Smith v. Baldwin
611 S.W.2d 611, 1980 Tex. LEXIS 429, 24 Tex. Sup. Ct. J. 149 (1980)
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Rule of Law:
A representation concerning the future quality or standard of goods or services is actionable under the Texas Deceptive Trade Practices Act (DTPA) if the goods or services fail to meet that standard. The common law contract defense of substantial performance is not a defense to a DTPA claim, and a plaintiff is not required to prove the defendant intended to misrepresent.
Facts:
- On September 9, 1976, Alan Baldwin contracted to build a house for Roland Smith, which was to be financed through the Veteran's Administration (V.A.).
- The V.A. required a final inspection report showing compliance with its standards before approving the permanent loan.
- Baldwin agreed to pay the interim financing interest on a promissory note executed by Smith.
- Smith began occupying the house before its completion date.
- After the scheduled completion date passed, the house remained uncompleted, and Smith ordered Baldwin to leave the premises.
- Baldwin was unable to obtain the required V.A. inspection report because the V.A. refused approval due to construction defects.
- Due to the failure to obtain V.A. approval and secure permanent financing, Smith incurred $2,900 in additional interim interest costs.
Procedural Posture:
- Alan Baldwin sued Roland Smith in a Texas trial court for breach of contract and foreclosure of a lien.
- Smith filed a counterclaim against Baldwin, alleging violations of the Texas Deceptive Trade Practices Act (DTPA).
- Following a non-jury trial, the trial court rendered a take-nothing judgment against Baldwin and awarded Smith treble damages and attorney's fees on his DTPA counterclaim.
- Baldwin, as appellant, appealed to the Texas Court of Civil Appeals.
- The Court of Civil Appeals reversed the trial court's DTPA award, holding that the finding of substantial performance precluded such a claim, and reformed the judgment to award Smith only his actual damages for repair costs.
- Smith, as petitioner, appealed to the Supreme Court of Texas.
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Issue:
Does a builder's representation that a house will meet the standards for a V.A. inspection compliance report constitute a deceptive trade practice under § 17.46(b)(7) of the Texas Deceptive Trade Practices Act (DTPA) if the house fails to meet those standards, regardless of whether the builder substantially performed the contract or intended to misrepresent?
Opinions:
Majority - Steakley, Justice
Yes, a builder's representation that goods or services will be of a particular standard in the future is actionable under DTPA § 17.46(b)(7), and neither substantial performance of the contract nor a lack of intent to misrepresent serves as a defense. The doctrine of substantial performance is a contract law principle and is not relevant to a statutory cause of action under the DTPA, which provides a separate and cumulative remedy. The court reasoned that the DTPA must be liberally construed to protect consumers, and its definitions of 'goods' and 'services' are not limited to existing items but also apply to future performance. Furthermore, § 17.46(b)(7) does not contain a scienter requirement; unlike other subsections that explicitly require 'intent' or 'knowledge,' its absence in subdivision (7) indicates the legislature did not intend to impose such a burden. Therefore, Baldwin's representation that the house would qualify for V.A. approval was a representation of quality, and its failure to do so constituted a deceptive act, regardless of his intent or the degree of completion.
Dissenting - Greenhill, Chief Justice
No, a simple breach of a contractual promise regarding future performance should not be elevated to a deceptive trade practice subject to treble damages. The majority's opinion improperly expands DTPA § 17.46(b)(7), which uses the present tense 'are,' to cover representations about how goods or services 'will be' in the future. This interpretation risks turning every breach of contract into a DTPA violation. The dissent argues that Baldwin's promise to obtain a V.A. report was a future contractual obligation or warranty, not a misrepresentation of a present fact. Since the legislature created separate remedies for misrepresentation and breach of warranty, the court should not conflate them, especially when the plaintiff waived the breach of warranty claim under the DTPA.
Analysis:
This decision significantly expanded the scope of the Texas Deceptive Trade Practices Act by confirming its application to promises about future performance, not just representations about existing goods. It firmly established that the DTPA creates a cause of action independent of common law contract claims, meaning traditional contract defenses like 'substantial performance' are unavailable against a DTPA claim. By holding that DTPA § 17.46(b)(7) imposes a strict liability standard without requiring proof of intent, the court made it substantially easier for consumers to hold businesses accountable for failing to meet promised standards of quality.
