lindeburg v. Gulfway National Bank, 624 S.W.2d 278, 281 (Tex. Civ. App.—Corpus Christi 1981, writ ref’d n.r.e.).
Similarly, in Albritton Development Co. v. Glendon Investments, Inc., the court disregarded testimony that the payee was induced to execute the note on the representation that it was due only when the payee had lined up additional business prospects. In affirming a summary judgment for the payee the court stated: “It is well established that written instruments, including promissory notes, cannot be changed by evidence of a prior or contemporaneous oral agreement that contravenes the terms of the written instrument.” Albritton Development Co. v. Glendon Investments, Inc., 700 S.W.2d 244, 246 (Tex. Civ. App.—Houston [1st Dist.] 1985, writ ref’d n.r.e.), (citing Town North, 569 S.W.2d at 491). See also Edlund v. Bounds, 842 S.W.2d 719, 725 (Tex. App.—Dallas 1992, writ denied) (to establish fraud in inducement sufficient to allow exception to parol evidence rule, there must be some showing of some type of trickery, deceit, or device employed by payee as well as showing that payee represented to maker that he would not be liable on note).
§ 17.16:4Puffery or Opinion Is Not Fraud
“‘Puffery’ is an expression of opinion by a seller not made as a representation of fact.” Dowling v. NADW Marketing, Inc., 631 S.W.2d 726, 729 (Tex. 1982). Pure expressions of opinion generally are not actionable. Helena Chemical Co. v. Wilkins, 47 S.W.3d 486, 502 (Tex. 2001) (mere puffery not actionable under DTPA, section 17.46(b)(5) or (b)(7), but may be actionable under section 17.46(b)(23) or 17.50(a)(3)); Trenholm v. Ratcliff, 646 S.W.2d 927, 931 (Tex. 1983); Angelo Broadcasting, Inc. v. Satellite Music Network, Inc., 836 S.W.2d 726, 733 (Tex. App.—Dallas 1992, writ denied), overruled on other grounds, Hines v. Hash, 843 S.W.2d 464, 469–70 (Tex. 1992).
Whether a statement is an actionable statement of “fact” or merely an innocuous statement of “opinion” often depends upon the circumstances in which a statement is made. Transport Insurance Co. v. Faircloth, 898 S.W.2d 269, 276 (Tex. 1995); Citizens National Bank v. Allen Rae Investments, Inc., 142 S.W.3d 459, 478–79 (Tex. App.—Fort Worth 2004, no pet.). When determining whether a statement constitutes mere puffing, the court considers the following factors:
1.The statement’s specificity—imprecise or vague representations constitute mere opinions;
2.The speaker’s knowledge—an opinion may constitute actionable fraud if the speaker has knowledge of its falsity;
3.The levels of knowledge of the buyer and seller—the seller’s superior knowledge coupled with the lack of knowledge of the buyer operated to make a divergence into representations of fact; and
4.Whether the statement related to a present or future happening—an expression of an opinion as to the happening of a future event may constitute actionable fraud where the speaker purports to have special knowledge of the facts that will occur or exist in the future.
Transport Insurance Co., 898 S.W.2d at 276; GJP, Inc. v. Ghosh, 251 S.W.3d 854, 889 (Tex. App.—Austin 2008, no pet.); Citizens National Bank, 142 S.W.3d at 478; Angelo Broadcasting, Inc. v. Satellite Music Network, Inc., 836 S.W.2d 726, 733 (Tex. App.—Dallas 1992, writ denied), overruled on other grounds, Hines v. Hash, 843 S.W.2d 464, 469–70 (Tex. 1992).
Cases in which courts have held that statements were merely puffing or opinion include Auto-haus, Inc. v. Aguilar, 794 S.W.2d 459, 464 (Tex. App.—Dallas 1990) writ denied, 800 S.W.2d 853 (Tex. 1991) (per curiam) (statements made by a Mercedes salesman that Mercedes-Benz was the best-engineered car in the world, and “joking” that the car would “probably” only need to be brought in for an oil and filter change every 7,500 miles was nonactionable puffing); Duperier v. Texas State Bank, 28 S.W.3d 740, 749 (Tex. App.—Corpus Christi 2000, pet. dism’d by agmt.) (statements that bank notes were safe and suitable investment and there was no chance yield on notes would fall to zero were bank officer’s opinion).
Cases in which courts have held that statements were more than mere expressions of opinion include Helena Chemical Co. v. Wilkins, 47 S.W.3d 486, 502–504 (Tex. 2001) (misrepresentations about seed characteristics, quality, and grade amounted to more than mere puffing); Pennington v. Singleton, 606 S.W.2d 682, 687 (Tex. 1980) (statement that boat and motor were “new” or in “excellent” or “perfect” condition were not mere opinion); Gore v. Scotland Golf, Inc., 136 S.W.3d 26, 32–33 (Tex. App.—San Antonio 2003, pet. denied) (representations that the seller’s relationship with his primary customer was “healthy” when he had knowledge of the falsity of the statement); Hedley Feedlot, Inc. v. Weatherly Trust, 855 S.W.2d 826, 838 (Tex. App.—Amarillo 1992, writ denied) (representations about the type of cattle, weight, projected cost of feeding, the length of time on feed, and the projected gain of the cattle went beyond mere opinion); Milt Ferguson Motor Co. v. Zeretzke, 827 S.W.2d 349, 355 (Tex. App.—San Antonio 1991, no writ) (statements in car dealership pamphlets, magazine articles, newspaper articles, and advertisements and by salesman at the car dealership stating that the car was “a good, excellent, motor vehicle,” “a better car than the Calais that they [dealership] had,” and “a good car and that they [purchasers] would have no problems” were not merely puffing or opinion); Wheeler v. Box, 671 S.W.2d 75, 77 (Tex. App.—Dallas 1984, no writ) (representations by seller of business that they would provide efficient business operation and complete support, would buy the business back if it did not work out, and would personally fine tune the Boxes’ business constituted more than puffery).
§ 17.16:5Statements of Value Not Fraud
When no confidential relationship exists between parties, a representation of value is merely an opinion that cannot be made the basis of recovery for fraud. See McCollum v. P/S Investments, Ltd., 764 S.W.2d 252, 254 (Tex. App.—Dallas 1988, writ denied); Cravens v. Skinner, 626 S.W.2d 173, 177 (Tex. App.—Fort Worth 1981, no writ); Ryan v. Collins, 496 S.W.2d 205, 210 (Tex. Civ. App.—Tyler 1973, writ ref’d n.r.e.); Fossier v. Morgan, 474 S.W.2d 801, 803 (Tex. Civ. App.—Houston [1st Dist.] 1972, no writ); Frankfurt v. Wilson, 353 S.W.2d 490, 496 (Tex. Civ. App.—Dallas 1961, no writ).
A statement is not fraudulent unless the maker knew it was false when made or made it recklessly without knowledge of the truth. DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 688 (Tex. 1990), cert. denied, 498 U.S. 1048 (1991); Kelly v. LINTV of Texas, 27 S.W.3d 564, 572 (Tex. App.—Eastland 2000, pet. denied).
When the statement or representation alleged to be fraudulent is in the nature of a promise or an act to be performed in the future, and not a statement of an existing fact or pertinent fact, the pleader must allege and prove that, at the time the statement or promise was made, the person making the promise did not intend to perform it. Formosa Plastics Corp. v. Presidio Engineers & Contractors, Inc., 960 S.W.2d 41, 48 (Tex. 1998); T.O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218, 222 (Tex. 1992); Cerullo v. Gottlieb, 309 S.W.3d 160, 166 (Tex. App.—Dallas 2010, pet. denied); Mays v. Pierce, 203 S.W.3d 564, 573 (Tex. App.—Houston [14th Dist.] 2006, pet. denied); Wyatt v. McGregor, 855 S.W.2d 5, 12 (Tex. App.—Corpus Christi 1993, no writ). The mere failure to perform a contract is not evidence of fraud. Formosa Plastics, 960 S.W.2d at 48; Crim Truck & Tractor Co. v. Navistar International Transportation Corp., 823 S.W.2d 591, 597 (Tex. 1992); Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 435 (Tex. 1986); Bernstein v. Portland Savings & Loan Ass’n, 850 S.W.2d 694, 703 (Tex. App.—Corpus Christi 1993, writ denied).
A party’s later denial that a promise of future performance was made is a factor showing no intent to perform when the promise was made. T.O. Stanley Boot Co., 847 S.W.2d at 222; Spoljaric, 708 S.W.2d at 435.
Representations as to future or contingent events are not deemed fraudulent merely because the predictions do not come true. Fina Supply v. Abilene National Bank, 726 S.W.2d 537, 540 (Tex. 1987) (representation as to the legal effect of documents to be amended in the future is a statement of opinion and will not support fraud in an arm’s-length transaction); Gardner v. Dorsey, 272 S.W. 266, 270–71 (Tex. Civ. App.—El Paso 1925, writ dism’d) (statements about future value not fraudulent unless plaintiff proves intent to deceive). Mere breakage of a promise or failure to perform does not prove that the representation was fraudulent. Spoljaric, 708 S.W.2d at 435; Bernstein, 850 S.W.2d at 703. To be actionable, the promise must be made with the intention, design, and purpose of deceiving and with no intention of performing the act. Failure to perform coupled with other facts is a circumstance to be considered to establish in-tent. Intent to defraud can be shown by circumstantial evidence. “A party’s denial that he ever made a promise is a factor showing no intent to perform when he made the promise.” Spoljaric, 708 S.W.2d at 434–35.
If there is no contract liability, there is no tort liability for fraud, regardless of whether there was or was not an intention to perform the promise. Bank of El Paso v. T.O. Stanley Boot Co., 809 S.W.2d 279, 288 (Tex. App.—El Paso 1991), aff’d in part, rev’d in part on other grounds, 847 S.W.2d 218 (Tex. 1992); Guaranty Bank v. Lone Star Life Insurance Co., 568 S.W.2d 431, 434 (Tex. Civ. App.—Dallas 1978, writ ref’d n.r.e.).
In order to be actionable fraud, the defrauded party must have relied on the misrepresentation. If the misrepresentation concerns matters that are generally known or equally available to both parties at the time the transaction occurs, there is no actionable fraud. Jones v. Herring, 16 S.W.2d 325, 328 (Tex. Civ. App.—Austin 1929, writ dism’d). A duty to investigate exists when the defrauded party is aware of facts that would cause the ordinarily intelligent and prudent person to investigate. Bush v. Stone, 500 S.W.2d 885, 889–90 (Tex. Civ. App.—Corpus Christi 1973, writ ref’d n.r.e.). However, parties may contractually disclaim reliance on representations, and “such a disclaimer, where the parties’ intent is clear and specific, should be effective to negate a fraudulent inducement claim.” Schlumberger Technology Corp. v. Swanson, 959 S.W.2d 171, 179 (Tex. 1997) (citing Prudential Insurance Co. of America v. Jefferson Associates, Ltd., 896 S.W.2d 156, 161–62 (Tex. 1995)).
In Schlumberger, two parties had concluded a dispute with a settlement-release agreement that contained a disclaimer clause stating that neither party was relying on any advice or statement of the other. Swanson then sought to set aside the release contract based on a fraud in the inducement claim. The court held that where the parties are dealing at arm’s length, and the dis-claimer expresses a clear intent to waive fraudulent inducement claims, such a disclaimer of reliance could be binding. Under the facts of Schlumberger, the court barred the fraudulent inducement claims as a matter of law. Schlumberger, 959 S.W.2d at 180–81.
When evidence of an intention not to perform is so weak that it creates only a mere surmise or suspicion, it constitutes no evidence and will not support a verdict. T.O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218. The mere failure to perform is not, in itself, evidence of intent not to perform. Chancellors Racquet Club v. Schwarz, 661 S.W.2d 194, 196 (Tex. App.—Houston [1st Dist.] 1983, writ ref’d n.r.e.) (quoting Stone v. Enstam, 541 S.W.2d 473, 481 (Tex. Civ. App.—Dallas 1976, no writ).
The failure to disclose a material fact within the knowledge of a party may only be actionable where there is a duty to disclose. Bradford v. Vento, 48 S.W.3d 749, 755 (Tex. 2001). Whether such duty exists is a question of law. Citizens National Bank v. Allen Rae Investments, Inc., 142 S.W.3d 459, 476–77 (Tex. App.—Fort Worth 2004, no pet.). A duty to disclose may arise in a commercial context in four situations:
1.when there is a fiduciary relationship between the parties;
2.when one voluntarily discloses information, the whole truth must be disclosed;
3.when one makes a representation, new information must be disclosed when that new information makes the earlier representation misleading or untrue; or
4.when one makes a partial disclosure and conveys a false impression.
Citizens National Bank, 142 S.W.3d at 477; Lesikar v. Rappeport, 33 S.W.3d 282, 299 (Tex. App.—Texarkana 2000, pet. denied).
§ 17.16:10Fraudulent Inducement of “As Is” Contract
A valid “as is” provision can negate causation for a variety of claims, including fraud. But a “buyer is not bound by an agreement to purchase something ‘as is’ that he is induced to make because of a fraudulent representation or concealment of information by the seller.” See Prudential Insurance Co. of America v. Jefferson Associates, Ltd., 896 S.W.2d 156, 161–62 (Tex. 1995).
