Court Opinion

ID: 9765105
Source: CourtListenerOpinion
Date Created: 2023-08-29 03:50:55.117126+00
Date Added: 2024-06-11T12:54:00.119858
License: Public Domain

OPINION
NYE, Chief Justice.
This is a suit based on fraud. The plaintiff alleged that the defendant and his employees by the use of a fraudulent scheme deprived him of $124,191.23. Summary judgment disposed of plaintiff’s suit against the employees. No appeal was had from the summary judgment. The defendant alleged, by special exception, that plaintiff’s suit was barred by the two and four years statute of limitations, by laches and because plaintiff’s petition did not allege any facts that would tend to show the existence of a fiduciary relationship between the plaintiff and the defendant. The trial judge sustained all the special exceptions, dismissed plaintiff’s suit with prejudice, and held that as a matter of law plaintiff had failed to allege a cause of action.
Where a trial court has sustained defendant’s exceptions and has dismissed plaintiff’s case on the grounds that he has failed to allege a cause of action, we must follow the familiar rule that requires us to consider that all of the facts alleged by plaintiff are true. In determining whether the action by the trial court was erroneous, we must in addition consider all of such allegations and the inferences that could reasonably arise therefrom which would tend to establish a cause of action or give rise to an issue of fact that should be determined by a jury. See Wheeler v. White, 398 S.W.2d 93 (Tex.Sup.1965).
The plaintiff was a farmer in Willacy County. The defendant was also a farmer and was the owner of the Willamar Gin located in Raymondville. The plaintiff and defendant became close personal friends beginning in 1939 and remained as such for the next 26 years. The plaintiff trusted the defendant the same as if he were a member of his own family. In fact, plaintiff’s older brother lived for many years in defendant’s father’s home. On at least one occasion the plaintiff *888stayed the entire summer in the defendant’s father’s home. The plaintiff and defendant had repeated business contacts throughout the years. They hunted, visited, and had repeated social contacts together. The defendant on several occasions invited the plaintiff to hunt with him on a special hunting lease at the Yturria Ranch, as well as other places.
On or about the 1st day of September, 1956, the plaintiff and defendant entered into an oral agreement whereby the defendant agreed to gin and process all of plaintiff’s cotton and grain raised by him. This arrangement was to continue and remain in effect until terminated by mutual agreement. Under the terms of the agreement plaintiff was to turn over to the defendant all of the produce from his land for process and sale. The defendant was to pay plaintiff the current market price for every bale of cotton and pay the then current market price for grain.
The plaintiff owned 276 acres known as “Postas Blancas” which he was purchasing. Additionally, he farmed as a tenant two 800 acre tracts. Under the agreement the defendant was to make all of the purchase money payments on plaintiff’s “Postas Blancas” farm for the plaintiff; pay plaintiff’s landlords the amount due on the rented farm tracts; and make personal money advances to the plaintiff for plaintiff’s personal living expenses and farming expenses. The defendant agreed to take over all of the bookkeeping chores necessary in connection with the agreement and to render an accounting to the plaintiff at the end of each farming year showing the amount produced, the total amount of proceeds received, and the expenses and the disbursements made.
The defendant received all of the proceeds from the sale of plaintiff’s grain and cotton, and rendered an accounting showing all the receipts and disbursements. Additionally, the defendant obtained and guaranteed loans made for the benefit of the plaintiff and received the proceeds from such loans. The proceeds from such loans were disbursed by the defendant and his agents.
In connection with the plaintiff’s farming operation the defendant paid all of the farming expenses and at the end of the year the defendant provided the plaintiff with an accounting said to be true and correct in all particulars. This relationship continued from 1956 until 1965. During this period, the defendant made all of the payments in connection with the plaintiff’s purchase of the “Postas Blancas” tract to Bryon Campbell. These payments were made to Campbell by the defendant from 1956 until 1965. In 1969, Campbell’s administrator notified plaintiff of a discrepancy in the payment of the note. Plaintiff asked the defendant to provide him with the necessary information to determine the total amount paid on the note. This the defendant refused to do. It was then that plaintiff discovered that the 1956 payment in the amount of $2,509.90 due on the purchase of his farm had not been paid by the defendant. At that, he and his wife became suspicious. Plaintiff’s wife went to the gin when the defendant was not there and, through the aid of the gin personnel, conducted an audit of the books and records making copies of all of the records pertaining to plaintiff’s operation with the defendant. As a result of his audit, plaintiff discovered the secret fraudulent scheme that defendant had perpetrated against him.
