S
In The
Court of Appeals
Fifth District of Texas at Dallas
............................
No. 05-05-01134-CV
............................
IHOR GEORGE KUPCHYNSKY, MELISSA TWOMEY KUPCHYNSKY,
AND FGH HOMEBUILDERS, INC., Appellants
V.
WILLIAM V. NARDIELLO AND LAREE CARAMELLA, Appellees
.............................................................
On Appeal from the 44th Judicial District Court
Dallas County, Texas
Trial Court Cause No. 03-7423
.............................................................
CONCURRING AND DISSENTING OPINION
Before Justices Moseley, Francis, and Mazzant
Opinion By Justice Moseley

        In this suit arising from the sale of residential real estate, the trial court entered judgment in favor of appellees William V. Nardiello and Laree Caramella (“Buyers”) and against appellants Ihor George Kupchynsky and Melissa Twomey Kupchynsky (“Sellers”) and George Kupchynsky's employer, appellant FGH Homebuilders, Inc., based in part on the Buyers' DTPA and negligent misrepresentation claims. It did so despite the existence of an “as-is” clause in the parties' sales contract, which if effective, conclusively negates proof of the causation elements inherent in those claims. See Prudential Ins. Co. of Am. v. Jefferson Assocs., Ltd., 896 S.W.2d 156, 161-62 (Tex. 1995). The existence of this “as-is” clause is undisputed, and both parties introduced copies of the sales contract into evidence.
        The majority opinion affirms the trial court's judgment, based on two of the exceptions to Prudential's principal holding mentioned in Prudential itself. However, these exceptions were not pleaded by the Buyers, asked of or found by the jury, or proved conclusively so as to obviate the need for submitting them to the jury. Absent findings (or conclusive proof) in favor of the Buyers as to one of the Prudential exceptions, or as to some other matter that would vitiate the “as-is” clause, I would reverse the trial court's judgment and render judgment that the Buyers take nothing by way of those claims.   See Footnote 1
        As indicated herein, I believe my differences with the majority opinion primarily hinge on the answer to one question: Who has the burdens of pleading and proof with respect to the efficacy of an “as-is” clause? That question is outcome-determinative here, because whoever had those burdens failed to meet them. None of the parties pled the existence of the “as-is” clause or any of the Prudential exceptions to the efficacy of that clause. Neither side submitted issues necessarily referable to the “as-is” clause or the Prudential exceptions that would render it ineffective to negate causation. Thus, if the Buyers were required to plead and obtain findings as to the existence of one or more of the Prudential exceptions, the judgment on their DTPA and negligent misrepresentation claims cannot stand on appeal. However, if the Sellers and FGH were required to specially plead the existence of the “as-is” clause, or if they were required to obtain findings that the “as-is” clause was effective, then they cannot rely on the “as-is” clause to avoid liability on those claims.

I. BACKGROUND

        The Sellers and the Buyers entered into a real estate sales contract   See Footnote 2 that provided the “Buyer accepts the property in its present condition . . .”;   See Footnote 3 the form contract thereafter provided a blank to facilitate the insertion of any exceptions to that clause, which the contracting parties did. The contract also provided the Buyers could terminate the contract within fourteen days and receive a full refund of their $10,000 earnest money deposit; this provision was designed to allow the Buyers to have the house inspected (which they did) and to determine whether they wished to go through with the transaction.
        Thereafter the Buyers' inspector noted moisture seeping up from the tile grout on the north bedroom balcony and indicated to the Buyers that repair may be needed. When Nardiello asked Kupchynsky about the balcony, Kupchynsky made the statements described in the majority opinion (and summarized herein); he also set up a meeting between himself, Nardiello, and the subcontractor who built the balconies.
        After the inspections and before the end of the fourteen day period, the Buyers and Sellers negotiated further; the Sellers agreed to repair a dozen or so additional items set forth in an addendum to the contract; and in return the Buyers agreed to remove the contingencies to the contract and make the earnest money deposit non-refundable. It is undisputed the additional repair items listed in the addendum did not include any repairs to the balconies. The parties to the contract closed the sale and the Buyers moved in.
        Later the Buyers sued the Sellers and FGH for damages resulting from the condition of the house's two balconies. The case was tried to a jury. At the close of the Buyers' case, the trial court granted the Sellers' and FGH's motion for instructed verdict as to all claims except the claims for DTPA violations, negligent misrepresentation, and breach of the implied warranty of good and workmanlike construction. Thereafter, the jury found that:
*

the Sellers and FGH engaged in false, misleading, or deceptive acts or practices that the Buyers relied on to their detriment and that were the producing cause of the Buyers' damages;

