When a Deal Was Not What You Were Told It Was

Fraud in Texas is a misrepresentation claim. It is about a false statement of fact, or a failure to disclose where the law required disclosure, that induced someone to act and cost them money. It is distinct from a breach of fiduciary duty, which concerns loyalty owed inside a relationship of trust and is covered on its own page.

Common-law fraud

Texas courts require six elements: a material representation; that was false; that the speaker knew was false when made, or made recklessly without knowledge of its truth; made with the intent that the other party act on it; which the other party actually and justifiably relied on; and which caused injury. A promise of future performance is fraud only if the speaker had no intention of performing when the promise was made. That rule separates fraud from an ordinary broken contract, and it is the first line of defense when a failed deal is recast as a fraud. Fraud by nondisclosure requires a duty to disclose, which arises from a fiduciary or confidential relationship, from a partial disclosure that created a false impression, or from new information that made an earlier statement untrue.

Fraudulent inducement and negligent misrepresentation

Fraudulent inducement is common-law fraud used to obtain a contract. It is one of the few tort claims Texas allows alongside a contract claim for the same transaction, so a defrauded party may seek to rescind the contract or recover damages while keeping it. Negligent misrepresentation is the lower-tier claim: a false statement made without reasonable care, in the course of business, on which the other party justifiably relied. It does not require knowledge of falsity, and damages are limited to out-of-pocket loss.

Statutory fraud in real estate and stock transactions

Section 27.01 of the Texas Business and Commerce Code creates a statutory fraud claim for transactions involving real estate or stock in a corporation or joint stock company. A false representation of a past or existing material fact, or a false promise, made to induce the transaction and relied on by the other party gives rise to liability for actual damages. A defendant who had actual awareness of the falsity may also be liable for exemplary damages. Unlike common-law fraud, Section 27.01 lets the defrauded party recover reasonable attorney's fees, expert witness fees, deposition costs and court costs. Courts read the real estate and stock limitation strictly.

Deadlines and exemplary damages

Section 16.004 of the Civil Practice and Remedies Code gives four years to sue for fraud. The period runs from when the fraud was discovered or reasonably should have been discovered, which is more generous than the contract rule but still turns on what the claimant knew and when. Exemplary damages are governed by Chapter 41 of the same code. They require clear and convincing proof of fraud, and Section 41.008 caps them at the greater of two times economic damages plus noneconomic damages up to $750,000, or $200,000, unless the conduct falls within the felony exceptions in Section 41.008(c).