Opinion
No. 04-00-00185-CV
Delivered and Filed: February 14, 2001
Appeal from the 224th Judicial District Court, Bexar County, Texas, Trial Court No. 98-CI-07653, Honorable Carol R. Haberman, Judge Presiding.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED
Sitting: Tom RICKHOFF, Justice, Catherine STONE, Justice, Sarah B. DUNCAN, Justice.
Opinion
Carns sued Perry Homes for damages resulting from construction defects in a house built pursuant to a contract. Carns asserted causes of action for violation of the Deceptive Trade Practices Act ("the DTPA"), breach of contract, and negligence. As relief, Carns sought attorney's fees and damages for rescission, or alternatively, damages based on the reasonable cost and expenses of repairs. Perry Homes' answer alleged, in part, that Carns' causes of action were preempted by the Residential Construction Liability Act ("the RCLA") and his right to all recovery, if any, was limited to the damages under the RCLA. Carns filed special exceptions to Perry Homes' preemption argument, which the trial court sustained. The jury determined that Carns was entitled to restoration of the home's purchase price pursuant to DTPA section 17.50(b)(3).
Judge Carol Haberman signed the judgment; however, Judge David Peeples signed the order sustaining the special exceptions.
"In a suit filed under this section, a consumer who prevails may obtain . . . orders necessary to restore to any party to the suit any money or property . . . which may have been acquired in violation of this subchapter . . . ." Tex. Bus. Com. Code Ann. § 17.50(b)(3) (Vernon Supp. 2000).
Perry Homes raises several issues on appeal. The threshold issue is whether Carns' causes of action are preempted by the RCLA. Because we are invincibly unable to divine legislative intent, we are unwilling to take such a large step as to eliminate an equitable remedy and hold that the RCLA preempted Carns' equitable rescission claim. We therefore find that the RCLA applies only to actions for monetary damages.
CARNS' CAUSES OF ACTION
In his petition, Carns made the following factual allegations:
Perry Homes . . . expressly and impliedly contracted, agreed and warranted that his home would be constructed in a good and workmanlike manner. Perry Homes also warranted that its warranty repairs would be done in a good and workmanlike manner. In reliance on Perry's representations, Carns made significant and costly improvements to the home. To the extent that any contractual disclaimer of Perry attempts to waive the implied warranty of habitability and good and workmanlike construction of the home and good and workmanlike performance of repairs, the waiver is against [the] public policy of the State of Texas and is invalid.
Perry's work was not as represented, since it was not accomplished in a good and workmanlike manner and resulted in shoddy and defective work throughout the house. Numerous construction deficiencies exist as more specifically set forth in Exhibit A. In addition to the defects in Exhibit A, the roof framing of the house is done in a very poor and unworkmanlike manner. . . .
The jury found that Perry Homes' failure "to comply with a warranty" was the proximate cause of Carns' damages. "Failure to comply with a warranty" was defined as any of the following: (1) failing to construct a home in a good and workmanlike manner; (2) failing to perform repairs in a good and workmanlike manner; or (3) constructing or selling a home that was not suitable for human habitation. The jury found that the defects resulting from the failure to construct a home in a good and workmanlike manner rendered the home unsuitable for its intended purposes.
APPLICATION OF THE RCLA
The RCLA applies to any action to recover damages resulting from a construction defect. Tex. Prop. Code Ann. § 27.002(a) (Vernon 2000). To the extent the RCLA conflicts with any other law, including the DTPA, the RCLA controls. Id. § 27.002(a)(2). The narrow issue here is whether the RCLA applies when the claimant seeks the equitable remedy of rescission. Perry Homes argues that the monetary component of Carns' rescission claim is an action to recover damages within the scope of the RCLA's limitation on damages; therefore, Carns' rescission claim is preempted by the RCLA. Carns argues that the RCLA applies only when a claimant is seeking monetary damages, and rescission and damages are mutually exclusive remedies, and therefore, his rescission claim is not preempted.