*

the Sellers and FGH did not engage in any such conduct knowingly or intentionally;

*

the Sellers and FGH did not engage in any unconscionable action or course of action that was a producing cause of the Buyers' damages;

*

the Sellers (but not FGH) made negligent misrepresentations on which the Buyers justifiably relied;

*

both George Kupchynsky and FGH (but not Melissa Kupchynsky) were builders of the house, and they failed to design or construct the house in a good and workmanlike manner; and

*

as a result of the Sellers' and FGH's actions, the Buyers suffered damages of $52,695.   See Footnote 4

Based on these findings, the trial court entered judgment in favor of the Buyers against the Sellers and FGH, who appeal.

II. DTPA AND NEGLIGENT MISREPRESENTATION

        In their second issue, the Sellers and FHG contend the “as-is” clause in the sales contract negated any of their actions as a cause-in-fact (and thus as a producing cause and proximate cause, respectively) for the Buyers' DTPA and negligent representation damages. On this basis they assert the trial court erred in denying their motion for instructed verdict and their motion for judgment notwithstanding the verdict as to the Buyers' DTPA and negligent misrepresentation claims. A.

Prudential, Causation, and “As-Is” Clauses

        A valid “as-is” clause in a sales contract negates the buyer's ability to prove the seller's actions are an “actual [cause] in fact” of the buyer's injury. See Prudential, 896 S.W.2d at 161-62; Welwood v. Cypress Creek Estates, Inc., 205 S.W.3d 722, 726 (Tex. App.-Dallas 2006, no pet.) (same); Bynum v. Prudential Residential Servs., Ltd. P'ship, 129 S.W.3d 781, 788 (Tex. App.-Houston [1st Dist.] 2004, pet. denied) (“as-is” clause in sale agreement for remodeled home bars claims relating to remodeling work). Prudential treats the existence of a valid “as-is” clause-not as an affirmative defense to the buyer's claims-but as a matter of proof conclusively negating an element of those claims. Prudential, 896 S.W.2d at 164.   See Footnote 5 By agreeing to purchase the property “as-is,” the buyer agrees to make his own assessment of the bargain and accepts the risk that he may be wrong. See id. at 161. The seller gives no assurances, express or implied, concerning the value or condition of the thing sold, and the buyer chooses to rely on his own determination of the value and condition of the purchase, thus eliminating the possibility that the seller's conduct will cause him damage. Id.   See Footnote 6
        As a result, a valid “as-is” agreement “prevents a buyer from holding a seller liable if the thing sold turns out to be worth less than the price paid because it is impossible for the buyer's injury on account of this disparity to have been caused by the seller.” Id. (emphasis added). As the supreme court summarized at the end of the Prudential opinion, “The issue which is dispositive in [the buyer's case is] whether his 'as is' agreement establishes that [the seller] could not have been a producing cause of his harm . . ..” Id. at 164. This is the holding in Prudential.
B.

The Prudential Exceptions

        However, the presence of an “as-is” provision is not determinative in every circumstance. Id. at 162. Prudential itself describes three situations when a buyer will not be bound by an “as-is” clause:   See Footnote 7 (1) when the “as-is” agreement was “induced by fraudulent representation or concealment of information” by the seller; (2) when the buyer has a right to inspect the property sold but that right is “impaired” or “obstructed” by the seller; or (3) when “other aspects of the transaction . . . make an 'as is' agreement unenforceable.” Id.   See Footnote 8 (This exception will be discussed in more detail herein.)
        The majority opinion rejects the Sellers' and FGH's argument that the “as-is” clause negates the causation elements inherent in the Buyers' DTPA and negligent misrepresentation claims. It does so based on the first and third exceptions set forth in Prudential. However, I disagree with the premise that either exception is available procedurally to support the Buyers' position or the trial court's judgment.
        1.

