Drake v. Rowe

Opinion of the Court by Chief Justice Mtller Reversing. The appellants, Drake and Morton, brought this action in equity on December 23rd, 1912, against the appellee, T. H. Rowe, to recover from Rowe the sum of $1,086.06, which represented the unpaid portion of four notes, executed by Rowe, as principal* to the H. Herr-mann Manufacturing Company, of Evansville, Indiana, hereinafter called the manufacturing company for brevity, with Drake and Morton as.sureties thereon. Upon the trial, the chancellor dismissed the petition with costs, and the plaintiffs appeal. The four notes sued on were as follows: (1) dated August 5th, 1899, for $800.00; (2) dated October 13th, 1899, for $300.00; (3) dated November 27th, 1899, for $200.00; and (4) dated January 17th, 1900, for $200.00. The notes were executed under the following circumstances: Drake and Morton had a contract with the manufacturing company to furnish it a quantity of saw-logs to be delivered at certain designated points on Creen River in Kentucky. In executing a portion of that contract Drake and Morton, with the consent of the manufacturing company, substituted Rowe in their place. By a written contract between Rowe and the manufacturing company, dated August 12th, 1899, Rowe agreed to cut and deliver to that company at Evansville, Indiana, on or before the 1st of July, 1900, all of the poplar, ash, red gum, black walnut and oak timber on 179 acres oi land in Muhlenberg county, then owned by Jackson Ed. wards, at the prices specified in the contract. The contract contemplated that the manufacturing company would'advance money to Rowe, as the work progressed, all advancements to be treated as partial payments for the timber. [648] Upon Rowe’s part, Ms contract contemplated and required that he should buy and pay for the Jackson Edwards land. It was estimated that the land was worth $700.00, and that the timber upon said land was worth $800.00. The $800.00 called for by the first note of August 5th, 1899, and the $300.00 called for by the second note, dated October 13th, 1899, were advanced to Rowe by the manufacturing company, upon the credit of Drake and Morton, who were sureties upon said notes. Rowe used the $800.00 realized upon the first note in making the cash payment upon the Edwards land, and raised the remaining $700.00 upon two lien notes, one for $500.00 and the other for $200.00, both of which were signed by Rowe,'as principal, and by Drake alone, as surety. These two last named notes were discounted to the First National Bank of Greenville, Kentucky, and the proceeds were paid to Edwards in full satisfaction of his purchase money, which was $1,500.00. The $300.00 realized upon the'second note of October 13th, 1899, was received •by Rowe from the manufacturing company, and used by Mm in cutting and marketing the timber. After having worked eight or nine months upon his contract, Rowe, on account of family afflictions, sold his timber contract with the manufacturing company to his brother-in-law, B. F. Hill, for $50.00; and by his deed, dated July 17th, 1900, Rowe conveyed to Hill the Ed-Avards tract of land, upon which there remained a lien for the unpaid purchase money of $700.00, with interest. ■ Hill assumed the contract and had made some progress with it, when, by a sudden “run-out,” or flood, in Green River, all the logs which Rowe and Hill had hauled to the banks of Green River, and were undelivered, floated doAvn the river and were lost beyond recovery, except a few that were caught and delivered to the manufacturing company at Evansville. Hill did no further work under the contract. Shortly thereafter, on August 24th, 1900, the manufacturing company made out a statement against T. H. Rowe, shopping that it had advanced to him upon the four notes first above mentioned and for other purposes, under the timber contract, money aggregating $1,786.86, upon wMch they gave Rowe a credit for logs delivered, amounting to $700.80, leaving a balance of $1,086.06 due the company from Rowe. The manufacturing company required Drake and Morton to pay or secure this amount, [649] although. $286.86 thereof was not included in the four notes above mentioned. In addition to this amount, Drake and Morton owed the manufacturing company between four and five thousand dollars upon other transactions, and, in closing the accounts, they gave their obligation, secured by mortgage, for the entire indebtedness. Subsequently, however, either in the spirit of charity, or in the exercise of a liberal business policy, the manufacturing company discounted Drake and Morton’s account by deducting 32% per cent, from the face thereof. So, instead of paying $1,086.06 upon the Rowe account, Drake and Morton paid only $733.09. As Drake was bound as surety for the lien notes for $700.00 held by the First National Bank of Greenville, and- the timber had been