# Petition for Writ of Certiorari — Carpenter v. Glock (No. 889) > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386420_0956%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1960 ## Text mi IN THE NI PREME CART OF THE LITE STHTES hk visi r A H Carpenter. Et Al a v sneR Glock, Et-Al., Resnomdlents AH. Carpenter Et Al Pepitioners G A McDowell Et Al. Respondents A H. Cu.rpenter. Et Al. che a Petitioners Ciaude C. Johnson, ° Respondent A EK. Carpénter. Et rh Wg a Petitioners, Robert E. Johnson, . Respondent. lermy; Too A H. Curpenter. Et Al., Petitioners, Fs Ne 8 H. F., Garton, Respondent. i : A KH. Carpenter, Et Al. Petitioners, Dean Willams. Et Al.,’ Ss Sa li A. H ef rpenter Et Al. Petitioners ae ee RR. Calvert. Et Al. Resvondents. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT. ¥ THOMAS PD. SHU MATER, “HEMATE & SHUMATEL Vio A LROW ANDY, Questions Presented ... ............-- 0s eseeeeeees I. - Can . the ‘respondents recover the purchase prices paid for interests in oil and gas leases in ac- - ' tions of fraud, proving only the amounts so paid as the measure of damage, as common law actions, and also be permitted to retain the valuable interests so _ purchased, under the laws of the Commeqwenlth of a es ena suesene II. Can cian recover at common law in Kentucky on contracts induced by fraud where the _ sueeess or failure of the investments depend on _ future events, and when after full knowledge of the facts alleged, they ratified the contracts. by selling the gas cleus and receiving the proceeds there- | PAAPorererrrrs Trirrrrirert tite titre t TH. Can the respondents recover against the _ petitioners when they, after learning of the true analysis-of the gas, have executed sale orders to sell the gas and have continued to rom the gas and are now HE Ga a wana scttncdicedavecssesnencsdvevess . IV. Were the rights of A. H. Carpenter Vvio~ lated under the provisions of the Constitution of the United States and particularly the Fifth Amendment 13 15 18 ii thereof by permitting the respondents to retain the valuable properties he sold them and to recover from _ him the full purchase prices paid?....... Bahay tre Sa V. Since Dr. G. A. McDowell signed the same ‘PAGE release that was signed by Dr. R. W. Terrill on the - 15th day of April, 1951, long after he knew the true - analysis of the gas, are his actions herein barred against the petitioners as held in the case of Terrill | v. Carpenter, 143 F. Supp. 747, 249 F. 2d 142, and the eases therein referred to, when he testified to no facts — in avoidance of the release?......... puta. aa wales VI. Dr. H. F. Garton ‘plead an unconditional release after full‘knowledge of all of the facts and in - avoidance of it,’and the petitioners likewise alleged the release, and no evidence was introduced in avoid- ance of the release, and recovery is permitted by him; and why are his actions not barred by the pleadings! VII. The Statute of Limitations of Kentucky is. fully dealt with in the companion case of Terrill v. Carpenter aforesaid, and why was not the Statute of Limitations which was plead in all of these cases appliea in these cases as was applied in the Terrill NT bo vile wh ce eek hui ein 4kbad ince ckevensbeedne VIil. The discovery well was on the Garrett farm. The four producing gas wells in which re- spondents invested are located on the properties adjacent to the Garrett farm and are known as the Smyth, Wise, Wasson and Nicholas farms. Dry wells were drilled on the Wells and Hall leases ap- ' proximately seven miles from the producing wells. The Hall and Wells leases are shown to be north of the Irvine-Pitcairn fault litie, and the geological for- mations are shown not to be the same as the four producing properties, and there is no evidence of any representations concerning the Hall and Wells properties. By what legal authority did the court ‘refund the monies to respondents paid for interests in - Hall and Wells properties?................ ine 19 1g iii PAGE IX. Since the only grounds alleged for recovery _ in these cases is the quality of the gas as containing approximately 42 per cent carbon dioxide and some . sulphur, and it is shown that the market value of gas at the well head without such content was 15.cents per 1,000 British Thermal Units, per 1,000 cubic feet, . and the B.T.U. content of the gas was reduced by reason of: the CO, content and sulphur, and the re- - spondents appointed H. R. Witt their agent to sell the gas on a B.T.U. content basis, which is being sold by them at 9.39 cents per 1,000 cubic feet, why would a, not the respondents be limited to recover the differ- - - ence between 9.39 and 15 cents per 1,000 cubic feet or . §.61/15 part of the fair market value of these prop- ~ erties ‘as of the date of the investments, or at the most the same percentage of the purchase prices ' paid if the court should think the: purchase prices paid are a proper criterion for damages?........... 22 -X. How can the petitioners be charged with the depletion of the producing gas wells when it is alleged by the respondents that the wells were of tremendous volume and the rock pressure was 772 pounds which is proven by respondents’ expert wit- ness, W. B. Maxwell, to be normal?..............