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statutory fraud | RESPA | | fraud | statutory fraud | fraudulent inducement of contract | fraudulent concealment
of tort or breach as limitations tolling theory | fraudulent misrepresentation | negligent misrepresentation |
breach of contract vs. fraud claim | Deceptive Trade Practices (DTPA) claim |
FRAUDULENT INDUCEMENT CAUSE OF ACTION - CASELAW SNIPPETS
Fraudulent Inducement
Fraudulent inducement is a particular species of fraud in which the elements of fraud must be
established as they relate to an agreement between the parties. See Coastal Bank SSB v. Chase
Bank of Texas, N.A., 135 S.W.3d 840, 843 (Tex. App.—Houston [1st Dist.] 2004, no pet.). The
elements of fraud are: (1) a material misrepresentation was made; (2) it was false; (3) when the
representation was made, the speaker knew it was false or the statement was recklessly asserted
without any knowledge of its truth; (4) the speaker made the false representation with the intent that it
be acted on by the other party; (5) the other party acted in reliance on the misrepresentation; and (6)
the party suffered injury as a result. See DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 688 (Tex.
1990). Reliance on a party’s misrepresentation must be justifiable and reasonable. See Atl. Lloyds
Ins. Co. v. Butler, 137 S.W.3d 199, 226 (Tex. App.—Houston [1st Dist.] 2004, pet. denied) (citing
RESTATEMENT (SECOND) OF TORTS § 531 (1977)).
Fraudulent inducement requires a showing that the plaintiff reasonably and justifiably relied on the defendant’s
misrepresentation. DeSantis, 793 S.W.2d at 688; Butler, 137 S.W.3d at 226. Generally, reliance on
representations made in a business or commercial transaction is not justified when the representation takes
place in an adversarial context or relationship. Coastal Bank SSB, 135 S.W.3d at 843 (citing McCamish,
Martin, Brown & Loeffler v. F.E. Appling Interests, 991 S.W.2d 787, 794 (Tex. 1999)). In McCamish, the Texas
Supreme Court articulated the test for determining if a relationship is adversarial:
In determining whether [the] justifiable reliance element is met, one must consider the nature of the relationship
between the [parties] . . . . Because not every situation is clearly defined as “adversarial” or “nonadversarial,”
the characterization of the inter-party relationship should be guided, at least in part, by “the extent to which the
interests of the [parties] are consistent with each other.”
991 S.W.2d at 794 (citing Jay M. Feinman, Attorney Liability to Nonclients, 31 Tort & Ins. L.J. 735, 750 (1996)).
This test originated in a case alleging negligent misrepresentation by an attorney to a third party, McCamish,
991 S.W.2d at 794, which, like fraudulent inducement, requires a showing of justifiable reliance. See Grant
Thornton LLP v. Prospect High Income Fund, 314 S.W.3d 913, 923 (Tex. 2010). The basic rationale for the
McCamish test is that an attorney, hired by a client for the benefit and protection of the client’s interests, must
pursue those interests with undivided loyalty (within the confines of the Texas Disciplinary Rules of
Professional Conduct), without the imposition of a conflicting duty to a nonclient whose interests are adverse to
the client. Id. Even though its origins are in litigation, the McCamish test may apply in non-litigation contexts
such as “adversarial” business or commercial transactions. Id.
Courts recognize claims of fraudulent inducement to enter into a contract and fraud claims based on a
representations made with no intention of performing, whether or not the representation is later subsumed into
a contract. See Formosa Plastics Corp. USA v. Presidio Eng'rs & Contractors, Inc., 960 S.W.2d 41, 46 (Tex.
1998). In certain circumstances, the merger doctrine may apply to negate reliance on representations made
during negotiations that fraudulently induce a party to enter into a contract. See Schlumberger Tech. Corp. v.
Swanson, 959 S.W.2d 171, 177-81 (Tex. 1997); IKON Office Solutions, Inc. v. Eifert, 125 S.W.3d 113, 126-28
(Tex. App.-Houston [14th Dist.] 2003, pet. denied).
CHRISTUS HEALTH v. KONE INC., 14-07-00786-CV.Tex: Court of Appeals, 14th Dist., Houston 2009
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)
AFFIRMED: Opinion by Justice Brock Yates
Before Price, Justices Brock Yates and Guzman
14-06-00986-CV Biosilk Spa, L.P., f.k.a. One Marengo, L.P. v. HG Shopping Centers, L.P.
Appeal from 234th District Court of Harris County
Trial Court Judge: Reese Rondon
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