ME Smith & Co. v. Wilson

• Citation: 9 F.2d 51
• Decision Date: 28 October 1925
• Docket Number: No. 6848.,6848.
• Court: U.S. Court of Appeals — Eighth Circuit
• Parties: M. E. SMITH & CO. v. WILSON.

9 F.2d 51 (1925)

M. E. SMITH & CO. v. WILSON.

No. 6848.

Circuit Court of Appeals, Eighth Circuit.

October 28, 1925.

G. Dexter Blount, of Denver, Colo. (Harry S. Silverstein, of Denver, Colo., Charles B. Keller, and George Doane Keller, both of Omaha, Neb., on the brief), for plaintiff in error.

Ivan A. Allen, of Denver, Colo. (B. O. Wheeler, of Denver, Colo., on the brief), for defendant in error.

Before STONE and VAN VALKENBURGH, Circuit Judges, and WILLIAMS, District Judge.

STONE, Circuit Judge.

This is an action at law against Wilson for the payment of certain accounts owing by Hungerford, the payment of which is alleged to have been assumed by Wilson under a contract between Hungerford and Wilson dated October 2, 1922. At the conclusion of plaintiff's evidence the court directed a verdict on the theory that the above contract was not made for the benefit of such creditors and gave them no legal rights but was for the sole benefit of Hungerford and benefited the creditors only incidentally. From a judgment on such directed verdict this writ of error was sued out.

There is no dispute of fact and the case is presented here as involving a single proposition of law which is whether the contract between Wilson and Hungerford was such that certain creditors of Hungerford could adopt it as being made for their benefit. No question is raised as to these particular creditors having the right so to do if the contract gave any creditors such right but defendant contends that the contract gave no rights to any creditors.

There is no difference between the parties as to the applicable law. In this character of controversy, the local law is followed by the federal courts. Central Elec. Co. v. Sprague Elec. Co., 120 F. 925, 57 C. C. A. 197 (7th C. C. A.). This contract was made and was to be performed in Colorado. Colorado follows the rule generally announced in American jurisdictions (13 C. J. 705 et seq.; 6 R. C. L. p. 884), which is that where two parties contract for the direct benefit of a third person, that person may adopt and sue upon the contract; but that where the contracting parties intend no direct benefit to such third person, he acquires no legal rights thereunder merely because he might be benefited incidentally if the contract be performed. Cripple Creek Bank v. Rollestone, 70 Colo. 434, 438, 202 P. 115; Grimes v. Barndollar, 58 Colo. 421, 435, 148 P. 256; Moore v. First National Bank, 38 Colo. 336, 88 P. 385; Hastings v. Pringle, 37 Colo. 86, 86 P. 93; Starbird v. Cranston, 24 Colo. 20, 48 P. 652; Skinner v. Harker, 23 Colo. 333, 340, 48 P. 648; Stuyvesant v. Western Mortgage Co., 22 Colo. 28, 43 P. 144; Green v. Morrison, 5 Colo. 18, 20; Green v. Richardson, 4 Colo. 584, 586; Lehow v. Simonton, 3 Colo. 346. Also see Cobb v. Fishel, 15 Colo. App. 384, 62 P. 625; Wilson v. Lunt, 11 Colo. App. 56, 52 P. 296; Mulvany v. Gross, 1 Colo. App. 112, 27 P. 878.

The only Colorado case relied upon by defendant in error is Cripple Creek Bank v. Rollestone, 70 Colo. 434, 202 P. 115. That was an action by a bank, the payee of a promissory note, against an indorser after delivery of the note. Under the law of Colorado, such an indorser is held as a guarantor (page 436). The action was upon the guaranty and not upon the theory of a contract made for the benefit of a third person. On page 437 (202 P. 116) the court said:

"Although the complaint charges defendant upon a contract of guaranty, in the brief of plaintiff in error it is said that the action is upon a contract made between defendant and the commissioner for the benefit of the bank. Unquestionably one not a party to a contract, made by others for his benefit, may maintain an action on it; but this is not such an action. It is, in terms, upon the guaranty implied or resulting from the indorsement."

Although the decision in that case involved only the matter of a written guaranty to a person named in the guaranty, yet the court, in the course of the opinion (page 438) recognizes that unnamed third parties, for the benefit of whom the guaranty was made, might recover for it says:

"Of course, had the bank become insolvent, and this note as an asset had passed into the hands of a receiver, he would, as a representative of the creditors, have a right of action against the defendant.

"The third persons, for whose benefit the contract in question was made, were the creditors of the bank, and as to them a receiver would sustain, in a general sense, the same relation as that sustained toward them by the commissioner."

The question presented here is, therefore, whether the benefits to creditors from this contract was direct, within the above rule, or only incidental. The contract is not set forth in full in the record but is summarized in a statement which includes quotations therefrom.

The situation revealed by the contract seems to be as follows:

Hungerford was the owner of a line of stores located in eight towns in Colorado. His liabilities in connection therewith for wholesale bills, labor claims...