+- 26 XI. Have the respondents been damaged by rea- son of the quality. of the gas when it is shown in the record without contradiction that this gas is much. more valuable than 15 cents.per 1,000 cubic feet for the purposes for which it is being used, to repressure a large oil field in order to cause greater production itso aoa gles pi kedentelaresehe . ar 3 i 27 . Conclusion . . aioe: foe Pisce te ceene Tepe iv: Appendix— : | seen A~-Jadgmatit of the United States Court of Appeals for the Sixth Circuit..................000-005 29 B—Order of United States Court of Appeals for the | Sixth Circuit Court denying petition for rehear- ing and Order of the United States Court ‘of Appeals for the Sixth Cireuit denying cnpple- _ mental petition for rehearing...........0+++: 31 C—Opinion of the United States District Court’ for . the Eastern District of Kentucky, at Lexington. 32 D—Judgments of the United States District Court for the Eastern District of. Kentucky, at Lex- . GEN 6 0 6 ccsaspcessdacsven Oeesencaeees sce @ E_Opiaion of of.the United States District Court for ~ the Eastern District of Kentucky, at Lexington, in the companion case of Terrill v, Carpenter, 143 F. eed FOF, BOD Fp. BABAR, 5 neces ecticreccnss 57 CITATIONS. Cases: a . ; Buchanan v. Warley, 245 U. S. 60................ "18 Bunch v. Bertram, 219 Ky. 848, 294 S. W. 805:.... 24 ~ Cox.v. Riggins, 223 Ky. 570, 4S. W. 2d 403........ 14, 17 Dolle v. Melrose Properties, Inc., 252 Ky. 482, 67 Dh eee a aNcoececnusteneat Sar ee Trae de 14 Dunn, et ux. v. Tate, 268 S. W. 995 pe eer ene 14,17 _Elbidge v. Steelwagon Mfg. Co., 279 U.S. 841...... 24° Elesey v. Lampkin, 162 S. W. 106, 156 Ky. 836...:. 24 Engemann. v. Allen, Trustee, 201 Ky. 483.......... 21° - Farquhal v. Hensley, 275 U.S. 561........ ‘eaeuees 24 Hampton v. Suter, 330 S. W. 2d 402....... Pee ee 15, 16, 17 Hartford Life Ins. Co. v. Hamblin, 139 Ky. 346, 104 2 fe ee eneseeisanntneucubaaekessnue os 14: a . Se Hie Sd 7 ea” : , “Johns v. Masterson, 176 Ky. 399, 195 S. W. 819. . 14 Kentucky Electric Development Co.’s Receiver - Vv. Head, 252 Ky. 656, 68 S. W: 2d 1...... taemieaen 14 Kentucky Utilities Co. v. Consolidated Telephone Co., 953 &, W. Bd 487. x 02 age cet qecccccccccsccs 24 Lynch v. United States, 292 U. ‘S. 571. rat Seas Sameera 18 Nunn v. Howard, 288 S. W. 678, 216 Ky. 685....... 24 Sanders v. Chesmotel, 300 S. W. 2d 939........... 25 Sighuf v. Porter, 179 U.S. 116...............005- 24 Sparks v. Baker, 272 Ky. 663, 114 S. W. 2d 1145.. “5 Summers v. Carpenter, 156 Ky. 237, 160 S. W. 1064, 14 Terrace v. Thompson, 263 U.S. 197...... powers 18 Terrill v. Carpenter, 143 F. Supp. 747, 249 Fr 2d MC ke sadcbednxesucdeen’ 2, 3, 4, 5, 8, 10, 12, 19, 21, 22 - Western eben Telegraph Co. v. Guard, 283 Ky. Mea, 139 B. W. 2d 722.2... eet eee eee eee ee eee eee Statutes: Kentucky Revised Statutes, Sections 413.120 and. BIZ.1DD 2 2. ccc ce cece cece cece cnccccsccecees 7, 20 Miscellaneous: ! , American Jurisprudence, Septions 334 and’ 330, pages 1143-1147 .... 1. cece cee ewww cee e eens 18 Constitution of the United States, and particularly the Fifth Amendment thereof................ 3, 4, 18 A. H. CARPENTER, Et AL., “Wayne R. Giock, Er AL., A: H. Carrenter, Er AL., . G. A. McDowett, Er AL, A. H.- CARPENTER, Et AL., CLAUDE.C. JOHNSON, A. H. Carpenter, Et Au., _ Rosert E. JoHNson, a . A. H. Carpenter, Er Au, | H. F. Garton, ~+ A. H. Carpenter, Er A, Dean Wituiams, Et AL., A. H. Carpenter, Er AL., | R. R. -Cavert, Er AL., ‘Supreme Court of ‘he United States : October Term, 1960 -. Respondent. - Petitioners, | Respondents. Petitioners, Res pondents. Petitioners, Petitioners, : ‘Res pondent. Petitioners, Respondent: ° Petitioners, Res pondents. Petitioners, . Respondents. - PETITION FOR A WRIT OF CERTIORARI TO THE | UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT. A. H. Carpenter and Margaret L. Carpenter pray that a writ of certiorari issue to review the judgments of the United States Court of Appeals for the Sixth Circuit, entered on January 13, 1961, in the proceed- » ings entitled as follows: A: H. Carpenter, et al. ¥. Wayne R. Glock, et al.; A. H. Carpenter, et al. v. G. A. McDowell, e¢ al.; A. H. Carpenter, et al. v. Claude C. Johnson; A. H. Carptenter, et al. v. Robert E. Johnson; . A. H. Carpenter, et al. v. H. F. Garton; A. H. Car- penter, e¢ al. v. Dean Williams, et al.; and A. H. _ Carpenter, et al. v. R. R. Calvert, et al. OPINIONS BELOW. The opinion of ‘the Unitéd States Court of Appeals for the Sixth Circuit is printed as Appendix A hereto. It has not been officially reported. The order of the United States Court of Appeals for the Sixth Circuit denying the petition for rehear- ing, dated. March 10, 1961, and the order of said court denying the supplemental petition for rehearing, dated March 13, 1961, are printed as Appendix B hereto. The opinion of the United States District Court for the Eastern District of Kentucky, dated Jan- uary 6, 1960, is printed as Appendix C hereto. It is’ officially reported in 184 F. Supp. 829. 4 ig - : ’ | PF 3 The opinion in the companion case of Terrill v. Carpenter is printed as Appendix E hereto, and is officially reported in 143 F. Supp. 747, 249 F. 2d 142. (Mr. Justice Potter Stewart sat in: this case with Judges Allen ‘and McAllister.) JURISDICTION. - The judgment of the United States Court of Ap- peals for the Sixth Circuit was entered on January 13, 1961. The order of said court denying the petition for rehearing was entered on March 10, 1961, and the order — of said court denying the supplemental petition for. rehearing was entered on March 13, 1961. The order of said court staying the issuance of mandate for 30 days for time to make petition for writ of certiorari was entered on March 22, 1961. The aggregate amount of the judgments, interest, penalty and costs. against the petitioner, A. H. Car- . penter, is approximately $120,000.00. — The jurisdiction of this Court is invoked under 28 U.S. C. 1254(1) and 2101(c) and the Fifth Amend- ment to the Constitution of ™ United States. QUESTIONS PRESENTED. I. Can