author: MOORE, Justice.

text:
    Edward D. COBB et al., Appellants, v. Downing A. THOMAS et al., Appellees.
    No. 1046.
    Court of Civil Appeals of Texas, Tyler.
    March 23, 1978.
    Rehearing Denied May 18, 1978.

      Jay S. Fichtner, Berman, Fichtner & Mitchell, Douglas E. Yeager, Dallas, for appellants.
    William H. Avery, Charles P. Storey, Sto-rey, Armstrong, Steger & Martin, Bert Bader, Bader, Wilson, Menaker, Cox & Branson, Dallas, for appellees.
   MOORE, Justice.

This is a damage suit instituted by a homeowner against an architect and a building contractor. Appellants, Edward D. Cobb and wife, Myrajo Cobb, brought suit against appellees, Downing A. Thomas, individually and d/b/a Thomas, Booziotis & Associates, and George Sebastian, whom they employed in the capacity of an architect and a general contractor, respectively, to construct a home for them in Dallas, Texas. As grounds for a cause of action appellants alleged breach of contract, breach of fiduciary duties and negligence on the part of Thomas and Sebastian in failing to keep the construction cost of the house below the alleged agreed limit of $500,000 and in failing to complete the same by September 1970. Appellants further sought a recovery on the ground of fraud, alleging that they were fraudulently induced to enter into both the architect’s contract and construction contract because of the false representations of Thomas that the house could be constructed by September 1970 at a total cost of $400,000, excluding architect’s fees, landscaping and furnishing estimated at $100,000. Appellants also sought a recovery against Thomas for the amount of architect’s fees paid him. Thomas and Sebastian answered, denying generally the allegations of the petition and specially denying the making of any agreement with the appellants as to the maximum cost of construction or the completion date of the house.

The cause was submitted to the jury on thirty-two special issues. The jury found, in effect, that appellants failed to discharge their burden of proof on practically all of the special issues submitted in their behalf. The jury further found in favor of Thomas and Sebastian on all defensive issues submitted in their behalf. After appellants’ motion for judgment non obstante veredicto had been overruled, the trial court entered a take-nothing judgment against appellants. After their motion for a new trial had been overruled, appellants perfected this appeal.

We affirm.

Before discussing appellants’ points of error, a statement of the factual background will be necessary. In August 1968, appellants were on a year’s vacation in Spain. While there, Mrs. Cobb contacted appellee, Downing Thomas, by letter, advising him that they were planning to build a new home in Dallas. The record shows that, several years prior to this time, appellants had employed Thomas and Sebastian to do an extensive remodeling job on a home which they owned in Dallas. Having been satisfied with their work on the previous job, appellants were anxious to retain them to do the work on their proposed new home. In a lengthy letter Mrs. Cobb described, in detail, the type of house she wanted. She detailed the type of construction of both the exterior and interior; the design of the floor plan, both up and downstairs; the number of rooms, including closets and built-in cabinets; the location of the swimming pool; the type of material desired, as well as many other details. She stated in the letter: “You will design it, George Sebastian will build it, Clarence Holbrook will do the pool, Dick Heiderich will landscape it, and it will be all ready for us on August 1, 1969, when we get back. O.K.?” Mrs. Cobb further stated in her letter to Thomas that she wanted the house to be dramatic: “This could be your masterpiece . I know it will be the best house in Dallas.” She mentioned nothing with regard to the cost of construction. In conclusion she advised Thomas that they were waiting to see what he could come up with. Shortly thereafter, Thomas commenced making floor plans and sketches of the house and mailed them to appellants in Spain. In November of 1968 appellants decided to stay an extra year in Spain and Mrs. Cobb wrote Thomas that the house would not be needed until September 1970. Thereafter, in December 1968, appellants came to Dallas and met with Thomas. Mrs. Cobb testified that up until that time the cost of construction had not been discussed and that she had only told him that she did not want a house as large as the house he had remodeled for them previously.

On December 6, 1968, appellants signed a contract with Thomas to produce the designs, plans and specifications for the construction of the house and to supervise construction. The contract was on an American Institute of Architects’ printed form and provided that he was to be compensated on an hourly rate charge. The agreement contained nothing with regard to the maximum cost of construction, nor is there anything in the agreement to indicate that Thomas promised completion of the house by September 1970. Section 3.4 of the written agreement provides as follows:

“Statements of probable construction cost and detailed cost estimates prepared by the architect represent his best judgment as a design professional familiar with the construction industry. It is recognized, however, that neither the architect nor the owner has any control over the cost of labor, materials or equipment, over the contractors’ method of determining bid prices, or over competitive bidding or market conditions. Accordingly, the architect cannot and does not guarantee that bids will not vary from any statement of probable construction cost or other cost estimate prepared by him.”

The agreement further provided that it could be amended only by written instrument signed by both the owner and the architect. On February 16,1969, appellants again returned to Dallas, at which time they met with Thomas and Sebastian to discuss construction. By that time Thomas had designed a three-story house and had submitted the plans to Sebastian for an estimate of the cost. Sebastian advised appellants that the total cost of the house would be $558,808, including $100,000 for architect’s fees, etc. Appellants concluded that the price was too high and stated that they did not desire to spend over $500,000, including $100,000 for the architect’s fees, etc. Thomas was instructed to get new cost estimates. Appellants went back to Spain and on August 2 Thomas called them and told them it would not be possible to cut the cost. He stated that they could start construction under the present plans for $600,-000, or by eliminating some items could start at that time for $555,000, or by eliminating the third floor and reducing one wing they could start in about a month or six weeks with a total cost of $525,000. Appellants advised that their budget was $500,000 and invited him to come to Spain at their expense to discuss cutting the size of the house. While in Spain he agreed that the house would be redesigned and cut down in size. Thomas revised the plans and, after further correspondence, called the appellants in September 1969 advising that under the revised plans “We can do it for $400,000” excluding architect’s fees, etc., and quoted the exact figure which he had obtained from Sebastian in the amount of $396,619, excluding the $100,000 for architect’s fees, etc. This same figure was subsequently confirmed by Sebastian by letter to appellants on October 6, 1969. After thinking it over, appellants called back and told him to go ahead. Construction was commenced in October 1969.

On March 13, 1970, appellants executed a construction contract with Sebastian and also executed a mechanic’s lien note for the sum of $400,000, secured by a deed of trust. Under the terms of the contract, Sebastian was to receive as compensation for his services a contractor’s fee of an amount equal to 10% of the final cost of the work. The written agreement did not mention anything with regard to the cost of construction or anything with regard to a maximum cost of construction. Although appellants requested Sebastian to make a bid on the house on a fixed cost basis, he refused to do so. When he refused, appellants executed the above mentioned “cost-plus” contract in which he was granted eighteen months from the date thereof to complete the structure.

When appellants returned to Dallas in August 1970, the house was nowhere ready for occupancy, and it was obvious that it could not be completed by September 1970. At this particular time, appellants suffered some unexpected financial problems and, as a result, they ordered construction slowed and then ordered it stopped completely in September 1970, except for some sub-contract work. Prior to stopping the work appellants were advised that even without the stoppage the construction cost would exceed $400,000, and that by stopping construction the cost would escalate even more due to the fact that many of the subcontracts would have to be renegotiated later at higher prices due to inflation. Several months later, around May 1, 1971, appellants ordered that construction be recommenced, even though they knew then that the cost would exceed $400,000, exclusive of architect’s fees, etc. Thereafter they continued to pay appellees the monthly construction cost estimates without complaint. Appellants moved in the house, still incomplete, in December 1971, after having expended approximately $660,000.

Appellants contend in their first point of error that the trial court erred in refusing to grant their motion for judgment non obstante veredicto for the sum of $81,803.57 for architect’s fees paid Thomas. They contend that since the jury found that Thomas (1) underestimated the cost of the structure and (2) failed to prepare designs, drawings and specifications before construction commenced for a residence with a maximum cost of $500,000 and (3) failed to advise appellants that the project could not be completed by September 1970, Thomas breached his contractual duty and therefore they were entitled to judgment as a matter of law, despite the fact that the jury found that Thomas was not negligent. We find no merit in this contention.

The evidence shows that Thomas prepared a set of plans which were accepted by appellants, but because the costs were found to be too high Thomas was directed to revise the plans in order to come within appellants’ budget of $500,000. He prepared a second set of plans which they accepted. Appellants admit that they were satisfied with his work. They now seek to recover back the fees paid him on the ground that he breached his contract in underestimating the cost and in failing to draw plans and specifications for a residence at a cost not to exceed $500,000, despite the fact that the contract made no mention of any specific cost.

In contracting for his services, an architect implies that he possesses skill and ability, and that he will exercise and apply his skill and ability reasonably and without neglect. The skill and diligence which he is bound to exercise are such as are ordinarily required of architects, and his duty depends on the particular agreement entered into • with his employer. 5 Am.Jur.2d Architects sec. 8.

