Formosa Plastics Corp. USA v. Presidio Engineers and Contractors, Inc.

n willissue appeals the court of fails to

vacate its writ of mandamus.

FORMOSA PLASTICS CORPORATION Corporation,

USA and Formosa Plastic

Texas, Petitioners,

PRESIDIO ENGINEERS AND

CONTRACTORS, INC.,

Respondent.

No. 95-1291.

Supreme Court of Texas.

Argued Oct. 1996.

Decided Jan. 1998. Opinion

Dissenting Original 9,1997.

Opinion July

Rehearing Overruled March 1998.

package representa- also contained certain job. repre- tions about the foundation These (1) sentations included that Presidio would arrange responsible and be for the schedul- delivery materials, ing, ordering, and of all (2) Formosa; paid by including those for Hatchell, Navarro, Molly Andy H. Mi- G. progress continually com- work was to from Hatchell, Greenhill, Tyler, chael A. Joe R. (3) completion; job mencement to and Shannon, Austin, Joseph Knight, Bob E. R. 16,1990, July on was scheduled to commence petitioners. for later, completed days and on be October Houston, Cynthia Sheppard, Robert P. T. 15,1990. Griffin, Jr., Victoria, Powers, John William Burnette, president, Bob testi- Jr., respondent. for representations fied that he relied on these preparing Presidio’s bid. Because the bid ABBOTT, Justice, opinion delivered the of package provided that the contractor would Court, PHILLIPS, in which Chief responsible be for all weather and other un- Justice, GONZALEZ, HECHT, ENOCH, delays, days HANKINSON, known he added another 30 to Justices, join. OWEN and job’s comple- his estimate of the scheduled Respondent’s We overrule motion for re- tion date. He submitted a bid on behalf of hearing voluntary and motion for remittitur. $600,000. Presidio in the amount of Because 9,1997, opinion July We withdraw our and bid, Presidio submitted the lowest Formosa following place. substitute the in its awarded Presidio the contract. Telephone In Southwestern Bell Co. v. De Lanney, (Tex.1991), 494-95 job completed days. was not this Court held that a cause of action for Rather, job eight took over months to negligence allega could not be complete, more than twice Burnette’s esti- tion that a negligently had to failed almost mate and three times the scheduled perform a contract because such a claim provided package. time in the bid The de- contract, Today sounded not in tort. lays caused Presidio to incur substantial ad- requested apply are to analysis a similar to ditional anticipated costs that were not when preclude recovery in tort for a fraudulent Presidio submitted its bid. inducement of contract claim. We decline to Presidio asserted a claim paragraph under so, holding do DeLcmney instead our contract, parties’ provided of the which analysis applicable is not to such a claim. delay Formosa was liable for all dam- probative because there is no evi ages within the “control of the owner.” dence to the entire amount of dam may Formosa countered while it ages by court, awarded the trial we reverse delays, been liable for some of the it was appeals the court of and responsible delays not for all of the remand the case to the trial court for a new losses asserted Presidio. Because the trial. parties were not able resolve their dis- I pute, Presidio sued Formosa for breach of duty good contract and breach of a faith Corporation Formosa Plastics be- dealing. brought and fair Presidio also gan large “expansion project” construction fraudulent inducement of contract facility Comfort, at its in Point Texas. Presi- performance fraudulent of contract claims Contractors, Engineers dio Inc. received representations based on made Formosa an “Invitation to Bid” from Formosa on that that Presidio discovered were false after part project requiring the construction commencing performance of the contract. of 300 concrete foundations. The invitation accompanied by Formosa counterclaimed breach of con- package bid contain- tract, ing drawings, specifications, urging properly technical not general Presidio had information, sample completed and a contract. The bid some of its work. jury duty good faith and fair presented and breach of

Presidio intentional, premedi- wantonly, inten- dealing willfully, that Formosa had an were done the contractors tated scheme defraud tionally, or with conscious indifference to expansion working project. Presidio, on its Under jury awarded rights of further scheme, Formosa enticed contractors damages. exemplary million Presidio $10 by making misrepresenta- make low bids jury Formosa Additionally, the found that package regarding tions in the bid schedul- Presidio, causing its contract with breached materials, delivery responsibility ing, $1,267 million in the other damages. On Lin, damages. delay the director Jack hand, jury also concluded that department, Formosa’s civil admitted that comply caus- fully with the did representing deceptively by acted $107,000 damages. ing Formosa package contractors in the bid re- suggested The trial court a remittitur ability the deliv- have the to schedule would $700,000 ducing the tort to and the ery of concrete when in truth Formosa had $467,000, damages to Presidio which delivery secretly up to its own decided set to accepted. Based on Presidio’s election money. in to Formosa schedule order save damages, recover tort rather than contract contractors, doing multiple also scheduled in judgment trial court a favor the rendered work, in same mutually exclusive to be the $700,000 damages, in actual of Presidio instance, For- area at the same time. For punitive prejudgment in million $10 to install mosa scheduled another contractor ' interest, fees, attorney’s The and costs. pipe in area at underground Presidio’s work of con- damages caused Presidio’s breach supposed to the same time Presidio was against judgment. tract were offset the Pena, For- pouring be foundations. Thomas inspector, that Formosa mosa’s admitted appealed to the the Formosa working be knew contractors would judg- appeals, of which affirmed the court other, top of each this informa- right on but court. 138. We of the trial ment passed the tion was not on to contractors. granted application Formosa’s for writ course, once the were on Of contractors consider, things, among to other error that, job, they would realize due to such has fraud claim Presidio a viable whether Formosa, unexpected delays their caused only losses related when it suffered economic inadequate. the con- were But when bids of the performance subject matter and delay damages under the requested tractors contract, legally there was párties’ whether superior rely on its Formosa would fraud, whether sufficient evidence of and position offer the contractors economic sup- to there was sufficient less than the full and fair value far damages awarded. port the entire amount of Robiehaux, fact, damages. delay In Ron that, a viable We conclude while Presidio of Formosa’s contract administration head claim, suffi- present legally it failed fraud to division, Formosa, in an effort testified that amount to entire cient evidence costs, utilize its economic to lower would Accordingly, we re- damages awarded. along and superiority string to contractors appeals judgment of the court verse the added that force them to settle. Robiehaux cause trial. remand the for a new complain then contractor] “if continued to [a from him would take the contract [Formosa] II money.” he his Under and make sure loses scheme, to allegedly stood Formosa this fraud asserts Formosa on its billion ex- save millions dollars $1.5 “Presi- be claim cannot maintained project. pansion losses re- purely were economic dio’s losses subject matter performance and the lated jury found Formosa defrauded The that our Formosa contends of the contract.” million. Presidio and awarded Presidio $1.5 Telephone Co. in Bell a decision Southwestern breached jury also found that Formosa (Tex.1991), DeLanney, 809 dealing and duty good faith fair of Pre- compels us to examine the substance as a result. Presidio million $1.5 awarded tort claim to whether fraud sidio’s determine findings on its that Formosa’s Based is, in reality, re-packaged negligence, accordingly judg- claim breach of rendered urges provided contract claim. in of Bell. mak- ment favor We determination, ing analyze following guidelines distinguishing we con- should alleged injury, tract and tort causes of action: nature the source of the duty, breached and whether the loss or risk negli- If the defendant’s conduct—such as contractually contemplated by of loss is gently burning give down house—would parties. DeLanney- counters that liability independent rise of the fact that type analysis apply does not to fraud claims. parties, contract exists between the below, agree For the reasons discussed we plaintiff’s may claim also in tort. sound with Presidio. Conversely, if the conduct— defendant’s failing publish such as an advertise-