the respondents recover the purchase prices ‘paid for interests in oil and gas leases in actions of fraud, provirig only the amounts so paid_as the measure of damages, as common law. actions, and also be per- _ mitted to retain the valuable interests so purchased, under the laws of the Commonwealth of Kentucky? | 4 II. Can respondents recover at common law in Kentucky on contracts induced by fraud where the success or failure of the investments depend on future events, and when after full knowledge of.the facts alleged, they ratified the contracts by selling the gas produced and‘ receiving the proceeds therefrom? III... -Can the respondents recover against the peti- tioners when they, after learning of the true analysis of the gas, have executed sale orders to sell the gas and have continued to sell-the gas and are now doing so? IV. Were the-rights of A. H. Carpenter violated under the provisions of the Constitution of the United States and particularly the Fifth Amendment thereof by permitting the réspondents to retain the valuable properties he sold them and to recover from him the fyjl purchase prices paid? V. Since Dr. G. A. McDowell signed the same release that was signed by Dr. R. W. Terrill on the - 15th day of April, 1951, long after he knew the true analysis of the gas, are his actions herein barred against the petitioners as held in-the case of Terrill vy. Carpenter, 143 F. Supp. 747, 249 F. 2d 142, arid the eases therein referred to, when he testified to no facts - ' in avoidance of the. release 4 VI. Dr. H. Garton plead an unconditional re- ~ _ lease after full knowledge of all of the facts and in avoidance of it, and the petitioners likewise alleged . the release, and no evidence was introduced in avoid- ance of the release, and recovery was permitted by -him; and why are his actions not barred by the pleadings ? ‘ .d _ ‘ “~ : + * & VII. The Statute of Limitations of Kentucky is. * fully dealt’ with in the companion case of Terrill v. Carpenter aforesaid, and why was not the Statute of Limitations which was plead in all'of these actions © applied -in these cases as was applied in the Terrill | * case? VIII. The discovery wWéll was on the Ranvett farm. The four producing gas wells in which respondents | invested are located on the properties adjacent to the Garrett farm and are known as the Smyth, Wise, Wasson and Nicholas farms. Dry wells were drilled on. the Wells and Hall leases approximately seven miles from the producing wells. The Hall and Wells © leases are shown to be north of the Irvine-Pitcairn fault line, and the geological ‘formations are shown not to be the same as the four producing properties, and there is no evidence of any representations concerning the Hall and Wells properties. By what legal au- thority did the court refund the monies to respondents a paid for interests in the Hall and Wells properties? IX. Since the only grounds alleged for recovery in these cases is the quality of the gas as containing - approximately 42 per cent carbon dioxide and some sulphur, and it is shown that the market value of gas at the well head without such content was 15 cents per 1,000 British Thermal Units per 1,000 cubic feet, and the B. T. U. content of the gas was reduced by reason of the CO, content and sulphur, and the respondents appointed H. R. Witt their agent to sell the gas on a B. T. U. content basis, which is being sold by them at 939 Gents per 1,000 cubic feet, why would not the’ 6 respondents be limited to recover the difference between 9.39 and 15 cents were 1,000 cubic feet or 5.61/15 part ‘of the fair market value of these properties as of the date of the investments, or at the most the same per- centage of the purchase prices paid if the Court-should ~ think the purchase prices — are @ proper criterion _ for damages? 3 ~ +e, How can the petitioners be charged with the depletion of the producing gas wells when it is alleged by the respondents that the wells. were of tremendous volume and the rock pressure was 772 pounds which is proven by respondents’ expert witness, W. B. Maxwell, % be normal ? : “ ' XT. Have the respondents been auanait by rea- son of the quality of the gas when ‘it is shown in the record without contradiction that this gas is much more valuable than 15 cents per 1,000 cubic feet for the purposes for which it is being used, to repressure a large oil field in order to cause greater production of oil? . ' STATUTE INVOLVED. . Kentucky Revised spite Sections 413.120 and > 413.130: | ~ “*413.120. Actions to be brought within Five Years. ‘‘The ' following actions shall be commenced within five years after the cause of action acerued : ~ a, « oa * a * * **(12) An action for relief or damages on the ground of fraud or mistake.”’ j “413.130. . When certain actions in KRS © 413.120 accrue; regulations for. . * * « * ms * ‘©(3) In an action for relief or damages for - fraud or mistake, referred to in subsection (12) » of KRS 413.120, the cause of action shall not be. deemed to have accrued until the discovery of the ‘fraud or mistake... However, the. action shall be commericed= within ten years after the time of making the contract or the perpetration of the fraud.’’ ; oe STATEMENT. a“ This petition seeks review ‘of-judgments of the United States Court of Appeals for the Sixth Circuit affirming the judgments of the United States District Court for the Eastern District of Kentucky | at Lex- -ington, Kentucky which rendered judgments” “against the petitioners. * This petition deals with seven cases containing many different issues, and we ask the indulgence of “Ge , P| a. 8 : . this Court for the length of this petition as we are unable to state the material facts and issues in briefer terms. These actions were commenced by the respondents on dates as follows: Wayne-R. Glock, et al. ......... July 3, 1953 -G. A. MeDowell, et.al. ..........July 18, 1953 Claude ©. Johnson. ..... sssee+ July 27, 1953 = — Robert E. Johnson............: July 27, 1953 H. F. Garton..,...... ae 1953 Dean. Williams, et al. .:........February 1, 1954 © R. R. Calvert, et al. ........ '....February 5, 1954 -” We will refer to each case by the last name of each. respondent. These actions were instituted to recover _ the purchase prices of oil and gas leases, in the be- ginning as equitable actions without a tender back of the interests they purchased. The ease of Terrill v. Carpenter, 143 F. Supp. 741, 249 F, 2d 142, is a companion case to the cases at bar, and it was first tried by the United States District Court for the Eastern District of Kentucky and re- coveries denied, which was affirmed by the United ‘States Court of Appeals for the Sixth Circuit and reported/ After the decision in the Terrill case, substituted complaints were filed in these cases seeking recoveries’ ‘for the purchase prices paid, and the name of the actions were changed from equitable to common law — which actually did not change the nature of the actions. The district court rendered judgments for the full purchase prices paid and let ‘the respondents retain © 9 the valuable seuiuitin so purchased which violates . the rights of the petitioners guaranteed to them by the . Constitution of the United States and-especially the Fifth Amendment thereto as depriving the petitioners . of their property without due process of law. / The basis for federal: jurisdiction in the district court was 28 U. S. C., Sections 1332-and 2201, the __petitioners being .citizens of the Commonwealth of : Kentucky and the respondents being citizens of the State of: Indiana, being diversity of citizenship cases _ ~ and the amounts in controversy in each case exceeding ‘exclusive of interest and ‘costs, the sum of $3,000.00. From adverse judgments of the district court the petitioners appealed to the United States Court of : Appeals for the Sixth Circuit, and said judgments FACTS. were affirmed by said-vourt. The sole grounds alleged in the complaints as fraudulent concerned the quality of the gas. They alleged the gas wells when drilled were of tremendous volume and on account of approxifhately 42 per cent - of the gas being carbon dioxide (CO.) and some sul- ° phur that the gas could not be turned directly into the pipe lines at the market price which was 15 cents per thousand British Thermal Units per one thousand cubie feet,-and that the petitioner, A. H. Carpenter, knew the contents of the gas of the discovery well ' which was adjacent to the Smyth, Wise, Wasson and Nicholas farms at the time he sold interests to re-° - -10 = spondents and the tikelihood_of- the gas under vail adjacent farms being of the same quay as Cnt on the Garrett. well.. The only distinguishing feature between in cases -and the Terrill case is the fact that Carpenter knew | of the analysis of the gas of the Garrett well before selling interests to therespondents in the adjacent leases and the probability that the four adjacent prop- erties would produce the same kind of gas. The hold- ings of the court in these cases are in direct conflict with the holdings in the Terrill case, — m nee reflects the laws of Kentucky. Recoveries were permitted in the Hall and Wells - leases which were shown without contradiction to have been drilled over six and a half miles from the pro- ducing wells and north of the Irvine-Pitcairn fault — ' which is shown to divide the surface of the earth to the — granite or true earth, and shown by reputable geologists without contradittion to not be upon the same geo- logical formations as the Garrett property and those properties containing the four producing wells. The .Garrett and the properties with the four producing. wells are shown. to be south of the fault line. © | ” The Garrett wel was drilled in the Fall of 1947, and thereafter interests were sold in the oil and gas leases containing the productive wells adjacent to the Garrett property and thereafter i in the Hall and Wells leases aforesaid. After the petitioners and respondents examined the costs of a separation plant to sell the commercial gas an on the market and to manufacture dry ice out of the CO, content of the gas and to market the sulphur con- tent, after respondents learned of the true analysis of the gas, which was in December 1948 and the fitet days of January 1949, in the early part of 1952 they executed powers of attorney to H. R. Witt, a petroleum | engineer, who also had interests in the gas wells, to sell this gas at the well-head in accordance with the B. T. U. content of the gas-at the rate of 15 cents pere 1,000 B. T. U. per 1,000 cubic feet; and since that time they have been selling the gas from these four producing . gas wells at 9.39 cents per 1,000 cubic feet, and same . is being purchased and used to repressure a large oil field near these properties by the Gulf Oil Corporation — which owns productive wells in the vicinity. All of the investments by the respondents in the four producing gas wells and in the Hall and Wells leases | were made in the year 1948. Some representa- tions were proven as to the four producing gas wells as to the quality of the gas, but none of the respondents testified that any representations were made before ' their investments in the Hall and Wells tracts. Non- - productive wells were drilled on the Hall and Wells tracts after the completion