Friday, May 27, 2011
A valid liquidated damages clause estimates in advance the just compensation a party will accrue if the other party to the contract fails to perform. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 664 (Tex. 2005). “Whether a contractual provision is an enforceable liquidated damages provision or an unenforceable penalty is a question of law[.]” Phillips v. Phillips, 820 S.W.2d 785, 788 (Tex. 1991).
ENFORCEABILITY OF CONTRACTUAL LIQUIDATED DAMAGES PROVISION
In determining whether a liquidated damages clause is enforceable, courts examine (1) whether the harm caused by the prospective breach of the contract is incapable or difficult of estimation and (2) whether the amount of liquidated damages called for is a reasonable forecast of just compensation. Id. If either element is lacking, the liquidated damages clause is unenforceable. Arthur’s Garage, Inc. v. Racal-Chubb Sec. Sys., Inc., 997 S.W.2d 803, 810 (Tex. App.—Dallas 1999, no pet.).
Evidence regarding the difficulty of estimating damages and whether the amount of liquidated damages is a reasonable forecast of just compensation, must be viewed as of the time the contract was executed. Baker v. Int’l Record Syndicate, Inc., 812 S.W.2d 53, 55 (Tex. App.—Dallas 1991, no writ) (op. on reh’g); see also Oetting v. Flake Unif. & Linen Serv., Inc., 553 S.W.2d 793, 796 (Tex. App.—Fort Worth 1977, no writ). “If the liquidated damages are proven to be disproportionate to the actual damages, the liquidated damages can be declared a penalty and recovery limited to actual damages.” TXU Portfolio Mgmt. Co., L.P. v. FPL Energy, LLC, 328 S.W.3d 580, 589 (Tex. App.—Dallas 2010, pet. filed) (citing Baker, 812 S.W.2d at 55).
The burden of proving a penalty defense is on the party challenging the liquidated damages clause. Baker, 812 S.W.2d at 55; see also Urban Television Network Corp. v. Creditor Liquidity Solutions, L.P., 277 S.W.3d 917, 919 (Tex. App.—Dallas 2009, no pet.). Generally, the party asserting this defense must prove the amount of the other party’s actual damages, if any, to show that the liquidated damages set forth in the agreement were not an approximation of actual loss. Baker, 812 S.W.2d at 55; TXU Portfolio, 328 S.W.3d at 589. SOURCE: Beaumont Court of Appeals - 09-10-00361-CV - 5/19/11 (Thus, the liquidated damages provision for the payment of $20,000 was not a reasonable forecast of just compensation for any allowable damages resulting from [ PARTY'S ] breach of the agreement. We hold the liquidated damages clause is unenforceable.)
RELATED CASELAW CLIPS:
We enforce a liquidated damages clause if (1) the harm caused by the breach is incapable or difficult of estimation, and (2) the amount of liquidated damages is a reasonable forecast of just compensation. See Phillips v. Phillips, 820 S.W.2d 785, 788 (Tex. 1991). An assertion that a liquidated damages provision constitutes an unenforceable penalty is an affirmative defense, and the party asserting penalty bears the burden of proof. See Urban Television Network Corp. v. Liquidity Solutions, 277 S.W.3d 917, 919 (Tex. App.-Dallas 2009, no pet.); Fluid Concepts, Inc. v. DA Apts., LP, 159 S.W.3d 226, 231 (Tex. App.-Dallas 2005, no pet.). Generally, that party must prove the amount of actual damages, if any, to demonstrate that "the actual loss was not an approximation of the stipulated sum." Baker v. Int'l Record Syndicate, Inc., 812 S.W.2d 53, 55 (Tex. App.-Dallas 1991, no writ). If the amount stipulated in the liquidated damages clause is "shown to be disproportionate to actual damages," we should declare that the clause is a penalty and limit recovery to actual damages. Johnson Eng'rs, Inc. v. Tri-Water Supply Corp., 582 S.W.2d 555, 557 (Tex. Civ. App.