Munday v. Mayfair Diagnostic Laboratory

831 S.W.2d 912, 1992 Ky. LEXIS 74, 1992 WL 101565

• Court: Kentucky Supreme Court
• Decided: May 14, 1992
• Docket: 91-SC-455-DG
• Status: Published

Opinions

LAMBERT, Justice.

The issue presented is whether the failure of partners doing business under an assumed name to comply with KRS 365.-015, an act which requires the filing of a certificate of assumed name, tolls the statute of limitations for tort actions against them. In Hayes v. Providence Citizens’ Bank & Trust Co., 218 Ky. 128, 290 S.W. 1028 (1927), this Court held that the purpose of the assumed name statute was protection of the public from fraud and deceit by requiring disclosure of the identities of persons doing business under an assumed name; that the statutory provision which imposes a modest fine and term of incarceration was the exclusive punishment for violation; and that an additional penalty in the form of a forfeiture of goods and property could not be imposed. Hayes also held that the statute could not be used as an instrument to defraud one who had failed to comply with it. Here, we must determine whether the purpose of the assumed name statute is of sufficient breadth to require a ruling that one found to be in violation should be denied benefit of an otherwise applicable statute of limitation.

A few days prior to the expiration of one year from the date of discovery, appellants brought a civil action for medical negligence against Mayfair Diagnostic Laboratory and Dr. James H. Callis. Prior to bringing suit, appellants had consulted the records in the office of the Secretary of State and in the office of the Daviess County Court Clerk to determine whether Mayfair was a corporation, or a partnership or proprietorship doing business under an assumed name. The records so consulted failed to reveal any filing by Mayfair. It is undisputed that during the relevant time period, Mayfair Diagnostic Laboratory was a partnership and that the partners had failed to comply with KRS 365.015.

After commencement of their action, appellants learned through discovery that Mayfair was a general partnership consisting of various individuals and family trusts doing business as Mayfair Diagnostic Laboratory. Significantly, discovery also revealed that Dr. Callis was not a partner, his interest having been transferred to a family trust several years earlier, and that his only role was as medical director of Mayfair. Appellants amended their complaint and properly joined at least one Mayfair partner, but by this time, approximately sixteen months had passed since the cause of action was discovered and appellants’ individual claims were held to be time barred. An order of dismissal was entered.

On appeal to the Court of Appeals, the judgment of the trial court was reversed. The Court of Appeals held that a partnership could be sued in its firm name and concluded that since the action was timely filed against Mayfair Diagnostic Laboratory, the trial court erred in dismissal of the action. Mayfair then sought and was granted discretionary review in this Court whereupon we remanded the case to the Court of Appeals for reconsideration in light of our decision in Telamarketing Communications, Inc. v. Liberty Partners, Ky., 798 S.W.2d 462 (1990), which held that a partnership could not sue under an assumed partnership name. In response, and on authority of Telamarket-ing, the Court of Appeals reversed its earlier decision and held the action to be barred by KRS 413.140. Appellants then sought and were granted discretionary review in this Court.

For its order of dismissal, the trial court relied on CR 15.03, a rule which governs the relation back of amendments to pleadings and our recent decision in Nolph v. Scott, Ky., 725 S.W.2d 860 (1987). The trial court held that the amended complaint which named at least one Mayfair partner did not relate back to the date of the original complaint since Mayfair was not an entity subject to suit and Dr. Callis, the only individual named as a defendant, was not a partner. The trial court did not reach the other arguments advanced by appellants. On appeal, the Court of Appeals originally decided the case on the view that a partnership could be sued in the partnership name, but reversed itself on remand. The Court of Appeals noted, however, that appellants had reiterated the failure of the partnership to comply with the assumed name statute..

It is unnecessary to engage in a review of our decisions in Nolph v. Scott, supra, and Telamarketing v. Liberty Partners, supra, for the issue here is whether appellants’ amended complaint, which is conceded to have named at least one Mayfair partner, was timely by virtue of the failure of the partners in Mayfair to comply with the assumed name statute. Said otherwise, are the Mayfair partners entitled to benefit of KRS 413.140, the applicable statute of limitations, despite their failure to comply with a statute which is designed to inform the public of the identities of persons doing business under an assumed name?

The Kentucky General Assembly and this Court have long recognized the value of statutes which “bar stale claims arising out of transactions or occurrences which took place in the distant past.” Armstrong v. Logsdon, Ky., 469 S.W.2d 342, 343 (1971). We have upheld the constitutionality of statutes of limitations despite their arguable conflict with Sections 14, 54, and 241 of the Kentucky Constitution. “The Legislature’s power to enact statutes of limitations governing the time in which a cause of action must be asserted by suit is, of course, unquestioned.” Saylor v. Hall, Ky., 497 S.W.2d 218, 224 (1973). And we have held that provisions of statutes of limitations should not be lightly evaded. Fannin v. Lewis, Ky., 254 S.W.2d 479, 481 (1952).

While the foregoing and numerous other decisions demonstrate a firm commitment to enforcement of statutes of limitations, there are exceptions to the rule. Parties are at liberty to contract for a limitation period less than the period fixed by statute. Johnson v. Calvert Fire Ins. Co., 298 Ky. 669, 183 S.W.2d 941 (1945). Likewise, after a cause of action has accrued, parties may, by agreement, extend the time for filing the action beyond the time in which the limitation would otherwise run. Bankokentucky Co.'s Receiver v. National Bank of Kentucky’s Receiver, 281 Ky. 784, 137 S.W.2d 357, 369 (1939). An estoppel may arise to prevent a party from relying on a statute of limitation by virtue of a false representation or fraudulent concealment. Cuppy v. General Accident Fire and Life Assurance Corp., Ky., 378 S.W.2d 629 (1964). And for persons under a legal disability, the running of the statute of limitations ordinarily does not commence until the disability is removed. Gunnels v. Stanley, 296 Ky. 662, 178 S.W.2d 195 (1944). Finally, we have held that as statutes of limitations are in derogation of presumptively valid claims, when doubt exists as to which statute should prevail, the longer period should be applied. Troxell v. Trammell, Ky., 730 S.W.2d 525 (1987).