of the four gas producing wells. The petitioners filed their answers denying the fraud, pleading the five-year Statute of Limitations of the Commonwealth of Kentucky and alleging that in 1952 the respondents executed powers of attorney to Mr. Witt to sell the gas on the B. T. U. basis and had been selling same continuously since that time and a 12 by virtue thereof they ratified the contracts and con- _ doned any fraud that existed and were estopped to maintain these actions. In addition thereto in the — MeDowell ease the petitioners plead the unconditional Telease, which same release was signed by Terrill, as a bar to his actions, and which release was expressly upheld in the Terrill case. In the Garton case the respondent plead the execution of an unconditional release and in avoidance of it, and the petitioners also set up this release in their defensive pleadings, and | no evidence was introduced in avoidance of-the release, which burden of proof was upon Garton, and the release so- plead by both parties is not identified as being the release signed by Terrill and McDowell, but the district court gave judgment to hapa regardless of these — _ REASONS FOR GRANTING THE WRIT. The Distgict Court for the Eastern District of Kentucky, affirmed by the Sixth Circuit Court’ of Appeals, has not correctly applied the laws of the _Commonwealth of Kentucky material to the issues pre- sented in these cases, and fhe judgments award to the respondents the purchase prices paid, crediting same . only with the amount of the proceeds from the gas as | received by them to the approximate date of the judg- — ments, and permitting them to retain their valuable interests in the four producing gas properties, thereby depriving the petitioner, A. H. Carpenter, of his prop- | erty without due process of law secured to him by the . : . ee I eee ee ee ee ee ae ey _ 13 Constitution of the United States and especially the Fifth Amendment thereof. The evidence discloses without contradiction that the respondents were owed for approximately 30,000,000 cubie.feet of gas by Mr. H. R. Witt, their trustee, which had not been paid by the Gulf Oil Corporation to the - trustee at the time of the judgments, and no credit was given for the amount owing by the Gulf Oil © Corporation. . The district court in the opinion states that the gas had little commercial value, but the court did not take into consideration that the gas had value. The word ‘‘commercial’’ was defined in the proof by geologist W. B. Maxwell as gas ready to turn into the lines for | poe re 2 ARGUMENT OF THE CASE. I. Can the Respondents Recover the Purchase Prices Paid for Interests in Oil and Gas Leases in Actions of Fraud, Proving Only the Amounts so Paid as the Measure of Damages, as Common Law Actions, and Also Be Per- mitted to Retain the Valuable Interests so Purchased, Under the Laws of the Commonwealth of Kentucky? In Kentucky it is definitely settled that in actions for fraud where the purchase price is sought to be recovered, same are rescission actions and .must: be brought within a reasonable time after the discovery of the fraud, and any act of the vendee inconsistent with the ownership of the vendor thereafter ratifies the fraud, and the vendee is thereafter estopped to main- 14 | tain the action. It is further held without contradic- tion that in all such cases the property received must _ be tendered back with the complaint. Cox v. Riggins, 223 Ky. 570, 4S. W. 2d 403;.Dolle v. Melrose Properties, Inc., 252 Ky. 482, 67 S. W. 2d 706; Johns v. Masterson, 176 Ky. 399, 195 S. W. 819; Ken- ~ tucky Electric Development Co.’s Receiver v. Head, 252 Ky. 656, 68 S. W. 2d 1; Summers v. Carpenter, 156 Ky. 237, 160 S. W. 1064; Hartford Life Insurance Co. v. Hamblin, 139 Ky. 346, 104 S. W. 727. | The district court in its opinion referred to Dunn et ux v. Tate, 268 S. W. 925, as contrary to the rule in the cases aforesaid. In that case an action was sought to recover damages by reason of false representations that the house was water tight and the roof ai.d the basement did not leak. However, in that opinion the previous cases referred to herein were distinguished on the ground that the previous cases being for the ‘purchase price paid were in fact rescission cases re- ~gardless of whether they were called equitable or com- mon law cases. The case of Dunn v. Tate was not a case for any part of the purchase price paid. It is stated in the Head case, which is the law of Kentucky, as follows: ‘“Where frand had been communal in the ob- taining of a contract, it may be taken advantage of in two forms: (1) By an affirmance of the con- ° tract and a recovery of damages for the injury; (2) by a disaffirmance of the contract and a re- _ eovery of the thing parted with as the considera- tion. By the latter, the contract is treated as a 15. nullity. This mode can only be adopted upon certain terms; those terms.are: That he surrender or tender a surrender within a reasonable time to the other contracting party the thing which he has , received under the disaffirmed contract. He is not permitted to hold onto the thing which he has received and successfully effect a restoration. of the thing which he has parted with under the contract.’’