Terrill v. Carpenter

• Decision Date: 16 August 1956
• Docket Number: No. 1037.,1037.
• Parties: Richard W. TERRILL, Frances Terrill, Plaintiffs, v. A. H. CARPENTER, Margaret L. Carpenter, et al., Defendants.
• Court: U.S. District Court — Eastern District of Kentucky

143 F. Supp. 747

Richard W. TERRILL, Frances Terrill, Plaintiffs, v. A. H. CARPENTER, Margaret L. Carpenter, et al., Defendants.

No. 1037.

United States District Court E. D. Kentucky, Lexington.

August 16, 1956.

McCann, Sledd & McCann, Troy D. Savage, Lexington, Ky., for plaintiffs.

Shumate & Shumate, Irvine, Ky., M. A. Rowady, Winchester, Ky., for defendants.

FORD, Chief Judge.

By this action, plaintiffs seek to recover their investments, first made early in 1946 and continued from time to time for several years thereafter, in certain oil and gas leases in Kentucky on the ground that they were induced by fraudulent representations of the defendant A. H. Carpenter.

Plaintiffs' investments were in leases of lands located in Estill, Powell, Menifee, Hart and Lee Counties. Many years previous, these counties had been subjected to considerable oil and gas exploration, with some degree of success, by methods of recovery by natural flow or by pumping, which are referred to in the industry as primary recovery methods. According to the testimony of Richard D. White, Division Exploration Superintendent for California Oil Company, who had many years of experience in such matters in Kentucky and elsewhere, "from fifty to forty per cent of the oil in place is left in the ground by ordinary, primary production methods". (Tr.Ev. p. 1055). Due, no doubt, to the prospects of recovery by deeper drilling and more modern methods, at about the time the plaintiffs invested in this area there was a resurgence of interest in exploration for oil and gas in these Kentucky counties, evidenced by the renewal of explorations by some of the major oil companies and others engaged in the industry.

In 1945 the defendant A. H. Carpenter, a native of Kentucky, who had been actively engaged in exploring for oil in other states, returned to Kentucky and procured leases upon a considerable acreage in the above mentioned counties with a view to engaging in further exploration for oil and gas. After ascertaining from authentic geological reports that the geological structures underlying his leases were favorable, in 1946 he started drilling upon a rather extensive scale. From time to time he sold fractional working interests in leases which he had procured and upon which he was drilling wells. This seems to be a method by which such enterprises are frequently promoted and financed. The mere assignment of a fractional working interest in such a lease, however, does not create the relation of partners or joint adventurers but only that of co-tenants or tenants in common, who ordinarily bear no part of the drilling or exploration expenses but are entitled to share proportionately in benefits derived therefrom. Young v. Hill, 247 Ky. 672, 57 S.W.2d 470, Stephens v. Allen, 314 Ky. 769, 237 S.W.2d 72, 24 A.L.R.2d 1353.

The plaintiffs, Dr. Richard W. Terrill, a physician residing at Ft. Wayne, Indiana, and his wife Mrs. Frances Terrill, were among numerous persons who, from 1946 to 1949, purchased fractional working interests in leases upon which the defendant A. H. Carpenter was engaged in exploring for oil or gas by drilling one or more wells. They also claim to have advanced to Carpenter various sums of money for the purchase of leases in acreage surrounding certain wells.

While denying all charges of fraud, the defendant A. H. Carpenter asserts (1) that due to the long lapse of time since the occurrence of the transactions alleged by plaintiffs, their claims are barred by applicable statutes of limitation, (2) that by a contract of April 10, 1951, entered into between plaintiff Richard W. Terrill and others and the defendant A. H. Carpenter, the parties fully and finally compromised and settled all controversies between them to the date thereof and released all claims against each other, and (3) that by their unequivocal acts and conduct the plaintiffs, with full knowledge of all attendant facts and circumstances, elected to enjoy the benefits of their investments and are, therefore, without right to the remedies herein sought.

We turn first to consideration of defendants' plea based upon the statutes of limitation. Section 413.120(12) of Kentucky Revised Statutes provides that an action for relief or damages on the ground of fraud or mistake shall be commenced within five years after the cause of action accrued, and section 413.130(3) provides that in an action for such relief the cause of action shall not be deemed to have accrued until the discovery of the fraud or mistake.