Nature of the Exceptions-Affirmative Defenses

        A party must affirmatively plead certain matters, including duress, estoppel, illegality, waiver, and “any other matter constituting an avoidance or affirmative defense.” Tex. R. Civ. P. 94. Without parsing the Prudential exceptions with respect to how they fit into one or more of the specific matters listed in Rule 94, it cannot be disputed that they constitute “matter[s] of avoidance or affirmative defense.” If proved, they would render the “as-is” clause unenforceable and thus ineffective to preclude the Buyers from proving that the actions of the Sellers and of FGH were a cause-in-fact of the Buyers' damages.
        The burden of pleading and proving the elements of an affirmative defense is on the party seeking to rely on that defense. See Compass Bank v. MFP Fin. Servs., Inc., 152 S.W.3d 844, 851 (Tex. App.-Dallas 2005, pet denied). If not pleaded or tried by consent, an affirmative defense is waived. See id. (non-jury trial). Further, on an appeal from a jury trial, “all independent grounds of recovery or of defense not conclusively established under the evidence and no element of which is submitted or requested are waived.” Tex. R. Civ. P. 279.
        Here the Buyers failed to plead any grounds-specified by Prudential or otherwise-for disregarding the “as-is” clause. They also failed to request (and the trial court failed to submit to the jury) any element of any such matter in avoidance of the “as-is” clause. Therefore, unless an affirmative defense to the “as-is” clause was conclusively established by the evidence, it was waived. See Tex. R. Civ. P. 94, 279.
        To conclusively prove an affirmative defense to the “as-is” clause, the Buyers had to “so conclusively proved each element of [that] affirmative defense . . . that there was no fact question to submit to the jury on any of its elements.” See Brown v. Zimmerman, 160 S.W.3d 695, 702 (Tex. App.-Dallas 2005, no pet.). A matter is conclusively established if ordinary minds could not differ as to the conclusion to be drawn from the evidence. Talford v. Columbia Med. Ctr. at Lancaster Subsidiary, L.P., 198 S.W.3d 462, 464 (Tex. App.-Dallas 2006, no pet.) (citing Triton Oil & Gas Corp. v. Marine Contractors & Supply, Inc., 644 S.W.2d 443, 446 (Tex.1982)).
        In concluding that the “as-is” clause does not negate causation with respect to the Buyers' DTPA and negligent misrepresentation claims, the majority opinion references evidence relevant to two of the Prudential exceptions-the fraudulent inducement exception and the generally phrased “other aspects of the transaction” exception. However, neither of these exceptions was conclusively proved by the evidence.
        2.

