Harford Fire Ins. Co. v. C. Springs 287 S.W.3d 771 (Tex.App.- Houston [1st Dist.] Apr. 16,
2009)(Radack) (construction law, bondability, statute of fraud, suretyship, sufficiency of the pleadings)
REVERSE TRIAL COURT JUDGMENT AND RENDER JUDGMENT: Opinion by
Chief Justice Radack   
Before Chief Justice Radack, Justices Alcala and Bland  
01-06-00065-CV
Hartford Fire Insurance Company v. C. Springs 300, Ltd.  
Appeal from 270th District Court of Harris County
Trial Court Judge:
Hon. Brent Gamble  


287 S.W.3d 771 (2009)

HARTFORD FIRE INSURANCE COMPANY, Appellant,
v.
C. SPRINGS 300, LTD., Appellee.

No. 01-06-00065-CV.
Court of Appeals of Texas, Houston (1st Dist.).

April 16, 2009.
774 Bridget Chapman, James D. Cupples, Williams, Cupples & Chapman, L.L.P., Byron C. Keeling,
Ruth Brett Downes, Keeling & Downes, P.C., Houston, TX, Christian J. Ward, Gregory S. Coleman,
Yetter, Warden & Coleman, L.L.P., Austin, TX, James H. Moody, III, Quilling, Selander, Cummiskey &
Lownds, P.C., Dallas, TX, for Appellant.

James E. Doyle, Kathleen Cynthia Pickett, Marianne Monir Ibrahim, Michael D. Robbins, Doyle,
Restrepo, Harvin & Robbins, LLP, Jonathan B. Smith, Macey Reasoner Stokes, Baker Botts L.L.P.,
Houston, TX, for Appellee.

Panel consists of Chief Justice RADACK and Justices ALCALA and BLAND.

OPINION

SHERRY RADACK, Chief Justice.

On this date, the court considered appellee's motion for rehearing and motion for en banc
reconsideration. We deny the motion for rehearing, but withdraw our opinion and judgment of May 29,
2008 and issue this opinion in their stead. As we have issued a new opinion, we dismiss appellee's
motion for en banc reconsideration as moot. See Brookshire Bros. v. Smith, 176 S.W.3d 30, 40 n. 2
(Tex.App.-Houston [1st Dist.] 2004, pet. denied) (supp. op. on reh'g).

The issue in this case is whether a three-sentence letter from a company in the business of issuing
performance and payment bonds on construction projects creates an obligation on the part of the
company to issue $17 million in bonds in connection with a construction project, or whether the letter
was a "bondability letter" indicating to the owner of the construction project that its chosen builder had
the necessary relationship with the company to obtain such bonds. We also consider whether the
owner of the construction project can recover for fraud based on the same letter. We reverse and
render.

775

BACKGROUND


The Vineyards construction project

Appellee, C. Springs 300, Ltd. ["C. Springs"] is a limited partnership that was formed to construct,
own, and operate an apartment complex in Colorado Springs, Colorado called "The Vineyards." C.
Springs planned to finance The Vineyards as a "HUD transaction," meaning that its mortgage would
be insured under a U.S. Department of Housing and Urban Development program.

On July 5, 2000, C. Springs selected Williams Company, a Houston contractor, to build The
Vineyards. Having selected a contractor, C. Springs applied to HUD for HUD-guaranteed financing.
On August 1, 2000, HUD issued a deficiency letter to C. Springs indicating that the application was
incomplete. Among other things, HUD requested "an assurance of completion" from the contractor,
Williams, by August 11, 2000.

C. Springs contacted Williams about obtaining the required information, and Williams, in turn,
contacted FG Insurance Services ["FGI"], a Houston company that wrote surety bonds for several
major surety companies, including appellant, Hartford Fire Insurance Company ["Hartford"]. Williams
and FGI had a pre-existing business relationship.

On August 8, 2000, a Williams employee, Sherry Jett, contacted Kimberly Smith, an administrative
assistant to Richard Heidbrink, an agent for FGI, and explained that Williams needed FGI to send a
letter to C. Springs to show that Williams was a bondable company. After making some changes to a
letter that Williams had used before, Smith received permission from Heidbrink to sign the letter as
Hartford's attorney-in-fact.


