Krumholz v. Goff
| Decision Date | 04 August 1961 |
| Docket Number | 698.,No. 697,697 |
| Citation | 198 F. Supp. 129 |
| Parties | Max KRUMHOLZ and Emil Moosmann, Plaintiffs v. James Beckham GOFF and Mary Lois Goff, Defendants. Max KRUMHOLZ and Emil Moosmann, Plaintiffs v. F. T. CANTRELL and Mary Cantrell, his wife; Finis Durrett and Hazel Durrett, his wife; Virgil Price and Frances Price, his wife; Wayne D. Durrett, an infant, by and through F. T. Cantrell, his statutory guardian, and F. T. Cantrell, Statutory Guardian of Wayne D. Durrett; Walter Pickett and Ann Elizabeth Pickett, his wife; William N. Theiss and Jeanne Theiss, his wife; H. A. Clark and Pet Clark, his wife; Otis E. Gilpin and Beulah Gilpin; and Walker Chenault, Defendants. |
| Court | U.S. District Court — Western District of Kentucky |
Robert M. Coleman, Coleman, Harlin & Orendorf, Bowling Green, Ky., Eugene H. Alvey, Louisville, Ky., for plaintiffs.
Robert M. Spragens, Lebanon, Ky., Earl S. Wilson, Bullitt, Dawson & Tarrant, Louisville, Ky., Joe Leary, Frankfort, Ky., for defendants.
The plaintiffs in these consolidated cases are citizens and residents of New Jersey. The defendants are citizens and residents of the Western District of Kentucky. The plaintiff, Krumholz, a certified public accountant, is, and was at all times referred to in the record, a person of experience in the leasing and developing of oil producing properties. Throughout the record it is shown that he was the principal spokesman and representative for all parties plaintiff.
Activity in the oil fields of Green County, Kentucky, brought Mr. Krumholz and his co-plaintiff, Mr. Moosmann, to that county apparently for the purpose of making investigation and investment in oil properties.
On January 1, 1959, they became acquainted with the defendant, James Beckham Goff, who was the owner of a 5/32 interest in what is known throughout the record as the Leachman lease. The area covered by this lease was in active development and contained twelve operating and producing oil wells and a thirteenth well was being drilled. Krumholz, Moosmann and Goff visited the site of the lease and Goff told the plaintiffs that the lease covered approximately 80 acres and was producing approximately 600 barrels of oil per day.
On January 2, 1959, the plaintiffs, Krumholz and Moosmann, became interested in purchasing from what is identified as the Cantrell group, defendants herein, their 17/32 working interest in the Leachman lease. They obtained from this group an option to purchase such an interest in consideration of the sum of $5,312.50 cash in hand paid. The option provided that the plaintiffs should have a right to purchase all of the interests of the Cantrell group for the sum of $106,250, to be credited, if the option was exercised, with the cash payment. It further provided that the Cantrell group reserved 17/64 of the oil produced from the lease until a total further consideration of $159,375 had been received from the sale of such oil but payable only from proceeds of oil produced if, as and when produced. As a further consideration it was provided that the option must be exercised on or before January 31, 1959.
The option contained the following provision:
The record discloses that this significant provision in the option was incorporated only after prolonged and serious discussion and consideration between the parties.
On January 3, 1959, the defendant, Goff, executed an option, with identical provisions as those contained in the Cantrell option, for his 5/32 working interest in the lease. The only distinction between the Cantrell and the Goff option was in the different fractional interests and in the consideration paid. The plaintiffs paid to Goff $1,562.50 in cash with a deferred consideration of $31,250 (to be credited by the direct payment of $1,562.50). As in the Cantrell lease, there was to be a deferred consideration of $46,875 to be paid from oil if, as and when produced from the lease.
The plaintiffs immediately thereafter returned to New Jersey to interview their friends and clients in an effort to raise the deferred cash consideration for these two purchases. The record discloses that Mr. Krumholz stated that the warranty of the 400 barrel per day production from the lease was necessary in order that he might interest New Jersey investors and induce them to become partners.