-Texarkana 1979, no writ); see also TEX. BUS. & COM. CODE ANN. § 2.718(a) (Vernon 2009) ("A term fixing unreasonably large liquidated damages is void as a penalty."). Whether a liquidated damages clause is an unenforceable penalty is a question of law for the court, but sometimes factual issues must be resolved before the court can decide the legal question. See Phillips, 820 S.W. 2d at 788. For example, in Phillips, the Texas Supreme Court observed that "to show that a liquidated damages provision is unreasonable because the actual damages incurred were much less than the amount contracted for, a defendant may be required to prove what the actual damages were." Id. SOURCE: Houston Court of Appeals - 01-09-00155-CV - 10/21/10 Whether a liquidated damages provision is an enforceable contractual provision or an unenforceable penalty is a question of law. Phillips v. Phillips, 820 S.W.2d 785, 788 (Tex. 1991). To find a liquidated damages provision enforceable, a court must find that (1) the harm caused by the breach is incapable or difficult of estimation, and (2) the amount of liquidated damages called for is a reasonable forecast of just compensation. Phillips, 820 S.W.2d at 788 (quoting Rio Grande Valley Sugar Growers, Inc. v. Campesi, 592 S.W.2d 340, 342 n.2 (Tex. 1979)). The difficulty of estimation of harm must have existed at the time the contract was executed. See Murphy v. Cintas Corp., 923 S.W.2d 663, 666 (Tex. App.-Tyler 1996, writ denied). SOURCE: Austin Court of Appeals - 03-09-00063-CV - 6/11/10 A valid liquidated damage provision estimates in advance the just compensation to a party accruing from the failure to perform certain contractual obligations. See Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 664 (Tex.2005); Stewart v. Basey, 150 Tex. 666, 245 S.W.2d 484, 486 (1952). In general, the issue of whether a contractual provision is an enforceable liquidated damage clause or an unenforceable penalty is a question of law for the court. See Phillips v. Phillips, 820 S.W.2d 785, 788 (Tex.1991). In making this determination, we examine whether the harm caused by the prospective breach of the contract is incapable or difficult of estimation and whether the amount of liquidated damages is a reasonable forecast of just compensation. Id.; Baker v. Int'l Record Syndicate, Inc., 812 S.W.2d 53, 55 (Tex.App.-Dallas 1991, no writ). The evidence concerning the difficulty of estimation and the reasonableness of the damages forecast must be viewed as of the time the contract was executed. Baker, 812 S.W.2d at 55. The party asserting that the provision is an unenforceable penalty has the burden of proof. See Fluid Concepts, Inc. v. DA Apartments Ltd., P'ship, 159 S.W.3d 226, 230-31 (Tex.App.-Dallas 2005, no pet.). Where, as here, the parties have filed cross-motions for summary judgment, we may reverse and render the judgment that the trial court should have rendered. See CU Lloyd's of Tex. v. Feldman, 977 S.W.2d 568, 568 (Tex. 1998) (per curiam).
SOURCE: Dallas Court of Appeals - 05-08-01584-CV 7/27/10
Thursday, May 26, 2011
Wednesday, May 25, 2011
Discovery rule defers accrual of claim when it applies, triggering the running of the SoL at the point of discovery
“As a general rule, a cause of action accrues and the statute of limitations begins to run when facts come into existence that authorize a party to seek a judicial remedy.” Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 221 (Tex. 2003). The discovery rule operates to defer accrual of a claim until the plaintiffs knew or, in the exercise of reasonable diligence, should have known of the wrongful act causing their injury. Salinas v. Gary Pools, Inc., 31 S.W.3d 333, 336 (Tex.App.--San Antonio 2000, no pet.).