The August 8, 2000 letter

The August 8, 2000 letter referenced "Vineyards at Colorado Springs Apartments" and provided in its
entirety:

Williams Industries, Inc. is bonded through Hartford Fire Insurance Company which is A+ rated on AM
Best. They have a bonding line of credit of $25,000,000 single and $100,000,000 aggregate. Upon
receipt of an acceptable contract, Hartford Fire Insurance Company stands ready to issue 100%
performance and payment bonds in the full amount of the contract.
After obtaining the August 8 letter, C. Springs and Williams continued toward finalizing a HUD
construction contract, which was set to close in mid-December.


Williams's financial position declines

Because of problems on other construction projects, Williams's financial position began to decline.
Williams lost approximately 1 million dollars between August and October 2000. On October 19, 2000,
Hartford instructed FGI that it was "suspending all bond support of Williams Industries until further
notice." In November 2000, Hartford decided that it would issue no further security bonds to Williams.

On November 7, 2000, a little over a month before the scheduled HUD closing, Williams informed C.
Springs of problems securing performance and payment bonds for the project. Williams continued to
assure C. Springs that it could work out its problems with obtaining the bonds, and the two parties
continued to work toward the December HUD closing. However, on December 4, 2000, Williams
informed C. Springs that it was not going to be able to secure the bonds by the end of 2000. As a
result, C. Springs and Williams never signed a construction contract. On December 8, 2000, Smith, of
FGI, send C. 776 Springs a letter stating that "an acceptable contract was not received" and "[i]n the
absence of a contract and application, Hartford Fire Insurance Company did not issue any bond in
connection with the referenced project."


C. Springs hires another contractor and finishes the project

In late November 2000, after becoming aware of Williams's problem obtaining bonds, C. Springs
began negotiating with another contractor, Global Construction ["Global"], to build the project. After
Williams informed C. Springs on December 4 that it could not obtain the necessary bonds, C. Springs
moved forward with the project using Global as contractor.

Global's insurance broker also sent a letter to C. Springs regarding its ability to obtain the bonds. The
letter Global obtained provided, "Naturally, Liberty Mutual Insurance Company would expect that the
execution of any final bonds would be subject to a review of the final contract terms and conditions."

In February 2001, C. Springs closed on the HUD contract with Global as its contractor. The contract
price was $18.9 million dollars — $1.9 million dollars more than the $17 million dollars C. Springs had
planned to pay Williams.


C. Springs files suit

C. Springs subsequently brought the underlying suit alleging breach of contract against Hartford and
fraud against Hartford, FGI, Guaranty,[1] Smith, and Williams. Essentially, C. Springs's petition alleged
(1) that the August 8 letter was a contract, which Hartford breached by not later issuing the bonds;
and (2) that Hartford, through its agents, had fraudulently misrepresented to C. Springs that it would
issue the bonds.


The trial and jury verdict

C. Springs settled with Smith, nonsuited Williams, and proceeded to trial against the remaining
defendants. Two liability questions were submitted to the jury as follows:

Question 1
Did the August 8, 2000 letter from Kimberly Smith to David Steidley constitute an agreement under
which Hartford agreed that it would issue 100% performance and payment bonds for the full amount
of the contract between Williams and C. Springs, if any, for the construction of the Vineyards project
in Colorado Springs?
It is your duty to interpret the following language in the August 8, 2000 letter: "upon receipt of an
acceptable contract." You must decide its meaning by determining the intent of the parties at the time
the letter was written. Consider all of the facts and circumstances surrounding the making of the letter,
the interpretation of the letter by the parties, and the conduct of the parties
* * * *
* * * *
Answer Yes or No:
Yes Yes No ___
Question 5
Did one or more of the defendants commit fraud against C. Springs?
Fraud occurs when —
a. a party makes a material misrepresentation
777 b. the misrepresentation is made with knowledge of its falsity or made recklessly without any
knowledge of the truth and as a positive assertion.
c. the misrepresentation is made with the intention that it should be acted on by the other party, and
d. the other party relies on the misrepresentation and thereby suffers injury
"Misrepresentation" means:
A false statement of fact or
A promise of future performance made with an intent, at the time the promise was made, not to
perform as promised.
A party's denial that he ever made a promise is a factor showing no intent to perform when he made
the promise.
* * * *
Answer Yes or No for each of the following:
Hartford Yes Guaranty No FGI No Kimberly Smith No
The jury awarded $4,278,117 for the difference between what C. Springs paid and would pay under
the contract with Global and what it would have paid under a contract with Williams, including "interest
expense" due to a difference in mortgage rates on debt incurred in connection with the project. The
jury also awarded $362,345 in lost rentals from the Vineyards and $96, 507 for out-of-pocket
expenses incurred by C. Springs. The total damages awarded was $4,736,969. The same measure of
damages was awarded for both the contract claim and the fraud claim.


