Fraud and Negligent Misrepresentation Cause of Action in Texas

     
PROVING A CAUSE OF ACTION FOR COMMON-LAW FRAUD AND NEGLIGENT MISREPRESENTATION - WHAT ARE THE ESSENTIAL ELEMENTS UNDER TEXAS LAW? 

In order to prove fraud, a party must show that (1) a material representation was made; (2) the representation was false; (3) when the representation was made, the speaker knew it was false or made it recklessly without any knowledge of the truth and as a positive assertion; (4) the speaker made the representation with the intent that the other party should act upon it; (5) the party acted in reliance on the representation; and (6) the party thereby suffered injury. In re FirstMerit Bank, N.A., 52 S.W.3d 749, 758 (Tex. 2001). Fraud by nondisclosure is a subcategory of fraud. See Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 181 (Tex. 1997).

In order to prove negligent misrepresentation, a plaintiff must show that (1) the defendant made a representation in the course of its business, or in a transaction in which it has a pecuniary interest, (2) the defendant supplied “false information” for the guidance of others in their business, (3) the defendant did not exercise reasonable care or competence in obtaining or communicating the information, and (4) the plaintiff suffered a pecuniary loss by justifiably relying on the representation. Henry Schein, Inc. v. Stromboe, 102 S.W.3d 675, 686 n. 24 (Tex. 2002) (citing Fed. Land Bank Ass’n v. Sloane, 825 S.W.2d 439, 442 (Tex. 1991)). 
    
SOURCE: Cash Rent-A-Car v. Old American County Mutual Fire Ins. Co. (Tex.App.- Houston [1st Dist.] Jan. 14, 2009) (Jennings)(conversion, trespass, fraud, negligent misrepresentation, breach of contract and bailment agreement, violations of the Texas Theft Liability Act, the Texas Deceptive Trade Practices Act (“DTPA”), and the Texas Insurance Code)

Element of reliance: reasonable and justified

REASONABLE RELIANCE ELEMENT

Fraud, fraudulent inducement, negligent misrepresentation, and promissory estoppel all require reasonable and justified reliance upon a misrepresentation or promise. See Ernst & Young, L.L.P. v. Pac. Mut. Life Ins. Co., 51 S.W.3d 573, 577 (Tex. 2001) (fraud); TMI, Inc. v. Brooks, 225 S.W.3d 783, 792, 795 (Tex. App.- Houston [14th Dist.] 2007, pet. denied) (fraudulent inducement); Ortiz v. Collins, 203 S.W.3d 414, 421 (Tex. App.- Houston [14th Dist.] 2006, no pet.) (fraud, negligent misrepresentation, and promissory estoppel).
  
When the parties' written agreement addresses the substance of the oral statement and contains language precluding reliance on external representations, Texas courts find reliance on subsequent oral promises unreasonable. See Simpson v. Woodbridge Props., L.L.C., 153 S.W.3d 682, 684 (Tex. App.- Dallas 2004, no pet.) (holding that disclaimer of reliance clause in contract negated reliance on post contract oral misrepresentations); Atlantic Lloyds Ins. Co. v. Butler, 137 S.W.3d 199, 226 (Tex. App.- Houston [1st Dist.] 2004, pet. denied) (holding that reliance on misrepresentation that was easily refutable with reasonable diligence was not justified or reasonable where two opposing parties were engaged in litigation and negotiating from equal bargaining positions); DRC Parts & Accessories, L.L.C. v. VM Motori, S.P.A., 112 S.W.3d 854, 856, 858-59 (Tex. App.- Houston [14th Dist.] 2003, pet. denied) (holding that reliance on both pre- and post-contractual oral representations, directly contradicted by express terms of contract, was not justified as matter of law); Airborne Freight Corp. v. C.R. Lee Enters., Inc., 847 S.W.2d 289, 297 (Tex. App.- El Paso 1992, writ denied) (finding that written contract containing ample cautionary language precluded exclusive reliance by reasonable businessperson on verbal statements contradicting written agreement).

SOURCE: Biosilk Spa, LP v. HG Shopping Centers, LP (Tex.App.- Houston [14th Dist.] May 8, 2008) (Yates) (fraud, fraudulent inducement, negligent misrepresentation, and promissory estoppel, no reasonable reliance)

Elements of fraud in Texas law, common-law fraud cause of action

BRIEF CITE ON THE ELEMENTS OF FRAUD AS A COMMON-LAW CLAIM 

In order to prove fraud, a plaintiff must show that (1) the defendant made a material representation that was false, (2) the defendant knew the representation was false or made it recklessly as a positive assertion without any knowledge of its truth, (3) the defendant intended to induce the plaintiff to act upon the representation, and (4) the plaintiff actually and justifiably relied on the representation, which caused the injury. Ernst & Young, L.L.P. v. Pac. Mut. Life Ins. Co., 51 S.W.3d 573, 577 (Tex. 2001). 
    
SOURCE: Wood v. Texas Chiropractic College (Tex.App.- Houston [1st Dist.] July 24, 2008) (Jennings) (suit by student against private educational institution, DTPA claim, misrepresentation, summary judgment affirmed, no showing of reliance) 


ELEMENTS OF FRAUD - CASE LAW SNIP (IMAGE)