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Tennessee courts have applied the doctrine of promissory fraud in cases where "justice demands." The doctrine has been rejected where the facts did not support a claim of fraud. A common thread among these cases is the view that promissory fraud is actionable when it can be established through competent evidence that the promise of future conduct was made with an intent not to perform.
Plaintiff service station owner operated a family-run service station in a small town. The owner signed a dealership contract with the company to become a local dealer of the company's rental trucks. The owner did not read the contract prior to signing it. Over the next several years, the owner took steps to facilitate the rental truck business, such as adding diesel pumps and blacktopping an additional parking area. After six years under the contract, the owner learned the company intended to open a second dealership in the same small town. The owner terminated the agreement. Two years later, the owner sold his service station business. At trial, the owner testified that two of the company's representatives fraudulently induced him into entering into the contract by orally promising him that his dealership would operate exclusively in the town unless the population in that city exceeded 10,000. The trial court found the company committed promissory fraud and awarded damages to the owner. The trial court however refused to award damages for lost profits. Both parties appealed.
Did the trial court err in holding that the company committed promissory fraud?
The court noted that Tennessee courts have applied the doctrine of promissory fraud in cases where "justice demands." A common thread among these cases was the view that promissory fraud was actionable when it can be established through competent evidence that the promise of future conduct was made with an intent not to perform. In this case, the court held that the evidence supported a finding of promissory fraud. The court, however, held that an award of damages for lost commissions and lost profits after termination of the dealership agreement was inconsistent with the owner's theory of recovery. Accordingly, the damages award for lost commission was reversed. The trial court's decision not to award damages for lost profits was affirmed.