Formosa Plastics Corp. USA v. Presidio Engineers and Contractors, Inc., 95-1291

CourtSupreme Court of Texas
Citation41 Tex. Sup. Ct. J. 289,960 S.W.2d 41
Docket NumberNo. 95-1291,95-1291
Parties41 Tex. Sup. Ct. J. 289 FORMOSA PLASTICS CORPORATION USA and Formosa Plastic Corporation, Texas, Petitioners, v. PRESIDIO ENGINEERS AND CONTRACTORS, INC., Respondent.
Decision Date13 March 1998

Page 41

960 S.W.2d 41
41 Tex. Sup. Ct. J. 289
Corporation, Texas, Petitioners,
No. 95-1291.
Supreme Court of Texas.
Argued Oct. 1, 1996.
Decided Jan. 16, 1998.
Dissenting Opinion to Original
Opinion of July 9, 1997.
Rehearing Overruled March 13, 1998.

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Molly H. Hatchell, Andy G. Navarro, Michael A. Hatchell, Tyler, Joe R. Greenhill, Bob E. Shannon, Joseph R. Knight, Austin, for petitioners.

Robert P. Houston, Cynthia T. Sheppard, John Griffin, Jr., Victoria, William Powers, Jr., for respondent.

ABBOTT, Justice, delivered the opinion of the Court, in which PHILLIPS, Chief Justice, GONZALEZ, HECHT, ENOCH, OWEN and HANKINSON, Justices, join.

We overrule Respondent's motion for rehearing and motion for voluntary remittitur. We withdraw our opinion of July 9, 1997, and substitute the following in its place.

In Southwestern Bell Telephone Co. v. DeLanney, 809 S.W.2d 493, 494-95 (Tex.1991), this Court held that a cause of action for negligence could not be based on an allegation that a party had negligently failed to perform a contract because such a claim sounded in contract, not in tort. Today we are requested to apply a similar analysis to preclude a recovery in tort for a fraudulent inducement of contract claim. We decline to do so, holding instead that our DeLanney analysis is not applicable to such a claim. However, because there is no probative evidence to support the entire amount of damages awarded by the trial court, we reverse the judgment of the court of appeals and remand the case to the trial court for a new trial.


In 1989, Formosa Plastics Corporation began a large construction "expansion project" at its facility in Point Comfort, Texas. Presidio Engineers and Contractors, Inc. 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.

Presidio's president, Bob Burnette, testified that he relied on these representations in preparing Presidio's bid. Because the bid package provided that the contractor would be responsible for all weather and other unknown delays, he added another 30 days to his estimate of the job's scheduled completion date. He submitted a bid on behalf of Presidio in the amount of $600,000. Because Presidio submitted the lowest bid, Formosa awarded Presidio the contract.

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.

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Presidio presented evidence to the jury that Formosa had an intentional, premeditated scheme to defraud the contractors working on its expansion project. Under this scheme, Formosa enticed contractors to make low bids by making misrepresentations in the bid package regarding scheduling, delivery of materials, and responsibility for delay damages. Jack Lin, the director of Formosa's civil department, admitted that Formosa acted deceptively by representing in the bid package that the contractors would have the ability to schedule the delivery of concrete when in truth Formosa had secretly decided to set up its own delivery schedule in order to save money. Formosa also scheduled multiple contractors, doing mutually exclusive work, to be in the same area at the same time. For instance, Formosa scheduled another contractor to install underground pipe in Presidio's work area at the same time that Presidio was supposed to be pouring foundations. Thomas Pena, Formosa's inspector, admitted that Formosa knew that contractors would be working right on top of each other, but this information was not passed on to the contractors. Of course, once the contractors were on the job, they would realize that, due to such unexpected delays caused by Formosa, their bids were inadequate. But when the contractors requested delay damages under the contract, Formosa would rely on its superior economic position and offer the contractors far less than the full and fair value of the delay damages. In fact, Ron Robichaux, head of Formosa's contract administration division, testified that Formosa, in an effort to lower costs, would utilize its economic superiority to string contractors along and force them to settle. Robichaux added that "if [a contractor] continued to complain then [Formosa] would take the contract from him and make sure he loses his money." Under this scheme, Formosa allegedly stood to save millions of dollars on its $1.5 billion expansion project.

The jury found that Formosa defrauded Presidio and awarded Presidio $1.5 million. The jury also found that Formosa breached a duty of good faith and fair dealing and awarded Presidio $1.5 million as a result. Based on its findings that Formosa's fraud and breach of a duty of good faith and fair dealing were done willfully, wantonly, intentionally, or with conscious indifference to the rights of Presidio, the jury further awarded Presidio $10 million as exemplary damages. Additionally, the jury found that Formosa breached its contract with Presidio, causing $1.267 million in damages. On the other hand, the jury also concluded that Presidio did not fully comply with the contract, causing Formosa $107,000 in damages.

The trial court suggested a remittitur reducing the tort damages to $700,000 and the contract damages to $467,000, which Presidio accepted. Based on Presidio's election to recover tort rather than contract damages, the trial court rendered a judgment in favor of Presidio for $700,000 in actual damages, $10 million in punitive damages, prejudgment interest, attorney's fees, and costs. The damages caused by Presidio's breach of contract were offset against the judgment.

Formosa appealed the judgment to the court of appeals, which affirmed the judgment of the trial court. 941 S.W.2d 138. We granted Formosa's application for writ of error to consider, among other things, whether Presidio has a viable fraud claim when it suffered only economic losses related to the performance and subject matter of the parties' contract, whether there was legally sufficient evidence of fraud, and whether there was legally sufficient evidence to support the entire amount of damages awarded. We conclude that, while Presidio has a viable fraud claim, it failed to present legally sufficient evidence to support the entire amount of damages awarded. Accordingly, we reverse the judgment of the court of appeals and remand the cause for a new trial.


Formosa asserts that Presidio's fraud claim cannot be maintained because "Presidio's losses were purely economic losses related to performance and the subject matter of the contract." Formosa contends that our decision in Southwestern Bell Telephone Co. v. DeLanney, 809 S.W.2d 493 (Tex.1991), compels us to examine the substance of Presidio's tort claim to determine whether the

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claim is, in reality, a re-packaged breach of contract claim. Formosa urges that, in making this determination, we should analyze the nature of the alleged injury, the source of the breached duty, and whether the loss or risk of loss is contractually contemplated by the parties. Presidio counters that a DeLanney-type analysis does not apply to fraud claims. For the reasons discussed below, we agree with Presidio.

Over the last fifty years, this Court has analyzed the distinction between torts and contracts from two different perspectives. At first, we merely analyzed the source of the duty in determining whether an action sounded in tort or contract. For instance, in International Printing Pressmen & Assistants' Union v. Smith, 145 Tex. 399, 198 S.W.2d 729, 735 (1946), this Court held that " 'an action in contract is for the breach of a duty arising out of a contract either express or implied, while an action in tort is for a breach of duty imposed by law.' " Id. (quoting 1 C.J.S. Actions § 44).

Later, we overlaid an analysis of the nature of the remedy sought by the plaintiff. In Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617 (Tex.1986), we recognized that, while the contractual relationship of the parties could create duties under both contract law and tort law, the "nature of the injury most often determines which duty or duties are breached. When the injury is only the economic loss to the subject of a contract itself, the action sounds in contract alone."...

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