§ 17.16:11Disclaiming Reliance
A contract’s inclusion of a merger clause is insufficient, by itself, to negate a cause of action for fraudulent inducement. Italian Cowboy Partners, Ltd. v. Prudential Insurance Co. of America, 341 S.W.3d 323, 331–32 (Tex. 2011). In Italian Cowboy Partners, Ltd., the supreme court reinforced its prior holdings that pure merger clauses, without an expressed clear and unequivocal intent to disclaim reliance or waive claims for fraudulent inducement, were ineffective to preclude such claims. Even merger clauses that also contain a statement that no representations were made other than those contained in the contract is not sufficient to defeat a fraudulent inducement claim: “Such language achieves the purpose of ensuring that the contract at issue in-validates or supersedes any previous agreements, as well as negating the apparent authority of an agent to later modify the contract’s terms.” Italian Cowboy Partners, Ltd., 341 S.W.3d at 334–35. See also Community Management, LLC v. Cutten Development., L.P., No. 14-14-00854-CV, 2016 WL 3554704, at *5 (Tex. App.—Houston [14th Dist.] June 28, 2016, pet. denied) (mem. op.) (applying the holdings of Schlumberger Technology Corp. v. Swanson, 959 S.W.2d 170 (Tex. 1997) and Italian Cowboy to an apartment complex purchase agreement).
Instead, to avoid a fraud-in-the-inducement claim, a contract must also contain a specific clause that uses clear and unequivocal language disclaiming reliance. Community Management, 2016 WL 3554704, at *5. For example, in Schlumberger the contract provided, “[None] of us is relying upon any statement or representation of any agent of the parties being released here-by. Each of us is relying on his or her own judgment. . . .” Schlumberger, 959 S.W.2d at 180. And in Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 55 (Tex. 2008), the contract stated that “in executing the releases contained in this Agreement, [the parties are not] relying upon any statement or representation of any agent of the par-ties being released hereby. [We are] relying on [our] own judgment . . .” “In each case, the intent to disclaim reliance on others’ representations—that is, to rely only on one’s own judgment-was evident from the language of the contract itself. . . . There is a significant difference between a party disclaiming its reliance on certain representations, and therefore potentially relinquishing the right to pursue any claim for which reliance is an element, and disclaiming the fact that no other representations were made.” “. . . This elevated requirement of precise language helps ensure that parties to a contract-even sophisticated parties represented by able attorneys—understand that the contract’s terms disclaim reliance, such that the contract may be binding even if it was induced by fraud.” Italian Cowboy Partners, Ltd., 341 S.W.3d at 335–36 (citing Forest Oil Corp., 268 S.W.3d at 62; and Schlumberger, 959 S.W.2d at 179–80).
Assuming that there is a clear and unequivocal disclaimer-of-reliance clause, the court then re-quires an analysis to determine “the circumstances surrounding [the contract’s] formation” in order to determine whether such a provision is binding on the parties involved. This would include an analysis of whether the terms of the contract were negotiated, rather than boilerplate; whether, during negotiations, the parties specifically discussed the issue which became the topic of the subsequent dispute, whether the complaining party was represented by counsel, whether the parties dealt with each other in an arm’s length transaction, and whether the parties were knowledgeable in business matters. Italian Cowboy Partners, Ltd., 341 S.W.3d at 336–37, n.8. (citing Forest Oil Corp., 268 S.W.3d at 60). If the situation also indicates a “once and for all” settlement of claims, this may constitute an additional factor urging rejection of fraud-based claims.
There are three remedies that are available to a defrauded party pleading fraud in the inducement:
1.An affirmative right to damages for being led into the transaction. Under this form of relief the injured party does not seek to undo the fraudulent transaction, but instead claims sufficient compensation to make his position as good as it would have been had he not entered into the transaction at all;
2.Rescission of the fraudulent transaction and restoration of the situation which the parties occupied before the fraudulent transaction was entered into; or
3.“Benefit of the bargain” damages against the fraudulent person for the kind of bargain which he represented that he was making.
27 Williston on Contracts § 69:47 (4th ed. 2017); Mason v. Peterson, 250 S.W. 142, 146 (Tex. Comm’n App. 1923, holding approved, judgm’t adopted); Gage v. Langford, 615 S.W.2d 934, 939–40 (Tex. Civ. App.—Eastland 1981, writ ref’d n.r.e.). Therefore, a party urging fraud in the inducement, either as plaintiff or defendant, must establish not only the fraud but also the correct remedy. Gage, 615 S.W.2d at 940.
In Gage, the payee of a $550,000 promissory note sued the maker for the unpaid balance. The maker alleged fraud in the inducement as an affirmative defense to payment on the note. The note had been originally issued as payment for the privilege of entering the payee’s land to salvage abandoned oil well equipment. The payee had originally stated that there were 271 salvage wells located on the property. It was later determined that there were in fact only 206 wells, and of those, fifty-one were unsalvageable. The jury found that the payee had fraudulently induced the maker to sign the contract. However, no issue was submitted as to the amount of damages incurred by the maker because of the shortage of wells. The maker asserted that he need only establish fraud in the inducement to preclude recovery on the note. The court disagreed and found that the maker must establish the amount of damages he incurred as a result of the fraudulent representation which he failed to do. The court said that if the note was cancelled there would be an implicit finding that the maker was damaged in an amount equal to the remaining balance on the note. Without some proof as to the extent of his injury, these implied damages could not stand. Instead, the court held that the maker must establish the damages resulting from the fraudulent inducement and either seek recession or affirm the obligation and seek a set-off in the amount of any damage. Gage, 615 S.W.2d at 941.
§ 17.16:13Fraud as Affirmative Defense
Fraud, as an affirmative defense, must be affirmatively pleaded. Tex. R. Civ. P. 94; Philadelphia Indemnity Insurance Co. v. White, 490 S.W.3d 468, 485 (Tex. 2016).
§ 17.17Deceptive Trade Practices
“Unconscionable action or cause of action” is defined as an act or practice which, to a consumer’s detriment, takes advantage of the lack of knowledge, ability, experience, or capacity of the consumer to a grossly unfair degree. Tex. Bus. & Com. Code § 17.45(5). See section 17.41 below regarding the Deceptive Trade Practices–Consumer Protection Act.
In contract law, the terms “ambiguous” and “ambiguity” have a more specific meaning than merely denoting a lack of clarity in language. RSUI Indemnity Co. v. The Lynd Co., 466 S.W.3d 113, 119 (Tex. 2014); Universal C.I.T. Credit Corp. v. Daniel, 243 S.W.2d 154, 157 (Tex. 1951). “An ambiguity does not arise simply because the parties offer conflicting interpretations,” but only when “the application of pertinent rules of interpretation to the face of the instrument leaves it genuinely uncertain which one of two or more meanings is the proper meaning.” Thus, a contract is ambiguous only if, after applying the rules of construction, it remains subject to two or more reasonable interpretations. RSUI Indemnity Co., 466 S.W.3d at 119 (quoting American Manufacturers Mutual Insurance Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex. 2003); Daniel, 243 S.W.2d at 157).
While extrinsic evidence of the parties’ intent is not admissible to create an ambiguity, the con-tract may be read in light of the circumstances surrounding its execution to determine whether an ambiguity exists. Plains Exploration & Production Co. v. Torch Energy Advisors Inc., 473 S.W.3d 296, 305 (Tex. 2015); Balandran v. Safeco Insurance Co. of America, 972 S.W.2d 738, 741 (Tex. 1998). Consideration of the surrounding facts and circumstances is simply an aid in the construction of the contract’s language and has its limits. Plains Exploration, 473 S.W.3d at 305; Sun Oil Co. (Delaware) v. Madeley, 626 S.W.2d 726, 731 (Tex. 1981). The rule that extrinsic evidence is not admissible to create an ambiguity “obtains even to the extent of prohibiting proof of circumstances surrounding the transaction when the instrument involved, by its terms, plainly and clearly discloses the intention of the parties, or is so worded that it is not fairly susceptible of more than one legal meaning or construction.” Sun Oil Co., 626 S.W.2d at 732. Mere disagreement over the interpretation of an agreement does not necessarily render the contract ambiguous. Plains Exploration, 473 S.W.3d at 305. Nor is uncertainty or lack of clarity in the language chosen by the parties sufficient to render a contract ambiguous. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 240 (Tex. 2002); TWI XVIII, Inc. v. Christopher S. Carroll No. 1, Ltd., No. 02-12-00065-CV, 2013 WL 1457725, at *4 (Tex. App.—Fort Worth April 11, 2013, pet denied) (mem. op.). If it can be given a certain or definite legal meaning or interpretation, a contract is not ambiguous and the court will construe it as a matter of law. Interpretation of a contract becomes a fact issue to be resolved by extrinsic evidence if application of pertinent rules of construction leaves a general uncertainty about which of two meanings is proper. El Paso Field Services, L.P. v. MasTec North America, Inc., 389 S.W.3d 802, 806 (Tex. 2012).
§ 17.18:2Pleading Requirements
A court may conclude that an agreement is ambiguous even in the absence of such a pleading by either party. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 231 (Tex. 2002); Seabourne v. Seabourne, 493 S.W.3d 222, 228 (Tex. App.—Texarkana 2016, no pet.); Fleming v. Kirklin Law Firm, P.C., No. 14-14-00202-CV, 2015 WL 7258700, at *4 (Tex. App.—Houston [14th Dist.] 2015, no pet.) (mem. op.).
Duress is any mental, physical, or other coercion of another that caused a party to act contrary to his own free will or to submit to a situation or conditions against his own volition or interests. It requires a threat to do some act the threatening party has no legal right to do, some illegal exaction or some fraud or deception, and imminent restraint such as to destroy free agency without present means of protection. Robertson v. Robertson, No. 13-14-00523-CV, 2015 WL 7820814, at *8 (Tex. App.—Corpus Christi Dec. 3, 2015, no pet.) (mem. op.); Doe v. Catholic Diocese of El Paso, 362 S.W.3d 707, 719 (Tex. App.—El Paso 2011, no pet.) (to constitute duress, the threat must be of such character to overcome the willpower of a person and cause them to do what he or she otherwise would not).
In re Frank Kent Motor Co., 361 S.W.3d 628, 632 (Tex. 2011) (orig. proceeding), cert. denied, 568 U.S. 820 (2012), set out the elements of economic duress or business coercion as (1) a threat of an act that the actor had no legal right to do, (2) a threat of such a nature it destroys the other party’s free agency, (3) a threat that overcomes the other party’s free will and causes it to do what it otherwise would not have done and that it was not legally bound to do, (4) imminent restraint, and (5) no means of protection. Duress frequently depends on the motive on which a claim is based. It may be shown when a threatening party acts oppressively to further his own economic interests. State National Bank v. Farah Manufacturing Co., 678 S.W.2d 661, 685 (Tex. App.—El Paso 1984, writ dism’d by agr.).
For example, threatening to sue or actually filing suit does not constitute duress as a matter of law. McMahan v. Greenwood, 108 S.W.3d 467, 482 (Tex. App.—Houston [14th Dist.] 2003, pet. denied).
§ 17.19:2Pleading Requirements
Duress is an affirmative defense that must be specifically pleaded. Tex. R. Civ. P. 94. The question of what constitutes duress is a matter of law, and the question of whether it exists in a particular situation is generally a question of fact. Robertson v. Robertson, No. 13-14-00523-CV, 2015 WL 7820814, at *8 (Tex. App.—
Corpus Christi Dec. 3, 2015, no pet.) (mem. op.); Doe v. Catholic Diocese of El Paso, 362 S.W.3d 707, 719–20 (Tex. App.—El Paso 2011, no pet.).
Undue influence is overcoming the free will of an individual and substituting the will of another, causing the individual to do an act that he would not otherwise have done. B.A.L. v. Edna Gladney Home, 677 S.W.2d 826, 831 (Tex. App.—Fort Worth 1984, writ ref’d n.r.e.). To establish a claim of undue influence, a contestant must prove: (1) the existence and exertion of an influence, (2) the effective operation of such influence so as to subvert or overpower the person’s mind when executing the document, and (3) the person would not have executed the document but for the influence. In re Adkins, No. 13-15-00066-CV, 2015 WL 13310094, at *9 (Tex. App.—Corpus Christi June 23, 2015, orig. proceeding) (mem. op.) (citing Rothermel v. Duncan, 369 S.W.2d 917, 922 (Tex. 1963)). Influence cannot be branded as undue merely because it is persuasive and effective. Not all persuasion, entreaty, importunity, or intercession is condemned; what constitutes undue influence depends on the particular facts and circumstances of each case viewed in the light of applicable principles of law. B.A.L., 677 S.W.2d at 830. Undue influence may be shown by direct or circumstantial evidence. In re Adkins, 2015 WL 13310094, at *9.
§ 17.21Variance between Offer and Acceptance (“Perfect Tender” Rule)
No contract exists if there is a variance in the terms of the offer and acceptance or a deficiency in the tender of the subject matter. MRC Permian Co. v. Three Rivers Operating Co., No. 05-14-00353-CV, 2015 WL 4639711, at *10 (Tex. App.—Dallas Aug. 5, 2015, pet. denied) (acceptance that is conditioned on terms at variance with those in offer operates as counteroffer and terminates original offer).
