American Nat. Ins. Co. v. International Business Machines Corp.

• Decision Date: 09 October 1996
• Docket Number: No. 04-95-00196-CV,04-95-00196-CV
• Citation: 933 S.W.2d 685
• Parties: AMERICAN NATIONAL INSURANCE COMPANY, Appellant, v. INTERNATIONAL BUSINESS MACHINES CORPORATION; Image Sciences, Inc.; and Thomas Kendra, Individually, Appellees.
• Court: Texas Court of Appeals

Page 685

933 S.W.2d 685

AMERICAN NATIONAL INSURANCE COMPANY, Appellant, v. INTERNATIONAL BUSINESS MACHINES CORPORATION; Image Sciences, Inc.; and Thomas Kendra, Individually, Appellees.

No. 04-95-00196-CV.

Court of Appeals of Texas San Antonio.

Oct. 9, 1996.

Rehearing Overruled Nov. 12, 1996.

Joseph D. Jamail, Frank Staggs, Jamail & Kolius, Houston, John S. McEldowney, Andrew J. Mytelka, Scott D. Daniel, Greer, Herz & Adams, L.L.P., Stephen R. Lewis, Jr., Lewis & Williams, L.L.P., Galveston, for appellant.

George W. Vie, III, Jack C. Brock, Mills, Shirley, Eckel & Bassett, L.L.P., Galveston, Evan R. Chesler, Cravath, Swaine & Moore, New York City, Scott L. Davis, Peter S. Vogel, Kimberly M. Robinson, Cynthia Hollingsworth, Gardere & Wynne, L.L.P., Dallas, Russell G. Burwell, Burwell, Enos & Baron, P.C., Texas City, for appellees.

Before STONE, DUNCAN and JOHN G. HILL, ¹ JJ.

HILL, Justice (Assigned).

American National Insurance Company appeals from a summary judgment dismissing certain tort actions that it brought against International Business Machines Corporation, Thomas Kendra, an employee of IBM, and Image Services, Inc., the appellees. American National brought a breach of contract action against the appellees arising out of two contracts between itself and IBM, with Image serving as a subcontractor under the second contract. American National also sought damages for fraud and certain other torts. The trial court granted the appellees' motions for partial summary judgment and dismissed American National's tort actions. After those tort actions were severed from the actions based upon breach of contract, American National brought this appeal. It contends in four points of error that the trial court erred: (1) in granting summary judgment dismissing its causes of action for negligence and gross negligence, fraud, and negligent misrepresentation; (2) in granting summary judgment dismissing its tort causes of action because the appellees failed to present any summary judgment evidence or otherwise meet their summary judgment burden of proof; (3) in granting summary judgment dismissing its causes of action for negligence and gross negligence because there is no absolute bar against maintaining a tort action against a party to a contract; and (4) in granting summary judgment dismissing American National's causes of action for fraud and negligent misrepresentation, because there is no absolute bar against maintaining such actions against a party to a contract.

We reverse the summary judgment as it relates to American National's causes of action for fraud against IBM and Image, including allegations that they never intended to perform under the contract, and we affirm the summary judgment as it relates to American National's other tort causes of action, for reasons set forth in this opinion.

American National urges in its four points of error that the trial court erred in granting partial summary judgment as to the tort causes of action that it brought against the appellees.

American National is an insurance company with several divisions, including health, accident and life. In its petition, American National alleged, among other things, that it contracted with IBM for the performance of an image study to assess the need for, feasibility of, size and cost of, and benefits of an advanced computer image processing system. It alleged that subsequently, based upon representations of IBM, Kendra, and Image, it entered into a second contract by which it agreed to purchase certain hardware, software, and services necessary for its image printing requirements. It alleged that the appellees made certain misrepresentations of fact and that it relied upon those representations. American National alleged that it was forced to replace some of the IBM equipment that it purchased pursuant to the contract, at a cost of $4.242 million; to purchase additional direct access storage devices and additional related expenses in excess of $2.234 million, and to purchase additional optical storage units and related expenses in excess of $4.152 million. These figures total approximately $10.628 million. In its breach of contract action against IBM, American National alleged damages of $14.065 million for the purchase of substitute goods. It did not allege a specific figure with respect to its breach of contract action against Image.