A give liability only ment —would rise to be- fifty years, last Over the this Court has parties’ agreement, cause it breaches the analyzed the distinction between torts and plaintiff’s ordinarily only claim sounds contracts from perspectives. two different determining contract. whether the first, merely analyzed At the source of plaintiff may theory, recover on a tort it is duty determining whether an action also instructive to examine the nature of instance, sounded in tort or contract. For plaintiff’s loss. loss or When Printing International Pressmen & Assis subject is to the matter of the Smith, 399, tants’ v. contract, Union 145 Tex. 198 plaintiff’s ordinarily the action is 729, (1946), S.W.2d 735 this Court held that on the contract. “ ‘an action in contract is for the breach of a DeLanney, applying 809 S.W.2d at 494. In duty arising out of a express contract either guidelines, these we first determined that implied, or while an action in tort is for a duty publish DeLanney’s Bell’s to advertise- ” duty imposed breach of by (quot law.’ Id. solely ment arose from the contract. We 44). ing § 1 C.J.S. Actions DeLanney’s damages, then concluded that Later, analysis we an overlaid of the na- profits, only lost were the economic loss remedy ture of the sought by plaintiff. the perform Bell’s failure to caused the con- Homes, Reed, In Jim Thus, Walter 711 DeLanney pleaded tract. while his (Tex.1986), that, 617 recognized S.W.2d we negligence, clearly sought action as one in he while contractual relationship par- the bargain to recover the benefit of his with Bell ties could create duties under both contract publish such that Bell’s failure to the adver- law, law and tort injury the “nature of the tisement was not tort. Id. at 495. duty most often determines which or duties recently, Sign, Most v. Ace Crawford injury only are breached. When the is Inc., 12, (Tex.1996), 917 S.W.2d 13-14 subject economic to loss of a contract Deceptive considered the intersection of the itself, the action sounds contract alone.” Trade Practices Act and contract law. Ace Id, at 618. Because a mere breach of con- Sign yellow pages sued Bell for omission of a support recovery tract cannot exemplary advertisement, alleging negligence, DTPA plaintiffs and because the did not misrepresentation, and of contract. breach “prove injury a distinct tortious with actual breach, stipulated Bell contract and was damages,” judgment we rendered granted summary judgment Sign’s on Ace plaintiffs nothing exemplary take on their negligence DTPA The court of and claims. damages claim. Id. appeals judgment reversed the trial court’s claim, analyzed We both the duty source of the on the DTPA but this Court then and remedy DeLanney. appeals. nature of the court of reversed the We noted DeLanney that, negligent DeLanney, asserted that Bell was under we were to consider in failing publish Pages duly to his Yellow adver- “both the source of the defendant’s (whether promised. tisement as solely The trial court ren- act it arose out of the con- DeLanney, duty) dered the court tract or from some common-law and Court, however, appeals remedy sought by affirmed. This the nature of the contract, plaintiff.” held that the claim sounded in not Id. at 12. We then examined the 46 law, 1996),