A party who proposes to build, may in his contract of employment with an architect state an amount as to the limit of cost of the building and provide that reasonable conformity to such cost shall be a condition for payment for services rendered by the architect; or, such agreement may result from a stipulation that the cost of the building proposed by the architect will not exceed a definite maximum. Where such a positive cost limitation is stipulated in an architect’s contract, a substantial violation thereof will preclude a recovery of architect’s fees. 5 Am.Jur.2d Architects sec. 17; Bueche v. Eickenroht, 220 S.W.2d 911 (Tex.Civ.App.—San Antonio 1949, no writ); Moore v. Bolton, 480 S.W.2d 805 (Tex.Civ.App.—Houston [14th Dist.] 1972, writ ref’d n. r. e.). Such rule, however, is not applicable to the situation presented here because, in the present case, there is no expressed cost limitation in the parties’ agreement or contract. In this case, the architect merely agreed to do the architectural work according to the expressed wishes of the owner at an hourly compensation rate. Where the contract, as here, requires the preparation of plans and specifications for the construction of a building according to the express wishes of the owner as to the details of construction without mentioning a cost limitation, the mere nonconformity in the actual cost of construction with the amount so estimated by the architect does not amount to a breach of duty on the part of the architect and therefore forms no basis for a suit to recover the fees paid him. Bueche v. Eickenroht, supra. Under such circumstances the architect is entitled to compensation even though the cost exceeds the hopes and expectations of the owner. It follows that appellants’ claim for a recovery of the architects’ fees paid Thomas is without foundation.

We turn now to the contention that Thomas breached a duty in failing to advise appellants, before construction commenced, that the house could not be completed by September 1970. Although there is no evidence that Thomas was ever called on to estimate the completion date, appellants take the position he knew or should have known the house could not be completed by September 1970, and, as their architect, he had a duty to disclose such fact to them. We are not in accord with this proposition.

We recognize the rule that an architect is duty bound to make disclosure of all matters of which he has knowledge, which it is desirable or important that his principal learn. 5 Am.Jur.2d Architects sec. 7.

We find nothing in the record showing that Thomas had any knowledge that the house could not be completed by September 1970. Not being the builder and having no control over the time factor involved, he could not reasonably be expected to know that the structure could not be completed within the time hoped for by appellants. To say he knew or should have known that the building could not be completed by that date and failed to disclose such fact to appellants would be to indulge in rank speculation. In the absence of such knowledge, Thomas would not be duty bound to make such disclosure, and therefore the alleged cause of action in this regard is without foundation. Appellants’ first point is overruled.

Under the second point appellants urge that the court erred in overruling their motion for judgment n. o. v. because the evidence conclusively establishes that appel-lee, Thomas, was negligent as a matter of law in underestimating the probable cost of construction. We find no merit in this point.

The jury found that Thomas underestimated the probable construction cost, but found that such conduct did not amount to negligence. Although the jury found that Thomas underestimated the cost, there is no finding as to the extent of his underestimation. The evidence fails to show whether the underestimation was substantial or merely trivial. Apparently, the jury concluded that the amount of the underestimation was merely trivial and therefore did not show a lack of due care.

Contrary to appellants’ contention, the fact that appellants eventually expended the sum of $660,000 on the building does not show, as a matter of law, that Thomas underestimated the cost by $160,000. This evidence only goes to show that appellants themselves were responsible for a substantial part of the added cost as a result of letting a contract on a cost-plus basis, adding extras and causing the construction to be suspended for a period of six months. In the absence of any evidence and any jury finding showing what the actual cost of construction would have been had appellants not let the contract on a cost-plus basis, added expensive extras and stopped construction, there is no basis for holding that Thomas was negligent as a matter of law.

Where the circumstances are such that reasonable minds may logically draw either an inference of actionable negligence or its absence, the issue of negligence is one of fact for the determination of the jury. 40 Tex.Jur.2d Rev., Part 2, Negligence sec. 153. Appellants’ second point is accordingly overruled.

By the fifth point appellants complain of the action of the trial court in refusing to submit their requested Special Issues Nos. 13, 14 and 15, inquiring as to whether, before construction commenced, there was an agreement between appellants and Thomas that the maximum cost of construction would not exceed $500,000; whether Thomas breached the agreement; and, if so, the amount of damages suffered by appellants.

We find no merit in this point because, as pointed out before, there is no evidence that Thomas contracted or promised appellants that the cost of construction would not exceed $500,000. His only promise in this regard was to give them the “probable” cost of construction. He fulfilled his contract in this regard when he gave them the figure of $500,000. Even assuming, arguendo, that Thomas did contract that the maximum cost of construction would not exceed $500,000, the only evidence as to the cause of the excess cost points to appellants as the ones responsible for the additional cost by having added expensive extras and having suspended construction. Thus, there is no evidence to raise the issue of a breach of duty on the part of Thomas in this regard, and therefore the trial court did not err in refusing to submit the issues requested by appellants. The fifth point is overruled.

Appellants complain by their sixth point of the action of the trial court in refusing to submit their requested Issues Nos. 10, 11 and 12. These issues inquired as to whether the contractor, George Sebastian, agreed to construct the house, pool and concrete work for a maximum sum not to exceed $400,000; whether he breached his agreement; and, if so, the amount of damages sustained by appellants. We find no merit in the point.

After a careful review of the record, we have been unable to find any evidence whatever showing that appellee, Sebastian, agreed to construct the house for a maximum sum not to exceed $400,000 as contended by appellants. The evidence shows that appellants requested Sebastian to make a bid on the house on a fixed cost basis. Because the house was unique and difficult to build, Sebastian refused to make a bid on a fixed cost basis, telling appellants that if he were wrong on the estimate it would break him but would not hurt them. Mr. Cobb admitted in his testimony that Sebastian refused to enter into a contract for a fixed amount. He further testified that, after he refused, he entered into a written contract with Sebastian on a “cost-plus” basis with an agreed maximum of $400,000. The written contract, prepared by appellants’ attorney, reads in part as follows:

“. . . Owners agree and obligate themselves to reimburse Builder for all' costs of the work . . . and as compensation for his services, a contractor’s fee of an amount equal to ten (10%) per cent of the final cost of the work . . .”

There is no provision in the contract providing for a cost limitation or maximum cost at which the house was to be constructed. Presumably the contract was a final expression of the parties’ negotiations. Thus, even if appellants orally negotiated with Sebastian on a “cost-plus” contract with a maximum of $400,000, when they adopted the written contract as the final and complete expression of their agreement the result is integration and the terms of the written contract control. Baylor University v. Carlander, 316 S.W.2d 277 (Tex.Civ.App.—Dallas 1958, writ ref’d n. r. e.). Consequently, there is nothing in the record to raise the issue of whether Sebastian agreed to construct the house, pool and concrete work for a maximum sum not to exceed $400,000. Therefore, the trial court properly refused to submit appellants’ requested issues in this regard. Rule 277, Tex.R.Civ.P. The sixth point is overruled.

In their seventeenth point appellants contend the trial court erred in denying their motion for judgment n. o. v. because the evidence conclusively establishes that appel-lee, Thomas, failed to timely prepare project designs and specifications for the residential project, contrary to the jury’s finding on Special Issue No. 13(b).

We fail to find any discussion relating to this contention in appellants’ brief. The point is therefore waived. City of Wichita Falls v. Harris, 532 S.W.2d 653 (Tex.Civ.App.—Fort Worth 1975, writ ref’d n. r. e.).

In their seventh and eighth points appellants contend that the court erred in permitting the jury to view certain slide photographs of the subject property because such photographs were never offered in evidence. Appellants also bring forward a point contending that the photographs were inflammatory and prejudicial.

Insofar as we have been able to find, no objection was made to the photographs pri- or to the time they were exhibited to the jury, nor have we been able to find where appellants objected to the photographs on the ground that they were inflammatory and prejudicial.

It is hardly necessary to say that objections to the admissibility of evidence not taken below cannot be first heard in this court as grounds for reversing the judgment. Hill v, Baylor, 23 Tex. 261 (1859); Hinsley v. Continental Trailways Bus System, 302 S.W.2d 668, 669 (Tex.Civ.App.—Galveston 1957, no writ history). The seventh and eighth points are overruled.

By the ninth point, appellants complain of the court’s ruling allowing counsel for the appellees to read to the jury portions of the deposition testimony of appellant, Edward D. Cobb, on the grounds that the deposition had not been signed or filed among the papers of the case and the portions read were not used for impeachment purposes. We find no merit in these contentions.

