Fish v. First Nat. Bank

GILBERT, Circuit Judge, after stating the case as above, delivered the opinion of the court. Did the bank, as owner before maturity, of the negotiable promissory note, have a cause of action against Fish by virtue of the partnership agreement between Fish and Loomis, or by virtue of the agreement of dissolution, or both? In the partnership agreement, it was recited that the note was given for money which was used by Loomis to purchase the goods and merchandise which he transferred to the copartnership, and that the indebtedness was assumed by the partnership. In the dissolution agreement, which was made four months later, all of the assets of the partnership were turned over to Fish, and he assumed the liabilities of the partnership. Af the time of the dissolution, [682] the promissory note was not due, and, in determining what liabilities were assumed by Fish, the two agreements should be read together; and, when so read, it is obvious that the indebtedness on the note was a liability which Fish expressly promised to pay. At common law, the right of a plaintiff to sue in assumpsit in his own name upon the promise contained in an agreement not under seal, if made for his sole benefit, although he was not a party to the contract, was generally recognized. Hendrick v. Lindsay et al., 93 U.S. 143, 23 L. Ed. 855. In the case just cited, the court said: “But the right of a party to maintain assumpsit on a promise not under seal made to another for his benefit, although much controverted, is now the prevailing rule in this country.” As to what contracts' are, and what are not, made for the benefit of a third person, within the meaning of this rule, there is much diversity of opinion, and the decisions are not reconcilable. But it is universally held, so far as our observation goes, that the promise made by the purchaser of property to the seller to pay, as part of the consideration therefor, a specified debt due from the seller to a third person, is a promise made for the sole benefit of such third person, and one upon which he may maintain an action. In such a case, the third person is privy in fact to the promise and the consideration. In Austin v. Seligman, 18 F. 519, 21 Blatchf. 506, a case in which a copartnership transferred its assets to a purchaser, and the latter assumed partnership debts, Wallace, Circuit Judge, said: “If, upon such a transfer, the purchaser assumes to pay certain specified creditors or certain enumerated debts of the seller, it may be fairly urged that the parties contemplate a direct liability to the specified creditor on the part of the purchaser.” Among cases sustaining this general doctrine are the following: Barker v. Pullman’s Palace Car Co. (C.C.) 124 F. 555; Bassett v. Hughes, 43 Wis. 319; Grant v. Diebold Safe & Lock Co., 77 Wis. 72, 45 N.W. 951; Redelsheimer v. Miller et al., 107 Ind. 485, 8 N.E. 447; Potts v. First Nat. Bank of Gadsden, 102 Ala. 286, 14 So. 663; Snell et al. v. Ives, 85 Ill. 279; Lovejoy v. Howe, 55 Minn. 353, 57 N.W. 57; Delp v. Brewing Co., 123 Pa. 42, 15 A. 871. [683] There is other ground upon which the promise of the plaintiff in error may be enforced. When he made his promise to Loomis to assume the debt, he became, as between himself and Loomis, the principal, and the latter became his surety. Said the court, in Keller v. Ashford, 133 U.S. 610-623, 10 S.Ct. 494, 497, 33 L.Ed. 667: “If one person agrees with another to be primarily liable for a debt due from that other to a third person, so that as between the parties to the agreement the first is the principal and the second the surety, the creditor of such surety is entitled in equity to be substituted in his place for the purpose of compelling” such principal to pay the debt.” The principle so announced was, in that case, applied to the contract of a purchaser of mortgaged property who had assumed the payment of the mortgage debt. It was reaffirmed in Willard v. Wood, 135 U.S. 309, 10 S.Ct. 831, 34 L.Ed. 210, in which case the court recognized the remedy of a mortgagee against a grantee of the mortgagor to enforce such an agreement, and held that the question whether the remedy is at law or in equity must be governed by the lex fori: In Union Mutual Life Ins. Co. v. Hanford, 143 U.S. 187, 12 S.Ct. 437, 36 L.Ed. 118, it was said: “The grantee, as soon as the mortgagee knows of the arrangement, becomes directly and primarily liable to the mortgagee for the debt