Machin v. Prudential Trust Co.

Opinion by Mr. Justice Fell, The substance of the statement of claim is that the plaintiffs agree to construct for the Monongahela Real Estate Corporation two buildings for which they were to be paid $477,000. The capital of the corporation was only $1,000 and the payments were to be provided for by an increase of capital and by loans to be secured, one of $200,000 on first mortgage and one of $40,000 on second mortgage. Of the second loan $30,000 was to be paid the plaintiffs on the completion of the building. The agreement between these parties was in writing but was not to become binding until the defendant guaranteed the final payment of $30,000. This the defendant, having taken the second mortgage, agreed with the plaintiffs to do and the agreement was put in writing. This action is on the agreement to recover the amount of the reserved payment. It is substantially averred in the affidavit of defense that the plaintiffs had agreed with the real estate corporation that no mechanics’ liens should be filed against the building, arid that [255] at the execution of the agreement sued upon the plaintiffs represented that their agreement with the real estate corporation contained a full and absolute waiver of the right of lien and that relying on this representation the defendant executed and delivered its agreement; that this representation was an essential part of the inducement and without it the agreement would not have been made; that after a draft of an agreement containing a provision against filing liens had been submitted to and approved by the real estate corporation, a clause practically nullifying the provisions was covertly inserted for the purpose of defrauding the corporation and the defendant, and that the agreement was executed without knowledge of the alteration ; that liens aggregating over $474,000 have been filed by the plaintiffs and others. These averments, if established by proof, would show such fraud in the procurement of the agreement as would relieve the defendant from liability. The defendant would not be precluded from showing the facts averred on the ground that the evidence would be in contradiction of the written instrument. It is competent for a defendant to prove that he was induced to execute a written agreement by fraudulent representations affecting the consideration. Such testimony does not alter nor vary the terms of the contract but shows a failure of consideration which entitles the defendant to relief from the written obligation : Stubbs v. King, 14 S. & R. 206 ; McCulloch v. McKee, 16 Pa. 289 ; Schuylkill Co. v. Copley, 67 Pa. 386 ; Atherholt v. Hughes, 209 Pa. 156. It is unnecessary to consider the other grounds of defense set out in the affidavit because this one was sufficient to prevent judgment. The order of the court making absolute the rule for judgment is reversed.