First National Bank v. Chalmers — 31 N.Y. St. Rep. 817

Majority

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The First National Bank of Sing Sing, App’lt, v. Thomas H. Chalmers et al., Resp’ts.^[1]

(Court of Appeals, Second Division,

Filed June 10, 1890.)

Headnote

1. Statute of frauds—Promise to fat the debt of another.

Where the effect of a promise is to pay the debt of another, yet the leading object of the undertaker is to subserve or promote some interest or purpose of his own and the néw consideration springs from the original debtor and not the creditor, as for example where the debtor by conveyance of property or otherwise places a fund in the hands of a third person, the latter promising in consideration thereof to pay the debt, it removes the case from the operation of the statute of frauds.

2. Same—Consideration.

There was in the case sufficient evidence from which the jury might have found a good consideration for the promise to pay the debt to the plaintiff and the consideration was characterized by the element which removes the promise beyond the operation of the statute of frauds.

(Foldett, Oh. J. and Brown, J., dissent).

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Appeal from a judgment of the general term, second department, dismissing the complaint.

The complaint sets forth that Charles Spruce and Thomas Leary were indebted to the plaintiff in the sum of $1,556.47 on the 30th day of October, 1882, for moneys loaned them by plaintiff prior to that time, and that the defendants on that day for a valuable consideration and by an agreement with the said plaintiff and with said Spruce & Leary agreed to pay to said plaintiff and undertook and assumed to pay to plaintiff the said sum of $1,556.47 and that defendants have not paid the same nor any part thereof.

The defendants in their answer deny that they or either of them agreed with plaintiff or with said Charles Spruce and Thomas Leary or w'ith either of them to pay plaintiff said sum or any sum or promised or assumed or undertook to pay to plaintiff any sum whatever.

The evidence in the case tended to prove these facts: that Spruce & Leary as copartners, under that title as a firm name, had on the 30th of October, 1882, been carrying on the business of making files at Sing Sing for several years and had become embarrassed and insolvent; that the firm had become indebted to the defendants in a considerable sum for advances running through several years and to the plaintiff in the sum of fifteen hundred and fifty-six 47-100 dollars; that one of the defendants, with the defendants’ attorney, came to Sing Sing and had an interview with Spruce & Leary with regard to their condition, their assets and their liabilities. It was obvious to them, and conceded by Spruce & Leary, that the property of the latter was insufficient to pay their indebtedness at that time. And the question was, what should be done in the circumstances. It was resolved that Spruce & Leary should confess a judgment to defendants for the debt owing them and that the defendants should assume the payment of the plaintiff’s debt and the debts of a few other of their creditors whom Spruce and Leary expressed a desire to secure; that accordingly a statement for the confession of the judgment was prepared by defendants’ attorney and signed and verified by Spruce & Leary, that in said statement the debts of the defendants, due and to become due, were set forth; and also the debts due to the plaintiff and a few other creditors were set forth in the statement under the head of liabilities assumed by the defendants, and a judgment was entered in favor of the defendants against Spruce and Leary, for the total amount of their liabilities to defendants, and the debts owing plaintiff and a few other creditors assumed by defendants ; that the defendants issued execution in December following to collect the whole amount of the judgment under which the sheriff levied upon all of the personal property of Spruce & Leary, including ten grindstones and other personal property not covered by the chattel mortgage which had been given by Spruce & Leary- to the defendants; that the defendants paid the debts stated in the judgment roll, assumed to be paid, except the debt due plaintiff and one other debt for coal, due Wheeler & Miller, and amounting to $391.67;