The annual accountings which were furnished by the defendant were prepared very carefully so that they did not show that any fraudulent scheme existed or that the plaintiff would in any way become suspicious or otherwise be put on inquiry as to the fraudulent withholdings of plaintiff’s money.
Plaintiff after receiving each yearly accounting would compare the cost of picking the cotton to the number of bales sold. The result would show that the average picking cost when compared to the number *889of bales of cotton, would prove reasonable. Upon the audit, however, it was discovered that the defendant withheld and appropriated a portion of plaintiff’s cotton and did so by a device and scheme which was difficult to detect. This was accomplished by the defendant by using his own picking crews and having the cotton delivered directly to the gin where the cotton picking expense was paid for by the defendant. The defendant then only charged the plaintiff the amount of cotton picking expense that would reasonably compare with the number of bales that defendant accounted for. In connection with the grain, the defendant employed independent contractors to harvest the plaintiff’s grain and accounted to plaintiff for what he said was the total yield in pounds of grain received. When in truth and in fact the defendant appropriated some of the grain to his own use. Plaintiff in checking the accounting of the grain, compared it with his experience in previous years. He found that the comparable yield that was represented to him by the defendant as correct was not unreasonable when compared to the previous year yields.
The plaintiff relied upon the reports in the annual accountings furnished by the defendant and did not discover the shortages until informed of the discrepancy in the land payment by his grantor-mortgagee. The plaintiff then acted promptly and thereafter discovered the fraudulent scheme perpetrated on him by the defendant. This suit was filed shortly after the actual discovery of the fraud.
The law is clear that fraud prevents the running of the statute of limitations until it is discovered, or by the exercise of reasonable diligence it might have been discovered. Knowledge of facts that would have excited inquiry in the mind of a reasonably prudent person, which if pursued by him with reasonable diligence would lead to the discovery of fraud, is equivalent to knowledge of the fraud as a matter of law. Ruebeck v. Hunt, 142 Tex. 167, 176 S.W.2d 738 (1943); Wise v. Anderson, 359 S.W.2d 876 (Tex.Sup.1962). Where the statute of limitations have been plead and one seeks to avoid the bar of the statute, he must allege facts on which he relies so that the Court may determine from the pleadings whether he is entitled to the relief sought assuming the allegations to be true. 37 Tex.Jur.2d Limitation of Actions, § 203, p. 393. If from the facts alleged, the Court can say that as a matter of law, the plaintiff by the exercise of reasonable diligence could have discovered the fraud within such time as his action would have been barred before the suit was filed, his petition is subject to the exception. However, the Court is not authorized to deny the plaintiff’s cause of action unless the plaintiff’s petition conclusively shows that it is so barred. Ruebeck v. Hunt, 142 Tex. 167, 176 S.W.2d 738 (1943); Dannheim v. Mangum, 498 S.W.2d 224 (Tex.Civ.App. — Beaumont 1973).
If assuming that all of the above facts alleged by plaintiff are true and that reasonable minds could differ as to the extent of their applicability, then the question as to whether the plaintiff exercised that degree of diligence that the law requires is one of fact for the jury and not a question of law for the Court to decide. The mere fact that the plaintiff had the opportunity Í or power to investigate the fraucf, is not sufficient in law to charge him with knowledge. The-defrauded party must be cognizant or_ajsaie of facts as would have caused the ordinarily intelligent and pru-I dent man to investigate. Ruebeck v. Hunt, supra; Isaacks v. Wright, 50 Tex.Civ.App. 312, 110 S.W. 970 (1908, writ denied) ; Edsall v. Edsall, 238 S.W.2d 285 (Tex.Civ.App. — Eastland 1951, writ ref’d n. r. e.).