The discovery rule always applies to DTPA claims. Id.; see also Tex.Bus.&Com.Code Ann. § 17.565 (stating that DTPA suits must be filed “within two years after the date on which the false, misleading, or deceptive act or practice occurred or within two years after the consumer discovered or in the exercise of reasonable diligence should have discovered the occurrence of the false, misleading, or deceptive act or practice.”). Beyond that, the discovery rule is “a very limited exception to statutes of limitations” and applies only when the plaintiffs’ injury is inherently undiscoverable and objectively verifiable. Wagner & Brown, Ltd. v. Horwood, 58 S.W.3d 732, 734 (Tex. 2001).
“An injury is inherently undiscoverable if it is, by its nature, unlikely to be discovered within the prescribed limitations period despite due diligence.” Id. at 734-35. “Inherently undiscoverable” does not mean that particular plaintiffs did not discover their particular injuries within the limitations period. Id. at 735. The issue is whether the injury is of a type that generally is discoverable in the exercise of reasonable diligence. Id. “Knowledge of facts, conditions, or circumstances that would cause a reasonable person to make inquiry . . . is equivalent to knowledge of the cause of action for limitation purposes.” Southwest Olshan Found. Repair Co., LLC v. Gonzales, ___ S.W.3d ___, ___, 2011 WL 149870, at *4 (Tex.App.--San Antonio Jan. 19, 2011, no pet.h.).
When plaintiffs plead the discovery rule, a defendant who moves for summary judgment on the affirmative defense of limitations must prove as a matter of law that there is no genuine issue of material fact about when the plaintiffs should have discovered their injury in the exercise of reasonable diligence. See KPMG Peat Marwick v. Harrison County Hous. Fin. Corp., 988 S.W.2d 746, 748 (Tex. 1999); Salinas, 31 S.W.3d at 336. If the defendant conclusively establishes that the statute of limitations bars the plaintiffs’ claims, the plaintiffs must then submit summary judgment proof raising a fact issue in avoidance of the statute of limitations. See KPMG Peat Marwick, 988 S.W.2d at 748; Salinas, 31 S.W.3d at 336.
SOURCE: El Paso Court of Appeals - 08-09-00116-CV - 4/27/11
SANCTIONS UNDER TRCP 13
Rule 13 authorizes the imposition of sanctions against an attorney, a represented party, or both, who filed a pleading that is either: (1) groundless and brought in bad faith; or (2) groundless and brought to harass. Tex. R. Civ. P. 13; see also Rudisell v. Paquette, 89 S.W.3d 233, 236 (Tex. App.—Corpus Christi 2002, no pet.). The rule defines “groundless” as having “no basis in law or fact and not warranted by good faith argument for the extension, modification, or reversal of existing law.” Tex. R. Civ. P. 13.
Sanctions may only be imposed for good cause under Rule 13, the particulars of which must be stated in the order. Tex. R. Civ. P. 13; Rudisell, 89 S.W.3d at 237. To impose sanctions under Rule 13 of the Texas Rules of Civil Procedure, the proponent of sanctions must establish that the suit was groundless and brought (1) in bad faith or (2) for purposes of harassment. Tex. R. Civ. P. 13.
A pleading is groundless when it has no basis in law or in fact. Tex. R. Civ. P. 13. The burden is on the party moving for sanctions to overcome the presumption that the pleading was filed in good faith. GTE Commc’ns Sys. Corp. v. Tanner, 856 S.W.2d 725, 731 (Tex. 1993). A groundless pleading is not sanctionable unless it is also brought in bad faith or for the purpose of harassment. Id. Bad faith does not exist when a party exercises bad judgment or negligence. Rather, bad faith means “the conscious doing of a wrong for dishonest, discriminatory, or malicious purposes.” Campos, 879 S.W.2d at 71; Mattly v. Spiegel, Inc., 19 S.W.3d 890, 896 (Tex. App.—Houston [14th Dist.] 2000, no pet.). In deciding whether a pleading was filed in bad faith or for the purpose of harassment, the trial court must measure a litigant’s conduct at the time the relevant pleading was signed. Texas-Ohio Gas, Inc. v. Mecom, 28 S.W.3d 129, 139 (Tex. App.—Texarkana 2000, no pet.). Rule 13 generally requires that the trial court hold an evidentiary hearing to make a determination about the motives and credibility of the person signing the petition. R.M. Dudley Constr. Co. v. Dawson, 258 S.W.3d 694 (Tex. App.—Waco 2008, pet. denied); see, e.g., Low, 221 S.W.3d at 613, 617 (referring to trial court’s evidentiary hearing on motion for Chapter 10 sanctions).
