Lorillard v. Clyde — 16 N.Y. St. Rep. 586

Majority

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Jacob Lorillard, App’lt, v. William P. Clyde and Benjamin F. Clyde, Resp’ts.

(New York Superior Court, General Term,

Filed May 7,1888.)

Headnote

Contracts—Obligation for the benefit of a third party—When enforceable BY THIRD PARTY.

In May, 1874, Jacob Lorillard and W. P. Clyde & Co., in order to con

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solídate “ their respective interests in the Philadelphia and New York Transportation Line, agreed together to form a corporation under the Laws of the state of New York, in which each of the parties should hold equal shares; the stock to be issued in payment for certain vessels of which Mr. Lorillard was to contribute two and Messrs, Clyde & Co., nine. This corporation was formed under the name of the Philadelphia and New York Steam Navigation Company. By the terms of the agreement W. P. Clyde & Co., was to have the management of the corporation and business, and the corporation thus formed was to assume the lease of Lorrillard’s Philadelphia wharf, and the piers in the East river. The Philadelphia wharf was leased to Ihe Lorillard Steamship Company for a term of years. The Lorillard Steamship Company were sued by their lessor for the rent of the wharf. Clyde & Co. were notified of this, but failed to defend and judgment was recovered against the steamship company. This judgment was paid and then the steamship company assigned its claim, a cause of action against Clyde & Co to the plaintiff who now seeks to recover on the application of the rule laid down in Lawrence v. Fox, 20 N. Y., 268 . Held, that a right of action does not accrue to a third party because a promise has been made by one to another for his benefit. There must be some obligation, or duty owing from the promisee to the third party which would give the latter a legal or equitable claim to the benefit of the promise, or an equivalent from the promisee personally. It is the promise made for the benefit of the third party that the courts enforce and the privity between him and the promisee which the law requires, is that which arises from some debt or duty due from the latter to the former, which the promisor engages to discharge; and that there was no debt or obligation due from Lorillard to the Lorillard Steamship Company which the defendants by the agreement undertook-to perform.

Appeal from, a judgment entered dismissing the plaintiff’s complaint, on the opinion of Hamilton Odell, referee.

Glover, Sweezy & Glover, for app’lt; Boardman & Boardman, for resp’ts.

Argued before Sedgwick, Ch. J., Freeman and O’G-or-MAN, JJ.

The judgment was affirmed by the general term on the opinion of the referee.

In May, 1874, Jacob Lorillard and W. P. Clyde & Co., in order to consolidate “their respective interests in the Philadelphia and New York Transportation Line, ” agreed together to form a corporation under the laws of the state of New York, with a capital of $300,000, of which the two contracting parties should hold equal shares. The whole of the capital stock was to be issued in payment for certain vessels, specifically named, of which Mr. Lorillard was to contribute two, and Clyde & Co., were to contribute nine. The agreement, which was to take effect on or before July 1, 1874, contained in these two provisions:

First. W. P. Clyde & Co. to have the management of said corporation and business.

Second. The corporation to assume lease of Lorillard’s Philadelphia wharf, and assume leases of Piers 33 and 33f, East river, New York, at present rental.

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The corporation contemplated by the said agreement was formed under the name of the Philadelphia and New York Steam Navigation Company; the said vessels were transferred to it; the capital stock was issued; Clyde & Co. assumed the management.

The Philadelphia wharf, above referred to, was at the date of said agreement, held under a lease by the Lorillard Steamship Company, of which the said Jacob Lorillard (the plaintiff herein), was the president and the substantial owner.

It is charged in the complaint, that Clyde & Co., “though duly requested so to do, neglected and refused to have said lease assumed by the said The Philadelphia and New York Steam Navigation Company, or to pay, or to cause to be paid the sum of $5,500, the annual rent of said wharf, which became due on the 8th day of April, 1875.”

It is further alleged that in 1877, the lessor of the said wharf brought suit against the Lorillard Steamship Company to recover the said rent, which suit Clyde & Co., had notice of and opportunity to defend; that judgment was rendered therein against said Lorillard Steamship Company, and was paid, and that the claim or cause of action of the said Lorillard Steamship Company against Clyde & Co., growing out of the transactions thus briefly alluded to, was assigned and set over to the plaintiff. He brings this action as such assignee.

