Opinion ID: 479859
Heading Depth: 1
Heading Rank: 2

Heading: duty to read

Text: 4 Ramp's primary argument on appeal is that the district court erroneously concluded that Ramp should have discovered the alleged fraud at the time it first received the insurance policy. Appellant claims that the district court's rationale is tantamount to imposing a duty to read, which, according to appellant, Alabama courts have never employed in order to commence the running of the statute of limitations in fraud cases. We find, however, that recent Alabama case law indeed supports such a duty to read with respect to the commencement of the statute of limitations for fraud. 5 The statute of limitations for fraud actions in Alabama is one year. Ala.Code Sec. 6-2-39 (1975). Under Ala.Code Sec. 6-2-3 (1975), a fraud action must be brought within one year of the discovery of the fraud, or within one year of the time when it should have been discovered. See Gonzales v. U-J Chevrolet Co., 451 So.2d 244, 246 (Ala.1984). The clear rule in Alabama is that fraud is deemed to have been discovered when it ought to have been discovered; that is, at the time of the discovery of facts which would provoke inquiry by a person of ordinary prudence and which, if followed up, would have led to the discovery of the fraud. Papastefan v. B & L Construction Co., 385 So.2d 966, 967 (Ala.1980); see also Gonzales, 451 So.2d at 246-47. 6 Several recent Alabama cases support the district court's duty to read rationale for determining when Ramp should have discovered the fraud. In Torres v. State Farm Fire & Casualty Co., 438 So.2d 757 (Ala.1983), the plaintiffs sued their insurance agent and insurance company for the alleged negligent and false representation that the defendants would provide flood insurance. Plaintiffs testified that they relied on the agent with regard to their insurance needs. Mrs. Torres testified that she went to the agent's office in connection with an insurance claim related to Hurricane Frederic and that the first words out of my mouth when I went in the door were, 'The first thing I want is to tell you that we want flood coverage.'  438 So.2d at 758. According to Mrs. Torres, one of the employees replied that she would take care of it. Plaintiffs later suffered flood damage and sued State Farm after they were told that they had no flood insurance coverage. 7 The Alabama Supreme Court affirmed the entry of summary judgment in favor of the insurance company. In language that is equally applicable in the present case, the court stated: 8 Because it is the policy of courts not only to discourage fraud but also to discourage negligence and inattention to one's own interests, the right of reliance comes with a concomitant duty on the part of the plaintiffs to exercise some measure of precaution to safeguard their interests. In order to recover for misrepresentation, the plaintiffs' reliance must, therefore, have been reasonable under the circumstances. If the circumstances are such that a reasonably prudent person who exercised ordinary care would have discovered the true facts, the plaintiff should not recover. Bedwell Lumber Co. v. T & T Corporation, 386 So.2d 413, 415 (Ala.1980). 9 If the purchaser blindly trusts where he should not, and closes his eyes where ordinary diligence requires him to see, he is willingly deceived, and the maxim applies, 'volunti non fit injuria'. Munroe v. Pritchett, 16 Ala. 785, 789 (1849). 10 Torres, 438 So.2d at 758-59. 11 The Alabama Supreme Court held that it was unreasonable for the plaintiffs to rely merely on the employee's statement that she would take care of it. The court considered it important that the plaintiffs received a homeowner's policy each year which did not provide for flood coverage. In addition, in the year and a half that the policy was in effect the plaintiffs never received any premium notice for flood coverage. The court concluded that 12 under the circumstances, the plaintiffs failed to exercise ordinary diligence in relying for so long on Ms. Hawkins's statement, when they received nothing from State Farm indicating that flood coverage had gone into effect. The failure to procure flood insurance which would have covered the loss was attributable to the plaintiffs' carelessness and neglect rather than to the misrepresentation. 13 Id. at 759. 14 In Gonzales v. U-J Chevrolet Co., 451 So.2d 244 (Ala.1984), the plaintiff sued a car dealer for fraud in the sale of an automobile. The plaintiff alleged that the dealer misrepresented the vehicle she purchased as being a new, eight cylinder car, when in fact it was used and had only six cylinders. At the time of the sale, however, the plaintiff signed sales documents which clearly showed that the car was used, and the plaintiff received copies of these documents shortly after the sale. The plaintiff purchased the car in March 1981, but did not file suit until May 1982. 15 The Alabama Supreme Court affirmed the entry of summary judgment in favor of the car dealer, holding that the one-year statute of limitations barred the plaintiff's fraud claim. The record showed that the plaintiff read and signed the sales documents on the day she purchased the car and that she had these documents in her possession shortly after the sale. The court concluded that the plaintiff should have been on notice of any misrepresentations or fraud in the sale of the car when she received the documentation for sale. 451 So.2d at 247 (emphasis added). The obvious implication of this holding is that a party is charged with knowledge of the contents of a document at least when that party has received the document and has had ample opportunity to read it. 16 In Retail, Wholesale, and Department Store Union v. McGriff, 398 So.2d 249 (Ala.1981), the Alabama Supreme Court also imposed a duty to read on an employee union member with respect to benefits available under a union pension policy. The plaintiff brought suit when he was denied pension benefits after an injury, claiming that the employer and union misrepresented that he would receive certain benefits if he joined the union and stayed with the employer for a certain length of time. The Alabama court held, however, that the one-year statute of limitations barred the plaintiff's fraud claim. The court held that letters sent by the union to the plaintiff in 1973 stating that he would not be eligible for pension benefits should have put the plaintiff on notice of any potential fraud claim. The court concluded that the plaintiff's cause of action first accrued when he received the letters above set forth, representing Appellant's position vis-a-vis Appellee's right to a pension. 398 So.2d at 252 (emphasis added). Again, the Alabama Supreme Court's emphasis on the aggrieved party's receipt of a document or documents which would alert that party to a possible fraud claim clearly supports the application of a duty to read rationale regarding the commencement of the statute of limitations for fraud. 17 Thus, in each of these cases, the Alabama Supreme Court held that the statute of limitations for fraud commenced to run at or shortly after the time the aggrieved party received documents which, if read, would have put him on notice of the fraud. This emphasis on the time of receipt clearly implies that Alabama law imposes upon a party the duty to read and inspect any document which might affect that person's legal rights or liabilities. It must be said that the receipt of such a document would provoke inquiry by a person of ordinary prudence, and that inquiry necessarily would consist of actually reading the document. This obligation is part of the concomitant duty on the part of the plaintiffs to exercise some measure of precaution to safeguard their interests, as stated in Torres. If the facts constituting an alleged fraud claim would be apparent from simply reading a given document, a plaintiff's failure to do so renders his reliance on previous misrepresentations unreasonable in the circumstances. 18 In the case at bar, Ramp's insurance policy took effect on April 1, 1981, and Ramp received a copy of this policy either before this date or shortly thereafter. Appellant did not file its complaint, however, until February 1984, almost three years later. A representative of Louisiana testified in his deposition that Reliance issued a policy to Ramp containing the same or similar language in 1979, 1980, and 1981. Ramp makes no claim that it could not understand or interpret the policy; it merely relies upon representations which it alleges were made by representatives of the defendants at the time the policy was negotiated. After receiving the policy, however, Ramp had ample time in which it could have and should have read the policy to determine its actual contents. Because Ramp did not do what it reasonably should have done, and consequently did not discover the fraud within one year of when it first should have done so, the district court correctly held that the statute of limitations bars Ramp's fraud claim.