Court Opinion

ID: 9778503
Source: CourtListenerOpinion
Date Created: 2023-08-29 21:10:10.500876+00
Date Added: 2024-06-11T07:33:10.715160
License: Public Domain

OPINION
PEEPLES, Justice.
Home Savings Association Service Corporation appeals from a judgment rendered on a jury verdict in favor of Luis and Irma Martinez. The case arose from a home improvement contract between the Mar-tinezes and Michael Gershenson and his company, In and Out, Inc. (collectively referred to as “Gershenson”), which was financed by a loan from Home Savings. Among other things, Home Savings contends there is no evidence that it engaged in any unconscionable conduct or misrepresented the agreement between Gershenson and the Martinezes.
In February 1986, the Martinezes began discussions with Gershenson about doing renovation work on their residence. After talking to several potential lenders, Ger-shenson arranged for Home Savings to finance the renovation project. On February 19, 1986 the Martinezes and Gershenson signed a “Contract for Improvements (With Transfer of Lien)” in the amount of $20,-400. On the same date, the Martinezes signed a promissory note payable to Home Savings, and Gershenson assigned his contractor’s lien to Home Savings. Six days later, on February 25, Home delivered two checks in the amount of $10,000, both payable jointly to In and Out and the Mar-tinezes. The Contract for Improvements between the Martinezes and Gershenson specified, “Payment to be made as follows: Fifty percent (50%) upon loan closing at H.S.A. Fifty percent (50%) upon completion of work.” For reasons not revealed by the record, on the same date the Mar-tinezes endorsed both checks to Gershen-son before any significant work had been done. Gershenson did not complete his tasks, and the work that he did was substandard. The Martinezes brought this suit against both Gershenson and Home Savings. Although both Gershenson and In and Out were served, only Gershenson answered, and neither appeared at trial. The trial court submitted two DTPA issues jointly against In and Out and Home Savings, which the jury answered in favor of the Martinezes.
The judgment against Gershenson and In and Out has not been appealed and is hereby affirmed. As to those defendants a default judgment would clearly have been proper, and in the absence of allegations that Home Savings was vicariously liable for their conduct, there was no reason for the trial court to submit issues concerning them to the jury.
But the judgment against Home Savings is a different matter. A unanimous Supreme Court recently reiterated *54several rules concerning the liability of lenders who finance sales transactions that the seller does not properly perform:
Although a consumer suing under the DTPA need not establish contractual privity with the defendant, he must show that the defendant has committed a deceptive act which is the producing cause of the consumer’s damages. Weitzel v. Barnes, 691 S.W.2d 598, 600 (Tex.1985); Cameron v. Terrell & Garrett, 618 S.W.2d 535, 541 (Tex.1982). The DTPA does not attach derivative liability to a defendant based on an innocent involvement in a business transaction. See, e.g., Light v. Wilson, 663 S.W.2d 813, 814 (Tex.1983); Cameron, 618 S.W.2d at 541; Building Concepts, Inc. v. Duncan, 667 S.W.2d 897, 901 (Tex.App.—Houston [14th Dist.] 1984, writ ref'd n.r.e.). To hold a creditor liable in a consumer credit transaction, the creditor must be shown to have some connection either with the actual sales transaction or with a deceptive act related to financing the transaction. Flenniken v. Longview Bank & Trust Co., 661 S.W.2d 705, 707 (Tex.1983); Knight v. International Harvester Credit Corp., 627 S.W.2d 382, 389 (Tex.1982).
Home Savings Ass’n v. Guerra, 733 S.W.2d 134, 136 (Tex.1987).
In other words, Home Savings is not liable for the acts and omissions of Gershenson unless it committed its own DTPA violations or is vicariously liable.1