The plaintiff’s first proposition is that Clyde & Co. covenanted with Jacob Lorillard that they, Clyde & Co., would cause the proposed corporation to assume the lease of the Philadelphia wharf and relieve the Lorillard Steamship Company from further liability for rent thereunder, and that such covenant is enforceable by said Lorillard Steamship Company under the rule declared in Lawrence v. Fox ( 20 N. Y., 268 ). That case has been the cause of many experiments in the courts, and productive of an abundant and odd lot of law suits. It has been explained and criticised and limited and questioned but never overruled. Thirty years have elapsed since it was decided, yet the principle upon which it rests is still a matter of uncertainty and dispute. It has been followed as a controlling authority in all cases presenting similar facts, but the doctrine of the case was established with difficulty, and has been yielded to with reluctance ( 46 N. Y., 90 ), and the courts have steadily refused to extend its application to new cases. 82 N. Y., 393 . “ We prefer,” Judge Finch says in Wheat v. Rice ( 97 N. Y., 302 ), “to restrict the doctrine of Lawrence v. Fox within the precise limits of its original application.” All that the case decides is “that where one person loans money to another upon his promise to pay it to a third

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party to whom the party so lending the money is indebted, the contract thus made by the lender is made for the benefit of his creditor, and the latter can. maintain an action upon it without proving an express promise to _ himself from the party receiving the money.” Allen, J., in Garnsey v. Rogers, 47 N. Y., 240 .

A right of action does not accrue to a third party, because a promise has been made by one to another for his benefit. There must be some obligation or duty owing from the promisee to the third party, which would give the latter a legal or equitable claim to the benefit of the promise, or an equivalent from the promisee personally.

This was distinctly held in Vrooman v. Turner ( 69 N. Y., 280 ). The court said that “in every case in which an action has been sustained, there has been a debt or duty owing by the promisee to the party claiming to sue upon the promise. Whether the decisions rest upon the doctrine of agency, the promisee being regarded as the agent of the third party, who, by bringing his action, adopts his acts, or upon the doctrine of a trust, the promisor being regarded as having received money or other things for the third party, is not material. In either case there must be a legal right, founded upon some obligation of the promisee, in the third party, to adopt and claim the promise as made for his benefit.”

It is argued by the learned counsel for the plaintiff that the only limitation put by the case last cited upon the broad rule of Lawrence v. Fox, is in requiring that the third party shall not be stranger to the transaction, and that there shall be some privity between him and the promisee, whereby the latter will derive a benefit from the execution of the promise. Benefit to the promisee, however, is not the basis upon which any of these cases rest. It is the promise made for the benefit of the third party that the courts enforce, and the privity between him and the promisee which the law requires, is that which arises from some debt or duty due from the latter to the former, which the promisor engages to discharge. In other words, there must be, first, an existing claim against the promisee in favor of a third party, and, second, an engagement by the promisor to discharge his own liability to the promisee by the payment or satisfaction of such claim. In the absence of either of these conditions, the doctrine of Lawrence v. Fox has no application.

I am unable to find in this case any debt or obligation due from Lorillard to his steamship company, which the defendants, by the agreement of May, 1874, undertook to perform, nor is it claimed that any such existed.

• The plaintiff’s second ground of contention is, that the defendants became directly liable to the Lorillard Steamship Company upon this agreement upon “general principles of agency.” It is not suggested that the agreement, as executed, is the agreement of the company, but the

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claim is, as I understand it, that certain provisions contained therein were inserted for the company’s benefit, and that, in respect of those provisions, Mr. Lorillard, in making the agreement, acted as the company’s agent and in its behalf. One of these provisions was that relating to the assumption by the proposed new corporation of the lease of the Philadelphia wharf. It is not alleged in the complaint that Mr. Lorillard, in anything that he did in connection with this transaction, acted, or assumed to act as the agent of his steamship company. In respect of the lease, and to that extent, the complaint says, “that the said agreement was made in behalf of and for the benefit of the said Lorillard Steamship Company and the said Clyde & Co., in and by said agreement, undertook and agreed with and for the benefit of the said Lorillard Steamship Company, that the said Philadelphia and New York Steam Navigation Company should, when organized, assume said lease, etc.” A similar allegation might have been, and probably was, made by Lawrence when he sued Fox upon the promise which Fox had made to Holly.

