McCain v. Cox, DC 80-10-WK-P.

• Decision Date: 10 February 1982
• Docket Number: No. DC 80-10-WK-P.,DC 80-10-WK-P.
• Citation: 531 F. Supp. 771
• Parties: Charles W. McCAIN and Charles D. Shipp, Plaintiffs, v. R. E. COX and John Hancock Mutual Life Insurance Company, Defendants.
• Court: U.S. District Court — Northern District of Mississippi

531 F. Supp. 771

Charles W. McCAIN and Charles D. Shipp, Plaintiffs, v. R. E. COX and John Hancock Mutual Life Insurance Company, Defendants.

No. DC 80-10-WK-P.

United States District Court, N. D. Mississippi, Delta Division.

February 10, 1982.

COPYRIGHT MATERIAL OMITTED

F. Ewin Henson, III, Clarksdale, Miss., Warner Hodges, Memphis, Tenn., for plaintiffs.

Joel P. Walker, Hernando, Miss., for defendants.

MEMORANDUM OPINION

KEADY, Chief Judge.

In this diversity action, plaintiffs Charles McCain, a resident of Tennessee, and Charles D. Shipp, a resident of Mississippi, sue defendant R. E. Cox, a resident of Arkansas, seeking damages for his refusal to consummate a real estate transaction pursuant to a May 4, 1979 contract.¹ In defense, Cox maintains that he possessed the right to terminate the transaction and that plaintiffs or their agents misrepresented the condition of the land. Cox counterclaims for expenses incurred in the transaction. After full evidentiary hearing and consideration of legal memoranda, we make findings of fact and conclusions of law as follows:

I. FINDINGS OF FACT

(a) Narration of Events

In December 1978, Shipp, an independent loan correspondent for various insurance companies, learned that John Hancock Mutual Life Insurance Company was interested in selling some of the lands it owned in Hyde County, North Carolina, known as Mattamuskeet Farms. McCain, a buyer and seller of farm land who often worked with Shipp, met Jack Cozart of West Memphis, Arkansas, a land dealer who was interested in arranging an exchange of agricultural property for 250 acres of commercial land in DeSoto County, Mississippi, on behalf of Cox, its owner.² McCain, Shipp and Cozart discussed a possible trade of the North Carolina and Mississippi property. After contacting Clarendon Richert, John Hancock's chief farm loan officer, plaintiffs learned the company would sell some of the property, and in January 1979 McCain, Shipp and Cozart viewed the land.

Mattamuskeet Farms consisted of approximately 35,000 acres of flat, coastal land, large portions of which were marshy swamplands lying in the headwater regions of the Alligator River flowing near the north boundary. The Atlantic Intracoastal Waterway borders the west side, and Pamlico Sound lies to the east. Some years previously road beds had been constructed for timber harvesting operations; later blocks of land were formed by a network of large drainage canals, originally laid out at one mile square intervals. As the land was developed for farming, field or "V" ditches constructed prior to 1975 drained the immediate area into canals where the water was pumped into nearby watercourses. The existing "V" ditches were cut 5 feet deep and laid out 330 feet apart. In 1977 the Mattamuskeet Association was formed to maintain the roads and drainage and levied annual assessments for this purpose. Only a part of John Hancock's acreage was in cultivation or cleared, while other portions of uncleared land had no ditches. Most of the farm's land surface was covered with layers of peat ranging in depth from several inches up to eight feet. No excavation or mining of peat had ever taken place.

Mattamuskeet Farms was managed by the Rich Company, directed by William D. Rich. Rich also served as president of Mattamuskeet Association, and was familiar with the farm's drainage system. Rich had cleared several hundred acres of woodland after becoming connected with Mattamuskeet Farms in 1977 but had not dug additional canals or ditches.

Since the January 1979 trip was McCain's and Shipp's first visit to the property, they instructed Cozart to make pertinent inquiries of Rich concerning the land. Rich showed Cozart aerial photos and a property map maintained at the farm headquarters. This map, coded in four colors, depicted varying states of land development as follows: (1) land in cultivation; (2) land cleared but not in cultivation; (3) land with canals, roads and "V" ditches; and (4) land with canals and roads but no ditches. As shown on the map, about 5,300 acres were unditched. Cozart was furnished a small map and brochure. Leon Williams, Rich's employee, drove plaintiffs and Cozart over the property and showed them the drainage system. Cozart took soil samples and photographs of the area to discuss with Cox.

The next week, on January 29, Cozart returned with Cox to view the property. Rich flew them over the entire farm for about 45 minutes in his airplane, and then drove them around the property. He explained the type of land and different stages of development. Cox and Cozart reviewed property maps and acreage figures at Rich's office, and the three discussed basic farming, including types of crops grown, yield history, soil types, and saleability.

