Goodrich-Lockhart Co. v. Sears

• Decision Date: 04 February 1919
• Docket Number: 799.
• Parties: GOODRICH-LOCKHART CO. v. SEARS et al.
• Court: U.S. District Court — Eastern District of Kentucky

270 F. 971

GOODRICH-LOCKHART CO. v. SEARS et al.

No. 799.

United States District Court, E.D. Kentucky.

February 4, 1919

[Copyrighted Material Omitted]

Dinsmore & Shohl, of Cincinnati, Ohio, Charles Stuart Guthrie, of New York City, and A. Floyd Byrd, of Lexington, Ky., for complainant.

Forman & Forman, of Lexington, Ky., and Worthington, Cochran &amp Browning, of Maysville, Ky., for defendant Sears.

O'Rear & Williams, of Frankfort, Ky., for defendants Harkins.

SANFORD District Judge.

This cause was submitted before me on testimony previously taken consisting mainly of depositions, and in part of oral testimony introduced at the preliminary hearing before Judge Cochran, with various documentary exhibits. I have had no opportunity to hear the witnesses testify or to observe their demeanor on the witness stand. I have, however, carefully considered all the evidence, and the arguments and briefs of counsel. The volume of evidence and its various ramifications as applicable to the many disputed questions of law and fact, is such that it is not practicable, within the reasonable limits of a written opinion, to state the evidence in detail, with justice to the contentions of ether side. I shall hence merely state, without elaboration, the general conclusions of law and fact which, after careful study, I have reached in reference to the various controlling matters in issue.

1. J. Smith, to whom the defendant Sears gave the option, acted in the transaction in question as the agent of the plaintiff company, in which he was a stockholder, director and officer. The original employment of the defendants Harkins & Harkins by Murray, Prentice and Howland was in behalf of a syndicate of prospective purchasers of the tracts covered by the option, of which the plaintiff, through Smith, was a member; and Harkins & Harkins in the transactions in question were, by virtue of their employment, in privity with the plaintiff and under the fiduciary relation to it of attorneys to a client.

2. The option covered five tracts of land purporting to aggregate 288,600 acres; one tract containing 69,900 acres in Knott and Perry Counties; three tracts, containing an aggregate of 184,000 acres in Perry County; and one tract, containing 35,000 acres in Letcher County. As the three tracts in Perry County purported to contain an aggregate of 184,000 acres, or a fraction over 280 square miles, and as Perry County, as shown by the census of 1910 (according to a certificate submitted in behalf of the defendants Harkins & Harkins) contained only 335 square miles, it appears that, exclusive of the 69,000 acre tract laying partly in Perry County, Sears was offering to sell to Smith more than four-fifths of Perry County; a county which contained, according to this census, a population of 11,255 persons.

3. The S.G. Reid patent, issued in 1872, now in issue, being the 55,000 acre tract referred to in the option, purported to grant, by its outer boundaries, 68,800 acres in Perry County, less 13,800 acres of prior patented land included therein and deducted therefrom; that is, it purported to grant 55,000 acres, or almost 86 square miles, a little less than one-fourth of Perry County, according to the census of 1910. Its boundary line came within about a mile of Hazard, the county seat. It contained, in 1912, a population of several thousand people, was traversed by many public roads, contained many school houses, some of which were used as churches, and several school districts and voting precincts; and was in large part, an old settled country, with much cleared land, and many old buildings and with a large number of mining and timber corporations and individuals in possession of many and large portions, embracing apparently by far the greater part of its outer boundaries.

The proof shows that in fact, at the time of its issuance, at least 61,800 acres within its outer boundaries had been previously granted under earlier and paramount patents, and that it actually conveyed title from the State to not more than six or seven thousand acres, which lay in scattered and detached portions. It was one of the series of similar blanket patents issued by Kentucky, from 1872 to 1874, which conveyed title to only a small portion of their outer boundaries; and it bore in Perry County the reputation of a 'wild cat' patent conveying title to but little land. By reason of the comparatively small and scattered acreage to which it conveyed title, as well as the large number of later patents, covering about 60,000 acres, under which many adverse possessions were held, and the enormous expense of locating and settling the prior patents and the adverse possessions of squatters, it was, in spite of the large acreage value of those portions to which title could be established, of comparatively little value, as a whole, and worth nothing like the price of $178,500 at which Sears had given the option to Smith. Sears did not then even own this patent, but held an option on it himself at the price of $2,500; having obtained an option on this and other similar blanket patents from Coldwell, the purchaser at tax sales, for speculative purposes merely.