A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered, or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms. Tex. Bus. & Com. Code § 2.207(a). The additional terms are to be construed as proposals for addition to the contract. Between merchants, the additional terms become part of the contract unless (1) the offer is expressly limited to acceptance on the terms of the offer, (2) they materially alter it, or (3) notification of objection has already been or is given within a reasonable time after notice of them is received. Tex. Bus. & Com. Code § 2.207(b). Conduct by both parties that recognizes the existence of a contract is sufficient to establish a contract for sale although the writing of the parties does not otherwise establish a contract. In such case, the terms of the particular contract consist of those terms on which the writing of the parties agree, together with any supplementary terms incorporated under any other provisions of the Texas Uniform Commercial Code, Tex. Bus. & Com. Code §§ 1.101–9.809. Tex. Bus. & Com. Code § 2.207(c).
To invoke the equitable doctrine of laches, the moving party ordinarily must show an unreasonable delay by the opposing party in asserting its rights and also the moving party’s good faith and detrimental change in position because of the delay. In re Laibe Corp., 307 S.W.3d 314, 318 (Tex. 2010) (orig. proceeding) (per curiam); Bruno Independent Living Aids v. Yzaguirre, No. 13-15-00408-CV, 2016 WL 9000744, at *3 (Tex. App.—Corpus Christi Mar. 31, 2016, no pet.) (mem. op.); Gutierrez v. Draheim, No. 01-14-00267-CV, 2016 WL 921470, at *3 (Tex. App.—Houston [1st Dist.] Mar. 10, 2016, no pet.) (mem. op.) “Generally in the absence of some element of estoppel or such extraordinary circumstances as would render inequitable the enforcement of petitioners’ right after a delay, laches will not bar a suit short of the period set forth in the limitation statute.” Caldwell v. Barnes, 975 S.W.2d 535, 538 (Tex. 1998) (quoting Barfield v. Howard M. Smith Co. of Amarillo, 426 S.W.2d 834, 840 (Tex. 1968)). The party asserting laches has the burden of proving it. Brewer v. Nationsbank of Texas, N.A., 28 S.W.3d 801, 804 (Tex. App.—Corpus Christi 2000, no pet.).
If one party has deliberately made promises to induce the other to delay bringing a cause of action against him, equitable estoppel may be applied to prevent the party who induced the delay from asserting the defense of laches and the statute of limitations. See Hill v. Bartlette, 181 S.W.3d 541, 545–46 (Tex. App.—
Texarkana 2005, no pet.); O’Dowd v. Johnson, 666 S.W.2d 619, 621 (Tex. App.—Houston [1st Dist.] 1984, writ ref’d n.r.e.).
Laches is an affirmative defense and must be specifically pleaded. Tex. R. Civ. P. 94.
§ 17.23Impossibility of Performance
Under the doctrine of impossibility of performance, a party’s performance under a contract is discharged or excused when supervening circumstances make the performance impossible or impracticable: “Where, after a contract is made, a party’s performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary.” Garcia v. Baumgarten, No. 03-14-00267-CV, 2015 WL 4603866, at *5 (Tex. App.—Austin July 30, 2015, no pet.) (mem. op.) (quoting the Restatement (Second) of Contracts § 261 (1981)); see also Centex Corp. v. Dalton, 840 S.W.2d 952, 954 (Tex. 1992) (discussing the issue of foreseeability in deciding which party bore the risk of the supervening impossibility and must therefore bear the costs of nonperformance).
“Original impossibility” is impossibility of performance existing when the contract is entered into, so that the contract was for doing something that from the outset was impossible. “Supervening impossibility” is a condition that develops after the inception of the contract. The manual committee is not aware of any Texas cases that have enforced a contract against the defense of original objective impossibility because of facts existing when the promise is made that the promisor neither knows nor has reason to know. See, e.g., Hollis v. Gallagher, No. 03-11-00278-CV, 2012 WL 3793288, at *6-7 (Tex. App.—Austin Aug. 28, 2012, no pet.) (mem. op.) (restrictive covenant was not enforceable when it could only be waived by signatures of developers, both of whom died after instrument was executed; court also explained difference between objective and subjective impossibility: “Something is objectively impossible if ‘the thing cannot be done,’” whereas subjective impossibility is “due wholly to the inability of the individual promisor.”).
If the obligation to perform is absolute, impossibility of performance occurring after the contract is made is not an excuse for nonperformance if the impossibility might reasonably have been anticipated and guarded against in the contract. Huffines v. Swor Sand & Gravel Co., 750 S.W.2d 38, 40 (Tex. App.—Fort Worth 1988, no writ). This is true even though the impossibility may subsequently have occurred by virtue of an “act of God” or some other circumstance over which the parties have no control. Impossibility is also not an excuse if it subsequently occurred by virtue of the act or default of the promisor or by the acts of a third party. Metrocon Construction Co. v. Gregory Construction Co., 663 S.W.2d 460, 462 (Tex. App.—Dallas 1983, writ ref’d n.r.e.). But see Erickson v. Rocco, 433 S.W.2d 746, 752 (Tex. Civ. App.—Houston [14th Dist.] 1968, writ ref’d n.r.e.) (excusing nonperformance of covenant to maintain fire insurance policy when policy was cancelled after fire destroyed most of property).
The fact that a contract is more burdensome or economically impracticable to perform than originally anticipated does not excuse its nonperformance. Reeder v. Wood County Energy, LLC, 320 S.W.3d 433, 446 (Tex. App.—Tyler 2010, pet. granted), rev’d on other grounds, 395 S.W.3d 789 (Tex. 2012); Huffines, 750 S.W.2d at 40; Alamo Clay Products, Inc. v. Gunn Tile Co., 597 S.W.2d 388, 392 (Tex. Civ. App.—San Antonio 1980, writ ref’d n.r.e.).
If impossibility of performance is because of the plaintiff’s wrongful interference, it excuses nonperformance by the injured party. Atkinson Gas Co. v. Albrecht, 878 S.W.2d 236, 239 (Tex. App.—Corpus Christi 1994, writ denied). The nonbreaching party will also be entitled to any damages sustained as a result of the interference. Longview Construction & Development v. Loggins Construction Co., 523 S.W.2d 771, 779 (Tex. Civ. App.—Tyler 1975, writ dism’d by agr.).
The performance of a contract is excused by a supervening impossibility caused by the operation of a change in the law. Centex Corp. v. Dalton, 840 S.W.2d 952, 954 (Tex. 1992); Morales v. Hidalgo County Irrigation Dist. No. 6, No. 13-14-00205-CV, 2015 WL 5655802, at *2 (Tex. App.—Corpus Christi Sept. 24, 2015, pet. denied) (mem. op.). When the illegality does not appear on the face of the contract, it will not be held void unless facts showing its illegality are before the court. If a contract could have been performed in a legal manner, the fact that it also may have been performed in an illegal manner does not make it void. See Morales, 2015 WL 5655802, at *2; Lewis v. Davis, 199 S.W.2d 146, 148–49 (Tex. 1947). When constructions of a contract are possible, courts must apply the construction that does not result in a violation of the law. Morales, 2015 WL 5655803, at *2.
If a contract is against public policy, it is illegal, void, and unenforceable. Alma Investments, Inc. v. Bahia Mar Co-Owners Ass’n, 999 S.W.2d 820, 824 (Tex. App.—Corpus Christi 1999, pet. denied); Montgomery v. Browder, 930 S.W.2d 772, 778 (Tex. App.—Amarillo 1996, writ denied); Baron v. Mullinax, Wells, Mauzy & Baab, Inc., 623 S.W.2d 457, 461 (Tex. App.—Texarkana 1981, writ ref’d n.r.e.). In the absence of expressed direction from the legislature, whether a promise or agreement will be unenforceable on public policy grounds will be determined by weighing the interest in enforcing agreements versus the public policy interest against such enforcement. Fairfield Insurance Co. v. Stephens Martin Paving, LP, 246 S.W.3d 653, 663 (Tex. 2008). Texas has long recognized a strong public policy in favor of preserving the freedom of contract. Tex. Const. art. I, § 16 (“No bill of attainder, ex post facto law, retroactive law, or any law impairing the obligation of contracts, shall be made.”); Fairfield Insurance, 246 S.W.3d at 664.
Illegality is an affirmative defense that ordinarily must be specifically pleaded. Tex. R. Civ. P. 94. Failure to plead illegality of a contract ordinarily constitutes a waiver of the defense; if the document shows illegality on its face, however, an affirmative pleading to that effect is unnecessary. Lewkowicz v. El Paso Apparel Corp., 625 S.W.2d 301, 303 (Tex. 1981).
§ 17.25Revocation of Acceptance
A buyer may revoke his acceptance of a lot or commercial unit whose nonconformity substantially impairs its value to him if he has accepted it either (1) on the reasonable assumption that its nonconformity would be cured and it has not been seasonably cured or (2) without discovery of the nonconformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the seller’s assurances. Tex. Bus. & Com. Code § 2.608(a); see Clipper Bulk Shipping, Ltd. v. Sun Coast Resources, Inc., No. 09-12-00478-CV, 2013 WL 5658375, at *2–3 (Tex. App.—Beaumont June 26, 2013, no pet.) (mem. op.).
Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. See Clipper Bulk Shipping, Ltd., 2013 WL 5658375, at *3. It is not effective until the buyer notifies the seller of it. Tex. Bus. & Com. Code § 2.608(b). A buyer who so revokes has the same rights and duties with regard to the goods involved as if he had rejected them. Tex. Bus. & Com. Code § 2.608(c).
The right of a buyer to revoke exists only after the buyer has initially accepted the goods in question. Once a buyer has properly revoked acceptance of a product, the seller has no right to cure by repair or by replacement. In addition to recovery of the purchase price, including the full trade-in credit of any property traded in, the buyer who has properly exercised his right to revoke may recover prejudgment interest, postjudgment interest, and attorney’s fees when the proper predicate for such recovery has been made. Gappelberg v. Landrum, 666 S.W.2d 88, 91 (Tex. 1984).
If the buyer has made substantial changes in the condition of the goods that increased their value, revocation is still available. Village Mobile Homes v. Porter, 716 S.W.2d 543, 551–52 (Tex. App.—Austin 1986, writ ref’d n.r.e.).
A buyer who accepts a nonconforming good and who has no right to revoke the acceptance is limited to recovering the difference between the value of the good as received and the value had the good been conforming. Tex. Bus. & Com. Code § 2.714(b); Manon v. Tejas Toyota, Inc., 162 S.W.3d 743, 748 (Tex. App.—Houston [14th Dist.] 2005, no pet.).
If the goods fail to conform to the contract, the buyer may accept the whole, reject the whole, or accept any commercial unit(s) and reject the rest. Tex. Bus. & Com. Code § 2.601. For an installment contract, the buyer may reject any installment which is nonconforming if the nonconformity substantially impairs the value of that installment and cannot be cured, or if the nonconformity is a defect in the required documents. But if the nonconformity does not substantially impair the value of the whole contract and the seller gives adequate assurance of its cure, the buyer must accept that installment. Tex. Bus. & Com. Code § 2.612(b), (c). An “installment contract” is one which requires or authorizes the delivery of goods in separate lots to be separately accepted even though the contract contains a clause “each delivery is a separate contract” or its equivalent. Tex. Bus. & Com. Code § 2.612(a). Whenever nonconformity or default with respect to one or more installments substantially impairs the value of the whole contract there is a breach of the whole. But the aggrieved party reinstates the contact if he accepts a nonconforming installment without seasonably notifying of cancellation or if he brings an action with respect only to past installments or demand performance as to further installments. Tex. Bus. & Com. Code § 2.612(c).
§ 17.26:2Notification of Rejection
Rejection of goods must be within a reasonable time after delivery or tender. It is ineffective unless the buyer seasonably notifies the seller. CPDE. The buyer’s failure to state in connection with rejection a particular defect which is ascertainable by reasonable inspection precludes him from relying on the unstated defect to justify rejection or to establish breach (1) where the seller could have cured if it stated reasonably; or, (2) between merchants, when the seller has, after rejection made a request in writing for a full and final written statement of all defects on which the buyer proposes to rely. Tex. Bus. & Com. Code § 2.605(a). Payment against documents made without reservation of rights precludes recovery of the payment for defect apparent in the documents. Tex. Bus. & Com. Code § 2.605(b).
§ 17.26:3Seller’s Right to Cure
If any tender or delivery by the seller is rejected because of nonconformity and the time for performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery. Tex. Bus. & Com. Code § 2.508(a). If the buyer rejects a nonconforming tender which the seller has reasonable grounds to believe would be acceptable with or without money allowance the seller may, if he seasonably notifies the buyer, have a further reasonable time to substitute tender. Tex. Bus. & Com. Code § 2.508(b).
§ 17.26:4Buyer’s Responsibility for Goods after Rejection
If the buyer has before rejection taken physical possession of goods in which he does not have a security interest under the provisions of Tex. Bus. & Com. Code § 2.711(c), he is under a duty after rejection to hold them with reasonable care at the seller’s disposition for a time sufficient to permit the seller to remove them. Tex. Bus. & Com. Code § 2.602(b)(2). The seller has no further obligations with regard to goods rightfully rejected. Tex. Bus. & Com. Code § 2.602(b)(3). If the seller does not reclaim them within a reasonable time after notification of rejection, the buyer may store the goods for the seller’s account, reship them to the seller, or resell them for the seller’s account, retaining a commission of not more than 10 percent. Tex. Bus. & Com. Code §§ 2.603–.604.
