Mine & Smelter Supply Co. v. Stockgrowers' Bank

• Decision Date: 28 October 1909
• Docket Number: 3,015.
• Citation: Mine & Smelter Supply Co. v. Stockgrowers' Bank, 173 F. 859 (8th Cir. 1909)
• Parties: MINE & SMELTER SUPPLY CO. v. STOCKGROWERS' BANK.
• Court: U.S. Court of Appeals — Eighth Circuit

173 F. 859

MINE & SMELTER SUPPLY CO. v. STOCKGROWERS' BANK.

No. 3,015.

United States Court of Appeals, Eighth Circuit.

October 28, 1909

[Copyrighted Material Omitted]

George S. Redd (George Stidger and Horace G. Benson, on the brief) for plaintiff in error.

William A. Riner (Gibson Clark and John D. Clark, on the brief), for defendant in error.

(b) But where the main purpose of the promisor is to serve his own interest and in consideration of his promise to answer for the debt, default, or miscarriage of another he secures for himself a direct and substantial benefit, his promise becomes his original obligation, which carries with it and sustains his incidental undertaking to answer for another's debt and it is valid without writing.

But a direct and substantial benefit to the promisor is indispensable to sustain such a promise, in the absence of writing.

(a) The main purpose of the parol agreement was to guarantee the payment of the debt of H. & S. to the S. Co. The bank did not derive sufficient consideration from the shipment of the goods, the release of those in transit, and the dismissal of the action against it to transform the contract from one of guaranty to an original undertaking on its part, and the parol agreement was void under the statute of frauds.

(b) But the cashier's check was an agreement in writing, subscribed by the party to be charged, to pay $5,870.74 of the debt of H. & S. to the S. Co. The loss incurred by the S. Co. by the shipment of the goods was a sufficient consideration to sustain it, and it was a valid contract under the statute of frauds.

But a cashier's check issued by a bank to pay the debt of another is presumptively within its powers, because it has lawful authority to obtain money, commercial paper, or other lawful security as consideration for the issue of the check before it emits it, and the legal presumption is that it and its officers have discharged their duty and acted within their powers.

In Error to the Circuit Court of the United States for the District of Wyoming.

Before SANBORN and VAN DEVANTER, Circuit Judges, and WILLIAM H. MUNGER, District Judge.

SANBORN Circuit Judge.

The Mine & Smelter Supply Company complains because the court below sustained a demurrer to and dismissed its complaint, which set forth the following facts: The defendant, the Stockgrowers' Bank, had agreed to loan L. A. Holdredge & Son $20,000 to be paid out upon their checks and to be used in the construction of the Thermopolis waterworks. L. A. Holdredge & Son owed the supply company $10,078.50 for goods which they had purchased of the supply company, and which were to be wrought into the construction of the waterworks. Part of these goods had been received by them, part were in transit, and hydrants of the value of $394.55 had not yet been shipped. The bank had agreed, partially by parol and partially in writing, to accept certain drafts drawn by the supply company upon the account of Holdredge & Son with the bank. Two drafts, each for $500 had been drawn, the bank had refused to pay them, they had been protested at an expense to the supply company of $5, and the supply company had brought an action against the bank upon them, which was then pending. In this conditions of affairs the bank, on November 9, 1906, agreed with the supply company and with Holdredge & Son to pay the debt of the latter to the supply company by delivering to it cash or its cashier's check for $5,870.74 and its promissory note for $3,813.21, payable on February 1, 1907, and by paying it $394.55 when certain hydrants, the bill for which was included in said debt, were delivered to Holdredge & Son, to charge the amount of this debt against the loan which the bank had agreed to make to Holdredge & Son, and to do this in consideration that the supply company would release to Holdredge & Son the goods in transit, that it would dismiss its suit against the bank, and that it would ship to Holdredge & Son the hydrants. Thereupon the supply company released the goods, dismissed its suit, and shipped the hydrants, and the bank issued and delivered to the supply company its cashier's check for $5,870.74 and agreed to give the supply company its note for $3,813.21, payable February 1, 1907. The bank afterwards refused to pay its check, and refused to pay any part of the indebtedness of Holdredge & Son to the supply company.

All the agreements of the bank were by parol, except its check for $5,870.74, and the court below held that they were void under the statute of frauds, and dismissed the complaint for that reason.

The statutes of the state of Wyoming, where this contract was made, declare that 'every special promise to answer for the debt, default, or miscarriage of another person' shall be void unless the promise, or some note or memorandum thereof be in writing and subscribed by the party to be charged therewith. Rev. St. Wyo. 1899, Sec. 2953.