IBM and Kendra brought their motion for partial summary judgment, asking the trial court to dismiss American National's tort causes of action because American National could not recover against them on its tort actions since its claim did not meet the two-part test set down by the Texas Supreme Court in Southwestern Bell Telephone Co. v. DeLanney, 809 S.W.2d 493, 494-95 (Tex.1991), and Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 617-18 (Tex.1986). Image brought a similar motion based upon the same theory.

The appellees had the burden of showing that there is no genuine issue of fact and that they are entitled to judgment as a matter of law. Nixon v. Mr. Property Management Co. Inc., 690 S.W.2d 546, 548-49 (Tex.1985). Since these motions are based solely upon the allegations in American National's petition, we must accept each of its allegations as true. Cronen v. City of Pasadena, 835 S.W.2d 206, 210 (Tex.App.--Houston [1st Dist.] 1992, no writ), overruled on other grounds, Lewis v. Blake, 876 S.W.2d 314, 315 (Tex.1994).

American National's claims against the appellees are based in part upon its contracts with IBM. The appellees claim that American National has no independent tort causes of action against them. In a case brought on the theory of the negligent performance of a contract, the Texas Supreme Court established a two-part test in determining whether a claim based upon a contract may also give rise to independent tort causes of action. DeLanney, 809 S.W.2d at 494-95. First, the court should examine whether the liability asserted arose solely as a result of a contractual duty or out of an independent obligation imposed by law. Id. Second, the court should examine whether the injury asserted is other than an economic loss to the subject of the contract. Id. at 494-95. Earlier, in the case of Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617 (Tex.1986), the court said that in determining whether there is a tort action, a breach of contract action, or both, the nature of the injury most often determines which duty or duties are breached. Id. at 618. The court indicated that when the injury is only the economic loss to the subject of a contract itself, the action sounds in contract alone. Id.

We will first discuss American National's claims of fraud. Among other things, American National claims that IBM and Image have made fraudulent statements, indicating that they entered the contract with no intention of performing that contract. Since DeLanney, the Texas Supreme Court has held that "[a]s a general rule, the failure to perform the terms of a contract is a breach of contract, not a tort. However, when one party enters into a contract with no intention of performing, that misrepresentation may give rise to an action in fraud." Crim Truck & Tractor Co. v. Navistar Intern. Transp. Corp., 823 S.W.2d 591, 597 (Tex.1992) (citations omitted).

IBM urges that DeLanney applies and that American National's allegations, if true, do not meet either prong of the two-part test set forth in that opinion. As previously stated, the first prong is that the alleged tort must arise out of an independent obligation imposed by law rather than solely as a result of a contractual duty. It is apparent that the duty not to fraudulently induce one into a contract that one has no intention of performing does not arise from the contract subsequently entered into. Therefore, if DeLanney applies, then we must conclude, based upon Crim, that an allegation of fraud such as made here by American National meets that test. A conclusion that it does not meet the test is inconsistent with logic and with the Supreme Court's holding in Crim to which we have just referred. If such an allegation does not meet the first prong of the DeLanney test, we must conclude, based upon Crim, that DeLanney does not apply to such an allegation of fraud.

The second prong of the DeLanney test is whether there is a loss other than an economic loss to the subject of the contract. One court of appeals has held that DeLanney and Jim Walter Homes do not apply when the tort accompanying the contract is an action for fraud. Matthews v. AmWest Sav. Ass'n, 825 S.W.2d 552, 554 (Tex.App.--Beaumont 1992, writ denied). Another court of appeals has indicated that at least the second prong of DeLanney and the rule in Jim Walter Homes are not applicable in cases involving fraud in the inducement of a contract where one enters into a contract with no intention of performing the contract. Schindler v. Austwell Farmers Coop., 829 S.W.2d 283, 291 (Tex.App.--Corpus Christi), modified on other grounds, 841 S.W.2d 853 (Tex.1992).

One basis for the court's holding that it is not applicable is that the general rule that contractual remedies are limited to compensatory damages only, regardless of the culpable mental state of the breaching party, should not be extended to those who seek to fraudulently induce others into entering contracts that they have no intention of performing. Id. at 291. The other basis is that such a holding would virtually eliminate the tort of fraudulent misrepresentation in the procurement of a contract, a tort discussed in Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 434 (Tex.1986). Schindler, 829 S.W.2d at 291. In Spoljaric, the Texas Supreme Court stated that a promise to do an act in the future is actionable fraud when made with the intention, design, and purpose of deceiving and with no intention of performing the act. Spoljaric, 708 S.W.2d at 434. As previously noted, to apply the second prong of DeLanney to this tort...