Opinion ID: 2808162
Heading Depth: 2
Heading Rank: 1

Heading: Existence of a Contract as it Relates to Fraud

Text: In light of Aypco’s fraud election and the sufficiency of the evidence to support the jury’s 6 Compare Horizon/CMS Healthcare Corp. v. Auld, 985 S.W .2d 216, 230 (Tex. App.— Fort Worth 1999), rev’d in part on other grounds, 34 S.W .3d 887 (Tex. 2000) (statutory exemplary damages cap is an affirmative defense that must be pleaded); Shoreline, Inc. v. Hisel, 115 S.W .3d 21, 25 (Tex. App.— Corpus Christi 2003, pet. denied) (same); Wackenhut Corr. Corp. v. De La Rosa, 305 S.W .3d 594, 651 (Tex. App.— Corpus Christi 2009, no pet.) (same); Marin v. IESI TX Corp., 317 S.W .3d 314, 333 (Tex. App.— Houston [1st Dist.] 2010, pet. denied) (same); O’Dell v. Wright, 320 S.W .3d 505, 515-16 (Tex. App.— Fort W orth 2010, pet. denied) (same); SJW Prop. Commerce Inc. v. Sw. Pinnacle Props., 328 S.W .3d 121, 165-66 (Tex. App.— Corpus Christi 2010, pet. denied) (same); Davis v. White, No. 02-1300191-CV, 2015 W L 7387045, at  (Tex. App.— Fort W orth Feb. 5, 2015, pet. filed) (same), with Seminole Pipeline Co. v. Broad Leaf Partners, Inc., 979 S.W .2d 730, 759 (Tex. App.— Houston [14th Dist.] 1998, no pet.) (statutory exemplary damages cap is not an affirmative defense); Hall v. Diamond Shamrock Ref. Co., L.P., 82 S.W .3d 5, 22 (Tex. App.— San Antonio 2001), overruled on other grounds, 168 S.W .3d 164 (Tex. 2005) (same); THI of Tex. at Lubbock I, LLC v. Perea, 329 S.W .3d 548, 587 (Tex. App.— Amarillo 2010, pet. denied) (same). 12 fraud findings, the court of appeals did not consider Zorrilla’s appellate issues related to the jury’s breach-of-contract findings. Zorrilla asserts the fraud verdict cannot be affirmed if her breach-ofcontract complaints are valid because the only fraud theory submitted to the jury was fraudulent inducement, which requires the existence of an enforceable contract. See Haase v. Glazner, 62 S.W.3d 795, 798, 800 (Tex. 2001) (fraudulent inducement, by its nature, presupposes that a party has been induced to enter a contract; as a result, there can be no fraudulent-inducement claim when there is no contract). Zorrilla takes the position that the breach-of-contract findings are thus integral to the jury’s fraud verdict and that the court of appeals’ refusal to consider her challenges to those findings in tandem with the fraud findings was error. Zorrilla does not otherwise assail the court’s fraud analysis. Departing from the position she maintained in the trial court, Zorrilla relies exclusively on the terms of the December 2006 written agreement as the basis for challenging the existence of an enforceable agreement for the disputed construction services in May 2007. The December 2006 agreement required all modifications and deviations to be pre-approved in writing. Embracing the written contract she once expressly disavowed, Zorrilla contends there is no viable fraudulentinducement claim because there is no evidence the May 2007 charges were pre-authorized in writing as required by the December 2006 agreement.7 Simply stated, Zorrilla argues there is no evidence of a valid contract for the disputed construction services because there is no evidence of a valid modification to the original estimate. 7 The extent to which the May invoices reflect charges for work beyond the original estimate is unclear; the only readily apparent deviations are charges for work at the Plazas del Lago property and charges for security personnel. 13 We agree with Zorrilla that, based on the measure of damages submitted to the jury, the only viable fraud claim is fraudulent inducement, which cannot be sustained when it is grounded on an unenforceable promise. However, we do not agree that the court of appeals was required to consider her evidence-sufficiency challenges to the breach-of-contract findings to uphold the fraud judgment. A common-law fraud claim requires “‘a material misrepresentation, which was false, and which was either known to be false when made or was asserted without knowledge of its truth, which was intended to be acted upon, which was relied upon, and which caused injury.’” Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41, 47 (Tex. 1998) (quoting Sears, Roebuck & Co. v. Meadows, 877 S.W.2d 281, 282 (Tex. 1994)). Fraudulent inducement is a distinct category of common-law fraud that shares the same elements but involves a promise of future performance made with no intention of performing at the time it was made. Id. at 48. “Texas recognizes two measures of direct damages for common-law fraud: the out-of-pocket measure and the benefit-of-the bargain measure.” Id. at 49. The former “derive[s] from a restitutionary theory” while the latter “derive[s] from an expectancy theory.” Baylor Univ. v. Sonnichsen, 221 S.W.3d 632, 636 (Tex. 2007). Out-of-pocket damages are measured by the difference between the value expended versus the value received, thus allowing the injured party to recover based on the actual injury suffered. Formosa Plastics, 960 S.W.2d at 49. Benefit-of-thebargain damages are measured by the difference between the value as represented and the value received, allowing the injured party to recover profits that would have been made had the bargain been performed as promised. Id. at 49-50. Although both measures of damages are available for fraudulent inducement, we held in 14 Haase v. Glazner that benefit-of-the-bargain damages are not available for fraud that induces a nonbinding contract; rather, if there is a defect in contract formation, the only potentially viable measure of fraud damages is the out-of-pocket measure. 