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Unconscionability, Waiver, Limitation Of Liability: Part III

Q—What is the ‘discharge’ defense?

Another sticky area of contract defenses is the area of discharge, on account of plaintiff’s repudiation of the contract or plaintiff’s own material breach of the contract.  If plaintiff repudiates a dependent promise or materially breaches the contract itself, then the defendant will allege that it has been discharged from performing the contract, due to plaintiff’s repudiation of the contract.  Long Trusts v. Griffen 222 SW3d 412 (Tex. 2006).

Stated another way, a party that does not perform its own obligations cannot enforce the remaining terms of the contract against the defendant.  Interestingly, of course, from defendant’s point of view, if the plaintiff repudiates the contract, or if plaintiff materially breaches the contract, this will also support defendants own breach of contract claim against the plaintiff, through a counter-claim by the defendant against the plaintiff.

Q—What about the ‘venue’ for breach of contract lawsuits?


Although venue, in Texas collection actions, is a long and involved area of the law, for this discussion, it also can be a defense for a defendant.  If a breach of contract lawsuit is brought in the wrong county, a defendant may defend such contract obligation and seek a transfer, if the contract provides specifically that the obligation was to be performed in a certain county or a definite place Tx. Civ.  Prac. & Rem. Code sec 15.035(a)

For instance, in Justice of the Peace cases, a lawsuit based upon an oral contract for labor actually performed may only be brought in the county and precinct, where the labor was performed. KW Construction v. Stephens 165 SW3d 874 (Texarkana 2005).  In suits brought against a defendant based upon a written contract involving a consumer transaction for goods, services, loans, or extensions of credit, which is intended for personal, family or household or agricultural use, such collection suit must be filed either in the county where the defendant signed the contract or the county where the defendant resided when the suit was commenced. 

Trying to restrict or change venue, and enforce against the defendant, can backfire because there are several Texas Supreme Court cases that say that generally any agreement in a contract in which the parties try to restrict mandatory venue, is void as being against public policy.  This is not true in large transactions, however, and choice of venue provisions are completely enforceable in what is called “major transaction”, which is defined as a commercial transaction involving at least $1,000,000.00 in controversy.

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Unconscionability, Waiver, Limitation Of Liability: Part I

Q–‘Unconscionability’ sounds like fraud; what is it?

Texas Collection attorneys will sometimes see the defense called ‘unconscionability’. Generally either in collection or factoring litigation, a contract can be deemed unconscionable if it is unfair because of the overall or gross one-sidedness of the contract terms. 

There are two main issues associated with unconscionability, being first, how the parties arrived at the contract terms, and whether there is some legitimate commercial reason justifying the terms of the contract.  The discussion about how the parties arrived at the contract terms addresses the “procedural aspect” of unconscionability, whereas the discussion about the “legitimate commercial reasons”, is a substantive aspect. 

A defendant will bear the burden of proving either a procedural aspect or substantive aspect of unconscionability, and of course this defense  must be pleaded under Rule 194.

Q—where does ‘fairness’ come into play?

Regarding whether there is a legitimate commercial reason justifying the contract terms, this focuses mainly on the fairness of the contract.  If it is utterly lopsided or there is no reasonable parity between the values exchanged, it will appear to be substantively unconscionable. 

As to procedural unconscionability, the court is looking at the parties assent and all the facts surrounding the bargaining process.  If the court senses oppression or unfairness, this taints the negotiation process in the contract negotiation. 

There are other factors which court will look at in Dallas factoring contract decisions, such as the presence of deception, or some unethical business practice.  Also, if one party appears to have absolutely no bargaining power, or ability to change the contract, and this would be a factor present in ‘adhesion contracts’, which is actually a standard contract usually used for consumer transactions and looks like a ‘take it or leave it’ sort of contract, in which the consumer has no real bargaining rights and is obtaining goods or services only by acquiescing to the contract terms.   

Special Exceptions in Texas – “How Much Information Am I Obligated To Put In My Petition?

Today’s Blog in the area of Texas Collections and specifically Dallas Commercial Collections, is in the area of “Special Exceptions”.  This is a Texas statutory creation in which one party can inform the opposing party of defects in its pleadings so it can cure them by amendment, if possible.  By filing Special Exceptions, the opposing party identifies pleading defects that should be remedied before a substantive response is required.  Unless the pleading is challenged by Special Exceptions, the defects are waived.  The applicable Texas rules are Tex. R. Civ. Pro. 90 and 91.

