Erwin v. Smiley
975 S.W.2d 335, 1998 WL 268378 (1998)
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Rule of Law:
A buyer who freely agrees to purchase residential real property 'as is' cannot establish that a seller's actions were the producing cause of the buyer's damages under the Deceptive Trade Practices-Consumer Protection Act (DTPA), provided the 'as is' agreement was not induced by fraudulent representation or concealment of a known fact.
Facts:
- Archie T. Erwin and Maxine Erwin sold their home to David C. Smiley.
- During an inspection prior to the sale, Smiley asked Archie Erwin about termites, and Erwin stated there had been a termite problem which had been remedied.
- The parties negotiated and signed an earnest money contract for the sale.
- The contract included a clause, specifically negotiated and typed in, stating that the "Buyer accepts the Property in its present condition... and as is."
- Both the Erwins and Smiley were represented by counsel during the transaction.
- Approximately six months after closing, Smiley discovered live termite infestations and significant termite damage.
- A pest control expert determined the infestation was five to ten years old and found no evidence of prior treatment.
Procedural Posture:
- David C. Smiley sued Archie T. and Maxine Erwin in a Texas trial court for violations of the Deceptive Trade Practices-Consumer Protection Act (DTPA).
- The Erwins filed a counterclaim alleging the suit was filed in bad faith.
- The case was tried before a jury.
- The jury found that Archie Erwin committed deceptive acts and awarded Smiley $15,000 in damages for termite repair and $30,000 in attorney's fees.
- The jury found that the Erwins did not make any fraudulent representations to induce Smiley into the contract.
- The trial court entered judgment for Smiley based on the jury verdict.
- The Erwins, as appellants, appealed the judgment to the Court of Appeals of Texas, and Smiley, as appellee, filed cross-points on appeal.
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Issue:
Does a valid 'as is' clause in a residential real estate sales contract negate the element of producing cause required for the buyer's claim under the Deceptive Trade Practices-Consumer Protection Act (DTPA)?
Opinions:
Majority - Wright, Justice.
Yes. A valid 'as is' clause negates the producing cause element of a DTPA claim. Relying on Prudential Insurance Company of America v. Jefferson Associates, Ltd., the court extended the principle from commercial to residential real estate sales. An 'as is' agreement signifies that the buyer has agreed to make their own appraisal of the property and accepts the risk that their assessment may be wrong, thereby breaking the causal chain between the seller's alleged misconduct and the buyer's injury. The validity of such a clause is determined by evaluating the totality of the circumstances, including the sophistication of the parties, whether the clause was freely negotiated in an arm's-length transaction, and whether there was any knowing misrepresentation or fraudulent concealment. In this case, the parties were similarly situated, represented by counsel, and the jury found no fraudulent inducement, making the 'as is' clause enforceable and negating the essential element of producing cause for Smiley's DTPA claim.
Analysis:
This decision solidifies the power of an 'as is' clause as a defense for sellers in residential real estate transactions in Texas. By extending the reasoning of Prudential from commercial to residential sales, the court affirmed that such clauses can defeat DTPA claims by negating the element of causation. This precedent emphasizes that, absent fraudulent inducement, the burden of discovering latent defects shifts to the buyer when they agree to an 'as is' purchase. For future cases, this ruling establishes a multi-factor test to assess the enforceability of 'as is' clauses, focusing on the fairness and context of the negotiation rather than just the presence of the words 'as is' in a contract.
