Williams v. Khalaf

• Decision Date: 28 November 1990
• Docket Number: No. C-8467,C-8467
• Citation: 802 S.W.2d 651
• Parties: William J. WILLIAMS, Petitioner, v. George KHALAF, Respondent
• Court: Texas Supreme Court

Page 651

802 S.W.2d 651

William J. WILLIAMS, Petitioner, v. George KHALAF, Respondent.

No. C-8467.

Nov. 28, 1990.

Kevin Dubose, Houston, for petitioner.

Paul B. Rosen, Houston, for respondent.

OPINION ON MOTION FOR REHEARING

RAY, Justice.

Our prior opinion is withdrawn and the following substituted. We overrule respondent's motion for rehearing.

This is a statute of limitations case in which a counterclaim for breach of contract was amended to include a claim for fraud involving the same underlying transaction or occurrence. The trial court rendered judgment for the counterclaimant on the jury verdict for fraud. The court of appeals reversed and rendered, holding that the statute extending the statute of limitations for the filing of amended pleadings involving the same transaction or occurrence did not apply because of a "relation back" theory. The court of appeals held the amended pleading merely "related back" to the original counterclaim date, at which time fraud causes of action were barred by the two-year statute of limitations. 763 S.W.2d 868 (1988). Because the court of appeals erred by overlooking 1979 amendments to the limitations statutes that make the limitation period for fraud four years, we reverse the judgment of the court of appeals and remand the cause to that court for determination of factual sufficiency points.

Facts and Procedural History

In July 1980 George Khalaf and William J. Williams agreed orally to be in partnership to construct and operate a country and western club. The agreement was reduced to writing and signed by the parties on September 9, 1980. Williams was to build the club at cost, and Khalaf was to finance the construction. Both would share in the ownership of the business. Williams continued construction of the club until he discovered in the latter part of September that Khalaf had incorporated the business on September 17, 1980, and had excluded Williams from ownership. Williams left the job site saying he had been fired. Khalaf contended that Williams had wrongfully quit the construction project.

Khalaf filed suit against Williams in October 1980. Khalaf pleaded Williams' allegedly wrongful conduct in the transaction on the alternative legal theories of breach of contract, fraud, constructive fraud, conversion, and breach of fiduciary duty.

Williams initially filed only a general denial, but in October 1983 he filed a counterclaim asserting a cause of action for breach of contract. The amended pleading was filed well within the four-year statute of limitations ¹ which applies to breach of contract actions. In September 1986 Williams filed an amended pleading asserting for the first time a cause of action for fraud arising out of the same transaction and based on the same facts. Khalaf responded to this amended pleading with an affirmative pleading alleging, in part, that the fraud cause of action was barred by limitations.

Trial was to a jury which generally answered the submitted issues favorably for Williams but unfavorably for Khalaf. The jury found Khalaf breached the contract and committed fraud. The jury found zero damages for breach of contract but over $180,000 damages for the fraud. No limitations issues were submitted to the jury.

The trial court rendered judgment for Williams on the jury verdict for $181,229.85, plus attorney's fees and costs. Khalaf appealed. The court of appeals reversed and rendered judgment that Williams take nothing, holding that his fraud counterclaim pleading was barred by an unspecified provision of the two-year statute of limitations. The court of appeals also held that a special amended-pleading saving statute did not save Williams' claim for fraud. The court of appeals applied a "relation back" rule to conclude that in the saving statute one tested whether the newly-pleaded cause of action would have been barred when the pleading for the first cause of action (breach of contract) was filed.

Statute of Limitations for Fraud

The special amended-pleading saving statute is section 16.068 of the Civil Practice and Remedies Code, which was formerly codified as article 5539b of the Revised Civil Statutes. It provides:

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. § 16.068 (Vernon 1986).

