Court Opinion

ID: 9770182
Source: CourtListenerOpinion
Date Created: 2023-08-29 15:53:48.511045+00
Date Added: 2024-06-11T07:31:15.585238
License: Public Domain

GONZALEZ, Justice,
concurring.
I agree with the court that Bell’s failure to publish the advertisement was not a tort and that it sounded solely in contract. I also agree that DeLanney failed to discharge his burden to obtain affirmative findings to jury questions on the contract. However, I do not fault the court of appeals for its confusion. We have muddled the law of “contorts” and an all encompassing bright line demarcation of what constitutes a tort distinct from breach of contract has proven to be elusive. See generally W. PROSSER & W. Keeton, The Law of ToRTS § 1 (5th ed. 1984); see also American Nat’l Petro. Co. v. Transcontinental Gas Pipe Line Corp., 798 S.W.2d 274, 280 (1990) (Gonzalez, J., dissenting).
DeLanney and the court of appeals rely heavily on the statement in Montgomery Ward & Co. v. Scharrenbeck, 146 Tex. 153, 157, 204 S.W.2d 508, 510 (1947), that:
Accompanying every contract is a common-law duty to perform with care, skill, reasonable expedience and faithfulness the thing agreed to be done, and a negligent failure to observe any of these con*496ditions is a tort, as well as a breach of the contract.
Despite this broad language, not every breach of contract accompanied by negligence creates a cause of action in tort. In International Printing Pressman & Assistants ’ Union v. Smith, 145 Tex. 399, 198 S.W.2d 729, 735 (1946), we acknowledged that no single concise rule will define the rights of parties in every situation. We nonetheless wrote:
[Gjenerally speaking, “actions in contract and in tort are to be distinguished in that an action in contract is for the breach of a duty arising out of a contract either express or implied, while an action in tort is for a breach of duty imposed by law_” “[I]f the action is not maintainable without pleading and proving the contract, where the gist of the action is the breach of the contract, either by malfeasance or nonfeasance, it is, in substance an action on the contract, whatever may be the form of the pleading.” (citations omitted).
Id., 198 S.W.2d at 735. I believe that this formulation comes closer than Scharren-beck to stating a general rule to distinguish contract from tort and that the broad language in Scharrenbeck must be read in light of the particular circumstances of that case. The opinion in Scharrenbeck is correct in its observation that a contract may be the occasion that brings the parties together, but it is the relationship or situation of the parties that gives rise to a duty in law, the breach of which is a tort. See Greater Houston Transp. Co. v. Phillips, 801 S.W.2d 523 (Tex.1990). Had Montgomery Ward repaired the water heater gratuitously, it would have owed Scharrenbeck a duty not to create a dangerous condition. See Colonial Sav. Ass’n v. Taylor, 544 S.W.2d 116, 119 (Tex.1976); Fox v. Dallas Hotel Co., 111 Tex. 461, 240 S.W. 517, 520 (1922); Restatement (Second) of ToRts § 323 (1965). Thus the duty to not create a dangerous condition existed independent of any contractual relationship.
In summary, when a party must prove the contents of its contract and must rely on the duties created therein, the action is “in substance an action on the contract, even though it is denominated an action for negligent performance of the contract.” Bernard Johnson, Inc. v. Continental Constructors, Inc., 630 S.W.2d 365, 368 (Tex.App.—Austin 1982, writ ref’d n.r.e.) (emphasis in original).

Bell’s Duty

The majority in the court of appeals also suggested that negligence was a proper theory because Bell carelessly deleted De-Lanney’s advertisement while making changes to his telephone service. In this manner, the court endeavored to connect the omission of the Yellow Pages advertisement to Bell’s duty of public service.
The gravamen of DeLanney’s complaint, however, was not with his telephone service, which was changed according to request and apparently to his satisfaction. Rather, his complaint was with Bell’s failure to publish his advertisement as promised, and this was a matter of private contract. A-ABC Appliance, Inc. v. Southwestern Bell Tel. Co., 670 S.W.2d 733, 735 (Tex.App.—Austin 1984, writ ref’d n.r.e.). Although Bell is a regulated public utility, all of its functions are not in the realm of public service. The “printing, distribution, or sale of advertising in telephone directories” is not a public service function. Tex. Rev.Civ.StatAnn. art. 1446c, § 3(s) (Vernon Supp.1991).

