Keeler v. Fred T. Ley & Co.

• Decision Date: 16 May 1931
• Docket Number: No. 2544.,2544.
• Citation: 49 F.2d 872
• Parties: KEELER et al. v. FRED T. LEY & CO., Inc.
• Court: U.S. Court of Appeals — First Circuit

49 F.2d 872 (1931)

KEELER et al. v. FRED T. LEY & CO., Inc.

No. 2544.

Circuit Court of Appeals, First Circuit.

May 16, 1931.

Lothrop Withington, of Boston, Mass. (Edward C. Park and Withington, Cross, Proctor & Park, all of Boston, Mass., on the brief), for appellants.

Herbert Parker, of Boston, Mass. (Charles G. Gardner and William V. Baldwin, both of Springfield, Mass., on the brief), for appellee.

Before BINGHAM, ANDERSON, and WILSON, Circuit Judges.

ANDERSON, Circuit Judge.

This was an action for deceit in inducing the plaintiffs to enter into contracts. At the close of the plaintiffs' evidence the court ordered a verdict for the defendant. Under such circumstances, the plaintiffs were entitled to have their evidence considered in its aspect most favorable to them. Gray v. Davis, etc. (C. C. A.) 294 F. 57; Union Pacific R. R. v. Huxoll, 245 U. S. 535, 539, 38 S. Ct. 187, 62 L. Ed. 455; Myers v. Pittsburgh Coal Co., 233 U. S. 184, 34 S. Ct. 559, 58 L. Ed. 906.

There was evidence tending to show facts as follows: In the fall of 1927 the plaintiffs owned the vacant Keeler Hotel site, in Albany, N. Y. The business of the defendant had been, for a generation, the construction of public works and buildings, and the management of buildings owned by controlled subsidiary corporations. Its treasurer, principal stockholder, and chief executive was Fred T. Ley. It was an expert both in building and in the management of such properties.

In November, 1927, the plaintiffs negotiated with Ley for the sale of this vacant land at an agreed price of $1,010,000 upon the understanding that the defendant was to construct an office building thereon substantially like another building built by defendant in New York City. Ley had an estimate made of the cost of such a building, and told plaintiffs that the structural cost thereof would be not less than $850,000; that the Ley Company would continue to operate the completed building through its subsidiary, and would look to the common stock of such subsidiary for its profit; that the Ley Company would have an investment of $150,000 to $200,000 above a contemplated first mortgage of $850,000 on the completed property.

Accordingly, the plaintiffs deeded their land to the defendant's subsidiary — the Broadway-Maiden Lane Corporation — which executed a first mortgage for $850,000 to the First Trust Company of Albany, and a second mortgage for $870,000 to the plaintiffs. From the proceeds of the first mortgage, the plaintiffs were paid $140,000, and the building was erected by the defendant, at an actual cost of about $500,000. The defendant got as profit the balance of the proceeds of the first mortgage. The Broadway-Maiden Lane Company shortly defaulted on the interest on both mortgages as well as on the taxes. The plaintiffs were therefore constrained to pay the interest on the first mortgage and the taxes, and to foreclose their second mortgage.

Ley's representations that the building would cost not less than $850,000 and that his company would continue in the management thereof until it was on an income-producing basis were knowingly false.

Ley himself, called as a witness by the plaintiffs, testified specifically that, when the contract was made, he did not intend to cause his company to expend $850,000 on the contemplated building; that he fully expected to obtain a profit out of the proceeds of the first mortgage to be placed on the building; that "it was not his expectation or intention that there would not be any profit to the Ley Company out of the proceeds of the first mortgage. It is a fact that they obtained a profit from the proceeds of the first mortgage. It was not his expectation and intention * * * that his company would necessarily manage the business, either through direct ownership or through a subsidiary, until it was upon an income-producing basis."

These false representations were substantially repeated in January, 1928, in defendant's application to the Trust Company for the first mortgage of $850,000. There was abundant evidence that these false representations by Ley were believed and relied upon by the plaintiffs and induced them to deed their land to the defendant's subsidiary and to make a contract with the defendant for the erection of a building thereon, under financial arrangements above outlined.

Neither into the deed nor into this contract were inserted the representations made by Ley as to the cost of the building and its continued operation by defendant through its subsidiary. The defendant contends, and the court below apparently ruled, that all the rights and obligations of the parties were strictly limited by and to the terms of the contract itself. This was error. The correct rule was stated by the same learned District Judge in overruling the demurrer when he said: "The defendant demurred to the declaration, and stated as ground for demurrer that the statement of facts in the declaration showed that after the alleged misrepresentation had been made a contract was entered into which contained the entire agreement between the parties, and the parol evidence rule would not allow the plaintiffs to prove anything...