Schlegal v. Moorhead

Brief Fact Summary. Individual 1 agreed to sell an option to an oil lease to individual 2.  Individual 2 when asked by individual 1 why he wished to purchase the lease, was neither entirely candid or forthright.

Synopsis of Rule of Law. The remedy of specific performance will not be granted if the moving party does not come to court with clean hands and "with a cause whose ethical qualities were such as to commend it to the conscience of the chancellor."

Facts. The Defendant, Sherman Moorhead (the "Defendant"), is the owner of a federal oil and gas lease number covering certain acreage in Montana.  The Plaintiff, Schlegal (the "Plaintiff"), learned from the public records that Union Oil had two wells "capable of producing oil and gas in commercial quantities" adjacent to the acreage covered by the Defendant's lease.  On January 12, 1974, the Plaintiff called the Defendant to ascertain whether he wished to sell his lease.  The Defendant said he would sell for $5,000.  Subsequent conversations flushed out the details of the transaction.  The Plaintiff agreed to the purchase price of $5,000, but he required a "90-day option to purchase for a $100 consideration."  On January 19, 1974, the parties met and the Plaintiff brought a copy of the option agreement with him.  While reading over the agreement, the Defendant asked the Plaintiff why he was interested in his lease.  The Plaintiff told the Defendant he had a "general interest" in the area.  The Plaintiff did not tell the Defendant about any of the information he learned from the public records.  Both parties signed the option and the $100 consideration was paid.  The Plaintiff on two occasions within the option period attempted to exercise the option, but the Defendant refused.  The Plaintiff sued for specific performance.  The district court sided with the Defendant.  The court based its decision on the inadequacy of consideration and the failure of the Plaintiff to "fully and candidly" inform the Defendant about what he learned in the public records concerning adjacent oil wells.

Issue. Was the district court correct in denying specific performance?

Held. The court first observed that on January 19, 1974 the Plaintiff was aware that Union Oil had two wells "capable of producing oil and gas in commercial quantities", adjacent to the Defendant's property.  The court also recognized that when asked by the Defendant why he had an interest in the Plaintiff's property, the Defendant only said he had a "general interest".  The court construed the issue as whether the Defendant's assent was obtained by the "misrepresentations, concealment, circumvention, or unfair practices" of the Plaintiff.  Not, whether the Plaintiff's answer was fraudulent.  The court emphasized this distinction because as determined in [Interior Securities Co. v. Campbell, 55 Mont. 459, 470, 178 P. 582, 585] "* * * To secure the desired relief (specific performance) in this instance, appellants were required to come into court with clean hands and with a cause whose ethical qualities were such as to commend it to the conscience of the chancellor. * * *".  Here, the court fund that "it is not necessarily inconsistent for the district court to hold that enforcement against Moorhead would be unjust and unreasonable due to Schlegel's concealment or circumvention in answer to Moorhead's question."
•    The court also concluded there was enough evidence to support the district court's finding of inadequacy of consideration.

Discussion. This case illustrates the ethical nature of the specific performance remedy.