See sections 2.51 through 2.63 in this manual regarding usury generally. Although not specifically listed as an affirmative defense in Tex. R. Civ. P. 94, recent cases suggest that the defense should be so pleaded. Lagow v. Hamon, 384 S.W.3d 411, 413 (Tex. App.—Dallas 2012, no pet.); Ainsworth v. CACH, LLC, No. 14-11-00502-CV, 2012 WL 1205525, at *1 (Tex. App.—Houston [14th Dist.] Apr. 10, 2012, pet. denied) (mem. op.); Ally v. Bank & Trust of Bryan/College Station, No. 10-11-00080-CV, 2012 WL 662324 (Tex. App.—Waco Feb. 29, 2012, no pet.) (mem. op.).
A pleading asserting usury must be verified. Tex. R. Civ. P. 93(11).
§ 17.28Discharge in Bankruptcy
A debtor’s discharge in bankruptcy operates as an injunction against the commencement or continuance of an action, the employment of process, or an act, to collect, recover, or offset any such debt as a personal liability of the debt, whether or not discharge of such debtor is waived. 11 U.S.C. § 524. Exceptions such as fraud are described in 11 U.S.C. § 523. See chapter 35 of this manual for a discussion of bankruptcy issues.
See sections 2.71 through 2.73 in this manual regarding the federal truth-in-lending laws.
See section 2.74 in this manual regarding the federal Fair Credit Billing Act.
Absent proof of mental incapacity, a person who signs a contract is presumed to have read and understood the contract unless he was prevented from doing so by trick or artifice. Delfingen US-Texas, LP v. Valenzuela, 407 S.W.3d 791, 801 (Tex. App.—El Paso 2013, no pet.). Illiteracy will not relieve a party of the consequences of his contract. 407 SW.3d at 801; Nguyen Ngoc Giao v. Smith & Lamm, P.C., 714 S.W.2d 144, 146–47 (Tex. App.—Houston [1st Dist.] 1986, no writ). See also Amouri v. Southwest Toyota, Inc., 20 S.W.3d 165 (Tex. App.—Texarkana 2000, pet. denied) (illiteracy irrelevant where contract was procured by fraud).
[Sections 17.32 through 17.40 are reserved for expansion.]
§ 17.41Texas Deceptive Trade Practices–Consumer Protection Act (DTPA)
Violations of the Deceptive Trade Practices–Consumer Protection Act (DTPA) include—
1.a breach of an express or implied warranty;
2.an unconscionable act or course of action;
3.a violation of Texas Insurance Code chapter 541; or
4.the use or employment of a false, misleading, or deceptive act or practice, specifically enumerated in the “laundry list” provisions of Tex. Bus. & Com. Code § 17.46(b), that the consumer relies on to his detriment.
Tex. Bus. & Com. Code § 17.50(a). The DTPA does not itself create any warranties. Helena Chemical Co. v. Wilkins, 47 S.W.3d 486, 505 (Tex. 2001); La Sara Grain Co. v. First National Bank, 673 S.W.2d 558, 565 (Tex. 1984).
The most common “laundry list” violations are—
1.representing that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or quantities that they do not have or that a person has a sponsorship, approval, status, affiliation, or connection that he does not have (Tex. Bus. & Com. Code § 17.46(b)(5));
2.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 (Tex. Bus. & Com. Code § 17.46(b)(7));
3.representing that an agreement confers or involves rights, remedies, or obligations that it does not have or involve or that are prohibited by law (Tex. Bus. & Com. Code § 17.46(b)(12));
4.representing that work or services have been performed on or parts replaced in goods if the work or services were not performed or the parts replaced (Tex. Bus. & Com. Code § 17.46(b)(22));
5.filing suit in a court of improper venue (Tex. Bus. & Com. Code § 17.46(b)(23)); and
6.failing to disclose information concerning goods or services that was known at the time of the transaction if the failure to disclose was intended to induce the consumer into a transaction into which he would not otherwise have entered (Tex. Bus. & Com. Code § 17.46(b)(24)).
§ 17.41:2Incorporation of DTPA into Debt Collection Practices Act and Other Laws
Violation of a number of other statutes also constitutes a violation of the DTPA, including—
1.Tex. Fin. Code § 392.404(a) (Texas Debt Collection Practices Act; see sections 2.31 through 2.36 in this manual);
2.Tex. Bus. & Com. Code § 51.302 (Business Opportunity Act; see section 2.109); and
3.Tex. Bus. & Com. Code § 601.204 (formerly the Home Solicitation Transactions Act; see section 2.108).
§ 17.41:3Who Can Bring DTPA Action
Only a consumer may bring a DTPA action. See Tex. Bus. & Com. Code § 17.50(a). A “consumer” is an individual, partnership, corporation, the state of Texas, or a subdivision or agency of the state that seeks or acquires by purchase or lease any goods or services, except for a business consumer with assets of $25 million or more. Tex. Bus. & Com. Code § 17.45(4). A “business consumer” is an individual, partnership, or corporation who seeks or acquires by purchase or lease any goods or services for commercial or business use. Tex. Bus. & Com. Code § 17.45(10).
§ 17.41:4Transactions Excluded from DTPA
The types of claims listed below cannot be brought under the DTPA.
Negotiated Contract: The DTPA does not apply to claims arising out of a written contract if (1) the contract relates to a transaction, project, or set of transactions related to the same project involving total consideration by the consumer of more than $100,000; (2) in negotiating the contract the consumer is represented by legal counsel not directly identified, suggested, or selected by the defendant or defendant’s agent; and (3) the cause of action does not involve the consumer’s residence. Tex. Bus. & Com. Code § 17.49(f).
Transaction Limit: The DTPA does not apply to claims arising out of a transaction, project, or set of transactions relating to the same project involving a total consideration by the consumer of more than $500,000, other than a cause of action involving the consumer’s residence. Tex. Bus. & Com. Code § 17.49(g).
Professional Services: The DTPA does not apply to claims for damages based on professional services, the essence of which is the providing of advice, judgment, opinion, or similar professional skill. This exemption does not apply to (1) an express misrepresentation of material fact that cannot be characterized as advice, judgment, or opinion; (2) a failure to disclose information in violation of Tex. Bus. & Com. Code § 17.46(b)(24); (3) an unconscionable act or course of action that cannot be characterized as advice, judgment, or opinion; (4) breach of an express warranty that cannot be characterized as advice, judgment, or opinion; or (5) a violation of Tex. Bus. & Com. Code § 17.46(b)(26). Tex. Bus. & Com. Code § 17.49(c).
Waiver: A consumer may waive his rights to a DTPA action if (1) the waiver is in writing, is signed by him, and is in the form prescribed by Tex. Bus. & Com. Code § 17.42(a); (2) he is not in a significantly disparate bargaining position; and (3) in negotiating the contract the consumer is represented by legal counsel not directly identified, suggested, or selected by the defendant or defendant’s agent. Tex. Bus. & Com. Code § 17.42(a).
§ 17.41:5Presuit Notice by Consumer
Before filing suit, the consumer must give at least sixty days’ written notice to the prospective defendant, advising the defendant of the specific complaint and the amount of economic damages, damages for mental anguish, and expenses, including attorney’s fees, reasonably incurred by the consumer in asserting the claim. Tex. Bus. & Com. Code § 17.505(a). The consumer may give notice after filing suit, however, if the action is brought as a counterclaim or if the sixty-day-notice requirement would cause the applicable statute of limitations to bar the consumer’s claim. Tex. Bus. & Com. Code § 17.505(b). During the sixty-day period, a written request to inspect the goods subject to dispute may be presented to the consumer. Tex. Bus. & Com. Code § 17.505(a).
If the defendant does not receive written notice, he may file a plea in abatement within thirty days after filing his original answer. Abatement is not available if Tex. Bus. & Com. Code § 17.505(b) applies. Tex. Bus. & Com. Code § 17.505(c). The suit shall be abated if the notice requirement was not met, and abatement will continue until sixty days after written notice is served. Tex. Bus. & Com. Code § 17.505(d), (e).
§ 17.41:6Penalties for DTPA Violation
A consumer prevailing in a DTPA action can recover economic damages, court costs, and reasonable and necessary attorney’s fees. Tex. Bus. & Com. Code § 17.50(b), (d). If the defendant’s conduct is found to be knowing, the court may award additional damages of up to three times the amount of economic damages and may also award mental anguish damages. If the defendant’s conduct was intentional, the mental anguish damages may be trebled as well. Tex. Bus. & Com. Code § 17.50(b)(1).
If a DTPA judgment is not satisfied within three months of the date of final judgment, the court may appoint a receiver or revoke or suspend the defendant’s license to do business in this state. The court may not appoint a receiver or revoke or suspend a defendant’s license if the defendant is a licensee of or regulated by a state agency with statutory authority to revoke or suspend the license or appoint a receiver or trustee. Tex. Bus. & Com. Code § 17.50(b)(4).
§ 17.41:7Groundless or Harassing DTPA Suit
If a consumer brings a suit that is groundless in fact or law, in bad faith, or for purposes of harassment, the court must award the defendant reasonable and necessary attorney’s fees and court costs. Tex. Bus. & Com. Code § 17.50(c).
Fraud occurs if—
1.a material representation was made;
2.the representation was false;
3.the party made the representation knowing it was false when he made it or made it recklessly without any knowledge of its truth and as a positive assertion;
4.the party made the representation intending the complainant to act on it;
5.the complainant acted in reliance on it; and
6.the complainant suffered an injury as a result.
Exxon Corp. v. Emerald Oil & Gas Co., L.C., 348 S.W.3d 194, 217 (Tex. 2011); In re First-Merit Bank, N.A., 52 S.W.3d 749, 758 (Tex. 2001, orig. proceeding); American Dream Team, Inc. v. Citizens State Bank, 481 S.W.3d 725, 737 (Tex. App.—Tyler 2015, pet. denied). The absence of any one of these elements prevents recovery. Custom Leasing, Inc. v. Texas Bank & Trust Co. of Dallas, 516 S.W.2d 138, 143 (Tex. 1974); Mumphord v. First Victoria National Bank, 605 S.W.2d 701, 704 (Tex. Civ. App.—Corpus Christi 1980, no writ).
Common-law fraud may be pleaded as an affirmative cause of action (see, e.g., Trenholm v. Ratcliff, 646 S.W.2d 927 (Tex. 1983)) or as an affirmative defense (see, e.g., Oilwell Division, United States Steel Corp. v. Fryer, 493 S.W.2d 487, 490 (Tex. 1973)). As an affirmative defense, fraud must be properly and specifically pleaded. Tex. R. Civ. P. 94; Cranetex, Inc. v. Precision Crane & Rigging of Houston, Inc., 760 S.W.2d 298, 304 (Tex. App.—Texarkana 1988, writ denied).
To prevail on an actionable fraud cause of action, the party asserting the claim must satisfy all elements of the tort for each alleged misrepresentation. Stephanz v. Laird, 846 S.W.2d 895, 903 (Tex. App.—Houston [14th Dist.] 1993, no writ).
§ 17.42:2Material Representation
Material information is that which a reasonable person would attach importance to and would be induced to act on in determining his choice of actions in the transaction in question. Italian Cowboy Partners, Ltd. v. Prudential Insurance Co. of America, 341 S.W.3d 323, 337 (Tex. 2011); Wilmot v. Bouknight, 466 S.W.3d 219, 227 (Tex. App.—Houston [1st Dist.] 2015, pet. denied); In re Media Arts Group, Inc., 116 S.W.3d 900, 910 (Tex. App.—Houston [14th Dist.] 2003, orig. proceeding [mand. denied]); Citizens National Bank v. Allen Rae Investments, Inc., 142 S.W.3d 459, 78–79 (Tex. App.—Fort Worth 2004, no pet.). In Town North National Bank v. Broaddus, 569 S.W.2d 489 (Tex. 1978), the court held that a promissory note that is clear and express in its terms can-not be varied or contradicted by parol agreements or by representations of the payee that the maker would not be held liable according to the tenor of the instrument. The court reasoned that a party to a written agreement is charged as a matter of law with knowledge of its provisions and as a matter of law cannot claim fraud when he is bound to the provisions unless he can demonstrate that he was tricked into its execution.
Misrepresentation can take the form of a false statement of a material fact, a promise of future performance made with no intent to perform, a statement of opinion based on a false statement of fact, a statement of opinion that the maker knows to be false, or a false expression of opinion made by one claiming or implying to have special knowledge of the subject matter of the opinion. Italian Cowboy Partners, Ltd., 341 S.W.3d at 337–38; Ernst & Young, L.L.P. v. Pacific Mutual Life Insurance Co., 51 S.W.3d 573, 577 (Tex. 2001); Trenholm v. Ratcliff, 646 S.W.2d 927, 930 (Tex. 1983); see also Tilton v. Marshall, 925 S.W.2d 672, 678 (Tex. 1996); T.O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218, 222 (Tex. 1992).
