Pace v. McEwen, 6727

• Decision Date: 01 November 1978
• Docket Number: No. 6727,6727
• Citation: 574 S.W.2d 792
• Parties: Joe Dudley PACE, Appellant, v. John J. McEWEN, Jr., Appellee.
• Court: Texas Court of Appeals

Page 792

574 S.W.2d 792

Joe Dudley PACE, Appellant, v. John J. McEWEN, Jr., Appellee.

No. 6727.

Court of Civil Appeals of Texas, El Paso.

Nov. 1, 1978.

Rehearing Denied Nov. 29, 1978.

Sam C. Bashara, San Antonio, for appellant.

Law Offices of Pat Maloney, Inc., Pat Maloney, Jack Pasqual, George LeGrand, San Antonio, for appellee.

OPINION

WARD, Justice.

This suit is by John J. McEwen, Jr., as Independent Executor of the Estate of Bessie McEwen Spence, deceased, to recover money from Joe Dudley Pace who had received large gifts from the deceased shortly before her death. The theories of recovery advanced were that the gifts were made to the Defendant while he occupied a position of trust and confidence to the deceased, who lacked mental competence and who acted as a result of his undue influence and fraudulent conduct. Trial was to a jury which in the main answered all but the fraud special issues favorable to the position of the Plaintiff. Based on the verdict, judgment was entered in favor of the Plaintiff in the amount of $242,271.75. We affirm the judgment of the trial Court.

Joe Dudley Pace, a stockbroker, met Mrs. Spence in 1959 or 1960 when she used his services to sell a few shares of her stock. Thereafter, on three or four other occasions, she had him arrange small sales of her stock. In 1964, he advised her on an investment program that would yield a monthly income. Acting on his recommendation, she purchased a Dreyfus Fund Program for approximately $50,000.00. At that time, she also had some $40,000.00 in Franklin Life Insurance stock and a $16,000.00 home. She was then ninety years old, a widow with no children, and had lived for many years in Houston. Her nearest relatives were a sister, a nephew and a niece, all of San Antonio. On November 27, 1964, she executed a will where those relatives were named as equal beneficiaries, and the nephew, John J. McEwen, Jr., was designated as the independent executor. At that time, she also executed a power of attorney to the nephew. Then began her actions which resulted in this lawsuit. On December 28 1964, she gave to the Defendant Franklin Life Insurance Company stock of the value of $32,969.00, and on January 5, 1965, gave to him the balance of her Franklin Life Insurance Company stock of the value of $6,889.00. On July 1, 1966, when she was ninety-two years of age, she executed a universal power of attorney in favor of the Defendant, and, on August 26, 1966, purportedly made a gift to him of her Dreyfus Fund of the value of $52,413.00, that being the remainder of her stockholdings. There was no consideration or reason given for any of these transfers other than the Defendant's statement as to his friendship with the elderly lady, and the work which he had done for her for which he had already received a commission. In July, Mrs. Spence was hospitalized for a spinal injury, and she died on November 1, 1966. Later in November, her will was probated and McEwen qualified as independent executor of her estate. The present suit was not filed until September, 1973.

The Plaintiff's trial pleadings consisted of allegations of the existence of a fiduciary relationship between the Defendant and his client Mrs. Spence, its breach, and the fraudulent appropriation of the securities; further, that she lacked necessary mental capacity and was acting under undue influence in making the various transfers. The Defendant in turn pled the two and four-year Statutes of Limitations, laches, waiver, and that the transfers were executed gifts.

By its answers to the special issues submitted, the jury determined: (1) that as to the two transfers of stock dated December 28, 1964, and January 5, 1965, Mrs. Spence did intend to make a gift, but as to the transfer dated August 26, 1966, she did not intend to make a gift; (2) that as to those two transfers on which she did intend to make a gift, she was unduly influenced by the Defendant Pace to make each respective gift; and (3) that as to those two occasions upon which she did intend to make a gift, she did not possess the mental capacity sufficient to understand the effect and consequences of her acts. Issues were then submitted regarding fraudulent representations and were answered in favor of the Defendant. In Special Issue No. 10, the jury answered "No" to the inquiry that more than two years prior to September 19, 1973, the Plaintiff knew, or by the exercise of reasonable diligence might have discovered, or was in possession of such facts as would cause a reasonable prudent person to make inquiry which would lead to a discovery of the transfer by Mrs. Spence of the three stock transfers to the Defendant.

