Leonard v. Eskew

• Decision Date: 20 May 1987
• Docket Number: No. 14645,14645
• Citation: Leonard v. Eskew, 731 S.W.2d 124 (Tex. App. 1987)
• Parties: James A. LEONARD, et al., Appellants, v. Doren R. ESKEW, et al., Appellees.
• Court: Texas Court of Appeals

Page 124

731 S.W.2d 124

James A. LEONARD, et al., Appellants, v. Doren R. ESKEW, et al., Appellees.

No. 14645.

Court of Appeals of Texas Austin.

May 20, 1987.

Rehearing Denied June 17, 1987.

Jess M. Irwin, III, Small, Craig & Werkenthin, Austin, for appellants.

William C. Bednar, Jr., Eskew, Muir & Bednar, Austin, for appellees.

Before POWERS, BRADY and CARROLL, JJ.

ON MOTION FOR REHEARING

POWERS, Justice.

We withdraw our opinion of November 19, 1986, and substitute the following opinion.

James A. Leonard and Texas Land & Trading Co., Inc. (appellants) appeal from a district-court judgment that rescinds a contract between Leonard and appellees Doren Eskew, Douglas Muir, and Danny Womack. We conclude appellees' cause of action was barred by limitations. Accordingly, we will reverse the judgment below and render judgment that appellees take nothing.

THE CONTROVERSY

In the fall of 1976, the three appellees, together with another partner in their law firm who is not a party to this suit, wished to invest in oil and gas properties. Dr. Ralph Kehle, a part-time geology professor and owner of half the shares of capital stock in Texas Land, presented to appellees a proposal for investment centering on a farmout agreement between Leonard and Amoco Production Co. The farmout agreement provided that Leonard must drill a test well on a certain tract and, upon completion of that well to a specified depth, Amoco would assign to Leonard certain leased acreage surrounding the test well. At the time, Leonard owned the other half of the capital stock in Texas Land.

After negotiations, appellees contracted with Leonard to pay one-eighth of the cost of drilling the test well. In exchange, Leonard agreed to convey to appellees, on completion of the test well, one-eighth interest in his rights under the farmout agreement, together with percentage interests in two additional oil and gas leases--the Corsicana and Gaar Leases--purportedly owned by Leonard. Leonard and appellees reduced their agreement to a writing which provides in part as follows:

AGREEMENT

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* * *

This AGREEMENT, made and entered into this [14th day of December, 1976], by and between JAMES A. LEONARD, [address given], hereinafter called "Operator" and ESKEW, BRADY, WOMACK & MUIR, [address given], hereinafter referred to as "Participant".

WHEREAS, Operator represents that it is the holder of the following described FARMOUT AGREEMENT and LEASES:

FARMOUT AGREEMENT; between Amoco Production Company and JAMES A. LEONARD ...

LEASES; certain Oil and Gas Leases totaling 540.81 acres more or less, located in Burleson Co., Texas, and more fully described in Exhibit A-5.

WHEREAS, Operator agrees that Participant may acquire an interest in said lands described in Exhibit A-1 and Exhibit A-5, under the provisions of said FARMOUT AGREEMENT attached as Exhibit E, and under the terms and conditions hereinafter set forth.

NOW, THEREFORE, for and in consideration of the mutual convenents [sic] and agreements hereinafter set forth, it is agreed by and between the parties as follows: to wit:

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7. Assignment of Interests upon Completion of Test Well as a Producing Well: Upon completion of the test well in accordance with all of the terms and provisions of this agreement, as a producing well, Operator agrees to execute and deliver to Participant an appropriate instrument conveying to Participant Twelve and One-Half percent (12.5%) of the operating rights and working interest earned by Operator in the "drill site" as defined by and earned in accordance with the aforementioned FARMOUT AGREEMENT (Exhibit E), and Twelve and One-Half percent (12.5%) of the operating rights and working interest in the Texas Land & Trading Co. Lease # 1, Exhibit A-5 and 10.9375% of Lease # 2, Exhibit A-5. It is understood that this assignment of operating rights and working interest is subject to all of the provisions of said FARMOUT AGREEMENT (Exhibit E) and to the terms and conditions of the LEASES.