The record shows that at the trial appellant, Cobb, took the position that he contracted with both Thomas and Sebastian on a cost-plus basis with a guaranteed maximum as to the cost of construction. On cross examination, counsel for Thomas and Sebastian undertook to read certain questions propounded to Cobb in his deposition and then asked Cobb to read the answers he gave in the deposition. He was asked to read his previous deposition testimony showing that he had testified that neither Thomas nor Sebastian had agreed to any type of cost limitation or maximum price of construction. The portions read were clearly used for impeachment purposes to show prior inconsistent statements. It was not until after counsel for appellees attempted to offer certain portions of the deposition in evidence that counsel for appellant objected on the ground that the deposition had not been signed or filed. At that point the court promptly sustained the objection and announced that the deposition, as such, would not be admitted into evidence. During the course of cross examination, upon request of counsel for appellant, the court instructed the jury that the deposition, as such, had not been offered in evidence and was not to be considered as evidence.

There is no doubt that the form of the inconsistent statement used for impeachment purposes is immaterial. McCormick & Ray, Texas Evidence sec. 696. It therefore follows that it is immaterial that the deposition in question from which portions were read to impeach the witness was neither signed nor filed. See Kamp-mann v. Cross, 194 S.W. 437, 441 (Tex.Civ. App.—San Antonio 1917, writ ref’d).

Contrary to appellants’ contention, the record clearly shows that the testimony of Edward D. Cobb given at the trial was inconsistent with the testimony which he had previously given in his deposition. He admitted that the prior inconsistent statements made in the deposition three years before trial constituted his testimony at that time. Consequently, we believe the deposition testimony was admissible for the limited purpose of showing prior inconsistent statements even though the same had not been signed or filed. It therefore follows that the trial court did not err in allowing counsel for the appellees to read portions of appellant Cobb’s deposition to the jury. Accordingly, the ninth point is overruled.

Because we hold that portions of the deposition of appellant Cobb were properly read before the jury for impeachment purposes, appellants’ tenth and eleventh points of error complaining of the reading of the deposition on the ground that no part of the deposition was offered into evidence are hereby overruled.

Under the thirteenth point appellants contend that the court erred in denying their motion for judgment n. 'o. v. because the evidence conclusively establishes, as a matter of law, that Thomas falsely represented to them that the total cost of construction would not exceed $500,000, contrary to the finding made by the jury in response to Special Issue No. 1.

An architect who makes an intentional misrepresentation as to the cost of the construction of a building according to his plans or who, in order to secure such contract, states positively that the cost of a structure desired will not exceed a specified sum, when he knows that such is not the fact, cannot recover for his services. 5 Am. Jur.2d Architects sec. .17.

Although the record shows that appellee, Thomas, represented to appellants that the house could be built for $500,000, in order to establish liability for fraud appellants had the burden of further showing that the representation was false, that they relied upon such representation and that they suffered damages as a result of the representation. Morgan v. Box, 449 S.W.2d 499 (Tex.Civ.App.—Dallas 1969, no writ history); Banks v. Merritt, 537 S.W.2d 494 (Tex.Civ.App.—Tyler 1976, no writ history).

As we view the record, there is no evidence showing that the statement made by Thomas that the house could be constructed for $500,000, including architect’s fees, etc., was false at the time it was made. There is no evidence and no finding that the structure as designed could not have been built for $500,000, as represented by Thomas. The fact that the appellants finally expended the sum of $660,000 does not constitute evidence that the representation was false at the time it was made. The $660,000 figure represents a cost which was brought about by appellants’ letting a cost-plus contract, adding expensive extras and stopping the work for six months. Consequently, appellants failed to show that the alleged representation was in fact false at the time it was made. Appellants therefore failed to establish fraud as a matter of law. The thirteenth point is overruled;

In view of our holding that appellants failed to establish a cause of action in fraud, appellants’ twelfth point complaining of the manner of the submission of Special Issue No. 1 is rendered immaterial and is therefore overruled.

Under points fourteen, fifteen, sixteen, eighteen, nineteen, twenty and thirty-three, appellants attack the judgment and the jury’s findings on certain issues submitted in their behalf on the ground that such findings are against the overwhelming weight and preponderance of the evidence. We have examined the record in light of these points and, after weighing and balancing all of the evidence, have concluded that none of the points are well taken and they are therefore overruled.

As we view the record, appellants failed to establish a cause of action on any of the controlling issues submitted in their behalf. Therefore, we do not reach appellants’ remaining points complaining of the jury’s answers to the defensive issues submitted.

The judgment of the trial court is affirmed.

      . In response to the following numbered issues the jury (1) refused to find that Thomas represented, as a fact, that the total cost of the house, including all fees, construction, landscaping and furnishings was $500,000; (7) found that Thomas underestimated the probable construction cost but (8) failed to find such conduct was negligence; (10) found Sebastian underestimated the probable construction cost but (11) such was not negligence; (13) found Thomas failed before construction work commenced (A) to prepare project designs, project working drawings and project specifications for a residence with a total cost of not more than $500,000 and (C) to advise the appellants that the residence could not be completed by September 1970, but (14) that such failures did not constitute negligence; (16) found Sebastian failed, before construction commenced, to advise appellants that the building, pool and concrete work could not be completed for a maximum amount of $400,000 but (17) that such failure did not constitute negligence.

      . In response to the following numbered issues the jury found that (19) appellants’ statements reasonably led Thomas to conclude that design and artistic factors were of more importance to appellants than completing the house within the original cost estimate; (20) Thomas designed the house substantially in accordance with details specified by appellants; (21) appellants failed to exercise reasonable care to control costs in the following respects: (A) in selecting material, finishes, hardware and equipment; (B) in failing to enter into a written contract for a total specified amount; (C) in executing a “cost plus” contract; (D) in causing the job to be slowed and shut down when they returned from Europe; and (E) in failing to make a contract for a fixed specified price on recommencement of construction in May 1971; (22) their failure to exercise reasonable care to control the costs was a proximate cause of appellants’ financial loss; (23) appellants voluntarily paid Thomas for all architectural services with full knowledge of the facts and not as a result of fraud or duress by Thomas; (24) appellants, up to the time they moved in the house, paid, without protest, all architectural charges, but (25) such payment without protest did not constitute a waiver of their claim that Thomas failed to comply with the contract; (26) the statements and actions of the appellants caused or led Thomas to believe that they were satisfied with his services; (27) but for such belief Thomas would not have continued to render his services; (28) Sebastian was authorized by Thomas to perform construction work in excess of $400,000; (29) the amount appellants paid in excess of $400,000 to Sebastian was paid without protest; (30) when construction work was recommenced in April 1971 appellants knew construction costs would exceed $400,000; (31) the damages proximately caused appellants by Thomas as a result of negligence was “none”; and (32) the damages proximately caused appellants by Sebastian as a result of negligence was “none.”


source: Caselaw Access Project

author: HALL, Justice.

license: Public Domain

text:
    Esther WOO, Appellant, v. GREAT SOUTHWESTERN ACCEPTANCE CORPORATION et al., Appellees.
    No. 5745.
    Court of Civil Appeals of Texas, Waco.
    March 30, 1978.
    Rehearing Denied April 27, 1978.

      Danny C. Wash and David L. Hodges, Wash & Hodges, Waco, for appellant.
    Vance Dunnam and Jim Meyer, Dunnam, Dunnam & Dunnam, Waco, for appellees.
    John L. Hill, Atty. Gen., Marleen Debra Lowenthal, Asst. Atty. Gen., Austin, for amicus curiae.
   HALL, Justice.

The parties to this appeal are appellant Esther Woo, who was cross-plaintiff in the trial court, and appellees Success Motivation Institute, Inc. (hereinafter SMI) and Great Southwestern Acceptance Corporation (GSAC), cross-defendants on the trial. The uncontradicted proof shows that GSAC is the wholly-owned subsidiary and alter-ego of SMI.

