Cross v. Ledford

• Decision Date: 26 May 1954
• Docket Number: No. 33716,33716
• Citation: 161 Ohio St. 469,120 N.E.2d 118,53 O.O. 361
• Parties: , 53 O.O. 361 CROSS v. LEDFORD. McNEILL v. LEDFORD.
• Court: Ohio Supreme Court

Page 469

161 Ohio St. 469

120 N.E.2d 118, 53 O.O. 361

CROSS v. LEDFORD.

McNEILL v. LEDFORD.

No. 33716.

Supreme Court of Ohio.

May 26, 1954.

Syllabus by the Court

1. Where a contract has been procured by fraudulent representations of a party thereto, the party defrauded, after offering to return what he has received under the contract, may elect to have the contract set aside and be restored to his original position.

2. In order to maintain an action to rescind a contract on the ground that it was procured by fraudulent representations, it must be proved by clear and convincing evidence (1) that there was actual or implied false representations of material matters of fact, (2) that such representations were false, (3) that such representations were made by one party to the other with knowledge of their falsity, (4) that they were made with intent to mislead a party to rely thereon, and (5) that such party relied on such representations with a right to rely thereon.

3. Clear and convincing evidence is that measure or degree of proof which is more than a mere 'preponderance of the evidence,' but not to the extent of such certainty as is required 'beyond a reasonable doubt' in criminal cases, and which will produce in the mind of the trier of facts a firm belief or conviction as to the facts sought to be established.

4. One who seeks to rescind a contract procured by fraudulent representations must exercise his right to rescind within a reasonable time after discovering the facts entitling him to rescind, and whether he has acted within a reasonable time is generally a question for the trier of facts.

5. Where the evidence in a case is conflicting, the Court of Appeals in an appeal on questions of law may not as a matter of law substitute its judgment as to what the facts are for that of the trial court, but where the issue is raised it may set aside the finding of the trial court as being against the manifest weight of the evidence, and remand the cause for a new trial. (Paragraph eight of the syllabus in the case of State ex rel. Squire, Supt. of Banks v. City of Cleveland, 150 Ohio St. 303, 82 N.E.2d 709 approved and followed.)

On January 2, 1952, each of the plaintiff appellants herein, hereinafter referred to as plaintiff or by name, instituted a separate action against the defendant appellee, hereinafter designated as the defendant, for a rescission of a contract for the sale of a one-eighth interest in an oil leasehold in eastern Kentucky. Each plaintiff also sought to recover from the defendant the sum of $2,500 with interest which each had invested in the lease on February 13, 1951.

The two cases were consolidated in the Court of Common Pleas as being identical and growing out of the same transaction.

The Court of Common Pleas heard the case without the intervention of a jury, and ordered each contract rescinded and awarded each plaintiff a judgment for $2,500 with interest from February 13, 1951.

An appeal on questions of law and fact was taken to the Court of Appeals, but, the defendant having failed to give the bond fixed by the trial court, the Court of Appeals heard the appeal an on questions of law only.

The Court of Appeals reversed the judgment of the Court of Common Pleas and entered final judgment for the defendant.

The matter is now before this court following the allowance of a motion to certify the record.

Graydon, Head & Ritchey and Nelson Schwab, Jr., Cincinnati, for appellant.

Lawrence P. Lake and Stewart S. Cooper, Cincinnati, for appellee.

LAMNECK, Judge.

The plaintiffs contend that on February 9, 1951, the defendant represented to the plaintiffs that an oil well had been drilled and completed to the first sand on the leasehold in question, which the defendant owned, that a well producing from 50 to 65 barrels a day had been struck, and that the defendant intended to drill 20 feet deeper to a second sand which would increase the flow of oil.

The plaintiffs contend further that relying on said representations, which they allege the defendant knew were false and untrue and made for the purpose of defrauding them, they each invested the sum of $2,500 by check for a one-eighth interest in the lease on February 13, 1951.

Both parties agree that the assignments by which plaintiffs acquired their interests were made on February 15, 1951, and forwarded to the plaintiffs in Washington, D. C.

The defendant denies making representations that a well producing from 50 to 65 barrels had been struck on February 9, 1951. He claims that he represented to the plaintiffs that there was a showing of oil on February 9, 1951, and that the well would be drilled deeper to produce more oil, but that deeper drilling instead of producing ducing more oil made the well of little or no value because the deeper drilling struck salt water, which made pumping unprofitable.