Rule 13 requires sanctions based on the acts or omissions of the represented party or counsel, and not merely on the legal merit of the pleading. Parker v. Walton, 233 S.W.3d 535, 539 (Tex. App.—Houston [14th Dist.] 2007, no pet.). This is true because improper motive is an essential element of bad faith. Elkins, 103 S.W.3d at 669; Alejandro v. Bell, 84 S.W.3d 383, 393 (Tex. App.––Corpus Christi 2002, no writ) (no evidence presented at sanctions hearing from which the trial court could determine lawsuit filed in bad faith).
SANCTIONS UNDER CHAPTER 10 OF THE CPRC
Similarly, to award sanctions under Chapter 10, it must be shown that: (1) the pleading or motion was brought for an improper purpose; (2) there were no grounds for the legal arguments advanced; or (3) the factual allegations or denials lacked evidentiary support. See Tex. Civ. Prac. & Rem. Code Ann. § 10.001 (Vernon 2002); Low, 221 S.W.3d at 614; Armstrong v. Collin County Bail Bond Bd., 233 S.W.3d 57, 62 (Tex. App.—Dallas 2007, no pet.).
Chapter 10 specifies that one of the aims for imposition of sanctions for the filing of frivolous or groundless pleadings is to “deter repetition of the conduct or comparable conduct by others similarly situated.” Tex. Civ. Prac. & Rem. Code Ann. § 10.004(b) (Vernon 2002). We construe the phrase “improper purpose” as the equivalent of “bad faith” under Rule 13. See Tex. R. Civ. P. 13; cf. Save Our Springs Alliance, Inc. v. Lazy Nine Mun. Util. Dist. ex rel. Bd. of Directors, 198 S.W.3d 300, 321 (Tex. App.—Texarkana 2006, pet. denied) (“nonfrivolous” requirement is same as “good faith” requirement); Elwell v. Mayfield, No. 10-04-00322-CV, 2005 WL 1907126, at *5 (Tex. App.—Waco Aug. 10, 2005, pet. denied) (mem. op.) (same). An order imposing a sanction under Chapter 10 “shall describe . . . the conduct the court has determined violated Section 10.001 and explain the basis for the sanction imposed.” Tex. Civ. Prac. & Rem. Code Ann. § 10.005 (Vernon 2002).
In determining whether sanctions are appropriate, the trial court must examine the facts available to the litigant and the circumstances existing when the litigant filed the pleading. Robson v. Gilbreath, 267 S.W.3d 401, 405 (Tex. App.—Austin 2008, pet. denied); Alejandro v. Robstown Indep. Sch. Dist., 131 S.W.3d 663, 669 (Tex. App.—Corpus Christi 2004, no pet.). Courts should presume parties and their counsel file all papers in good faith, and the party seeking sanctions must overcome that presumption. See Tex. R. Civ. P. 13; GTE Commc’ns Sys. Corp. v. Tanner, 856 S.W.2d 725, 731 (Tex. 1993). The party seeking sanctions has the burden of showing its right to relief. Tanner, 856 S.W.2d at 731; Elkins v. Stotts-Brown, 103 S.W.3d 664, 668 (Tex. App.—Dallas 2003, no pet.).