SMI sells distributorships for the marketing of certain motivational products prepared by it. In 1970, and by amendment in 1973, SMI entered into a consent decree and order with the Federal Trade Commission which directed SMI to cease and desist from the following actions in connection with the sale of its distributorships:

“(1) Representing, directly or by implication, that
(a) No special ability or aptitude is required to become a successful franchisee or distributor of respondent’s products; misrepresenting, in any manner, the experience, background, aptitudes or abilities required to become a successful franchisee or distributor of respondent’s products.
(b) Franchisees or distributors will encounter no difficulty in selling respondent’s products; misrepresenting, in any manner, the degree of effort required to sell respondent’s products.
(c) Respondent’s franchisees or distributors are uniformly successful and all enjoy substantial income; misrepresenting, in any manner, the degree of success or amount of income realized by respondent’s franchisees or distributors.
“(2) Using any deceptive scheme, device or plan to obtain leads to prospective franchisees or distributors or to induce persons to become franchisees or distributors.
“(3)
(a) Failing to determine in good faith, prior to having a prospective franchisee or distributor enter into an agreement to become a franchisee or distributor of respondent’s products, through the evaluation of the personal history of the prospect and the administration of bona fide personality evaluation tests and within the error tolerances reasonably expected in the use of such predictive instruments, whether the prospect possesses the aptitude and abilities necessary to successfully sell respondent’s products and to recruit other persons to sell respondent’s products.
(b) Failing to inform prospective franchisees or distributors of the results of such evaluation and testing reasonably in advance of the execution of the agreement to become a franchisee or distributor.
“(4) Failing to furnish to prospective franchisees or distributors reasonably prior to such persons agreeing to become franchisees or distributors, a written tabulation or statistical summary showing, on an accumulative and comparative basis for each fiscal year, beginning with the fiscal year 1966, for each of the corporate respondent’s operating divisions the following information:
(a) The median and mean gross sales to respondent’s franchisees or distributors exclusive of initial inventories sold to new franchisees or distributors during the fiscal year.
(b) The number of franchisees or distributors at the beginning of the fiscal year, the number appointed during the year, the number terminated during the year, the number retained at the end of the year, and the length of time that those retained at the end of the year have been respondent’s franchisees or distributors.
(c) The foregoing information shall be tabulated as a running 4-year analysis so that prospective franchisees or distributors will be furnished such information for the 4 fiscal years immediately preceding the year in which the information is to be furnished, provided that, the information for the fiscal year most recently completed prior to the year in which the information is to be furnished will be made available within 45 days of the close of that fiscal year.
“(5) Failing to deliver a copy of this order to cease and desist to all present and future salesmen or other persons engaged in the advertising and sale of franchises or distributorships to sell respondent’s products, and failing to secure from each salesman or other person a signed statement acknowledging receipt of said order.”

In October, 1974, by written contract, appellant Woo purchased a distributorship from SMI. The contract listed the cash price as $10,950.00. It listed the time price as $11,927.17 which included a time price differential of $977.17, and a cash down payment of $6,000.00. Woo made the cash down payment, and executed a promissory note in favor of SMI for the balance of $5,927.17. The note called for 29 monthly payments. It permitted acceleration at the holder’s option in the event of default, allowed 10% interest after maturity on any unpaid balance, and provided for 15% attorneys’ fees. Woo also executed a security agreement on the distributorship and the materials furnished her to secure payment of the note.

SMI assigned the note and security agreement to GSAC. After paying $1,385.00 on the note, Woo defaulted. GSAC accelerated the note and initiated this suit against Woo in February, 1976, for the balance on the note of $4,542.17, for 10% per annum on the balance from February 1, 1976, and for 15% attorneys’ fees.

Woo answered GSAC’s suit, then im-pleaded SMI and set up an action against GSAC and SMI for damages. By way of answer to GSAC’s suit on the note and in support of her action for damages, Woo alleged that GSAC is the alter-ego of SMI; that in connection with the sale of the distributorship to her SMI committed detailed deceptive trade practices and unconscionable conduct violating every requirement of the consent order between SMI and the Federal Trade Commission. She sought treble damages for the violations under subsections (a)(1), (3), and (b)(1) of § 17.50 of the Deceptive Trade Practices — Consumer Protection Act, V.T.C.A., Bus. & C. § 17.41 et seq. She also sought alternate remedies we need not detail.

The pertinent parts of the Deceptive Trade Practices — Consumer Protection Act, supra, provide as follows:

§ 17.43. Cumulative Remedies. The provisions of this subchapter are not exclusive. The remedies provided in this subchapter are in addition to any other procedures or remedies provided for in any other law. .
§ 17.44. Construction and Application. This subchapter shall be liberally construed and applied to promote its underlying purposes, which are to protect consumers against false, misleading, and deceptive business practices, unconscionable actions, and breaches of warranty and to provide efficient and economical procedures to secure such protection.
§ 17.46. Deceptive Trade Practices Unlawful.
(a) False, misleading, or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.
§ 17.49. Exemptions.
(b) . . . The provisions of this subchapter do apply to any act or practice prohibited . . . by a rule or regulation of the Federal Trade Commission. § 17.50. Relief for Consumers.
(a) A consumer may maintain an action if he has been adversely affected by any of the following:
(1) the use or employment by any person of [a false, misleading, or deceptive acts or practices in the conduct of any trade or commerce] declared to be unlawful by Section 17.46 of this subchap-ter;
(3) any unconscionable action or course of action by any person .
(b) In a suit filed under this section, each consumer who prevails may obtain:
(1) three times the amount of actual damages plus court costs and attorneys’ fees reasonable in relation to the amount of work expended.

At the beginning of the trial, the parties stipulated that the balance due and owing on the note was $4,542.17, and that if GSAC recovered judgment against Woo on the note then the judgment should also provide for interest at 10% from February 1, 1976, on the note balance, plus 15% attorneys’ fees.

The case was tried to a jury. In connection with the special issues submitted, the court gave the following instructions to the jury:

“The term ‘false, misleading or deceptive acts or practices’ means an act or series of acts the overall impression of which has a capacity or tendency to deceive an average or ordinary person, even though that person may have been ignorant, unthinking, or credulous.”
“By the term ‘acts or practices in the conduct of any trade or commerce’ means the performing, carrying on or doing of some action or deed in the advertising, offering for sale, sale, lease or distribution of any work, labor, service, or property, either real, personal or otherwise.”
“By the term ‘unconscionable conduct’ is meant conduct that is harsh and shocking to the conscience.”

Answering special issues numbered as follows, the jury

Pound (1) that SMI represented to Woo that no special ability or aptitude was required to become a successful distributor or SMI’s products; (2) that the representation was a false, misleading or deceptive act or practice in the conduct of a trade or commerce; and (4) that the representation was a proximate cause of damages to Woo; but (3) failed to find that the representation was an unconscionable action or course of action.

Found (5) that SMI misrepresented to Woo the experience, background, aptitudes or abilities required to become a successful distributor of SMI’s products; (6) that the misrepresentation was a false, misleading or deceptive trade, act, or practice in the conduct of a trade or commerce; and (8) that the misrepresentation was a proximate cause of damage to Woo; but (7) failed to find that the misrepresentation was an unconscionable action or course of action.

Found (9) that SMI represented to Woo that distributors will encounter no difficulty in selling SMI’s products; (10) that the representation was a false, misleading or deceptive act or practice in conduct of a trade or commerce; and (12) that the representation was a proximate cause of damage to Woo; but (11) failed to find that the representation was an unconscionable action or course of action.

Found (13) that SMI misrepresented to Woo the degree of effort required to sell-SMI’s products; (14) that the misrepresentation was a false, misleading or deceptive act or practice in the conduct of a trade or commerce; and (16) that the misrepresentation was a proximate cause of damage to Woo; but (15) failed to find that the misrepresentation was an unconscionable action or course of action.

Found (17) that SMI misrepresented to Woo that SMI’s distributors are uniformly successful and all enjoy a substantial income; (18) that the misrepresentation was a false, misleading or deceptive act or practice in the conduct of a trade or commerce; and (20) that the misrepresentation was a proximate cause of damage to Woo; but (19) failed to find that the misrepresentation was an unconscionable action or course of action.

Found (28) that SMI failed to determine in good faith, through the evaluation of the personal history of Woo and the administration of bona fide personality evaluation tests and within the error tolerances reasonably expected in the use of such predictive instruments, whether Woo possessed the aptitude and abilities necessary to successfully sell SMI’s products and to recruit other persons to sell the products; (28-A) that the failure was a false, misleading or deceptive act or practice in the conduct of a trade or commerce; (28-B) that the failure was an unconscionable action or course of action; and (29) that the failure was a proximate cause of damage to Woo.

Found (30) that SMI failed to inform Woo of the results of the evaluation and testing (inquired about in special issue nuim ber 28) prior to her purchase of the distributorship; and (30) that the failure was a false, misleading or deceptive act or practice in the conduct of a trade or commerce; but (32) failed to find that the failure was an unconscionable action or course of action, and (33) failed to find that the failure was a proximate cause of damage to Woo.

Found (34) that SMI failed to furnish to Woo the following information for a sufficient length of time and in such manner as to give her a reasonable opportunity to comprehend the information: A written tabulation or statistical survey showing on an accumulative and comparative basis for each fiscal year for the four fiscal years immediately preceding the year in which the information is to be furnished, for each of the operating divisions of SMI, (a) the median and mean gross sales to SMI’s distributors exclusive of initial inventory sold to new distributors during the fiscal year, and (b) the number of distributors at the beginning of the fiscal year, the number appointed during the year, the number terminated during the year, and the length of time that those retained at the end of the year had been SMI distributors; found (35) that the failure to furnish the information was a false, misleading or deceptive act or practice in the conduct of a trade or commerce; and found (37) that the failure was a proximate cause of damage to Woo; but (36) failed to find that the failure was an unconscionable action or course of action.