“Puffery is an expression of opinion by a seller not made as a representation of fact.” Dowling v. NADW Marketing, Inc., 631 S.W.2d 726, 729 (Tex. 1982). Pure expressions of opinion generally are not actionable. Helena Chemical Co. v. Wilkins, 47 S.W.3d 486, 502 (Tex. 2001) (mere puffery not actionable under DTPA section 17.46(b)(5) or (b)(7) but may be actionable under section 17.46(b)(23) or 17.50(a)(3)); Trenholm v. Ratcliff, 646 S.W.2d 927, 931 (Tex. 1983); Angelo Broadcasting, Inc. v. Satellite Music Network, Inc., 836 S.W.2d 726, 733 (Tex. App.—Dallas 1992, writ denied), overruled on other grounds, Hines v. Hash, 843 S.W.2d 464, 469–70 (Tex. 1992).
A pure expression of opinion is not a representation of material fact and thus is not an actionable basis for a fraud claim. Italian Cowboy Partners, Ltd. v. Prudential Insurance Co. of America, 341 S.W.3d 323, 337–38 (Tex. 2011). Whether a statement is an actionable statement of “fact” or merely an innocuous statement of “opinion” often depends on the circumstances in which a statement is made. Italian Cowboy Partners, Ltd., 341 S.W.3d at 338; Transport Insurance Co. v. Faircloth, 898 S.W.2d 269, 276 (Tex. 1995); Allen v. Devon Energy Holdings, LLC, 367 S.W.3d 355, 368 (Tex. App.—Houston [1st Dist.] 2012, pet. withdrawn); Citizens National Bank v. Allen Rae Investments, Inc., 142 S.W.3d 459, 478–79 (Tex. App.—Fort Worth 2004, no pet.). When determining whether a statement constitutes mere puffing, the court considers the following factors:
1.The statement’s specificity—imprecise or vague representations constitute mere opinions;
2.The speaker’s knowledge—an opinion may constitute actionable fraud if the speaker has knowledge of its falsity;
3.The levels of knowledge of the buyer and seller—the seller’s superior knowledge coupled with the lack of knowledge of the buyer operated to make a divergence into representations of fact; and
4.Whether the statement related to a present or future happening—an expression of an opinion as to the happening of a future event may constitute actionable fraud where the speaker purports to have special knowledge of the facts that will occur or exist in the future.
Devon Energy Holdings, 367 S.W.3d at 368; Transport Insurance Co., 898 S.W.2d at 276; Citizens National Bank, 142 S.W.3d at 473.
Statements of opinion may be actionable when—
1.the speaker expresses the opinion with knowledge that it is false;
2.the speaker has superior knowledge and should have known that the other party was justifiably relying on the speaker's superior knowledge; or
3.the statement of opinion is so intertwined with other misstatements of fact that the representation as a whole amounts to a false representation of fact.
Transport Insurance Co., 898 S.W.2d at 276; Devon Energy Holdings, 367 S.W.3d 355 at 370.
§ 17.42:4Statements of Value Are Not Fraud
When no confidential relationship exists between parties, a representation of value is merely an opinion that cannot be made the basis of recovery for fraud. McCollum v. P/S Investments, Ltd., 764 S.W.2d 252 (Tex. App.—Dallas 1988, writ denied); Cravens v. Skinner, 626 S.W.2d 173 (Tex. App.—Fort Worth 1981, no writ); Ryan v. Collins, 496 S.W.2d 205 (Tex. Civ. App.—Tyler 1973, writ ref’d n.r.e.); Fossier v. Morgan, 474 S.W.2d 801 (Tex. Civ. App.—Houston [1st Dist.] 1972, no writ); Frankfurt v. Wilson, 353 S.W.2d 490 (Tex. Civ. App.—Dallas 1961, no writ); Gainesville National Bank v. Bamberger, 77 Tex. 48, 13 S.W. 959 (1890).
§ 17.42:5Silence as Misrepresentation
Silence can be misrepresentation if a party has an affirmative duty to speak. The duty to speak “arises when one party knows that the other party is relying on the [concealed] fact, provided that he knows the relying party is ignorant of the facts and does not have an equal opportunity to discover the truth.” Libhart v. Copeland, 949 S.W.2d 783, 801 (Tex. App.—Waco 1997, no writ) (quoting New Process Steel Corp. v. Steel Corp. of Texas, 703 S.W.2d 209, 214 (Tex. App.—Houston [1st Dist.] 1985, writ ref’d n.r.e.)). A party typically has a duty to speak in fiduciary or confidential situations. Wilson v. Sysco Food Services of Dallas, Inc., 940 F. Supp. 1003, 1014–15 (N.D. Tex. 1996); see also Castillo v. Neely’s TBA Dealer Supply, Inc., 776 S.W.2d 290, 295–96 (Tex. App.—Houston [1st Dist.] 1989, writ denied). Other situations in which a party has been found to have the affirmative duty to speak include the following:
1.Specific representations about a bonus plan give rise to the duty to disclose changes in the plan. Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 435 (Tex. 1986).
2.Once information is voluntarily disclosed, a party has the duty to disclose the whole truth. State National Bank v. Farah Manufacturing Co., 678 S.W.2d 661, 681 (Tex. App.—El Paso 1984, writ dism’d by agr.).
3.When information is already disclosed, a party has the duty to disclose new information if he knows that new information will make the old representation wrong or misleading. Metro National Corp. v. Dunham-Bush, Inc., 984 F. Supp. 538, 554 (S.D. Tex. 1997); Susanoil, Inc. v. Continental Oil Co., 519 S.W.2d 230, 236 (Tex. Civ. App.—San Antonio 1975, writ ref’d n.r.e.).
§ 17.42:6Ratification by Defrauded Party
A defrauded party can ratify the fraud if he has full knowledge of the fraud and of all material facts, clearly manifests his intention of abiding by the underlying intent of the contract, and waives all rights to recover for the deception. Conoco, Inc. v. Fortune Production Co., 35 S.W.3d 23, 32–33 (Tex. App.—Houston [1st Dist.] 1998, pet. granted), rev’d 52 S.W.3d 671 (Tex. 2000); Arroyo Shrimp Farm, Inc. v. Hung Shrimp Farm, Inc., 927 S.W.2d 146, 153–54 (Tex. App.—Corpus Christi 1996, no writ); Texacadian Fuels, Inc. v. Lone Star Energy Storage, Inc., 896 S.W.2d 233, 237 (Tex. App.—Houston [1st Dist.] 1995, writ granted w.r.m.), vacated pursuant to settlement, 922 S.W.2d 549 (Tex. 1996).
§ 17.42:7Contributory or Comparative Negligence of Defrauded Party
If a party has been induced to enter into a contract by fraudulent representations, the person committing the fraud cannot defeat a claim for damages based on a plea that the defrauded party might have discovered the truth by the exercise of due diligence or proper care. Koral Industries v. Security-Connecticut Life Insurance Co., 802 S.W.2d 650, 651 (Tex. 1990) (per curiam); Trenholm v. Ratcliff, 646 S.W.2d 927, 933 (Tex. 1983); Matis v. Golden, 228 S.W.3d 301, 311 (Tex. App.—Waco 2007, no pet.). But see Athey v. Mortgage Electronic Registration Systems, 314 S.W.3d 161, 163–65 (Tex. App.—Eastland 2010, pet. denied) (applying more stringent rule when representation directly contradicted provision in promissory note).
§ 17.42:8Statutory Fraud—Elements
Fraud in a transaction involving real estate or stock in a corporation or joint-stock company consists of—
1.a false representation of a past or existing material fact, if the representation is made to a person for the purpose of inducing that person to enter into a contract and is relied on by that person in entering into the contract;
2.a false promise to act, if the false promise is material, is made with the intention of not fulfilling it, is made to a person for the purpose of inducing that person to enter into a contract, and is relied on by that person in entering into the contract; or
3.having actual awareness of the falsity of a representation or promise made by another, failing to disclose the falsity, and benefiting from the false representation or promise.
Tex. Bus. & Com. Code § 27.01(a), (d).
§ 17.42:9Statutory Fraud—Defendant’s State of Mind
A person who makes a false representation or promise is liable for actual damages, and a person making a false representation or promise with actual knowledge of its falsity is also liable for exemplary damages. Tex. Bus. & Com. Code § 27.01(b), (c).
§ 17.42:10Statutory vs. Common-Law Fraud
Statutory fraud is distinguishable from common-law fraud in the following ways:
1.The failure to disclose another party’s fraud has no precise parallel in the Texas common law. See Tex. Bus. & Com. Code § 27.01(d).
2.Statutory fraud does not require scienter as an element for recovery of actual damages. See In re Guardianship of Patlan, 350 S.W.3d 189, 200 (Tex. App.—San Antonio 2011, no pet.); Ritchey v. Pinnell, 324 S.W.3d 815, 821 (Tex. App.—Texarkana 2010, no pet.) (citing Larsen v. Carlene Langford & Associates, 41 S.W.3d 245, 249 (Tex. App.—Waco 2001, pet. denied)); Robbins v. Capozzi, 100 S.W.3d 18, 26 (Tex. App.—Tyler 2002, no pet.); Diversified, Inc. v. Walker, 702 S.W.2d 717, 723 (Tex. App.—Houston [1st Dist.] 1985, writ ref’d n.r.e.).
3.Attorney’s fees and costs of suit are recoverable in a statutory fraud action. Tex. Bus. & Com. Code § 27.01(e).
Fraud is waived if not affirmatively pleaded. Tex. R. Civ. P. 94; Youmans v. Corpora, 552 S.W.2d 569, 570–71 (Tex. Civ. App.—Waco 1977, no writ). Fraud does not render a contract void; until the defrauded party initiates appropriate action to obtain relief, the transaction is merely voidable. Saunders v. Alamo Soil Conservation District, 545 S.W.2d 249, 251 (Tex. Civ. App.—San Antonio 1976, writ ref’d n.r.e.); see Fortune Production Co. v. Conoco, Inc., 52 S.W.3d 671, 676–77 (Tex. 2000). The presumption is in favor of the fairness of a transaction, and fraud is never presumed. See William B. Roberts, Inc. v. McDrilling Co., 579 S.W.2d 335, 339 (Tex. Civ. App.—Corpus Christi 1979, no writ); Neuhaus v. Kain, 557 S.W.2d 125, 136 (Tex. Civ. App.—Corpus Christi 1977, writ ref’d n.r.e.). Failure to plead or prove any element of fraud if a suit for specific performance rests solely on fraud will permit the granting of the plaintiff’s motion for instructed verdict. Neuhaus, 557 S.W.2d at 138; see Texas Farmers Insurance Co. v. Murphy, 996 S.W.2d 873, 879–80 (Tex. 1999).
See sections 2.51 through 2.63 in this manual regarding usury generally. Usury penalties act as a setoff to the creditor’s claim. See Steves Sash & Door Co. v. Ceco Corp., 751 S.W.2d 473, 475–76 (Tex. 1988); Miller v. First State Bank, 551 S.W.2d 89, 95 (Tex. Civ. App.—Fort Worth 1977), aff’d as modified, 563 S.W.2d 572 (Tex. 1978).
A pleading asserting usury must be verified. Tex. R. Civ. P. 93(11).
For Finance Code violations, see sections 2.81 through 2.90 in this manual. For consumer lease violations, see section 2.77. For home solicitation transactions violations, see section 2.108. For Business Opportunity Act violations, see section 2.109.
If, with reference to goods being sold, the seller makes to the buyer any promise, description, or affirmation of fact or uses a sample or model, he has created an express warranty that the goods will conform to it. Tex. Bus. & Com. Code § 2.313(a). A warranty can be created without the seller’s use of formal language of warranty and without an intent to make a warranty, but a warranty is not created merely by affirming the goods’ value, expressing an opinion about the goods, or commending them. Tex. Bus. & Com. Code § 2.313(b).
A suit for breach of an express warranty is based on a contract and is governed by the law of contracts. 1/2 Price Checks Cashed v. United Automobile Insurance Co., 344 S.W.3d 378, 388 (Tex. 2011) (citing Medical City Dallas, Ltd. v. Carlisle Corp., 251 S.W.3d 55, 60–61 (Tex. 2008)); Smith v. Kinslow, 598 S.W.2d 910, 912 (Tex. Civ. App.—Dallas 1980, no writ). The buyer must show that the warranty was part of the basis of the bargain. Lyda Constructors, Inc. v. Butler Manufacturing Co., 103 S.W.3d 632, 637–38 (Tex. App.—San Antonio 2003, no pet.); Crosbyton Seed Co. v. Mechura Farms, 875 S.W.2d 353, 361 (Tex. App.—Corpus Christi 1994, no writ).
The federal consumer products warranties statutes proscribe deceptive trade practices relating to written warranties for consumer goods. See 15 U.S.C. §§ 2301–2312.
§ 17.45:2Implied Warranty of Merchantability
A contract for the sale of goods implies a warranty that the goods are merchantable if the seller is a merchant dealing in that kind of goods. Tex. Bus. & Com. Code § 2.314(a). To be merchantable, generally the goods must be fit for the ordinary purposes for which they are used. Tex. Bus. & Com. Code § 2.314(b)(3). Proof of a defect in the goods is required in an action for breach of the implied warranty of merchantability. Hyundai Motor Co. v. Rodriguez, 995 S.W.2d 661, 664–65 (Tex. 1999); General Motors Corp. v. Brewer, 966 S.W.2d 56, 57 (Tex. 1998); Plas-Tex, Inc. v. U.S. Steel Corp., 772 S.W.2d 442, 443–44 (Tex. 1989); Everett v. TK-Taito, L.L.C., 178 S.W.3d 844, 853–54 (Tex. App.—Fort Worth 2005, no pet.).
