Southwestern Bell Telephone Co. v. FDP Corp.
15 U.C.C. Rep. Serv. 2d (West) 765, 34 Tex. Sup. Ct. J. 690, 811 S.W.2d 572 (1991)
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Rule of Law:
A contractual limitation of liability clause is enforceable against a breach of warranty claim brought under the Texas Deceptive Trade Practices Act (DTPA) when the limitation is part of the 'basis of the bargain' that created the express warranty itself.
Facts:
- In early 1980, Frank Prasek of FDP Corporation complained to Max Williams, a Southwestern Bell representative, about a previous error in a Yellow Pages advertisement.
- Williams assured Prasek that a new advertisement would be published correctly.
- FDP and Southwestern Bell then executed a written contract for several advertising items, including a double quarter column display ad.
- The contract contained a clause stating that Bell's liability for errors or omissions would be limited to the amount paid for the advertising in question.
- When the Yellow Pages was published in June 1980, the double quarter column display ad was omitted, although other contracted listings appeared correctly.
- Bell initially billed FDP for the entire package, and FDP made several payments under protest.
- In January 1981, Bell acknowledged its error and refunded the sums FDP had paid specifically for the omitted display ad.
Procedural Posture:
- FDP Corporation sued Southwestern Bell Telephone Co. in trial court, alleging negligence and violations of the Texas Deceptive Trade Practices Act (DTPA).
- A jury found that Bell had breached an express warranty but failed to find that Bell was negligent or had committed any other violations of the DTPA.
- The jury awarded FDP no damages for lost profits.
- Based on the verdict, the trial court rendered a take-nothing judgment in favor of Bell.
- FDP, as appellant, appealed to the court of appeals.
- The court of appeals reversed the trial court's judgment and remanded for a new trial, holding that the jury’s failure to find damages was against the great weight of the evidence and that the contractual liability limitation was invalid under the DTPA.
- Bell, as appellant, sought review from the Supreme Court of Texas.
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Issue:
Does a contractual limitation of liability clause, which is part of the basis of the bargain that created an express warranty, limit a consumer's recovery under the Texas Deceptive Trade Practices Act (DTPA) for a breach of that same warranty?
Opinions:
Majority - Chief Justice Phillips
Yes. A contractual limitation of liability clause that is part of the basis of the bargain is enforceable and limits a consumer's recovery under the DTPA for breach of warranty. A breach of warranty claim under the DTPA is not a creation of the Act itself but derives from common law or other statutes. Therefore, the nature and extent of the warranty are determined by its source, which includes all parts of the parties' agreement. Here, the promise to publish the ad and the agreement to limit liability were both part of the 'basis of the bargain,' creating a limited warranty. Enforcing this limitation does not violate the DTPA’s anti-waiver provision because it is not waiving a right created by the DTPA's 'laundry list' of deceptive practices, but rather defining the scope of the warranty that was actually given and agreed to by the parties.
Dissenting - Justice Mauzy
No. The majority's disposition of the case is incorrect. For the reasons articulated in the dissent of Southwestern Bell Telephone Co. v. DeLanney, this case should be remanded to the court of appeals to consider whether the jury’s failure to find Bell negligent was against the great weight and preponderance of the evidence.
Analysis:
This decision significantly clarifies the relationship between the DTPA and common law warranty principles. It establishes that the DTPA does not create warranties but merely provides a cause of action for breaching them. Consequently, the terms that define the warranty at its creation, including limitations of liability, are generally enforceable. This holding allows businesses to contractually manage their risk for breach of express warranty, even under a robust consumer protection statute, provided the limitation is part of the original bargain and is not unconscionable. It distinguishes between waiving liability for statutorily defined deceptive acts (which is prohibited) and merely defining the scope of a contractual warranty (which is permitted).