Found (42) that the acts found to have been committed by SMI in the answers to special issues 1, 5, 9, 13, 17, 28, 30 or 34 were a proximate cause of Woo executing the $5,927.17 promissory note.

Found (42-A) that the following sums of money would reasonably compensate Woo for damages found by the jury to have proximately resulted from the acts found to have been committed by SMI in the answers to special issues 1, 5, 9, 13, 17, 28, 30 or 34:

a. Purchase price of the distributorship: $10,950.00.
b. Amount of interest contracted for on the promissory note: $1,000.00.
c. Necessary expenses involved in setting up and operating the distributorship: $2,875.00.

Found (44) that $3,000.00 was a reasonable fee for the services of Woo’s attorney.

Found (45) that SMI’s representation to Woo that no special ability or aptitude was required to become a successful distributor of SMI’s products (found by the jury in answer to special issue number one) was false; (46) that Woo did not know the representation was false; (47) that the representation was made with the intent and design of inducing Woo to purchase the distributorship; and (48) that Woo relied upon the representation, believing it to be true, and was thereby induced to purchase the distributorship; and (49) failed to find that Woo would have purchased the distributorship if the representation had not been made.

Found (50) that SMI’s representation to Woo that distributors will encounter no difficulty in selling SMI’s products (found by the jury in answer to special issue number nine) was false; (51) that Woo did not know the representation was false; (52) that the representation was made with the intent and design of inducing Woo to purchase the distributorship; and (53) that Woo relied upon the representation, believing it to be true, and was thereby induced to purchase the distributorship; and (54) failed to find that Woo would have purchased the distributorship if the representation had not been made.

Found (55) that SMI’s representation to Woo concerning the degree of effort required to sell SMI’s products (found by the jury in answer to special issue number thirteen) was false; (56) that Woo did not know the representation was false; (57) that the representation was made with the intent and design of inducing Woo to purchase the distributorship; and (58) that Woo relied upon the representation, believing it to be true, and was thereby induced to purchase the distributorship; and (59) failed to. find that Woo would have purchased the distributorship if the representation had not been made.

Found (60) that Woo should be awarded $30,000.00 as exemplary damages against SMI. In connection with this issue the jury was given the following instruction:

“ ‘Exemplary damages’ means an amount which you may in your discretion award as an example to others and as a penalty or by way of punishment in addition to any amount which may have been found by you as actual damages.”

Reciting the parties’ stipulations relating to the note, GSAC moved for judgment non obstante veredicto against Woo for the unpaid balance on the note in the amount of $4,542.17, plus interest and attorneys’ fees, and for foreclosure on its security agreement. Additionally, GSAC and SMI jointly moved for judgment non obstante veredicto that Woo take nothing against them, asserting (1) that special issue number 42-Á is no finding of any damage or any measure of damage and also is not supported by any evidence; (2) that special issue number 42 can form no basis for the recovery of damages and is therefore immaterial; (3) that Woo waived any right to recover exemplary damages by failing to request or obtain a finding that any representations or statements were willfully made by SMI or that it knew the representations or statements were false; (4) that the measure of damage for fraud or misrepresentation is the difference in the price paid and the actual value of that which was bought at the time it was purchased, and that by failing to offer evidence of the value of the distributorship at the sale in question Woo waived her right to recover any actual damages; (5) and that by failing to request or obtain jury findings of any legal measure of damage, Woo waived her right to recover actual and exemplary damages and attorneys’ fees. The motions were overruled.

Special issue 42-A was conditionally submitted upon an affirmative answer by the jury to any one of special issues numbered 1, 5, 9, 13, 17, 28, 30 or 34. GSAC and SMI moved the court to disregard the answer to subsection (a) of special issue 42-A upon the following grounds:

1. It is an immaterial finding for the reason that it is merely a finding of the purchase price of the distributorship and is not a finding of any damage or measure of damage which might have been sustained by Woo.
2. Woo waived any right to recover the difference between the price paid for the distributorship and its actual value by failing to submit an issue on actual value at the time of purchase over movants’ objection to the charge for failure to submit this element of Woo’s damage, which was overruled, and the answer in question is therefore immaterial.
3. It is an immaterial finding because there was no evidence adduced showing the actual market value of the distributorship at the time of sale.
4.It is both immaterial and without support in the evidence because the special issue upon which it is based was submitted disjunctively dependent upon a finding or findings of various representations by SMI, some of the findings of representations were not supported by any evidence, and it is impossible to determine which of said findings the answer in question was based upon.

The motion was granted.

GSAC and SMI moved the court to disregard the answer to subsection (b) of special issue 42-A upon the following grounds:

1. It is not supported by any evidence.
2. It is not a finding of a legal measure of damages or element thereof and is therefore immaterial.
3. It is both immaterial and without support in the evidence because the special issue upon which it is based was submitted disjunctively dependent upon a finding or findings of various representations by SMI, some of the findings of representations were not supported by any evidence, and it is impossible to determine which of said findings the answer in question was based upon.

The motion was granted.

GSAC and SMI moved the court to disregard the answer to subsection (c) of special issue 42-A upon the following grounds:

1. It is not supported by any evidence. Particularly, there is no evidence that any expenses incurred by Woo in setting up and operating the distributorship were reasonable in amount or that they were necessary.
2. The answer is immaterial because no issue was submitted to the jury inquiring as to what loss was sustained by Woo by reason of her necessary expenses in setting up and operating the distributorship, although movants objected to the charge for the failure to submit this element, and the objection was overruled.
3. The answer is immaterial because it does not find any expenses actually incurred by Woo, but is merely a finding of expenses involved in setting up and operating the distributorship.
4. The answer is immaterial because it is not a finding of any damage or any measure of damage but is merely a finding of some expenses.
5. It is both immaterial and without support in the evidence because the special issue upon which it is based was submitted disjunctively dependent upon a finding or findings of various representations by SMI, some of the findings of representations were not supported by any evidence, and it is impossible to determine which of said findings the answer in question was based upon.

The motion was granted.

GSAC and SMI moved the court to disregard the answer to special issue 44 on the ground that it, too, was submitted in the disjunctive. The motion was overruled.

GSAC and SMI moved the court to disregard the answer to special issue 60 upon the following grounds:

1. It is not supported by any evidence.
2. The answer is immaterial because issues were not submitted to the jury inquiring whether representations made by SMI were known by it to be false or were willfully made, although movants objected to the charge for the failure to submit this element and the objection was overruled.
3. The answer is immaterial because there was no submission to the jury nor finding by the jury of causal connection between representations by SMI and the exemplary damages finding in question.
4. The answer is immaterial because the issue upon which it is based does not specify the acts by SMI for which exemplary damages should be awarded, although movants objected to the issue on this ground and the objection was overruled.

The motion was granted.

Woo moved for judgment on the verdict which she asserted entitled her to a recovery against SMI for trebled actual damages allegedly totaling $44,400.00, exemplary damages of $30,000.00, and attorneys’ fees of $3,000.00. Alternatively, Woo asserted that she was at least entitled to recover as actual damages the total paid by her on the contract which was shown by uncontradict-ed proof. The motion was overruled.

Disregarding the jury’s answers to special issues 42-A and 60, the court rendered judgment on the remainder of the verdict awarding Woo a recovery of $3,000.00 against GSAC and SMI, jointly, and decreed that GSAC take nothing against Woo. This appeal was perfected from that order.

The main problem posed by the parties, and we believe the controlling question in the case, is the rule by which Woo’s damages were to be measured under the Deceptive Trade Practices Act.

The terms “adversely affected” and “actual damages” used in § 17.50(a) and § 17.50(b)(1) are not defined in the Act. GSAC and SMI assert that the measure of Woo’s damages was the difference between the price she paid for the distributorship and its value at the time she bought it; that without a finding of the market value of the distributorship at the time of sale to her she failed to prove damage; and that the finding of the sale price of the distributorship was accordingly properly disregarded. In turn, Woo argues that under the Act she was entitled to recover her actual pecuniary loss. She expressly pleaded for recovery of the consideration paid plus expenses she incurred in attempting to set up and operate the distributorship.

In the various jurisdictions, three rules of damages have been formulated in common law actions for fraud and deceit: the “loss of bargain” rule, the “out of pocket rule” and the “equitable” or “flexible rule” that tailors damages in a proper case to reach the fair and equitable result of properly compensating the defrauded party and avoiding injustice. See, Annotation, 13 A.L.R.3rd 875, §§ 3, 4, 6.