Reliance on a misrepresentation is not an element of a claim for breach of the implied warranty of merchantability. Khan v. Velsicol Chemical Corp., 711 S.W.2d 310, 319 (Tex. App.—Dallas 1986, writ ref’d n.r.e.).
§ 17.45:3Implied Warranty of Fitness for Particular Purpose
An implied warranty that the goods are fit for a particular purpose arises if the seller, at the time of contracting, has reason to know the particular purpose for which the goods are required and that the buyer is relying on the seller’s particular skill or judgment in selecting or furnishing suitable goods. Tex. Bus. & Com. Code § 2.315.
Reliance on a misrepresentation is not an element of a claim for breach of the implied warranty of fitness for a particular purpose. Khan v. Velsicol Chemical Corp., 711 S.W.2d 310, 319 (Tex. App.—Dallas 1986, writ ref’d n.r.e.).
§ 17.45:4Implied Warranty of Good and Workmanlike Performance
Performance of some services carries an implied warranty of good and workmanlike performance. This implied warranty applies to—
1.new construction, Centex Homes v. Buecher, 95 S.W.3d 266, 272–73 (Tex. 2002); Humber v. Morton, 426 S.W.2d 554, 555 (Tex. 1968), and
2.repair or modification of existing tangible goods or other property, Rocky Mountain Helicopters, Inc. v. Lubbock County Hospital District, 987 S.W.2d 50, 52–53 (Tex. 1998); Melody Home Manufacturing Co. v. Barnes, 741 S.W.2d 349, 354 (Tex. 1987); Trans-Gulf Corp. v. Performance Aircraft Services, Inc., 82 S.W.3d 691, 696–97 (Tex. App.—Eastland 2002, no pet.).
It does not, however, extend to the provision of purely professional services. Dennis v. Allison, 698 S.W.2d 94, 95–96 (Tex. 1985); Hogue v. Propath Laboratory, Inc., 192 S.W.3d 641, 646–47 (Tex. App.—Fort Worth 2006, pet. denied); Chapman v. Paul R. Wilson, Jr., D.D.S., 826 S.W.2d 214, 227–28 (Tex. App.—Austin 1992, writ denied). This warranty cannot be waived. Melody Home Manufacturing Co., 741 S.W.2d at 355; Welwood v. Cypress Creek Estates, Inc., 205 S.W.3d 722, 730 (Tex. App.—Dallas 2006, no pet.). It will not be imposed unless there is a demonstrated need for it, and it extends only to services provided to remedy defects existing at the time of the transaction. Rocky Mountain Helicopters, Inc., 987 S.W.2d at 52–53; Parkway Co. v. Woodruff, 901 S.W.2d 434, 439 (Tex. 1995); Humble National Bank v. DCV, Inc., 933 S.W.2d 224, 239 (Tex. App.—Houston [14th Dist.] 1996, pet. denied).
A sale of goods automatically creates a warranty that the seller has good title to the goods sold, that their transfer is rightful, and that they are free of any security interest or other encumbrance of which the buyer at the time of contracting has no knowledge. Tex. Bus. & Com. Code § 2.312(a). The warranty can be excluded or modified by appropriate words or conduct. Tex. Bus. & Com. Code § 2.312(b).
§ 17.45:6Disclaimer of UCC Implied Warranties
An implied warranty can be excluded or modified by the use of language such as “as is,” by an examination of the goods by the buyer (or by his refusal to examine) if the examination should have revealed the defect, “by course of dealing or course of performance or usage of trade,” or by other words or conduct tending to limit warranty. Tex. Bus. & Com. Code § 2.316(b), (c). See also Prudential Insurance Co. of America v. Jefferson Associates, Ltd., 896 S.W.2d 156, 161 (Tex. 1995); Welwood v. Cypress Creek Estates, Inc., 205 S.W.3d 722, 726–27 (Tex. App.—
Dallas 2006, no pet.).
A disclaimer of implied warranties must be conspicuous. Tex. Bus. & Com. Code § 2.316(b); Cate v. Dover Corp., 790 S.W.2d 559, 560–61 (Tex. 1990); Dewayne Rogers Logging, Inc. v. Propac Industries, Ltd., 299 S.W.3d 374, 389–90 (Tex. App.—Tyler 2009, pet. denied). The standard for conspicuousness is whether a reasonable person against whom the disclaimer is to operate ought to have noticed it. Tex. Bus. & Com. Code § 1.201(b)(10).
In addition to suing under breach of warranty, a consumer can bring suit under the Texas Deceptive Trade Practices–Consumer Protection Act (DTPA). Tex. Bus. & Com. Code § 17.50(a)(2). See section 17.41 above for a discussion of the DTPA.
§ 17.46Fair Debt Collection Practices Act
See sections 2.11 through 2.20 in this manual regarding the Fair Debt Collection Practices Act.
§ 17.47Texas Debt Collection Practices Act
See sections 2.31 through 2.36 in this manual regarding the Texas Debt Collection Practices Act.
§ 17.48Sale and Leaseback of Homestead
Any sale or purported sale in whole or in part of a homestead for a fixed purchase price that is less than the appraised fair market value of the property at the time of the sale or purported sale, and in connection with which the buyer of the property executes a lease of the property to the seller at lease payments that exceed the fair rental value of the property, is considered to be a loan with all payments made from the seller to the buyer in excess of the sales price considered to be interest subject to provisions of the Texas Finance Code. Tex. Prop. Code § 41.006(a). Furthermore, the taking of any deed in connection with such a transaction is a deceptive trade practice and the deed is void, and no lien attaches to the homestead property as a result of the purported sale. Tex. Prop. Code § 41.006(b). This statute, however, does not apply to the sale of a family homestead to a parent, stepparent, grandparent, child, stepchild, brother, half brother, sister, half sister, or grandchild of an adult member of the family. Tex. Prop. Code § 41.006(c).
§ 17.49Unreasonable Debt Collection Practices
If a creditor resorts to “cruel devices” to enforce collection with the intended effect of causing great mental anguish and those actions result in damages, the creditor will be liable for those damages. Duty v. General Finance Co., 273 S.W.2d 64, 65–66 (Tex. 1954); see Ware v. Paxton, 359 S.W.2d 897, 900 (Tex. 1962); Gonzalez v. Temple-Inland Mortgage Corp., 28 S.W.3d 622, 626 (Tex. App.—San Antonio 2000, no pet.).
Unfair collection practices is an intentional tort derived from the common law. Hidden Forest Homeowners Ass’n v. Hern, No. 04-10-00551-CV, 2011 WL 6089881, at *4 (Tex. App.—San Antonio Dec. 7, 2011, no pet.) (mem. op.) (citing General Finance Co., 273 S.W.2d at 66; EMC Mortgage Corp. v. Jones, 252 S.W.3d 857, 868 (Tex. App.—Dallas 2008, no pet.)). The Supreme Court of Texas has not directly addressed the elements to be proven in an action for unfair collection practices. Hidden Forest, 2011 WL 6089881, at *4 (“A decision of the case before us does not require that we undertake to outline the limits to which such a creditor may go, but we do hold that resort to every cruel device which his cunning can invent in order to enforce collection when that course of conduct has the intended effect of causing great mental anguish to the debtor, resulting in physical injury and causing his loss of employment, renders the creditor liable to respond in damages.”) (quoting General Finance Co., 273 S.W.2d at 66); Moore v. Savage, 362 S.W.2d 298, 298–99 (Tex. 1962) (per curiam) (refusing to review the definition of “unreasonable collection efforts” because the issue was not preserved for appeal), ref’g appeal from 359 S.W.2d 95, 96 (Tex. Civ. App.—Waco 1962, writ ref’d n.r.e.). While the elements are not clearly defined and the conduct deemed to constitute an unreasonable collection effort varies from case to case, a plaintiff must generally prove that “[a] defendant[’s] debt collection efforts ‘amount to a course of harassment that was willful, wanton, malicious, and intended to inflict mental anguish and bodily harm.’” EMC Mortgage Corp., 252 S.W.3d at 868–69.
As discussed in Hidden Forest, 2011 WL 6089881, at *5, Texas courts have found the following evidence sufficient to state a cause of action for unreasonable debt collection: sending a large man to the plaintiff's home, who “yelling and screaming, demanded the keys to the house, and told the [Plaintiff’s] family to get out.” (citing EMC Mortgage Corp., 252 S.W.3d at 864, 870); falsely accusing the plaintiff of committing a crime (citing Lloyd v. Myers, 586 S.W.2d 222, 227 (Tex. Civ. App.—Waco 1979, writ ref’d n.r.e.)); sending a large man to the plaintiff’s home, who stood over the plaintiff shouting, shaking his finger and calling him a liar (citing Credit Plan Corp. of Houston v. Gentry, 516 S.W.2d 471, 475 (Tex. Civ. App.—Houston [14th Dist.] 1974), rev’d on other grounds by Gentry v. Credit Plan Corp. of Houston, 528 S.W.2d 571 (Tex. 1975)); sending a representative to the plaintiff’s home, confronting and embarrassing the plaintiff's fiancée in front of social guests (citing Bank of North America v. Bell, 493 S.W.2d 633, 635 (Tex. Civ. App.—Houston [14th Dist.] 1973, no writ)); calling the plaintiff five times in one night, with the final call including a threat of personal violence (citing Pioneer Finance & Thrift Corp. v. Adams, 426 S.W.2d 317, 319 (Tex. Civ. App.—Eastland 1968, writ ref’d n.r.e.)). Additionally, Texas courts have held that it is unreasonable to persist in collection efforts once the debtor has informed the collector/lender that the debt has been paid in full. See Pullins v. Credit Exchange of Dallas, Inc., 538 S.W.2d 681, 682–83 (Tex. Civ. App.—Waco 1976, writ ref’d n.r.e.) (holding that repeated and harassing efforts to collect $50 debt were unreasonable where plaintiff consistently asserted debt was paid). The Fifth Circuit has observed that the tort of unreasonable collection is intended to deter “outrageous collection techniques.” McDonald v. Bennett, 674 F.2d 1080, 1089 n.8 (5th Cir. 1982).
Neither malice nor intent to cause mental or emotional pain is required, only a finding of reckless disregard for the debtor’s welfare. Moore v. Savage, 359 S.W.2d 95, 96 (Tex. Civ. App.—Waco 1962, writ ref’d n.r.e.); Western Guaranty Loan Co. v. Dean, 309 S.W.2d 857, 860 (Tex. Civ. App.—Dallas 1957, writ ref’d n.r.e.). But see EMC Mortgage Corp., 252 S.W.3d 868–69 (plaintiff must show that defendant’s conduct “amounted to a course of harassment which was willful, wanton, malicious, and intended to inflict mental anguish and bodily harm”) (quoting Montgomery Ward & Co. v. Brewer, 416 S.W.2d 837, 844 (Tex. Civ. App.—Waco 1967, writ ref’d n.r.e.)).
This cause of action appears to have been subsumed into the state and federal debt collection statutes. See parts II. and III. in chapter 2 of this manual.
§ 17.50Remedies for Failure to Comply with Chapter 9
Under certain circumstances, a secured party who fails to comply with chapter 9 of the Texas Business and Commerce Code is subject to injunctive relief, restrictive or mandatory, and may be liable for resulting losses caused to the debtor, the obligor, or a secondary obligor. Tex. Bus. & Com. Code § 9.625. Note that the potential damages are those resulting from a failure to comply with the requirements imposed by all of chapter 9, not just those imposed by subchapter F relating to default and enforcement. The compensable loss may include that resulting from the debtor’s inability to obtain, or from increased costs of, alternative financing. Tex. Bus. & Com. Code § 9.625(b). As is the case throughout revised chapter 9, special rules are applicable if the collateral consists of consumer goods; a debtor or a secondary obligor on an obligation secured by consumer goods may recover from a secured party who fails to comply with subchapter F (Tex. Bus. & Com. Code §§ 9.601–.628) an amount not less than the credit service charge plus 10 percent of the principal amount of the obligation or the time-price differential plus 10 percent of the cash price. Tex. Bus. & Com. Code § 9.625(c)(2). In addition to the general provisions described above, special statutory damages of $500 are recoverable in each case from a person who—
1.fails to promptly release or transfer back to the debtor a deposit account after the debt it secured has been paid off, as required by Tex. Bus. & Com. Code § 9.208;
2.fails to promptly send an authenticated release to a debtor who has paid off a secured debt as required by Tex. Bus. & Com. Code § 9.209;
3.files a financing statement he is not entitled to file under Tex. Bus. & Com. Code § 9.509(a);
4.fails to cause the secured party of record to file or send the termination statement required by Tex. Bus. & Com. Code § 9.513(a) or (c);
5.fails to provide an explanation or calculation of surplus or deficiency as required by Tex. Bus. & Com. Code § 9.616(b)(1) as part of a pattern or practice of noncompliance; or
6.fails to comply with Tex. Bus. & Com. Code § 9.616(b)(2).
Tex. Bus. & Com. Code § 9.625(e).
Likewise, a debtor or consumer may recover damages under Tex. Bus. & Com. Code § 9.625(b) as well as special statutory damages of $500 from a person who fails to comply with a request under Tex. Bus. & Com. Code § 9.210 without reasonable cause. Tex. Bus. & Com. Code § 9.625(f). Section 9.210 establishes the requirements of a communication in order for it to be considered a “request” and describes the types of requests that can be made and the contents and deadline (fourteen days after receipt) for a secured party to respond to a request. Section 9.210 also specifies how often a debtor may obtain a response to a request without charge (once every six months) and the statutory maximum a secured party may charge for more frequent requests ($25). Tex. Bus. & Com. Code § 9.210(g).