Limitation of Liability

The connection drawn by the court of appeals between the Yellow Pages advertisement and DeLanney’s telephone service also affected the court’s view regarding the validity of a limitation of liability clause contained in the contract between Bell and DeLanney. This clause provided:
The applicant agrees that the telephone company shall not be liable for errors in or omissions of the directory advertising beyond the amount paid for the directory advertising omitted in which error occurs for the issue life of the directory involved.
DeLanney argued that the clause was unenforceable and, in the context of DeLan-*497ney’s negligence claim, the court of appeals agreed. 762 S.W.2d at 776.
In an apparent attempt to resolve conflicting decisions, the court of appeals suggested that the clause might be enforced to limit a claim for breach of contract, see Wade v. Southwestern Bell Tel. Co., 352 S.W.2d 460 (Tex.Civ.App.—Austin 1961, no writ), but could not be applied to limit liability for negligence. See Reuben H. Donnelley Corp. v. McKinnon, 688 S.W.2d 612 (Tex.App.—Corpus Christi 1985, writ ref’d n.r.e.); see also Helms v. Southwestern Bell Tel. Co., 794 F.2d 188 (5th Cir.1986). The conflict between Wade and McKinnon mirrors a larger split of authority regarding the validity of such limitation of liability clauses. See Annotation, Liability of Telephone Company for Mistakes in or Omissions From its Directory, 47 A.L.R. 4th 882 (1986).
McKinnon follows a minority line of cases which refuse to enforce such provisions. See Morgan v. South Cent. Bell Tel. Co., 466 So.2d 107 (Ala.1985); Allen v. Michigan Bell Tel. Co., 61 Mich.App. 62, 232 N.W.2d 302 (1975); Rozeboom v. Northwestern Bell Tel. Co., 358 N.W.2d 241 (S.D.1984); Discount Fabric House, Inc. v. Wisconsin Tel. Co., 117 Wis.2d 587, 345 N.W.2d 417 (1984). The unifying theme of these decisions is that directory advertising is a unique advertising medium inextricably linked to the telephone company’s public service function. Thus on the premise of Bell’s status as a public utility monopoly, these courts have rejected the limitation of liability as contrary to the public interest or unconscionable.
A larger number of jurisdictions, however, have upheld similar liability limitation clauses for directories. In Helms v. Southwestern Bell Telephone Co., the Fifth Circuit lists decisions from twenty-six states which have upheld similar clauses. Helms, 794 F.2d at 192 n. 9; see generally Annotation, Liability of Telephone Company for Mistakes in or Omissions From its Directory, 47 A.L.R. 4th 882. These decisions have generally recognized Yellow Pages advertising to be a matter of private contract, rather than a public service function. The majority view is compatible with Texas law, which also excludes the sale of advertising in directories from Bell’s public service function. Tex.Rev.Civ.Stat.Ann. art. 1446c, § 3(s); see also A-ABC Appliance, 670 S.W.2d at 735. I therefore believe that the majority view presents the sounder approach.