First Exception-Fraudulent Inducement

        As the majority opinion correctly notes, a buyer is not bound to an “as-is” purchase agreement that was induced by the seller's fraudulent representation or concealment of information. Quoting from Prudential, 896 S.W.2d at 162, the majority opinion states: “A seller cannot have it both ways: he cannot assure the buyer of the condition of a thing to obtain the buyer's agreement to purchase 'as is', and then disavow the assurance which procured the 'as is' agreement.”
        As support for this exception, the majority opinion references evidence that George Kupchynsky, when asked about the water on the balcony tile, responded that the balcony was designed to drain that way according to the plans; it then contrasts this statement with evidence that no detailed plans for the balconies existed and the balconies varied from the only plans that did exist. It also notes Kupchynsky did not disclose that the pans under the balconies were made of galvanized metal, and not more expensive (but longer lasting) copper. The majority opinion then concludes: “Kupchynsky's statement about the balcony drainage and nondisclosure of galvanized pans is significant not because he is the owner or seller of the house, but because he was the builder and therefore presumably would have more knowledge, and credibility, than an ordinary seller.”
        This analysis is similar to that utilized to review the sufficiency of the evidence supporting a jury finding. However, whether the evidence would support a finding that the Sellers and FGH fraudulently induced the Buyers into agreeing to the “as-is” clause is markedly different from whether the evidence so “conclusively established” the fraud affirmative defense so as to obviate even submitting the question to the jury. See Tex. R. Civ. P. 279 (emphasis added).
        Without recounting the evidence in detail, it is clear reasonable minds could have differed as to whether the Sellers and FGH induced the Buyers to agree to the “as-is” clause through fraud. It was also undisputed that FGH was not a party to the sales contract and had no role in its negotiation. Additionally, the trial court granted the Sellers' and FGH's motion for instructed verdict on, among other things, the Buyers' fraud claims. And the jury specifically found the Sellers' misrepresentations were negligent, not intentional, and the Sellers' and FGH's violations of the DTPA were not knowing or intentional. Lastly, although there is evidence Kupchynsky knew the pans were made of galvanized metal, there is no evidence the Buyers asked him what material was used to construct the pans or that he answered falsely in response. In the face of these circumstances, there is no basis for concluding that the Buyers “so conclusively proved each element of [their fraud] affirmative defense . . . that there was no fact question to submit to the jury on any of its elements.” Brown, 160 S.W.3d at 702.
        In fact, the majority opinion does not expressly hold that the Buyers conclusively proved the Sellers and FGH obtained their consent to the “as-is” clause through fraud. Absent such an express conclusion, the majority opinion's analysis appears to expand Prudential's exceptions to vitiate an “as-is” clause based on the seller's negligent or unintentional misrepresentation. Prudential expressly rejects this concept. See Prudential, 896 S.W.2d at 162 (“Nor is a seller liable for failing to disclose what he only should have known.”) (citing Ozuna v. Delaney Realty, Inc., 600 S.W.2d 780, 782 (Tex. 1980) (per curiam)).   See Footnote 9
        3.

Third Exception-“Other Aspects” of the Transaction

        Prudential also stated an “as-is” clause may be unenforceable based on “other aspects of the transaction . . ..” Prudential, 896 S.W.2d at 162. In describing this third exception, Prudential explains that the “nature of the transaction and the totality of the circumstances surrounding the agreement must be considered.” It then illustrates the parameters of this situation through a negative example, stating the exception is inapplicable “[w]here the 'as is' clause is an important part of the basis of the bargain, not an incidental or 'boiler-plate' provision, and is entered into by parties of relatively equal bargaining position . . ..” Id.
        In discussing this exception, the majority opinion notes evidence in the record that the “as-is” clause was “boilerplate” in a pre-printed form contract and that it was not discussed or negotiated. It then concludes: “Even if we accept appellants' assertion that the parties were of equal bargaining position, we cannot conclude in light of all circumstances that the clause was an 'important basis of the bargain' that negated causation as a matter of law.” I have two problems with this analysis.
        First, the majority opinion's analysis appears to reverse the burden of proving an exception to the efficacy of the parties' “as-is” contract term. As an affirmative defense, the burden of proving such an exception is on its proponents-the Buyers-not the Sellers or FGH. See Compass Bank, 152 S.W.3d at 851; Prudential, 896 S.W.2d at 162-63 (“Goldman [the buyer] makes essentially three arguments for avoiding his 'as is' agreement. . . . None of Goldman's arguments avail to avoid the 'as is' agreement.”).   See Footnote 10
        Second, the majority opinion's analysis again resembles a review of the evidence supporting a jury finding establishing the affirmative defense. As discussed with respect to the first Prudential exception, the proper standard of review is whether “ordinary minds could not differ as to the conclusion to be drawn from the evidence,” see Talford, 198 S.W.3d at 464, and thus whether the Buyers “so conclusively proved each element of [this] affirmative defense . . . that there was no fact question to submit to the jury on any of its elements.” See Brown, 160 S.W.3d at 702.
        Utilizing the Talford and Brown standard of review, and in addition to the evidence pointed out previously and in the majority opinion, there is evidence that:
*

the Sellers and the Buyer used a standard form contract approved by Texas Real Estate Commission;   See Footnote 11

*

FGH was not a party to the sales transaction;

*

the sentence containing the “as-is” clause went on to state: “provided Seller, at Seller's expense, shall complete the following specific repairs and treatments . . .”;

