Opinion
No. 87.
December 9, 1929.
Appeal from the District Court of the United States for the Eastern District of New York.
Action by the Neff Fry Company against Nelson B. Ashmead. From a judgment for plaintiff, entered on a directed verdict, defendant appeals. Reversed and remanded.
Plaintiff, an Ohio corporation, brought an action at law for damages for the breach of a written contract by the terms of which it had agreed to construct certain concrete coal bins on defendant's premises at Springfield, Long Island, N.Y. The contract further provided that defendant "obtain and pay the cost of all building permits." The breach alleged was defendant's failure to secure the necessary permits and his refusal to accept materials shipped by plaintiff. The answer admitted the execution of the contract, but alleged, for a first defense, that it had been entered into because of the fraudulent representation that plaintiff had procured the approval of the municipal authorities and the railroad company for the contemplated structure; and, for a second defense, nonperformance on the part of the plaintiff. In addition, defendant counterclaimed for damages resulting from such fraud and nonperformance. His bill of particulars specified that the alleged misrepresentations were partly written and partly oral, and had been made prior to the execution of the formal contract.
The case came to trial before court and jury. Plaintiff moved to dismiss the defenses and counterclaims on the ground that the terms of the written contract specifically required that defendant secure the requisite building permits, and that defendant's contentions were in effect an attempt to modify such terms by parol proof. Over defendant's objection, the motion was granted, and, one witness having testified, a directed verdict was entered for plaintiff.
Wood Marshall, of Jamaica, N.Y. (Fowler Fay, of Jamaica, N Y, on the brief), for appellant.
Bernard A. Shalek, of New York City (Edgar R. Mead, of New York City, on the brief), for appellee.
Before MANTON, L. HAND, and MACK, Circuit Judges.
Appellant contends: (1) That the court erred in striking the defenses and counterclaims, because fraud in the procurement of a written contract is, within section 274b of the Judicial Code (28 USCA § 398), a proper defense in an action at law, and may be established by oral proof; and (2) that the evidence of the single witness produced was insufficient to warrant the direction of a verdict for the full amount of damages claimed.
Appellee contends: (1) That, since the allegations of fraud on their face contradicted the specific terms of the written contract, they were properly stricken out; and (2) that, even if evidence in support of the allegations contained in the answer were admissible, and such allegations proved, no fraud would have been established.
1. While the parol evidence rule would prohibit defendant from introducing evidence tending to vary its obligation to secure the requisite permits, it is well established that this rule does not prevent the introduction of evidence showing fraud in the inducement. Thomas v. Beebe, 25 N.Y. 244. A false verbal representation by plaintiff's agent, made before the execution of the contract, that its type of bin had been approved by the municipal authorities, would not vary or contradict the specific provision that defendant secure the necessary permits. By the latter provision defendant bound itself to obtain the permit; but since a permit issues as a matter of course (see New York Code of Ordinances, c. 5, art. 1, § 4) if the type is approved, defendant, in assuming such liability in the written contract, may well have relied upon plaintiff's alleged representations that the necessary approval had been secured. Since the answer definitely alleges that plaintiff had made such representations, and that they were knowingly false, and since defendant's bill of particulars further specifies that they were made prior to the execution of the contract, defendant should have been given an opportunity to produce evidence on this issue.
2. There can be no question but that this equitable defense may be interposed in an action at law. Judicial Code § 274b (28 USCA § 398); Burroughs Adding Machine Co. v. Scandinavian-American Bank (D.C.) 239 F. 179; Fiorito v. Clyde Equipment Co., 2 F.2d 807 (C.C.A. 9). Inasmuch as the case must go back for a new trial, we need not consider any other assignment of error.
Reversed and remanded.