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that the defendants refused to pay the debts due plaintiff and Wheeler & Miller; that after the judgment was confessed and the levy made, another creditor obtained a judgment, issued execution and made a levy upon the property of Spruce & Leary, being the same that had been levied upon by the defendants’ execution; that the judgment in favor of plaintiff was afterwards set aside and vacated upon motion in behalf of such subsequent judgment creditor; that the plaintiff had no notice of the motion; that the defendants consented to a short notice of the motion, and made no opposition to the granting of it; what the grounds of the motion were do not appear in the motion papers or order setting aside the judgment; that the copartnership between Spruce & Leary was dissolved from the time of the confession of the judgment; the object of the confession was to enable Spruce to carry on the business to pay creditors, some of whom were pressing Spruce, and Leary and Spruce continued in charge of the business under the direction of the defendants, sending the products of the manufacture to defendants in New York, and the defendants paying the workmen in the business; that the defendants held mortgages upon the real and personal property of Spruce & Leary, except the files manufactured and in process of manufacture and the grindstones, which latter were sold upon the execution issued upon the second judgment, and were worth or sold for some $250 ; that the chattel mortgage covered the tools and machinery and all the personal property of Spruce & Leary used in the manufacture of files, to secure the payment of $5,000, the principal of which would not become due till April 25, 1883, and only the sum of $150; the semi-annual interest upon the $5,000, had been due but a few days. If this $150 should be paid, the defendants, as mortgagees, could not take possession of the property until the following April, and the defendants supposed they could not at the time of these transactions and for an indefinite period thereafter, take possession of the personal property until April, 1883, for the interest in arrear.

The plaintiff, upon the last trial, put in evidence the statement and roll of the judgment by confession, and the evidence of the plaintiff’s cashier and one of the debtors, Leary, that the defendants promised Spruce & Leary on one occasion, and plaintiff and Leary upon another occasion, that they would pay the plaintiff’s debt; that said promises were made while the statement for the judgment was in process of preparation, and before the judgment roll was filed.

The action is brought to recover of the defendants the debt, or the amount of the debt, which Spruce & Leary owed the plaintiff. Other facts will be found in the opinion.

Francis Larkin, for app’lt; Calvin Frost, for resp’ts.

The court below having refused to submit the evidence to the jury, and dismissed the complaint, the court upon this appeal must assume the existence of every pertinent and material fact which the jury might have legitimately found from the

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evidence introduced or from any evidence that was erroneously excluded from the consideration of the jury.

There was evidence upon the trial tending to show that the defendants promised Spruce & Leary, the debtors of the plaintiff, and also that the defendants promised the plaintiff, to pay the plaintiff the sum of $1,556.47, that being the sum or debt which Spruce & Leary owed the plaintiff.

We are to assume the existence of such promises, and we will assume for the present that such promises rested entirely in paroi. Proceeding upon these assumptions, the question is presented whether the paroi promises by the defendants to pay the plaintiff the debt owing it by Spruce & Leary is enforceable by plaintiff against the defendants in this action. The contention of the defendants is that the promise is void under the statute of frauds, which declares that every special promise to answer for the debt or default of another person, unless the agreement therefor be in writing and be subscribed by the party to be charged therewith, is void. It would seem as if a question which arose at least one hundred years ago in this state, and which has received the consideration of the court of last resort in this state in more than one hundred reported cases, should have reached a complete development and that its precise principle should have become by this time of easy and certain application. It seems to me that the decisions as far back as the case of Leonard v. Vredenburgh, 8 Johns., 29 , and the classification of cases and the lines of distinction between such classification there laid down and the number of cases subsequently decided recognizing and illustrating such classification and distinction clearly and effectually dispose of this case. The distinction in cases involving the- payment of the debt of a third person is made to depend in many cases entirely upon the source from whence the consideration for the promise to pay such debt proceeds. The solution of this question in the cases in which it is involved requires the examination of the consideration in two aspects.

Every contract, whether required to be in writing or not, requires a good consideration to support it. In addition to a good consideration, which all promises must have, a valid promise to pay 'the debt of a third person must have a good consideration moving to the promisor from the debtor or creditor. 21 N. Y., 427 . The distinctions and classifications of cases illustrating the rule of liability under this branch of the statute of frauds laid down by Chief Justice Kent, 8 John., supra, have been substantially followed and reiterated in the case of Farley v. Cleveland, 4 Cow., 432 , by Chief Justice Savage, and in the case of Mallory v. Gillett, 21 N. Y., 412 , by Chief Judge Comstock. There is no occasion or room for the discussion of these distinctions, in view of the opinions in those cases and in the numerous cases since decided upon those lines.