*

thereafter, the form contained a blank line in which the following text had been hand-written by one of the parties: “correct some flag stone work next to front steps of home”;

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most of the negotiations and communications about the transaction took place between George Kupchynsky and one of the Buyers (Nardiello);

*

Nardiello had purchased and sold five or six other homes and was a partner in several residential town home developments in Euless;

*

Nardiello knew when he signed the sales contract that the transaction was on an “as-is” basis (subject to the repair of the flag stones); and

*

Nardiello and George Kupchynsky later negotiated for the Sellers' repair of the additional items set forth in the addendum, in return for the Buyers' removal of the contingencies to the contract, making the earnest money deposit non-refundable.

And again, the jury found that any violations of the DTPA were not knowing or intentional, that the Sellers and FGH did not engage in any unconscionable action or course of action, and that any misrepresentations were made negligently.
        In the face of these circumstances, there is again no basis for concluding the Buyers “so conclusively proved each element of [their] affirmative defense . . . that there was no fact question to submit to the jury on any of its elements.” Brown, 160 S.W.3d at 702.
        4.

The Majority Opinion

        The majority opinion characterizes the above affirmative-defense analysis as “crafting an argument for [the Sellers and FGH] that they never briefed, argued, or otherwise urged in this appeal or in the trial court.” I disagree. The Sellers and FGH argue here-as they did below-that the “as- is” clause negated the causation element of the Buyers' causes of action as a matter of law.   See Footnote 12 If their argument is sound, then the majority opinion's criticism amounts to a complaint that the Sellers and FGH did not point out (or undertake themselves) the Buyers' burden of pleading, proving, and obtaining findings as to any grounds for avoiding the “as-is” clause. In contrast, it is the Buyers who assert on appeal-without benefit of pleading or answers to jury issues-that one or more of the Prudential exceptions avoids the effect of the “as-is” clause. And it is the Buyers and the majority opinion-again without benefit of jury findings-who rely on some evidence in the record to conclude the Buyers are not bound by the “as-is” clause. However, absent an affirmative finding on a basis for avoiding the “as-is” clause, some evidence is not enough-there must be conclusive evidence. See Brown, 160 S.W.3d at 702. Thus the above analysis merely points out why the Buyers' reply to the Sellers' and FGH's argument is unavailing.
        The majority opinion also asks “how the buyers/plaintiffs were supposed to know to plead 'affirmative defenses' to the as-is clause when the sellers/defendants never pleaded the clause in the first place as a defense.” As noted earlier, Prudential treats the existence of an “as-is”clause as a matter negating proof of an element of the plaintiff's claims, not as a defense or affirmative defense. See Prudential, 896 S.W.2d at 164. Thus, Rule 94 does not compel the Sellers and FGH to affirmatively plead the “as-is” clause as a prerequisite for arguing that the undisputed evidence of the “as-is” clause-introduced by both sides to the dispute-negates as a matter of law the causation elements of the Buyers' claims. Moreover, the Buyers-like any other civil litigants-are bound by the terms of Rule 94, and thus may be presumed to be aware that they must plead any of the matters listed therein, or “any other matter constituting an avoidance or affirmative defense . . .,” in order to avoid the “as-is” language in their contract. See Tex. R. Civ. P. 94.
        5.

Conclusion

        Because the Buyers did not obtain a finding on any affirmative defenses to the enforceability of the “as-is” clause, and because they did not prove any such affirmative defense as a matter of law, they waived any affirmative defenses to the “as-is” clause in the parties' sales contract. See Tex. R. Civ. P. 94, 279. Thus any such affirmative defenses are not available to the Buyers to avoid the efficacy of the contract's “as-is” clause. I would conclude this clause negates the Buyers' assertions that the Sellers' or FGH's actions were a cause-in-fact of the Buyers' DTPA and negligent misrepresentation damages.