A claim of equitable estoppel is widely utilized by parties who seek to avoid a statute of limitation defense. Long ago a tolling statute was enacted which provides that a resident of this State who absconds or conceals himself “or by any other indirect means obstructs the prosecution of the action” shall not have benefit of the statute of limitation so long as the obstruction continues. KRS 413.190(2). We have held that this tolling statute is simply a recognition in law of an equitable estoppel or estoppel in pais to prevent fraudulent or inequitable application of a statute of limitation. Adams v. Ison, Ky., 249 S.W.2d 791 (1952). Our decisions construing the statute and applying equitable estoppel appear to require “some act or conduct which in point of fact misleads or deceives plaintiff and obstructs or prevents him from instituting his suit while he may do so.” Id. at 792. In Second National Bank and Trust Co. v. First Security National Bank and Trust Co., Ky., 398 S.W.2d 50 (1966), we held that fraudulent conduct or concealment could not be assumed in the absence of evidence to support it.

Ordinarily, proof of fraud requires a showing of an affirmative act by the party charged. An exception to this general rule may be found in a party’s silence when the law imposes a duty to speak or disclose. Such was the case in Security Trust Co. v. Wilson, 307 Ky. 152, 210 S.W.2d 336 (1948), in which it was alleged that a deceased uncle who had served as fiduciary for his niece had converted her property to his own use. The Court emphasized the language in KRS 413.190 “by any other indirect means” and stated:

“The indirect means employed by the uncle in the case at Bar, if it existed, was a failure to speak and advise his niece that he had exchanged her bonds for other bonds and taken the title in his own name.” Id. at 339.

The Court relied on Kurry v. Frost, 204 Ark. 386, 162 S.W.2d 48 (1942), which held that a party who, in violation of the law, left the scene of an automobile accident after striking another person, “concealed her identity.” The Court in Wilson held that the law imposed upon the uncle a duty of disclosure to his niece as follows:

“that this fiduciary relationship was such that there was a duty upon the part of the said Curtis to advise the said plaintiff that he had exchanged her bonds and taken the title to the ones exchanged for in his own name; that this concealment constituted a means of obstruction within the meaning of KRS 413.190, and that this concealment tolled the running of the statute of limitations.” Security Trust Co., 210 S.W.2d at 339-40.

From the foregoing, it may be concluded that while concealment ordinarily requires an affirmative act, where the law imposes a duty of disclosure, a failure of disclosure may constitute concealment under KRS 413.190(2), or at least amount to misleading or obstructive conduct.

Returning to the case at bar, we reiterate that the purpose of the assumed name statute is to inform members of the public, including appellants, of the identity of persons doing business under an assumed name. It could not be disputed that for lawful use, including litigation, the statute imposes a duty to provide such information. Thus, appellees’ conduct amounted to a violation of a statute designed to provide appellants information which was essential to the commencement of litigation. We have no doubt that such conduct may be properly regarded as obstruction by indirect means within the purview of KRS 413.190(2).

Appellees rely in part on a decision of the appellate court of Illinois, Gulley v. Fountains, 153 Ill.App.3d 100, 106 Ill.Dec. 385, 505 N.E.2d 1176 (1987), which held that failure of a party to comply with the assumed name act is not an exception to the applicable statute of limitation. The court noted, however, that by the terms of the act, in such circumstance, a civil action could be brought against the business under its assumed name and “unknown owners” and permitted judgment and execution against the assets of the business. Unlike its Kentucky counterpart, the Illinois statute provides for a remedy in the event of the failure of business owners to comply with the statute. This provision would appear to recognize the plight of persons desiring to bring litigation against an unidentified business entity and provide an exception to the otherwise applicable rule.

We have not overlooked the language in Hayes v. Providence, supra, which states that the statutory penalty for violation of KRS 365.015 is exclusive. We note, however, that the depositor’s failure to comply with the assumed name statute was urged as grounds for denying him recovery of his money, and the Court held that the statute could not be used as an instrument of fraud to permit one to refuse to return the property of another solely because of his failure to file the certificate. To prevent an awful injustice, the Court held the only sanction to which the depositor should be subjected was the statutory punishment. In Hayes there was neither benefit nor harm to either party by virtue of the failure to file the certificate. In this case, however, appellees’ failure to file the certificate denied appellants information which was essential to the commencement of litigation. If appellees’ plea of limitation is successful, they will have succeeded in ben-efitting from their violation of the law and appellants’ claim for damages will be extinguished. In view of its denunciation of a circumstance in which one could be defrauded by his failure to comply with the statute, the Court in Hayes could not have intended that one in violation of the statute use it as an instrument of fraud and profit to the detriment of another. We conclude, therefore, that Hayes v. Providence, supra, need not be overruled as in its totality, there is no inconsistency with our decision here.

In summary, we are of the opinion that appellees’ failure to comply with KRS 365.-015 was sufficient to create an estoppel under KRS 413.190(2), thereby tolling the statute of limitation during the period of noncompliance. The opinion of the Court of Appeals is reversed and this cause remanded to the Daviess Circuit Court for further proceedings not inconsistent herewith.

STEPHENS, C.J., and COMBS, LEIBSON, SPAIN and WINTERSHEIMER, concur.

LEIBSON, J., files a separate concurring opinion in which COMBS, J., joins.

REYNOLDS, J., dissents by separate opinion.