Chapter 9-8 Grossly Negligent Inducement of Contract

• Jurisdiction: United States

9-8 Grossly Negligent Inducement of Contract

9-8:1 Overview

As a general rule, a party that was fraudulently induced to enter into a contract is not bound by that contract.⁴⁰ Moreover, a party that fraudulently induces another to enter into a contract has breached a separate legal duty and is liable for tort damages.⁴¹ Courts have been hesitant to extend the cause of action for fraudulent inducement to lesser levels of culpability.⁴² In determining whether a defendant's negligence or gross negligence gives rise to a contractual cause of action or rather one sounding in tort, courts look to the nature of the damages.⁴³ Where the injury is an economic loss to the subject matter of the contract, that loss sounds in contract, not in tort.⁴⁴

9-8:1.1 Related Causes of Action

Rescission, Fraud: Common Law Fraud, Fraud: Statutory Fraud, Fraud: Fraud by Non-disclosure, Negligent Misrepresentation, Fraudulent Inducement

MUST READ CASES

D.S.A., Inc. v. Hillsboro Indep. Sch. Dist., 973 S.W.2d 662 (Tex. 1998)

Yzaguirre v. KCS Res., Inc., 47 S.W.3d 532 (Tex. App.—Dallas 2000), aff'd, 53 S.W.3d 368 (Tex. 2001)

9-8:2 Expressly Rejected in Texas

The Supreme Court of Texas has expressly rejected the cause of action for grossly negligent inducement to contract.⁴⁵ The Court had previously acknowledged a separate cause of action for fraudulent inducement and saw no reason to extend the fraudulent inducement cause of action as such an extension would potentially convert every breach of contract action into a tort claim.⁴⁶

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Notes:

^[40] Formosa Plastics Corp. U.S.A. v. Presidio Eng'rs & Contractors, Inc., 960 S.W.2d 41, 46 (Tex. 1998).

^[41] Formosa Plastics Corp. U.S.A. v. Presidio Eng'rs & Contractors, Inc., 960 S.W.2d 41, 46 (Tex. 1998).

^[42] See D.S.A., Inc. v. Hillsboro Indep. Sch. Dist., 973 S.W.2d 662, 664 (Tex. 1998).

^[43] Yzaguirre v. KCS Res., Inc., 47 S.W.3d 532, 543 (Tex. App.—Dallas 2000) afd, 53 S.W.3d 368 (Tex. 2001).

^[44] Yzaguirre v. KCS Res., Inc., 47 S.W.3d 532, 543 (Tex. App.—Dallas 2000) afd, 53 S.W.3d 368 (Tex. 2001).

^[45] D.S.A., Inc. v. Hillsboro Indep. Sch. Dist., 973 S.W.2d 662, 664 (Tex. 1998).

^[46] D.S.A., Inc. v. Hillsboro Indep. Sch. Dist., 973 S.W.2d 662, 664 (Tex. 1998).