Kiernan v. Kratz

• Decision Date: 25 August 1902
• Citation: 69 P. 1027,42 Or. 474
• Parties: KIERNAN v. KRATZ.
• Court: Oregon Supreme Court

69 P. 1027

42 Or. 474

KIERNAN v. KRATZ.

Supreme Court of Oregon

August 25, 1902

Appeal from circuit court, Multnomah county; A.F. Sears, Judge.

Action by John Kiernan against V. Kratz. Judgment for plaintiff. Defendant appeals. Reversed.

This is an action to recover money. The facts are that on January 8 1894, plaintiff, in consideration of $14,500, sold and conveyed a flouring mill to the defendant, who, in part payment thereof, assigned to him certain certificates of deposit issued by, and a check drawn on, the Portland Savings Bank of Portland, Or., the face value of which, with accrued interest, was the sum of $7,461.42. At that time said bank was in the custody of a receiver, having suspended payment July 28, 1893, notwithstanding which a general belief prevailed that, if extensions could be secured from its creditors until some of its loans could be collected, it would be able to resume business; acting upon which, and as a part of the transaction, defendant stipulated in writing that, in consideration of the acceptance of said commercial paper at par, if the bank should fail to pay the same on or before three years therefrom, he would upon the return of all or any part thereof pay the sums remaining due thereon. The bank, having secured many of the extensions desired, resumed business about April 30, 1894, when said certificates and check could have been paid, if plaintiff had not surrendered them to the bank, taking in lieu thereof, May 19, 1894, for the remainder due thereon, eight other certificates of deposit, each for the sum of $713.71, the first payable in three months, and one of the others every three months thereafter, with interest at 6 per cent. per annum. Two of these latter certificates having been paid at maturity, the bank was again compelled to close its doors, and, after the expiration of the time limited, plaintiff commenced this action to recover the sums due on the remaining certificates alleging in the amended complaint the facts in substance as hereinbefore stated, and that he was unable to return the original certificates and check to defendant, for that at his request and for his accommodation he had surrendered them to the bank and taken others in lieu thereof, which he offered to surrender upon payment thereof, and deposited them in court for that purpose; that said bank is, and at all times stated in the complaint was, insolvent, and defendant, though notified of its default, had neglected to pay any part of said certificates. The answer, having denied the material allegations of the complaint, averred, as a first separate defense, that plaintiff, for a valuable consideration surrendered the original certificates and check to the bank without defendant's knowledge or consent, and accepted others in lieu thereof, thus defeating the payment of the original obligations, which would otherwise have been made, thereby absolving defendant from the terms of his agreement. For a second defense it is alleged that plaintiff, having accepted new certificates in full payment of the original obligations, discharged defendant from all liability on account of the latter. For a third defense it is alleged that, as a condition precedent to recovering any payment from the defendant, plaintiff was obliged to return to him the original certificates and check, but that, having surrendered them to the bank, he could not do so, thereby exonerating defendant from his guaranty. The reply, having put in issue the allegations of new matter in the answer, averred, in effect, as a further reply to the first separate defense, that defendant ought not to be permitted to say that plaintiff, for a valuable consideration, surrendered the original certificates and check and granted an extension to the bank, for that on January 8, 1894, defendant believed that it had assets which when converted into money would be sufficient to discharge all its liabilities, if its creditors would not insist upon immediate payment; that about May 18, 1894, he requested plaintiff to surrender said certificates to the bank and to accept others in lieu thereof, agreeing to be responsible upon the latter to the same extent as upon the former, and plaintiff, complying with such request and acting for defendant's accommodation, surrendered the original commercial paper and took the certificates so recommended; wherefore defendant should be estopped, etc. The reply to the allegations of new matter in the second and third separate defenses is substantially the same as the foregoing. A motion to strike out these averments in the reply, on the ground that the facts thus stated were immaterial, having been denied, and a demurrer thereto, for the reason that the matters thus alleged did not state facts sufficient to constitute an estoppel, overruled, a trial was had resulting in a judgment for plaintiff in the sum demanded, and defendant appeals.