In order to dispose of this appeal, it is only necessary to state that there is a class of cases of this character which is not subject to the statute of frauds, and to determine whether the case under consideration belongs to that class or not. The distinction

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between paroi promises of this character “ is not in respect to its particular nature or kind, but in respect to the parties between whom it moves.” In one class the consideration is characterized as “new and original, moving between the newly contracting parties.” Mallory v. Gillett, 21 N. Y., 412 -418-419.

In the language of Chief Justice Shaw in Nelson v. Boynton, 3 Met., 396 -400, “ the other class (not within the statute) is, where, although the effect of the promise is to pay the debt of another, yet the leading object of the undertaker is to subserve or promote some interest or purpose of his own.”

In the language of Chief Justice Savage in Farley v. Cleveland, 4 Cow., 432 -439, “ in all these cases ” (referring to cases which are not within the statute of frauds) “ founded on a new and original consideration of benefit to the defendant, or of harm to the plaintiff, moving to the party making the promise either from the plaintiff or original debtor, the subsisting liability of the original debtor i» no objection to a recovery.”

Chief Judge Comstock, in Mallory v. Gillett, approves of this classification of Chief Justice Savage, “ because it includes a variety of cases found in the books, where the new consideration springs from the original debtor and not the creditor, as, for example, where the debtor by conveyance of property or otherwise places a fund in the hands of a third person, the latter promising in consideration thereof to pay the debt.”

The distinguishing characteristic which removes a class of cases from the operation of the statute of frauds is that there was a new and independent consideration moving either from the original debtor or creditor to the promisor, or, as better expressed by Judge Bronson, in Brown v. Curtis, 2 Com., 225, “ where there was a new and distinct consideration independent of the debt of the maker and one moving between the parties to the new promise.” Kingsley v. Balcome, 4 Barb., 131 . I will add but a single •case upon this point. Judson v. Gray, 17 How., 289 , affirmed in the court of appeals. In this case the defendant promised if the debtor of the plaintiff would give him, the defendant, a note for the amount the debtor owed the plaintiff, the defendant would pay that sum to the plaintiff.

We will now briefly discuss the question whether there was sufficient consideration to support the promise to pay the plaintiff the debt which the action was brought to recover and whether the consideration was of the character which as we have seen is required to take the promise out of the pale formed by the statute of frauds.

The circumstances leading to and surrounding the promise were substantially these, viz: Spruce & Leary were indebted to the defendants and were embarrassed and in failing circumstances, and the defendants knowing their situation were looking into the affairs and devising the ways and means of securing or collecting their debt.

Spruce & Leary owed the plaintiff and others and said to defendants they were willing to adopt any measures which the defendants might suggest; but they wanted the plaintiff’s debt se

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eared and the debts they were owing a few others. The defendants did not object to securing or providing for the payment of the same, and proposed that Spruce & Leary should confess a judgment to the defendants including the plaintiff’s debt, which defendants were to assume and pay.

A statement for j udgment was accordingly prepared for an amount, including plaintiff’s debt, and which debt was stated to have been assumed by the defendants upon plaintiff’s behalf. By means of the confession of the judgment the defendants not only became-the owners of the plaintiff’s demand but could issue execution at. once and levy upon all of the property of Spruce & Leary including some property such as grindstones and the manufactured files, etc., and all other property created or acquired during the-last six months and since the giving of the chattel mortgage, and which was to the amount of the plaintiff’s debt as well as their own against Spruce & Leary. Moreover the effect of including the plaintiff’s debt in this judgment and with thq^ plaintiff’s assent thereto would be to preclude the plaintiff from obtaining any judgment in its favor upon its demand and remove all possibility of any preference to the plaintiff over the defendants or any rivalry or contest between plaintiff and the defendants in the collecting or securing of the defendants’ debt The effect of the transaction was to transfer the plaintiff’s debt to the defendants and to allow the defendants to wield control and collect the same. Immediately upon the completion of this arrangement and the confession of the judgment pursuant to the arrangement, the defendants were let into possession of all the property and carried on the business for themselves and for their own benefit and without the interference of other creditors for some two months or more. The defendants paid all the debts assumed in the judgment except the debt owing the plaintiff and the one owing to Wheeler & Miller by Spruce & Leary.