62 S.W.3d at 799-800. We explained: Fraudulent inducement . . . is a particular species of fraud that arises only in the context of a contract and requires the existence of a contract as part of its proof. That is, with a fraudulent inducement claim, the elements of fraud must be established as they relate to an agreement between the parties. . . . Although economic losses may be recoverable under either fraud or fraudulent inducement . . . fraud and fraudulent inducement are [not] interchangeable with respect to the measure of damages that would be recoverable. Id. at 798-99 (emphasis added). In Haase, the parties’ oral agreement was unenforceable under the statute of frauds, and we held that the injured party could not recover the benefit of an unenforceable bargain via a fraud claim but could still recover out-of-pocket damages, if any. Id. at 799-800; cf. Sonnichsen, 221 S.W.3d at 636-37 (holding that the fraud claim failed on summary judgment because plaintiff only sought benefit-of-the-bargain damages under a contract rendered unenforceable by application of the statute of frauds). Thus, absent an enforceable contract, a fraud claimant may not recover benefit-of-the-bargain damages. See Haase, 62 S.W.3d at 799-800. In the present case, the fraud liability question submitted to the jury included all the elements of a common-law fraud claim and defined “misrepresentation” to mean “a false statement of fact” or “a promise of future performance made with an intent, at the time the promise was made, not to perform as promised.” TEXAS PATTERN JURY CHARGES (BUSINESS) 105.1-105.3B (2010); see also TEXAS PATTERN JURY CHARGES (BUSINESS) 105.1-105.3B (2012). The damages question submitted 15 only a benefit-of-the-bargain measure of damages, however, not an out-of-pocket measure.8 Accordingly, if the promise underlying the jury’s fraud finding is unenforceable, no sustainable measure of fraud damages was submitted to the jury. Stated another way, benefit-of-the-bargain damages are not available if Aypco would not have been able to enforce the bargain in question due to a defect in contract formation, and the fraud claim would fail for want of an appropriate damages finding. The fraud questions submitted to the jury incorporate the requisite elements of a contract—promise, reliance, and an agreement—but Zorrilla contends that any such contract was unenforceable because there was no writing specifically authorizing the May 2007 construction services. Invoking the rule in Haase, Zorrilla relies on the written-modifications requirement in the December 2006 agreement as a proxy for the statute of frauds, which in Haase precluded recovery of benefit-of-the-bargain damages under a fraudulent-inducement theory. 8 The jury answered the following fraud-damages question: W hat sum of money, if any, if paid now in cash, would fairly and reasonably compensate AYPCO CONSTRUCTION II, LLC for its damages, if any, that resulted from such fraud? Consider the following elements of damages, if any, and none other. The difference between the amount paid by MIRTA ZORRILLA to AYPCO CONSTRUCTION II, LLC for the construction services performed by AYPCO CONSTRUCTION II, LLC and the amount M IRTA ZORRILLA had agreed to pay AYPCO CONSTRUCTION II, LLC for that work. Do not speculate what any party’s ultimate recovery may or may not be. Any recovery will be determined by the court when it applies the law to your answer at the time of judgment. Do not add any amount for interest on damages, if any. Answer in dollars and cents for damages, if any, sustained in the past. 16 Zorrilla’s newfound reliance on the December 2006 contract, however, is too little, too late. Any obligation imposed by the December 2006 contract impacts the fraudulent-inducement analysis only if the jury necessarily determined that Zorrilla had, in fact, agreed to the terms of the December 2006 contract or that there was otherwise an agreement between the parties requiring written approval for modifications. However, the evidence on that point conflicted; the jury was neither asked whether the agreement was in writing nor asked to determine the essential terms of any agreement; and, importantly, both the fraud and breach-of-contract questions permitted the jury to award damages based on the existence of an oral agreement that did not include any such requirement. In the absence of a finding that Zorrilla and Aypco agreed that modifications must be approved in writing, Zorrilla’s argument concerning the contract-enforcement issue fails. See Romero v. KPH Consolidation, Inc., 166 S.W.3d 212, 221 (Tex. 2005) (“The sufficiency of the evidence must be measured by the jury charge when . . . there has been no objection to it.”). Finding no error in the court of appeals’ refusal to consider Zorrilla’s evidence-sufficiency challenges to the jury’s breach-of-contract findings, we reject the only ground presented in opposition to the jury’s fraud verdict.9 9 Zorrilla also argues that failure to submit her requested jury issue on excuse for nonperformance was error because she may have avoided liability for breach of contract. Performance of a contract is distinct from formation of a contract; whether Zorrilla has an excuse for nonperformance has no bearing on the existence of an enforceable agreement. See Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors, Inc., 960 S.W .2d 41, 46-48 (Tex. 1998) (recognizing that contract theories govern claims of contractual nonperformance while a promise made without intent to perform is independently actionable as fraud even if the promise is later subsumed in a contract because “the legal duty not to fraudulently procure a contract is separate and independent from the duties established by the contract itself”). She also contends that the court of appeals should have considered the breach, causation, and contract-damages findings, but those are likewise independent of the fraudulent-inducement inquiry, which pertains to contract formation. 17