holding, in a suit to set aside deeds, that no informal fiduciary relationship existed between grantors and grantee where they had become close friends and where grantee helped grantors secure loans and personally guaranteed one loan, explaining that “mere subjective trust alone is not enough to transform arms-length dealing into a fiduciary relationship so as to avoid the statute of frauds”
How later courts described this case
- holding, in a suit to set aside deeds, that no informal fiduciary relationship existed between grantors and grantee where they had become close friends and where grantee helped grantors secure loans and personally guaranteed one loan, explaining that “mere subjective trust alone is not enough to transform arms-length dealing into a fiduciary relationship so as to avoid the statute of frauds”
- holding that informal fiduciary duty was not established where parties did not testify to facts "other than their own subjective feelings" to show that relationship was one of trust and confidence
- declining to find a fiduciary relationship where the evidence showed that the debtors had a long-standing business and personal relationship with the creditor, who was a director, officer and shareholder in their corporation, instead holding that the proof did not support anything more than the existence of a debtor-creditor relationship
- holding grantors of property could not avoid conveyances by claiming they did not know what they were signing in absence of fiduciary relationship with grantee or evidence of fraud
Written by the judges who cited it.
The opinion
CALVERT, Chief Justice
(dissenting).
Our decision in MacDonald v. Follett, 142 Tex. 616 , 180 S.W.2d 334 , holds, on an issue squarely presented, that a business relationship not meeting the legal standards of a partnership or joint venture or any other legal relationship giving it a *254 technical fiducial character may yet be such a confidentiál relationship as to impose fiducial duties and obligations upon the parties to it. In that case we deliberately disavowed any holding that MacDonald and Follett were either tenants in common or cotenants in certain oil royalty interests and predicated our decision on a holding that they were nothing more than joint owners, a relationship which we recognized does not in and of itself constitute a technical fiducial relationship. We nevertheless held that evidence of dealings between the parties raised a fact issue as to whether there was such a confidential relationship as to impose fidu-cial duties and obligations on one to the other and to form the basis for imposition of a constructive trust. We said:
“ * * * Whether or not joint owners of overriding royalty interests sustain relations of trust and confidence toward each other depends upon the facts and surrounding circumstances. * * *
“This is a suit in equity and in that realm the conduct of parties is judged by refined standards. No rules can be prescribed and no attempt should be made to formulate rules for the measurement of conduct by courts of equity, but that such conduct must be measured by standards exacting the utmost fidelity between the parties is universally recognized.”
In Fitz-Gerald v. Hull, 150 Tex. 39 , 237 S.W.2d 256, 261 , we quoted with approval from 54 Am.Jur. 173, Trusts, § 225, and thus recognized that a constructive trust may be predicated upon an .abuse of confidence which springs from “either a technical fiduciary relationship or of an informal relationship where one person trusts in and relies upon another, whether the relation is a moral, social, domestic, or merely personal one.”
Our late decisions seem thus to commit us to the conclusion that a relationship of trust and confidence predicating the imposition of a constructive trust can grow out of business associations. There is not the slightest indication in our decisions, or in any other coming to my attention, that a business association of debtor and creditor is an exception to the rule.
One other holding in MacDonald v. Fol-lett is important to the proper disposition of this case. With the issue squarely drawn before us, we held that whether facts existed which would create a confidential relationship was for the jury or trier of the facts to decide. In the later case of Schiller v. Elick, 150 Tex. 363 , 240 S.W.2d 997, 999 , we held that whether a confidential relationship existed as a predicate for imposition of a constructive trust was “a question of fact.” It could hardly be otherwise once we recognize that confidential relationships are not confined to legal relationships but may grow out of informal social and business relations. As in most fields of the law, we will have cases in which we can say that the evidence establishes conclusively that there was or was not a confidential relationship, but there will be others in which the evidence will leave the ultimate inference to be drawn in that grey zone in which the trier of facts has always functioned in our system of jurisprudence. Our difficulties begin, of course, when we are called upon to determine whether the evidence in a particular case creates a grey zone,
In this case the trial judge concluded that the evidence did not raise a question of fact as to the existence of a confidential relationship between the parties and instructed a verdict for Thigpen. In determining whether that action was erroneous we must follow the familiar rule of considering only the evidence and the inferences arising therefrom which tend to establish a confidential relationship. Unfortunately, when we have completed that task we are still without an easy answer to the problem because we have no precise rule to measure the probative force of the evidence and the inferences we have considered. One of the best statements of a rule of measurement which I have found is in *255 Collins v. Nelson, 193 Wash. 334 , 75 P.2d 570, 574 , as follows:
“To establish a fiduciary relationship upon the violation of which fraud is sought to be based, there must be something more than mere friendly relations or confidence in another’s honesty and integrity. There must be something in the particular circumstances which approximates a business agency, a professional relationship, or a family tie, something which itself impels or induces the trusting party to relax the care and vigilance which he otherwise should, and ordinarily would, exercise.”