SOURCE: Texarkana Court of Appeals -6-10-00080-CV - 4/1/11
CPRC CHAPTER 10 SANCTIONS
Chapter 10 provides that: The signing of a pleading or motion as required by the Texas Rules of Civil Procedure constitutes a certificate by the signatory that to the signatory’s best knowledge, information, and belief, formed after reasonable inquiry: (1) the pleading or motion is not being presented for any improper purpose, including to harass or to cause unnecessary delay or needless increase in the cost of litigation; (2) each claim, defense, or other legal contention in the pleading or motion is warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law; (3) each allegation or other factual contention in the pleading or motion has evidentiary support or, for a specifically identified allegation or factual contention, is likely to have evidentiary support after a reasonable opportunity for further investigation or discovery; and (4) each denial in the pleading or motion of a factual contention is warranted on the evidence or, for a specifically identified denial, is reasonably based on a lack of information or belief.
SOURCE: Texarkana Court of Appeals 06-10-00080-CV - 4/1/11
Tuesday, May 24, 2011
Monday, May 23, 2011
ELEMENTS OF FRAUD
CAUSE OF ACTION FOR FRAUD, FRAUDULENT INDUCEMENT OF CONTRACT -
WHAT DOES THE PLAINTIFF HAVE TO PROVE?
A party commits fraud by (1) making a false, material representation (2) that the party either knows to be false or asserts recklessly without knowledge of its truth (3) with the intent that the misrepresentation be acted upon, (4) and the person to whom the misrepresentation is made acts in reliance upon it and (5) is injured as a result. Ernst & Young, L.L.P. v. Pac. Mut. Life Ins. Co., 51 S.W.3d 573, 577 (Tex. 2001); All Am. Tel., Inc. v. USLD Commc’ns, Inc., 291 S.W.3d 518, 527 (Tex. App.—Fort Worth 2009, pet. denied).
MATERIALITY OF THE FRAUDULENT REPRESENTATION
A fact is material if it would likely affect the conduct of a reasonable person concerning the transaction in question. Miller v. Kennedy & Minshew, Prof’l Corp., 142 S.W.3d 325, 345 (Tex. App.—Fort Worth 2003, pet. denied). Materiality thus centers on whether a reasonable person would attach importance to and would be induced to act on the information in determining his choice of actions in the transaction in question. Burleson State Bank v. Plunkett, 27 S.W.3d 605, 613 (Tex. App.—Waco 2000, pet. denied). Proof that a defendant made a statement knowing of its falsity or without knowledge of its truth may be proved by either direct or circumstantial evidence. Johnson & Higgins of Tex., Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 526 (Tex. 1998). Intent may be inferred from a party’s actions before and after the fraudulent conduct and may also be established by either direct or circumstantial evidence. Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 434–35 (Tex. 1986). A defendant who acts with knowledge that a result will follow is considered to intend the result. Ernst & Young, L.L.P., 51 S.W.3d at 579.
DETRIMENTAL RELIANCE BY DECEIVED PARTY
The plaintiff must show actual and justifiable reliance on the misrepresentation. See Grant Thornton LLP v. Prospect High Income Fund, 314 S.W.3d 913, 923 (Tex. 2010). To determine justifiability, courts inquire whether, “given a fraud plaintiff’s individual characteristics, abilities, and appreciation of facts and circumstances at or before the time of the alleged fraud[,] it is extremely unlikely that there is actual reliance on the plaintiff’s part.” Id. (quoting Haralson v. E.F. Hutton Group, Inc., 919 F.2d 1014, 1026 (5th Cir. 1990)). In other words, a person may not justifiably rely on a representation if there are “red flags” indicating such reliance is unwarranted. Id. (quoting Lewis v. Bank of Am. NA, 343 F.3d 540, 546 (5th Cir. 2003)); see Gen. Motors Corp., Pontiac Motor Div. v. Courtesy Pontiac, Inc., 538 S.W.2d 3, 6 (Tex. Civ. App.—Tyler 1976, no writ) (citing Prosser on Torts for the contention that a person of ordinary intelligence may not “put faith in representations which any such normal person would recognize at once as preposterous . . . or which are shown by facts within his observation to be so patently and obviously false that he must have closed his eyes to avoid discovery of the truth”).