III. WARRANTY OF GOOD AND

WORKMANLIKE CONSTRUCTION

In their fourth issue, George Kupchynsky and FGH also contend the trial court erred in entering judgment on the jury's finding that they were both builders and that they breached an implied warranty that the house was constructed in a good and workmanlike manner. In support of this contention, they argue that, as a matter of law, George Kupchynsky was not a “builder” and thus could not have violated the implied warranty.
I agree with the majority that a builder impliedly warrants that a building constructed for residential use is constructed in a good and workmanlike manner and that this implied warranty extends to subsequent purchasers with respect to latent defects not discoverable by a reasonably prudent inspection of the building at the time of sale. See Gupta v. Ritter Homes, Inc., 646 S.W.2d 168, 169 (Tex. 1983). I also agree that: (1) based on the evidence presented, a reasonable jury could have found that George Kupchynsky was a builder of the home; and (2) the case referenced in support of the George Kupchynsky's contention that there can only be one “builder” of a home, Wiggins v. Overstreet, 962 S.W.2d 198 (Tex. App.-Houston [14th Dist.] 1998, pet. denied), does not support that argument. Thus, I join with the majority in overruling appellants' fourth issue.

IV. CONCLUSION

        Based on the above analysis, I would sustain the Sellers' and FGH's second issue, reverse that portion of the trial court's judgment based on the Buyers' DTPA and negligent misrepresentation causes of action, and render judgment that the Buyers take nothing from Sellers or FGH by way of those claims. As a result, I would not address appellants' first, third and fifth issues. See Tex. R. App. P. 47.1.   See Footnote 13         Additionally, I would affirm the trial court's judgment in favor of the Buyers and against George Kupchynsky and FGH based on their breach of the implied warranty that the house was constructed in a good and workmanlike manner. Thus, I concur in part and respectfully dissent in part from the majority opinion.





JIM MOSELEY



JUSTICE

051134cf.p05

Footnote 1 The trial court also rendered judgment in favor of the Buyers and against George Kupchynsky and FGH based on breach of the implied warranty of good and workmanlike construction. Because there is evidence that both of those parties were the “builders” of the house, and because the language in the sales contract is not effective to disclaim that warranty, I agree with the majority in affirming that portion of the judgment. Thus, I concur in the court's judgment in part and respectfully dissent in part.

Footnote 2 FGH was never a party to this contract, and was not involved in any negotiations or discussions concerning the sale.

Footnote 3 The language quoted from the form has been construed to constitute an agreement to purchase the property “as-is,” Cherry v. McCall, 138 S.W.3d 35, 39 (Tex. App.-San Antonio 2004, pet. denied); Fletcher v. Edwards, 26 S.W.3d 66, 75 (Tex. App.-Waco 2000, pet. denied). None of the parties here argue for a different construction.

Footnote 4 The jury also found the amount of the Buyers' reasonable and necessary attorneys fees for the trial and the appeal of the case.

Footnote 5 “[W]e conclude that [the buyer's] agreement to buy the Jefferson Building 'as is', in these circumstances, conclusively shows that nothing Prudential did caused [the buyer] damages.” Id.

Footnote 6 Further, causation in fact is essential to recover on either the Buyers' DTPA or their negligent misrepresentation claims:

Proof of causation is essential for recovery on all of [the buyer's] causes of action. Negligence, for example, requires proof of proximate cause. Brown v. Edwards Transfer Co., 764 S.W.2d 220, 223 (Tex.1988). For DTPA violations, only producing cause must be shown. Tex. Bus. & Comm. Code § 17.50(a). The element common to both proximate cause and producing cause is actual causation in fact. General Motors Corp. v. Saenz, 873 S.W.2d 353, 357 (Tex.1993). This requires proof that an act or omission was a substantial factor in bringing about injury which would not otherwise have occurred. McClure v. Allied Stores of Texas, Inc., 608 S.W.2d 901, 903 (Tex.1980). Unless there is some evidence that [the seller] caused [the buyer] damages, and this evidence satisfies the requirement of actual causation in fact, [the buyer] is not entitled to recover on any of his claims.

Prudential, 896 S.W.2d at 161.