We hold that monetary damages and rescission are mutually exclusive remedies because one is based on recovery of benefits under the contract and the other on avoidance of the contract. Rescission is an equitable remedy and, as a general rule, the measure of damage is the return of the consideration paid, together with such further special damage or expense as may have been reasonably incurred by the party wronged on account of the contract. Smith v. National Resort Communities, Inc., 585 S.W.2d 655, 660 (Tex. 1979); see also Nabours v. Longview Savings Loan Ass' n, 700 S.W.2d 901, 911 (Tex. 1985) (noting that "it is hornbook law that rescission, like an injunction, is an equitable remedy."). If damages as well as rescission are essential to accomplish full justice, they both will be allowed. Smith, 585 S.W.2d at 660. Restoration under DTPA section 17.50(b)(3) is a statutory recognition of the equitable remedy of rescission and restitution, based on the theory that the complaining party may elect to avoid the contract, surrender any benefits received and recover that with which he parted. Smith v. Kinslow, 598 S.W.2d 910, 915 (Tex.App.-Dallas 1980, no writ). Thus, rescission and damages are mutually exclusive remedies. See Scott v. Sebree, 986 S.W.2d 364, 368 (Tex.App.-Austin 1999, pet. denied) (holding that rescission is an equitable remedy used as a substitute for monetary damages when such damages would not be adequate); Bayou Terrace Inv. Corp. v. Lyles, 881 S.W.2d 810, 816 (Tex.App.-Houston [1st Dist.] 1994, no writ) (plaintiff who elects to treat contract as valid and recover damages on account of its breach could not maintain a suit for rescission); Kargar v. Sorrentino, 788 S.W.2d 189, 191 (Tex.App.-Houston [14th Dist.] 1990, no writ) (under DTPA, rescission/restitution and actual damages are mutually exclusive remedies).
General damages are those that naturally and necessarily flow from a wrongful act, are so usual an accompaniment of the kind of breach alleged that the mere allegation of the breach gives sufficient notice, and are conclusively presumed to have been foreseen or contemplated by the party as a consequence of his breach of contract. Hess Die Mold, Inc. v. American Plasti-Plate Corp., 653 S.W.2d 927, 930 (Tex.App.-Tyler 1983, no writ). Special damages arise naturally but not necessarily from the breach, are so unusual as to normally vary with the circumstances of each individual case, and must be shown to have been contemplated or foreseen by the parties. Id.
We now turn to the issue presented: whether the RCLA applies only when the claimant seeks monetary damages. In construing a statute, our purpose is to give effect to the Legislature's intent. Union Bankers Ins. Co. v. Shelton, 889 S.W.2d 278, 280 (Tex. 1994). To do so, we consider the statute's language, history, and purposes and the consequences of alternate constructions. Id.
The RCLA leaves much to be interpreted. Its language indicates it applies only to an action for damages, not to an action for equitable relief. Section 21.002, entitled "Application of Chapter," begins with the following sentence, "This chapter applies to: (1) any action to recover damages resulting from a construction defect, except a claim for personal injury, survival, or wrongful death or for damage to goods. . . ." Tex. Prop. Code Ann. § 27.002 (emphasis added). Section 27.003, entitled "Liability," begins with the following sentence, "In an action to recover damages resulting from a construction defect. . . ." Id. § 27.003 (emphasis added). Section 27.004, entitled "Notice and Offer of Settlement," states "Before the 60th day preceding the date a claimant seeking from a contractor damages arising from a construction defect. . . ." Id. § 27.004(a) (emphasis added). Section 27.0041, entitled "Mediation," begins with the following sentence, "If a claimant files suit seeking from a contractor damages arising from a construction defect. . . ." Id. § 27.004 (emphasis added). Section 27.006, entitled "Causation," states, "In an action to recover damages resulting from a construction defect, the claimant must prove that the damages were proximately caused by the construction defect." Id. § 27.006 (emphasis added).