for which the mortgagor was already liable to the latter, and the relation of the grantee and the grantor toward the mortgagee as well as between themselves is thenceforth that of principal and surety for the payment of the mortgage debt.” In Johns v. Wilson, 180 U.S. 440, 21 S.Ct. 445, 45 L. Ed. 613, it was held that, under the practice in Arizona, the grantee of a mortgagor, who has agreed to pay the notes secured by a mortgage, may be held liable for a deficiency upon the sale of the mortgaged premises in a direct action at law by the mortgagee. The Code of Civil Practice for Alaska (Carter’s Code, p. 145, § 1), abolishes the distinction between actions at law and suits in equity. Madden v. McKenzie (C.C.A.) 144 F. 64. The complaint in this case, while not ostensibly framed as a complaint in equity, contains all the necessary averments of a bill to enforce the execution of the promise made by the plaintiff [684] in error to Loomis, and it would be sufficient, we think, to support the judgment which was rendered by the trial court. It is contended that the trial court erred in sustaining the demurrer to the answer which it is said sets up equitable defenses to the action. Whether the remedy of the third party is at law or in equity, he cannot acquire a better standing to enforce the assumption of the debt than that occupied by the original parties to the contract. His right of action is subordinate to their rights, and, if he avails himself of the contract, he will be affected by the equities growing out of the contract between them. Said the court, in Dunning et al. v. Leavitt, 85 N.Y. 30, 35, 39 Am.Rep. 617: “There is no justice in holding that an action on such a prorriise is not subject to the equities between the original parties springing out of the transaction or contract between them.” In Malanaphy v. Mfg. Co., 125 Iowa, 719-723, 101 N. W. 640, 641, 106 Am.St.Rep. 332, it was said: “Among other limitations, the party to be benefited becomes subject to all inherent equities arising out of the contract as affecting the principal parties one with the other. This follows naturally from the relation of privity which the law implies.” In Ellis v. Harrison, 104 Mo. 270, 16 S.W. 198, the court said: “It is clear that on principle such right cannot be broader than the party to the contract [through whom the right of action is derived] would have in event of its breach * * * such beneficiary cannot acquire a better standing to enforce the agreement than that occupied by the contracting parties themselves.” Of the same import are the following: Episcopal City Mission v. Brown, 158 U.S. 222, 15 S.Ct. 833, 39 L.Ed. 960; Trimble v. Strother, 25 Ohio St. 378; Green v. McDonald et al., 75 Vt. 93, 53 A. 332; Clay v. Woodrum, 45 Kan. 116, 25 P. 619; Hargadine McKittrick Dry Goods Co. v. Swofford Bros. Dry Goods Co. (Kan.) 70 P. 582; Benedict v. Hunt, 32 Iowa, 27; Heath v. Coreth (Tex.Civ.App.) 32 S.W. 56. The fact that the present action was brought by the holder of a promissory note acquired before maturity cannot affect the question of the [685] applicability of the rule. The name of the plaintiff in error is not upon the note as maker, guarantor, or indorser or otherwise. His promise to pay was not relied upon or known by the defendant in error when it took the note, and the latter is in no better attitude to enforce the promise to assume its payment than would be the original promisee. But we find no equities set forth in the answer which may be interposed in defense of the demand of the de-> fendant in error. If the note had been in fact non-negotiable, as the answer avers it was represented to be, the plaintiff in error would thereby be in no better position so far as his equitable defenses are concerned. The mortgage to Simpson, which it is alleged incumbers the land of the plaintiff in error, is in equity transferred to the defendant in error by its purchase of the note, and when the note is paid, the mortgage will thereby be satisfied. The answer makes no allegation as to the disposition which has been made of the freight money earned under the contract with Simpson. That money is not alleged to have been paid to Loomis, and it is not perceivable from any averment in the answer that it could have been so paid. For aught that appears to the contrary in the answer, that money may have been paid to the plaintiff in error, or is now a recover- . able asset payable to him. The judgment is affirmed.