Court Opinion

ID: 6855616
Source: CourtListenerOpinion
Date Created: 2022-07-23 20:41:49.842247+00
Date Added: 2024-06-11T16:05:09.153148
License: Public Domain

MORTON, Circuit Judge
(dissenting in part).
I concur in the present order. The auditor’s finding that, though the equity in the land and building was worth $550,000, the value of the mortgage on it which was given to the plaintiffs and under which by foreclosure they acquired title to the equity about a year later was only $200,000, is too obviously unreasonable to be made the basis of judicial action.
I am, however, unable to agree with my brethren that the false representation by the defendant, that it intended to operate the building directly or through a subsidiary until on a paying basis, is actionable. In considering this point, certain additional facts should be borne in mind. The plaintiffs and the defendant were dealing at arm’s length; there was no fiduciary relation between them; the oral negotiations were followed by a written contract of the most elaborate and formal sort, in the preparation of which both sides were represented by competent lawyers and the instrument was redrafted at least three times before it was signed; the auditor has found that it “was intended by both parties to embody in it all the terms of the agreement between them.”
As I understand the law, when fraudulent misrepresentations are made during preliminary negotiations which result in a written contract, two questions arise: (1) Was the *505misrepresentation of such character as to be actionable? (2) Was the right of action lost by the subsequent execution of a written instrument covering the subject-matter of the representation?
On both grounds, it seems to me that the defendant was entitled to judgment on this representation. Carlson Co. v. Ley & Co., 269 Mass. 272, 168 N. E. 812, related to the same transaction as that involved in this ease, and apparently the same alleged false representations were relied on there, as in the present proceeding. The differences in the misrepresentations alleged in the two cases appear to be slight and unsubstantial. It was held that none of them were actionable under Massachusetts law. While the law of New York and of the federal courts on such questions is more favorable to the plaintiff than that of Massachusetts, no case in either of those jurisdictions has come to my attention which goes nearly as far as the majority opinion, either in allowing recovery for fraudulent misstatements of intent of purely promissory character, or in disregarding the principle of law which is commonly referred to as the parol evidence rule, viz., that when parties after negotiating an agreement have reduced it to a writing which undertakes to state fully what was agreed upon, neither party can enlarge the written instrument in his favor by evidence as to what was said during the negotiations. In Adams v. Gillig, 199 N. Y. 314, 92 N. E. 670, 32, L. R. A. (N. S.) 127, 20 Ann. Cas. 910, relied on in the majority opinion, it is said: “It may be assumed that promises of future action that are a part of the contract between the parties, to be binding upon them, must be stated in the contract. An oral restrictive covenant, or any oral promise to do or refrain from doing something affecting the property about which a written contract is made and executed between the parties, will not be enforced, not because the parties should not fulfill their promises and their legal and moral obligations, but because the covenants and agreements being promissory and contractual in their nature and a part of, or collateral to, a principal contract, the entire agreement between the parties must be deemed to have been merged in the writing. The value of a writing would be very seriously impaired if the rule mentioned in regard to including the entire agreement in such writing is not enforced. * * * Such rule makes it necessary for the parties to a written contract to include everything therein pertaining to the subject-matter of the principal contract.” (Chase, J., page 318 of 199 N. Y., 92 N. E. 670, 671.)
The facts in Adams v. Gillig were essentially different from the present case. There, a deliberate plan was made to entrap the plaintiff into making a certain contract. Rogers v. Virginia-Carolina Chemical Co., supra, presented the same situation. Others of the eases cited in the majority opinion were actions on contracts, and the false representations were set up in defense. Here, the contract has been accepted by the plaintiffs and fully performed by the defendant.
The present case is, in effect, an effort to impose on the defendant an additional covenant not contained in the written instrument, and of most burdensome character. The alleged obligation, to operate a new office building until it was on a paying basis, shifted the whole burden of the speculation onto the defendant and made the defendant in effect a guarantor of the success of the undertaking. If the parties had understood that the defendant undertook any such obligation, it is inconceivable that it would not have been put into the contract. Whether a false statement is actionable depends, not on whether it can properly be described as “promissory” or as relating to “intent only,” but on whether it was of1 such character and made under such circumstances that the other party had a right to treat it as material to his determination— as Judge Learned Hand aeutely suggested in Vulcan Metals Co. v. Simmons Mfg. Co. (C. C. A.) 248 F. 853, 855 at page 857. In the present ease, I do not think that the Keelers had the right to go back through the elaborate, written contract to an oral statement of the character under discussion.
Nor am I able to persuade myself, ‘in spite of the contrary opinion of my brethren and Judge A. N. Hand (Arnold v. National Analine Co., 20 F.(2d) 364 at page 370) that, as to representations of intent looking to the future, the parol evidence rule fades out before an allegation of fraud. Loughery v. Central Trust Co., 258 Mass. 172, 154 N. E. 583, which decides the question the other way, seems to me the sounder view. It was there said: “That rule is more than a rule of evidence. It is a statement of the requirement of the law that persons about to regulate their mutual duties by a written contract, shall express in the writing all that is to control their. action in the premises and all their mutual obligations in regard thereto. Had the contract embodied all that the plaintiff alleges was promised in the premises, his rem*506edy for damages for failure to perform would have been upon the contract. He cannot maintain,an action for the same damages, where some of the promises were not so embodied, by alleging the omitted promises to be fraudulent representations, and seeking recovery in tort. No fraud in keeping 'them out of the contract is alleged.” Wait, J., pages 177, 178 of 258 Mass., 154 N. E. 583, 585.
The consequences of the majority opinion seem to me. most unfortunate. It holds in effect that if two parties enter into a written contract, the whole arrangement can be wiped out on proof that something within the field covered by the contract, but not stated in it, was promised with an intent not to perform, by one of the parties during the negotiations. The great burden imposed on this defendant on purely oral testimony, which was contradicted by the defendant’s witnesses and appears to me to be inconsistent with other facts found by the auditor, illustrates the length to which the rule approved in the majority opinion goes, and the uncertainty to which it exposes business transactions. Applying Judge Learned Hand’s test, above stated, if the plaintiffs ever had the right to rely on the representation under discussion, which I do not believe, they lost it,, in my opinion, when they signed the written contract which did not include any such obligation on the defendant’s part. Of course, fraudulent statements which relate to matters outside the field of the written instrument, i. e., to matters of “inducement,” so called, stand on a very different footing; and fraudulent statements as to material facts lose nothing of their actionable character by being incorporated into a written contract. Whether any given misrepresentation relates to matters of inducement, or to matters within the field of the contract, might be a close question. Fortunately it does not arise in this ease because the representation under discussion was clearly within the scope of the contract.
As to the previous decision of the court in this case, the point then before the court was whether the evidence showed a question for submission to the jury. Now the definite facts are stated, and we are called upon to say whether the law was correctly applied. Even if the present question be regarded as covered by our former decision, the rule as to “law of the ease” does not compel us to adhere to a statement of law which further consideration shows to be erroneous, as was expressly decided in Messinger v. Anderson, 225 U. S. 436, 32 S. Ct. 739, 56 L. Ed. 1152.
The damages do npt appear to have been assessed with reference to the promissory aspect of this representation, but only as it was a fraudulent misstatement of present intent, which being relied on by the parties led them to execute the contract. The three alleged false statements, relating, respectively, to the cost of the building, to .the defendant making no profit on it, and to the defendant’s intent to operate the building until it was on a paying basis, were treated by the auditor as a single representation. It does not appear what result he would have reached if this representation under discussion had .not been included.