The case of Success Motivation Institute, Inc. v. Lawlis, 503 S.W.2d 864 (Tex.Civ.App. —Houston [1st Dist.] 1973, writ ref’d n.r.e.) was a common law fraud action factually similar to our case which was brought prior to the effective date of the Deceptive Trade Practices Act. In that case the court said [at 503 S.W.2d 867]:

“The general common law rule as to the measure of damages recoverable by a defrauded purchaser of property is the difference between the value of that which he has parted with, and the value of that which he has received under the agreement. However where there is pleading of pecuniary loss, which the evidence shows to be directly traceable to the wrongful act complained of and to be the proximate result thereof, such loss can be recovered.”

The Act in question clearly resulted from the Legislature’s recognition of the inadequacies of traditional common law remedies in certain deceptive trade practices. In § 17.43 it is stated that the remedies provided in the Act “are in addition to any other procedures or remedies provided for in any other law”; and § 17.44 provides that the Act shall be “liberally construed and applied to promote its underlying purposes” of protecting consumers against the false, misleading, and deceptive business practices it condemns.

We believe the Act was intended to permit the adversely affected plaintiff to recover the greatest amount of “actual damages” he has alleged and established by proof was factually caused by the defendant’s conduct. This rule serves the dual purpose of the Act of encouraging consumers to litigate their grievances and of deterring unlawful conduct. See, Woods v. Lit-tleton, 554 S.W.2d 662, 670-671 (Tex.Sup. 1977). In our case it permits Woo a recovery of the consideration paid by her for the distributorship as her actual damages.

The undisputed proof in the case before us shows that Woo purchased the distributorship for $10,950.00. This price included the franchise, and packets of merchandise worth $300.00 each wholesale. Woo made a cash down payment of $6,000.00, and executed the promissory note in question for the balance of the purchase price. She made payments totaling $1,385.00 on the note. During several months of attempting to operate the distributorship she succeeded in selling only two of the packets. She sold them at their retail price of $600.00 each, thereby making a profit of $600.00.

The jury findings set forth above establish that the execution by Woo of the distributorship purchase agreement and the attendant note resulted from the fraud and deceptive practices of SMI. For this reason, the court properly set aside the note and denied GSAC recovery on it. However, the court should have awarded Woo the recovery of the purchase price paid by her totaling $7,385.00 less $1,200.00 representing the value of the packets sold by her and the profit she made on the sales. Under the Deceptive Trade Practices Act, Woo is entitled to have the difference trebled for her total damages of $18,555.00. Under the Act, she was aiso entitled to the $3,000.00 attorneys’ fees, and the court properly allowed this recovery.

Inasmuch as the court set aside the note, it properly disregarded the jury’s answer to special issue 42-A(b).

Woo testified that while she was attempting to operate the distributorship she opened three offices, employed sales-managers and salesmen, and incurred expenses totaling $3,475.00. The jury’s answer of $2,875.00 to special issue 42-A(c) represents its finding on this testimony, less the $600.00 profit made by Woo on the sales. There is no evidence that the expenses were reasonable or necessary. It was incumbent upon Woo to make this proof, and without it the finding was properly disregarded on motion by GSAC and SMI. 17 Tex.Jur.2d 290, Damages, § 230.

Finally, Woo asserts the court erroneously disregarded the jury’s answer to special issue 60 finding $30,000.00 exemplary damages. It is the general rule, applicable here, that to support an award of punitive damages the act complained of must partake of a wanton and malicious nature and that it is not sufficient that the act be merely unlawful or wrongful. Ware v. Paxton, 359 S.W.2d 897, 899 (Tex.Sup.1962). In fraud cases, however, it is also the general rule that exemplary damages may be awarded “when the plaintiff has suffered actual damage as the result of fraud intentionally committed for the purpose of injuring him” which our Supreme Court classes as “wilful and deliberate fraud.” Dennis v. Dial Finance & Thrift Company, 401 S.W.2d 803, 805 (Tex.Sup.1966). There are no findings that SMI’s actions were willful or malicious or intentionally committed for the purpose of injuring Woo, and those.facts are not conclusively established by the proof. Therefore, the motion to disregard the jury’s finding on exemplary damages was properly granted.

The remaining points and contentions of the parties are overruled.

The trial court’s judgment is reformed to provide that Woo shall recover $18,555.00 from SMI and GASC, jointly, in addition to the $3,000.00 attorneys’ fees allowed by the court. As reformed, the judgment is affirmed.


author: COLEMAN, Chief Justice.

text:
    Gabriel A. FAZEKAS, Appellant, v. The UNIVERSITY OF HOUSTON et al., Appellees.
    No. 17072.
    Court of Civil Appeals of Texas, Houston (1st Dist.).
    March 30, 1978.
    Rehearing Denied April 27, 1978.

      Sears & Burns, Will Sears, Robert L. Burns, Michael T. Powell, Houston, for appellant.
    John L. Hill, Atty. Gen. of Texas, David M. Kendall, First Asst. Atty. Gen., Robert Steve Bickerstaff, Jr., Lonny F. Zwiener, Asst. Attys. Gen., Austin, for appellees.
   COLEMAN, Chief Justice.

This suit was instituted by Gabriel A. Fazekas for the purpose of recovering salary and retirement benefits denied him by reason of the adoption by the University of Houston of a regulation requiring retirement at age 65. The case was tried to the court and at the conclusion of the evidence, the court sustained special exceptions which he had carried with the case and on the plaintiff’s refusal to amend, entered a judgment dismissing the case and, alternatively, rendered a take nothing judgment against the plaintiff.

The plaintiff asserted causes of action for breach of contract; denial of due process and equal protection under the Fourteenth Amendment to the United States Constitution; impairment of the rights and obligations of plaintiff’s contract under Article I, Section 10 of the United States Constitution; deprivation of civil rights pursuant to 42 U.S.C., Section 1983; and denial of rights and privileges guaranteed by the Bill of Rights of the Texas Constitution.

The defendant first excepted to the plaintiff’s petition for the reason that the court lacked jurisdiction to hear the alleged cause of action because the action was one against the State and it was not alleged that plaintiff had received legislative permission to institute the suit.

The court erred in sustaining this special exception. Section 111.33 of the Texas Education Code grants legislative consent to sue the University of Houston. This section provides that the Board of Regents has the power to sue and be sued in the name of the University of Houston. Section 111.33 was derived from Section 3 of the Acts of 1961, 57th Legislature, Ch. 370, p. 811, which included the specific language “Legislative consent to such suits is herewith granted.” The quoted language was not carried forward into the Code in express terms. Provisions for institutions of higher education were not included in the original Education Code, but they were added by the 62nd Legislature. Acts 1971, 62nd Leg., Ch. 1024, p. 3072. In addition to restating the statutes governing institutions of higher education, this legislation provides: “Paragraph Sec. 2. LEGISLATIVE INTENT. This is intended as a recodification only and no substantive changes are intended by this legislation.”

The language “no substantive changes are intended by this legislation” carries forward the language “legislative consent to such suits is hereby granted” into the Code.

The other special exceptions present the question whether as a matter of law the plaintiff’s petition states an enforceable claim, and is analogous to the old general demurrer. The pleading attacked must be liberally construed, as a whole, in such a way as to do substantial justice. For the purpose of ruling upon the exceptions, the court must accept as true all material factual propositions alleged, whether they be evidentiary or in the form of factual conclusions, as well as all factual propositions which, by fair implication, reasonably can be inferred from the allegations. Allegations of fact will not be considered true where in conflict with other allegations which negative them, or with facts which the parties stipulate may be considered in ruling on the exceptions, or with facts which are settled by conclusive presumptions arising from the facts admitted, or with facts of which the court takes judicial notice. 1 McDonald, Texas Civil Practice (1970), Vol. 3, Section 10.14.2. Certain material allegations of the plaintiff’s petition will be summarized.

Plaintiff entered into a contract of employment with the University of Houston by the terms of which he was to serve in the position of Professor of Mechanical Engineering. The employment contract incorporated all provisions of the 1959-1960 Faculty and Staff Handbook of University of Houston then in force. The agreement expressly incorporated those provisions relating to faculty tenure and termination procedures, pursuant to which plaintiff was to serve a minimum two year probationary period in the agreed position at the University and would then be eligible for tenure (i. e., continuous appointment). After tenured status was achieved, plaintiff was assured of continuous employment until retirement at age 70. Termination of the employment of a professor with tenure, except by resignation or retirement for age in accordance with the regulations in force on the contract date, could be only for good cause shown.

The petition further alleges that plaintiff was granted tenure effective September 1, 1967. The 1967 Faculty and Staff Manual of the University of Houston then in force contained essentially the same provision with regard to termination of a tenured professor as the 1959-1960 Handbook. The retirement policies then applicable and incorporated by the parties agreement provided:

“All University employees shall retire at age 70 unless they are invited by the Board to continue in service. The retirement of any employee may be requested by him or by the University between the ages of 60 and 70. Tenure policies herein stated are subject to this regulation.”

