## Facts

- Hillsboro Independent School District (HISD) hired D.S.A., Inc. (DSA) as construction manager for an elementary school project.
- During pre-contract negotiations, DSA represented it would provide supervisory and coordination services intended to prevent construction defects.
- After the school was occupied, serious defects emerged, including a roof that leaked and failed in common winds and drainage problems that led to soil expansion and damaged suspended sewage lines.
- HISD spent more than $220,000 to repair the roof, plumbing, and drainage and sued DSA for breach of contract, negligent misrepresentation, grossly negligent misrepresentation, and statutory consumer-protection violations.
- A jury found liability for breach of contract and negligent misrepresentation (and also found statutory liability at trial) and awarded actual damages that matched the claimed repair costs; the jury also awarded exemplary damages and attorney’s fees.
- The trial court rendered judgment primarily on the statutory claim; the court of appeals later held that claim time-barred but affirmed recovery on misrepresentation theories, including exemplary damages on a gross-negligence characterization.
- DSA sought further review, challenging the availability of benefit-of-the-bargain and punitive-style remedies for misrepresentations made to induce a contract when the claimed loss was the same as the contract loss.

## Issues

1. Whether a plaintiff may recover benefit-of-the-bargain damages for negligent misrepresentation made in pre-contract negotiations when the only proven loss is the contractual benefit.
2. Whether Texas law permits exemplary damages for “grossly negligent misrepresentation” in the inducement of a contract.
3. Whether a misrepresentation claim in a contractual setting requires proof of an economic injury independent of breach-of-contract damages.

## Decision

- The Supreme Court of Texas reversed the judgment to the extent it rested on negligent or grossly negligent misrepresentation.
- The Court held that HISD could not recover benefit-of-the-bargain damages on its negligent misrepresentation theory because the jury’s tort damages were identical to its contract damages and HISD proved no independent economic injury.
- The Court held exemplary damages were not recoverable based on a theory of “grossly negligent misrepresentation” in contract inducement.
- The Court remanded for entry of judgment based solely on the breach-of-contract theory and the jury’s contract damages findings.

## Legal Principles

- Negligent misrepresentation (under Restatement (Second) of Torts § 552) permits recovery only for reliance-type losses and does not allow benefit-of-the-bargain damages.
- When alleged misrepresentations occur in the course of forming a contract, a tort recovery requires an injury independent of the loss of the contractual bargain.
- A plaintiff cannot convert a breach-of-contract claim into a tort claim to obtain broader remedies when the only damages shown are the costs of receiving the promised contractual performance.
- Texas law does not recognize “grossly negligent misrepresentation in the inducement of a contract” as a basis for exemplary damages; punitive remedies in an inducement setting require a recognized intentional tort such as fraudulent inducement.

## Conclusion

The Texas Supreme Court confined negligent misrepresentation in contract-formation disputes to reliance damages and rejected exemplary damages for “grossly negligent misrepresentation,” requiring that recovery proceed on breach of contract absent proof of an independent, non-contractual injury.


D.S.A., Inc. v. Hillsboro Indep. Sch. Dist., 973 S.W.2d 662 (Tex. 1998)