There are two types of pleading defects that may be subject of Special Exceptions:  defects in form and defects in substance.  An example of a defect in form would be that a Plaintiff in its petition did not verify its petition when necessary.  If a Plaintiff did not plead the applicable discovery level in the original petition, Defendant may file Special Exceptions requiring Plaintiff to do so.

Q.  How much information am I obligated to put in my Petition?

On the other hand, there are defects in substance.  These are the usual subject of Special Exceptions. The general rule in Texas is that courts follow the “fair notice” standard for pleading, which looks at whether the opposing party can ascertain from the face of the pleading, the nature and basic issues of the controversy, and what testimony will be relevant.  Therefore, if a Plaintiff pleads a cause of action only in general terms, a Defendant may file Special Exceptions to require Plaintiff to plead more specifically.  Rule 45 does not require Plaintiff to describe the evidence in detail in Plaintiff’s petition.  The court’s option at that point, upon filing a Special Exception, that the petition is too general is to order Plaintiff to amend its petition to allege facts more specifically, or requiring Defendant to obtain the additional facts through discovery. See Horizon v. Auld 34 SW3d 887 (Tex. 2000)
If there are inadequate allegations in the petition, if Plaintiff does not plead all elements of the cause of action, Defendant may specially except  asking the Plaintiff to plead the specific element more specifically.  A Special Exception must, of course, specifically identify which element is missing.  This is a pleading defect, which is subject to a Special Exception, and subsequent amendment.  See Trevino v. Ortega 969 SW2d 950 (Tex. 1998).

If Plaintiff’s  suit is not permitted by law, that is, there is no viable cause of action, Defendant may file Special Exceptions and a Motion to Dismiss.  Also, if a jurisdictional defect is a pleading defect that could be cured by an amendment, it should then be challenged by filing a Special Exceptions, not by the filing of a plea to the jurisdiction or by filing of the Motion for Summary Judgment.

Under applicable Texas law and, as usually the case in Texas collection matter, a Plaintiff may plead for unliquidated damages under Rule 47, by stating that the damages sought are within the jurisdictional limits of the court.  In that case, a Defendant may Specially Except, therefore, requiring Plaintiff to state the maximum amount of damages.  When a Plaintiff pleads that the damages are “at least” a certain amount, that is the same as pleading unliquidated damages, and unless Defendant specially excepts, Plaintiff can recover more than its “at least” pleadings.

All Special Exceptions must be in writing.  There are several cases where counsel specially excepted orally, but the courts found that that did not comply with the rules.  When drafting Special Exceptions, a Defendant is required to identify the particular part of the pleading that is being challenged, and specifically point out the particular defect or omission, obscurity, duplicity, generality, or other insufficiency, under Rule 91.  The Defendant should identify the defective paragraph by number, state to the court why it is defective and explain how it can be corrected.  Previously, a Defendant could generally allege that the petition allegations were vague and indefinite and do not state a cause of action, but this does not identify the defect and is not sufficient.  It is not necessary that Special Exceptions be verified.  The party who is challenging the pleadings via Special Exceptions is required to secure a hearing on the exceptions or they are waived. See Muecke v. Hallstead  (San Antonio 2000). Also Spillman v. Simkins (San Antonio 1988).
The general rule is that Special Exceptions should be filed with the answer or shortly thereafter, and by Plaintiff shortly after Defendant files the answer.  The following are examples of

Special Exceptions which are not valid objections to pleadings.

1.    “The pleadings do not set out enough factual details”.
2.    “The pleadings do not state a cause of action”.
3.    “The pleadings do not allege all elements necessary to support a cause of action”.
4.    “Plaintiff’s pleadings allege matters that are immaterial, prejudicial, and inflammatory”.
5.    “Plaintiff did not attach a copy of the contract to its petition”.
6.    “The damage allegations do not specify the dollar amount for each element of special damages”.

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*The foregoing is not intended to provide specific legal advice, but instead only as a generalized discussion

Sam Emerick, Collections Attorney

Sam Emerick has over 35 years
experience in Commercial Collections Law,
Factoring Litigation and Wills, Trusts & Probate