STATUTE OF FRAUDS

Hartford contends that the trial court erred in denying its motion for instructed verdict and submitting
the contract issue to the jury because the August 8, 2000 letter was not, as a matter of law, an
enforceable contract. Specifically, Hartford argues that the lack of an essential term causes the
contract to fail under the statute of frauds.


Standard of review

A denial of a motion for directed verdict may be reversed when the evidence conclusively proves a
fact that establishes a party's right to judgment as a matter of law, and there is no evidence to the
contrary. See McCarley v. Hopkins, 687 S.W.2d 510, 512 (Tex.App.-Houston [1st Dist.] 1985, no writ).
In reviewing the denial of an instructed verdict, we consider all the evidence in the light most favorable
to the nonmovant and disregard all evidence to the contrary. Harris County v. Demny, 886 S.W.2d
330, 333 (Tex. App.-Houston [1st Dist.] 1994, writ denied). Every reasonable inference is resolved in
favor of the nonmovant. Id. If there is any conflicting evidence of probative value on any theory of
recovery, the issue must go to the jury. Cliffs Drilling Co. v. Burrows, 930 S.W.2d 709, 712 (Tex.App.-
Houston [1st Dist.] 1996, no writ).


Applicable law

A contract that creates a suretyship must also comply with the statute of frauds. See TEX. BUS. &
COM.CODE ANN. § 26.01(a), (b)(2) (Vernon 2002 & Supp. 2008). To satisfy the statute of frauds,
there must be a written memorandum which is complete with itself in every material detail and that
contains all of the essential elements of the agreement, so that the contract can be ascertained from
the writing without resorting to oral testimony. Cohen v. McCutchin, 565 S.W.2d 230, 232 (Tex.1978);
Frost Nat'l Bank v. Burge, 29 S.W.3d 580, 594 (Tex.App.-Houston [14th Dist.] 2000, no pet.).

778

Does the statute of frauds apply to an agreement to enter a surety contract?

C. Springs, however, argues that the statute of frauds does not apply to the August 8, 2000 letter "[b]
ecause the letter binds Hartford only to issue the bonds, not actually to perform in accordance with
their terms[.]" Essentially, C. Springs argues that a promise to enter a surety relationship is different
from the surety relationship itself. Thus, C. Springs argues that the promise to issue the bonds need
not contain all the essential terms of the bonds themselves. We disagree.

"A promise to sign a written contract as surety for the performance of a duty owed to the promisee ...
is within the Statute of Frauds." RESTATEMENT (SECOND) OF CONTRACTS § 117 (1981). Similarly,
an agreement to make a future contract is enforceable only if it is specific as to all essential terms.
Fort Worth Indep. Sch. Dist. v. City of Fort Worth, 22 S.W.3d 831, 846 (Tex.2000). A contract to enter
a contract covered by the statute of frauds must also meet the statute of frauds. See
Baylor Univ. v.
Sonnichsen, 221 S.W.3d 632, 635 (Tex. 2007) (holding that statute of frauds bars breach of contract
claim based on oral promise to enter contract not performable in one year). Thus, the argument that
this is a contract to issue the bonds rather than the bond contract itself is irrelevant. The same
requirements apply to both.


Does the letter adequately describe the essential terms of the alleged agreement?