relationship pursuant DTPA with and contract vacated to settlement merits, concluding allegation an mere breach out 938 S.W.2d 717 reference more, (Tex.1997); Guajardo, without does not violate Peco Constr. v. Co. 736, DTPA. (Tex.App.—San We held because the al- to 919 S.W.2d 738-39 An representations denied); leged simply 1996, of Bell were Ins. nio writ Prudential Co. Ltd., 866, representations Assocs., that it would fulfill its con- v. 839 S.W.2d Jefferson advertisement, duty to publish 1992), tractual (Tex.App on 875-76 rev’d . —Austin perform promise a mere to later (Tex.1995); failure grounds, other 156 S.W.2d misrepresentation, not does constitute Craw- Coop., 829 Schindler v. Austwell Farmers could in contract. ford recover 286, 283, (Tex.App —Corpus 289-91 . Christi), grounds, other modified affd B (Tex.1992); v. Am 841 S.W.2d 853 Matthews appellate Ass’n, 552, Several courts considered Sav. West application DeLanney denied). 1992, of our decisions App. writ - Beaumont Reed to fraudulent inducement claims. reject application too We of these Some courts have concluded preclude damages in fraud DeLanney to tort these decisions mandate that tort long imposed duty cases. Texas law not for a are recoverable fraudulent induce- inducing into a abstain from another enter plaintiff claim ment unless the suffers through the use mis of fraudulent distinct, injury separate, indepen that is rule, representations. As a dent from economic losses recoverable E.g., procured by fraud. bound a contract a breach under of contract claim. Grace Ltd., Assocs., v. Prudential Ins. Co. Jefferson Williamson, Corp. Petroleum v. 156, (Tex.1995); Weitzel 1995, writ); 66, (Tex.App. Tyler 68-69 no - (Tex.1985); Barnes, (Tex. Parker, Parker v. Broaddus, Bank Town North Nat’l denied); App. Worth writ Bar - Fort 489, (Tex.1978); 491 Dallas Farm S.W.2d Munden, 288, bouti v. 866 S.W.2d 293-94 Reaves, 1, 158 Mach. v. Tex. 307 S.W.2d Co. 1993, (Tex.App. writ [14th Dist.] - Houston 233, (1957). Moreover, it estab 239 is well Sullivan, denied); Consulting, River Inc. v. legal duty fraudulently lished that the not to 165, (T ex.App.-Houston [1st 848 S.W.2d 170 indepen procure separate a contract is 1992, denied); writ & C Partners v. Dist.] C by the con dent from the duties established Co., Exploration Sun & Prod. 783 S.W.2d Mach., Dallas 307 tract itself. See Farm 1989, 707, (Tex.App. 719-20 writ de - Dallas (“‘[T]helaw ago long 239 aban S.W.2d at nied); Co., Hebisen v. Nassau Dev. 754 position that a must be doned the contract 345, (Tex.App. [14th S.W.2d 348 - Houston of one of regardless held sacred the fraud of 1988, denied); Allen, writ Allen v. 751 Dist.] ”) parties procuring (quoting Bates it.’ 567, (Tex.App. S.W.2d 574-75 — Houston 170, 551, Southgate, v. Mass. 31 N.E.2d 308 denied). 1988, The United [14th Dist.] writ (1941)). 558 Appeals for the Fifth States Court Circuit See, repeatedly recognized This also has adopted view of Texas Court has also law. Fin., promise can be a claim e.g., Computer Heller Inc. v. fraud Grammco (5th Sales, Inc., 518, performing, irre 71 527-28 made with no intention of F.3d Cir. 1996); promise sub Olney spective see Loan v. of whether the is later but Sav. & Ass’n Ass’n, 266, example, in Trinity F.2d 276 sumed within a contract. For Banc Sav. 885 Cir.1989). (5th Int'l appellate Truck & Tractor Co. v. Navistar Other Texas deci Crim (Tex. 591, sions, however, rejected Transp. Corp., 823 597 application S.W.2d 1992), rule, DeLanney preclude general “As a Reed to the recov we noted: is a perform failure the terms of a contract ery damages of tort for fraudulent induce v. breach not a tort. claims. American Nat’l Ins. Co. ment with Corp., when one enters into a contract Mach. 933 S.W.2d International Bus. 685, 1996, misrepresen performing, Antonio writ no intention of (Tex.App. 687 — San denied); in fraud.” Rey, may give tation rise an -action Personnel Servs. v. Beneficial Tours, 157, Spoljaric Percival (Tex.App Similarly, Paso v. 927 S.W.2d 167-68 . —El

47 Inc., 432, (Tex.1986), plain- damages sounding only 708 S.W.2d 434 we held in tort when a maintained, injury that a claim from fraud could be under tiff suffers an that is distinct case, particular facts of that for the economic losses recoverable under a breach agreement pay breach of an oral bonus of contract claim is inconsistent with this law, “promise ignores to do an act in the future well-established and also the fact independent legal duty, separate is actionable fraud when made the in with that an tention, itself, design purpose deceiving, pre- from the existence of with no performing binding intention of the act.” cludes the use of fraud to induce a Stanley agreement. disapprove Accord T.O. Boot Co. v. Bank El We therefore Paso, 218, (Tex.1992); 222 following appellate opinions 847 S.W.2d Stan court to the ex- (Tex. 270, O’Boyle, they v. 462 S.W.2d 272 tent that that tort cannot hold field 1971). for a be recovered fraudulent inducement injury claim absent an that is distinct from prior clearly Our decisions also establish any permissible damages: contractual Grace precluded that tort simply are not Williamson, Corp. Petroleum 906 S.W.2d representation because a fraudulent causes 66, 1995, writ); (Tex.App. Tyler 68-69 no - only years an economic loss. Almost 150 Parker, 918, Parker 897 S.W.2d 924 Roder, ago, this Court held in Graham v. 1995, denied); App. Worth writ Bar — Fort 141, (1849), Tex. that tort were Munden, 288, bouti v. 293-94 plaintiff’s recoverable based on the claim that 1993, (Tex.App. [14th Dist.] writ — Houston fraudulently he was exchange induced to denied); Sullivan, Consulting, River promissory note a tract of land. Al- 165,170 (Tex.App [1st . -Houston though plain- sustained 1992, denied); Dist.] writ C & C Partners v. economic, purely tiff were held tort Co., Exploration Sun & Prod. including exemplary damages, 707, 1989, (Tex.App 719-20 writ de . —Dallas Graham, were recoverable. Since this Court nied); Co., Hebisen v. Nassau Dev. recognize continued to propriety 345, (Tex.App [14th . -Houston sounding despite fraud claims in tort the fact 1988, denied); Allen, Dist.] writ Allen v. aggrieved party’s that the losses were (Tex.App 574-75 . -Houston See, economic e.g., Spoljaric, losses. denied). [14th Dist.] writ We instead 436; S.W.2d at International Bankers Life plaintiff presents legally conclude if a Holloway, Ins. Co. v. sufficient evidence on each of the elements of (Tex.1963); Tex.Civ.PRAc. & Rem.Code cf. claim, any fraudulent inducement 41.003(a)(1) § (expressly authorizing exem- suffered as a result of the fraud sound in plary damages for making any fraud without tort. exception type based on the of loss sustained injured Moreover, party). the we have We thus that conclude Presidio has via- held a similar context that tort against ble fraud claim that it can assert precluded were not for a tortious interfer- However, Formosa. this conclusion not does claim, ence with contract notwithstanding the inquiry. our end We must also determine fact that the for the tort claim supports whether sufficient evidence compensated for the same economic losses jury’s findings. fraud and that were recoverable under a breach of con-

tract claim. American Nat’l Petroleum Co. Ill Pipe Corp., Transcontinental Gas Line requires A fraud cause of action “a 274, (Tex.1990). 798 S.W.2d 278 false, misrepresentation, material which was

Accordingly, tort are re and which was either known to be false when coverable for a knowledge fraudulent inducement claim or made was asserted without irrespective truth, repre of whether the fraudulent its which was intended to be acted are upon, upon, sentations later subsumed in a contract which was relied and which Sears, plaintiff only or whether the injury.” suffers an eco caused Roebuck & Co. v. Meadows, 281, (Tex.1994); nomic loss related to subject matter of 877 282 S.W.2d Allowing recovery the contract. Corp., fraud DeSantis v. 793 S.W.2d Wackenhut 48 (Tex. (Tex.1990), 925, denied, ris,