The RCLA's language does not indicate clearly that the Legislature intended to replace a claimant's equitable remedy of rescission with the exclusive remedy of monetary damages. To the contrary, the act's language suggests that the Legislature sought to shield builders from liability and impose a cap on monetary damages. See Richard F. Whiteley, Comment, The Scope of the Residential Construction Liability Act in Texas, 36 Hous. L. Rev. 277, 300 (1990) ("The RCLA . . . tilts the playing field in favor of homebuilders by providing numerous defenses and liability limits not available under the DTPA. Unfortunately, it seems the intent of the RCLA's framers simply served as camouflage for the underlying objective of insulating homebuilders from the kind of DTPA liability with which other providers of products and services in Texas must deal."). Indeed, during the Senate Jurisprudence Committee's hearings concerning passage of the act, the key Senators never reached agreement about the RCLA's interplay with the DTPA.
Following is an exchange between Senator Montford and Senator Caperton:
Montford: Now this bill likewise has had a lot of discussion . . . it . . . was essentially . . . designed to assist both the builder and the home owner to cure the problems . . . before resorting to litigation. . . . .
Caperton: Senator, [inaudible] as against the bill or under the DTPA?
Montford: Well, it, it clarifies I think the terms of the procedure for exercising those rights? I think —
Caperton: But it, but it doesn't take those rights away?
Montford: — well —
Caperton: The procedure you follow is different because you have the right to repair, —
Montford: Well.
Caperton: — that's, that's very clear now, isn't that right?
Montford: There is . . . I think if you'll look, there is a . . . damages provision . . . that I think is exclusive in terms of the effective [sic] of the . . . notice and failure to give repairs. It's not my intent to . . . take away or to demean any home owners' rights . . . to obtain repairs . . . to get redress that is proper for the condition.
Caperton: Certainly we're not trying to defend shoddy workmanship or tell those people of our constituents [sic] who go buy homes, that their remedies . . . when they are victims of shoddy workmanship if in any way have been impaired, I've . . . never sensed that that was what this bill was about.
Montford: No, quite the contrary, I think if anything it's designed to expedite a fair repair procedure.
Caperton: And it doesn't really grant new defenses to protect shoddy workmanship, it simply identifies a method by which repairs can be made as undoubtedly . . . they ought to be made sometimes. Isn't that really the thrust?
Montford: Well, I think there are reasonable defenses but . . . a defensive [sic] is not designed to undo or make permissive shoddy workmanship.
Caperton: Precisely and, and indeed this bill is designed to work with the DTPA not to replace the DTPA in dealing with workmanship that doesn't measure up.
Montford: There, there is specific language in the bill, the bill dealing with the conflict of those two provisions. I personally think in the, in retrospect and looking at it . . . they can work hand in glove to, to I think protect the consumer . . . who ought to be protected. . . . .
. . . .
Caperton: — Senator I agree with you and that is why I support this bill as a very reasonable way of working with the DTPA but there are going to be some cases . . . I think where you just [sic] not going to be able to get the kind of response from your home builder that you want. And there are gonna be some cases, unfortunately, where home builders don't measure up to the standards that they promise, when we entered into that contract and I want to make sure that when those home builders engage in shoddy workmanship and in fact . . . use false misleading or deceptive acts or practices in the construction and sale of those homes that they're, we're still going to have remedies and I don't think we're trying to excuse any of those folks who don't live up to their promises or, or keep their part of the bargain, isn't that right?
Montford: Senator, I think you'll find that this is a . . . timely . . . response approach and I believe in the final analysis that this is going to get the problems cured much more expeditiously.
We interpret the RCLA's reference to "damages" as setting forth the threshold issue for determining whether the act applies to an action as whether the homeowner is seeking monetary damages as the remedy for his or her injury. If the homeowner seeks an equitable remedy (like rescission), and not monetary damages, then the RCLA does not preempt the action. If the Legislature had intended the RCLA to apply to any and all claims arising from a construction defect without regard to the remedy sought, it would have so stated. It is a rule of statutory construction that every word of a statute must be presumed to have been used for a purpose. Cameron v. Terrell Garrett, Inc., 618 S.W.2d 535, 540 (Tex. 1981). Likewise, every word excluded from a statute also must be presumed to have been excluded for a purpose. Id. Only when it is necessary to give effect to the clear legislative intent can we insert additional words or requirements into a statutory provision. Id.