Unconscionability

Even though the Yellow Pages is a matter of private contract, DeLanney may still recover the full value of the consequential damages caused by Bell’s breach of contract if the clause limiting Bell’s liability is unenforceable because a court may deny enforcement of an unconscionable clause or contract. See Tri-Continental Leasing Corp. v. Burns, 710 S.W.2d 604, 609 (Tex.App.—Houston [1st Dist.] 1985, writ ref’d n.r.e.) (Levy, J., dissenting); see also Universal C.I.T. Credit Corp. v. Daniel, 150 Tex. 513, 243 S.W.2d 154, 159-60 (1951); Restatement (Second) of ContRacts § 208 (1979); Tex.Bus. & Com.Code Ann. § 2.302 (Tex.UCC) (Vernon 1968). We must consider then whether the clause limiting Bell’s liability for errors or omissions to the cost of the Yellow Pages advertising is unconscionable under the circumstances of this case.
DeLanney argues that it is. Because he had no meaningful choice and no bargaining power in the transaction, he contends that his contract with Bell was one of adhesion. Yellow Pages was the only commercial telephone directory in DeLanney’s market area at the time. The only way to buy space in this directory was on Bell’s terms dictated through a non-negotiable, standardized contract. DeLanney concludes that his inability to negotiate more favorable terms rendered the limitation of liability clause unenforceable. In support of this argument, he relies on a jury finding that a disparity in bargaining power existed between himself and Bell when the contract was made.1
*498Bell responds that the validity of the clause limiting liability was not a question of fact for the jury, but one of law for the court. I agree.2 This is clearly the case under the Uniform Commercial Code. Tex. Bus. & Com.Code § 2.302 comments 1 & 3 (Tex.UCC) (Vernon 1968); G. Wallach, The Law of Sales UndeR the UnifoRM Commercial Code U 5.04 at 5-5 (1981); see also Restatement (Second) of Contracts § 208, comment f (1979). Although the UCC does not expressly apply to service transactions, such as the sale of advertising in the Yellow Pages, the provision pertaining to un-conscionability “has been applied to numerous transactions outside the coverage of Article 2 of the Code.” J. CalamaRI & J. Perillo, The Law of Contracts § 9-39 at 420 (3d Ed.1987); see also J. White & R. Summers, The Uniform Commercial Code § 4-32 at 200 (3d ed. 1989).
I also agree with Bell that bargaining disparity alone does not establish uncon-scionability. Comments to the UCC indicate that the principle of unconscionability is “not of disturbance of allocation of risks because of superior bargaining power.” Tex.Bus. & Com.Code Ann. § 2.302 comment 1. A comment to the Restatement provides that a “bargain is not unconscionable merely because the parties to it are unequal in bargaining position, nor even because the inequality results in an allocation of risks to the weaker party.” Restatement (Second) of Contracts § 208 comment d. The Code and Restatement thus agree that a disparity in bargaining power, while relevant, is not the litmus test for unconsciona-bility. See Wade v. Austin, 524 S.W.2d 79, 85-86 (Tex.Civ.App.—Texarkana 1975, no writ). Something more must be shown.
How much more is a difficult question, however, because the term unconscionable has no precise legal definition. Courts and commentators have struggled with its meaning. In Wade v. Austin, the court wrote that a determination of unconsciona-bility must be made from “the entire atmosphere in which the agreement was made.” Id. at 86. One authority has written that unconscionability cannot be defined because “(i)t is not a concept, but a determination to be made in light of a variety of factors not unifiable into a formula.” 1 J. White & R. Summers, Uniform Commercial Code § 4-3 at 203 (3d ed. 1988) (emphasis in original). The UCC3 and Restatement4 recognize the doctrine of unconscionability, but provide only a rough outline of its meaning.
Although many factors are relevant and no single formula exists,5 proof of a claim *499of unconscionability begins with two broad questions: (1) How did the parties arrive at the terms in controversy; and (2) Are there legitimate commercial reasons which justify the inclusion of these terms? Mallor, Unconscionability in Contracts Between Merchants, 40 Sw.L.J. 1065, 1072 (1986); 1 J. White & R. SUMMERS, UNIFORM COMMERCIAL Code, § 4-3, 4-4 (3d ed. 1988); J. CalamaRi & J. Perillo, The Law of ContRacts, § 9-40 (3d.l987); R. Hillman, J. McDonnell & S. Nickles, Common Law and Equity Under the Uniform Commercial Code 11 6.02[2][b-d] (1985); Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (DC Cir.1965). The first question, often described as the procedural aspect of uncon-scionability,6 is concerned with assent and focuses on the facts surrounding the bargaining process. Mallor, Unconscionability in Contracts Between Merchants, 40 Sw.L.J. 1065, 1072 (1986). The second question, often described as the substantive aspect of unconscionability, is concerned with the fairness of the resulting agreement. Id.
DeLanney concentrates on the procedural aspect, emphasizing the absence of any meaningful choice in the bargain. Bell, on the other hand, contends that the provision was nevertheless fair and reasonable under the existing commercial circumstances.
Bell submits that its contract merely sought to reallocate the commercial risk inherent in its business in a reasonable manner. This risk existed because the directory was to run for one year and mistakes could not be corrected during this period. Bell contends that the enormous benefit derived from Yellow Pages advertising by some subscribers when compared to the relatively modest amount charged by Bell, coupled with Bell’s inability to mitigate damages, created a business risk it needed to reallocate. This it attempted to do by limiting its liability.
Bell further submits that the clause limiting liability was not one-sided or grossly unfair because it benefitted both parties. It benefitted the subscriber by keeping Yellow Pages rates low in relation to other types of advertising and in relation to the return expected by the subscriber. It ben-efitted Bell by shielding it from a risk of potential liability which was out of proportion to the consideration charged by Bell. Although it would not negotiate, Bell argues that DeLanney had other suitable advertising alternatives such as newspapers, magazines, direct mail, phone solicitation, the Multiple Listing Service, Board of Realtors, yard signs, radio and television. After weighing all of the above, I am not convinced that the clause limiting Bell’s liability for errors or omissions to the cost of the Yellow Pages advertising is unconscionable.
For the foregoing reasons, I concur with the judgment.