670, Reyna, 928 498 U.S. rt. S.W.2d ce 1993). 765, (1991); 1048, 111 S.Ct. 112 L.Ed.2d Corp., Lawyers Ins. see also Stone Title presented We conclude that Presidio 183, promise A 554 S.W.2d legally sufficient that Formosa evidence performance an action of future constitutes representations no intention made with misrepresentation promise was able represented as in order to induce performing at the performing made with no intention of at a low to enter into this contract Presidio was made. v. Austwell time it Schindler In the and the con price. package bid bid Coop., Farmers tract, represented that Presidio Formosa 1992). However, perform failure to mere delivery of the have control of the would fraud. See id. a contract is evidence of necessary project. While concrete Rather, present Presidio had to evidence argues general more Formosa that other representations the in made with Formosa refute provisions contained in the contract per and with no intention of tent deceive representation, and the bid this the contract forming represented. Spoljaric, 708 specifically pro package unequivocally 434; 272; Stanfield, at at “arrange Presidio the deliv vide that would Co., Stanley at see also T.O. Boot [Formosa]-supplied material ery schedule of 222; Tractor, at Truck & Crim delivery ... of all responsible for the and be Moreover, presented must 597. Further, Formosa’s own materials.” even at the time be relevant Formosa’s intent plain lan witnesses admitted under representation Spoljaric, was made. control guage of the Presidio had scheduling delivery at 434. of concrete. over Accordingly, clearly there sufficient evi alleges made three Presidio that Formosa representation in fact this was dence representations- intended to never by Formosa. made keep in order to Presidio to enter into induce representation, In contravention of this First, package and the contract. the bid decided, the con- two weeks before represented would “ar- contract that Presidio delivery of signed, to take over the tract was delivery range [Formosa]- schedule of informing Presidio. the concrete without responsible for the supplied material and be Lin, department di- Formosa’s civil Jack (this delivery ... of all materials includes rector, Formosa, in an effort to testified [Formosa]).” Second, supplied by material money, the con- decided to take over save provided package the bid and the contract delivery delivery up its own crete set July job begin on was scheduled to in- was not schedule. 15, 1990, completed and be on October change contract until after the formed of Third, days paragraph 17 of the later. act- signed. Lin admitted' that Formosa represented would be that Formosa deceptively by taking over the concrete ed any delay responsible payment for the pack- delivery scheduling when the bid damages within control. its expressly provided that the contractor age admitted have control. He further would and found jury agreed The with Presidio rely knew that Presidio would that Formosa In our re committed fraud. that Formosa preparing its bid. representation this on finding, all of the record view of Burnette, most favorable light must be considered in a testi- president, Bob Presidio’s party in favor the verdict rely whose on this that Presidio in fact fied did rendered, infer every and reasonable Bur- representation preparing been its bid. from is to be every ence deducible the evidence concrete further that nette testified v. delayed days Harbin Pre- indulged party’s favor. while pour was one-to-two Seale, 591, Any the re- to obtain 592 waited sidio Formosa did not than a of evidence concrete. Because Burnette thing quested more scintilla bid, finding. delays the actual such into his legally support sufficient to the calculate Cazarez, project the 937 cost of the exceeded Prods. Co. v. Continental Coffee 444, (Tex.1996); Browning-Fer price. 450 S.W.2d testimony provides