. To the same effect is Sparks v. Baker, 272 Ky.. 663, 114 S. W. 2d 1145. II. Can initiate Recover at Common Law in Ken- tucky on Contracts Induced by Fraud Where the Success — . or Failure of the Investments Depend on Future Events, and When After Full Knowledge of the Facts: Alleged, They Ratify the Contracts by Selling the Gas Prodnoed and Receiving the Proceeds Therefrom? This can not be done under Kentucky law,. and we refer the Court to the recent case of the Court of Appeals of Kentucky decided February 2, 1960, being _ the case of Hampton v. Suter, reported in 330 S. W. 2d 402, which contains the‘last utterance of the Court ’-of Appeals of Kentucky relevant’ to the issues pre- ‘ sented in these cases. -We quote from that opinion _ as follows: ‘Fraud inducing a contract may be waived by: . -affirmance that is equivalent to-ratification of the. contract by the party who claimed to have been de- - ceived into entering into it. That ratification may be.shown by his acts after he acquired full knowl- ' edge of the real facts and had shown a clear intent . 16 to affirm the contract despite the fraud, as where he accepted the benefits thereof or acted in a man- ner inconsistent with repudiation. The intention may be in part shown by a failure to act promptly to repudiate the transaction. 17 C.J.S. Con- tracts See. 165b; 24 Am. Jur., Fraud and Deceit, Sec. 209; Cox v. Riggins, 223 Ky. 510, 4 S. W. 2d 403; Gargotto v. Sherman, 297 Ky. 597, 180 S. W. 2d 565; Barrowman Coal Corp. v. Kentland Coal & Coke Co., 302 Ky. 803, 196 S. W. 2d 428, ‘Ordinarily, one claiming to have been de- frauded into making a contract has an option either to disaffirm the contract and seek its rescission or to affirm the contract and seek his remedy by an action for damages; he may not follow inconsistent remedies: Webb v. Verkamp Corp., Ky., 254 S. W. 2d 717. He has but one election, and if he affirms the contract, his election is irrevocable and he condones the fraud. Perkins v. Jackson, 276 Ky. 217, 123 S. W. 2d 247. The inconsistency of the prayer-of the complaint in - the instant case does not seem to have been challenged. | “It is readily apparent that the plaintiff was not entitled to a rescission of the contract for he - did not move promptly and was unable to restore the consideration for the contract, or the status - quo ante of the business purchased. So, we are concerned only with the question of whether or not the plaintiff was entitled to a judgment for dam- ages by the court or the submission of the issue ._ to a jury on the ground of failure of eonsideration. . “The rule of waiver of fraud and ratification of a contract may be applicable to an action for — damages for breach of the contract as well as to — % 17 a suit to rescind. Hampton accepted the fraudu- lentl: induced contract relating to the Buick agency as fulfilling the consideration requirement and could not await the result of the adventure and then repudiate it. In Summers v. Carpenter, 156 Ky. 337, 160 S. W. 1064, it was held that a party claiming to have been induced by fraud to enter into a contract of purchase of property had ‘ waived his right of action for damages by his acts ~ and conduct after. having discov ered the alleged fraud. ne It will therefore be observed: (1) That any actions for the purchase price paid as the result of fraud are rescission cases. _ (2) Where the success or failure of an investment depends upon future events, the person defrauded | ‘ondones the fraud in those cases where he learns of the fraud and abides by the contract instead of dis- affirming it within a reasonable time after learning of . the fraud. The Hampton case aforesaid reaffirms the law in Cox v. Riggins which was cited with approval in the Terrill opinion. The case of Dunn v. Tate does not | overrule that ease but distinguishes it, but the Hampton ease reaffirms it and the other cases herein referred to. 18 III. Can the Respondents Recover Against the Peti- _ tioners When They, After Learning of the True Analysis of the Gas, Have Executed Sale Orders to Sell the Gas and Have Ocntinsed to Sell the Gas and Are How Doing So? We respectfully submit they can not as discussed under aac two previous headings. IV. Were the Rights of A. HL Carpenter Violated Under the Provisions of the Constitution of the United States and Particularly the Fifth Amendment Thereof by . Permitting the Respondents to Retain the Valuable Prop- erties He Sold Them and to Recover From Him the Full Purchase Prices Paid? This question was raised in the United States Court of Appeals for the Sixth Circuit. We submit that in these cases the valuable properties of Mr. Carpenter were permitted to be retained by the respondents’ and they recovered the purchase prices paid, credited. with - the amounts received from gas as aforesaid. The con- . siderations they paid have been restored to them; and they have been permitted to keep the properties. We refer the Court to 11 American Jurisprudence, Sections 334 and . 335, pages 1143-1147, inclusive; Terrace v. Thempson, 263 U. S. 197; Buchanan v. Warley, 245 U. S.- 60; Lynch v. United States, 292 U. S. 571. | av Rw’, WS ln adalat, NRE NLR Al ALN MaR i 208 Nl ey - 19 V. Since Dr.'G. A. McDowell Signed the Same Release That Was Signed by Dr. R. W. Terrill on the 15th Day of April, 1951, Long After He Knew the True Analysis of the’ Gas, Are His'Actions Herein Barred Against the Peti- tioners as Held in the Cake of Terrill v. Carpenter, 143 F. Supp. 747, 249 F. 2d 142; and the Cases Therein Referred - to, When He Testified to No Facts in Avoidance of the Releasé? The holding of the district court and that of the Sixth Cireuit Court of Appeals is not understandable to us beeause this release was expressly upheld in the Terrill case as releasing all claims. This release was executed long after all of the investments were made - by the respondents and after fh knowledge of the “quality of the gas. We refer the Court to the Terrill case co omnia this release. . VI. Dr. H. F. Garton Plead an Unconditional Release After Full