The rule relied on by the learned counsel for the plaintiff, that a principal may adopt and enforce in his own name a contract made in his behalf in the name of his agent, is not denied, but it does not seem to be applicable here. The act of the agent—that is, the making of the contract in such a case—must be the act of the principal, and although the name of the principal may not appear on the face of the transaction, yet, as Judge Folger says in I. P. & C. Co. v. Tyng, 63, N. Y., 655, “Evidence will be received to let in a party not apparent in the contract,” and it makes no difference whether the principal seeks to enforce the contract, or the other party seeks to hold him liable upon it. Briggs v. Partridge, 64 N. Y., 357 . But whenever the contract is the contract of the party who signs it, a third party, who claims to enforce one of its provisions on the ground that it was made and intended for his benefit, must seek his remedy, if he has any, in the way pointed out in Lawrence v. Fox.

It seems to me too plain to admit of serious dispute that the agreement of May, 1874, was the personal agreement of Mr. Lorillard. His counsel calls attention to the fact that “ prior to the time of the going of the contract into effect, Mr. Lorillard received formal authority from the directors of the company to carry out the provisions of the contract.” There is a trifling inaccuracy in this statement, as will appear by referring to the proofs. The resolution of the directors was as follows: “ On motion of Jacob Lorillard, it. was resolved that the company shall sell the steamers “Vindicator” and “Fanita” to the Philadelphia and New York

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Steam Navigation Company, for the sum of $170,000: and that the president shall deliver proper documents or bills of sale for the same.” And, also, “that Jacob Lorillard shall sell and dispose of the steamers “Mediator” and “North Point,” or any other property this company may possess, at such times and such prices as he may see fit, and deliver proper documents and bills of sale of same, and close up the affairs of this company and its indebtedness to himself.” This resolution was adopted on the 17th of June, a month after Lorillard had signed his agreement with Clyde. It does not appear that the nature, or even the existence, of that agreement was made known to the directors, and it would seem that it had then already been partially performed by the parties to it by the formation of the new corporation which it contemplated. Certainly there was nothing in the resolutions authorizing Mr. Lorillard to exchange the two steamers first named for stock of such new company at par. The fact is, that there was very little of the Lorillard Steamship Company besides Mr. Lorillard. He owned nearly the whole of its stock, and he controlled its action. He was its creditor in a large amount; and the hope of securing this indebtedness, and the desire to close up an unprofitable business, were leading considerations in his trade with Clyde & Co.

The plaintiff’s third proposition is, that “ the contract was fully executed by the Lorillard Steamship Company, as to the part of the consideration to be furnished by it, and that the defendants, having accepted performance from the latter, are estopped from denying its rights to enforce so much, of the contract as was intended for its benefit.”

This assumes erroneously, as I think, that the steamship company was, in fact, a party to the contract, and bound to at least a partial performance of it. The language of the contract is, “ They (Lorillard & Clyde) shall form a corporation.” “ They (Lorillard & Clyde) shall contribute property.” “Jacob Lorillard puts in the steamers Vindicator and Fanita.” No part of the consideration was to be furnished by the Lorillard Company. That company incurred no liability under the agreement. Clyde could have had no complaint or remedy against it if Lorillard had refused to perform the agreement upon his part. It is true that the said steamers belonged to the company, and that the company' conveyed them to the new corporation at Mr. Lorillard’s request, but clearly such conveyances were not made in fulfillment of any obligation assumed by, or resting upon, the company, nor can it be fairly said-that they were accepted by Clyde or the new corporation otherwise than as a performance by Lorillard of his personal engagement. There is no pretense in the complaint that the steamship company did anything towards the performance of this agreement. On the contrary, it is substantially

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admitted that the transfer of the vessels was the act of Lorillard, the allegation being that “the plaintiff transferred, or caused to be transferred, to the said corporation the steamers mentioned in said agreement, as required by the terms thereof, and in all respects fully kept and performed said agreement and the conditions thereof on his part.” And in the action between these same parties in the city court of Brooklyn, in which plaintiff recovered judgment against these defendants for a large amount in 1883, one of the findings of the court on which that judgment was found was, that pursuant to this very agreement “the plaintiff transferred to the said The Philadelphia and New York Steam Navigation Company the steamers Vindicator and Fanita mentioned in said agreement, and that 1,700 shares of the stock of .said company, of the par value of $100 each, were issued to him therefor on or about June 20, 1874.”

It is my opinion that neither of the grounds of recovery contended for by the plaintiff is tenable, and the motion to dismiss the complaint is, therefore, granted.