E. Mendenhall and W.D. Fenton, for appellant.

Henry E. McGinn, for respondent.

MOORE C.J. (after stating the facts).

It is contended by defendant's counsel that the agreement of their client to pay the sums remaining due on the original certificates of deposit and check, at the time specified, was a collateral undertaking to answer for the debt of the Portland Savings Bank, which was pre-existing and still subsisting, and could only be enforced when evidenced, as it was, by a writing, and that a modification of such guaranty could only be secured in the same formal manner; but, the alleged alteration thereof having been made by parol, the court erred in refusing to grant a judgment of nonsuit. Plaintiff's counsel, however, maintain that defendant's assignment of the original certificates of deposit and check, though in form a promise to answer for the debt of another, was, in effect, an agreement to pay his own debt, which need not have been in writing, and hence a modification thereof could be accomplished by parol.

Our statute of frauds, so far as applicable to the case at bar, contains this provision: "In the following cases the agreement is void, unless the same or some note or memorandum thereof, expressing the consideration, be in writing and subscribed by the party to be charged, or by his lawfully authorized agent; evidence therefore *** shall not be received other than the writing, or secondary evidence of its contents, in the cases prescribed by law: *** (2) An agreement to answer for the debt, default, or miscarriage of another." Hill's Ann.Laws Or. § 785.

A well-recognized exception to this rule exists, however, where a debtor assigns funds or securities, or transfers property, to another, who, in consideration of the receipt thereof, orally promises to pay the debtor's obligations to a third person, in which case the latter may maintain an action on such agreement though not a party thereto. Baker v. Eglin, 11 Or. 333, 8 P. 280; Hughes v. Navigation Co., 11 Or. 437, 5 P. 206; Parker v. Jeffery, 26 Or. 186, 37 P. 712; Lumber Co. v. Miller, 28 Or. 565, 43 P. 659, 52 Am.St.Rep. 807. The reason for this deviation from the express provision of the statute is based upon the assumption that the oral promise attaches to the obligation growing out of the receipt of the fund, security, or property, rendering the agreement enforceable by the person for whose benefit it was made. Feldman v. McGuire, 34 Or. 309, 55 P. 872.

In Leonard v. Vredenburgh, 8 Johns. 29, 5 Am.Dec. 317, Mr. Chief Justice Kent, attempting to distinguish between original and collateral promises in cases arising under the statute of frauds, says: "There are, then, three distinct classes of cases on this subject, which require to be discriminated: (1) Cases in which the guaranty or promise is collateral to the principal contract, but is made at the same time, and becomes an essential ground of the credit given to the principal or direct debtor. Here, as we have already seen, is not, nor need be, any other consideration than that moving between the creditor and original debtor. (2) Cases in which the collateral undertaking is subsequent to the creation of the debt, and was not the inducement to it, though the subsisting liability is the ground of the promise, without any distinct and unconnected inducement. Here must be some further consideration shown, having an immediate respect to such liability, for the consideration for the original debt will not attach to this subsequent promise. *** (3) A third class of cases, and to which I have already alluded, is when the promise to pay the debt of another arises out of some new and original consideration of benefit or harm moving between the newly contracting parties. The first classes of cases are within the statute of frauds, but the last is not."

In Farley v. Cleveland, 4 Cow. 432, 15 Am.Dec. 387, one Moon, being indebted to the plaintiff, sold and delivered a quantity of hay to the defendant, who, in consideration thereof, orally promised to pay plaintiff the sum Moon owed him, but, not having done so, plaintiff brought an action to recover on the promise, and it was held, approving the classification made by Mr. Chief Justice Kent, that where a promise to pay the debt of a third person arises out of some new consideration of benefit to the promisor, or harm to the promisee, moving to the promisor either from the promisee or the original debtor, such promise is not within the statute of frauds, though the original debt still subsists and remains entirely unaffected by the new agreement.

In Mallory v. Gillett, 21 N.Y. 412, it was held that an oral promise to pay an existing and continuing debt of another, in consideration of the creditor's releasing a lien which he held as security for the payment of said debt though it was a promise supported by a new and an original...