By letter of January 14, 1959, written from their home in New Jersey, the plaintiffs, Krumholz and Moosmann, advised both Cantrell and Goff that they elected to exercise the option to purchase their respective interests in the Leachman lease and stated that the balance of the purchase price would be tendered to them at Greensburg (the county seat of Green County), Kentucky, on or about January 30, 1959, in accordance with the terms of the option.
On January 30, 1959, at Greensburg, Kentucky, the defendant, Goff, accepted the remainder of the agreed cash consideration and assigned his 5/32 interest to the plaintiffs. The assignment set forth the description of the tract covered by the lease which concluded with the phrase "containing 80 acres, more or less". This document included all of the provisions of the option of January 3, 1959 except the warranty as to production of 400 barrels per day.
Due to their inability to raise sufficient funds, the plaintiffs were unable to complete the transaction with the Cantrell group and desired more time. By mutual agreement a document was drawn which was styled "Extension of Option". The instrument provided in part that in consideration of $5,000 "the date for the exercising of the option granted in paragraph 1 hereinabove is hereby extended to March 2, 1959." In the event the plaintiffs exercised the option within the time provided, this sum was to be credited on the total purchase price.
On February 28, 1959, Krumholz and Moosmann, with their lawyer, met with the Cantrell group in Greensburg for the purpose of paying the balance of the money and closing the transaction. The record discloses that at some time during the interim between January 14, 1959, when the plaintiffs had exercised their option to purchase, and the meeting in Greensburg of February 28, 1959, the plaintiff, Krumholz, had obtained information from a reliable source that the Leachman lease was not producing and had never produced as much as 400 barrels of oil per day as the defendants had warranted in the original option. After some discussion on this point, it was agreed that the purchasers would be given all of the oil produced in the month of February, a circumstance which had not been contemplated by the parties in any of their previous agreements, and with this understanding the cash consideration was paid to the Cantrell defendants and the lease executed and delivered.
As in the Goff assignment, the Cantrell document also recited a metes and bounds description of the lease, ending with the same phrase "containing 80 acres, more or less". This assignment contained no warranty as to production.
The plaintiffs took possession of the leasehold on March 2, 1959. Almost immediately they became dissatisfied and on March 23, 1959, through their attorney, demanded the return of the cash consideration and for a rescission of both assignments. All of the defendants declined to comply with the plaintiffs' requests which resulted in these actions being brought.
The plaintiffs base their claim for rescission of each assignment on two grounds: (1) a material deficiency in the acreage covered by the lease amounting to a failure of consideration, and (2) fraudulent misrepresentation and breach of warranty as to the quantity of oil being produced on the leased premises.
The defendants in both actions have filed counterclaims for damages on the ground that the plaintiffs breached the implied obligation under the assignments to operate the existing wells in a proper and workmanlike manner and to further develop the leasehold. It is contended that such breach of obligation has resulted in a loss of one-half the proceeds of oil which was to be paid to them as deferred consideration for the assignments. They seek the full amount of the deferred considerations.
The court will first consider the claims of the plaintiffs in the order presented.
The record establishes the fact without question that the tract reported as containing 80 acres, more or less, had been reduced by approximately 10 acres by a conveyance of some years before the matters in controversy arose. It is also shown that the attorney for the plaintiffs made an examination of the title of the leasehold in January 1959 and that through oversight he failed to note that this 80 acre tract had been reduced by 10 acres and should have been reported to his clients as containing approximately 70.5 acres. The litigants in these actions caused separate surveys to be made of the leasehold. The plaintiffs' survey reported an acreage of 67.0 and the defendants' survey an acreage of 67.5. It thus appears and the court finds as a fact that the shortage of acreage can at most be only 3.5 acres.
It is well established in Kentucky as a rule of law to be automatically applied by the courts that equitable relief will be granted to a purchaser or a seller if the discrepancy in acreage is 10 per cent or over but denied if it is less than 10 per cent. It has been held that this rule applies not only for agricultural lands but also in the case of more valuable lands such as coal and oil lands. Caudill v. Bernheim, 194 Ky. 368, 238 S.W. 1041; 1 A.L.R.2d 9, 102, 104.
Since the court must recognize the requirement of the ten per cent deficiency rule and as the record does not justify a consideration of the exceptions as set out in the recent case of Wallace v. Cummins, Ky., 334 S.W.2d 904,...
To continue reading
Request your trial