Talbot v. Jansen , 294 Ark. 537 ( 1988 )

Jan R. Cromwell, Special Associate Justice.

This litigation arises from the January 1983 purchase of the corporate stock of “That Little Restaurant” by appellant Ben Talbot, Jr., with money loaned to him by appellant Madeline Talbot. The sellers were John C. Smithers and appellees Thomas Jansen and Janet Honeycutt. In the contract of sale, Smithers represented the liabilities of the restaurant as being $26,104.35, when in fact they were $90,794.95. Ben Talbot, Jr., defaulted on his note to Madeline Talbot and in May 1983 a receiver for the restaurant was appointed at the request of Madeline Talbot. The court authorized the receiver to pursue causes of action on behalf of the owner of the restaurant and in April 1985 the receiver filed a breach of contract action against John C. Smithers and the appellees for the amount of the liabilities understated by Smithers. No claim for fraud was brought by the receiver.

On October 24, 1985, the receiver recommended that appellees’ settlement offer of $ 15,000 be accepted and on December 9 the settlement was approved by the chancellor as a “just and fair” resolution of the dispute between the parties. On December 13,1985, appellant Madeline Talbot filed a motion for modification of the December 9 order and filed a notice of appeal and designation of record on December 19,1985. She failed to pursue this appeal and on May 7,1986, the circuit court complaint was dismissed.

On April 14, 1986, Ben Talbot, Jr., and Madeline Talbot filed this cause of action against appellees Jansen and Honeycutt for compensatory and punitive damages alleged to be the result of the fraudulent misrepresentations by John C. Smithers. The complaint alleges that Smithers knowingly understated the outstanding liabilities of the restaurant, thereby fraudulently inducing Ben Talbot, Jr., to purchase the restaurant and further inducing Madeline Talbot to finance the purchase. The complaint alleges that Smithers, as the agent, and Jansen and Honeycutt, as parties to the contract of sale, profited from such fraud. The fraud was alleged to have occurred on January 13, 1983, but not discovered until April 15, 1983, when an accounting of the liabilities was completed. Appellees moved to dismiss the complaint, for summary judgment based on res judicata and statute of limitations. The motions were granted and the Talbots have appealed.

There are three questions to be decided:

(I) When parties to a lawsuit elect to sue for breach of contract, are they thereafter barred from bringing a subsequent lawsuit on the issue of fraud in the inducement of that contract when all issues of the subsequent lawsuit necessarily fall within the issues of the previous case . . . i.e., res judicata?

(II) When does the statute of limitations begin to run in an action for fraud on the contract?

(III) What relationship does a court appointed receiver for a corporation bear to the principals and shareholders of that corporation when that receiver is appointed at the behest of those principals or shareholders, where the receiver is authorized to file suits and where the principals or shareholders were present (or represented by counsel) at all hearings?

I

Res Judicata

The general rule in Arkansas is that in order for the doctrine of res judicata to apply it must appear that the particular matter involved was raised and determined or that it was necessarily within the issues and might have been litigated in the previous action. [Emphasis added.]

Howard v. Green, 555 F.2d 178 (8th Cir. 1977); Turner v. State, 248 Ark. 367, 452 S.W.2d 317 (1970); Martin v. Citizens Bank of Beebe, 283 Ark. 145, 671 S.W.2d 754 (1984).

In considering the appellee’s motion for summary judgment, we must view the allegations of the pleadings in the light most favorable to appellants. Moeller v. Theis Realty, Inc., 13 Ark. App. 266, 683 S.W.2d 239 (1985); Township Builders, Inc. v. Kraus Construction Co., 286 Ark. 487, 696 S.W.2d 308 (1985).

In this case, the point of controversy has at all times been the misstatement of liabilities. In the previous suit, appellants elected to sue for breach of contract. The receiver knew about the fraud issue, but did not raise it. The complaint was dismissed. Appellants appealed, but did not follow through. In the case at bar, they allege the same facts, but rename their action “fraud,” and seek punitive damages. The facts are identical. Res judicata applies.

II

Statute of Limitations

We are dealing with Ark. Stat. Ann. § 37-206 (Repl. 1962): an action for fraud must be brought within three years from the date the cause of action accrues.

“Fraud does suspend the running of the statute of limitations, and the suspension remains in effect until the party having the cause of action discovers the fraud or should have discovered it by the exercise of reasonable diligence.'” (Emphasis added.) Hughs v. McCann, 13 Ark. App. 28, 678 S.W.2d 784 (1984). The question arises as to whether the appellants used due diligence to discover the fraud.

It is relevant that on March 23 and March 25, 1983, respectively, guardianship and civil commitment actions had been filed against Ben Talbot, Jr., in Pulaski Probate Court with Madeline Talbot acting as petitioner. Madeline Talbot was appointed temporary guardian and authorized to take possession of and administer his property. It was not until May 26, 1983, that Madeline Talbot filed the petition for receivership.

Without giving unnecessary details and based upon all the facts presented, including the family’s knowledge of Ben Talbot’s mental situation, it is obvious that Madeline Talbot did not use due diligence to discover any fraud. Either Ben Talbot did not use diligence or was incapacitated from doing so.

Ill

The Role of the Receiver

The receiver in this case was appointed at Madeline Talbot’s request and she had notice of, was present at, or was represented in all hearings involving Ben Talbot, Jr. When she disagreed with the chancery court’s judgment, she filed an appeal but then abandoned it.

A receiver is a fiduciary representing the court and all parties in interest. A receiver is an “embodiment of the creditors” standing as agent for them, representing them with power to do acts that a mere agent of the defunct company could not do. See 36 Words and Phrases, 741-42 [citing Wimpfheimer v. Perrine, 50 A. 356, 65 N.J. Eq. 770 (1901); Peabody v. N.E. Waterworks, 184 Ill. 625, 56 N.E. 957 (1901)]. This power includes bringing suit on behalf of creditors. See generally 66 Am. Jur. 2d, Receivers §§ 449, 450 and 452 [citing inter alia Converse v. Hamilton, 224 U.S. 243, 56 L.Ed. 749, 32 S.Ct. 415 (1912).]

Receiver Bryant was authorized by court order to pursue causes of action available to the owner of the business. He elected not to allege fraud. There is sufficient identity between the appellants and the receiver to bar this lawsuit.

The trial court is affirmed in all respects.

Edwards, Sp. C.J., and Newbern, J., dissent. Holt, C.J., and Dudley, J., not participating.