Section 9.625, together with the many sections it cross-references and the sections that limit recoveries against secured parties (Tex. Bus. & Com. Code §§ 9.605, 9.628), should be carefully studied by the attorney collecting for a secured lender.
For additional discussion of deficiency suits, see part X. in chapter 2, chapter 5, and section 14.29 in this manual.
§ 17.51Tortious Interference with Existing Contract
The elements of tortious interference with existing contract include that—
1.the plaintiff had a valid contract;
2.the defendant willfully and intentionally interfered with the contract;
3.the interference was a proximate cause of the plaintiff’s injury; and
4.the plaintiff incurred actual damage or loss.
See Prudential Insurance Co. v. Financial Review Services, 29 S.W.3d 74, 77–78 (Tex. 2000); Powell Industries, Inc. v. Allen, 985 S.W.2d 455, 456 (Tex. 1998); Texas Beef Cattle Co. v. Green, 921 S.W.2d 203, 210 (Tex. 1996); Holloway v. Skinner, 898 S.W.2d 793, 795–96 (Tex. 1995); Deuell v. Texas Right to Life Commission, Inc., 508 S.W.3d 679 (Tex. App.—Houston [1st Dist.] 2016, pet. denied). See also the current edition of State Bar of Texas, Texas Pattern Jury Charges—Business, Consumer, Insurance & Employment PJC 106.1.
Tortious interference with contract embraces all intentional invasions of contractual relations, including any act interfering with the performance of a contract, either by preventing that performance or by making its performance impossible or more burdensome, difficult, or expensive, regardless of whether breach of contract is induced. See Tippett v. Hart, 497 S.W.2d 606, 611 (Tex. Civ. App.—Amarillo 1973, writ ref’d n.r.e.).
Interference with a contract is tortious only if it is intentional. Southwestern Bell Telephone Co. v. John Carlo Texas, Inc., 843 S.W.2d 470, 472 (Tex. 1992); Seelbach v. Clubb, 7 S.W.3d 749, 756–57 (Tex. App.—Texarkana 1999, pet. denied). The intent required is an intent to interfere, not just an intent to do the particular acts that were done. Intentional interference does not require the intent to injure; it requires only that the defendant wants to cause the consequences of its act or that the consequences are substantially certain to result from the act. Southwestern Bell Telephone Co., 843 S.W.2d at 757.
There are two defenses to a tortious interference claim: (1) legal justification or excuse and (2) truth.
Legal Justification or Excuse: A party avoids liability for tortious interference if it has a legal justification or excuse for its act. Sterner v. Marathon Oil Co., 767 S.W.2d 686, 689–90 (Tex. 1989). Legal justification or excuse for interference with another’s contractual relations is an affirmative defense for which the defendant has the burden of proof. Sterner, 767 S.W.2d at 690. Under the defense of legal justification or excuse, one is privileged to interfere with another's contract if (1) the interference is done in a bona fide exercise of one’s own rights or (2) one has a right in the subject matter equal or superior to that of the other party. Southwestern Bell Telephone Co. v. John Carlo Texas, Inc., 843 S.W.2d 470, 472 (Tex. 1992); Sakowitz, Inc. v. Steck, 669 S.W.2d 105, 107 (Tex. 1984). See also the current edition of State Bar of Texas, Texas Pattern Jury Charges—
Business, Consumer, Insurance & Employment PJC 106.2.
In Texas Beef Cattle Co. v. Green, the Texas Supreme Court held that a party is justified in interfering with another’s contract if it exercises (1) its own legal rights or (2) a good-faith claim to a colorable legal right, even though that claim ultimately proves to be mistaken. 921 S.W.2d 203, 211 (Tex. 1996). If the trial court finds as a matter of law that the defendant had a legal right to interfere with the contract, then the defendant has conclusively established the justification defense. The motivation behind assertion of that right is irrelevant. Improper motives cannot transform lawful actions into actionable torts. If a party has a legal right to do something, he may do so with impunity regardless of motive and, if in exercising that legal right in a legal way, damage results to another, there is no cause of action against him. Even if the defendant cannot establish a legal right as a matter of law, the defendant may nevertheless prevail on its justification defense if (1) the trial court determines that the defendant interfered while exercising a colorable right, and (2) the jury finds that although mistaken, the defendant exercised that colorable legal right in good faith. Texas Beef Cattle, 921 S.W.2d at 211. See also Holloway v. Skinner, 898 S.W.2d 793, 796 (Tex. 1995) (dislike of third party and taking pleasure in harm caused to him not a relevant motivation behind assertion of defendant’s legal rights); Montgomery v. Phillips Petroleum Co., 49 S.W.2d 967, 972 (Tex. Civ. App.—Amarillo 1932, writ ref’d) (“Whatever a man has a legal right to do, he may do with impunity, regardless of motive, and if in exercising his legal right in a legal way damage results to another, no cause of action arises against him because of a bad motive in exercising the right.”) (quoting 1 R.C.L. § 6 at 319).
The decision in Texas Beef Cattle, however, left the term “colorable right” undefined. More recent court decisions have construed the term colorable right to mean having the appearance of truth, or seemingly valid and genuine, or having an appearance of right or justice. A right is colorable if it appears without further inquiry. That is, if it appears on its face genuine, truthful, valid, or existing. Bennett v. Computer Associates International, Inc., 932 S.W.2d 197, 202 (Tex. App.—Amarillo 1996, writ denied).
Truth: A defendant who intentionally causes a third person not to perform a contract with the plaintiff is not liable for interfering with the contractual relation by giving the third person truthful information or honest advice within the scope of a request for advice. Financial Review Service v. Prudential Insurance Co. of America, 50 S.W.3d 495, 505 (Tex. App.—Houston [14th Dist.] 1998, pet. granted) (Prudential could communicate with insureds to acknowledge receipt of claim and advise of any actions taken with respect to claim but could not malign Financial Review Services, a hospital bill auditor, by accusing it of fraud); Robles v. Consolidated Graphics, Inc., 965 S.W.2d 552, 561 (Tex. App.—Houston [14th Dist.] 1997, no pet.) (defendant informed business that its agent was taking double commissions).
[Sections 17.52 through 17.60 are reserved for expansion.]
III. Statutes of Limitation—General Considerations
For a discussion of the periods applicable to specific causes of action, see chapter 14 of this manual.
As an affirmative defense, a statute of limitations must be affirmatively pleaded. Tex. R. Civ. P. 94. If the plaintiff affirmatively pleads compliance with the statute of limitations, the defendant is relieved of pleading it as an affirmative defense. Herrin Transportation Co. v. Parker, 425 S.W.2d 876, 879 (Tex. Civ. App.—Houston [1st Dist.] 1968) (refusing to extend the general rule); Raney v. White, 267 S.W.2d 199, 200 (Tex. Civ. App.—San Antonio 1954, writ ref’d).
There is a split in the courts of appeals regarding whether the defendant can raise a limitations defense by special exception instead of affirmative defense. Hubler v. City of Corpus Christi, 564 S.W.2d 816, 823 (Tex. Civ. App.—Corpus Christi 1978, writ ref’d n.r.e.) (special exception proper); contra InterFirst Bank San Antonio N.A. v. Murry, 740 S.W.2d 550, 550–51 (Tex. App.—San Antonio 1987, no writ) (special exception was wrong pleading; defendant should have filed plea in bar).
Filing a petition, coupled with a bona fide intention to serve process on the defendant at once, interrupts the running of the limitations period. Gant v. DeLeon, 786 S.W.2d 259, 260 (Tex. 1990) (when a plaintiff files suit within the limitations period but does not obtain service upon the defendant until after the period has expired, the date of service relates back to the date of filing only if the plaintiff has exercised diligence in obtaining service); Gore v. City of DeSoto, No. 05-07-01024-CV, 2008 WL 2454684, at *2, (Tex. App.—Dallas June 19, 2008, no pet.) (mem. op.). See also Proulx v. Wells, 235 S.W.3d 213, 215 (Tex. 2007) (“A timely filed suit will not interrupt the running of limitations unless the plaintiff exercises due diligence in the issuance and service of citation.”). The plaintiff must exercise diligence in the issuance and service of citation if the lawsuit was filed close to the deadline for the applicable statute of limitations. Ashley v. Hawkins, 293 S.W.3d 175, 179 (Tex. 2009). The mere filing of a suit, without diligence in effecting service, will not toll limitations. Proulx, 235 S.W.3d at 215 (citing Murray v. San Jacinto Agency, Inc., 800 S.W.2d 826, 830 (Tex. 1990)).
Although lack of diligence to procure service of process is generally a fact question, it may be determined as a matter of law if no excuse is offered for the delay in procuring service. See, e.g., City of DeSoto, 2008 WL 2454684, at *2; Ashley, 293 S.W.3d at 179; Perry v. Kroger Stores, Store No. 119, 741 S.W.2d 533, 534 (Tex. App.—Dallas 1987, no writ).
Filing a petition in a court that has no jurisdiction is not “commencing a suit” within the meaning of the statute of limitations and will not interrupt its running. See Brown v. Owens, 663 S.W.2d 30, 34 (Tex. App.—Houston [14th Dist.] 1983), aff’d in part, rev’d in part on other grounds, 674 S.W.2d 748 (Tex. 1984). But if an action is dismissed because the trial court lacked jurisdiction and the action is recommenced in a court of proper jurisdiction within sixty days from the date the dismissal or other disposition becomes final, the period between the first filing and the date of the second filing of the same action in a different court is not counted as part of the limitations period, unless the adverse party shows in abatement that the first filing was made with “intentional disregard of proper jurisdiction.” Tex. Civ. Prac. & Rem. Code § 16.064.
§ 17.63:2Defendant Absent from Texas
Any period during which the defendant is absent from the state, for whatever purpose, while suit could be maintained will toll limitations for the period of the defendant’s absence. Tex. Civ. Prac. & Rem. Code § 16.063.
§ 17.63:3Plaintiff’s Disability
If at the time the cause of action accrued the plaintiff was younger than eighteen years of age (whether married or not) or was of unsound mind, the period during which he was under that disability is not included in the limitations period. Tex. Civ. Prac. & Rem. Code § 16.001(a), (b). A person may not tack one legal disability to another to extend a limitations period. Tex. Civ. Prac. & Rem. Code § 16.001(c). A disability that arises after a limitations period starts does not toll limitations. Tex. Civ. Prac. & Rem. Code § 16.001(d).
§ 17.63:4Plaintiff’s or Defendant’s Death
Limitations is tolled by the death of either the plaintiff or the defendant. It resumes running either twelve months after death or when an administrator or executor of the decedent’s estate qualifies, whichever is earlier. Tex. Civ. Prac. & Rem. Code § 16.062.
Fraud by the defendant will prevent the running of the limitations period until the fraud is discovered or should have been discovered by the exercise of reasonable diligence. Estate of Stonecipher v. Estate of Butts, 591 S.W.2d 806, 809 (Tex. 1979); see also Estate of Stonecipher v. Estate of Butts, 686 S.W.2d 101, 102 (Tex. 1985) (later proceeding after remand); Scott v. Furrow, No. 04-15-00074-CV, 2016 WL 889473, at *3 (Tex. App.—San Antonio, March 9, 2016, pet. denied).
The defendant may be estopped from pleading limitations if he or his agent or representative makes a representation that induces the plaintiff to delay filing suit within the applicable limitations period. Dixon v. Lee, No. 14-97-00671-CV, 1998 WL 802460, at *2 (Tex. App.—Houston [14th Dist.] Nov. 19, 1998, no pet.); Villages of Greenbriar v. Torres, 874 S.W.2d 259, 264 (Tex. App.—Houston [1st Dist.] 1994, writ denied). Estoppel as a defense to a claim of limitations must be affirmatively pleaded. Tex. R. Civ. P. 94. See sections 17.11:3 and 17.11:4 above regarding estoppel and equitable estoppel.
§ 17.63:7Defendant’s Bankruptcy
If an action is stayed by federal bankruptcy law, limitations on the action is tolled until the stay is terminated. 11 U.S.C. § 108(c).
§ 17.63:8Limitations Expire on Weekend or Holiday
If the last day of the statute of limitations is a Saturday, Sunday, or holiday, the period for filing suit is extended to include the next day that county offices are open for business. Tex. Civ. Prac. & Rem. Code § 16.072.
§ 17.63:9Suit against Defendant in Assumed Name
Limitations on a cause of action against a person or business operating under an assumed name may be tolled pending the filing of an amended pleading against the correct party to be sued. Tex. R. Civ. P. 28. Suit in the assumed name puts the real party in interest in court. University of Texas Health Science Center v. Bailey, 332 S.W.3d 395, 399–400 (Tex. 2009); Chilkewitz v. Hyson, 22 S.W.3d 825, 828–29 (Tex. 1999). But the plaintiff should amend the pleadings to substitute the correct legal name of the actual defendant before judgment. Chilkewitz, 22 S.W.3d at 828–29.