The majority opinion sets out in paragraphs 5, 6, 7, 8 and 9 most of the evidence which it is claimed authorizes a finding of a confidential relationship. That and such other evidence as seems relevant, together with what I regard as reasonable inferences therefrom, will be included in my summary.
In mid-1947 Locke needed money. He and Thigpen were brought together by a mutual friend. Thigpen aided Locke in obtaining the needed loan. From that incident a casual personal and business relationship developed, with Thigpen making some of his purchases at Locke’s store. In July 1949 Thigpen learned that Locke needed $5,000.00 and that to obtain a loan in that amount was willing to execute a note for $6,000.00. Thigpen made the loan of $5,000.00 and took Locke’s note for $6,000.-00. Thigpen had Locke execute a deed conveying to him the real property in which the grocery business was located. Thig-pen’s testimony shows that this deed was intended by him to be nothing more than a mortgage. Locke’s testimony is that he did not read the instruments executed on that occasion and did not know he had executed the deed until his deposition was taken in connection with this suit.
If the dealings between the parties had terminated at that point and Locke’s legal rights turned on the existence of a confidential relationship as excusing his failure to read the instruments he signed, I would conclude that the evidence fails as a matter of law to raise a fact issue as to its existence. But their dealings did not end at that point; and the two-years’ friendship and 1949 loan may be considered as a part of the whole picture which existed in January 1951 when the second deed was executed.
A jury could find that from the date of the 1949 deed, Thigpen practically took over the direction of the financial affairs of the grocery business. The business dealings between the parties became informal and lax. Locke did not make some of the promised regular payments on his note but Thigpen took no action to force prompt payment. Thigpen made advances to and payments on Locks’s behalf without at the time requiring any written promise to repay, being content to assimilate the advances into a written obligation at some later date. In January 1950 Thigpen guaranteed a line of credit of $1,000.00 for Locke without requiring security. Locke began to rely on Thigpen as his business adviser. He took Thigpen with him to a conference with another grocer when he was considering joining a chain arrangement. Thigpen advised against it and Locke abandoned the idea. Thigpen advised incorporation of the grocery business. Locke accepted the advice. Thigpen arranged for the preparation of the articles of incorporation and paid in the $1,000.00 capital, taking the risk of obtaining reimbursement from profits of the business. He took two shares of the stock himself and became vice-president and a director of the corporation. He was not satisfied with Locke’s bookkeeping system, or lack of one, and had a system installed. Thig-pen and his son kept the books. According to Thigpen’s testimony the corporation never really functioned. The business did not prosper.
Such was the state of the business dealings of the parties in November or December 1960. To all intents and purposes the parties were jointly interested in and joint *256 ly operating the grocery business; perhaps not as a technical partnership but most certainly as some type of joint undertaking. A jury could conclude that of the two Thigpen had become the dominant and Locke the servient figure in the business. The record does not record a whisper of dissension or ill-feeling between the two. Locke’s debts were worrying him. He considered bankruptcy and mentioned it to Thigpen. He said he wanted to pay his debts and didn’t want Thigpen to lose his money. Thigpen advised against bankruptcy. Locke abandoned the idea when Thigpen suggested a way out: If Locke would lease the real property (to which Thigpen already had a deed) to him, Thig-pen would pay all of Locke’s debts total-ling some $9,900.00, lease the business back to him for $75.00 per week, pay all taxes, insurance, etc., and apply the balance of the rentals to the indebtedness until fully paid, which would take five or six years, and then would turn the property back to Locke. Locke agreed.