This more than a benefit-of-the-bargain scin- while the measure supporting tilla of evidence conten- computes the difference between the value as tion intentionally repre- that Formosa made represented and the value received. Arthur keep sentations it never intended to in Andersen, 817; Leyendecker, 945 S.W.2d at order to induce Presidio to enter into the at 373. price contract at a low bid and that Presidio misrepresentations relied on these to its det- out-of-pocket allows measure Thus, legally riment. sufficient evidence injured party the “to the in recover actual supports jury’s the finding. fraud needWe jury by suffered measured ‘the difference any representa- consider whether other part between the value of that which he has allegedly tions Formosa made were fraudu- with, ed the value of that which he has lent. ” Leyendecker, received.’ 683 S.W.2d at 373 contends, however, Formosa the Hesse, 44, (quoting George v. 100 Tex. $700,000 award of fraud to Presi- (1906) added)); (emphasis S.W. 107 see also dio is excessive as a matter of law. Presidio Pondrom, 98, Morriss-Buick v.Co. 131 Tex. damage counters that supported the award is (because 889, (1938) out-of- that, by testimony Burnette’s if he had been pocket pro fraud are intended to project, told the truth about the he “would compensation injury vide actual for the rath $1,300,000” neighborhood have bid in the profit, proper er than measure of dam perform and that ages is the difference between the value amount necessary was reasonable and cost parted what was with and what was re doing the work. Presidio maintains ceived). testimony Burnette’s regarding by subtracting they paid the amount were what he would have bid he had known the contract, $600,000, $1,300,000 from the proper truth is not the measure of out-of- necessary doing reasonable and cost for pocket damages. computed Burnette his work, there is sufficient evidence to by taking million bid the total amount $1.3 $700,000. award of But labor, materials, spent sup on the objected Formosa at testimony trial to this $831,- plies, equipment job, used on the on the basis that it speculative was both 000, by original expected divided cost of improper an damages. measure of Formosa $370,000, job, multiplied by his actual bid argued again in its motion for new trial that $600,000. performed He also alterna awarded were excessive be- cause testimony Burnette’s tive calculation that reached a similar result speculative on an improper dividing days job actually measure of dam- the 264 ages. re-urges complaints these days job took the 134 should have this Court. $600,- multiplied by taken his actual bid of Basically, 000. both of multi these methods recognizes Texas two measures of $600,000, plied price the actual bid which direct for common-law fraud: profit margin job, by included a on the out-of-pocket measure and the benefit-of-the- comparing actually ratio what occurred to bargain measure. Arthur Andersen & Co. Thus, anticipated. what was both of these Perry Equip. Corp., 945 incorporated expected prof calculations lost (Tex.1997); Nissan, W.O. Bankston Inc. bargain its on a that was never But made. Walters, (Tex.1988); out-of-pocket only compensates measure Assocs., Leyendecker Wechter, & (Tex.1984).1 injuries through for actual sustains The out-of- pocket computes parting something, profits measure the difference with not loss of on be paid received, made, realized, tween the profit value and the value a bid not and a never properly pleaded proved, profits opportunities 1. When conse- from other business lost as quential damages misrepresentation. that are foreseeable and direct- a result of the fraudulent ly might argument traceable to the fraud and result from it Presidio makes no in this case that the Andersen, $700,000 damage by legally be supported recoverable. Arthur 945 S.W.2d at award is case, possible proper any consequential damages 817. It is in the sufficient evidence of consequential damages could include it foreseeable suffered as a result of Formosa’s fraud. in hypothetical bargain testimony, a never struck.2 on Based Burnette’s Presidio’s Thus, hypothetical $700,- million less benefit-of-the-bargain the bid not damages $1.3 are $600,000 (bid actually proba- the 000, $461,000 $600,- is not price received but rather out-of-pócket tive Presidio’s loss. The $370,000 original expected 000 less cost of for proper out-of-pocket calculation $230,000, $831,000 profit plus actual cost $831,000 testimony, on Burnette’s based $600,000actually paid). less received, $600,- actually less the amount he 000, $231,000. damages of for hypothetical Burnette his calculated $600,000 multiplying million bid his $1.3 testimony regarding Burnette’s bid, including profit, anticipated his a hypothetical the million bid is also not $1.3 doubling about this factor of 2.2. probative benefit-of-the-bargain evidence of speculative entirely of Presidio’s bid is be bargain the damages. Under benefit-of-the cause there is no evidence Presidio measure, profits bargain may lost on be the project have been if it would awarded damages proved if such are with recovered fact, any In if had made million bid. $1.3 certainty. reasonable Restatement drawn, be it inference could would lead to the 549(2) (1977) (“The § re (Second) of ToRTS opposite conclusion because two of three cipient in misrepresentation of a fraudulent other bids Formosa received were lower than is to business transaction also entitled recov testimony million. as Burnette’s what $1.3 give er him additional sufficient he would bid had he known truth maker, of his benefit contract with the simply any does not establish benefit proved damages are reasonable these with bargain with It not made Formosa. is based But, certainty.”). while a benefit-of-the-bar expenses profits on the incurred and gain lost profits, can it measure include lost represen this contract of Formosa’s profits because compensates for the that would have tations, an entirely but rather is based on per been if the bargain made had been hypothetical, speculative bargain that was promised. Accordingly, prop formed er never struck and not have been con benefit-of-the-bargain calculation of dam would ages testimony summated. This anticipated profit is Presidio’s on the is therefore not $600,000 job plus legally supporting bid the actual cost of the sufficient evidence $700,000 less actually paid by damages.3 the amount Formosa. award of Indus., 276, (Tex. 1994); supplemental dissenting opinion 2. The issued to- Holt Atherton Inc. v. urges out-of-pocket Heine, 1992); day include Whiteside profits expected bargain Trentman, loss on a never made Tex. explaining "parted how with” without Presidio (1943). surrounding When a review of cir non-existent, hypothetical profits. such profits cumstances that the are establishes not S.W.2d at 55. certain, reasonably sup is evidence to there no port ments, profits lost See Texas award. Instru Remarkably, supplemental dissenting opin- 3. (reviewing at 279-81 the cir repeats charge en- ion that the Court has profits cumstances determine that lost had not review, gaged improper sufficiency in an factual certainty). been established with reasonable In despite the fact that never made such Presidio case, merely considering we are all of Bur- fact, complaint rehearing. in its motion for testimony, indulging all nette’s while reasonable rehearing, contending its motion rather than favor, to conclude inferences sufficiency that we had conducted a re- factual legally does not constitute sufficient evidence of view, actually that the Court admitted $700,000 specu in actual it is properly benefit-of-the-bargain calculated dam- rhetoric, improper lative and based measure ages. Contrary on an we are dissent’s simply conducting sufficiency damages. factual re- view, concluding are there is no but instead Moreover, retreating we from are not our re- supporting evidence the entire sufficient determining fusal to endorse one method lost because, damage own award based on Burnette’s See, Atherton, profits. e.g., 835 S.W.2d at Holt testimony, speculative award is Instead, partic- merely conclude that this 85. legal damages. improper on an measure of method, testifying the bid ular been,” what "would have repeatedly recognized that deter- This Court has improper is an no method constitutes profits proved mining whether lost have been legally sufficient award- certainty de- reasonable a fact-intensive with logically ed. This conclusion is consistent with dependent upon termination the circumstances Instruments, holding plaintiffs’ that the our Holt particular case. Atherton of a Texas Inc., Energy Management, testimony working as to two bulldozers half what Teletron as mony damages he suffered pro- regarding the accordingly there is no hold that We destroyed his mobile result of a fire that supporting the entire amount a bative evidence personal items in the home. by judgment. his damages awarded home and of is, however, testimony inadmissi- clearly legally sufficient Id. at 668. His included There mo- regarding dam- the cost of his that Presidio suffered some statements evidence ble fraud; fact, in its to establish ages as a result of Formosa’s home that were offered bile sup- Recog- testimony, while it does not of loss. Id. Burnette’s value at the time market $700,000, sup- probative of does port damage a award were not nizing that his statements $231,- home, out-of-pocket damage Ivys award of port an the market value of the of damage benefit-of-the-bargain 000 or a between attempted to remit difference But, $461,000. the issue of award of because legally sufficient jury’s verdict and the Formosa, can- by was contested regarding the dam- presented he evidence Presidio for not render favor of Id. ages personal items in his home. to the Instead, amount. because a lesser dollar However, rejected the at 669. this Court sup- legally there is no sufficient evidence Ivys’ offer of remittitur. We concluded there port amount of but the entire considering ques- we are limited to of the correct measure of is some evidence law, only consider a remitti- tions of we could judgment of the damages, we reverse the circumstances if the tur under such appeals the cause for a court of and remand personal property had been estab- Hosp. v. trial. See Texarkana Mem’l new of law. Id. lished as a matter Murdock, case, presented Similarly, in this Burnette conjunction with its motion for testimony behalf re- on Presidio’s rehearing, Presidio has also filed a motion a result of garding damages suffered as $239,- remittitur, voluntary offering to remit fraud. have concluded Formosa’s We comport plus interest to with our deter testimony probative not parts of his were its could a mination that by jury. awarded benefit-of-the-bargain award attempted the difference be- to remit $461,000. grant that we cannot We conclude jury’s legally suffi- tween the verdict and Presidio this relief. presented regarding dam- cient evidence precedent ages. under our Appellate Procedure 46 de- Texas Rule Homes, consider we cannot even Redman may lineates two means which remittitur a established as such an offer unless Presidio First, appeal. the court of be effectuated $461,000 in it suffered matter of law that in lieu of appeals may suggest a remittitur any make damages. But Presidio does not Tex.R.App.P. ordering a new trial. 46.3. $461,000 damages proved as claim that it Second, voluntarily if a party may remit law, nor could it do so under matter of trial court’s appeals court of reverses the clearly con- ease. record legal error that af- judgment because of a damages at both the tested the amount only part fects of the awarded Accordingly, be- Tex.R.App.P. appellate level. trial 46.5. The Tex- judgment. voluntary remitti- motion for cause Presidio’s not ex- Appellate Rules of Procedure do question us with a present tur does to remit to this pressly authorize law, be overruled. it must Court, accepted re- although the Court has past, prior adoption mittitur in the Homes, Ivy, Redman Inc.

