Fleishhacker v. Portland News Publishing Co.

BELT, J. In August, 1935, plaintiffs commenced an action against defendant to recover the sum of $46,-342.72 and interest thereon for alleged breach of contract in that defendant failed and refused to meet its obligations to assume all liabilities of the Portland Telegram under a lease entered into between it and Rose Barde et al. on December 3,1921, covering the Telegram building in the city of Portland. Plaintiffs, who were the owners of all the stock of the Portland Telegram, a corporation, were sued by the lessors, Rose Barde et al., in California, and judgment was obtained against them for the amount due as rental under the lease. Plaintiffs satisfied such judgment and ask, in the instant action, by virtue of their contract with the defendant, to be reimbursed for the money thus paid. Defendant does not seriously challenge the right of the plaintiffs to be reimbursed for the money paid in satisfaction of the judgment, but in a counterclaim seeks to recover damages in the sum of $500,000, by reason of having been induced through fraudulent representations to enter into a contract on May 25, 1931, to purchase from plaintiffs the capital stock and assets of the Portland Telegram. The specific charges are that plaintiffs falsely and fraudulently represented: “First, that the Telegram was occupying the leased premises under a month to month tenancy, and had not executed any writing or agreement, or otherwise bound itself to pay rental after it should cease to occupy the premises; *479 “Second, that the plaintiffs represented that they controlled the advertising of the principal department stores in Portland through their connections and influence, and that the defendant would receive in the future from each of said stores not less than the amount of advertising theretofore received by The Telegram; and “Third, that the plaintiffs fraudulently represented that The Telegram’s business and operations had theretofore been profitable.” The cause was submitted to a jury and a verdict returned in favor of defendant for $380,000. On motion of the plaintiffs, the trial court, Honorable Hall S. Lusk, now a member of this court, presiding, set aside the verdict and granted a new trial for the reason that it had erroneously submitted for the consideration of the jury the alleged fraudulent representations concerning the Barde lease. The trial court held that there was no substantial evidence tending to show that the defendant was misled or deceived by any representation of the plaintiffs concerning the alleged non-existence of the lease. To comprehend the issue of fraud, it is well at this juncture to make a brief statement of the factual situation including the historical background of this transaction. The Telegram Publishing Company, in 1921, was and for some years prior thereto had been publishing in Portland a daily newspaper known as the Portland Telegram. On December 3, 1921, The Telegram Publishing Company entered into an agreement with Eose Barde and other members of the Bardé family whereby the Bardes leased to The Telegram Publishing Company a tract of land at the corner of Eleventh and Washington streets in the city of Portland and the lessors agreed to erect thereon a building estimated at the time *480 of signing the agreement to cost approximately $100,-000, which building was to be used by The Telegram Publishing Company in its business of publishing the Portland Telegram. By this agreement the property was leased for a period of 25 years at an estimated rental value of $24,000 a year. The actual amount paid as rental was to be, for the first 10 years of the lease, 8 per cent of the value of the land fixed at $200,000, and 8 per cent of the cost to the Bardes of erecting the building. Early in the year 1927, The Telegram Publishing Company went into bankruptcy, but the trustee continued publication of the newspaper until all the assets of the bankrupt company were sold in June of that year to David E. Lofgren, as undisclosed trustee for Herbert Fleishhacker, for the sum of $226,000. Prior to this sale, the trustee in bankruptcy had received, according to the order of the referee, a bid of $178,000, from the defendant,- The Portland News Publishing Company. The report of the trustee in bankruptcy discloses that he advertised for sale, “all property belonging to the estate of said bankrupt, which includes the entire physical property inclusive of printing plant, contracts, franchises, good will, leases, accounts receivable, etc., all situate in the Telegram building, 11th and Washington streets, Portland, Oregon.” (Italics ours.) After transfer of the property and assignment of the lease to the purchaser at bankruptcy sale, Fleishhacker at once caused to be incorporated The Portland Telegram, Inc., and began negotiations for modification of the Barde lease. On August 31,1927, a contract was entered into substantially reducing the rentals and permitting the lessee to make certain alterations