We believe that the plaintiff has alleged sufficient facts which taken most favorably toward his case, shows that he was not aware of the fraud, nor was he required to investigate further than he did. His entire harvesting operation was controlled by the defendant. The cotton and *890grain were sold to and through the defendant’s company. The defendant acted as plaintiff’s bookkeeper, accountant and money lender. The inquiry made by the plaintiff showed that the accounting he received appeared to be reasonable. As to the picking of the cotton, it appeared to be correct when tested by the total number of bales reportedly sold and the expense reported. The total yield from the grain crop, approximated the yield of the previous years. Under these circumstances it was reasonable for the plaintiff to believe that the defendant was giving him a true accounting of the proceeds of his crops. The system devised by the defendant was a closed circle (harvesting, selling, accounting and payment), which the plaintiff alleges was completely controlled by the defendant. These allegations do not show that “as a matter of law” that the plaintiff]' had knowledge of facts that would have required him to make further inquiry. Employers Mutual Liability Insurance Co. v. Murphy, 434 S.W.2d 246 (Tex.Civ.App. —Eastland 1968, n. r. e.).
There is another reason why the trial court should not have dismissed plaintiff’s suit. The discovery rule pre/viously discussed is to be used primarily in / “arm’s-length transactions”. Edsall v. Ed- | sail, supra. A different and more lenient i standard is applied to qne__who has been 1 defrauded — wEete—a—fiduciary., jrglationship exists b£tee.en».the parties. Courseview, Inc. v. Phillips Petroleum Co., 158 Tex. 397, 312 S.W.2d 197 (1957); Trinity-Universal Ins. Co. v. Maxwell, 101 S.W.2d 606 i (Tex.Civ.App. — Austin 1937, writ dism’d). I Under the facts of this case as alleged, the 'relationship between the plaintiff and defendant was not an arm’s-length transaction, nor was it exactly a transaction where a purely technical fiduciary relationship exists. The fraud was not apparent on its face that made it so obvious that the fraud should have been discovered as a matter of law. See Thigpen v. Locke, 363 S.W.2d 247 (Tex.Sup.1962). The courts hold a person to a certain standard of diligence when protecting his own business affairs in an arm’s-length transaction, but the diligence required in discovering the fraud, depends on the relative circumstances and the relationship of the parties, expecially where a condition of trust exists between the parties. Such relationship “ . . . may arise informally from ‘moral, social, domestic or purely personal’ relationships, (citing authority) The existence of the fiduciary relationship is to be determined from the actualities of the relationship between the persons involved.” Thigpen v. Locke, supra. Where the fiduciary relationship exists or an issue of fact 6*on this question is present, diligence on the party defrauded does not exact as prompt and as searching an inquiry into the conduct of the other party as where the parties were strangers or were dealing with i strangers. Eastman v. Biggers, 434 S.W. Sm 439 (Tex.Civ.App. — Dallas 1968). The mere fact that the defrauded party has the ^opportunity or power to investigate the fraud, is not sufficient to charge him with notice or knowledge of the fraud, so as to start the running of the statute of limitations. The question of the knowledge is a fact issue. Where there is a relationship of trust,_qr, confidence, the law seems to impose upon the defendant the duty to make a full disclosure of the facts so that the fraud may be discovered. If he doesn’t do this, it has been held that the rule re-quiresCactual noticS^pf the fraud before the limitation statute is set into motion. Franklin County v. Tittle, 189 S.W.2d 773, 775 (Tex.Civ.App. — Texarkana 1945, writ t-ref’d).
