Difference Between Constructive and Actual Fraud In Texas

The distinction between constructive and actual fraud was articulated by the Texas Supreme Court when it wrote: "Actual fraud usually involves dishonesty of purpose or intent to deceive, whereas constructive fraud is the breach of some legal or equitable duty which, irrespective of moral guilt, the law declares fraudulent because of its tendency to deceive others, to violate confidence, or to injure public interests." Archer v. Griffith, 390 S.W.2d 735, 740 (Tex. 1964). This Court has also noted the distinction between actual and constructive fraud, writing that actual fraud "encompasses intentional breaches of duty," while constructive fraud "encompasses those breaches that the law condemns as 'fraudulent' merely because they tend to deceive others, violate confidences, or cause injury to public interests, the actor's mental state being immaterial." Chien v. Chen, 759 S.W.2d 484, 494-95 (Tex. App.--Austin 1988, no writ). In this context, a breach of a fiduciary duty that causes injury to another is always fraudulent; whether that fraud is actual or constructive is determined by the actor's mental state or moral culpability. See id. This Court and others apparently agree that exemplary damages can be awarded for breach of fiduciary duty, for there are numerous cases upholding such awards. See: Hawthorne v. Guenther, 917 S.W.2d 924, 936 (Tex. App.--Beaumont 1996, writ denied) ("An award of exemplary damages is . . . supported by a finding that the partner's breach of fiduciary duty was willful and intentional"); NRC, Inc. v. Huddleston, 886 S.W.2d 526, 533 (Tex. App.--Austin 1994, no writ) (upholding portion of district court's judgment awarding actual and punitive damages for breach of fiduciary duty); Cheek v. Humphreys, 800 S.W.2d 596, 599 (Tex. App.-- Houston [14th Dist.] 1990, writ denied) ("Exemplary damages are proper where a fiduciary has engaged in self-dealing"); Schlueter v. Schlueter, 975 S.W.2d 584, 592-93 (Tex. 1998) (Spector, J., dissenting). Whether an exemplary damages award is excessive is reviewed on a factual sufficiency standard. See Peco Constr. Co. v. Guajardo, 919 S.W.2d 736, 741 (Tex. App.--San Antonio 1996, writ denied). We may not substitute our own judgment for that of the jury, but must assess all the evidence and reverse for a new trial only if the challenged finding is so against the great weight and preponderance of the evidence as to be manifestly unjust. See Guajardo, 919 S.W.2d at 741-42. In reviewing the jury's award, we must detail the relevant evidence and explain why the evidence does or does not support the punitive damage award. See id. at 742; see also Tex. Civ. Prac. & Rem. Code Ann. 41.013 (West 1997).