in the building. Otherwise, the lessee assumed all the obligations of the original Barde lease executed in 1921. In *481 the four-year period between 1927 and 1931 — the latter date being the time of purchase by defendant — the Telegram doubled its circulation and received advertising revenues approximating $500,000 a year. In March, 1931, the defendant, through its executive officers, entered into negotiations with the plaintiffs for the purchase of the Telegram, an evening paper in competition with the Portland News. These negotiations were initiated by Mr. Redhead, formerly business manager of the Telegram, who went to Seattle and made an offer to B. H. Canfield, chairman of defendant’s board of directors, to sell the Telegram for $750,000. Negotiations continued during March and April, 1931, in which Fleishhacker and Brockhagen, representing the Portland Telegram, participated together with Can-field; R. J. Benjamin, northwest editorial director of the Scripps-Canfield chain of newspapers; E. W. Scripps, treasurer; and Dan Powers, attorney — all representing defendant company. As a result of various meetings and extended negotiations, a memorandum agreement was entered into on May 4,1931, in the city of Portland, whereby the defendant company agreed to purchase all the capital stock of the Portland Telegram for the sum of $750,000. The formal contract, however, closing the deal — in some particulars materially different from the memorandum agreement — was not executed until May 25, 1931. In this formal contract of purchase, the defendant company, among other things, agreed “to assume all liabilities of The Portland Telegram shown on its books of account as of the close of business on May 4, 1931, including taxes, and all liabilities whatsoever of third party and/or first parties under that certain Indenture of Lease dated December 3, 1921, by and between Rose Barde et al. as lessors, and The Telegram Publishing *482 Company, a corporation, as lessee, and under all assignments thereof amd agreements supplementary thereto, which said lease is of that certain building heretofore used and occupied by The Portland Telegram and known and described as No. 421 Washington Street, Portland, Oregon.” (Italics ours.) The memorandum agreement was executed on May 4, 1931, and, on the following day, the defendant company took possession of the leased premises and began publication of its newspaper. It paid a monthly rental of $1,816.66 for May and June, 1931, in accordance with the rental charge as specified in the modified lease dated August 31, 1927. In September, 1931, Rose Barde et al. brought action against the defendant Portland News Publishing Co. to recover rent. In that action defendant denied liability under the lease for the reason that there was no privity of estate between it, as lessee’s assignee, and the lessor, but this court on appeal held adversely to defendant, in that through the conduct of the parties there had been effected a legal assignment of the lease and therefore a privity of estate. (Barde v. Portland News Publishing Co., 145 Or. 376 (26 P. (2d) 787, 28 P. (2d) 216). Again Rose Barde et al., in June 1932, and March, 1933, commenced actions to recover for rental due from defendant. In these cases, consolidated on appeal, the defendant sought to avoid liability under the lease by reason of having made an assignment thereof to Louis Croman on August 1,1932. This court on appeal (Barde v. Portland News Publishing Co., 152 Or. 77 (52 P. (2d) 194)) held that the reassignment of the lease by the assignee did not terminate the lease. It was therein said by the court that: “The specific assumption by the defendant of all liabilities under the lease of Fleishhacker, Brockhagen and the Portland Telegram, accompanied as it was by *483 the defendant’s receipt of the capital stock and assets of the Portland Telegram, in part consideration of its said promise to assume such liabilities * * * makes the defendant liable for the payment of the rent and entitles the plaintiffs, although strangers to the contract, to maintain an action therefor.” In the instant action, in which fraud for the first time is alleged, the defendant by its counter-claim does not question its liability under the lease, but affirms the contract and demands damages for the difference between the actual value of the property purchased and the purchase price thereof. The vital question on this appeal is whether there is any substantial evidence tending to show that the defendant, at the time of execution of formal contract of purchase on May 25,1931, had knowledge of the Barde lease. It is elementary that one of the essential elements of fraud is that the party to whom the alleged fraudulent representations wer.e made relied upon the same and was deceived thereby. Of course, if defendant, through its agents acting within the scope of their authority, knew of the existence of the Barde lease at the time of the contract of purchase, it could not have been misled