The evidence in this case discloses the following:

Some time in January 1951, the plaintiffs were each offered a one-eighth interest in the lease in question for the sum of $2,500. This offer was in the nature of an option. On January 31, 1951, the option was extended by the defendant, by letter, 'until the well is drilled in * * * but not until the well is shot or acidized.'

On February 9, 1951, the defendant sent plaintiff McNeill the following telegram:

'Have good first pay well. Drilling ahead to second pay. Call me Boles Hotel, Beattyville, Kentucky, tonight.'

There was a telephone conversation between McNeill, who at all times acted as an agent for plaintiff Cross, and the defendant on February 9, 1951. What was said or what representations were made, if any, over the telephone on that occasion is in dispute. McNeill testified that the defendant in response to his question, 'Well what is it producing?,' stated, 'Well, from fifty to sixty-five barrels daily.'

The defendant denied that he ever made such a representation but did say the well appeared to be a 'good first pay well.'

On February 13, 1951, McNeill wrote a letter to the defendant, reading as follows:

'Mr. Cross and I are enclosing herewith our checks for $2,500 each to pay for a one-eighth interest in the 121-acre Bowman lease, with a completed well to the second sand.

'We are forwarding this upon your statement that the well at the first sand showed an estimated 50 to 65 barrels daily and your opinion that the second sand, about 20 feet deeper would show an increased amount of oil and that the two could be operated together profitably.

'Please let us have full report by wire as soon as you have the well fully tested.'

On February 14, 1951, the well was shot into salt water. The man who shot the well testified that he measured the free oil from the first pay sand by cable and instruments, that the oil backed up in the hole 100 feet, and that such an original find, upon being shot, could produce from 50 to 65 barrels per day or even more.

Russell D. Honshul, who was present during the drilling operations, testified that there was no showing of oil in the well on February 9, 1951, the date of the telephone conversation between McNeill and the defendant when the defendant is alleged to have said to McNeill that the well was producing 'from fifty to sixty-five barrels daily.' His testimony on this point was as follows:

'Q. Just to keep in chronological order, back on February 9th, which was Friday before, what was the condition of that well at that time? A. Well, we didn't have any oil at that time.

'Q. Had you any indication at all? A. No, we was still in the sand. The sand had not become discolored at all.'

The defendant on cross-examination as to McNeill's letter, transmitting the checks in question, testified as follows:

'Q. So that, Mr. Ledford, when you finally read this letter that said, 'Upon your statement that the well at the first sand showed an estimate of fifty to sixty-five barrels daily,' you knew perfectly well that was a complete misapprehension of what could possible be true; it was way off base because there was no production? A. At that particular time there certainly was no production.

'Q. And yet you accepted and allowed that five thousand dollars to remain in the bank and did nothing to clarify the situation when you knew Mr. McNeill had sent the five thousand dollars believing when you had told him there was fifty to sixty-five barrels production daily? A. I don't think Mr. McNeill ever believed that.

'Q. You have his letter stating that was what the conversation was, that the well at the first sand showed an estimate of fifty to sixty-five barrels daily. How did you interpret the letter, Mr. Ledford? A. I didn't interpret it at the time by answering it and repudiating it. I grant you that.'

The checks in question were cashed on February 15, 1951.

On February 21, 1951, the defendant wrote McNeill that the well had water, and that it was impossible to tell what the well would make. On March 6, 1951, in another letter to McNeill, the defendant said he was trying to control the water in the well.

The plaintiffs, on March 1, 1951, caused the assignments to be recorded.

There is some testimony in the record about a telephone conversation between McNeill and the defendant, during the latter part of March 1951, relative to an alleged offer of the defendant to return the purchase money of the plaintiffs for a reassignment of their leasehold interests, which the plaintiffs refused. The plaintiffs claim that there was no such offer.

On May 9, 1951, McNeill demanded the return of his money by letter but stated in the letter he did not 'question' the 'good' faith' of the defendant.

There is some evidence in the record to indicate that certain information concerning the well in question was furnished to the plaintiffs by one Kelly Kash, a former business associate of McNeill.

It is claimed by the defendant that the plaintiffs lost their right to rescind because of delay in making a demand and in making known their...