In January 1951 Locke executed a deed to the real property and a bill of sale to the fixtures. At the same time he and Thig-pen executed a written lease agreement of the business which recited that Thigpen was lessor and Locke was lessee but was signed by Mr. & Mrs. Locke as lessor and by Thigpen as lessee. Locke’s testimony is that he did not read the instruments because he understood they were being executed to carry out the December agreement and because of his trust and confidence in Thigpen. He did note that he signed one of the instruments as lessor, and this was in keeping with his understanding of the agreement to lease to Thigpen. When asked specifically why he did not read over the papers before he signed them, he answered: “I never did read any papers from Mr. Joe. He handled everything for me, all the contracts, I never had any trouble and didn’t anticipate any.”
Do the evidence and the reasonable inferences therefrom, related above, raise an issue of fact as to the existence of a confidential relationship between Locke and Thigpen when the deed was executed in 1951? I think they do. At the time of, the execution of the instruments Locke and Thigpen had been personal and business acquaintances for three and a half years; they had occupied a business relationship of debtor and creditor for one and a half years; each had an investment in the business which by their joint efforts they were seeking to protect; Thigpen’s conduct over the one-and-a-half-year period was such as to inspire and justify a special confidence; many of his own dealings with and on behalf of Locke were too lax to indicate an arms-length relationship, indicating instead a reciprocal trust and confidence; Thigpen was the adviser, the dominant adventurer, and Locke was the advised, the servient adventurer.
In my opinion a trier of facts would be justified in finding that such a confidential relationship existed as to excuse Locke’s failure to read the instruments he signed in January 1951. The question does not turn on whether all of the things done by Thig-pen during his association with Locke can be related to the conduct of a careful creditor, but rather on whether the association and the conduct of the parties to it were such as to create a special relationship of trust and confidence justifying Locke in failing to read the instruments as should have been done by a party to an arms-length transaction.
It will be understood that what I have said does not mean that Locke’s version of the agreement preceding the execution of the 1951 deed and his statement that he did not read or know he was executing a deed must be believed. Thigpen’s version of the agreement is that Locke wanted out of the grocery business and willingly conveyed the real estate and the fixtures and equipment of the business upon Thigpen’s assumption and payment of Locke’s debts amounting to some $9,900.00. The testimony simply presents a controverted fact issue which it is the duty of the trier of facts, and not of this court, to resolve.
*257 I recognize that the imposition of constructive trusts in cases such as this may broaden the possibilities of fraud in avoiding business transactions which the Statute of Frauds would otherwise protect. Bogert states in his work on Trusts and Trustees, 2nd Edition, p. 150: “In various cases efforts have been made to secure an adjudication that parties in business relations were in a confidential relation to each other, but the courts have been inclined to deny such a finding, except in exceptional cases.” But we have already faced up to the unsatisfactory results which may ensue and weighed them in the scales of justice. In Schiller v. Elick, 150 Tex. 363 , 240 S.W.2d 997, 1001 , we said:
“It might be argued that this holding imposes a higher standard of business ethics upon the parties to a real-estate transaction than the law has a right to expect. The growth of the law has been consistently towards higher ethical standards, [cases cited]. Extending the term ‘fiduciary’ beyond formal relationships (as, for example, guardian and ward) widens the possibility of attack by perjury upon legal instruments, but this has been determined as not controlling in Fitz-Gerald v. Hull, supra, and cases there cited.”
It cannot be said that the right of action is barred by the statute of limitations as a matter of law. The suit developed by the evidence is not one to cancel a deed for fraud but is one to impose a constructive trust. The cause of action did not accrue until Locke knew or by the exercise of diligence should have known of the breach of confidence. The representation to him, according to his testimony, was that the property would be turned back to him when the rents had paid the indebtedness, which would take five or six years. Five years from the date of the transaction expired in January 1956. Locke testified that he learned from Thigpen of the execution of the deed and that the property would not be returned to him later in 1956. His suit was filed on January 13, 1958. It is not shown conclusively that he should have obtained this information at an earlier date.
I would affirm the judgment of the Court of Civil Appeals.
WALKER and STEAKLEY, JJ., join in this dissent.