§ 17.63:10Defendant’s Part Payment
Payment on a debt, by itself, neither interrupts the running of the limitations period nor acknowledges the justness of the debt by an implied promise to pay it. Gabriel v. Alhabbal, 618 S.W.2d 894, 897 (Tex. App.—Houston [1st Dist.] 1991, writ ref’d n.r.e.); Siegel v. McGavock Drilling Co., 530 S.W.2d 894, 896 (Tex. Civ. App.—Amarillo 1975, writ ref’d n.r.e.); Mandola v. Oggero, 508 S.W.2d 861, 863 (Tex. Civ. App.—Houston [14th Dist.] 1974, no writ). Certain writings may, however, constitute a new promise to pay an old debt. See section 17.64 below.
§ 17.63:11Alter Ego or Subsidiary Corporation
Any claim against a corporation must be brought within the three-year period following the date of its dissolution. Tex. Bus. Orgs. Code § 11.359. The corporation may further limit the time available to bring a claim by giving notice to a person having or asserting such a claim by registered or certified mail to the claimant’s last known address. Tex. Bus. Orgs. Code § 11.358. Under section 11.358, the written claim must be in sufficient detail to reasonably inform the corporation of the nature and amount of the claim and must identify the claimant. The claimant has 120 days from the date this notice was sent to submit its written claim. If the claimant fails to submit the claim within the 120 days after notice is sent, the claim will be barred. If the claimant submits its claim, the corporation may, but is not obliged to, send notice of its rejection of the claim. If it rejects the claim and sends notice of its rejection to the claimant, the claimant has 180 days from the date the notice of rejection is sent to file suit, or the suit is barred. Tex. Bus. Orgs. Code § 11.359.
A suit against a corporation tolls limitations as to the alter ego of that corporation. Matthews Construction Co. v. Rosen, 796 S.W.2d 692, 693 (Tex. 1990); Gentry v. Credit Plan Corp. of Houston, 528 S.W.2d 571, 575 (Tex. 1975).
A suit against a subsidiary corporation will not toll limitations against the parent corporation, regardless of common stock ownership, a duplication of officers and directors, or common control resulting from stock ownership, unless management and operation of the parent and subsidiary are so assimilated that the subsidiary is simply a name or conduit through which the parent conducts its business. Wright v. Gifford-Hill & Co., 736 S.W.2d 828, 833–34 (Tex. App.—Waco 1987, writ ref’d n.r.e.).
If a party misnames the defendant in a lawsuit but actually serves the correct party, an amended pleading that includes the correct party will relate back to the date of the original petition for purposes of limitations. Enserch Corp. v. Parker, 794 S.W.2d 2, 4–5 (Tex. 1990). However, if the plaintiff names and serves the correct party, nonsuits that party, and then seeks to replead against that party, limitations are not tolled. Johnson v. Coca-Cola Co., 727 S.W.2d 756, 758–59 (Tex. App.—Dallas 1987, writ ref’d n.r.e.). See also Pierson v. SMS Financial II, L.L.C., 959 S.W.2d 343 (Tex. App.—Texarkana 1998, no pet.) (explaining differences between serving wrong party and serving correct party under wrong name). A misnomer differs from a misidentification. Enserch Corp. v. Parker, 794 S.W.2d 2, 4–5 (Tex. 1990). Misidentification—the consequences of which are generally harsh—arises when two separate legal entities exist and a plaintiff mistakenly sues an entity with a name similar to that of the correct entity. In such a case, limitations is not tolled. In re Greater Houston Orthopaedic Specialists, Inc., 295 S.W.3d 323, 325–26 (Tex. 2009) (orig. proceeding) (per curiam).
Limitations will be tolled until the date the plaintiff’s injury was or should reasonably have been discovered. The plaintiff must show that injury was inherently undiscoverable and evidence of the injury is objectively verifiable. HECI Exploration Co. v. Neel, 982 S.W.2d 881, 886 (Tex. 1998); Woods v. William M. Mercer, Inc., 769 S.W.2d 515, 517–18 (Tex. 1988); Willis v. Maverick, 760 S.W.2d 642, 644–45 (Tex. 1988); see also Tate v. Goins, Underkofler, Crawford & Langdon, 24 S.W.3d 627, 636 (Tex. App.—Dallas 2000); Computer Associates International v. Altai, Inc., 918 S.W.2d 453, 455–56 (Tex. 1996) (superseded in part by Tex. Civ. Prac. & Rem. Code § 16.010).
§ 17.64Acknowledgment or Extension of Debt
§ 17.64:1Extension of Limitations through Signed Writing
The debtor’s acknowledgment of a debt barred by limitations will not revive the debt unless the acknowledgment is in writing and signed by the debtor. Tex. Civ. Prac. & Rem. Code § 16.065. Mere payment by itself does not interrupt the running of the statute of limitations or acknowledge the justness of the debt with an implicit promise to pay. Sarikhanian v. Sarkissian, No. 14-96-860-CV, 1997 WL 688948, at *2 (Tex. App.—Houston [14th Dist.] Nov. 6, 1997, no pet.) (per curiam) (not designated for publication); Siegel v. McGavock Drilling Co., 530 S.W.2d 894, 896 (Tex. Civ. App.—Amarillo 1975, writ ref’d n.r.e.). See section 14.32:4 in this manual.
§ 17.64:2Type and Specificity of Acknowledgment Required
The acknowledgment of the justness of a debt must (1) be in writing and be signed by the party to be charged, (2) contain an unequivocal acknowledgment of the justness or the existence of the particular obligation, and (3) refer to the obligation and express a willingness to honor that obligation. DeRoeck v. DHM Ventures, LLC, 531 S.W.3d 831, 834 (Tex. 2018), citing Stine v. Stewart, 80 S.W.3d 586, 591 (Tex. 2002) (“An acknowledgment of the justness of a claim that appears to be barred by limitations is not admissible in evidence to defeat the law of limitations if made after the time that the claim is due unless the acknowledgment is in writing and is signed by the party to be charged.”). A claim of acknowledgment does not always require an explicit promise to pay. “[I]f the writing acknowledges the justness of the claim, the acknowledgment imports (1) an admission that the claim is a subsisting debt and (2) a promise to pay it, if unaccompanied by any circumstances repelling the presumption of willingness or intention to pay. The acknowledgment can come before or after suit on the original debt is barred by limitations.” DeRoeck, 531 S.W.3d at 834, citing Hanley v. Oil Capital Broadcasting Ass’n, 171 S.W.2d 864, 865–66 (Tex. 1943).
The writing should specifically identify the debt, particularly if there is any question about the identity of the debt. Cotulla v. Urbahn, 135 S.W. 1159, 1162–63 (Tex. 1911); Parks v. Seybold, No. 03-99-00562-CV, 2015 WL 4481768, at *2 (Tex. App.—Dallas July 23, 2015, no pet.) (mem. op.); Murphy v. Fairfield Financial Group, Inc., No. 03-99-00562-CV, 2000 WL 689758, at *6 n.7 (Tex. App.—Austin May 31, 2000, pet. denied) (not designated for publication). The written acknowledgment can be quite brief (for example, “interest on note” or “partial payment on note dated August 30, 1998”), especially if it is accompanied by partial payment. First National Bank v. Gamble, 132 S.W.2d 100, 101–02 (Tex. 1939); Roadside Stations, Inc. v. 7HBF, Ltd., 904 S.W.2d 927, 931 (Tex. App.—Fort Worth 1995, no writ). See form 1-6 in this manual for a form letter agreement setting forth an acknowledgment of the debt and agreement to pay.
§ 17.64:3Pleading Requirements
A pleading of acknowledgment must be made “upon the new promise” and “must declare upon it as [the] cause of action, in order to avoid [a] plea of limitations.” DeRoeck v. DHM Ventures, LLC, 531 S.W.3d 831, 834 (Tex. 2018), quoting Hanley v. Oil Capital Broadcasting Ass’n, 171 S.W.2d 864, 866 (Tex. 1943). There is no exception for a pleading of acknowledgment. “A petition is sufficient if it gives fair and adequate notice of the facts upon which the pleader bases his claim.” The key inquiry is whether the opposing party “can ascertain from the pleading the nature and basic issues of the controversy and what testimony will be relevant.” DeRoeck, 531 S.W.3d at 835, quoting Horizon/CMS Healthcare Corp. v. Auld, 34 S.W.3d 887, 896–97 (Tex. 2002). Use of the word “acknowledgment” in the petition is not required. DeRoeck, 531 S.W.3d at 834, citing Hanley, 171 S.W.2d at 865–66.
If an oral agreement to extend the time for payment on a note is made after the due date and before the debt is barred by the statute of limitations and if the agreement is supported by new consideration, the extension constitutes a substitution of contracts, and limitations runs from the due date of the new contract. Heisch v. Adams, 16 S.W. 790, 791 (Tex. 1891); Manandhar v. Jamshed, No. 02-11-00027-CV, 2011 WL 3835980, at *3–4 (Tex. App.—Fort Worth Aug. 31, 2011, no pet.) (mem. op.). If the oral promise is made after limitations have expired on the original debt, however, the claim cannot be enforced, even though the oral promise was supported by consideration. Fuqua v. Fuqua, 750 S.W.2d 238, 241–42 (Tex. App.—Dallas 1988, writ denied).
§ 17.65Agreement by Parties to Change Limitations
Parties cannot agree to limit a limitations period to a period shorter than two years, unless the agreement relates to a sale or purchase of a business entity in which one of the parties is agreeing to pay or receive at least $500,000. Tex. Civ. Prac. & Rem. Code § 16.070(a), (b). Also, parties to contracts for the sale of goods can agree to reduce the applicable limitations period to a period of not less than one year, but they cannot agree to extend the limitations period beyond four years. Tex. Bus. & Com. Code § 2.725(a).
An agreement that the creditor may extend the note without notice at the creditor’s option from time to time is void as against public policy, because it circumvents the applicable statute of limitations. Simpson v. McDonald, 179 S.W.2d 239, 242–43 (Tex. 1944). See also Duncan v. Lisenby, 912 S.W.2d 857, 858–59 (Tex. App.—Houston [14th Dist.] 1995, no writ) (“[a] general agreement in advance to waive or not to plead the statute of limitations on a particular obligation is void as against public policy.”(citing American Alloy Steel, Inc. v. Armco, Inc., 777 S.W.2d 173, 177 (Tex. App.—Houston [14th Dist.] 1989, no writ).
If a plaintiff files a petition before limitations bar it, no amendment or supplement will be subject to a plea of limitations, even if it changes any facts or grounds for liability or defense, unless the amendment or supplement is wholly based on a new, distinct, or different transaction or occurrence. Tex. Civ. Prac. & Rem. Code § 16.068; Vaughn Building Corp. v. Austin Co., 620 S.W.2d 678, 682 (Tex. Civ. App.—Dallas 1981), aff’d, 643 S.W.2d 113 (Tex. 1982); Inwood National Bank v. Hoppe, 596 S.W.2d 183, 186 (Tex. Civ. App.—Texarkana 1980, writ ref’d n.r.e.).
§ 17.67Counterclaims and
Cross-Claims
If a defendant has a counterclaim or cross-claim that arises out of the same transaction or occurrence as the plaintiff’s cause of action, it will not be barred by limitations, even if it would have been barred if filed as a separate action. The counterclaim or cross-claim must be filed no later than the thirtieth day after the date on which the party’s answer is due. Tex. Civ. Prac. & Rem. Code § 16.069(a), (b).
A setoff claim by the defendant against the plaintiff does not qualify as “arising out of the same transaction or occurrence,” unless the facts of the case otherwise qualify the defendant’s claim as a proper counterclaim or cross-claim. I.O.I. Systems v. City of Cleveland, 615 S.W.2d 786, 791 (Tex. Civ. App.—Houston [1st Dist.] 1980, writ ref’d n.r.e.).
A defendant may not “piggyback” Tex. Civ. Prac. & Rem. Code § 16.069 with the “relation back” rule of Tex. Civ. Prac. & Rem. Code § 16.068 to extend the running of limitations by one year on a counterclaim that, at the time the original answer was filed, was already barred by limitations. See MBank Fort Worth v. Trans Meridian, Inc., 820 F.2d 716, 720 (5th Cir. 1987). But see E.P. Operating Co. v. Sonora Exploration Corp., 862 S.W.2d 149, 151–52 (Tex. App.—Houston [1st Dist.] 1993, writ denied) (disapproving of MBank Fort Worth). See section 17.66 above regarding amended or supplemental pleadings and their effect on limitations.
§ 17.68Limitations Issues for Defendant Recently Moved to Texas, Foreign Cause of Action
A claim cannot be brought against a person who moved to Texas if the claim is barred by the law of limitations of the state or country from which the person came. Tex. Civ. Prac. & Rem. Code § 16.067(a). Conversely, if the defendant is sued within the limitations period of the foreign state (or, presumably, country), the fact that the action has a shorter limitations period under Texas law will not protect the defendant; he may be sued under the foreign state’s statute of limitation. See State of California v. Copus, 309 S.W.2d 227, 231–32 (Tex.), cert. denied, 356 U.S. 967 (1958).
For a person who has moved to Texas to be able to assert the statute of limitations as a bar to recovery on a debt incurred before moving to Texas, he must have resided in Texas for twelve months. This statute does not affect the provisions of Tex. Civ. Prac. & Rem. Code § 16.067(a), discussed in the paragraph above. See Tex. Civ. Prac. & Rem. Code § 16.067(c).