Federal Land Bank Ass'n of Tyler v. Sloane
1991 WL 254271, 825 S.W.2d 439 (1992)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A claim for negligent misrepresentation is not barred by the statute of frauds, but damages are limited to the out-of-pocket pecuniary losses suffered in justifiable reliance on the misrepresentation and do not include damages for mental anguish or lost profits.
Facts:
- In early 1986, William, Lettie, and Robert Sloane secured a conditional contract with Pilgrim’s Pride to raise broilers, contingent upon them building new chicken houses.
- On March 7, 1986, the Sloanes applied for a $141,000 loan from the Federal Land Bank Association of Tyler to finance the construction.
- Approximately one month after applying, a loan officer from the bank informed the Sloanes that the bank's board had approved their loan and they could proceed with site preparation.
- The bank's loan officer also told the Sloanes' contractor that there was 'no problem' with beginning construction.
- In reliance on the loan officer's statements, the Sloanes demolished an old chicken house and spent approximately $9,000 on site preparation between June and August 1986.
- In August 1986, the bank sent the Sloanes a formal letter denying their loan application, citing their failure to disclose two debts and the purchase of a car.
- The Sloanes were subsequently unable to obtain alternative financing for the project.
Procedural Posture:
- The Sloanes sued the Federal Land Bank Association of Tyler in a Texas trial court for negligent misrepresentation.
- A jury returned a verdict in favor of the Sloanes, awarding damages for past and future monetary losses, lost profits, and mental anguish.
- The trial court entered a judgment on the jury's verdict in favor of the Sloanes.
- The bank, as appellant, appealed to the Texas court of appeals, with the Sloanes as appellees.
- The court of appeals affirmed the award for mental anguish damages but reversed the award for lost profits, holding there was no evidence to support it.
- The bank then appealed to the Supreme Court of Texas.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Are damages for mental anguish and lost profits recoverable for a claim of negligent misrepresentation?
Opinions:
Majority - Gonzalez, Justice
No. Damages for negligent misrepresentation are limited to pecuniary, out-of-pocket losses suffered in reliance upon the false information and do not include recovery for mental anguish or the benefit of the plaintiff's prospective contract, such as lost profits. The court formally adopts the Restatement (Second) of Torts § 552 for the cause of action and § 552B for the measure of damages. Section 552B explicitly limits recovery to 'pecuniary loss' and excludes 'the benefit of the plaintiff’s contract with the defendant.' The court reasons that negligent misrepresentation is essentially a commercial tort where a less culpable mental state justifies keeping liability proportional to the fault. Allowing lost profits would improperly grant the Sloanes the benefit of the loan bargain they never actually received, and mental anguish damages are not pecuniary losses recoverable under the Restatement rule.
Concurring-in-part-and-dissenting-in-part - Mauzy, Justice
Partially yes. Justice Mauzy dissents from the majority's conclusion that lost profits are not recoverable. He argues that the distinction between negligent and fraudulent misrepresentation is thin, viewing the former as a type of 'remedial fraud.' Because the bank was in a superior position of knowledge regarding the loan's status, its misrepresentation should be treated similarly to fraud, for which benefit-of-the-bargain damages (lost profits) are available in many jurisdictions. He would therefore uphold the trial court's award for lost profits from the Pilgrim's Pride contract.
Analysis:
This decision formally establishes the framework for negligent misrepresentation claims in Texas by adopting the Restatement (Second) of Torts § 552. More significantly, by adopting § 552B's limitation on damages, the court solidifies the tort's reliance-based nature, clearly distinguishing it from contract law's expectation-based recovery. This precedent prevents plaintiffs from using a negligent misrepresentation claim to recover the 'benefit of the bargain' (like lost profits) that would have been available in a breach of contract action. The holding constrains recovery in commercial torts to tangible, out-of-pocket losses, making it more difficult for plaintiffs to claim damages for emotional distress or lost business opportunities stemming from misinformation.
Unlock the full brief for Federal Land Bank Ass'n of Tyler v. Sloane