## Facts

- The Sloanes, farmers, sought financing to build new chicken houses to perform under a contemplated arrangement with Pilgrim’s Pride, which was contingent on construction of the facilities.
- They applied to the Federal Land Bank Association of Tyler for a $141,000 loan and provided a construction estimate and a letter reflecting Pilgrim’s Pride’s contingency.
- A bank loan officer told the Sloanes the board had approved the loan and encouraged them to begin site preparation and construction; the contractor was similarly told there was no problem starting work.
- Relying on these statements, the Sloanes spent about $15,000 on site preparation and demolition, and existing chicken houses were destroyed to clear the site.
- Months later, the bank denied the loan, citing undisclosed debts and additional liabilities incurred during processing.
- Unable to obtain alternate financing, the Sloanes could not complete construction and did not proceed with the planned poultry operation.
- The Sloanes sued for negligent misrepresentation, seeking reliance expenditures, lost profits from the contemplated poultry venture, and mental anguish damages.

## Issues

1. Whether the statute of frauds bars a negligent misrepresentation claim based on oral statements that a loan secured by real property had been approved.
2. Whether damages for negligent misrepresentation may include mental anguish and lost profits, or are limited to pecuniary losses caused by reliance.

## Decision

- The court held the statute of frauds did not bar the negligent misrepresentation claim because the plaintiffs sought tort damages for reliance on misinformation, not enforcement of an oral loan agreement.
- The court held damages for negligent misrepresentation are limited to pecuniary losses and exclude mental anguish.
- The court also rejected recovery of lost profits as impermissible expectation (benefit-of-the-bargain) damages under a negligent misrepresentation theory.
- The judgment was affirmed in part and reversed in part, with damages limited to pecuniary reliance losses.

## Legal Principles

- The statute of frauds prevents enforcement of certain unwritten agreements but does not automatically defeat an independent tort claim for negligent misrepresentation when the plaintiff seeks reliance-based relief rather than contractual enforcement.
- Under Restatement (Second) of Torts § 552, negligent misrepresentation liability is confined to pecuniary loss caused by justifiable reliance on false information supplied in the course of business without reasonable care.
- Negligent misrepresentation is an economic tort; mental anguish damages are not recoverable absent a basis recognized for emotional-distress recovery.
- Lost profits tied to a transaction that was never consummated are generally expectation damages and are not recoverable under negligent misrepresentation, which compensates out-of-pocket reliance losses.

## Conclusion

The Texas Supreme Court permitted a negligent misrepresentation claim based on a lender’s oral assurances of loan approval despite the statute of frauds, but confined recovery to pecuniary reliance damages, excluding mental anguish and lost-profit awards.


Fed. Land Bank Ass’n of Tyler v. Sloane, 825 S.W.2d 439 (Tex. 1991)