Because the matter has been presented in different form upon a previous appeal, we will first dispose of the Defendant's seventh point which asserts that, as a matter of law, the suit was barred by the Statute of Limitations. On this issue, a summary judgment was previously entered in favor of the Defendant, and that judgment was reversed on the ground that the summary judgment proof did not preclude the absence of an issue of material fact concerning the defense of limitations. McEwen v. Pace, 538 S.W.2d 426 (Tex.Civ.App. San Antonio 1976, no writ). Contrary to the Plaintiff's first argument, that holding did not establish the point as a matter of law. Glenn v. Prestegord, 456 S.W.2d 901 (Tex.1970). Contrary to the Defendant's first argument, lack of pleadings of fraudulent concealment or other excuse to the running of the Statute of Limitations does not establish this point in the Defendant's favor. Lack of pleadings is foreign to our consideration of the point and, further, evidence as to the excuse was introduced and issue No. 10 was submitted without any objection on the Defendant's part. Tex.R.Civ.P. 67.

As later discussed, a fiduciary relationship existed between the broker-Defendant and Mrs. Spence during her lifetime, and undue influence was exercised by that broker in regard to the stock transfers made to the Defendant. That being the case, we have a person in a fiduciary relationship exercising his undue influence to secure a personal benefit. The exercise of undue influence is recognized as being a mere species of legal fraud. Curry v. Curry, 153 Tex. 421, 270 S.W.2d 208 (1954). Under those circumstances, actual notice of the fraud must be given before the Statute of Limitations is set in motion. Bush v. Stone, 500 S.W.2d 885 at 890 (Tex.Civ.App. Corpus Christi 1973, writ ref'd n. r. e.). That fiduciary relationship ceased, however, when Mrs. Spence died, and the trial Court submitted the issue on the excuse to the Statute of Limitations under the discovery rule normally used in "arms-length transactions." That rule states that fraud prevents the running of the Statute of Limitations until it is discovered, or when by the exercise of reasonable diligence it might have been discovered. Knowledge of facts that would have excited inquiry in the mind of a reasonable 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. However, the mere fact that one had the opportunity or power to investigate the fraud is not sufficient in law to charge him with knowledge. The defrauded party must be cognizant or aware of facts as would have caused the ordinarily intelligent and prudent person to investigate. Ruebeck v. Hunt, 142 Tex. 167, 176 S.W.2d 738 (1943); Bush v. Stone, supra at 889.

The evidence in regard to the Statute of Limitations question is as follows. According to the Plaintiff, he ordinarily visited his Aunt Bessie Spence twice a year by making the trip from San Antonio to Houston. At the time the will was made, he stated that she was failing mentally and was rather senile thereafter. He inquired of her financial state and was told by her that she had some stock and that she received some social security and rents from her home. He had no knowledge of the amount of stock. He also knew that the Defendant had befriended her, and that he was her financial advisor, and that he took care of her personal affairs. After her death, he found no stock in the house or in her safety deposit box, and he questioned the Defendant as to the location of any stock. The Defendant told him there was none and would provide him later with his knowledge of her property. The Defendant later delivered to the Plaintiff three bank statements, some cancelled checks, paid bills, and some insurance policies. The Plaintiff admitted that it seemed strange to him that he could find no stock, and that when he spoke to the Defendant, the Defendant was rude to him and he became suspicious when he did not receive any more information. On the other hand, he stated that he did not know any more about his Aunt's affairs other than as described. He probated the will and on the inventory reported what he knew of her estate, that being her home, a small amount of cash, two checking accounts, household furniture, and a mink stole. He stated that he never learned that the Defendant had gotten stock from his Aunt until 1973. At that time, he received some phone calls from a Mr. Diaz from Houston advising him that his Aunt had had considerable stocks, and that Mr. Pace had caused her to transfer ownership of the stocks to him. He then filed suit, and it was only after Court-ordered discovery that the Defendant disclosed the stock transactions.

Even if we apply the arms-length transaction rule to the two parties before us, the fiduciary relationship that existed between Mrs. Spence and the Defendant should be one of the factors to be considered in determining whether the fraud might have been discovered by the exercise of reasonable diligence. To that extent at least, the Defendant would not profit by Mrs. Spence's death. Courseview, Inc. v. Phillips Petroleum Company, 158 Tex. 397, 312 S.W.2d 197 at 205 (1957).

After considering only the...