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Click here for the full text of this decision FACTS:Appellant, UMLIC VP LLC (UMLIC), sued appellees, T&M Sales and Environmental Systems Inc. (T&M), Tomas and Perla Lozano, and Walter M. Ezell, to recover the overdue balance on a note and guaranty agreement. Appellees asserted the affirmative defense of wrongful foreclosure and counterclaimed for breach of contract and negligence. After a jury found in favor of appellees, the trial court signed a judgment against UMLIC. UMLIC appealed. HOLDING:The court reverses and renders in part. The remaining part of the trial court’s judgment is reformed and, as reformed, is affirmed. UMLIC contends the trial court erred in submitting a question to the jury on the issue of fraud because appellees failed to sufficiently plead fraud as a cause of action and the issue was not tried by consent. The court notes that appellees’s pleadings do not specifically allege that UMLIC committed fraud. Appellees instead argue that a cause of action for fraud can be deduced from their pleadings. The court disagrees and concludes that a cause of action for fraud is not an inference that reasonably results from the statements contained in appellees’ petition. The court finds that the statements, pointed out by appellees as alleging a cause of action for fraud, are spread throughout the petition and are contained in sections dedicated to pleading other causes of action. The court finds nothing in the petition that gave fair notice to UMLIC that appellees were asserting a cause of action for fraud. Accordingly, the court holds that appellees failed to plead fraud as a cause of action. Also, although evidence relevant to the issue of fraud may have been submitted without objection, UMLIC objected to the submission of a jury question on the issue of fraud because it was not supported by any pleading and served as a surprise to UMLIC. The court holds that such a situation prevents the implication that the issue was tried by consent. UMLIC also contends that a mortgagee owes no independent duty of good faith and fair dealing to a mortgagor and complains that the trial court erred in submitting an ordinary negligence claim to the jury. The court agrees that Texas courts have found no special relationship between a mortgagor and a mortgagee, or between a creditor and a guarantor, that would impose an independent common law duty of good faith and fair dealing. The court also agrees that the claim was not one for ordinary negligence, because the source of UMLIC’s duty to conduct the foreclosure sale properly was the deed of trust. Therefore, the court also agreed with UMLIC’s assertion that the trial court erred in awarding appellees damages for loss of business reputation that appeared to be purely economic because damages are not proper in a breach of contract action. UMLIC next argues a lender does not owe a common law duty to a guarantor not to inflict mental anguish. The court states that a claimant may recover mental anguish damages only in connection with the breach of some other legal duty. Further, because mental anguish can be difficult to predict and its existence inherently difficult to verify, Texas courts do not recognize it as a compensable element of damages in many cases where it may occur. The court finds that the only duty imposed between UMLIC and the Lozanos as guarantors was a duty for UMLIC to exercise ordinary care and conduct the foreclosure sale disposing of the security properly. The court points out that mental anguish damages are not recoverable in a cause of action for breach of contract nor in a tort action arising from a contractual breach and, accordingly, concludes it was error to include mental anguish damages in the judgment. Finally, UMLIC asserts that the evidence is legally and factually insufficient to support the jury’s award of exemplary damages. The court notes that a suit for breach of contract, or for breach of an implied covenant to a contract, will not support an award of exemplary damages, even if the contract was maliciously breached. Because the court has already determined that appellees failed to sufficiently plead a cause of action for fraud, and there is no independent cause of action in tort in the case before us, even with a finding of malice, the court holds that appellees cannot recover exemplary damages based solely on wrongful foreclosure. Therefore, the court reverses the part of the trial court’s judgment awarding 1. exemplary damages to T&M in the amount of $2.5 million; 2. actual damages to Tomas Lozano in the amount of $8,250; and 3. actual damages to Perla Lozano in the amount of $9,880. The court renders judgment that Tomas Lozano and Perla Lozano take nothing by their counterclaim. The court reforms the remaining part of the trial court’s judgment to show that T&M have judgment against UMLIC for wrongful foreclosure in the amount of $1,148.99, together with post-judgment interest. As reformed, the trial court’s judgment is affirmed. OPINION:Hinojosa, J.; Hinojosa, Rodriguez, and Garza, JJ.

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