1. Unconscionability.

The Martinezes obtained findings of two DTPA violations against Home Savings, and the question is whether those two findings are supported by legally sufficient evidence. First, the jury found that Home engaged in an unconscionable action or course of action. Section 17.50(a) of the DTPA provides:
A consumer may maintain an action where any of the following constitute a producing cause of actual damages:
* * * * * *
(3) any unconscionable action or course of action by any person.
Section 17.45 of the DTPA defines “unconscionable action or course of action” as an act or practice which, to a person’s detriment:
(A) takes advantage of the lack of knowledge, ability, experience, or capacity of a person to a grossly unfair degree; or
(B) results in a gross disparity between the value received and consideration paid, in a transaction involving transfer of consideration.
The court’s charge used the definition in section 17.45(5)(A) [grossly unfair] but did not submit the 17.45(5)(B) definition [gross disparity]. Thus, even though the Mar-tinezes’ brief and the dissent argue that there was a gross disparity, that theory of recovery has been waived because it was not submitted or requested. TEX.R.CIV.P. 279. In any event, we could not say that the Martinezes suffered from a gross disparity between the value they received from Home Savings (two checks totaling $20,000, which they endorsed to Gershen-son) and the consideration they paid (a promissory note in the principal amount of $20,400; two payments made totaling $597.20). Whether there was a gross disparity between the value received from Gershenson and the consideration paid is a totally different issue that has nothing to do with the case against Home Savings.
The court submitted only the “gross unfairness” definition of unconscionability. Recent supreme court decisions have required a high level of proof to constitute evidence under section 17.45(5)(A) that a defendant has “take[n] advantage of the lack of knowledge, ability, experience, or capacity of a person to a grossly unfair degree.” A unanimous court has held that the statute requires the following proof:
Taking advantage of a consumer’s lack of knowledge to a grossly unfair degree thus requires a showing that the result*55ing unfairness was glaringly noticeable, flagrant, complete and unmitigated. Based on the record as a whole, we find no evidence that the Chastains and the other three couples were taken advantage of to a grossly unfair degree.
Chastain v. Koonce, 700 S.W.2d 579, 584 (Tex.1985) (emphasis added). The Chas-tain definition of gross unfairness was reaffirmed in Brown v. Galleria Area Ford, Inc., 752 S.W.2d 114, 116 (Tex.1988).
Like the court in Chastain, we find no evidence that Home Savings took advantage of the Martinezes to a grossly unfair degree, or for that matter, to any degree. The record contains testimony by Mrs. Martinez that Home’s closing agent, Margo Hernandez, assured her that Gershenson was reputable, that he could be trusted, that Home would make him cure any problems that arose, and that remodeling would increase the value of the house and therefore would be better than buying a new house. The record also shows that Home Savings did not correct Gershenson’s poor workmanship and that the closing agent was not familiar with his reputability. Mr. and Mrs. Martinez were having second thoughts about entering the transaction, and Home’s reassurances convinced them to enter the contract with Gershenson. Home’s closing agent did not recall making these statements, and said she could be fired for saying such things, but under the no-evidence standard of review, we consider only the evidence that supports the jury’s findings and disregard all evidence and inferences to the contrary. Garza v. Alviar, 395 S.W.2d 821, 823 (Tex.1965).
Accepting these statements and actions as established, we hold that they do not constitute evidence of “taking advantage,” and certainly do not constitute evidence of “gross unfairness,” as defined by law. As the Supreme Court said in Chastain, “we must find evidence not simply that Koonce and Stroud [defendants] took unfair advantage of the purchasers but that the advantage was grossly unfair.” 700 S.W.2d at 582. “Knowledge or intent alone,” said the court, is not “the distinguishing factor of unconscionability.” Id. The reviewing court must examine the entire transaction and not simply inquire “whether the defendant intended to take advantage of the consumer or acted with knowledge or conscious indifference.” Id. at 583. The unfairness must be “glaringly noticeable, flagrant, complete and unmitigated.” Id. at 584.
We note again that in the present case, even if the conduct of Gershenson and In and Out (the contractor) rose to this level of grossness, the record must show that Home Savings’ independent conduct also rose to the required level because the law requires proof that Home (the lender) itself violated the DTP A. Home Savings Ass’n v. Guerra, 733 S.W.2d at 136. We also consider it significant that the Chastain court found no evidence of gross unfairness on a much stronger set of facts than exists in the present case. In Chastain, the defendants had sold tracts of land to the plaintiffs and had promised that certain adjacent lots would be used only for residential purposes. In the court’s words, “Koonce and Stroud [defendants] made representations calculated to induce these purchasers to buy the lots and which enhanced the desirability of the property.” 700 S.W.2d at 581. Even though the defendants later allowed an oilfield pipe storage yard on one of the supposedly restricted residential lots next to the plaintiffs, the court held that there was no evidence of gross unfairness as defined in § 17.45(5)(A).
The supreme court’s recent decision in Brown v. Galleria Area Ford, Inc., 752 S.W.2d at 116, reaffirmed Chastain’s requirement of “glaringly noticeable, flagrant, complete and unmitigated” unfairness. In Brown, the court upheld the jury’s finding of gross unfairness on facts that we find instructive in comparison to our own. The Browns had taken their wrecked truck to Lamarque Ford for repairs. In the meantime defendant Galleria Area Ford bought Lamarque and took over the day-to-day operations. Unknown to the Browns, Lamarque and Galleria had agreed that Lamarque would receive the payments for work in progress like that of the Browns, but Galleria was to do the work. *56That is, the entity responsible for repairing the truck (Galleria) was not receiving payment and therefore had no economic incentive to repair the truck. “Consequently, the Brown’s truck was suspended in limbo between the old owners and the new owners of the dealership.” Id. While their truck languished in its unrepaired condition, no one told the Browns of the true arrangement, but Galleria told the public that only the names had changed and that it and Lamarque were “still the same happy folks.”
These facts, said the court, constituted evidence that “Galleria took advantage to a grossly unfair degree of the Browns’ lack of knowledge concerning the internal working relationship and agreements that allocated responsibility and liability between themselves and Lamarque.” Id. In the present case, by contrast, there is simply no suggestion or evidence of hidden dealings between Home Savings and Gershen-son or divergence between the truth and what was represented to the public.
We conclude that the record does not contain legally sufficient evidence that Home Savings took advantage of the Mar-tinezes to a grossly unfair degree as defined in Chastain and Brown. Points one and two are sustained.