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* * *

                        EXHIBIT A-5
                           -------------------------------------
                Lease #1
                ---------
                Lessor:    First National Bank of Corsicana
                Lessee:    Texas Land & Trading Co
                Date:      March 9, 1976
                Term:      3 years
                Acreage:   312.5 acres
                Recorded:  Vol.____,Page____, Oil Lease Records
                           Burleson Co., Texas
                Lease #2
                ---------
                Lessor:    Basil L. Gaar et ux
                Lessee:    Marshall A. Harell
                Date:      March 3, 1976
                Term:      5 years
                Acreage:   228.31 acres
                Recorded:  Vol. 15, Page 777, Oil Lease Records,
                           Burleson Co., Texas
                

Appellees paid the requisite one-eighth of the drilling cost of the test well which Leonard completed in March or April 1977. The well was a producing well and, within a few months of its completion, appellees began receiving royalty checks representing their share of the production. The well initially produced substantial quantities of oil, but over time the production declined and the amount of the royalty checks diminished accordingly. Moreover, Leonard never performed his agreement to convey to appellees the percentage interest in the Corsicana and Gaar Leases, as he was obligated to do in the event the test well was a producing well.

Prompted by the slow return on their investment, appellees expressed their dissatisfaction to Leonard in a letter dated October 9, 1978. In the letter, they also complained that Leonard had not conveyed to them the promised interest in the Corsicana and Gaar Leases, expressed doubt as to Leonard's competence to make such conveyance for want of an ownership interest in them, and demanded a return of the money they had paid for drilling the test well. Leonard immediately responded by letter and, among other things, assured appellees of his ownership of the Gaar and Corsicana Leases and his legal right to convey them to appellees.

Approximately one year later, in September 1979, appellees and Leonard met to discuss the controversy. It was not resolved, however, and on September 24, 1981, appellees filed their original petition in the present cause, alleging causes of action for securities fraud, fraud in a real-estate transaction, breach of contract, and deceptive-trade practices, for which they requested substantial money damages. In the alternative, appellees requested rescission of their contract with Leonard. All the causes of action were founded upon fraudulent representations allegedly made by Leonard. Following a bench trial, the district court rendered judgment in favor of appellees.

FRAUDULENT CONCEALMENT OF A CAUSE OF ACTION VERSUS ESTOPPEL

BASED UPON INDUCING A PLAINTIFF NOT TO SUE WITHIN

A LIMITATIONS PERIOD

We should first discuss a distinction that goes to the core of the controversy on appeal. It is the distinction that exists between two different grounds that will, in equity, deprive a defendant of any benefit he might otherwise obtain from the bar of a statute of limitations: (1) a defendant's conduct in concealing from the plaintiff the facts necessary for him to know that he has a cause of action against the defendant; and (2) a defendant's conduct in inducing the plaintiff not to bring a timely suit on a cause of action that he knows he possesses against the defendant. While both arise in equity, they are entirely different in theory and in their requisite elements.

Fraudulent Concealment of Facts Necessary to a Cause of Action. Statutes of limitation ordinarily provide that the limitations period commences with the "accrual" of the plaintiff's cause of action. Related statutes often provide that such "accrual" or even the running of limitations may be "tolled" or suspended by specified events or circumstances--for example, a defendant's imprisonment or the plaintiff's minority or unsound mind. Ordinarily, once the limitations period commences to run, nothing will stop it except such an event, spelled out in a statute. Tyson v. Britton, 6 Tex. 222 (1851). Generally, these specific statutory provisions for "tolling" or suspending the limitations period would, by necessary implication, exclude the possibility that any other event or circumstances might have that effect. There is, however, an exception to this ordinary implication: the limitations period may be "tolled" or suspended when the defendant conceals from the plaintiff facts necessary for him to know that he has a cause of action that has accrued against the defendant:

In Texas, under the general limitation statutes, limitation begins to run from the time of the accrual of the cause of action. However, generally speaking, the statute is tolled when by reason of fraud or concealment the defalcation or dereliction is kept hidden, until such time as knowledge is had of the defalcation, or in the exercise of reasonable diligence it might have become discovered [citations omitted]. Where a relationship of trust and confidence exists between the parties, the rule is that limitation starts to run only from the time of actual discovery of the fraud [citations omitted].

Franklin County v. Tittle, 189 S.W.2d 773, 774-75 (Tex.Civ.App.1945, writ ref'd) (emphasis added). See also, Estate of Stonecipher v. Estate of Butts, 591 S.W.2d 806, 809 (Tex.1980) ("limitations begin to run from the time the fraud is discovered or could have been discovered by the defrauded party by exercise of reasonable diligence" (emphasis added)). The gist of the fraudulent concealment is the defendant's active suppression of the truth or his failure to disclose when he is under a duty to disclose, concerning the facts necessary for the plaintiff to know that he has a cause of action, that has accrued. Owen v. King, 111 S.W.2d 695 (Tex.1938). The plaintiff must, of course, exercise reasonable diligence to discover what has been hidden from him by the defendant and the period of tolling may not extend beyond the time the plaintiff actually acquired knowledge of the facts or should have acquired such knowledge by the exercise of...