Knowledge of All of the F and in Avoidance. of It, and the Petitioners Likewise the Release, ¢ and No Evidence Was Introduced in Avoidance of the Re- lease, and Récovery Is Permitted by Him; ae ew Ane His Actions Not Barred by the Pleadings? There was no evidence introduced concerning the release of Dr. Garton, and it is not identified as ‘the same release signed by Drs. McDowell and Terrill. How: can lawyers practice law when they can not rely upon the pleadings in the case? This was brought'to the attention of the district court and to the circuit. court of appeals, and we were unable to get any action on it. We raised these questions in our motion and _ 20 grounds for new trial in the district court and the two _ additional briefs were prepared in that court as well as the release signed by, McDowell and Terrill. VII. The Statute of Limitations of Kentucky Is Fully Dealt With in the Companion Case of Terrill v. Carpenter Aforesaid, and Why Was Not the Statute of Limitations Which Was Plead in All of These Cases Applied in These Cases as Was Applied in the Terrill Case? A large number of the claims of the respondents © are batred by the five-year Statute of Limitations of Kentucky. It is shown in the record without contra- diction that Dean Williams and Dr.,R. R. Calvert instituted their actions TA February 1954, and not only more than five years after their investments but more than five years after the discovery of mete true quality of the gas. There is no evidence shown by any of the nag: . - ents of any diligence, and we refer the Court to the ‘Terrill opinion which correctly sets forth the law in ‘Kentucky construing the Statute of Limitations but which case was not followed in the cases at bar. 21 * ° VIII. The Discovery Well Was on the Garrett Farm. The Four Producing Gas Wells in Which Respondents Invested Are Located on the Properties Adjacent to the Garrett Farm and Are Known as-the Smyth, Wise, Wasson _ and Nicholas Farms. Dry Wells Were Drilled on the Wells and Hall Leases Approximately Severt Miles From the Pro- ducing Wells. The Hall and Wells Leases Are Shown To Be North of the Irvine-Pitcairn Fault Line, and the Geo- logical Formations Are Shown Not To Be the Same as the Four Producing Properties, and There Is No Evidence of Any Representations Concerning the Hall and Well Prop- ~ erties. By What Legal Authority Did the Court Refund the Monies to Respondents Paid for Interests in the Hall — and Wells Properties? ‘Again we refer the Court to the Terrill opinion which refers to the case of Engemann v. Allen, Trustee, 201 Ky. 483, 484, which holds.that any representations concerning the continued production of oil and gas or whethey or not the drilling of a well will produce oil . and gas are not material representations because one alleged to be defrauded must know that such repre- sentations could not be true and must know that there is no way of ascertaining the continued production. of oil and gas’ or whether or not the drilling of a well will produce oil or gas and such representations could not be relied upon. The Terrill opinion deals exhaus- tively with this issue. : If the decision with regard to the Hall and Wells tracts stands, the respondents could have recovered for interests in oj] and gas leases sold located anywhere. The wells were drilled on the Hall and Wells tracts 992 en for oil, and the Hall well was drilled to the granite which cost Mr. Carpenter approximately ; $75,000.00. The locations for the wells on these two tracts were made by the chief geologist of the Cali- fornia Company, a large producing corporation of the Standard Oil group, which corporation had large number of leases north of the fault line and wanted those test wells drilled. IX. Since the onty Grounds Alleged for Recovery in These Cases Is the Quality of the Gas as Containing Ap- proximately 42 Per Cent Carbon Dioxide and Some S8ul- phur, and It is Shown That the Market Value of Gas at - the Well Head Without Such Content Was 15 ‘Cents Per 1,000 British Thermal Units Per 1,000 Cubic Feet, and the B.T.U. Content of the Gas Was Reduced by Reason of the CO, Content and Sulphur, and the Respondents Appointed H. R. Witt Their Agent to Sell the Gas on a B.T.U. Content Basis, Which Js Being Sold by Them at 9.39 Cents Per 1,000 Cubic Feet, Why Would Not the Respondents Be Limited to Recover the Difference Between 9.39. and 15 Cents Per 1,000 Cubic Feet or 5.61/15 Part of the Fair Market Value of These Properties as of the Date of the Investmentaz or at the Most the Same Percentage of the ‘Purchase Prices Paid if the Court Should Think the Pur- chase Prices Paid Are a Proper Criterion for Damages? The respondents proved no measure of damages but only the amount ‘of money they paid for these prop- erties. The petitioners introduced evidence showing the difference between the fair market value of these properties as of the date the interests were sold to the respondents containing the quality of gas ready to turn 23 into the pipe line for publie consuiiiption ond with the - gas as actually analyzed. It is shown by such evidence that there is no difference in the fair market value of these properties due to the fact that the gas is more -valuable than commercial gas for repressuring oi! wells and has a greater market value than 15 cents per 1,000 cubic feet. . The evidence of Mr. Groppe, one of. the” great experts in the country, disclosed that this gas for the purposes for which it is being used is worth in excess of one dollar per 1,000 cubic feet because carbon _ dioxide is more valuable than the methane gas by rea- | son of the fact that it does not disintegrate and can be resacked and reused while methane gas tims a tend- ency to liquefy. . It is established. in this record without. euntiallie- tion that there is a market for all of this gas-in. the adjacent oil fields, and it is being marketed and sold by the respondents for reuch less than it is worth. The Court of Appeals of Kentucky applies the rule as.to damages which can be best measured. Ip the case of Western Union Telegraph Co. v. Guard, 283 Ky. . 