Misrepresentations and the DTPA -- Even Unknowingly False Statements Can Lead to Liability

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

As a real estate lawyer in San Antonio, TX, I have always perceived the Texas Deceptive Trade Practices Act ("DTPA") to be a mixed bag -- one of those statutes with equal parts good and bad implications. My belief has been developed over the past decade based upon what I characterize as a "strict liability" interpretation of the DTPA adopted by the Texas Supreme Court and its subordinate Texas state courts.

One would be hard-pressed to argue legitimately against the DTPA's policy purpose:  to protect consumers against false, misleading, and deceptive business practices, unconscionable actions, and breaches of warranty.  However, the DTPA's application in real estate fraud cases has oft' reminded me of the old maxim: "the road to hell paved is with good intentions." 

For better or worse, since at least 2002, Texas courts have  rejected the argument that an individual cannot be held liable under the DTPA when he does not know the falsity of his representations.  Stated differently, the law in Texas provides for strict liability for misrepresentations, as follows:

“[A] DTPA claim does not require that the consumer prove the [defendant] acted knowingly or intentionally. The DTPA requires that the consumer show that the misrepresentation was false and that the false misrepresentation was the producing cause of the consumer's damages. A consumer is not required to prove intent to make a misrepresentation to recover under the DTPA."

Miller v. Keyser, 90 S.W.3d 712, 716 (Tex. 2002)(emphasis added). Moreover, "misrepresentations that may not be actionable under common law fraud may be actionable under the DTPA." Id.

In the context of a typical real estate dispute, DTPA claims are frequently asserted in connection with misrepresentation or failure to disclose (concealment) allegations. These allegations are usually made by a Buyer against the former Seller and/or that Seller's broker-agent. Often the DTPA is thrown-in as a "catch-all" allegation, when the real crux of the Plaintiff's claims sound in fraud or breach of contract. 

I have seen DTPA causes of action filed in cases relating to a given property's: a) suitability for a certain purpose; b)  zoning classification; c) propensity to flood; d) right of access to a water well; e) existence or non-existence of a foundation warranty; and f) access to a public roadway. The underlying representations were made innocently -- without knowledge of their falsehood, and in all of these instances, the Seller-Defendant (or that defendant's broker) asserted some variant of the defensive argument that they did not know that their representations were false at the time that they were made.  Because this defensive theory goes to intent, which is not a necessary element of proof for recovery under the DTPA (or any strict liability claim), it is usually unsuccessful.

Thus, where real estate representations (or misrepresentations) are concerned, a DTPA violation is usually much easier to prove than a fraud claim.  This is so because, in order to prevail on a fraud claim, the Plaintiff must prove that the Defendant knew (or should have known) of the falsehood of their representation at the time that such representation was made.  Proving 'intent to defraud' can be difficult because it requires some evidence of the state of mind or knowledge of the actor. By contrast, simple falsehood (however innocent) is the only showing required by the DTPA, and can usually be proven by circumstantial evidence without inquiry into an actor's knowledge or intent. 

DTPA claims are nebulous; and, thus, tough to defend.  For the Plaintiff they can be tough to prosecute because of various procedural requirements.  This is definitely one area in which having a knowledgeable lawyer can make a huge difference.

NOTE:  Section 17.49(i) of the Texas Business & Commerce Code exempts from the DTPA claims against TREC licensees arising from an act or omission by the person while acting as a broker or salesperson, except for claims arising from

(1)  an express misrepresentation of a material fact that cannot be characterized as advice, judgment, or opinion;

(2)  a failure to disclose information in violation of Section 17.46(b)(24); or

(3)  an unconscionable action or course of action that cannot be characterized as advice, judgment, or opinion.

Language in Deed Generally Supersedes that of Real Estate Purchase / Sale Contract

San Antonio Texas Real Estate Attorney Trey Wilson wrote:
As a San Antonio lawyer with an active real estate practice, I am frequently questioned about the legal effect of terms contained in a real estate purchase/sale agreement (earnest money contract) that do not appear in the deed. Some of examples of contractual provisions that may be omitted from deeds are:  rights of first refusal on adjacent property of the Seller,  easements or access reserved for the Seller, the right of the Buyer to cross adjacent property retained by the Seller, and the provision of a warranty on the property's condition.  The pattern is usually the same -- the parties negotiated a contract, and included certain "Special Provisions" in their written agreement, but those terms were never incorporated into the Deed recorded by the Seller after closing.

When this occurs, several legal doctrines may be implicated. This post focuses on the legal doctrine of MERGER.

It is the law in Texas that  a purchaser takes title to real property solely through a deed. See Stephens Cnty. Museum, Inc. v. Swenson, 517 S.W.2d 257, 261 (Tex. 1974). An instrument that does not operate as a present conveyance of title to real property is a contract to convey rather than a deed. See TEX. PROP. CODEANN. § 5.002; see also 30 Tex. Jur. 3d Deeds § 9 (2007). A contract to convey real property contemplates further acts leading up to the actual conveyance of title in the deed. See 30 Tex. Jur. 3d Deeds § 9; see also Cont'l Royalty Co. v. Marshall, 239 S.W.2d 837, 840-41 (Tex. Civ. App.-Texarkana 1951, no writ). When a deed is delivered by the Seller and accepted by the Buyer as performance of a contract to convey real estate, the contract is MERGED in the deed.   

Though the terms of the  deed may vary from those contained in the contract, still the deed must be looked to alone to determine the rights of the parties. 2 DEVLIN, LAW OF DEEDS § 850a.  This principle is what Texas courts call "Merger. " See Baker v. Baker, 207 S.W.2d 244 (Tex.Civ.App. —San Antonio 1947, writ ref'd n.r.e.).

The Rule applicable in all contracts, that prior stipulations are merged in the final and formal contract executed by the parties, applies, of course, to a deed based 49upon a contract to convey. When a deed  is delivered and accepted as performance of a contract to convey, the contract is merged in the deed . Though the terms of the deed may vary from those contained in the contract, still the deed  must be looked to alone to determine the rights of the parties. No rule of law is better settled than that where a deed  has been executed and accepted as performance of an executory contract to convey real estate, the contract is functus officio and the rights of the parties rest thereafter solely in the deed .

Id. at 249-50, quoting 2 DEVLIN, LAW OF DEEDS § 850a.

Thus, when a Buyer accepts a deed as performance of an earnest money contract requiring the Seller to convey legal title top real property, it is the general rule that any collateral agreements contained in the contract are extinguished.  

This Rule, as most in the law, has exceptions.  For example, the Texas Supreme Court has held that the doctrine of merger may not be applied to defeat a cause of action under the DTPA for breach of an express warranty made in an earnest money contract and breached by deed.  See Alvarado v. Bolton, 749 S.W.2d 47, 48 (Tex.1988).  Likewise,  the doctrine of merger does not apply when a real estate contract was procured by fraud, accident or mistake in transactions leading up to the deed. ECC Parkway Joint Venture v. Baldwin, 765 S.W.2d 504, 511-12 (Tex.App.-Dallas 1989, writ denied);see also 1464-Eight, Ltd. v. Joppich, 154 S.W.3d 101, 104 n. 1 (Tex.2004) (disapproving court of appeals cursory analysis that based on merger doctrine earnest money contract was superseded by documents executed at closing).