We turn to whether the letter in this case contains sufficient "essential terms" to comply with the
statute of frauds, or whether it fails for indefiniteness. The letter in this case provides that, "[u]pon
receipt of an acceptable contract, Hartford Fire Insurance stands ready to issue 100% performance
and payment bonds in the full amount of the contract." The letter, however, provides little more
information.

To comply with the statute of frauds, a memorandum of a guaranty or suretyship must contain (1) the
parties involved, (2) a manifestation of intent to guarantee the obligation, and (3) a description of the
obligation being guaranteed. Park Creek Assocs., Ltd. v. Walker, 754 S.W.2d 426, 429 (Tex.App.-
Dallas 1988, writ denied). Hartford argues that the second element — a manifestation of intent to
guarantee Williams's obligation — is missing from the August 8, 2000 letter. Specifically, Hartford
argues that the letter shows no present intent to be bound, but instead contemplates further actions
by the parties. We agree.

Under Texas law, a writing that contemplates a contract or promise to be made in the future does not
satisfy the requirements of the statute of frauds. See Martco, Inc. v. Doran Chevrolet, Inc., 632 S.W.
2d 927, 928-29 (Tex.App.-Dallas 1982, no writ); Southmark Corp. v. Life Investors, Inc., 851 F.2d 763,
767 (5th Cir.1988); Document Imaging, Inc. v. IPRO, Inc., 952 F.Supp. 462, 468 (S.D.Tex.1996).
Writings that contain "futuristic" language are insufficient to confirm that a contract or promise is
already in existence. Martco, 632 S.W.2d at 928; Southmark 851 F.2d at 767.

The writing in this case provides that, "upon receipt of an acceptable contract," Hartford "stands
ready" to issue the bonds. This "futuristic" language clearly contemplates a future contract, and
cannot be reasonably construed as reflecting a present intent by Hartford to guarantee Williams's
performance. Indeed, the language clearly contemplates that Williams or C. Springs will first provide
Hartford 779 with an "acceptable contract."[2] Second, Hartford's statement that it "stands ready" also
indicates that Hartford had no present intent to be bound at the time the August 20 letter was signed.
See Maderas Tropicales v. Southern Crate & Veneer Co., 588 F.2d 971, 974 (5th Cir.1979) (holding
Southern Crate's letter that it "stands willing and able to purchase all the cleats that (Willimgham) can
manufacture" insufficient to comply with statute of frauds because it shows offer to purchase in the
future, not present intent to contract).

Because an essential term of the August 8, 2000 letter — particularly, Hartford's intent to guarantee
Williams's obligations — cannot be ascertained from the writing, the letter is too indefinite, as a matter
of law, to form a binding promise that complies with the statute of frauds. At best, the August 8, 2000
letter shows an agreement to agree at some future date. As such, the trial court erred in submitting
the breach of contract issue to the jury.


FRAUD

C. Springs's fraud claim rests on two alleged misrepresentations in the August 8, 2000 letter. We
address each respectively.


Fraudulent inducement

First, C. Springs claims that Hartford misrepresented its willingness to issue the bonds, which, in turn,
induced C. Springs into accepting the offer by partial performance. As such, C. Springs's first fraud
claim is one of fraudulent inducement. We have already held that the August 8, 2000 letter did not
create an enforceable contract. Absent an enforceable contract, C. Springs cannot claim that it was
fraudulently induced to enter such contract. Haase v. Glazner, 62 S.W.3d 795, 798 (Tex.2001).


Common-law fraud

Second, C. Springs argues that the August 8, 2000 letter contained a misrepresentation of fact — the
amount of Williams's bondability — that C. Springs relied on in moving forward with Williams as
contractor. Specifically, the letter stated that Williams had a "bonding line of credit of $25,000,000
single and $100,000,000 aggregate." However, the evidence shows, and Hartford concedes, that this
is a "mistake," and that Williams's credit had "never exceeded $10 million for a single job and $85
million aggregate." We address whether this fraud claim (1) was pleaded, (2) is supported by
sufficient evidence, and (3) gives rise to the damages awarded on it.


