Southwestern Bell Telephone Co. v. DeLanney
809 S.W.2d 493, 1991 WL 27765 (1991)
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Rule of Law:
A plaintiff may not recover in tort for economic losses that result from a defendant's failure to perform a contract when the defendant's duty arises solely from the contract itself. Such a claim sounds only in contract.
Facts:
- Eugene DeLanney, a real estate agent, had advertised his business in the Galveston Yellow Pages, published by Southwestern Bell Telephone Co. (Bell), for several years.
- DeLanney contracted with Bell for an advertisement to be placed in the 1980-1981 directory.
- At the time, DeLanney maintained two business phone lines with Bell: a rotary line and a single line.
- The Yellow Pages advertisement was billed to DeLanney's single phone line.
- Prior to the directory's publication, DeLanney's wife requested that Bell cancel the single line and add a third number to their rotary line.
- Due to Bell's internal procedures, the cancellation of the phone line to which the advertisement was billed resulted in the automatic deletion of the advertisement.
- Bell subsequently failed to publish DeLanney's advertisement in the 1980-1981 directory.
Procedural Posture:
- Eugene DeLanney sued Southwestern Bell Telephone Co. in a Texas trial court, alleging negligence and violation of the Texas Deceptive Practices—Consumer Protection Act (DTPA).
- At trial, the court granted a directed verdict for Bell on the DTPA claim but allowed the negligence claim to proceed.
- The jury found Bell negligent and awarded DeLanney damages for past and future lost profits.
- The trial court entered a judgment in favor of DeLanney after ordering a partial remittitur.
- Bell, as appellant, appealed to the Texas Court of Appeals.
- A majority of the Court of Appeals affirmed the trial court's judgment, holding that the claim was properly submitted as one for negligence.
- Bell then appealed to the Supreme Court of Texas.
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Issue:
Does a telephone company's failure to publish a customer's advertisement in its Yellow Pages directory, as required by contract, constitute an independent tort of negligence when the only damages alleged are economic losses?
Opinions:
Majority - Chief Justice Phillips
No. A telephone company's failure to publish an advertisement is a breach of contract, not a tort, when the duty to publish arises solely from the contract and the only damages are the economic loss of the benefit of the bargain. Tort obligations are imposed by law to avoid injury to others, independent of any promises made between parties. In contrast, contract obligations arise from the parties' agreement. Citing Jim Walter Homes, Inc. v. Reed, the court affirmed that when the injury is only the economic loss to the subject of a contract itself, the action sounds in contract alone. Here, Bell's duty to publish the advertisement arose solely from the contract, and DeLanney's claimed damages of lost profits represent the economic loss of the contract's subject matter. This situation is distinguished from cases like Montgomery Ward & Co. v. Scharrenbeck, where a negligent repair of a water heater led to a house fire, because that involved the breach of a common-law duty to not damage property, a duty that exists independent of any contract.
Dissenting - Justice Mauzy
Yes. The action could be brought in tort because the negligence arose from the performance of a separate contract. DeLanney had two contracts with Bell: one for telephone service and one for the Yellow Pages advertisement. Bell's negligent performance of the telephone service contract (improperly handling the cancellation of one line) was the act that caused the damages related to the separate advertisement contract. The negligent performance of the telephone service contract caused damages unrelated to the subject of that specific contract. Therefore, the injury extends beyond a mere failure to perform the advertising contract, and the claim should be allowed to proceed in tort, consistent with the principle that every contract includes a duty to perform with care.
Concurring - Justice Gonzalez
No. The claim sounds solely in contract, and the broad language in prior cases like Scharrenbeck must be read narrowly. A tort arises when a party breaches a duty imposed by law that exists independent of the contract, such as the duty not to create a dangerous condition. When a plaintiff's action is not maintainable without pleading and proving the contract, and the gist of the action is the breach of that contract, it is an action on the contract. The justice also reasoned that the limitation of liability clause in the contract would have been enforceable because providing Yellow Pages advertising is a private contract function, not a public utility service, and the clause was not unconscionable.
Concurring - Justice Doggett
No. The judgment is correct but the majority's reasoning adds unnecessary confusion. The court's prior holding in Jim Walter Homes, Inc. v. Reed is sufficient to resolve the case: when the injury is only the economic loss to the subject of the contract, the action sounds in contract alone. While this case is properly a contract claim, trial courts should still examine the entire relationship between parties, as some contractual relationships, such as that between an insurer and insured, do create duties that can give rise to a tort action.
Analysis:
This case solidifies the economic loss rule in Texas, creating a clear distinction between claims for breach of contract and tort. By narrowing the application of precedents like Scharrenbeck, the court mandates that if a defendant's duty and the plaintiff's damages are confined to the subject matter of their agreement, the cause of action is for breach of contract alone. This prevents plaintiffs from recasting contract disputes as negligence claims to potentially recover greater damages or avoid contractual limitations on liability. The decision forces future litigants with purely economic losses to seek remedies within the framework of contract law.