On November 7, 1972, the Board of Regents of the University revised the contractual retirement policy applicable to plaintiff by lowering the retirement age of all University personnel to 65, effective with the beginning of the regular academic year for 1975-1976. Plaintiff was notified in writing on May 18, 1976, that the Board of Regents had approved his appointment as Professor of Mechanical Engineering for the 1976-77 academic year. The writing specified that this appointment is a “one year extension beyond normal retirement age and is non-renewable”. As a result, plaintiff was required to retire at age 66 rather than continuing in employment to age 70.

The defendants excepted to the petition for the reason that every contract entered into by the State of Texas is subject to the implied condition that its fulfillment may be frustrated by the proper exercise of state police power. The defendants further excepted to plaintiff’s petition for the reason that no breach of contract was shown since the action of the Board of Regents in lowering the age for retirement of all University employees to 65 years was authorized by the contract provision reading “the retirement of any employee may be requested by him or by the University between the ages of 60 and 70. Tenure policies herein stated are subject to this regulation.” The exception states that the action of the Board of Regents in lowering the age for retirement constituted a request by the Board to all employees, including plaintiff, to retire at the age 65.

The exceptions were improperly sustained. Evidence was needed to show that the contract in question was frustrated “by the proper exercise of state police power”. The proposition urged is merely a defense to the claimed breach of contract.

The provision of the contract empowering the University to request retirement between the ages of 60 and 70 does not necessarily authorize it to require retirement before the age of 70. This provision should be construed in light of the circumstances existing at the time of the execution of the contract. The trial court is not authorized to resolve disputed issues of fact and then to use the fact established as the basis for a ruling on an exception to the petition. Issues of fact were presented by the alleged deprivation of constitutional rights. The trial court erred in sustaining the special exceptions and in entering judgment dismissing the petition.

The ruling on the exceptions was made at the conclusion of the trial and a full record is before this court. There can be but one final judgment in this case. The judgment dismissing the case is not conditional. The alternative judgment is not effective as a judgment. Touchy v. Houston Legal Foundation, 432 S.W.2d 690 (Tex. 1968). The judgment entered by the court is erroneous and must be reversed. Rule 434, T.R.C.P., requires this court to render such judgment as the trial court should have rendered. The parties have briefed points attacking the judgment on the merits. We will proceed to consider the case on the points raised in appellant’s brief. Zeisler v. Zeisler, 553 S.W.2d 927 (Tex.Civ.App.—Dallas 1977, writ dism’d).

The University of Houston is an institution of higher learning created and supported by the State of Texas Chapter 111, Texas Education Code; The Appropriations Act, Acts 1977, 65th Legis., Ch. 872, Art. IV, page 3064. The concept of “tenure” is not statutorily addressed and the University is free to adopt or reject a tenure policy. When the plaintiff was employed by the University as a faculty member in 1964, the pertinent faculty and staff handbook (1959— 60 edition) contained a tenure provision which provided:

“Termination of the employment of a professor or an associate professor with tenure, except by resignation or retirement for age in accordance with the regulations, should be only for a good cause shown. (Note: Regulations provide that all University employees shall retire at age 70 unless invited by the Board to continue in service, and that retirement of any employee may be requested by him or by the University between the ages of 60 and 70. Tenure policies herein outlined are subject to this regulation.) In each case of termination for cause other than resignation or retirement the issue will be determined by an equitable procedure affording protection to the rights of the individual and to the interest of the University.”

Appellant was granted tenure effective September 1, 1967, at which time the 1967 Faculty and Staff Manual was in force and provided with respect to tenure:

“After the expiration of a probationary period, faculty members are awarded tenure by the President and their service will be terminated only for an adequate cause, except in the case of retirement for age, or for circumstances due to financial exigencies.”

The 1967 Manual further provided:

“All University employees shall retire at age 70 unless they are invited by the Board to continue in service. The retirement of any employee may be requested by him or by the University between the ages of 60 and 70. Tenure policies herein stated are subject to this regulation.”

The 1972 Faculty and Staff Manual included the following provisions:

“Tenured faculty members will be terminated only for adequate cause, except in the case of retirement for age, or for circumstances due to financial exigencies.”
“Effective September 1,1975, all faculty members shall retire at age 65 unless they are invited by the Board of Regents to continue in service. Invitations for continuation of a faculty member normally originate annually within the department or departments in which the faculty member holds an appointment. _ _ _
The retirement of University personnel may be requested by the individual prior to age 65.”

Throughout appellant’s service with the University, he accepted and signed, at the beginning of each academic year, appointment forms which set out the amount of compensation and noted the appointment was:

“Subject to all rules and regulations of the University of Houston and all applicable statutes of the State of Texas.”

The law establishing the University of Houston has been codified in Chapter 111 of the Texas Education Code. It provides that the organization and control of the university are vested in a board of nine regents. The board of regents is authorized to appoint and remove any faculty member or other officer or employee of the university when, in its judgment, the interest of the university requires it. All contracts of the university must be approved by a majority of the board. The board is specifically authorized to enact bylaws, rules, and regulations necessary for the successful management and government of the university.

Since the Board of Regents of the University of Houston is authorized by statute to enact bylaws, rules and regulations necessary to the government of the University, its rules are of the same force as would be a like enactment of the legislature. The powers of all state officers are fixed by law, and all persons dealing with them are charged with notice of the limits of their authority and are bound at their peril to ascertain whether the contemplated contract is within the power conferred. State v. Ragland Clinic-Hospital, 138 Tex. 393, 159 S.W.2d 105 (1942); Foley v. Benedict, 122 Tex. 193, 55 S.W.2d 805, 86 A.L.R. 477 (1932).

There can be no question but that properly authorized officers of the State of Texas can enter into a contract for services to be performed for the state. Such a contract is protected by Section 16, Article I, of the Constitution of the State of Texas which provides that no “law impairing the obligation of contracts, shall be made” and also by Section 10, Article I of the Constitution of the United States. Johnson v. Smith, 112 Tex. 222, 246 S.W. 1013 (1922); Farmers’ Life Insurance Company v. Welters, 10 S.W.2d 698 (Tex.Com.App.1928).

The “Bill of Rights” of the Texas Constitution is embodied in Article I thereof. Section 29 of that Article reads:

“To guard against transgressions of the high powers herein delegated, we declare that everything in the “Bill of Rights” is excepted out of the general powers of government, and shall forever remain inviolate, and all laws contrary thereto, or to the following provisions, shall be void.”

Section 16 of Article I of the Texas Constitution provides that no law impairing the obligation of a contract shall be made.

The police power of this State is broad and comprehensive; but the Constitution forbids its exercise when the result would be the destruction of the rights, guarantees, privileges, and restraints excepted from the powers of government by the Bill of Rights. Travelers Insurance Company v. Marshall, 124 Tex. 45, 76 S.W.2d 1007 (1934).

The statutory provisions pertaining to plaintiff’s employment with the University of Houston are necessarily a part of his contract of employment and are read into his contract as fully as though they had been actually incorporated in it. Devon v. City of San Antonio, 443 S.W.2d 598 (Tex.Civ.App.—Waco 1969, writ ref’d). For reasons to be discussed hereinafter, the provision of the rules and regulations regarding tenure is not dispositive of this case. The real question is whether or not the regulation adopted by the Board requiring retirement at the age 70 becomes a part of the contract between the University of Houston and the plaintiff and thereby insulates the plaintiff from the effect of a subsequently adopted regulation requiring retirement at an earlier age.

The Act creating the University of Houston specifically granted the Board of Regents rule-making power. The authority to make rules implies a power to modify or change rules. The provision requiring retirement at age 70 does not constitute a contractual limitation on the power of the Board of Regents to determine that an earlier retirement age is in the best interest of the University. The Faculty Handbook specifically provides that after faculty members are awarded tenure by the president their service will be terminated only for adequate cause except in the case of retirement for age. The provision in the rules that a faculty member “shall be” retired at age 70 is a limitation on the contractual rights granted to the Professor rather than a limitation on the power of the Board of Regents. The legislative power granted the Board of Regents by the Act creating the University of Houston cannot be bartered away.

