Promissory Fraud Claims in Virginia
A coal company makes a promise to a coal miner: “We will pay you $30 per ton of coal you deliver.” The coal miner then delivers the coal, but the coal company pays the miner only $15 per ton. The coal miner then sues the coal company. Does the miner have a claim for breach of contract? For fraud? Or for both? As with so many legal questions, the (maddening) answer is: it depends.
Virginia law has strived to draw a distinction between contract and fraud claims, for perhaps obvious reasons. Take the facts above. The company’s failure to fulfill its earlier promise to pay is, in essence, simply a breach of contract. But if the company’s failure to follow-through could also be considered “fraudulent,” then the miner’s breach of contract claim would also be the basis of a fraud claim. The same would then be true in every other breach of contract case, and as a result, contract law would “drown in a sea of tort.”
This is why, as a general rule, a claim of fraud must involve a misrepresentation of a present or a pre-existing fact. It cannot be based on unfulfilled promises or statements of future events. Those are simply breaches of contract.
However, that is not to say that a contractual promise cannot be the basis of a fraud claim. It can be. This is often referred to as promissory fraud. Under promissory fraud principles, a fraud claim can lie on a contractual promise in the limited circumstance where a contracting party makes a promise that, when made, he has no intention of performing. In this instance, the promisor misrepresents his current state of mind—a matter of fact—and therefore his promise is a misrepresentation of present fact. And, if the promise is made to induce the promisee to act to his detriment, the promise is actionable as fraud.
Consequently, the key element to a promissory fraud claim is a “simultaneity” between promise and the intent not to honor it. Again, take our facts. To plead a claim of promissory fraud, the miner would have to allege that the company made the promise to pay $30 per ton with the simultaneous intent to disavow its payment obligation or pay some lesser tonnage amount. Absent those allegations, the miner has no fraud claim.
Savvy pleading can perhaps get the miner past the demurrer/motion to dismiss stage of its case. But proving the promissory claim is another matter. Fraud claims are notoriously hard to prove, and absent glaring facts, judges tend to view them with skepticism. Here, the burdens of proof and persuasion are made even more difficult by the precise evidence of “simultaneous disavowal” that is required for a promissory fraud claim. Rare is the case where this kind of evidence can be solicited in discovery or at trial.
Then, from a damages standpoint, is the game worth the candle? What are the damages potentially available for the promissory fraud claim? Again, take the miner’s case as an example. Since the miner’s fraud claim is based on the same contractual promise as a contract claim, the damages claimed between the two claims will be largely (if not entirely) duplicative of each other. The miner can only recover that amount once, which begs the question why the miner would assert a promissory fraud claim in the first place. The contract claim would appear to be a simpler and more direct route to seeking and obtaining those damages. From a cost-benefit standpoint, the miner might be better suited to simply sue for breach of contract.
Of course, each case will present different circumstances. Careful analysis and consideration should be given to the facts and circumstances in determining whether promissory fraud (i) is a viable claim and (ii) should be asserted.