Khalaf v. Williams

• Court: Texas Court of Appeals
• Writing for the Court: JACK SMITH
• Citation: Khalaf v. Williams, 763 S.W.2d 868 (Tex. App. 1988)
• Decision Date: 22 December 1988
• Docket Number: No. 01-88-00174-CV,01-88-00174-CV
• Parties: George KHALAF, Appellant, v. William J. WILLIAMS, Appellee. (1st Dist.)

Page 868

763 S.W.2d 868

George KHALAF, Appellant, v. William J. WILLIAMS, Appellee.

No. 01-88-00174-CV.

Court of Appeals of Texas Houston (1st Dist.).

Dec. 22, 1988.

Rehearing Denied Feb. 2, 1989.

Paul B. Rosen, Houston, for appellant.

H. Daniel Spain, Womble & Associates, and Kevin Dubose, Houston, for appellee.

Before JACK SMITH, DUGGAN and DUNN, JJ.

OPINION

JACK SMITH, Justice.

The appellant, Khalaf, sued appellee, Williams, for damages resulting from breach of contract, fraud, constructive fraud, conversion, and breach of fiduciary duty. In response, Williams filed a counterclaim asserting claims for breach of contract and fraud. Both parties sought recovery of attorney's fees. Based upon jury answers to special issues, the trial court entered judgment that Khalaf take nothing, and that Williams recover $181,229.85 plus attorney's fees from Khalaf. Khalaf asserts five points of error on appeal.

In July 1980, Khalaf and Williams entered into an oral partnership agreement to construct and operate a country and western club. This agreement was reduced to writing and signed by the parties on September 9, 1980. By the agreement, Williams was to build the club at cost, and Khalaf was to finance the construction. Both would share in the ownership of the business. Construction of the club began, but in the latter part of September, Williams discovered that Khalaf had incorporated the business on September 17, 1980, and that he had been excluded from ownership. Williams left the job site saying that he had been fired; Khalaf said that Williams had quit. Khalaf initiated this suit in October 1980.

In his first point of error, Khalaf claims that the trial court erred in denying his motion for judgment non obstante veredicto and directed verdict based upon a statute of limitations bar to Williams' cause of action for fraud. Appellee urges that appellant has failed to preserve error on this point.

Limitations of actions is an affirmative defense that must be pled and proved by the party asserting it. Intermedics, Inc. v. Grady, 683 S.W.2d 842, 845 (Tex.App.--Houston [1st Dist.] 1984, writ ref'd n.r.e.); Tex.R.Civ.P. 94. Appellant's pleadings were sufficient to give appellee notice of his statute of limitations claim. "Where the facts are undisputed, the defendant may establish that the plaintiff's claim is barred by the statute of limitations as a matter of law." Intermedics, 683 S.W.2d at 845. According to both parties, the events that were the basis of the claim occurred in September 1980. Therefore, appellant was not required to submit an issue on an undisputed fact. A judgment non obstante veredicto may be properly rendered if a directed verdict would have been proper. Tex.R.Civ.P. 301. A directed verdict is proper when:

1. a defect in the opponent's pleadings makes them insufficient to support a judgment,

2. the evidence conclusively proves a fact that establishes a party's right to judgment as a matter of law, or

3. the evidence offered on a cause of action is insufficient to raise an issue of fact.

McCarley v. Hopkins, 687 S.W.2d 510, 512 (Tex.App.--Houston [1st Dist.] 1985, no writ).

We must then determine whether the statute of limitations barred appellee's fraud claim as a matter of law. The events underlying the claims occurred in September 1980. Appellee first asserted a cause of action for breach of contract in a counterclaim filed in October 1983, within the four-year statute of limitations. He filed an amended pleading on September 5, 1986, asserting a cause of action for fraud arising out of the same facts. Section 16.068 of the Civil Practice and Remedies Code states the rule governing amended pleadings:

If a filed pleading relates to a cause of action, cross action, counterclaim, or defense that is not subject to a plea of limitation when the pleading is filed, a subsequent amendment or supplement to the pleading that changes the facts or grounds of liability or defense is not subject to a plea of limitation unless the amendment or supplement is wholly based on a new, distinct, or different transaction or occurrence.

Tex.Civ.Prac. & Rem.Code Ann. sec. 16.068 (Vernon 1986).

Appellee argues that this statute expressly prohibits a plea of limitation against the fraud action filed here because the initial breach of contract action was not subject to a plea of limitation. Appellee cites no cases directly on point with the facts of this case.

Appellant contends that under the application of this section by the courts, appellee's fraud claim is barred by the statute of limitations because the "relation back" rule applies. That application would relate the date of the filing of the amended pleading alleging fraud back to the date of the original pleading. Appellant argues that since the fraud action would have been barred if it had been filed on the date of the initial counterclaim, the relation back theory does not save it from the operation of the statute of limitations. He alleges that the appellee's action based on fraud is barred as a matter of law.

The cases cited to this Court by appellee are not applicable because they apply the relation back theory to situations where the claim in the amended pleadings would have been timely filed if filed on the date of the original pleadings. See Leonard v. Texaco, Inc., 422 S.W.2d 160 (Tex.1967); Bradley v. Etessam, 703 S.W.2d 237 (Tex.App.--Dallas 1985, writ ref'd n.r.e.); Bradley v. Burnett, 687 S.W.2d 53 (Tex.App.--Dallas 1985, no writ); Hastings v. Houston Shell & Concrete, 596 S.W.2d 142 (Tex.Civ.App.--Houston [1st Dist.] 1979, writ ref'd n.r.e.).

Section 16.068 codified a rule that has been a part of Texas statutes since 1931. ¹ The article was designed to protect a litigant from undue harshness of limitation statutes in a manner consistent with the purpose of those statutes. Lynch v. American Motorists Ins. Co., 101 F.Supp. 946 (N.D.Tx.1952). The Texas Supreme Court has stated that "[t]he primary purpose of a statute of limitations is to compel the exercise of a right within a reasonable time so that the opposite party has a fair opportunity to defend while witnesses are available and the evidence is fresh in their minds." Continental Southern Lines, Inc. v. Hilland, 528 S.W.2d 828, 831 (Tex.1975). Suits for damages for fraud are governed by the two-year statute of limitations. Tex.Civ.Prac. & Rem.Code Ann. sec 16.003 (Vernon 1986); National Resort Communities v. Short, 712 S.W.2d 200, 201 (Tex.App.--Austin 1986, writ ref'd n.r.e.).

Appellee first filed his counterclaim in October 1983, asserting breach of contract. This was three years after his cause of action arose; he amended that pleading three years later in September 1986, to include an action for fraud. This was six years after his cause of action arose. While the fraud claim arises out of the same facts as the breach of contract action, we believe that the intent of section 16.068 was to protect existing rights, not to create or revive a right or cause of action that had terminated prior to the claim being asserted. The policy behind the limitations statutes is not served by allowing appellee to assert a claim that would have been barred at the time of his first filing. Such a reading of section 16.068 is contrary to its purpose and undermines the operation of the limitations statutes. We hold that the appellee's fraud claim was barred by the two-year statute of limitations as a matter of law; appellant was entitled to a judgment non obstante veredicto with respect to appellee's fraud action.

The appellant's first point of error is sustained.

In his second and fourth points of error, Khalaf contends that the trial court erred in...