the rules. See IV (Tex.1996) cases). (listing argument Formosa’s finally consider We fair good faith and identical that the submission were faced with an almost We trial erroneous. The dealing question was voluntary in Redman offer of remittitur jury charge question on Homes, court submitted Ivy, 920 S.W.2d 664 comply with its 1996). “to case, Formosa failed Ivy presented testi- whether In that Mr. could earn. See id. insufficient evi- of the time earned was working full time what one bulldozer dence of 52

duty good dealing faith and fair to Presi- I. PROFITS LOST dio, any.” jury found that Formosa A. No Evidence Review comply duty had failed to with this holds, As the Court of common victim awarded Presidio million. $1.5 law in the can fraud inducement recover bargain damages. benefit-of-the This mea Formosa contends that the submis recovery sure of allows for lost question sion of this was erroneous. We profits. reviewing damage In awards for lost agree. general duty good There is no profits, only this Court must conduct a tradi dealing ordinary, faith and fair arms- tional no evidence review. Texas Instru length English commercial transactions. See ments, Energy Management, Inc. v. Teletron Fischer, 521, (Tex.1983); 660 522 S.W.2d (Tex.1994) 276, (holding 877 S.W.2d 281 Assocs., Co., Harrop Electro Constr. prove there no reasonable evidence 21, (Tex.App. 22-23 - Houston certainty profits); of lost Holt Atherton In 1995, denied); Adolph writ [1st Dist.] Coors Heine, (Tex.1992) 80, dus. v. 835 84 S.W.2d 477, Rodriguez, v.Co. 481 (holding that the evidence was insuffi denied). 1989, App. Corpus writ Christi - prove profits); cient to lost Southwest Bat good We find no basis for the submission of a Owen, 423, 115 tery Corp. v. 131 Tex. S.W.2d dealing jury fair question faith and (1938) (court 1097, it determined that Accordingly, jury’s this case. affirmative decide, law, a could not as matter of support question answer to this cannot judgment required against plaintiffs facts remand, judgment. question On this should claim). profits lost not be submitted. weigh sufficiency We cannot the factual jury’s ‡ ‡ supporting verdict. ‡ ‡ ‡ ‡ evidence Stores, Inc., v. E-Z See Havner Mart conclusion, party In a we hold when (Tex.1992). only It is S.W.2d when fraudulently procures by making a contract reasonable minds cannot that evidence differ promise any keeping without intent of probative lacks force that it is “no evidence.” promise order to induce another into exe- Con/Chem, Inc., See Kindred v. cuting for a tort cause of action all Like cases where Accordingly, that fraud exists. Presidio has sufficiency legal Court considers the against a viable fraud claim Formosa even evidence, only must consider the evidence though seeks economic support that tend to the lost and inferences subject per- losses related to the matter and profits finding, disregard all parties. contrary. formance of the contract between the Holt Ather and inferences ton, 835 at 84. appeals’ judg- cannot affirm the court of We ment, however, because there is no evidence B. The NatuRE of Lost Profits Evidence award. the entire We therefore reverse the of the court profits Recovery of lost is allowed where a appeals and remand this ease for a new relationship business is established on the

trial. strength adversely effect- of a contract but by contracting party’s misconduct

ed under Jackson, Corp. Pace contract. See BAKER, J., dissenting opinion filed (1955). 179, 284 We Tex. SPECTOR, J., joins. which profits “recovery for lost does have held susceptible of require the loss be SPECTOR, BAKER, Justice, joined by Atherton, 835 exact calculation.” Holt Justice, dissenting. fact, nature, their “[i]n S.W.2d at 84. improper Because the Court conducts an profits conjectural specu- or or are more less sufficiency factual review of the evidence Corp., Pace at 348. lative.” Nevertheless, profits supporting prove Presidio’s actual must lost fraud, competent I some evidence with “reason- Formosa’s dissent. Atherton, with Formosa about project, Burnette dealt certainty.” able Holt 84; contract Battery, at terms and handled the contract’s at Southwest trial, review, tes- for At Burnette disputes To no Presidio. “[a]t 1098. withstand evidence expert. minimum, an lost tified as opinions or estimates of facts, profits objective must be based lost

figures, [r]ecovery or ... [and] data Evidence B.Presidio’s complete profits predicated on must be one personal knowl- expertise on his and Based Szczepanik calculation.” v. First S. calcu- edge, Burnette testified about how he Co., Trust by Formo- profits caused lated Presidio’s lost Specifically, testified fraud. Burnette sa’s today, “[i]t Before this Court had held truthfully represented the that had Formosa impossible announce with exact certain to details, would have bid project’s Presidio profits. ty any measuring” party’s rule lost million. Burnette calculated about $1.3 In Battery, at 1099. Southwest comparing original by million bid his fact, $1.3 today, until hastened to Court to estimated cost to Presidio’s actual cost determining any “sanction one method for ratio, by Atherton, multiplying then obtain and profits.” lost Holt S.W.2d at deducting original bid. After what Formosa Nevertheless, today the 85. conducts Court $700,- Presidio, figure in a paid this results improper sufficiency factual review profits. per- lost which includes profits by weighing Presidio’s lost profits centage of lost in the million bid testimony against $1.3 Presidio’s what the Court percentage of is identical to the estimated proper profits. calls “the calculation” lost added). profit original in the that Formosa fraud- bid (emphasis 960 S.W.2d at 50 I would words, ulently induced. other Burnette’s jury’s affirm the verdict Presidio bid, evidence, multiplied Presidio’s actual calculation presented providing an some specific profit by a calculation, margin, which included a objective complete to comparing complete it took to ratio what certainty. its loss with reasonable Holt Ath erton, job because of Formosa’s fraudulent scheme at 84-85. upon Presidio