or deceived by any representation as to the non-existence of such lease. Whether the defendant did have such knowledge of the lease would be an issue of fact for the determination of the jury if different reasonable inferences relative thereto could be drawn from the evidence. If, however, the only reasonable deduction from the evidence is that defendant did know of the Barde lease at the time it entered into the contract, the court should declare as a matter of law that defendant could not prevail on such issue. The court is not unmindful that a jury is not obliged to'give full faith and credit to' the testimony of *484 witnesses, even though uncontradicted, if such evidence is improbable or, by its nature or character, is unworthy of belief by reasonable-minded persons: Rivers Bros. v. C. F. T. Company, Inc., 124 Or. 157 (264 P. 368). A jury, however, cannot arbitrarily or capriciously disregard undisputed evidence which is not unreasonable nor improbable. The rule is thus stated in Ford v. Schall, 114 Or. 688 (236 P. 745), and quoted with approval in Nicolai-Neppach Co. v. Smith, 154 Or. 450 (58 P. (2d) 1016, 60 P. (2d) 979, 107 A. L. R. 1124): “The evidence may be undisputed, but it is a question for the jury if, as stated in Koontz v. Oregon R. & N. Co., 20 Or. 21 (23 Pac. 820), and cited with approval in Graham v. Coos Bay R. & N. Co., 71 Or. 393 (139 Pac. 337), men of reasonable minds might draw different conclusions from the facts proved. Jurors, however, are not permitted in the face of uncontradicted testimony, to enter the realm of speculation or to indulge in frivolous and eaptious objections thereto. Only reasonable inferences may be drawn from facts proved. ’ ’ If the law were otherwise, there could never be a directed verdict based upon undisputed testimony. Applying these fundamental principles, the court is of the opinion that the only reasonable deduction to be drawn from the record is that the defendant, through its executive officers and its attorney, knew of the existence of the Barde lease and, therefore, could not have been misled or deceived by any representations in reference to its alleged non-existence. Mr. Seripps, treasurer of the defendant corporation, and the only person to whom any fraudulent representations are claimed to have been made, testified that Fleishhaeker said: “* * * if there had been any (lease) it was wiped out when the property went through bankruptcy.” Yet the record shows without dispute that when the Telegram Company acquired the *485 property — including the lease on the Telegram building which was assigned to it — from the trustee in bankruptcy in 1927, the defendant Portland News Publishing Company was an unsuccessful bidder at such sale. How then can it reasonably be said that the defendant relied upon any representation that the Barde lease was “wiped out” in the bankruptcy proceeding? If the defendant really believed it had been thus “wiped out” did it not thinl? it strange that the contract contained the clause wherein the defendant expressly agreed to assume all liabilities under the Barde lease, dated December 3, 1921, and “all assignments thereof and agreements supplementary thereto ’ ’ ? What reason could there have been for any reference in the contract to the Barde lease if it had been “wiped out” in the bankruptcy proceeding? Scripps, who played a leading part in closing the deal, admits that he discussed the assumption of liability clause with his attorney, Dan Powers, and that “Mr. Powers said it was all right to sign that in so far as we had agreed on the total limit of our liability, and that, as he said, would not change in any way the main agreement signed on May 4th.” Scripps further testified that Mr. Kent, attorney for the plaintiffs, told him that such assumption of liability clause was nothing more than “clarifying the arrangement that I (Scripps) had with Mr. Fleishhacker in which we agreed to pay the rent during such time as we occupied the building.” This explanation of Scripps is entirely unreasonable and contradicts the plain language of the instrument which was knowingly executed. Mr. Brockhagen testified that Benjamin came to San Francisco in March, 1931, to see Fleishhacker and him about purchasing the Telegram and “wanted to know about the terms, and how much would be paid and he * * * wanted to investigate the lease a little *486 further there. ’ ’ Brockhagen said he told Benjamin ‘ ‘ Of course, Mr. Benjamin, you can’t buy this newspaper without buying that lease, because Fleishhacker and myself under no consideration will sell this paper unless some one takes the lease. * * * You could readily appreciate our selling a paper and having to move out of there and consolidating it with the News, and leaving us with a whole building here on our hands for fifteen years at $1,816 a month. We would just simply be crazy if we considered that.” Redhead testified that, in the latter part of April, 1931, he discussed the provisions of the lease with R. J. Benjamin, who