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Imprecise sales documents come back to haunt bankruptcy asset purchaser 46 years later

Charlotte Bankruptcy Lawyer Bryan W. Stone of Arnold & Smith, PLLC answers the question “What is a small business bankruptcy ?”

 

A forty-six-year-old bankruptcy case illustrates the pitfalls that ensnare even careful craftsmen. Ambiguities on deeds and sales documents connected to the sale of a debtor’s assets in 1969 meant that buyers who thought they owned oil and gas drilling rights… well, didn’t.

Oil Drill Mecklenburg Bankruptcy Lawyer North Carolina Chapter 7 AttorneyThe properties at issue in the case were “undeveloped severed oil and gas leases.” These kinds of property interests “are not considered to be in the possession of anyone until they are developed,” according to bankruptcy attorney Vicki R. Harding of Pepper Hamilton LLP.

When one of the successors-in-interest to the purchasers in the 1969 bankruptcy sought to develop the interests, it conducted a title search of its ownership interest and discovered defects in the conveyance documents prepared by a bankruptcy trustee in 1969. The successor-in-interest to the purchaser asked the bankruptcy court to reopen the old bankruptcy case in order to clarify ambiguities in the sales documents.

In one instance, “the conveyance of a lease interest included two different legal descriptions,” while in another, “the denominator used to identify one of the fractional interests was calculated in a manner inconsistent with the way it was calculated for other properties.”

When the debtor in the 1969 bankruptcy proceeding found out about the case being reopened, it filed an adversary proceeding against the successor-in-interest to the purchaser of its assets, claiming that back in 1969, the purchaser of its assets did not purchase “all” of the debtor’s assets, and that the debtor was still the rightful owner of certain assets including the oil and gas drilling rights at issue.

The trustee from the 1969 bankruptcy testified that he had not drafted the sales documents to convey “all” of the debtor’s assets, and had harbored “concerns all along… that there would be property he had not identified.” A manager who worked for the purchasers testified that he knew as long as two decades ago that some of the debtor’s oil and gas drilling rights had not been identified in the sales documents.

In most cases involving sales contracts, a court will exclude testimony on so-called “parol evidence” and will limit its inquiry into the terms of a contract to the sales documents themselves. Parol evidence—or evidence of oral or other written communications about the contract that are not contained in the contract itself—was admitted in this case because the debtor satisfied its burden of demonstrating that “reasonable arguments could be made for different interpretations” of the sales documents.

In the end, the bankruptcy court ruled in the debtor’s favor, granting the debtor’s motion for summary judgment and finding that the 1969 sales documents did not serve to convey “all” of the debtor’s property to the purchasers.

If you find yourself needing the services of a Charlotte, North Carolina bankruptcy attorney, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with the best advice for your particular situation.

 

 

About the Author

Bryan 1Bryan Stone is a Partner with Arnold & Smith, PLLC, where he focuses his practice on all aspects of bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.

A native of Macon, Georgia, Mr. Stone attended the University of Georgia, where he earned a BBA in Banking and Finance, and Wake Forest University School of Law, where he obtained his law degree.

Following law school, Mr. Stone relocated to Charlotte, where he currently serves as Chair of “Bravo!” – a young professionals organization associated with Opera Carolina – and founded the University of Georgia Alumni Association of Charlotte.

In his spare time, Mr. Stone enjoys perfecting his barbeque skills for the annual “Q-City BBQ Championship” and playing softball in the Mecklenburg County Bar softball league.

 

 

Sources:

http://www.lexology.com/library/detail.aspx?g=bf1da5f9-4faa-4ae9-b291-82a752dacbad

 

 

Image Credit:

http://commons.wikimedia.org/wiki/File:SaltCreekOilDrill.JPG

 

 

See Our Related Video from our YouTube channel:

http://www.youtube.com/user/ArnoldSmithPLLC?feature=watch

 

 

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