to what relied under the con- tract. II. LOST PRESIDIO’S PROFITS

EVIDENCE C.Application Law to The Evidence A.Peesidio’s Witness course, opinions “hypo- are Of Burnette’s presi- Bob has been Burnette Presidio’s “speculative” thetical” and somewhat —he dent since its formation Burnette 1984. expect Formosa to commit fraud when didn’t degree degree has a and a job bachelors masters won the for he bid contract engineering. profes- Moreover, civil He is a licensed have recognized, as we Presidio.1 engineer nature, sional in Texas. California and profits are “more or less their lost negotiated Burnette for Presi- contracts conjectural speculative.” Corp., or Pace ranged Indeed, dio since 1984. The just years contracts at 348. over three quarter from a million to two million dollars ago, this Court reaffirmed rule that jobs bidding dollars. Presidio he proof Before certainty” requirement for “reasonable large in- participated in other contract bids profits of lost “is intended be flexible cluding pipeline one over in Iran for myriad circum- enough to accommodate profits million. $100 in which of lost arise.” stances claims Instruments, at 877 S.W.2d 279. Texas prepared package, Burnette Presidio’s bid Here, “hypothetical” representations reliance on Formosa’s Burnette’s calculation it, job, negotiated “speculation”, the Court about the contract or as calls representatives. During hope or with Formosa’s not “remote” based on “mere might not 1. The Court that if would have other Presidio have wanted observes Presidio hand. calculation, bid on Burnette’s begin the contract to with it had known bid on might not have won the in the first Formosa’s scheme. about fraudulent place. Maybe On the 960 S.W.2d 49. not. success” or enterprise.” motions, some “untried Tex to discuss the merits of Presidio’s Instruments, 877 S.W.2d at 279-80. In wMch the Court overrules without comment. stead, Burnette based Ms calculation on Pre- I believe that the Court’s entire discussion Formosa, sidio’s contract with the contract’s and the conclusions the Court profit margin, built in actual First, fundamentally reaches are flawed. complete cost given the contract Formo Court calculates Presidio’s based on sa’s fraudulent conduct. Burnette’s calcula the actually contract Presidio and Formosa objective tion complete. and Szczep See made, they rather than the contract would anik, 883 at presented S.W.2d 649. Presidio have made but for in- Formosa’s fraudulent at least the “minimum” evidence to establish Second, although ducement. the Court rec- profits lost with certainty. reasonable See ognizes that the correct criteria for measur- Szczepanik, 883 Accordingly, S.W.2d at 649. ing damages in a fraudulent inducement case there is sufficient evidence to ‘Value,” the Court calculates the for Presidio. The Court can it concludes are available to Presidio based by conducting find otherwise a Constitu only on “costs.” tionally proMbited sufficiency factual review of Presidio’s evidence. Fraud in the Inducement versus Breach of Contract

III. CONCLUSION today, To hold as the Court allows does tMs case the holds that a Court Formosa, feasor, proven escape fraud may recover tort for fraudulent in- liability2 simply because Presidio cannot irrespective ducement the fraudu- whether “prove perfect damages.” measure of See representations lent are later in a subsumed Battery, Southwest 115 at 1099. S.W.2d Be- party oMy contract or whether the suffers an improperly weighing sides in on the facts and economic loss related to the contract’s sub- crunching the numbers to determine ject recovery To matter. allow of tort fraud “proper damages, calculation” of the Court damages oMy plaintiff when a suffers an ignores against also sanctioning any its rule injury distinct from the economic losses re- one determining profits. method for lost coverable under a breach of contract claim is Atherton, injured Holt 835 S.W.2d at 85. An inconsistent with tMs well established law. Presidio, party, deprived like “must not be recovery ignores To so limit the the fact that remedy lying [its] because of the difficulties independent legal duty, separate from the way in the proving profits].” Pace existence, [loss precludes contract’s the use of Corp., 284 S.W.2d at 348. binding agreement. fraud to induce S.W.2d at 47. evidence, provided