2. Misrepresentation.

The jury also found “that Home Savings Association represented to the plaintiffs that the contract of February 19, 1986 conferred or involved rights, remedies or obligations it did not have.” Section 17.46(b)(12) of the DTPA makes it unlawful to “represent[] that an agreement confers or involves rights, remedies, or obligations which it does not have or involve, or which are prohibited by law.” Home Savings contends in points five and six that there is no evidence to support the jury’s finding. The Martinezes point to two aspects of the testimony in support of the finding: the closing agent’s statements that Home would make Gershenson remedy any defects and her statement later that Home was not responsible for Gershenson’s failure to complete the job.
As noted earlier, Mrs. Martinez testified that the closer, Margo Hernandez, said Gershenson was reputable and that if problems arose Home would make sure they were remedied. These statements do not purport to be representations that the February 19 Contract for Improvements conferred any rights, remedies, or obligations one way or the other. The closing agent did not say that the written contract gave the Martinezes a contractual right to make Home remedy Gershenson’s defects. Even if the words of the closer suggest an independent contractual undertaking by Home to step in if Gershenson defaulted, the Mar-tinezes did not urge in the trial court, and have not argued here, that Home contractually obligated itself to remedy any defects. We are, of course, limited in this appeal to the legal theories on which the case was tried in the trial court. Spring Branch Ind. Sch. Dist. v. Stamos, 695 S.W.2d 556, 559 (Tex.1985), appeal dism’d, 475 U.S. 1001, 106 S.Ct. 1170, 89 L.Ed.2d 290 (1986); Davis v. Campbell, 572 S.W.2d 660, 662 (Tex.1978). The Martinezes did not argue that Home itself breached any agreement, and in any event, “[a] mere breach of contract is not a violation of the DTPA.” La Sara Grain Co. v. First Nat’l Bank, 673 S.W.2d 558, 565 (Tex.1984).2
To be actionable under section 17.-46(b)(12), the statement must misrepresent one’s rights, remedies, or obligations under the contract itself. Freeman v. Greenbriar Homes, Inc., 715 S.W.2d 394, 396 (Tex.App.—Dallas 1986, writ ref'd n.r.e.); Computer Business Services, Inc. v. West, 627 S.W.2d 759, 761 (Tex.App.—Tyler 1981, writ ref’d n.r.e.); see Bragg, Now We’re All Consumers! The 1975 Amendments to the Consumer Protection Act, 28 BAYLOR L. REV. 1, 21 (1976) (under § 17.46(b)(12) all plaintiff needs to show is *57“that the terms of an agreement have been misrepresented”) (emphasis added).
In contrast to the facts in the present case, the decisions upholding DTPA liability under section 17.46(b)(12) have invariably involved misrepresentations about the terms of the underlying contract. See, e.g., Royal Globe Ins. Co. v. Bar Consultants, Inc., 577 S.W.2d 688 (Tex.1979) (agent misrepresented insurance policy’s vandalism coverage); Leal v. Furniture Barn, Inc., 571 S.W.2d 864 (Tex.1978) (defendant’s representations that layaway agreement gave it the right to retain purchaser’s deposits, when agreement gave it no such right, was a “ ‘false, misleading or deceptive act or practice’ of the type that the legislature intended to proscribe” in section 17.-46(b)(12)); Tidelands Life Ins. Co. v. Harris, 675 S.W.2d 224 (Tex. App.—Corpus Christi 1984, writ ref'd n.r.e.) (agent misrepresented insurance policy’s coverage of preexisting heart problems); Wagner v. Morris, 658 S.W.2d 230 (Tex.App.