The court of appeals apparently assumed that a fraud pleading would have been barred by some two-year statute of limitations if it had been filed in 1983 as the original counterclaim. The court of appeals reasoned that under a "relation back theory" the fraud cause of action arising from the same transaction was barred. Under section 16.068, the amended pleading for fraud is clearly not time-barred even under such a relation back theory if the limitations period for fraud is also four years. The court of appeals cited no provision of the limitations statute for its assumption that fraud is barred in two years. If the court of appeals was wrong on that assumption, then whether the "relation back theory" applies is immaterial. We express no opinion on the "relation back theory" adopted by the court of appeals because we hold the court's underlying assumption that fraud claims are barred in two years is erroneous.

There is no limitations statute expressly applying to "fraud," "deceit," "misrepresentation" or any similar term. This court in early decisions held that a suit for fraud is considered, for limitations purposes, an action on a debt. Gordon v. Rhodes & Daniel, 102 Tex. 300, 301-302, 116 S.W. 40, 41-42 (1909). This court wrote in unequivocal terms:

It [the case] is an action for money recoverable as damages for a fraud, such as would always have been maintainable at law without the necessity of applying to equity for relief. It is an action for a "debt," as that word in the statutes of limitations has been interpreted, and hence it is governed by the two-years statute.

Id. at 302, 116 S.W. at 42.

This determination was consistent with this court's practice of selecting the common law term for a cause of action of those enumerated in the statutes of limitation that is most analogous to the modern counterpart. Id. at 301, 116 S.W. at 41.

On motion for rehearing, several amici have questioned the validity of Gordon v. Rhodes & Daniel. They argue, primarily based on this court's opinion in First National Bank v. Levine, 721 S.W.2d 287 (Tex.1986), that fraud is a "tort" and as such is a "trespass" for purposes of the statute of limitations. ² They rely on our analysis of the development of the common law in Levine, because the law of torts developed from the "trespass" action of English common law. Respondent Khalaf argues that we should overrule Gordon v. Rhodes & Daniel and that any number of terms from the two-year statute, including "trespass" and "personal injury," could apply to fraud causes of action.

Gordon v. Rhodes & Daniel has neither been overruled nor questioned by any opinion of this court. It has been cited many times, always as authoritative. We most recently cited it in Andes v. Cagle, 468 S.W.2d 513, 516-17 (Tex.1971), for the proposition that "[i]t is well settled that this two-year statute of limitations [then article 5526] applies to misconduct of an agent, even though a written contract may have been involved." Properly analyzed, Gordon v. Rhodes & Daniel does not conflict with Levine.

We do not retreat from our analysis in Levine. In general, torts developed from the common law action for "trespass," and a tort not expressly covered by a limitation provision nor expressly held by this court to be governed by a different provision would presumptively be a "trespass" for limitations purposes. ³ The same common law development simply does not apply to fraud as to most other torts. In the English common law, torts generally fell into "two classes, and only those which involve some violence--the violence may be exceedingly small--are known as trespasses." 2 F. Pollock & F. Maitland, History of English Law 510 (2d ed. 1898). As the law of trespass developed, there were "some notable defects in our nascent 'law of torts.' " Id. at 533. One of the notable defects was the lack of protection against fraud and deceit; the common law action for deceit was "no mere fraud, but a fraudulent perversion of the course of justice," and our modern fraud action did not directly develop from the trespass writ. Id. at 533-35. The modern fraud cause of action developed from an action on the case for deceit, and was related to debt as an evolution of the action of assumpsit. G. Keeton, English Law 124-25 (1974); 3 W. Holdsworth, A History of English Law 427 (5th ed. 1942). Assumpsit was a contractual or quasi-contractual action involving a promise and leading to a claim of debt (but not the pure common law action for a debt). 3 W. Blackstone, Commentaries *157, 161. Actually, the fraud and deceit cause of action developed through the action of Assumpsit as a hybrid of the original common law action for debt and action for Account. 3 W. Holdsworth, A History of English Law 427-28 (5th ed. 1942). The explanation of this development is instructive on the relationship of fraud to quasi-contractual "debt":

But, as the [third-party] beneficiary had a right of action, his right to the money was just such a right as the later lawyers classed as quasi-contractual. But it is probable that the competence of Debt to enforce this and other analogous obligations owes something to the development of the action of account, through which obligations in the nature both of implied contracts and quasi-contracts were enforced.

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Hence it...