See e.g., Tex. Bus. Com. Code Ann. § 147.002 (Vernon Supp. 2000) ("Subject to Section 147.004 and regardless of the legal theory, statute, or cause of action on which the action is based, including an action based in tort, contract, or breach of an express or implied warranty, this chapter applies only to an action in which a claimant seeks recovery of damages or any other relief for harm caused by: (1) a computer date failure as described by Section 147.003; or (2) the failure to properly detect, disclose, prevent, report, correct, cure, or remediate a computer date failure as described by Section 147.003.").
We read the RCLA as limiting its application to actions seeking damages, and we conclude that the Legislature's intention was to provide a method to cap those damages, preempt certain claims seeking monetary damages, and expand defenses for homebuilders. The Legislature failed to make it clear that the RCLA limits the type of remedies to be recovered against a homebuilder, and we are unwilling to recognize an unstated intent or to insert additional words or requirements into the act to provide for such a limitation.
Our conclusion is supported by the type of construction defects the Legislature intended the RCLA to remedy. Perry Homes asserts that rescission claims under the DTPA, and presumably under the common-law, were "among the evils to be remedied by the RCLA." We disagree. The language of the RCLA and its legislative history indicate the RCLA was meant to address only those construction defects that could be repaired in a good and workmanlike manner.
The RCLA speaks in terms of curing the defect, paying for temporary housing during the repair period, reduction of market value, and attorneys' fees. Tex. Prop. Code Ann. § 27.004(f), (h). These damages contemplate the homeowner staying in a house in which the construction defect can be repaired in a good and workmanlike manner. See Bruce, 943 S.W.2d at 123 (holding that the RCLA was enacted to promote settlement between homeowners and contractors and to afford contractors the opportunity to repair their work in the face of dissatisfaction). Senator Montford stated, "It's not my intend [sic] to . . . take away or to demean any home owner's rights . . . to . . . obtain repairs . . . to get redress that is proper for the condition." If the "condition" is a construction defect that can be repaired, the RCLA applies. If the "condition" cannot be repaired, rendering the residence unsuitable for habitation, then the act does not apply. Under these circumstances, monetary damages are not an adequate remedy; only an equitable remedy, such as rescission, would be adequate to cure the "evil" of a residence that is not suitable for its intended purposes.
The RCLA cannot be interpreted so broadly as to force a homeowner to remain in a residence that is unsuitable for its intended purposes. If the contract is rescinded and Carns returns the house to Perry Homes, returning to Carns the purchase price of the house merely completes the rescission and restitution process. See Kargar, 788 S.W.2d at 191.
We hold that Carns was entitled to restoration.
CARNS' ENTITLEMENT TO RESCISSION
Perry Homes asserts Carns is not entitled to rescission because Carns did not prove a timely tender of the benefit derived by him from possession of the house.
The DTPA allows a consumer to choose restoration of benefits as his remedy, subject to the right of the defendant to plead and prove a right of offset. Smith v. Baldwin, 611 S.W.2d 611, 616 (Tex. 1980). The consumer is not required to plead and prove predicates to recovery, such as notice and tender, not found within the statutory scheme of the DTPA. Id.
Under the common-law, before a buyer may rescind a contract, the buyer must give timely notice to the seller that the contract is being rescinded and either return, or, at least offer to return, the property received and the value of any benefit he derived from its possession. Mathis Equip. Co. v. Rosson, 386 S.W.2d 854, 869 (Tex.Civ.App.-Corpus Christi 1964, writ ref'd n.r.e.). The rule requiring the buyer desiring to rescind to take such action is based on the view that before rescission can be granted, the parties must be placed in status quo, and on the maxim "He who seeks equity must do equity." Id. The burden of proof is on the party seeking rescission to establish that he or she is entitled equitably to such relief. Id. at 869-70.