—Houston [1st Dist.] 1983, no writ) (defendant misrepresented interest rate on note). There is no indication in Best v. Ryan Auto Group, Inc., 786 S.W.2d 670 (Tex.1989), that the supreme court has departed from § 17.46(b)(12)’s requirement of proof that the defendant represented “that an agreement confers or involves rights, remedies or obligations which it does not have or involve.” (emphasis added). There the seller of a Harley-Davidson dealership misrepresented the buyer’s right to purchase parts and vehicles, his right to use an existing floor plan, and the status he would enjoy as a dealer. That is, he went beyond simply saying that he would help the buyer if he had trouble with Harley-Davidson.
We have found no cases holding a lender liable under section 17.46(b)(12) for statements that a seller was reputable or that the lender would help make a seller perform, or for analogous statements. In the present case Home Savings said nothing to suggest the content of anyone’s rights, remedies, and obligations under the Contract of Improvement, to which it was not even a party. We respectfully disagree with the dissent’s view that Home misrepresented the terms of the Martinez-Ger-shenson contract when its agent said Ger-shenson was reputable and that Home would remedy any defects.3 Accordingly, we hold that the closing agent’s statements that Gershenson was reputable and Home would make him cure any defects do not fall within section 17.46(b)(12), which deals only with misrepresentations of the terms of an agreement.
The Martinezes also point to Home’s statements, after Gershenson had failed to perform, that it was not legally responsible. They argue that this was an incorrect statement because under 16 C.F.R. § 433.1 et seq., they were entitled to assert any rights against Home that they could assert against Gershenson. But section 433.1 et seq. simply preserves a consumer’s right to assert claims and defenses against a holder in due course that the consumer would be able to assert against the seller or other person that he contracted with. The Martinezes waived their section 433.2 cause of action because they did not tender jury questions to submit it. See TEX.R. CIV.P. 279. Had they not waived this claim, they could have recovered under section 433.2 only to the extent that they had made payments under the contract — that is, $597.20. See 16 C.F.R. § 433.2; Home Savings Ass’n v. Guerra, 733 S.W.2d at 136.
In any event, even if Home Savings had been liable to the Martinezes under section 433.2, Home’s statement that it was not responsible did not constitute a misrepresentation of the terms of its contract with the Martinezes, which is what DTPA § 17.46(b)(12) forbids. In analogous cases involving insurance agreements, the courts have held that post-loss denials of liability, though erroneous, do not violate section *5817.46(b)(12). South Texas Nat’l Bank v. United States Fire Ins. Co., 640 F.Supp. 278, 280 (S.D.Tex.1985); Yancey v. Floyd West & Co., 755 S.W.2d 914, 922 (Tex.App.—Fort Worth 1988, writ denied); American Ins. Co. v. Reed, 626 S.W.2d 898, 904-905 (Tex.App.—Eastland 1981, no writ); General Accident, Fire & Life Assurance Corp. v. Legate, 578 S.W.2d 505, 506-507 (Tex.Civ.App.—Texarkana 1979, writ ref’d n.r.e.); D. BRAGG, P. MAXWELL & J. LONGLEY, TEXAS CONSUMER LITIGATION § 3.05.12, at 92-93 (2d ed. 1983). The same principle should apply to post-incident denials of liability under non-insurance contracts.
We have carefully reviewed the record for evidence of a misrepresentation concerning the terms of the Contract for Improvements.4 Having found none, we must sustain Home's points five and six.