187, 1389'S. W. 2d 722, it is stated that one is entitled to compensation for the injuries. sustained but. is not to be placed in a better position than he would have | been had the wrong riot been done, that only such dam- 7 ages are’ recoverable for a tort as can be shown with reasonable certainty and‘as are the direct natural and proximate consequences of the defendant’s wrongful act. - 24 We further refer the Court to Kentucky Utilities _Co. v. Consolidated Telephone Co., 252 S. W. 2d 437, which is anothér case of conforming damages. _Another case of conforming damages is the case of Nunn v. Howard, 288 S. W. 678, 216 Ky. 685, wherein the Court held that where it was represented that a well on the land had lasting and good water that the measure of damages was the cost of drilling another well. It appears this Court follows this. rule. Sighuf v. Porter, 179 U. S. 116; Smith v. Bowles, 132 U. S. 125; Elbidge v. Steelwagon Manufacturing Co., 279 U. S. 841; Farquhal v. Hensley, 275 U.S. 561. Cases in Kentucky adopting the measure of dam- ages as the difference between the fair market value of the property as represented and as it was are: Elesey v.’ Lampkin, 162 S. W: 106, 156 Ky. 836, that the damages for concealment ofa cemetery on the farm . was held to be the difference between the fair market value of the farm without the cemetery and with it; Bunch v. Bertram, 219 Ky. 848, 294 S. W.. 805, that the measure of damages for representations that the basement did not leak was the difference in the fair | market value of the property as represented and as was. ey . The district court in effect charged Carpenter with the depletion of the, producing wells, and we submit this was error. The wells had depleted more than the usual gas wells. The question material here is what - damages have been sustained by the respondents by reason of the quality of the gas. If we were to con- 25 cede, which we do not, that the gas ‘is being sold at ‘a fair price, the only damages recovefable by the re- spondents would be the difference between 9.39 cents per 1,000 cubic feet and 15 cents per 1,000 cubic feet, which would be, as we contend, 5.61/15 part of the fair market value of these properties as of the date of the investments or of the purchase price paid for _ these producing properties. Indeed this would be the proper measure of damages by reason of the CO, and sulphur content of the gas. Surely, the respondents should not be permitted to recover the purchase prices paid and be permitted to keep the properties. Such holding is not understandable to us. Conforming dam- _ages should be applied in these cases as same can be applied with certainty. The district court referred to the case of Sanders %. Chesmotel which involved new personal property, and the measure of damages as to new personal property © is different from used personal property and real estate transactions. The court there permitted a recovery of the purchase price paid but credited the fair market value of the’ air ‘conditioners against the purchase price. There is no: case in Kentucky whereby one can recover the purchase price for real estate on the grounds of misrepresentation except. in rescission cases, and in those cases the property must be tendered back and a disaffirmance of the contract within a rea- sonable time after the discovery of the fraud. 26 X. How Can the Petitioners Be Charged With the De- pletion of the Producing Gas Wells When It Is Alleged ‘by the Respondents That the Wells Were of: Tremendous Volume and the Rock Pressure Was 772 Pounds Which Is Proves! by Respondents’ Expert Witness, W. B. Maxwell, To Be Normal? If the opinion and judgments in these cases are permitted to stand, the vendor of oil properties would be charged with warranting the future production of the properties. These producing wells were of large volume with a normal rock pressure, and surely this Court will not permit Mr. Carpenter to be — ‘with the depletion of the wells. The only ground relied upon in the eomplaints of the respondents is the quality of the gas and not the volume nor future production of the gas. XI. Have the Respondents Been Damaged by Reason of the Quality of the Gas When It Is Shown in the Record Without Contradiction That This Gas Is Much More Valu- able Than 15 Cents Per 1,000 Cubic Feet for the Purposes ‘for Which It Is Being Used, to Repressure a Large Oil Field in Order to Cause Greater Production of Oil? Mr. Henry Groppe, a chemical éngineer of Houston, Texas, arhong whose clients are the large pipe lines transporting gas from the southwest to the Eastern part of the United States, testified that the gas in the four producing wells which had a market in the oil fields for repressuring oil wells was actually worth more than one dollar per 1,000 cubic feet for the rea- .sons previously stated herein. s OT -CONCLUSION.. " For the foregoing reasons, the Petition for a Writ * of Certiorart should be granted. - Respectfully submitted, THomas D. SHUMATE, SHuMaTE & SHUMATE, _ Irvine, Kentucky, M. A. Rowapy, Winchester, Kentucky, Attorneys for Petitioners --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386420_0956%3A2. Public record. Not legal advice.