Harding v. Southern Loan & Ins. Co.

• Decision Date: 18 September 1940
• Docket Number: 28.
• Citation: 10 S.E.2d 599,218 N.C. 129
• Parties: HARDING et al. v. SOUTHERN LOAN & INS. CO. et al.
• Court: North Carolina Supreme Court

10 S.E.2d 599

218 N.C. 129

HARDING et al. v. SOUTHERN LOAN & INS. CO. et al.

No. 28.

Supreme Court of North Carolina

September 18, 1940

Civil action to recover damages for fraud and to restrain foreclosure of a deed of trust.

The defendants, being the owners of the capital stock and of the mortgage bonds of the Edenton Hotel Company, a corporation listed the same with one Lucas, a real estate broker of Washington, D. C., who apparently specialized in hotel property. Lucas made contact with the individual plaintiff who is engaged in the hotel business. As a result, Harding entered into negotiations with the defendant Gaither president of the corporate defendant and alleged representative of the other stockholders, for the acquisition of the hotel property through the purchase of the outstanding stock.

After making inquiry as to the property and after an inspection thereof in company with Gaither, Harding declined to accept the proposition made by Gaither, but made a counter proposition to purchase upon terms subsequently reduced to writing. Gaither informed plaintiff that he was not authorized to accept the counter proposition but that it would have to be submitted to the other defendants. Upon submission thereof to the stockholders the proposition of plaintiff was accepted and the agreement in respect thereto was reduced to writing.

Plaintiff alleges that the defendants through Gaither, their agent "warranted and represented to the plaintiff Harding that, with certain minor exceptions not herein referred to or complained of, the said hotel building, including its water, heating and plumbing system, were in excellent condition and adequate and sufficient for the purposes for which the same were designed and intended." In an amended complaint he alleges that Gaither further warranted and represented to the plaintiff "that the tenant then leasing the hotel property from the defendants was promptly paying $500 per month as rent." In connection therewith plaintiff makes the necessary allegations of falsity, materiality, intent and reliance thereon.

In their answer defendants deny the allegations of fraud and by way of counter claim allege default in the payment of instalments due and accrued interest, pray judgment for the amount of the defaulted principal and interest and for the foreclosure of the mortgage securing the indebtedness assumed by plaintiff.

Issues were submitted to and answered by the jury as follows:

"1. Did the defendants through their agent represent and warrant the condition of the hotel as alleged in the complaint? Answer: Yes.

"2. Did the defendants through their agent make the representations as alleged in the complaint in order to induce plaintiff Harding to enter into the contract of sale as alleged in the complaint? Answer: Yes.

"3. If so, were said warranties or representations untrue? Answer: Yes.

"4. If untrue, did the defendants' agent know them to be untrue or was he consciously and culpably ignorant as to whether they were true or not? Answer: Yes.

"5. Were said representations material and did the plaintiff Harding reasonably rely on said representations in entering into the contract and was he thereby induced to enter into said contract? Answer: Yes.

"6. What damages, if any, is plaintiff Harding entitled to recover? Answer: $9,900.00."

The defendants excepted to judgment thereon and appealed. The plaintiff excepted to so much of the judgment as directed that the recovery by plaintiff be applied to the instalments of principal and interest due on the purchase price and appealed.

Herbert Leary and W. D. Pruden, both of Edenton, for plaintiff, appellant.

R. C. Dozier and McMullan & McMullan, all of Elizabeth City, for defendants, appellants.

BARNHILL Justice.

The corporate plaintiff seeks and was awarded no relief. It is a necessary party only by reason of the prayer for relief by defendants who seek a foreclosure of the mortgage upon the real property belonging to the corporation. The appeal of the individual plaintiff must turn necessarily upon the disposition made of defendants' appeal. Therefore, the question he seeks to present for decision requires no discussion.

On October 8, 1938, plaintiff, an experienced hotel man, went to Edenton and inspected the real property know as the Joseph Hewes Hotel owned by the corporation, the capital stock of which he later purchased from the defendants. On October 19th he wrote Lucas "was in Edenton yesterday looked over the property with Mr. Gaither. It is in terrible shape and Mr. Gaither was not a little surprised as he had not made a thorough inspection for some time. However, it has possibilities and I made them an offer."

In respect to the transaction made plaintiff testified: "I made an inspection of the hotel before I bought it. That was in the early part of October. I bought it October 25th, and the inspection was made by me about two weeks prior to that time. Mr. Horton, (the lessee), and Mr. Gaither were with me." Being asked "what, if anything, did Mr. Gaither say to you with reference to the Hotel and its heating and water and roof, etc.", he replied: "I had been told all these conditions about the heating plant, hot water and roof especially. I saw this letter written by the contractor, and, of course, I went down to the engine room. I didn't take a bath, I did go up on the roof, a pretty sun-shiny day, just as today and I asked Mr. Gaither about the roof. He said they had had it re-painted and had had it fixed. I asked him about the hot water, and he said they had put in a water softener and it was in perfect condition. And about the heating. I had heard that the West wing of the Hotel could not be heated properly. He said that had been remedied and they could get heat over in the West wing of the hotel.

That was a couple of weeks before I bought it." He testified further:

"Both Mr. Gaither and myself knew on the day I came down to inspect the hotel that it was in terrible shape *** I first took up the proposition of purchasing this hotel with Mr. Lucas. I saw a copy of Mr. Perry's letter in Mr. Lucas' office and later saw the original in Mr. Gaither's office. I came down to Edenton for the purpose of inspecting the hotel. Mr. Gaither came with me. From my general conversation I assumed that Mr. Gaither was not an experienced hotel man and that all his life he had been engaged in other undertakings, the banking business. The only way to discover the defects of which I have complained was in the course of operation and I knew Mr. Gaither had never operated a Hotel. I knew he had complaints from the operators. I knew that the only knowledge he could possibly have about the condition of the hotel came from what somebody else had told him. I came down here two weeks before the contract was signed. I went into the Hotel, on every floor of it. I went up on the roof. I went down to where the heating plant was. I made an examination of everything to be seen.

"We arrived just before lunch and spent three or four hours there. Mr. Horton (the lessee) was there at the time and Mr. Kavanaugh (the hotel clerk) also. I had an opportunity to talk with Mr. Horton or Mr. Kavanaugh if I chose. Mr. Gaither did nothing to prevent me talking with these men. I directed all my questions to Mr. Gaither".

In addition to the foregoing testimony of the plaintiff Harding, he offered in evidence a letter from L. B. Perry, a contractor, addressed to the defendant, Gaither, dated 21 September, 1938, as follows:

"As per your request I went to Edenton today and examined the Joseph Hewes Hotel. I found the hotel in excellent condition with the exception of some minor repairs, which can be made at a very low cost.

"First the...