In the case before us the parties’ relationship extended for a long period of time (in excess of 26 years). They worked together, they had repeated business contacts, and were close family-type friends. In the present case the defendant acted in one sense as a banker and a partner for the plaintiff. He obtained and guaranteed loans for him. The defendant collected *891funds. He held them in a “trust”1 type relationship for later disbursement. He acted as plaintiff’s agent in receiving money from the sale of cotton and grain and upon plaintiff’s order disbursed payments to plaintiff’s mortgagee and other creditors. 'The Supreme Court clarified the notice rule as it applies to fiduciary relationship and summarizes what we have said, when it stated that:
“It is perhaps more accurate to say that the existence of a relation of trust and confidence does not change the rule that diligence in discovering the fraud is required but it does affect the application of the rule, (citations omitted) By en- ‘ tering into fiduciary relations, the parties consent as a matter of law to have their conduct measured by standards of finer loyalties exacted by the courts of equity, (cites omitted) The fiduciary relationship is therefore one of the circumstances to be considered in determining whether fraud might have been discovered by the exercise of reasonable diligence. It may excuse the defrauded S party from taking action that would be required in an arm’s-length transaction or from making as prompt or searching ⅛ investigation as might otherwise be ex- ! pected. In some situations there is no legal duty to use means available for dis- | covering the fraud, . . . ” (Emphasis added)
Courseview, Inc. v. Phillips Petroleum Co., 158 Tex. 397, 312 S.W.2d 197, 205 (1958). This rule is followed today in Texas and in a number of decisions nationwide. Thigpen v. Locke, 363 S.W.2d 247 (Tex.Sup.1962); Eastman v. Biggers, 434 S.W. 2d 439 (Tex.Civ.App. —Dallas 1968, no writ hist.); see also, 26 Tex.Jur.2d Fraud and Deceit, § 88, p. 33; 54 C.J.S. Limitations of Actions, § 189, p. 188; 45 A.L.R. 3rd 631 (1972).
'[16] The defendant contends that he appropriated approximately from 12% to 35% of the proceeds in each of the years involved and that the means were at hand for the plaintiff to discover the fraud had he used diligence and had he made an inquiry as he did on the occasion when the fraud was actually discovered. Where, as here, a party is guilty of an affirmative fraudulent misrepresentation of,.a fact, he should noRbe permitted to urge that the defrauded party could have discovered the truth had he diligently maHe’an investigation. Trinity-UniversanHsT" Co. v. Maxwell, 101 S.W.2d 606, 611 (Tex.Civ.App.— Austin 1937, writ dism’d). In all cases of embezzlement or concealed fraud it becomes very obvious that a wrong doing has taken place after the fraud has been discovered. But where you have a trusting relationship it is hard to discoverTie fraud and harder yet to believe. But this is not the question that is before the Court. The question is whether this plaintiff has used the necessary diligence to discover the fraud when tested by the relative circumstances and "conditions of the parties and the particular"facts' Surrounding this case.
We believe the situation in this case was appropriately stated in 54 C.J.S. Limitations of Actions § 189, p. 193.
“What Amounts to Discovery of Fraud; Necessity for Diligence or Concealment” : (at p. 193) where it is said that: “The courts will not lightly seize on some small circumstance to deny relief to a party plainly shown to have been actually defrauded against those who defrauded him, on the ground that he did not discover the fact that he had been cheated as soon as he might have done; it is only where the party defrauded should plainly have discovered the fraud except for his inexcusable inattention that he will be charged with a discovery in advance of actual knowledge on the subject.”
In Hogan v. Hidalgo County, 246 S.W. 2d 709 (Tex.Civ.App. — San Antonio 1952) *892in an opinion by Chief Justice Murray the Court said:
“We are of the opinion that defendants could invoke the negligence of the coun- , ty commissioners in failing to discover Powell’s fraud only after they had knowledge of such facts, or notice of other facts which would have excited inquiry in the mind of a person of ordinary prudence that, if pursued with reasonable diligence, would have led to a knowledge of such defalcation, and that ^ appellants are in no position to invoke in behalf of their plea of limitations the negligence of the county commissioners in a failure to perform their statutory duties in the absence of some facts amounting to notice of such defalcation.” (emphasis supplied)
There are four things plead by the plaintiff which taken as true, establishes a fact or an inference of fact giving rise to a confidential relationship that should be resolved by a jury. They are: 1) prior business contacts; 2) the banker-client type relationship; 3) the principal and agent and trust type relationship; and 4) the close friendly family-type ties.
The appellee places great emphasis on what the plaintiff failed to plead. This is not the question at all where the trial court has dismissed plaintiff’s suit. The question that must be resolved on a subsequent trial is whether the facts that are pleaded, (taken as true) and the reasonable inferences obtained therefrom, entitles the plaintiff to a trial on the merits when faced by the plea of limitations by one who has defrauded him.
We hold that the plaintiff has met at least the minimum burden of answering the statute of limitations by the facts pleaded. We believe the plaintiff deserves a trial on the merits. The judgment of the trial court is accordingly reversed and the cause is remanded for trial.
Reversed and remanded.

. See definition of “trust” — Black’s Law Dictionary, 4th Edition.