Faust v. Hosford

• Decision Date: 22 January 1903
• Citation: 93 N.W. 58,119 Iowa 97
• Parties: MARY FAUST, Appellee, v. A. W. HOSFORD, Appellant
• Court: Iowa Supreme Court

93 N.W. 58

119 Iowa 97

MARY FAUST, Appellee, v. A. W. HOSFORD, Appellant

Supreme Court of Iowa, Des Moines

January 22, 1903

Appeal from Dubuque District Court.--HON. FRED O'DONNELL, Judge.

ACTION at law to recover a sum of money said to have been obtained from plaintiff by defendant, as her agent, through fraud and deceit. Trial to a jury, verdict and judgment for plaintiff and defendant appeals.

Reversed.

Longueville & Kintzinger for appellant.

Henderson Hurd, Lenehan & Kiesel for appellee.

OPINION

DEEMER, J.

Defendant obtained from plaintiff the sum of $ 700; she says, as her agent, for the purpose of investing it in first mortgage securities. After obtaining the money, defendant brought plaintiff a note of one Hassett, secured by mortgage on his (Hassett's) homestead. This was in fact a second mortgage on the property, although plaintiff claims that defendant represented it was a first one when he delivered the same to her, and stated that she (plaintiff) "could depend upon him." Defendant obtained the money in the year 1892, but there is evidence tending to show that plaintiff did not discover that the mortgage given was a second one until the year 1899, when she offered the same back to defendant, and demanded the return of her money. This action was commenced April 10, 1900. That defendant knew the mortgage he gave plaintiff was a second one is undisputed; but he claims, among other things, that plaintiff's action is barred by the statute of limitations, and that the court erred in denying his motion for a directed verdict on this ground, and in refusing to give certain instructions to the effect that the action was barred. The trial court instructed that: "Where a party by a fraudulent representation induces another to rely upon something as true, which in fact is not true, and upon the falsity of such representation alone would there be a cause of action in favor of the person so relying on such false representation than the period of five years within which an action must be brought,--would not commence to run until after the false representation is found to be false, or might with reasonable diligence have been found to be false." It further instructed that, if Hosford was acting as plaintiff's agent, she had the right to rely on his representations as to the character of the security, and that she was not required to examine the public records or to take any action until she had reason to believe, from knowledge or information coming to her, that her instructions had been disobeyed.

I. The gist of plaintiff's action is fraud committed upon her by her agent, and in such cases the statute does not begin to run until actual discovery of the fraud, or until such time as, in the exercise of ordinary care and diligence, the fraud might have been discovered. On account of the fiduciary relations existing between defendant and plaintiff, and the alleged fraud, this action was heretofore solely cognizable in a court of equity; hence the statute above referred to applies, and there was no error in the rulings so far complained of. Blakeney v. Wyland, 115 Iowa 607, 89 N.W. 16. Aside from this, the action is not barred, because of defendant's fraudulent concealment of the facts. Boomer Dist. Tp. v. French, 40 Iowa 601; Wilder v. Secor, 72 Iowa 161, 33 N.W. 448. In such a case the statute begins to run from the time the cause of action is discovered, or might by the use of reasonable diligence have been discovered. The relation of principal and agent is one of trust and confidence, --as much so as that of guardian and ward; and when defendant not only affirmatively misrepresented the character of the security, but made statements calculated to throw plaintiff off her guard, and to cause her to abstain from making inquiries, he was guilty of such fraudulent concealment as will save the case from the statute until, as we have said, plaintiff became aware of the fraud, or by the use of ordinary care and diligence should have discovered it. Blakeney v. Wyland, supra.

Where persons stand with reference to each other as principal and agent, and the agent commits an actual fraud upon the principal, mere silence upon his part amounts to a fraudulent concealment, within the rule above stated. In other words, his silence is regarded as a continuation of the original fraud, and a concealment of the cause of action. Bailey v. Glover, 88 U.S. 342, 21 Wall. 342 (22 L.Ed. 636); Lumber Co. v. Reynolds, 121 Cal. 74 (53 P. 410); Perry v. Smith, 31 Kan. 423 (2 P. 784); Bank v. Harris, 118 Mass. 147; King v. MacKellar 109 N.Y. 215 (16 N.E. 201). And in such cases the burden is on the defendant to show plaintiff's knowledge of the fraud. Harlin v. Stevenson, 30 Iowa 371.

Whether or not plaintiff's failure to discover her cause of action was due to failure on her part to use due diligence, or to the fact that defendant so concealed the wrong as that plaintiff was unable to discover it by the exercise of due diligence, is ordinarily a question of fact for the jury. Rosenthal v. Walker, 111 U.S. 185 (4 S.Ct. 382, 28 L.Ed. 395). Had the action been between strangers, the instructions we have quoted would undoubtedly have been erroneous; but, because of the relations existing between the parties to this litigation, it was undoubtedly correct. In In re Humphreys v. Mattoon, 43 Iowa 556, there was no active fraud, but merely fraudulent concealment of a cause of action, and the action was not grounded on fraud; hence the case does not apply.

But it is said that, as the first mortgage upon the property was recorded, plaintiff was bound to take notice thereof, and that she had the means thereby of acquiring full knowledge of the fraud, and, had she exercised the least degree of care, she would have done so; and Mather v. Rogers, 99 Iowa 292, 68 N.W. 700; Heath v. Elliott, 83 Iowa 357, 49 N.W. 984; Allen v. Railway Co., 90 Iowa 473; Laird v. Kilbourne, 70 Iowa 83, 30 N.W. 9,--and other like cases are relied upon. The Laird Case is clearly not in point, because no fiduciary relations existed between the parties, and the same may be said of Allen's Case. In the Mather and Heath Case there was no active fraud, but fraudulent concealment alone was relied upon. Nothing was done in either case to throw plaintiff off his guard. Here, as we have seen, defendant's active fraud is deemed a continuing one; and plaintiff was not required, as a matter of law, to go to the public records to discover his deceit. She had the right to rely on the statements of her trusted agent, and, until something arose which would put a reasonably prudent person on his guard, plaintiff was not negligent in failing to resort to the records. In other words, plaintiff was justified by reason of defendant's relation to her, in relying on his statements, which, as we have seen, are regarded as continuing, until by the use of reasonable care and diligence she should have discovered his misrepresentations. Plaintiff was not then required to go to the public records to discover the fraud, but had the right to rely on defendant's statements until something occurred which would put a reasonably prudent person on inquiry to discover the facts. Bradford v. McCormick, 71 Iowa 129, 32 N.W. 93. See, also, Vigus v. O'Bannon, 118 Ill. 334 (8 N.E. 778). Statements found in some of our cases seem inconsistent and irreconcilable, but, when construed with reference to the particular facts involved, there is no conflict, except, perhaps, in the language used by way of...