Footnote 7 Prudential's discussion of situations in which an “as-is” clause is ineffective to negate causation is in response to Justice Cornyn's concurring opinion, and not in response to assertions by the buyer that any of these situations existed in that case. Thus, this language constitutes judicial dicta. See Palestine Contractors Inc. v. Perkins, 386 S.W.2d 764, 773 (Tex. 1963) (judicial dictum is “deliberately made for the purpose of being followed by the trial court. It is not simply 'obiter dictum.' It is at least persuasive and should be followed unless found to be erroneous.”).

Footnote 8         For convenience, the relevant text from Prudential is quoted in full:

        By our holding today we do not suggest that an “as is” agreement can have this determinative effect in every circumstance. A buyer is not bound by an agreement to purchase something “as is” that he is induced to make because of a fraudulent representation or concealment of information by the seller.. . . A seller cannot have it both ways: he cannot assure the buyer of the condition of a thing to obtain the buyer's agreement to purchase “as is”, and then disavow the assurance which procured the “as is” agreement. Also, a buyer is not bound by an “as is” agreement if he is entitled to inspect the condition of what is being sold but is impaired by the seller's conduct. A seller cannot obstruct an inspection for defects in his property and still insist that the buyer take it “as is”. In circumstances such as these an “as is” agreement does not bar recovery against the seller.
        We also recognize that other aspects of a transaction may make an “as is” agreement unenforceable. The nature of the transaction and the totality of the circumstances surrounding the agreement must be considered. Where the “as is” clause is an important part of the basis of the bargain, not an incidental or “boiler-plate” provision, and is entered into by parties of relatively equal bargaining position, a buyer's affirmation and agreement that he is not relying on representations by the seller should be given effect. Justice Cornyn's concurring opinion argues that such factors are generally not important, and that “as is” agreements must be given the same effect in every transaction absent fraud or adhesion. We simply disagree. We think it too obvious for argument that an “as is” agreement freely negotiated by similarly sophisticated parties as part of the bargain in an arm's-length transaction has a different effect than a provision in a standard form contract which cannot be negotiated and cannot serve as the basis of the parties' bargain.

Prudential, 896 S.W.2d at 162 (citations omitted).

Footnote 9 Further, expanding the Prudential exceptions to include negligent misrepresentation would allow courts and juries to reform a sales transaction and re-allocate the parties' risks based on what they think the parties should have known, rendering the efficacy of an “as-is” clause a matter of conjecture. This runs contra to the supreme court's recent opinion in Gym-N-I Playgrounds, Inc. v. Snider, No. 05-0197, slip op. at 13 (Tex. Apr. 20, 2007), in which the supreme court again affirmed the parties' freedom to contract and allocate the risks of a transaction by entering into “as-is” agreements, stating “Texas strongly favors parties' freedom of contract.” Id.

Footnote 10 Cf., however, Prudential, 896 S.W.2d at 167 (Cornyn, J., concurring), which in dicta implies that the burden of disproving the third (“other aspects of the transaction”) exception would be on the seller, though recognizing that the issue would be a fact question for the jury. (“When the seller can establish to the jury's satisfaction that the clause was actually negotiated in an arms-length transaction, the seller may indeed prevail . . ..”) Id.

Footnote 11 Texas Real Estate Commission Form TREC 20-5.

Footnote 12 This argument was the basis for the Sellers' and FGH's motion for summary judgment (which was not ruled on by the trial court), their motion for instructed verdict, and their motion for judgment notwithstanding the verdict.

Footnote 13 In their first issue, appellants assert the trial court erred in entering judgment on the Buyers' DTPA and negligent misrepresentation claims because the evidence conclusively proved that the Buyers relied on their own inspections of the house and thus any representations of the Sellers were not a cause-in-fact of the Buyers' damages. In their third issue, appellants assert there is no evidence the Kupchynskys made an actionable negligent misrepresentation because such a representation (according to the jury charge) must supply “false information for the guidance of others in their business,” and it is undisputed that the transaction at issue here involved the Buyers' purchase of a home for their personal residence and did not involve the Buyers' business. In their fifth issue, appellants assert the trial court erred in denying their motion for instructed verdict as to the Buyers' DTPA claims against FGH because it was undisputed that FGH was not a party to the transaction.

File Date[06/06/2007]
File Name[051134D]
File Locator[06/06/2007-051134D]