Counsel for the plaintiff contend that the agreement of the bank to pay the debt of Holdredge & Son to the supply company out of the loan it had agreed to make to Holdredge & Son did not fall under the ban of this statute, because it was a promise of the bank to discharge its own obligation to make the loan to Holdredge & Son, and its promise to pay the supply company was a mere incident to its main undertaking. The decisions which relate to the argument presented in support of this position are innumerable and inharmonious, but the rules of law by which it must be tried are these:

A legal consideration and a writing subscribed by the party to be charged are both indispensable to sustain a special promise to answer for the debt, default, or miscarriage of another under the statute of frauds. Mallory v. Gillett, 21 N.Y. 412, 414, 416; Loomis v. Newhall, 15 Pick. (Mass.) 159, 166, 167; Stone v. Symmes, 18 Pick. (Mass.) 467; Berkshire v. Young, 45 Ind. 461, 467; Langford v. Freeman, 60 Ind. 46, 50; Hassinger v. Newman, 83 Ind. 124, 126, 43 Am.Rep. 64.

Where there is such a writing, the relinquishment of a right, lien, or advantage, or any substantial loss by the creditor to be paid, although no direct benefit or advantage accrues to the promisor, constitutes a sufficient consideration to sustain the promise. Corkins v. Collins, 16 Mich. 477, 481, 482; Mallory v. Gillett, 21 N.Y. 412, 414.

Where the promisor agrees to discharge his own debt by paying the debt of his creditor at the latter's request, as in a case where a bank undertakes, at the request of one who has money or property deposited with it, to pay the creditor of the depositor out of this money or in consideration of this property, the contract is not a special promise to pay the debt of another, within the meaning of the statute, and no writing is necessary to sustain it. The main undertaking in such a case is to pay the promisor's own debt in the manner requested by his creditor, and the promise to pay the latter's debt to another is a mere incident of the chief undertaking, which is valid without a writing, and which carries with it and sustains the incidental promise to pay the debt of the creditor's creditor. Griffin v. Cunningham, 183 Mass. 505, 67 N.E. 660; Hoile v. Bailey, 58 Wis. 434, 17 N.W. 322; Putney v. Farnham, 27 Wis. 187, 189, 9 Am.Rep. 459; Fosha v. Prosser, 120 Wis. 336, 97 N.W. 924, 926; Morgan v. S.M.L.V. Co., 97 Wis. 275, 72 N.W. 872; De Walt v. Hartzell, 7 Colo. 601, 4 P. 1201; Hughes v. Fisher, 10 Colo. 383, 386, 15 P. 702.

Where the promise to pay the debt of another is not the chief purpose of the transaction in which it inheres, and a substantial and valuable consideration therefor inures directly to the benefit of the promisor, as in a case in which he obtains a conveyance of property in consideration of his promise to pay the debt of the grantor, or to pay an incumbrance upon the property, the promise does not fall within the statute, and no writing is necessary to support it. In cases of this character, the fact that the object of the promisors is not to answer for the debts, defaults, or miscarriages of others, but is to obtain substantial benefits or advantages to themselves, which they actually secure as the consideration for their agreements, distinguishes these promises from those within the statute, and makes them original agreements of the promisors, which are valid without writings. Davis v. Patrick 141 U.S. 479, 487, 488, 489, 12 Sup.Ct. 58, 35 L.Ed. 826; Emerson v. Slater, 22 How. 28, 37, 38, 43, 44, 16 L.Ed. 360; Mallory v. Gillett, 21 N.Y. 412, 423, 433; Stewart v. Jerome, 71 Mich, 201, 38 N.W. 895, 898, 15 Am.St.Rep. 252; Johnson v. Knapp, 36 Iowa, 616, 618; Pratt v. Fishwild & Williams, 121 Iowa, 642, 96 N.W. 1089, 1092; Cox v. Halloran, 82 A.D. 639, 81 N.Y.Supp. 803; Roy & Titcomb v. Flin, 10 Ariz. 80, 85 P. 725; Justice v. Tallman, 86 Pa. 147; Harrison v. Simpson, 17 Kan. 508; Stariha, Executor, v. Greenwood, 28 Minn. 521, 11 N.W. 76; Hoile v. Bailey, 58 Wis. 434, 17 N.W. 322; Fosha v. Prosser, 120 Wis. 336, 97 N.W. 924, 926; Morgan v. S.M.L.V. Co., 97 Wis. 275, 72 N.W. 872.

But where the main purpose of the transaction is the promise to pay the debt of another, and no substantial benefit or advantage inures directly to the promisor in consideration thereof, the agreement falls under the ban of the statute, and it cannot be sustained, in the absence of a writing subscribed by the party to be charged. Mallory v. Gillett, 21 N.Y. 412, 420; Gray v. Herman, 75 Wis. 453, 44 N.W. 248, 249, 6 L.R.A. 691; Weisel v. Spence, 59 Wis. 301, 18 N.W. 165; Stewart v. Jerome, 71 Mich. 201, 38 N.W. 895, 898, 899, 15 Am.St.Rep. 252.

Laying out of view the cashier's check for $5,870.74, which will be considered later, there was a sufficient consideration in the loss inflicted...