Because Presidio some objective complete based on an calcula- acknowledges recog- The Court that Texas tion with certainty, reasonable I affirm would nizes two measures of direct for appeals’ judgment the court of for Presidio. (1) out-of-pocket common-law fraud: (2) benefit-of-the-bargain measure and the BAKER, Justice, SPECTOR, joined by measure. See Arthur Andersen & Co. Justice, dissenting Overruling to Order Perry Equip. Corp., 945 S.W.2d Rehearing Voluntary Motions Nissan, (Tex.1997); W.O. Bankston Remittitur. (Tex.1988). Walters, Today recognizes out-of-pocket the Court overrules Presidio’s mo- The Court that the rehearing voluntary tions for remittitur. measure is the difference between the value respectfully paid I dissent to the Court’s order. and the value received while the benefit Studying opinion again bargain the Court’s after it of the measure is the difference be- issued, .say I I things represented write some wish I tween the value as and the val- Andersen, my original had said in I dissent. also write ue received. See Arthur only escapes liability damage punishing 2. Formosa not for actual verdict Formosa for its fraud. punitive $10 but also avoids a million Assocs., 817; as That Leyendecker at Inc. damental flaws those Court. & Wechter, is, calculation should be based made, out-of-pocket upon actually The Court states that the mea- than the contract rather injured party to recover the parties sure allows the but contract the would made injury actual suffered measured the dif- inducements. Formosa’s fraudulent with ference between value of that which Here, to show and Presidio was entitled with, parted he has value of that and the upon did the value of its loss based show Andersen, which he received. See Arthur actually happened of Formo- what also 945 S.W.2d at 817. Court concludes parties when sa’s fraudulent inducements benefit-of-the-bargain while measure Taking facts made contract. the known profits, only compensates can include lost completed project, when Presidio profits that for the would have been made applying regular calculations performed promised. bargain had been as of the plus profit margin costs time Despite recognizing that fraudulent- in- fraudulently parties negotiated the induced to enter a is a breach of ducement contract produces damages result based independent legal duty separate an from the data, facts, upon objective figures or itself, contract the Court calculates both predicated complete on one calculation. See damages measures based Presidio’s Co., Szczepanik v. First S. Trust 883 S.W.2d damages if as the contract made had been (Tex.1994). performed promised. as my writing The new Court’s reinforces view, dissent, original expressed my Costs v. Value improper that has in an engaged the Court argument motion for its re- sufficiency Despite pro- factual review. its hearing improperly comput- is that the Court testations, evidence, weighs the Court damages upon ed based costs rather than which it cannot do. Havner E-Z Mart Leyendecker, value. See 683 S.W.2d at 373. Stores, (Tex.1992). Inc., 456, 458 way that Presidio contends the Court The Court asserts that Presidio’s calculated not Formosa does have speculative entirely evidence was because pay the full ‘Value” of what Presidio fur- there is no evidence that Presidio would have Instead, nished Formosa. Presidio asserts project been awarded it had made a 1.3 Formosa receive will what Presidio furnished million bid. The Court then states dollar at “cost.” Presidio contends that Presidio the evidence indicates Presidio not be gave, will the full value of what paid it. project would not have been awarded the thus will not be made whole. two of the three other bids Formosa responds theory Formosa that Presidio’s is were lower than 1.3 million. received wrong damages it because measures the af Court Presidio’s evidence is concludes that ter the is complete striking expenses profits not incurred based on completely bargain. argues new Formosa lost on this contract because Formosa’s proper damages that the measure of is com representations, upon but is rather sale, puted as of the time of the or as in this hypothetical, speculative bargain entirely point at Leyen ease contract. See struck and would was never never decker, at Formosa con 372. weighing been is not consummated. If this policy underlying tends fraud law is evidence, I do know what is. not to redress actual losses. See Morriss-Buick Pondrom, 98, 113 131 Tex. Co. (1938). REMITTITUR VOLUNTARY Alternatively, it

It is true that in a fraudulent Presidio asserts that damages damages computed inducement case are as of the time entitled to a remittitur of case, point Because at the of Court found excessive. the Court fraud. However, essentially appeal’s judgment, the court of contract. Formosa did not affirm therefore, rationale; adopts voluntary remittitur of the For- Presidio offers Court’s mosa’s suffer fun- amount of the actual fraud arguments from same Court found to be excessive. Presidio may, re- Be that as it the facts here are quests appeals judgment distinguishable the court of be re- from those in Redman Here, Homes. the Court formed and affirmed as reformed. Alterna- could and did con- clusively ascertain from the tively, requests record the dam- judgment Presidio be ages testimony. untainted inadmissible ap- reformed and remanded to the court of The substance of the Court, Court’s find- peals. argues Presidio that the ing in this case is that Presidio’s evidence many years, accepted voluntary has remitti- profits might about have earned is inadmis- Homes, plaintiffs. turs from See Redman testimony hypothetical sible because it is Ivy, speculative. The Court held that Presidio’s responds that the Court should damages testimony support does an out-of- grant voluntaiy Presidio a remittitur be- $231,000 pocket damage award of or a bene- awarding cause that relief from error in dam- $461,000. fit-of-the-bargain damage award of ages unsupported by legally evi- sufficient What the Court concludes amounts to a con- through' dence is unavailable the office of finding clusive under either mea- voluntary remittitur. Formosa relies on sure that the permissible court holds is for a argument. Redman Homes in of its fraud the inducement claim. the Gourt declines to render Homes, In Redman a unanimous Court for a lesser dollar amount because recognized accepted that the Court re- Formosa contests the issue. plaintiffs past. mittiturs from in the upon Homes, finding specific Based the Court’s Redman 920 S.W.2d at 669. In Red- damages Homes, damages under either measure of man the Court also that our said ease, applies in a fraudulent inducement involving voluntary decisions remittiturs are my question is what is there left be tried? by limited the rule that this Court can con It seems to me that the Court has conclusive only questions sider of law. The Court ob ly damages by ascertained the untainted plaintiffs served that offer Redman what it holds is testimony the inadmissible presumed Homes that the Court could con voluntary and that Presidio’s offer of a remit clusively ascertain from the record the entirely tance is order. See Redman amount of untainted what the Homes, 669; Larson, at see also Ivys testimony conceded was inadmissible 641; Employers’ 730 S.W.2d at Texas Ins. about market In value. Redman Homes the White, 659, 107 Ass’n v. 129 Tex. Court it concluded was unable to ascertain (1937); Bank, Baldwin v. Haskell Nat’l untainted inadmissible testi (1911). 122, 134 104 Tex. S.W. 1178 Homes, mony. Redman 920 S.W.2d at 669. I submit that such is not the case here. Conclusion

First, response in its request to Presidio’s for remittitur, voluntary neglects Formosa dissent, my original Based on I still believe state, but Presidio out that in points Formo disposes that the Court erred how application sa’s for writ of error to this damages issue. The Court should have af- Court, Formosa asserted: “Presidio’s actual appeals’ judgment firmed the court of damages are excessive as a matter of law to upon Presidio. Court’s $467,000. they the extent exceed mini holding voluntary motion for mum relief to which entitled for remittitur, Presidio is at least entitled to that error is excision of the excess and rendi grant have the that remittitur. The Court $467,000. tion of Larson modify appeals’ Court should the court of Co., v. Cactus Util. 730 S.W.2d 640 judgment to that extent and otherwise affirm 1987).” view, my asserting to this Court appeals’ judgment. the court of that the actual are excessive as a they

matter of law to the extent that exceed

$467,000 express is an concession that Presi- proven

dio’s actual are as a matter $467,000.

of law in the amount of

Case Details

Case Name: Formosa Plastics Corp. USA v. Presidio Engineers and Contractors, Inc.

Court Name: Texas Supreme Court

Date Published: Mar 13, 1998

Citation: 960 S.W.2d 41

Docket Number: 95-1291

Court Abbreviation: Tex.