had accompanied him on a trip from Seattle where Redhead had been to consult with Canfield, chairman of the board of directors, in reference to sale of property. Redhead said: “It was the latter end of April * * * because the deal was consummated shortly after that. And in discussing this arbitration clause in the lease I said that I would bring it down the next day. So I got the lease from the office and took it down and read the arbitration clause and we also looked at the modification of the lease * * Redhead further testified:' “Q. That is you read it to him? “A. To Mr. Benjamin. “Q. Where? “A. In the lobby of the Benson hotel.” Benjamin was not called as a witness and this testimony of Redhead and Brockhagen that Benjamin knew about the lease stands uncontradicted. It is true that Benjamin ordinarily acted in an editorial capacity but, in these instances, he was acting for and on behalf of his company for the purpose of negotiating a deal with the plaintiffs for the purchase of the Telegram. Therefore, any knowledge which he acquired concerning *487 the existence of the Barde lease, while acting within the scope of his authority, would be imputed to his principal, the defendant company. This fundamental principle is thus stated in Thompson on Corporations (Vol. 3) 323: “It may be said generally that notice to the officer or agent of a corporation in due course of his employment in respect to a matter within the scope of his authority or apparent authority, of such character that it becomes his duty to communicate the information to it, is notice to the corporation whether the officer or agent imparts to it such information or not.” Also, to the same effect, see Dillard v. Olalla Min. Co., 52 Or. 126 (94 P. 966, 96 P. 678). Brockhagen also testified, without contradiction, that on April 22, 1931, he turned over a copy of the Barde lease to Dan Powers, attorney for the defendant, that at such time Powers said “he wanted to look into the terms of that lease, he wanted to study it thoroughly, so I gave him the lease.” Powers was not a witness in the case. Why was he not called to refute this testimony if it was not the truth? It is idle to talk about the plaintiffs’ calling him as a witness in reference to such matter. There is no reasonable doubt that Powers was acting as attorney for the defendant company in closing this deal. He was in attendance at many meetings of the principals. Scripps testified in reference thereto: “Q. So the first you knew of this deal is when you met Mr. Fleishhacker and Mr. Brockhagen in Portland, is that right, and you don’t know just who arranged the meeting? A. I said that Mr. Canfield arranged the meeting. “Q. Now, wasn’t Mr. Benjamin with you at that meeting on May 3rd and May 4th? A. Mr. Benjamin was present at one or two of those discussions. I had *488 a number of my men, that is, executives and managers in our concern, present to give me advice on it, I didn’t # * *. ‘ ‘ Q. Yes — you had your attorney there all the time, didn’t you, Mr. Powers? A. Well, Mr. Powers, I don’t think he was there all the time, no. “ Q. Well, he was in on the negotiations, wasn ’t he ? A. Mr. Powers looked over the papers and approved them. ’ ’ Further, Mr. Scripps testified on cross-examination: “Q. And who was your attorney in Portland? A. Mr. Powers was our attorney in Portland. “Q. And he was acting as your attorney in this transaction for the purchase of the Telegram, was he not? A. Yes.” Hence, we may well conclude that whatever knowledge Powers, as attorney, had in reference to the Barde lease while acting within the scope of his employment would likewise be imputed to the defendant. Mr. John C. Veatch, an attorney at law, testified that Broekhagen, Fleishhacker, Scripps, Benjamin and Powers came to his law office in the city of Portland shortly prior to the execution of the memorandum agreement of May 4, 1931, and “wanted to have an agreement drawn up covering the sale” and that at such meeting the terms and conditions of the Barde lease were discussed. Mr. Scripps, however, denies having heard any reference to the lease. Hence, it may well be argued that, in reference to this testimony standing alone, an issue of fact would be presented. It is a matter, however, that should be considered in determining whether the record, in its entirety, shows beyond reasonable controversy that the defendant had actual knowledge of the existence of the Barde lease. As a further indication of actual knowledge of the existence of the Barde lease, it appears without dispute *489 that there was in the possession of defendant, during the three-week period prior to the formal execution of the contract, the minute book of the Telegram Company showing the adoption of resolutions authorizing the execution of the Barde lease modification of August 31, 1927, by which the Telegram Company became the lessee under the terms of the original Barde lease as modified. It is uncontradicted that Mr. Powers, during such period, examined the