Auerbach

In a suit that raises several issues concerning the type of out-of-pocket expenses which will suffice to support fraud damages, respondents Ernest and Lisa Auerbach (the Auerbachs) brought suit against appellant Great Western Bank (GW) claiming that it fraudulently promised to negotiate a modification to an existing loan agreement in order to induce them to continue to make payments on the loan. Because we conclude that the Auerbachs are incorrect in their assumption that an existing nonrecourse agreement precluded GW from pursuing them individually if they defaulted on the note, we reduce the portion of the fraud award which represents payments made to GW on the preexisting note and remand for recalculation of punitive damages based on the award as modified. The Auerbachs also pursued a breach of contract claim against GW, but the damages awarded are not supported by the evidence, and we therefore reverse the breach of contract award.

Factual and Procedural Background

The Original Loan

The Auerbachs are real estate investors who own a sizable portfolio of properties. In April of 1988, they borrowed $2 million from GW to finance the purchase of a piece of commercial…