It seems to me there was in this case sufficient evidence from which the jury might have found a good consideration for the promise to pay the plaintiff and further that the consideration was characterized by the element which removes the promise beyond the operation of the Statute of Frauds. Marie v. Garrison, 83 N. Y., 14 ; Todd v. Weber, 95 id., 181, 192.

This case presents features somewhat peculiar in this class of cases. In most of such cases the promise of the defendant was made to the debtor to pay his debt to his creditor, but in this case the promise was made to the plaintiff, the creditor, to pay the debt owing by Spruce & Leary tó it, and the promise was. also made to Spruce & Leary, the debtors, to pay the debt they owed the plaintiff. The promise was two fold, being to plaintiff, the creditor, and to Spruce & Leary,«the debtors. And if the promise had been made only to Spruce & Leary upon a sufficient and proper consideration to pay their debt to the plaintiff, the latter could maintain an action to recover it in its own name. Todd v. Weber, 95 N. Y., 194 , 195; citing Barker v. Bucklin, 2 Denio, 45 ; Judson v. Gray, 17 How. Pr., 289 ; Hendrick v. Lindsay, 93 U. S., 143 , and other cases. Hence, this case is free from

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any possible embarrassment arising in the cases of Lawrence v. Fox, 20 N. Y., 268 ; Burr v. Beers, 24 id., 178, (but is in entire harmony with them and kindred cases). And I also think that the evidence contained in the record upon this appeal presents a question quite distinct and independent of the ground upon which the decision in this case was based, in the opinion of the learned general term, reported in 39 Hun, 468 .

The general term based its judgment mainly upon the ground that the assumption to pay the plaintiff’s debt was to be found only in the statement of the confession of judgment; for outside of that, it is said in that opinion, “ it is without support in the proof,” and so the decision upon that appeal did not rest upon the express promises made to the plaintiff and to Spruce & Leary by defendant to pay plaintiff’s debt, upon which we think this appeal should rest. It is not necessary to discuss the question whether the assumption contained in the. judgment would alone support a recovery by plaintiff, or what, if any effect, was produced upon the relations between plaintiff and defendants after the confession of the judgment by the order setting the same aside, whether that order was obtained by collusion (as may well be inferred from the evidence) or not. But it may well be suggested, without further discussion of the question whether the' confession was alone sufficient to render the defendants liable to pay the sum owing plaintiff by Spruce & Leary, that such confession tends in a large degree as evidence to support the existence of the paroi promises sought to be established in this case. The fact is beyond question that the verified statement shows that Spruce & Leary owed plaintiff the sum sought to be recovered of the defendants in this action, that the defendants assumed the debt without any qualification, and that judgment was recovered by defendants against Spruce & Leary for that sum, in addition to the sum they owed defendants, and that the defendants hold Spruce & Leary liable for that sum as a debt by specialty in any and all the ways provided for the enforcement of a debt.

It might well 'be urged from the evidence in this case, and under the broad allegations of the complaint, that the consideration for the jaromise of the defendants was the transfer by the plaintiff to the defendants, and their ownership of the plaintiff's debt against Spruce & Leáry as established by the judgment. While it is true that the trial in the court below did not proceed distinctly upon the ground of a purchase and a promise to pay plaintiff for their debt against Spruce & Leary, it nevertheless furnishes very significant evidence of a consideration for the promise of the defendants. Ror is there with these views any occasion to consider whether the defendants made or lost money by the transaction, or whether the property was worth more or less than the amount of the mortgages upon it, or whether the judgment by confession was valid, or was collusively set aside by the defendants, and the other judgment creditor, who sold and realized from the sale of the grindstones. The confession of the judgment was one of the means employed to effectuate the end.

