Powerine Co. v. Russell's, Inc.

• Decision Date: 07 April 1943
• Docket Number: 6530
• Citation: 135 P.2d 906,103 Utah 441
• Parties: POWERINE CO. v. RUSSELL'S, Inc., et al
• Court: Utah Supreme Court

135 P.2d 906

103 Utah 441

POWERINE CO. v. RUSSELL'S, Inc., et al

No. 6530

Supreme Court of Utah

April 7, 1943

Rehearing denied July 23, 1943.

Appeal from Third Judicial District Court, Salt Lake County; A. H Ellett, Judge.

Action by the Powerine Company, a corporation, against Russell's Inc., George R. Russell, and John H. Russell to recover a balance due for gasoline and petroleum products sold on open account and foreclose a chattel mortgage securing such indebtedness, in which defendant John H. Russell filed a counterclaim for breach of covenants in, and rescission and cancellation of, the lease. From a judgment for defendants on the issue formed by the complaint and for plaintiff on the counterclaim, plaintiff and defendant John H. Russell respectively, appeal.

Affirmed in part, reversed in part, and remanded for new trial as to all issues between appellants.

Charles D. Moore, of Salt Lake City, B. F. Napheys, Jr., of Denver, and E. A. Rogers, of Salt Lake City, for appellant Powerine Co.

Van Cott, Riter & Farnsworth, of Salt Lake City, for appellant John H. Russell.

Stephens, Brayton & Lowe, of Salt Lake City, for respondent.

LARSON, Justice. WOLFE, C. J., and McDONOUGH, Moffat, and WADE, JJ., concur.

OPINION

LARSON, Justice.

Plaintiff sought a judgment for $ 6,812.87, with interest from February 8, 1940, alleged to be due for gasoline and petroleum products sold on open account; to foreclose a chattel mortgage given to secure this indebtedness, and for $ 700 attorney's fees. Defendant John H. Russell denied liability and filed a counterclaim. He set up a lease of real estate made by him to plaintiff, alleged breach of certain covenants, and asked for rescission and cancellation of the lease. He also alleged plaintiff had committed waste on the premises and prayed triple damages in the amount of $ 1,500. In reply, plaintiff denied the allegations of the counterclaim, and asked that the lease be reformed to include some land alleged to have been omitted from the description in the lease through mutual mistake. The court found against plaintiff on the issue formed by the complaint, and in favor of plaintiff on the counterclaim, denying rescission and granting reformation of the lease. Each party appeals from that part of the judgment against him.

The fact situation is rather complex. George R. Russell, a son of the defendant John H. Russell, had been in the retail gasoline business in Salt Lake City for some years before any of the transactions here involved. He had many previous dealings with plaintiff, but always on a strictly cash basis. In August of 1938, he informed the plaintiff, through its local representative Ray W. Shaw, that he intended to expand his operations and eventually incorporate, and would like to arrange to make future purchases of gasoline on a credit basis. He was told that he had no credit rating with the company, and for that reason, the business would have to be continued on a cash basis, and a company formed by him would not be in any better position. Thereafter George secured the form, financial statement, plaintiff's exhibit "A" and had his father, John H. Russell, fill in that form showing John H. Russell's assets thereon. This statement was forwarded to the plaintiff in Denver, and thereafter George made his purchases on a credit basis. The proposed corporation was not completed until January 1939, though from the time of the receipt of the financial statement petroleum products were furnished to George Russell, the account being listed on the books of the plaintiff as "Russell's Inc." Plaintiff admits there was never any account in the name of John H. Russell personally, and that there were never any sales of petroleum products to him personally.

At the time Russell's Inc. was chartered, John H. Russell took a majority of the stock, and became president of the company. He resigned as president in October, 1939, and has held no office in the corporation since that time.

In February 1940, Russell's Inc. and George Russell personally executed a chattel mortgage to the plaintiff on certain filling station equipment. It provided a schedule for monthly payments on the old account, and an admission that there was then due and owing on the old account, the sum of $ 7,200. John H. Russell did not sign this chattel mortgage either as an officer of the corporation, or in a personal capacity.