REMEDIES FOR FRAUDULENT INDUCEMENT OF CONTRACT
“[I]t is well settled that one who is induced by fraud to enter into a contract has his choice of remedies. ‘He may stand to the bargain and recover damages for the fraud, or he may rescind the contract, and return the thing bought, and receive back what he paid.’” Dallas Farm Mach. Co. v. Reaves, 158 Tex. 1, 10, 307 S.W.2d 233, 238–39 (Tex. 1957). We agree with Hannon’s observation that “rescission was the remedy sought to be crafted by the court in this case.” Rescission is an equitable remedy that extinguishes legally valid contracts that must be set aside because of, among other things, fraud. City of The Colony v. N. Tex. Mun. Water Dist., 272 S.W.3d 699, 732 (Tex. App.—Fort Worth 2008, pet. dism’d). Upon rescission, the rights and liabilities of the parties are extinguished; any consideration paid is returned, together with such further special damage or expense as may have been reasonably incurred by the party wronged; and the parties are restored to their respective positions as if no contract had ever existed. Baty v. ProTech Ins. Agency, 63 S.W.3d 841, 855 (Tex. App.—Houston [14th Dist.] 2001, pet. denied); see Johnson v. Cherry, 726 S.W.2d 4, 8 (Tex. 1987); Smith v. Nat’l Resort Cmtys. Inc., 585 S.W.2d 655, 660 (Tex. 1979); Holt v. Robertson, No. 07-06-00220-CV, 2008 WL 2130420, at *6 (Tex. App.—Amarillo May 21, 2008, pet. denied) (mem. op.). While a trial court may not grant relief to a party in the absence of pleadings to support that relief, Texas courts have traditionally construed pleadings liberally, and in the case of rescission, at least one court has held that “factual allegations in the petition, coupled with a prayer for general relief, are sufficient to support a decree granting rescission.” Green Tree Acceptance, Inc. v. Pierce, 768 S.W.2d 416, 421 (Tex. App.—Tyler 1989, no writ); see Tex. R. Civ. P. 301. Moreover, when the claims and defenses are those which contemplate a particular remedy, a party may be entitled to that remedy despite a failure to specifically plead for such relief. See Perez v. Briercroft Serv. Corp., 809 S.W.2d 216, 218 (Tex. 1991).
SOURCE: Fort Worth Court of Appeals - 02-10-00012-CV
Friday, May 20, 2011
Thursday, May 19, 2011
The fraud / fraudulent conduct must be relevant to contract-formation. “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.” Haase v. Glazner, 62 S.W.3d 795, 798–99 (Tex. 2001).
