Naukeag Inn, Inc. v. Rideout

• Decision Date: 04 November 1966
• Parties: NAUKEAG INN, INC. v. Granville N. RIDEOUT et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 916

220 N.E.2d 916

351 Mass. 353

NAUKEAG INN, INC. v. Granville N. RIDEOUT et al.

Supreme Judicial Court of Massachusetts, Worcester.

Argued Oct. 6, 1966.

Decided Nov. 4, 1966.

Philip J. Murphy, Fitchburg, for plaintiff.

Willard Ide Shattuck, Jr., Fitchburg (Andre A. Gelinas, Fitchburg, with him), for defendants.

Before SPALDING, WHITTEMORE, CUTTER, KIRK, SPIEGEL and REARDON, JJ.

CUTTER, Justice.

This action at law commenced October 31, 1963, seeks to recover damages for deceit (count 1), breach of warranty (count 2), and breach of contract (count 3), based upon the vendors' misrepresentations concerning the sewer and septic tank facilities upon certain land in connection with its sale. An appeal from an order, sustaining a demurrer to counts 2 and 3, is before us, as well as a bill of exceptions presenting the issue whether the trial judge properly directed a verdict on count 1 for the defendants, Rideout and his wife. There was evidence which, in its aspect most favorable to the plaintiff (Naukeag), would have warranted finding the facts summarized below.

The Rideouts owned land in Ashburnham on which stood an inn. Mrs. Margaret T. Dunton and her husband negotiated with Rideout concerning the purchase of the land and inn. Naukeag was formed on October 13, 1959. It purchased the property from the Rideouts on October 15, 1959. Naukeag's incorporators were the Rideouts, owners of fifty per cent of Naukeag's stock, and the Duntons, owners of the other half of the stock. Each incorporator became and remained a director and an officer of Naukeag until the settlement mentioned below. The purchase agreement dated October 14, 1959, provided that the buyer's offer was made 'solely upon his (sic) visual inspection of the premises and not upon any representations' by or in behalf of the seller. In connection with the purchase, the Rideouts received from Naukeag a second mortgage for $27,000.

In December, 1959, 'difficulty arose between the Rideouts and the Duntons.' After April, 1960, 'the Rideouts took no part in the operation of' Naukeag. Sometime in January, 1960, Naukeag stopped payments on the second mortgage. The Rideouts started foreclosure proceedings. A special meeting of Naukeag's stockholders was called to obtain authority to sue the Rideouts but, because the Rideouts owned half the stock, the proposal was not adopted.

The Duntons then brought a bill in equity in behalf of Naukeag against the Rideouts alleging (a) that the Rideouts had made various misrepresentations prior to the formation of Naukeag concerning their intended future participation in its operation, and (b) that the Rideouts had done various things causing embarrassment to Naukeag. The bill made no allegations of misrepresentations by the Rideouts concerning (a) the capacity of the inn or (b) its septic tank and sewer facilities.

In May, 1960, the equity suit was settled and, as part of the settlement, the Rideouts agreed to transfer their stock in Naukeag to the Duntons, and to resign as directors of Naukeag. Naukeag gave to the Rideouts, under date of May 31, 1960, a general release of all claims, especially those 'arising out of the sale to it of' the inn, or which 'I (sic) may hereafter have from anything which has heretofore happened.' The Duntons released the Rideouts from all claims arising out of the sale and the conduct of the Rideouts after the sale. A stipulation describing the settlement provided for conveyance of specified land to the Rideouts, discharge of the old second mortgage and the delivery of a new second mortgage and note to the Rideouts for $9,500, discharge of the Rideouts' liability as indorsers of a first mortgage note given by Naukeag in October, 1959, an arrangement saving the Rideouts harmless from all Naukeag's liabilities, and an agreed distribution of certain tangible personal property, as well as the resignations, stock transfers, and releases already mentioned. Mrs. Dunton talked over the stipulation with her attorney, Mr. Murphy, before signing it. The releases of the Rideouts signed by the Duntons and by Mrs. Dunton on behalf of Naukeag were witnessed by Mr. Murphy.

At the trial of count 1 of the present action there was substantial evidence that, during the negotiations in October, 1959, between the Rideouts and the Duntons for the sale of the property to Naukeag, Rideout orally and by brochure had made false representations of various types (which need not be set out in detail) concerning the sewer and septic tank facilities on the premises, which were stated to include a '5000-gal. septic tank with filter bed.' Mrs. Dunton testified that when she signed the releases 'she was not aware of any sewerage problem' at the inn. On December 19, 1960, and in the summer of 1961, it became necessary to clean out a cesspool on the premises. Thereafter other sewerage difficulties arose. An expert sanitary engineer testified that the sewer and septic tank facilities on the premises in 1962 were not as large as those described in the Rideouts' brochure, that the cost of constructing a 5,000 gallon septic tank system would have been $27,000, and that an incomplete 4,000 gallon system had already cost $12,500. There was evidence of reliance by the Duntons upon Rideout's...