PJC Business

F RAUD AND N EGLIGENT M ISREPRESENTATION

PJC 105.2

diligence to suspect or discover someone’s fraud will not act to bar the defense of fraud to the contract. . . . Therefore, only the insurer’s actual knowledge of the misrep resentations would have destroyed its defense of fraud.” See also Hooks v. Samson Lone Star Ltd. Partnership , 457 S.W.3d 52, 57 n.6 (Tex. 2015) (“Hooks and amicus . . . cite cases stating that if there is a fraudulent misrepresentation, it is no defense that proper inquiry might have revealed the truth. See, e.g., Buchanan v. Burnett , 102 Tex. 492, 119 S.W. 1141, 1142 (1909); Labbe v. Corbett , 69 Tex. 503, 6 S.W. 808, 811 (1888); Mitchell v. Zimmerman , 4 Tex. 75, 79–80 (1849). These cases, however, stand for the general proposition that one may be liable for fraud even if it could be discov ered by due diligence; they do not hold that limitations is extended even if due dili gence would reveal the fraud.”) . Most recently, in Grant Thornton LLP v. Prospect High Income Fund , 314 S.W.3d 913, 923 (Tex. 2010), the supreme court held: In measuring justifiability, we must inquire whether,“given a fraud plain tiff’s individual characteristics, abilities, and appreciation of facts and cir cumstances at or before the time of the alleged fraud[,] it is extremely unlikely that there is actual reliance on the plaintiff’s part.” Haralson v. E.F. Hutton Group, Inc. , 919 F.2d 1014, 1026 (5th Cir. 1990). . . . Moreover, “a person may not justifiably rely on a representation if ‘there are “red flags” indicating such reliance is unwarranted.’” Lewis v. Bank of America NA , 343 F.3d 540, 546 (5th Cir. 2003). In 2015, the supreme court held in Westergren that: “In an arm’s-length transac tion[,] the defrauded party must exercise ordinary care for the protection of his own interests. . . . [A] failure to exercise reasonable diligence is not excused by mere confi dence in the honesty and integrity of the other party.” Westergren , 453 S.W.3d at 425 (citing Thigpen v. Locke , 363 S.W.2d 247, 251 (Tex. 1962)). And in 2018, the court held in Orca Assets : [W]hen a party fails to exercise such diligence, it is “charged with knowl edge of all facts that would have been discovered by a reasonably prudent person similarly situated.” See AKB [ Hendrick, LP v. Musgrave Enter prises, Inc. ], 380 S.W.3d [221,] 232 [(Tex. App.—Dallas 2012, no pet.)]. To this end, that party “cannot blindly rely on a representation by a defen dant where the plaintiff’s knowledge, experience, and background warrant investigation into any representations before the plaintiff acts in reliance upon those representations.” See Shafipour v. Rischon Development Corp. , No. 11-13-00212-CV, 2015 WL 3454219, at *8 (Tex. App.—Eastland May 29, 2015, pet. denied). Orca Assets , 546 S.W.3d at 654.

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