minute book. Mr. Scripps admitted that Powers had examined such corporate record and that he, himself, had looked at the same but not “very carefully” and that he had seen no reference therein to the Barde lease. Attention is also directed to the balance sheet of the Portland Telegram as of April 30,1931, in possession of defendant’s agents prior to purchase, plainly indicating the existence of the lease since there is listed therein, under the head of “Fixed Assets” an item of “Leasehold Improvements, $2,968.36.” On May 4, 1931, the Morning Oregonian carried a first page article announcing the purchase by defendant of the Telegram, part of the same being as follows: “Previous negotiations looking to a sale of the Telegram to the News some time ago had come to naught. The chief obstacle then, according to reports in newspaper circles, was the lease of the Telegram Building, which the owners desired to dispose of along with the newspaper property and which the News declined to take over, haying its own building at Fifth and Main Streets. In the renewed negotiations, now said to have been brought near, if not quite to fruition, the disposal of this question was not made known.” It is more than passing strange that the Oregonian knew of the Barde lease, but the defendant newspaper did not. *490 Mr. Boscoe Nelson, an attorney of high repute, now deceased, and who represented the Barde interests, testified, in substance, that on the day the contract was formally executed, May 25, 1931, Mr. Scripps and Mr. Powers called at his office in the city of Portland and, at such time, he discussed with them the terms of the Barde lease and that, later in the day, he sent over to Powers’ law office six copies of the supplemental lease. The following memorandum, made in the office of Mr. Nelson, corroborates his testimony: “Legal Service Memorandum, Dey, Hampson & Nelson, May 25, 1931. Nature of Service: Conference with Mr. Powers * * “Nature of Service, preparing six copies of agreement to reduce rental on Telegram building, executed August 31, 1927, between Bose Barde, et al and The Telegram Publishing Company, and delivery same to Mr. Powers.” Why did Powers and Scripps go to Mr. Nelson’s law office unless it was to inquire about the Barde lease ? Mr. Scripps testified that he thought such meeting occurred some time in the early part of September, 1931, or after the sale was made, but a letter of Mr. Nelson to the defendant on July 11,1931, would indicate that Mr. Scripps is mistaken as to the time of this meeting. In this letter, Mr. Nelson, among other things, says: ‘ ‘As indicated by me verbally to Mr. Scripps and Mr. Powers at the time of their call, there was, of course, no objection whatsoever on the part of the owners of this building to your succeeding to the interests of the Portland Telegram, but we have been desirous of having something formal, in view of what I may characterize, without any intention to be offensive, to evasiveness in regard to the precise nature of the transaction insofar as it affects the leasehold interests.” (Italics ours.) Finally, aside from the legal question as to whether fraud can be based on a representation inconsistent *491 with and contradictory to the terms of an instrument knowingly executed, it would seem that the contract of purchase entered into on the 25th day of May, 1931, reciting in plain and unambiguous language the assumption of liability under the Barde lease, and its assignments and supplements thereto, would make it difficult to mislead or deceive any reasonable-minded person by any representation concerning the non-existence of the lease. If A, who is dealing at arm’s length with B, enters into a written contract to sell Blackacres to B, stipulating therein that B agrees to assume and pay a certain mortgage, could B later reasonably assert that he was misled and deceived by the representation of A that the property was not encumbered by a mortgage? The very instrument itself would negative such contention. Viewing the record in its entirety in the light most favorable to defendant, as we must do on this appeal, we are convinced that the only reasonable deduction therefrom is that the defendant, through its executive officers and attorney, had actual knowledge of the existence of the Barde lease, as modified, at the time it entered into the contract. Hence, defendant cannot, as a matter of law, assert that it was misled or deceived by any representation of the plaintiffs concerning the alleged non-existence of the lease. Since the trial court erred in submitting such issue to the jury — and there are no other errors in the record — it follows that the order granting a new trial must be sustained. We think the defendant established a case for submission to the jury as to the other allegations of fraud — viz, as to control of advertising and as to whether the business was being operated at a profit. Judgment is affirmed. Bean, C. J., and Rossman, J., concur. Kelly and Ltjsk, JJ., not participating.