In June of 1940, John H. Russell leased to plaintiff a filling station property belonging to him. The lease was a straight real property lease, with a rental of 1c per gallon on all gasoline sold at the station. In addition to this written lease and the consideration expressed therein, there was also an oral agreement that the differential between wholesale and take wagon prices on all petroleum products of the plaintiff sold on the leased premises should be credited on the delinquent account of Russell's Inc. Defendant also alleges as part of the lease agreement certain other oral promises, to wit: to operate a first-class service station and make every effort to promote the sale of plaintiff's products within the state of Utah; to keep the service station at all times in repair; and to forebear suit on the delinquent account of Russell's Inc. Defendant also claims that the lease was nonassignable, and plaintiff had no right to sublease, because of the personal nature of the obligations therein contained. Plaintiff admits the station premises were subleased to three different persons. On that ground, and for breach of oral covenants, defendant John H. Russell asked rescission of the lease. Plaintiff in its answer to the counterclaim asked that the lease be reformed to include an additional 60.1 front feet, which it claims were omitted from the lease by mutual mistake of the parties.

Under the view we take of this case, there is but a single theory of liability of John H. Russell which we shall discuss. That is, did the financial statement referred to above have the legal effect of a letter of credit?

The financial statement is on a printed form secured by George Russell and given to his father John H. Russell. It is not a form of, or furnished by, plaintiff. The name and address of John H. Russell are written at the top of the form, and it is filled in so as to be addressed to the plaintiff, and denominated in printing "Individual or Partnership Statement." Then appear the words,

"for the purpose of obtaining credit or the extension or renewal of present indebtedness with you from time to time, herewith submit the following as being a fair and accurate statement of my financial condition on August 1, 1938."

A letter of credit as defined in 12 R. C. L. 1065 is "a request whereby one person asks another to advance money or give credit to a third person, and agrees that he will guarantee the same to the person making the advancement or extending the credit." American Jurisprudence, Vol. 24, page 888, defines a letter of credit as "a written instrument by which the writer requests or authorizes a person to whom it is addressed to pay money or deliver goods to a third person, and which evidences an agreement whereby the writer assumes responsibility for payment to the addressee of the amount of the debt. Otherwise stated, a letter of credit is a letter authorizing the addressee to pay money or supply a commodity to a third person on the credit of the writer." This section states that a letter of credit is actually a contract of guaranty, whether so referred to or not. In other words, a letter of credit is a particular class of written guaranty.

In Liggett v. Levy, 233 Mo. 590, 136 S.W. 299, 301, Ann. Cas. 1912C, p. 72, 73, is the following on this subject:

"Black borrows from 3 Chit. Com. Laws 336, this definition (Black's L. Dic. tit. Letter of Credit): 'An open or sealed letter, from a merchant in one place, directed to another in another place or country requiring him, if a person therein named, or the bearer of the letter shall have occasion to buy commodities, or to want money to any particular or unlimited amount, either to procure the same or to pass his promise, bill, or bond for it, the writer of the letter undertaking to provide him the money for the goods, or to repay him by exchange, or to give him such satisfaction as he shall require, either for himself, or the bearer of the letter.' * * *

"Other definitions abound in cases and approved text-writers on banking and commercial paper, but they agree in substance with the foregoing. For example, Daniel (2 Dan. Neg. Inst [5th Ed.] § 1790) says: 'Letters of credit are instruments of frequent use in commerce, and, while not possessing all the characteristics of negotiability which pertain to bills and notes, partake of them to such an extent as to be necessarily classed as negotiable instruments. A letter of credit may be defined to be a letter of request, whereby one person requests some other person to advance money or give credit to a third person, and promises that he will repay or guarantee the same to the person making the advancement, or accept bills drawn upon himself, for the like amount. * * *'

"That author points out (section 1792) that letters of credit having been in use for many centuries among merchants (quoting from Hallam's Middle Ages to the effect that general letters of credit, not directed to anyone, were not uncommon in the Levant, even as early as the year 1200, and that orders to pay money to a particular person were introduced by the Jews about A. D. 1183).

"The sum of the matter is that letters of credit are instruments long and well-known to commercial law and mercantile usage. Such a letter is not subject to loose definition. Contra, it has a technical and specific one, fills a...