Sufficiency of pleading on the issue

A trial court cannot enter judgment on a theory of recovery not sufficiently set forth in the pleadings or
otherwise tried by consent. Miller v. Towne Servs., Inc., 665 S.W.2d 143, 147 (Tex. App.-Houston [1st
Dist.] 1983, no writ); see also TEX.R. CIV. P. 301 (providing that the "judgment of the court shall
conform to the pleadings"). There are, however, exceptions to rule 301. Unpleaded claims or
defenses that are tried by express or implied consent of the parties are treated as if they had been
raised by the pleadings. 780 See Roark v. Stallworth Oil & Gas, Inc., 813 S.W.2d 492, 495 (Tex.
1991). The party who allows an issue to be tried by consent and who fails to raise the lack of a
pleading before submission of the case cannot later raise the pleading deficiency for the first time on
appeal. Id. Moreover, "[w]hen issues not raised by the pleadings are tried by express or implied
consent of the parties, they shall be treated in all respects as if they had been raised in the
pleadings." TEX.R. CIV. P. 67. To determine whether an issue was tried by consent, we examine the
record not for evidence of the issue, but rather for evidence of trial of the issue. Case Corp. v. Hi-
Class Bus. Sys. of Am., Inc., 184 S.W.3d 760, 771 (Tex.App.-Dallas 2005, pet. denied). A party's
unpleaded issue may be deemed tried by consent when evidence on the issue is developed under
circumstances indicating that both parties understood the issue was in the case, and the other party
failed to make an appropriate complaint. Id.

At the charge conference, Hartford objected to submitting the definition of misrepresentation as a
"false statement of fact" because "there are no pleadings to support plaintiff's claim that the reference
to Williams's bonding line of credit in the August 8th letter was fraudulent, and the issue has not been
tried by consent." The trial court overruled Hartford's objection and submitted the issue to the jury.

The record shows that the issue of Williams's bonding line of credit was raised several times during
the trial and supports the trial court's conclusion that the issue was tried by consent.


Legal and factual sufficiency of the evidence

Next we turn to whether the evidence is legally and factually sufficient to support the jury's finding that
Hartford committed fraud based on its statement in the August 8, 2000 letter that Williams had a
"bonding line of credit of $25,000,000 single and $100,000,000 aggregate."

When an appellant attacks the legal sufficiency of an adverse finding on an issue on which it did not
have the burden of proof, it must demonstrate that no evidence supports the finding. Croucher v.
Croucher, 660 S.W.2d 55, 58 (Tex. 1983). In deciding whether the evidence in support of the finding
amounts to "no evidence," the reviewing court considers only the evidence and inferences tending to
support the jury's finding, views that evidence in the light most favorable to the finding, and disregards
all contrary evidence and inferences. Merrell Dow Pharm., Inc. v. Havner, 953 S.W.2d 706, 711 (Tex.
1997); Havner v. E-Z Mart Stores, Inc., 825 S.W.2d 456, 458 (Tex. 1992); see City of Keller v. Wilson,
168 S.W.3d 802, 822 (Tex.2005) (holding that whether reviewing court starts with all or only part of
record, it "must consider evidence in the light most favorable to the verdict, and indulge every
reasonable inference that would support it," but "if the evidence allows of only one inference, neither
jurors nor the reviewing court may disregard it"). Thus, "[a] no-evidence point will be sustained when
(a) there is a complete absence of evidence of a vital fact, (b) the court is barred by rules of law or of
evidence from giving weight to the only evidence offered to prove a vital fact, (c) the evidence offered
to prove a vital fact is no more than a scintilla, or (d) the evidence conclusively establishes the
opposite of the vital fact." Merrell Dow Pharm., Inc., 953 S.W.2d at 711. "More than a scintilla" of
evidence exists to support a jury finding when the evidence supporting the finding, taken as a whole,
would enable reasonable and fair-minded people to draw different conclusions. Id.

781 In reviewing the factual sufficiency of the evidence to support a jury finding, the court conducts a
neutral review of all the evidence and sets aside the verdict only "if it is so contrary to the
overwhelming weight of the evidence as to be clearly wrong and unjust." Cain v. Bain, 709 S.W.2d
175, 176 (Tex.1986); see also Minucci v. Sogevalor, S.A., 14 S.W.3d 790, 794 (Tex.App.-Houston [1st
Dist.] 2000, no pet.).