Detrimental reliance by Plaintiff on deliberate falsehood by Defendant The elements of fraud are that a material representation was made, the representation was false, the speaker knew the statement was false when made, the statement was made to induce reliance, it did induce reliance, the reliance was justifiable, and the relying party suffered injury as a result. See Grant Thornton LLP v. Prospect High Income Fund, 314 S.W.3d 913, 923 (Tex. 2010); Aquaplex, Inc. v. Rancho La Valencia, Inc., 297 S.W.3d 768, 774 (Tex. 2009). [A] party who has actual knowledge of specific facts cannot have relied on a misrepresentation of the same facts. See Camden Mach. & Tool, Inc. v. Cascade Co., 870 S.W.2d 304, 311 (Tex. App.—Fort Worth 1993, no writ) (stating, in case where seller failed to disclose prior foundation repair but buyer discovered foundation settling in independent investigation, “When a person makes his own investigation of the facts, and knows the representations are false, he cannot, as a matter of law, be said to have relied upon the misrepresentations of another.”). The issue, then, is whether the [ name of litigants ] presented any evidence of reliance to support their claim for fraudulent inducement. See Grant Thornton, 314 S.W.3d at 923 (reliance is necessary element of fraud claims); Aquaplex, 297 S.W.3d at 774 (same). In the context of fraudulent inducement, this requires evidence that the claimant would not have entered into the contract but for the alleged misrepresentation or fraudulent nondisclosure. See ISG State Operations, Inc. v. Nat’l Heritage Ins. Co., 234 S.W.3d 711, 716 (Tex. App.—Eastland 2007, pet. denied) (stating that ordinary detrimental reliance is not sufficient to support fraudulent inducement claim; claimant must show that it was induced into executing contract) (citing Haase, 62 S.W.3d at 798); Procter v. RMC Capital Corp., 47 S.W.3d 828, 834 (Tex. App.—Beaumont 2001, no pet.) (holding that home buyer seeking to avoid effect of “as is” clause on basis of fraudulent inducement must put forth some evidence that he would not have assented to “as is” clause in contract but for seller’s misrepresentations about property condition at issue); see also Dallas Farm Mach. Co. v. Reaves, 158 Tex. 1, 12–13, 307 S.W.2d 233, 240 (1957) (adopting the rule: “If one is induced to go through the form of making a contract because of some fraud or misrepresentation made by the other party or his agent, relative to a material element of the agreement, such that if he had known the truth he would not have given his assent, the contract may be avoided by him.”) (quoting 1 Elliot on Contracts § 70 (1913), emphasis added). SOURCE: Houston Court of Appeals – 01-10-00492-CV – 5/19/11
RELATED LEGAL TERMS: fraud vs. fraudulent inducement of contract, fraudulent misrepresentation, fraudulent concealment, failure to disclose material fact,
BREACH OF FIDUCIARY DUTY: FORMAL AND INFORMAL RELATIONSHIPS GIVING RISE TO DUTY
To recover on a breach of fiduciary duty claim, the plaintiff must first establish the existence of a duty, that is, the existence of a fiduciary relationship. See Meyer v. Cathey, 167 S.W.3d 327, 330–31 (Tex. 2005) (discussing interchangeably whether fiduciary relationship exists and whether fiduciary duty existed); Priddy v. Rawson, 282 S.W.3d 588, 599 (Tex. App.—Houston [14th Dist.] 2009, pet. denied) (identifying first element of fiduciary duty claim as existence of fiduciary relationship and second element as breach of duty created by that relationship).
There are two categories of fiduciary relationships. Meyer, 167 S.W.3d at 330–31; Priddy, 282 S.W.3d at 599. The first is a formal fiduciary relationship, such as attorney-client, principal-agent, and trustee-beneficiary relationships, as well as partners in a partnership. Chapman Children’s Trust v. Porter & Hedges, L.L.P., 32 S.W.3d 429, 439 (Tex. App.—Houston [14th Dist.] 2000, pet. denied). The second is an informal fiduciary relationship, “where one person trusts in and relies on another, whether the relation is a moral, social, domestic, or purely personal one.” Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 176 (Tex. 1997). This second category is also known as a “confidential relationship.” Chapman Children’s Trust, 32 S.W.3d at 439.
Kelly’s live petition asserted a claim for breach of a partnership agreement. This claim was not submitted to the jury, however. Accordingly, it has been waived. See Tex. R. Civ. P. 279 (providing “[u]pon appeal all independent grounds of recovery or of defense not conclusively established under the evidence and no element of which is submitted or requested are waived”). For purposes of this appeal, then, there was no partnership agreement between the parties and, by extension, no formal fiduciary relationship based on any such partnership.
A fiduciary relationship is an extraordinary one and will not be lightly created. Hoggett v. Brown, 971 S.W.2d 472, 488 (Tex. App.—Houston [14th Dist.] 1997, pet. denied). “It is well settled that ‘not every relationship involving a high degree of trust and confidence rises to the stature of a fiduciary relationship.’” Meyer, 167 S.W.3d at 330 (quoting Schlumberger, 959 S.W.2d at 176–77). “A person is justified in placing confidence in the belief that another party will act in his or her best interest only where he or she is accustomed to being guided by the judgment or advice of the other party, and there exists a long association in a business relationship, as well as personal friendship.” Hoggett, 971 S.W.2d at 488.