. The following question was submitted to the jury over Bell’s objections:
Do you find from a preponderance of the evidence that there was a disparity of bargain*498ing power between the plaintiff and the defendant in negotiating the contract for Yellow Page advertising.
Instruction: A disparity of bargaining power exists when one party has no real choice in accepting an agreement limiting the liability of the other party.
The jury found there was a disparity of bargaining power.

. Here we are concerned with unconscionability under the common law as distinguished from unconscionability under the DTPA. The DTPA defines “unconscionable action or course of action” and, unlike the common law, makes it an issue of fact for the jury. Tex.Bus. & Com.Code Ann. § 17.45(5); see also Chastain v. Koonce, 700 S.W.2d 579, 582 (Tex.1985).

. The comment to UCC section 2.302 provides:
The basic test is whether, in light of the 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 at the time of the making of the con-tract_ The principal is one of the preven-
tion of oppression and unfair surprise ... and not of disturbance of allocation of risks because of superior bargaining power.
Tex.Bus. & Com.Code Ann. § 2.302 comment 1.

. A comment to section 208 of the Restatement provides:
The determination that a contract or term is or is not unconscionable is made in the light of its setting, purpose and effect. Relevant factors include weaknesses in the contracting process like those involved in more specific rules as to contractual capacity, fraud, and other invalidating causes; the policy also overlaps with rules which render particular bargains or terms unenforceable on grounds of public policy.
Restatement (Second) of Contracts § 208 comment a (1979).

. The Supreme Court of Kansas has identified ten factors as useful aids in determining uncon-scionability questions. They are: (1) the use of printed form contracts drawn by the party in the strongest economic position, which establish industry-wide standards offered on a take it or *499leave it basis; (2) excessive price; (3) a denial of basic rights and remedies to a consumer buyer; (4) the inclusion of penalty clauses; (5) the circumstances surrounding the execution of the contract, including commercial setting; (6) the hiding of disadvantageous clauses in a mass of fine print or in inconspicuous places; (7) phrasing clauses in language that is incomprehensible to a layman or that diverts his attention from the problems they raise; (8) an overall imbalance in the obligations and rights imposed by the bargain; (9) exploitation of the underprivileged, unsophisticated, uneducated, and the illiterate; and (10) inequality of bargaining or economic power. Wille v. Southwestern Bell Tel. Co., 219 Kan. 755, 549 P.2d 903, 906-07 (1976).

. As a framework for decision commentators and courts have generally followed the analysis proposed by Professor Arthur Leff. Leff, Un-conscionability and the Code — The Emperor’s New Clause, 115 U.Pa.L.Rev. 485, 487 (1967). Professor Leff labelled the different types of unconscionability as "substantive” and "procedural,” distinguishing the content of the contract from the process by which the allegedly offensive terms found their way into the agreement.