Furthermore, in his petition, Carns tendered the house and the value of its use during the time he used and occupied the house. As a general rule, one seeking equity must do equity, and therefore one seeking cancellation of an instrument should offer or tender the consideration received. Pope v. Darcey, 667 S.W.2d 270 (Tex.App.-Houston [14th Dist.] 1984, writ ref'd n.r.e.); Sudderth v. Howard, 560 S.W.2d 511, 516 (Tex.Civ.App.-Amarillo 1977, writ ref'd n.r.e.). However, the court may accomplish this result by its judgment. Id. Here, the jury determined the market rental value of the house for its use and occupancy was $18,000. The trial court deducted the reasonable value of Carns' use of the house from the amount he paid for the house when it awarded him restitution. Therefore, Carns was entitled to rescission.
PREJUDGMENT INTEREST
The trial court awarded Carns prejudgment interest from the date he closed on the house. Perry Homes asserts prejudgment interest should be calculated from the earlier of the date he filed suit or 180 days from the date he gave notice of his claim. Perry Homes is correct. A claimant under the DTPA (or the RCLA) is entitled to prejudgment interest as determined by the Finance Code, which provides that "prejudgment interest accrues on the amount of a judgment during the period beginning on the earlier of the 180th day after the date the defendant receives written notice of a claim or the date the suit is filed and ending on the day preceding the date judgment is rendered." Tex. Fin. Code Ann. § 304.104 (Vernon 1998).
APPELLATE ATTORNEY'S FEES
The trial court awarded Carns attorney's fees in the event of an appeal to the Court of Appeals, the filing of a petition for review with the Supreme Court, or if the Supreme Court granted review. The court did not condition the award of these fees on Perry Homes' not being successful on appeal. Perry Homes asserts this was error, and we agree. To the extent that Perry Homes is successful, Carns is not entitled to an award of appellate attorney's fees for that portion of fees attributable to an unsuccessful defense of the case. Goldman v. Alkek, 850 S.W.2d 568, 578 (Tex.App.-Corpus Christi 1993, no writ) (op. on mot. for reh'g).
IMPLIED WARRANTY
Perry Homes asserts the trial court erred in excluding from evidence an express warranty booklet given to Carns that contained a disclaimer of all implied warranties. This issue is foreclosed by this Court's opinion in Buecher v. Centex Homes, 18 S.W.3d 807 (Tex.App.-San Antonio 2000, pet. granted), which held that a homeowner cannot waive an implied warranty by signing a sales agreement that contains such a waiver.
CLOSING COSTS
In a single cross-issue, Carns complains that the trial court erred in not awarding him his closing costs. Perry Homes asserts Carns waived any error by not presenting this complaint to the trial court.
The final judgment awarded Carns "the amount of $169,413.00, being the amount paid by [Carns] for the property plus improvements thereon, less the reasonable value of [Carns'] use of the property." In his motion to enter judgment, Carns asked the court to enter the proposed judgment attached to his motion, which provided "that [Carns] shall have and recover judgment against [Perry Homes] in the amount of $175,883.00, being the amount paid by [Carns] for the property plus improvements thereon, less the reasonable value of [Carns'] use of the property." The jury determined that Carns had paid $185,000 for the house, $10,518 for improvements, and that the market rental value was $18,000; a total of $177,518.
In Emerson v. Tunnell, 793 S.W.2d 947, 948 (Tex. 1990), the Texas Supreme Court held that a post-verdict motion for judgment on the verdict preserved error for appellate review when the trial court entered judgment for the movant but for less than the verdict. We find, therefore, that Carns preserved the issue raised on appeal.
The measure of rescission damages is the return of the consideration paid, together with such further special damage or expense as may have been reasonably incurred by the party wronged on account of the contract. Smith, 585 S.W.2d at 660. We agree with Carns that closing costs are the type of special damages or costs that may be awarded as rescission damages. Therefore, Carns was entitled to an award of his closing costs.