Sears was an habitual speculator in this class of specious and flimsy titles, was thoroughly familiar with the general situation, and unquestionably, in my opinion, knew the comparative worthlessness of the title which he proposed to sell.

Harkins & Harkins were thoroughly competent lawyers, familiar with Kentucky land titles and land law, and with the general nature of the blanket patents issued by Kentucky in the 1870's; the younger Harkins, though of less general experience than his father, having had special experience in the investigation of land titles in Perry County. I am constrained to conclude from all the surrounding circumstances that they both knew the general character of the Reid patent, and were fully aware that in all probability it only conveyed title to a small part of the 55,000 acres of paramount title which it purported to include, embracing a vastly larger acreage of prior patents than the 13,800 acres excluded on its face and conveying title to a small comparative acreage merely.

4. While the letters of Murray, Prentice & Howland were somewhat loosely worded, due apparently to their lack of familiarity with the abnormal system of land titles prevailing in Kentucky, it nevertheless sufficiently appears from the entire correspondence that Harkins & Harkins were employed to give an opinion, for the benefit of their clients, on the ultimate question whether, if they purchased from Sears, they would acquire 'good title' to the land bought; and not merely whether they would acquire a valid tax title to the Reid patent, for whatever it might be worth, as a basis for subsequently acquiring a good title to the land itself by buying up the superior patents and valid possessory titles; and this, I am constrained to find, Harkins & Harkins thoroughly understood.

5. In the light of all the evidence and surrounding circumstances, I am likewise compelled, though reluctantly, to conclude and find from all the circumstances, that at some time before Harkins & Harkins gave their report on the title to the Reid patent, and probably prior to July 16th, they, at the instance of Sears, entered into a secret agreement with him that, for a money consideration to be paid to them by him, they would not disclose the real condition of the Reid title to their clients, but would give them an untrue, fraudulent and deceptive report as to the title, misleading and concealing its real condition, as a means of inducing the purchase of the Reid patent at the extravagant price at which Sears had given the option. I further find that, without making any real or substantial effort to ascertain the true condition of the title, especially as to the number and extent of the older and paramount patents-- the most crucial matter affecting the validity of the patent-- they gave to Murray, Prentice & Howland, for their clients, the written opinion, dated August 24, 1912. This report, 'concerning the matter of the investigation of title to 55,000 acres of land situated in Perry County, Kentucky,' after setting forth that the land in question purported to have been granted to S. G. Reid by patent dated June 12, 1872, for 68,800 acres, proceeded:

'From this patent there is excluded for prior claims, 13,800 acres, leaving the net number of acres, granted by said patent 55,000 acres. These exclusions are referred to in gross and are undefined and were made because of previously patented land within the exterior boundary of said patent. These previously patented lands constituting the 13,800 acres were located principally along the streams and branches and were evidently made to include lands which were suited for agricultural purposes at the time they were made and did not extend very far on to the hillsides where the lands are chiefly valuable for coal deposits and timber.'

After setting forth at length various mesne conveyances from and after Reid by which the property was acquired by the Kentucky Union Company, and the sale made for defaulting payment of taxes at which Coldwell became the purchaser, and an extended discussion of the proceedings under the tax sale and the Kentucky statutes and decisions relating to such sales, the report continued:

'It (the Reid patent) is younger than the Smith & Baum and De Groot patents, and to the extent of the conflict, the Smith & Baum and De Groot surveys will hold that part of the land covered by them. As to the older patents covering the land, it will be necessary to have the property actually surveyed and each of the patents older in date in this section of Perry County located before we can give an

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