It is contended on behalf of the defendant that, although the original complaint was filed July 13, 1953, since the substituted complaint, which materially changed the relief sought, was not filed until May 12, 1954, the latter date should be considered as the date of the institution of the action now under consideration in respect to the application of the statutes of limitation. It is made plain in the pleading that the claims asserted by the amended and substituted pleadings arose out of the conduct, transactions and occurrences set forth or attempted to be set forth in the original pleading. Under Rule 15(c) of the Federal Rules of Civil Procedure, 28 U.S. C.A., the amended and substituted pleadings relate back to the date of the filing of the original pleading, July 13, 1953.

The Court of Appeals of Kentucky has frequently construed the provisions of the above statutes relating to the five year period of limitation and has uniformly held that if, from the time of the alleged fraud, the five year period is allowed to elapse, the plaintiff must allege and prove that the fraud was not only not discovered within the five year period, but that it could not have been discovered before the lapse of that period by the exercise of reasonable diligence. McCoy v. Arena, 295 Ky. 403, 409, 174 S.W.2d 726; Gragg v. Levi, 183 Ky. 182, 208 S.W. 813, and cases cited; Forman v. Gault, 236 Ky. 213, 32 S.W.2d 977; House v. Farmers State Bank, 269 Ky. 80, 106 S.W.2d 113.

It appears from the testimony introduced on behalf of the plaintiffs that their investments in the Maloney lease in Powell County and surrounding acreage, in the Logsdon lease in Hart County and surrounding acreage, in the C. C. Frazier lease in Powell County, and their investments in the Pilot area in Powell and Estill Counties, as a whole, and specific investments in leases embraced in the Pilot area, which were the Vanderpool, the Lula Laws, the Spencer and the Nelson leases, and all transactions and occurrences herein relied upon in respect thereto, took place in the years 1946 and 1947. During these years the plaintiffs frequently visited many of the areas in which they had made their investments and observed the progress and results of drilling operations. All the wells drilled upon these leases were completed and the results known long prior to 1948. Failure of Mr. Carpenter to satisfactorily account for any money advanced for the purchase of adjoining acreage, as well as his failure to make any assignments to the plaintiffs for fractional working interests in leases to which they claim they were entitled were matters well known to plaintiffs before 1948.

If any fraud was involved in any of these transactions, the plaintiffs have failed to disclose by proof any facts or circumstances which precluded them from discovering it by the exercise of reasonable diligence before the lapse of the five year period of limitation.

In Gragg v. Levi, 183 Ky. 182, 186, 208 S.W. 813, 814, the Court held plaintiffs' claim of mistake was barred for failure to sustain the burden of proof that the mistake was not discovered and could not have been discovered by the exercise of reasonable diligence until withing five years before the action was commenced and said: "Statutes of limitation are statutes of repose. Courts lend their aid to the vigilant, not to the slothful. One must act while the evidence covering the transaction is fresh and may be produced. Here one of the parties is dead; hence important evidence is hushed. There could be no better illustration of the reason for the rule and statute than furnished by the facts of this case."

This comment is especially applicable here for it appears from the record that in practically all of the transactions relied upon by the plaintiffs Joseph F. Shepperd was the active agent or representative of the defendant Carpenter. By his death, which occurred before the institution of this action, we are deprived of testimony as to many of the attendant facts and circumstances.

For the reasons indicated, we conclude that all claims of the plaintiffs resting upon and arising out of the transactions above referred to in 1946 and 1947 are barred by the Kentucky five year statute of limitation.

Moreover, on April 10, 1951, Dr. Terrill, together with other parties having fractional working interests in the so-called Pilot area, which by agreement had been converted into stock of the Mid-South Oil Company, entered into an agreement with the defendant A. H. Carpenter and Joseph F. Shepperd (now deceased) whereby, in consideration of the assignment by Carpenter and Shepperd of their stock in the Mid-South Oil Company to the treasury of the company to be thereafter allocated to Dr. Terrill and the other stockholders, and in further consideration that Carpenter and Shepperd release and relinquish certain claims which they held against the corporation, they effected a full and final compromise and settlement of all controversies between them and released all claims against each other. The language in this agreement seems to be clear, explicit and unmistakably applicable to the matters herein complained of in respect to the leases and transactions involving the Pilot area. The language indicates a purpose to make an end of every matter arising under or by virtue of those previous transactions. "If parties intend to leave some things open and unsettled, their intent so to do should be made...