Clark v. Wheatley , 281 F. 55 ( 1922 )

DENISON, Circuit Judge

(after stating the facts as above). For the purposes of this opinion, at least, we assume that there was substantial misrepresentation of fact by Wheatley, which gave Clark the right to elect either to rescind or to affirm and have a right of action for damages caused. This misrepresentation was, first, as to the production from the Eoomis wells, which production served as an indication of value in the nearby acreage which was being sold; and, second, as to the output of the three Wheatley wells, which showed existing value in the wells themselves, and also served as an indication of what might be expected in the vicinity. Before December 17th Clark discovered that as to the Eoomis wells he had been deceived, in that the representation made was two-thirds false. He says he fully understood that very likely the statements as to the Wheatley wells were proportionately exaggerated. In other words, he not only had reason to believe, but he did believe, that the output of both the Eoomis and Wheatley wells had been exaggerated by Wheatley in a way that must have been intentional deception or equivalent recklessness. Nevertheless, he thought, as he says, that, even if these three wells produced pnly a total of 20 barrels per day, his bargain, as a whole, was one he wished to keep. His counsel now Insist that he did not know that tírese three wells were worthless, and that, when he acquired knowledge that the fraud had gone to an extent thus far beyond what he had formerly supposed, he could maintain an action based upon the final complete disclosure.

For the purposes of this opinion, also, we may concede that, when we consider the right to recover damages for the fraud, as distinguished from the right to rescind, neither lack of diligence in discovering the fraud nor delay, short of the statutory limitation, in bringing suit therefor, is of any importance. We are not dealing here with a vendee’s mere election to affirm, and resulting waiver of his right to rescind, nor with that waiver of the right to sue for fraud which results from merely proceeding with an executory contract after knowledge of the fraud, but which waiver is rightly confined to the fraud of which the vendee then had knowledge (or, perhaps, should have had knowledge), and does not continue to bar the action when other fraud is subsequently discovered. Pryor v. Foster, 130 N. Y. 171, 29 N. E. 123; Estes v. Odom, 91 Ga. 600, 18 S. E. 355.

[1] We have here a case of accord and satisfaction. The contract itself was in no way separable, as between the different tracts, or as between production and prospects. If Clark was deceived as to the facts, he had a right of action. Whether he was deceived in one or two or three particulars, as to production or as to prospects, might affect his damages to be recovered in that action; but he did not acquire-a new right of action every time he discovered that the misrepresentation had been more extreme than he had supposed. We are not now dealing even with a case where the known and the later discovered frauds related to different parts of the same subject-matter. Clark says he assumed that there had been misrepresentation as to the output of the Wheatley as well as of the Loomis wells, and if he had brought an action then (December 17) he would doubtless have alleged deceit as to both.

Fully understanding he had this right of action, Clark voluntarily released it, in exchange for a new consideration satisfactory to him. The payment of the $13,000 was at least postponed until the next year, and, in addition to this mere postponement, it was evident that the payment might relatively be greatly delayed—as has happened by the great drop in the price of oil from 1920 to 1921—and also that it might be lost through being subject to the contingency of production extending over into 1921. The price Clark received was thus substantial as well as satisfactory; he cannot sell his action, and keep it, too. Neither could Clark’s cause of action for deceit be split, and a part of it be satisfied and the remainder continue to exist. Stark v. Starr, 94 U. S. 477, 485, 24 L. Ed. 276; R. C. L. “Actions,” § 22, note 17.

[2] We conclude, therefore, that in the face of his new contract Clark could not maintain an action for the additional damages which he might thereafter learn existed, because of additional deceits then unknown to him, but of the same character and pertaining to the same items. If there was material fraud still concealed from him when he made the new contract, that contract itself might be tainted, and his remedy would be to proceed to have that contract set aside. No such issue has been formally made in this case, and yet the claim that the bill should be dismissed, because Wheatley has comb into a court of equity to get its aid in carrying out a fraudulent contract, and the thought that Clark’s failure to proceed affirmatively to vacate his settlement ought not to prejudice him when the same situation arises defensively, lead us to very much the same point as if Clark had asked relief in this respect. True, Wheatley resorted to a court of equity; but he is, after all, enforcing a legal right. Apparently he could have sued Clark at law, as for conversion. It is only after balancing the equities of the parties in the whole transaction that a court of equity can decide whether the defendant’s are so dominant that the plaintiff ought to be denied its aid to enforce a legal right with which defendant had deliberately vested him.

In this balancing we discover, first, that the whole transaction was in a highly speculative field,' and both parties knew that they were dealing in the end with values which were almost guesswork. That an oil well has a stated production to-day is only a symptom of the value of the well and nearby acreage, and that a well has a settled production is, after all, largely a matter of' opinion. In such a field, the principles governing actions for deceit or the equitable rights of the parties may not be different from those in other fields; but their application calls for great caution. We next observe that, upon the whole transaction, Clark is not shown to have suffered any loss, but, so far as the record indicates, has made a large profit. This is not controlling, but it is important in deciding whether, in equity, Clark should be excused from his part of that contract which has brought him this profit, and that, too, after he had elected not to rescind, and so had kept Wheatley out •of a chance to get it. We next observe that, if Clark were appealing to equity to set aside his settlement contract, he would be called upon to explain why he did not proceed promptly. He waited at least six months after he. was fully informed before he made any complaint to Wheatley, and his explanation that he was waiting until he could bring the suit and make service in Kentucky is not wholly satisfactory for this purpose.

Finally, we cannot doubt that, when Clark made his accord and satisfaction, he was reasonably bound to know, and probably did anticipate, the full extent of the misrepresentation of which he later complained. He had no right to suppose that the misrepresentation as to the different wells was carefully confined to the same arithmetical basis. An immediate investigation as to the three Wheatley wells would have been the natural thing. Slight inquiry from those near by would seemingly have brought the information that these wells were non-producers. No reason appears why he could not have connected the wells with the Loomis power, as Wheatley had done, or supplied some other temporary power, for a little test pumping. His conduct strongly suggests that he did not wish to have more definite knowledge of the •extent of the deception, which might have led to his abandonment by his associates; but he preferred to go on with the enterprise on the chance that in the end it would turn out well. While his lack of diligence in discovering the full' misrepresentation may have no abstract bearing on his right of action for deceit, it does have a bearing upon his standing in a court of equity. Upon the whole, we think the aid of equity, to the extent now asked to carry out the settlement agreement, should not be refused.

[3] Clark’s complaint as to the 10-acre shortage is of another character, and we do not see that it is covered by the new contract. Under some circumstances, a good title to such a fraction of the acreage might be a vital thing, so that its absence might defeat the contract; but that is not asked here, and damages can be fairly well computed. There seems to be no reason for fixing the value of this acreage at less than $100 per acre, and Clark claims no more. He should therefore have a rebate of that amount, to be applied upon the $13,000. To that extent the decree below should be modified. In other respects it is affirmed.

The appellants will recover the costs of this court.