In Dodge v. Board of Education, 302 U.S. 74, 58 S.Ct. 98, 82 L.Ed. 57 (1937), the court said:

“In determining whether a law tenders a contract to a citizen, it is of first importance to examine the language of the statute. If it provides for the execution of a written contract on behalf of the state, the case for an obligation binding upon the state is clear. Equally clear is the case where a statute confirms a settlement of disputed rights and defines its terms. On the other hand, an act merely fixing salaries of officers creates no contract in their favor, and the compensation named may be altered at the will of the Legislature. This is true also of an act fixing the term or tenure of a public officer or an employee of a state agency. The presumption is that such a law is not intended to create private contractual or vested rights, but merely declares a policy to be pursued until the Legislature shall ordain otherwise. He who asserts the creation of a contract with the state in such a case has the burden of overcoming the presumption. — ”

In City of Dallas v. Trammel, 129 Tex. 150, 101 S.W.2d 1009 (1937), the court said:

“In our opinion, the rule that the right of a pensioner to receive monthly payments from the pension fund after retirement from service, or after his right to participate in the fund has accrued, is predicated upon the anticipated continuance of existing laws, and is subordinate to the right of the Legislature to abolish the pension system, or diminish the accrued benefits of pensioners thereunder, is undoubtedly the sound rule to be adopted.”

In Phelp v. State Board of Education, 115 N.J.L. 310, 180 A. 220 (Sup.Ct.N.J.1935), affirmed sub-nominee Askam v. Board of Education, 116 N.J.L. 416, 184 A. 737 (Ct. Err. & App.N.J., 1936), the Supreme Court said:

“The Act of 1909, relating to tenure, provides, among other things, that no teacher shall be dismissed or subject to reduction of salary except for certain causes after charges and a trial. That established a legislative status for teachers, but we fail to see that it established a contractual one that the Legislature may not modify. . . . The status of tenure teachers, while in one sense perhaps contractual, is in essence dependent on a statute, like that of the incumbent of a statutory office, which the Legislature at will may abolish, or whose emoluments it may change. _ -

An interesting statement appears in the case of Martin v. Smith, 239 Wis. 314, 1 N.W.2d 163 (1941), where the Supreme Court was considering the question of whether the presidency of the university is a public office and, in connection therewith, was considering a statute governing the University of Wisconsin. The Wisconsin statute provided that the board of regents shall enact laws for the government of the university. The statute also specifically provided that the board should have the power to remove the president or any professor, instructor or officer of the university when, in-the judgment of the board, the interest of the university require it. After commenting upon this statutory power of the board, the court said:

“ — The President serves only so long as in the judgment of the Board of Regents the interest of the University do not require his removal. There is vested in the Board by this clause of the statute a power of removal that is absolute. It need not be for cause and when the President accepts an election to the presidency, he accepts it subject to the statutory authority of the Board.”

In Houghton v. School Committee of Somerville, 306 Mass. 542, 28 N.E.2d 1001 (at Middlesex, 1940), the court considered the effect of a rule adopted by the school committee denying employment to married women teachers on the rights of such a teacher who was employed in the public schools of Somerville on “tenure at the discretion of the school committee”. The court said:

“The rule is not unconstitutional as impairing the obligation of the petitioner’s contract of employment. Her employment ‘at discretion’ was always subject to policy-making powers of the committee, to such rules as they might adopt in pursuance of those powers, and to the power of dismissal expressly set forth in the governing statute itself. - -

A similar principle was recognized in State v. Lone Star Gas Company, 86 S.W.2d 484 (Tex.Civ.App.—Austin 1935, writ ref’d), where the court said:

“The right of the state to regulate the rates and practices of a public utility is referable to the police power of the state, and is a legislative function which cannot be alienated or contracted away by the state or any agency or political subdivision of the state. The constitution and laws of a state are a part and parcel of the terms of a corporate franchise, and the right of the state in the exercise of its police power to change franchise or contract rates in the protection of the inalienable rights and general welfare of its citizens is settled. — ”

Professor Fazekas accepted his appointment to the faculty of the University of Houston and thereby entered into the contract with the University of Houston, which was subordinate to the rules and regulations adopted by the Board of Regents to govern the affairs of that institution. Arlington Independent School District v. Weekley, 313 S.W.2d 929 (Tex.Civ.App.—Fort Worth 1958, writ ref’d n. r. e.); Romeike v. Houston Independent School District, 368 S.W.2d 895 (Tex.Civ.App.—Waco 1963, no writ history).

The Act establishing the University of Houston provided that the authority to enter into contracts on behalf of the University rested in the Board of Regents. On June 5,1965, Professor Fazekas signed an instrument reading:

“The Board of Regents has approved the following:
Subject to all rules and regulations of the University of Houston and all applicable statutes of the State of Texas Gabriel Fazekas is appointed (or reaffirmed) as Professor of Mechanical Engineering at a salary of $1575.00 per month for nine months.
Upon acceptance noted hereon, this arrangement becomes effective for the academic year 1965-66.
Immediately upon acceptance, please route a signed copy of this form through (1) the appropriate departmental chairman, (2) Dean or Director, to (3) the personnel services office. Signed: Philip G. Hoffman, President. Accepted: Gabriel A. S. Fazekas ”

Each year thereafter Professor Fazekas executed an instrument identical in terms with the exception of the salary. The words “subject to”, used in their ordinary sense, mean “subordinate to”, “subservient to” or “limited by”. There is nothing in the use of the words “subject to”, in their ordinary use, which would even hint at the creation of affirmative rights. Kokernot v. Caldwell, 231 S.W.2d 528, 531 (Tex.Civ.App.—Dallas 1950, writ ref’d).

By executing these instruments, Professor Fazekas acknowledged that his contractual rights were subordinate to the rules and regulations issued by the Board of Regents.

The minutes of the regular meeting of the Board of Regents for November 7, 1972, recite:

“The Ad Hoc Committee for revisions to the faculty and staff handbook has recommended that the present retirement policy be revised. Upon the endorsement of the faculty senate, and after due consideration by the administration, the President recommended the approval of the proposed revision in the retirement policy. This change lowers retirement age of all University personnel to 65 instead of 70, with exceptions being made by invitation of the Board of Regents.”

The minutes reflect that the revised retirement policy was unanimously adopted by the Board of Regents. The new policy became effective September 1, 1975. Professor Fazekas’ appointment as a professor was reaffirmed for one year following the effective date of the new retirement policy. He was then required to retire, and his tenure was terminated by reason of retirement. This action did not violate either the state or the federal constitutional provision against the impairment of contractual rights.

The plaintiff also asserts that the defendant denied plaintiff equal protection of the law by arbitrarily creating an unreasonable classification of employees with the sole purpose and effect of unequal treatment on the basis of age. The Supreme Court of Texas spoke to this question in Texas Woman’s University v. Chayklin-taste, 530 S.W.2d 927 (Tex.1975), where the court stated:

“The age classification is constitutionally permissible if it is reasonable, not arbitrary, and rests ‘upon some ground of difference having a fair and substantial relation to the object of the legislation, so that all persons similarly circumstanced shall be treated alike.’ Reed v. Reed, 404 U.S. 71, 76, 92 S.Ct. 251, 254, 30 L.Ed.2d 225 (1971). When no suspect catagories are involved, any rational basis may justify the classification. Johnson v. Robinson, 415 U.S. 361, 94 S.Ct. 1160, 39 L.Ed.2d 389 (1974); McGinnis v. Royster, 410 U.S. 263, 93 S.Ct. 1055,35 L.Ed.2d 282 (1973).”

A retirement policy adopted by an independent school district requiring retirement at age 62 was upheld by the Court of Civil Appeals in King v. Board of Trustees, 555 S.W.2d 925 (Tex.Civ.App.—El Paso 1977, no writ history). The court relied upon the Massachusetts Board of Retirement v. Murgia, 427 U.S. 307, 96 S.Ct. 2562, 49 L.Ed.2d 520 (1976), where the court considered a statute providing for mandatory retirement of uniform police officers at age 50. There the United States Supreme Court held that the statute did not deny equal protection in violation of the Fourteenth Amendment of the United States Constitution. It further held that the strict scrutiny approach of the legislative classification was not required since the legislative classification interfered with neither fundamental rights nor did it create a “suspect classification”. The court pointed out that it had consistently applied a standard less than that of strict scrutiny to state legislation restricting the availability of employment opportunities.

The purpose for changing the retirement age was to secure for the University a “younger, more vigorous faculty.” The appellant with admirable frankness has stated the current status of the law in these words:

“The current equal protection test followed by both federal and Texas courts has two standards of analysis, strict scrutiny and mere rationality. If state action invades a ‘fundamental right’ or discriminates against a ‘suspected’ class, it is subject to strict scrutiny. If state action is subject to strict scrutiny, it always, or nearly always is struck down. All remaining legislation is measured by the mere rationality test where the challenged activity is always upheld.”

Retirement at age 65 is rationally related to the objective, “a younger, more vigorous faculty.” The Supreme Court of this State adheres to the rationality test. We find the age classification to be reasonable and not arbitrary and, therefore, constitutionally permissible. Johnson v. Lefkowitz, 566 F.2d 866 (2nd Cir. 1977) cf., Gault v. Garrison, 569 F.2d 993 (7th Cir. 1977).

The judgment of the trial court is reversed and judgment is rendered that the plaintiff take nothing by his suit.