3. Other contentions.

The Martinezes’ brief suggests that Home and Gershenson were “inextricably intertwined.” After their brief was filed, however, the supreme court held that such a relationship does not make a defendant vicariously liable for the wrongful conduct of the one he is intertwined with. Qantel Business Sys., Inc. v. Custom Controls Co., 761 S.W.2d 302, 305 (Tex.1988). That is, Home is not derivatively liable for Ger-shenson’s conduct; the Martinezes had to prove an independent DTPA violation against Home, or establish one of the “traditional common law theories of vicarious liability, such as agency or respondeat superior.” Id.
The Martinezes also state in their brief that the closing agent’s statements amounted to fraud. But this independent ground of recovery was not requested or submitted to the jury and has therefore been waived. TEX.R.CIY.P. 279.

4. Cancellation of the note.

In addition to rendering judgment against Home Savings, the court cancelled the Martinez note and declared it null and void. In other words, under the judgment Home Savings not only forfeited the $20,-000 it had loaned and paid to the Mar-tinezes for home improvement; it was also required to pay them the cost to improve the house (an additional $20,000), together with penalties and attorney fees.
The court did not submit any jury questions on the Martinezes’ request to have the note cancelled. Nor did it submit Home’s tendered issues concerning its counterclaim to collect on the note. In points of error twelve and thirteen, Home challenges the trial court’s cancellation of the note because the Martinezes did not prove or obtain jury findings of failure of consideration or other common law or statutory grounds. The Martinezes contend that they established their right to such relief as a matter of law on grounds that there was failure of consideration, uncon-scionability, and a violation of article 5069-13.03 (home solicitation transactions).
The Martinezes did not establish their right to cancellation as a matter of law. Since the note was funded in full, failure of consideration was certainly not established. See generally TEX.BUS. & COM.CODE ANN. § 3.408 (Vernon 1968). We have already held that there is no evidence of unconscionability as that concept is defined by the statute and the supreme court. And since the record does not establish a violation of the Home Solicitation Transactions Act as a matter of law, and no such issues were submitted to the jury, that statute cannot support the trial court’s action. For all these reasons, Home’s points twelve and thirteen are sustained.
That portion of the judgment cancelling the note is reversed and remanded for a new trial. The judgment for damages is reversed and judgment rendered that the Martinezes take nothing from Home Savings.

. The Martinezes did not urge vicarious liability in the trial court, and the court did not submit any such theory to the jury. Nevertheless, their brief does state that Home was "inextricably intertwined” with Gershenson. That contention is discussed in section three infra.

. We express no opinion as to whether the record would have supported a finding that Home orally agreed to cure any of Gershenson's defects. The Martinezes did not try to obtain jury findings that Home made and breached such an oral contract. Even if they had done so, under La Sara those findings would not have established a DTPA violation.

. We express no opinion about the circumstances under which it may be actionable for a third party to make statements about the rights, remedies, and obligations under a contract to which it is not a party. We simply hold that in the present case Home made no representations about the "Contract for Improvements (With Transfer of Lien)" between the Martinezes and Gershenson.

. We respectfully disagree with the dissent’s suggestion that paragraph 8 of the contract obligated Home in any way to correct Gershenson’s work. Paragraph 8 simply gave Home the option to complete the project and establish a lien. Paragraph 8 says, in pertinent part: "Lender, at its option, shall have the right to complete the improvements, and the lien shall be valid for the contract price."