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A fraud cause of action requires a material misrepresentation, which was false, and which was either known to be false when made or was asserted without knowledge of its truth, which was intended to be acted upon, which was relied upon, and which caused injury. A promise of future performance constitutes an actionable misrepresentation if the promise was made with no intention of performing at the time it was made. However, the mere failure to perform a contract is not evidence of fraud. Rather, a plaintiff has to present evidence that the defendant made representations with the intent to deceive and with no intention of performing as represented.
In 1989, Formosa Plastics Corporation (“Formosa”) began a large construction "expansion project" at its facility in Point Comfort, Texas. Presidio Engineers and Contractors, Inc. (“Presidio”) received an "Invitation to Bid" from Formosa on that part of the project requiring the construction of 300 concrete foundations. The invitation was accompanied by a bid package containing technical drawings, specifications, general information, and a sample contract. The bid package also contained certain representations about the foundation job. These representations included that (1) Presidio would arrange and be responsible for the scheduling, ordering, and delivery of all materials, including those paid for by Formosa; (2) work was to progress continually from commencement to completion; and (3) the job was scheduled to commence on July 16, 1990, and be completed 90 days later, on October 15, 1990. The job was not completed in 120 days. Rather, the job took over eight months to complete, more than twice Burnette's estimate and almost three times the scheduled time provided in the bid package. The delays caused Presidio to incur substantial additional costs that were not anticipated when Presidio submitted its bid. Presidio asserted a claim under paragraph 17 of the parties' contract, which provided that Formosa was liable for all delay damages within the "control of the owner." Formosa countered that, while it may have been liable for some of the delays, it was not responsible for all of the delays and losses asserted by Presidio. Because the parties were not able to resolve their dispute, Presidio sued Formosa for breach of contract and breach of a duty of good faith and fair dealing. Presidio also brought fraudulent inducement of contract and fraudulent performance of contract claims based on representations made by Formosa that Presidio discovered were false after commencing performance of the contract. Formosa counterclaimed for breach of contract, urging that Presidio had not properly completed some of its work. Formosa argued that Presidio’s fraudulent inducement of contract claim could not be maintained because respondent's losses were purely economic and related to the subject matter of the contract. Specifically, Formosa asserted that Presidio’s tort claim was a repackaged breach of contract claim and only damages distinct from the economic losses resulting from a contract breach could support a tort suit.
Was Formosa’s assertions that Presidio’s tort claim was a repackaged breach of contract claim and only damages distinct from the economic losses resulting from a contract breach could support a tort suit meritorious?
The court held that an independent legal duty separate from the contract itself precluded the use of fraud to induce a binding agreement. Moreover, evidence supported the finding that Formosa fraudulently induced Presidio to sign the contract giving Presidio control over delivery of materials by secretly taking over the concrete delivery schedule itself, without informing respondent, which thereby incurred increased costs. However, the fraud damages awarded Presidio were improper under either the out-of-pocket or benefit-of-the bargain measures, by wrongfully incorporating or miscalculating lost profits. The good faith and fair dealing claim had to be dismissed, as this duty was inapplicable to arms-length commercial transactions.