Monday, November 24, 2014

Does failure to keep promise provide basis for fraud cause of action, or is it simply a breach of contract?

It depends on whether there was intent not to perform (or no intent to ever perform) at the time the promise was made, but that may be hard to prove. Evidence of partial performance may disprove such intent. Additionally, not every promise qualifies as a contract.  


To establish a cause of action for fraud, the plaintiff must demonstrate each of the following elements: (1) the defendant made a material representation; (2) the representation was false; (3) when the representation was made, the defendant knew it was false or made it recklessly without any knowledge of the truth and as a positive assertion; (4) the defendant made the representation with the intent that the plaintiff should act upon it; (5) the plaintiff acted in reliance on the representation; and (6) the plaintiff thereby suffered an injury. See Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 337 (Tex. 2011). If the representation is a promise of future performance, the plaintiff must further demonstrate that the defendant made the promise with no intent of performing it. See Aquaplex, Inc. v. Rancho La Valencia, Inc., 297 S.W.3d 768, 774 (Tex. 2009) (per curiam).

Assuming the existence of an enforceable promise, the Agents argue that there is no evidence that they made the promise while having no intent to perform it. We agree.


A promise of future performance is actionable in fraud only if, at the time the promise was made, the promisor intended to deceive and had no intention of performing. See Formosa Plastics Corp. USA v. Presidio Eng'rs & Contractors, Inc., 960 S.W.2d 41, 48 (Tex. 1998). Showing that a party had no intent to perform "is not easy," as such matters are not usually susceptible to direct proof. See Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 305 (Tex. 2006). The failure to perform, standing alone, is no evidence of intent. See Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 435 (Tex. 1986). Similarly, a party's denial that a promise had been made is not legally sufficient evidence of fraudulent inducement. See Tony Gullo, 212 S.W.3d at 305; T.O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218, 222 (Tex. 1992). The claimant must present some circumstantial evidence, however slight, showing an intent to deceive. See Spoljaric, 708 S.W.2d at 435.


[The] undisputed evidence of partial performance negated the Investor's claim of fraud. See Reyna v. First Nat'l Bank in Edinburg, 55 S.W.3d 58, 68 (Tex. App.-Corpus Christi 2001, no pet.) (holding that defendants' tender of partial payment negated any claim that they had no intention of paying for equipment); Bank One, Tex., N.A. v. Stewart, 967 S.W.2d 419, 446 (Tex. App.-Houston [14th Dist.] 1998, pet. denied) (holding there was no evidence that party made representations with intent not to perform on note when the party subsequently made payment for five years).

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