Fraudulent Concealment: When does the statute of limitations begin to run for a breach of contract claim, if fraudulent concealment is asserted?

Introduction: Fraudulent Concealment

In Texas, a breach of contract claim is governed by a four-year statute of limitations.[1] Generally, the limitations period begins to run when a contract is breached.[2] However, a defendant's fraudulent concealment of the breach tolls the statute of limitations until the fraud is discovered or should have been discovered with reasonable diligence.[3] Determining when a plaintiff knew or reasonably should have known of the fraudulent concealment is generally a question of fact.[4] The party asserting fraudulent concealment as an affirmative defense to the statute of limitations must establish the defendant (1) actually knew a wrong occurred; (2) had a fixed purpose to conceal the wrong; and (3) did conceal the wrong.[5]

Exercise of Reasonable Diligence

Fraudulent concealment will not “bar a limitations defense if the plaintiff discovers the wrong or could have discovered it through the exercise of reasonable diligence.”[6] A plaintiff should discover the defendant’s fraudulent concealment when the plaintiff learns of facts, conditions, or circumstances which would cause a reasonably prudent person to make an inquiry, which, if pursued, would lead to discovery of the fraud.[7] “Knowledge of such facts is equivalent to knowledge of the cause of action.”[8] Where a defendant has a duty to disclose the existence of a cause of action, but fraudulently conceals the action from the party to whom it belongs, the defendant is estopped from relying on the defense of limitations until the party either learns of its right of action or should have learned through the exercise of reasonable diligence.[9]

Shell Oil Co. v. Ross

In 2002, the Rosses sued Shell for breach of contract, and alleged the fraudulent concealment doctrine tolled the statute of limitations because Shell “set up an elaborate scheme to allow it to [underpay] royalties, and then made multiple misrepresentations to cover up the scheme.”[10] The court of appeals held Shell knowingly underpaid royalties and the fraudulent concealment doctrine tolled the statute of limitations until the Rosses, with the exercise of reasonable diligence, could have discovered the wrongful conduct and their claims.[11] However, the Texas Supreme Court found there was readily available public information which could have led the Rosses to discover shell was underpaying royalty before the limitations period expired.[12] Implementing a rule set out in BP America Production Co, v. Marshall, the Court held “reliance is not reasonable when information revealing the truth could have been discovered within the limitations period.”[13] The Court of appeals judgment was reversed because the Rosses could have discovered Shell’s alleged fraud through the use of reasonable diligence, and as a matter of law the doctrine of fraudulent concealment cannot toll the statute of limitations.[14]

Conclusion

Fraudulent concealment may toll the statute of limitations, but only until the fraud is discovered or should have been discovered with reasonable diligence. The estoppel effect of fraudulent concealment ends when the plaintiff learns of facts, conditions, or circumstances which would cause a reasonably prudent person to discover the fraud. Knowledge of such facts regarding a cause of action is equivalent to knowledge of the cause of action. Texas courts seldomly toll the statute of limitations pursuant to the doctrine of fraudulent concealment due to the extremely high burden courts impose.


[1] Tex. Civ. Prac. & Rem. Code Ann. § 16.004 (Vernon 2008); Stine v. Stewart, 80 S.W.3d 586, 592 (Tex. 2002).

[2] Stine, 80 S.W.3d at 592.

[3] Kerlin v. Sauceda, 263 S.W.3d 920, 925 (Tex. 2008).

[4] Santanna Natural Gas v. Hamon Operations, 954 S.W.2d 885, 890 (Tex. App.—Austin 1997, pet. denied).

[5] B. Mahler Interests, L.P. v. DMAC Constr., Inc., 503 S.W.3d 43 (Tex. App. 2016).

[6] Kerlin, 263 S.W.3d at 925; see also Shah, 67 S.W.3d at 841 (“Fraudulent concealment tolls limitations until the plaintiff discovers the fraud or could have discovered the fraud with reasonable diligence.”).

[7] Borderlon v. Peck, 661 S.W.2d 907, 909 (Tex. 1983).

[8] Id.

[9] Id. at 908.

[10] Shell Oil Co. v. Ross, 356 S.W.3d 924, 926 (Tex. 2011).

[11] Id. at 928.

[12] Id.

[13] Id. (citing BP Am. Prod. Co. v. Marshall, 342 S.W.3d 59, 68 (Tex. 2011)).

[14] Shell Oil Co. v. Ross, 356 S.W.3d 924, 926 (Tex. 2011).

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