CONCLUSION
We affirm that portion of the trial court's judgment granting Carns restoration of the consideration paid by him for the property made the basis of this suit. We reverse that portion of the trial court's judgment awarding Carns the amount of $169,413.00, and we reform the trial court's judgment to award Carns the amount of $175,883.00, being the amount paid by him for the property, plus improvements thereon, less the reasonable value of his use of the property. We reverse that portion of the judgment awarding Carns prejudgment interest from August 29, 1997 and remand to the trial court for a determination of prejudgment interest pursuant to Texas Finance Code section 304.104. We reverse that portion of the judgment awarding unconditional appellate attorney's fees and remand to the trial court for a determination of the reasonable amount of appellate attorney's fees to be awarded to Carns in view of the fact that Perry Homes was partially successful in this appeal.
I do not know the correct result in this case; nor do I know how to decide what it is.
As in any statutory construction case, our charge is to divine and effectuate legislative intent. Texas Water Comm' n v. Brushy Creek Mun. Util. Dist., 917 S.W.2d 19, 21 (Tex. 1996). When the language is clear and unambiguous, legislative intent may be determined from the plain and ordinary meaning of the words used. Albertson's, Inc. v. Sinclair, 984 S.W.2d 958, 960 (Tex. 1999). But even if the statute is unambiguous, we may consider the legislature's objective, the consequences of particular constructions of the statute, and any administrative constructions. Tex. Gov't Code Ann. § 311.023 (Vernon 1998); see Atascosa County v. Atascosa County Appraisal Dist., 990 S.W.2d 255, 258-59 (Tex. 1999). In any event, "[a] statute is presumed to have been enacted by the legislature with complete knowledge of the existing law and with reference to it." Acker v. Texas Water Com'n, 790 S.W.2d 299, 301 (Tex. 1990).
On the one hand, the express terms of the RCLA limit the act's application to "any action to recover damages." Tex. Prop. Code Ann. § 27.002 (Vernon 2000). And it is clear the Texas Legislature is cognizant of the distinction between an action in equity for rescission and an action at law for damages. See Tex. Rev. Civ. Stat. Ann. art. 581-33(A)(1); (B) (Vernon 1964 Supp. 1996) (buyer "may sue either at law or in equity for rescission or for damages"). This might be considered some indication the legislature did not intend the RCLA to apply to actions seeking rescission. However, the legislature is presumed to have enacted the RCLA with full knowledge that the Supreme Court of Texas quoted this court with apparent approval in stating: "As in other cases where equity requires the return of property, this `recovery of the consideration paid as a result of fraud constitutes actual damages. . . .'" Nabours v. Longview Sav. Loan Ass' n, 700 S.W.2d 901, 904 (Tex. 1985) (quoting International Bankers Life Ins. Co. v. Holloway, 368 S.W.2d 567, 583 (Tex. 1963) (quoting Briggs v. Rodriguez, 236 S.W.2d 510, 516 (Tex.Civ.App.-San Antonio 1951, writ ref'd n.r.e.)). See also Geters v. Eagle Ins. Co., 834 S.W.2d 49, 50 (Tex. 1992) (per curiam) (holding surety's liability not limited to "rescission damages"); Smith v. National Resort Communities, 585 S.W.2d 655, 660 (Tex. 1979) ("Rescission is an equitable remedy and, as a general rule, the measure of damage is the return of the consideration paid, together with such further special damage or expense as may have been reasonably incurred by the party wronged on account of the contract."). Thus, it may be the legislature believed an action seeking "rescission damages" is, in legal effect, an action for damages to which the RCLA would apply. Unfortunately, the legislative history underlying the RCLA does not resolve the issue.
I thus do not concur in my colleagues' judgment because I agree with its statement of the law. In my view, the law will support either result. I concur in the judgment because I cannot and do not believe the legislature intended the RCLA to saddle a buyer with a home that is so defective it is not suitable for its intended purpose.