Additionally, courts remain cautious to create informal fiduciary relationships in business arrangements.
The fact that one businessman trusts another, and relies upon his promise to perform a contract, does not rise to a confidential relationship. Every contract includes an element of confidence and trust that each party will faithfully perform his obligation under the contract. Neither is the fact that the relationship has been a cordial one, of long duration, evidence of a confidential relationship.Crim Truck & Tractor Co. v. Navistar Int’l Transp. Corp., 823 S.W.2d 591, 594–95 (Tex. 1992), superseded by statute on other grounds as noted in Subaru of Am., Inc. v. David McDavid Nissan, Inc., 84 S.W.3d 212, 225–26 (Tex. 2002).
Courts review a variety of facts for determining whether an informal fiduciary relationship exists. The overarching consideration, however, is the nature of the relationship between the parties. See Thigpen v. Locke, 363 S.W.2d 247, 253 (Tex. 1962) (holding “[t]he existence of the fiduciary relationship is to be determined from the actualities of the relationship between the persons involved”).
In reviewing the relationship between the parties, one factor we consider is whether the party claiming to be owed a fiduciary relationship justifiably placed special confidence in the other party to act in his best interest. See Trostle v. Trostle, 77 S.W.3d 908, 915 (Tex. App.—Amarillo 2002, no pet.) (holding, to establish fiduciary relationship, evidence must demonstrate plaintiff actually relied on purported fiduciary “for moral, financial, or personal support or guidance”); Lee v. Hasson, 286 S.W.3d 1, 14–15 (Tex. App.—Houston [14th Dist.] 2007, pet. denied) (same). An informal fiduciary relationship requires proof that, because of a close or special relationship, the plaintiff “is in fact accustomed to be guided by the judgment or advice” of the other. Thigpen, 363 S.W.2d at 253.
SOURCE: Houston Court of Appeals – NO. 01-09-00685-CV – 5/19/11
Wednesday, May 18, 2011
ARE LIQUIDATED DAMAGES CLAUSES ENFORCEABLE? – STIPULATED DAMAGES OR UNENFORCEABLE PENALTY?
Whether a contractual provision is an unenforceable penalty and not a liquidated damage clause is an affirmative defense. See Tex. R. Civ. P. 94; Phillips v. Phillips, 820 S.W.2d 785, 789 (Tex. 1991) (“Although penalty is not among the affirmative defenses enumerated in Rule 94, Tex. R. Civ. P., the listing in that rule is not exclusive. Penalty is, in the language of the rule, a 'matter constituting an avoidance or affirmative defense' [citations omitted].”)
SOURCE: Dallas Court of Appeals - 05-09-00586-CV - 5/18/11
Tuesday, May 17, 2011
See Dulong v. Citibank (South Dakota), N.A., 261 S.W.3d 890, 894 (Tex.App.-Dallas 2008, no pet.); Williams v. Unifund CCR Partners, 264 S.W.3d 231, 234 (Tex.App.-Houston [1st Dist.] 2008, no pet.); Sherman Acquisition II LP v. Garcia, 229 S.W.3d 802, 807 (Tex.App.-Waco 2007, no pet.); Tully v. Citibank (South Dakota), N.A., 173 S.W.3d 212, 216 (Tex.App.-Texarkana 2005, no pet.); Bird v. First Deposit Nat'l Bank, 994 S.W.2d 280, 282 (Tex.App.-El Paso 1999, pet. denied); Hou-Tex Printers, Inc. v. Marbach, 862 S.W.2d 188, 190 (Tex. App.-Houston [14th Dist.] 1993, no writ).