To prevail on a fraud claim, a plaintiff must prove that (1) the defendant made a material
representation that was false; (2) the defendant knew the representation was false or made it
recklessly as a positive assertion without any knowledge of its truth; (3) the defendant intended to
induce the plaintiff to act upon the representation; and (4) the plaintiff actually and justifiably relied on
the representation, which caused injury. Ernst & Young, L.L.P. v. Pac. Mut. Life Ins. Co., 51 S.W.3d
573, 577 (Tex.2001). Thus, justifiable reliance and causation are necessary elements of fraud. Id.


a. Justifiable Reliance

Hartford admits that the August 8, 2000 letter contained a false statement of fact about Williams's
bonding line of credit, but argues that there is no evidence, or insufficient evidence, to show that C.
Springs justifiably relied on the statement. Specifically, Hartford argues that "C. Springs simply could
not have relied on the August 8 letter as an unconditional, unbreakable commitment to issue bonds"
because "[n]o one could reasonably believe that such a letter binds a surety to stand ready in
perpetuity to issue bonds whenever they are called for, on whatever contract price, under whatever
conditions exist at the time." We agree.

Even if the August 8, 2000 letter had not contained a misrepresentation about Williams's bonding line
of credit, C. Springs could not have relied on the letter without a representation that Williams would
remain bondable. Put another way, the letter does not promise that Williams's credit limit, in whatever
amount, will continue past the date of the letter. Absent a promise to lend against the line of credit— a
promise that we have already held Hartford did not make—the amount of Williams's line of credit is
irrelevant. Even when a bonding line exists and credit remains on it, a surety is not bound to issue
bonds absent an agreement to do so. WILLIAM SCHWARTZKOPF, PRACTICAL GUIDE TO
CONSTRUCTION CONTRACT SURETY CLAIMS § 2.04(H) (2007). Because the August 8, 2000 letter
does not represent that Williams's line of credit, in either the true or misrepresented amount, would
continue to exist into the indefinite future, C. Springs cannot claim to have justifiably relied on any part
of the letter in choosing to do business with Williams.


b. Causation

To establish the element of causation, a plaintiff must show that the defendant's acts or omissions
were a cause-in-fact of foreseeable losses. Marathon Corp. v. Pitzner, 106 S.W.3d 724, 727 (Tex.
2003). A defendant's acts or omissions are a cause-in-fact if the plaintiff can show, beyond mere
conjecture, guess, or speculation, that an act or omission was a substantial factor in bringing about
an injury which would not otherwise have occurred. Id. In this case, C. Springs's damages were not
caused by the misrepresentation regarding the amount of Williams' bonding line of credit. Instead, C.
Springs's damages were caused by the fact that Williams became unbondable in any amount because
of its deteriorating financial condition. The misrepresentation in the August 8 letter was not a
"substantial factor" in bringing about C. Springs's 782 injury because, regardless of the amount of the
credit line stated in the letter, Williams became unbondable. As such, the misrepresentation in the
August 8 letter was not a cause-in-fact of C. Springs's damages.

Because there is legally insufficient evidence to show that C. Springs justifiably relied on the August 8,
200 letter, and that such justifiable reliance caused damage to C. Springs, the jury's fraud findings do
not support the damages awarded.

CONCLUSION

We reverse the judgment of the trial court and render judgment that C. Springs take nothing by way of
its claims against Hartford.

[1] Guaranty Insurance Services, Inc. is the successor of FGI's bond business. The jury was
instructed that "Hartford's conduct includes all conduct by Guaranty, occurring on or after October 1,
2000, that relates in any way to the subject matter of the August 8, 2000 letter."

[2] In their briefs, the parties vigorously dispute what is meant by the term "acceptable contract." C.
Springs argues that the term refers to a contract that complied with HUD's requirements. Hartford,
however, argues that the term refers to a contract that met their underwriting requirements. We need
not resolve this issue because, for purposes of determining whether the August 20, 2000 letter is
sufficient to comply with the statute of frauds, we need only recognize that the inclusion of the term
refers to an event to happen in the future. Neither party disputes that, at the time the letter was
written, no such "acceptable contract" existed under either party's definition of the term.