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It is quite apparent from the whole case, that the defendants’ object was to obtain immediate control and possession of the property and business of Spruce & Leary for their own benefit, and to the exclusion of all other creditors except such of them as Spruce & Leary especially desired should be paid. The defendants after having possession of the plant; and working up the stock of Spruce & Leary as their own, and for their own benefit, and supposing that their chattel mortgage covered the grindstones, and' that their judgment and execution had become dormant as to the subsequent creditors, concluded that they could hold everything under their mortgage, and so did not care any longer to preserve the judgment

In conclusion it is manifest, or the jury might have found from the evidence, that what the defendants sought and obtained by the confession of judgment, and the rest of the transaction, was the immediate possession and control of the entire property, and the means of keeping at bay all but the favored creditors, but in doing so the defendants acquired property and a position which formed the new independent consideration for their paroi promise in the language of the cases cited, and of Shelton v. Brewster, 8 Johns., 376 , and gave to the court the power to adjudge that the defendants should do that which all the parties agreed, and at the time in good, faith doubtless intended to do.

The plaintiff’s contention was substantially that the evidence was sufficient to warrant and require its submission to the jury to determine whether the defendants made the promises and the sufficiency of the consideration of the promises.

We think the respondents’ suggestion and criticism in respect to what the appellant asked to have submitted to the jury entirely too narrow and technical.

The judgment should be reversed and a new trial granted, with costs to abide the event.

The view taken by me is that the promise, which the evidence tended to prove was made by the defendants to Spruce & Leary at the time of the confession'of judgment, to pay the debt due from the latter to the plaintiff must, standing alone, be treated as then made for the benefit of Spruce & Leary, and did not charge the defendants with liability to' the plaintiff. Garnsey v. Rogers, 47 N. Y., 233 ; Pardee v. Treat, 82 id., 385. But the jury were permitted by the evidence to find that shortly thereafter at an interview in the bank with the plaintiffs cashier, the latter was informed of what had been done and of the promise made, and he ratified the transaction, and that the defendants then repeated to the cashier their promise to pay the plaintiff’s claim which had been included in the confession of judgment which was afterwards perfected by the defendants. If such was the state of facts it may have operated to transfer the plaintiff’s relation as creditor of Spruce & Leary to the defendants in respect to such claim, and was sufficient to support the promise of the defendants to pay the amount of it to the plaintiff. This was as effectual to charge the defendants with

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liability to the plaintiff as if the transaction had originally been had between all the parties interested and the promise, founded upon it, then made.

In that view the defendants were permitted to take in their favor a judgment embracing the amount of the debt due from Spruce & Leary to the plaintiff and such benefits as they could derive from 'it as the consideration of their promise made to pay the plaintiff. In practical effect it was a promise of the defendants to pay the plaintiff for what they in that manner received from it. The judgment was afterwards set aside on the motion ■of another judgment creditor of Spruce & Leary. And upon that fact the suggestion is made that the consideration of the promise failed. It is unnecessary for the purpose of this review to consider that question, inasmuch as the inference was justified by the evidence that the defendants permitted the judgment to be set aside. The evidence bearing upon that question was to the effect that the omission of the defendants’ attorney to oppose the motion was occasioned by his communication with his clients upon that subject. These views lead to the conclusion that upon the conflicting evidence there were questions of fact which should have been submitted to the jury. For these reasons I concur in the conclusion reached by Judge Potter, that a new trial should be granted.

Judgment reversed and new trial granted, costs to abide event.

Haight, J., concurs; Parker, J., concurs in result; Follett, CL J., and Brown, J., dissenting; Vann, J., not voting.