Cox became interested in trying to acquire 15,000 acres in woods and 5,000 acres cleared land. At Cozart's request, Shipp arranged a February 7 meeting at John Hancock's office in Memphis, Tennessee, to discuss a sale as well as a loan to finance land clearing expense. This meeting was attended by Richert, Gene Austin, another John Hancock official, Cox, Cozart, and plaintiffs. Richert stated that the company had available for purchase approximately 12,000 acres in woods, of which 2,000 acres were not ditched. The tract was identified in yellow color on a small map of Mattamuskeet Farm given to Cox. They discussed a purchase by Cox at $546 per acre for a total consideration of $7 million less $2 million allowed as credit for Cox's DeSoto County land. Richert told Cox and Cozart that they would have to deal with Shipp and McCain, and not John Hancock, as sellers of the land, but indicated that if Cox bought the land from plaintiffs, the company would make him a loan to clear the property.

Cozart continued to dicker with McCain and Shipp about a sale to Cox, who, on March 2 submitted a signed purchase proposal, which they rejected. Upon the advice of Warner Hodges, their attorney, plaintiffs delayed further negotiations until they made a firm purchase contract with John Hancock on April 24. Under this contract, plaintiffs were to pay the company $390.59 per acre for 12,000-odd acres, the exact acreage to be determined by survey, with $500,000 payable in cash at closing on June 15, and the balance evidenced by their promissory note secured by first deed of trust on the land. Plaintiffs paid John Hancock $5,000 earnest money at time of execution of the agreement.

Ten days later, on May 4, plaintiffs and Cox signed a contract for Cox to purchase the same lands. This contract was signed in West Memphis, Arkansas, in the office of Jake Brick, an attorney Cozart engaged to represent Cox's interest. Later the same day Cox and his wife signed a loan commitment with John Hancock for land clearing. By his contract with plaintiffs, Cox, who put up a $10 nominal sum as earnest money, was required to pay a purchase price of $6,771,500 for the 12,000-acre tract by conveying them the DeSoto County property for a credit of $2 million, paying $500,000 cash to John Hancock at the June 15 closing, and assuming their deed of trust to John Hancock for $4,271,500. The contract contained the following relevant provisions:

9. Buyer has until June 1, 1979 to inspect the property and satisfy all contingencies set forth hereinafter in paragraph nine (9), sic designated Contingency. If contingency is not satisfied by that date Buyer shall notify Seller in writing if Buyer fails to notify Seller in writing by June 1, 1979, then all matters set forth in paragraph nine (9) are waived or deemed satisfied and a binding contract is in affect sic. Each party shall have the right to specific performance and all other rights arising by the failure of one party to close.

. . . . .

11. CONTINGENCY. Anything herein to the contrary notwithstanding, this Real Estate Contract shall be binding upon the Buyer only after Buyer has approved the legal description to be furnished by Seller to Buyer, it being understood that Buyer intends to examine and approve the exact land to be conveyed both as to boundaries and Buyer's intended use, and shall not be bound until such examination and approval is made. If Buyer fails to approve, Buyer's earnest money, upon demand, shall be returned and this contract shall be null and void.

12. CHARLES W. McCAIN or CHARLES D. SHIPP has the right to put a loan on the Two Hundred Fifty-two (252) acres of land located in DeSoto County, Mississippi, in the amount of Five Hundred Thousand and no/100 ($500,000.00) and if this cannot be obtained, this contract will become null and void and both parties shall be held harmless from this Contract.

13. Promptly after the execution of this Contract Buyer will, at its expense, have the above described land surveyed by Rodman and Waters Land Surveying and Civil Engineering of Washington, North Carolina and twenty (20) prints of a map on such survey shall be furnished by Buyer to Seller no later than June 1, 1979. The Surveyor's finding as to acreage shall be used in computing the total purchase price and the description as determined by said survey shall be used in the Deed and Deed of Trust.

Paragraph 9, which placed a June 1 time limit on the buyer's exercise of contingencies, was inserted at Hodges' suggestion, while ¶ 11, headed Contingency, was insisted upon by Cox. Though ¶ 12 did not so specify, the undisputed evidence is that the parties contemplated that Cox would not put up his own money to close the deal, but that plaintiffs would borrow funds for the down payment and lend the money to Cox. Cox was to reimburse plaintiffs by giving his note and second deed of trust against the North Carolina land.

On May 2, plaintiffs' contract with John Hancock was modified to condition completion of their deal upon concurrent closing of plaintiff's contract with Cox. On June 14 the contracts were again amended to restrict cutting of certain timber. A more significant modification, however,...