cut from the Edwards land and lost, Hill conveyed the land to Drake, on October 19th, 1900, in consideration of Drake’s agreement to pay the lien thereon, which then amounted to $780.00. This closed the land transaction which was between Drake and Rowe, and subsequently between Drake and 'Hill. Morton had nothing to do with it. As above indicated, the firm of Drake and Morton brought this suit on December 23rd, 1912, upon the four notes which the partners Drake and Morton paid as sureties for Rowe. In his answer, Rowe admitted he received the money, amounting to $1,100.00, upon the first two notes; he denied, however, that he signed either of the other two notes or that he received any of the proceeds thereof. By the fifth paragraph of his answer, Rowe set forth the contract of July 17th, 1900, between himself and Hill whereby Hill was substituted in Rowe’s place under the contract with the manufacturing company; and he alleged that this was done not only with the consent and approval of Drake and Morton, but that, in consideration of Rowe’s conveying the land to Hill, Drake and Morton agreed to pay the notes Rowe had given to the manufacturing company, and to release Rowe from all liability thereon. By the sixth paragraph of his answer Rowe set up the contract wherein Hill had sold and transferred the land to Drake, and alleged that Drake agreed with Hill that if Hill would convey the land to Drake, Drake would pay the four notes sued on, and that the transfer of the land would be accepted by him in full and com650 píete settlement of all the debts which Rowe' owed the manufacturing company. The court overruled the demurrers to the fifth and sixth paragraphs, and to the answer as a whole. Upon these issues the case was tried, with the result above indicated. For a reversal it is insisted, first, that the demurrers to the fifth and sixth paragraphs of the answer should have been sustained, upon the idea that the contracts therein relied upon being in parol, were contracts to answer for the debt of another person, and were, therefore, within Sub-section 4 of Section 470 of the Kentucky Statutes, generally known as the Statute of Frauds. That statute provides: “No action shall be brought to charge any person * * * upon a promise to answer for the debt, default or misdoing of another * * * unless the promise * * * be in writing and signed by the party to be charged therewith, or by his authorized agent.” Appellant’s contention involves a misconception of the meaning and effect of the statute relied on, since it applies to actions and not to defenses; and the defendant’s plea went to the defense and not to the cause of action. The statute does not make oral contracts to answer for the debt of another person invalid; it merely prohibits. the bringing of an action upon such a promise. The Aultman & Taylor Co. v. Meade, 121 Ky., 241, 123 Am. St. R., 193, and Louisville Banking Co. v. Buchanan, 117 Ky., 975, are, in principle, decisive of this question. The defenses presented by the fifth and sixth paragraphs of the answer were not precluded by the statutes, and the demurrers thereto were properly overruled. But, upon the merits of the defenses presented in the fifth and sixth paragraphs of the answer, the weight of the evidence is with Drake and Morton. In substance, it appears that Rowe and Hill saw Drake, who was the active partner in this business, and told him their purpose of substituting Hill for Rowe under the first contract, and that Drake said he had no objection to it, but that he could not make the agreement to substitute Hill for Rowe, because Rowe’s agreement was direct with the manufacturing company. Neither Rowe nor Hill says Drake made the agreement relied upon in the. answer; the most they say is that Drake merely said he [651] bad no objection to tbeir plan, and gave tbe very good reason above’ indicated for bis refusal to agree to it. Tbe contract was between Rowe and tbe manufacturing company; not between Rowe and Drake and Morton. As to tbe second contract, whereby Hill transferred tbe land to Drake, there is no material difference between the witnesses. When tbe land was originally bought from Edwards it was estimated tbe timber was worth $800.00, and tbe land $700.00. Tbe timber, in tbe meantime, bad been cut and there still remained tbe unpaid purchase money of $780.00; -and, as Drake was surety for that money, be insisted upon some arrangement by which be could be secured. To effect that purpose, Hill conveyed tbe land to Drake, who agreed to pay tbe unpaid purchase money, which was more than tbe estimated value of tbe land, after tbe timber bad been cut. This settled tbe land transaction and put it out of tbe case. It was a. separate and distinct transaction, and has no bearing upon tbe merits of this suit, which is brought .solely upon tbe four notes first above specified. Tbe proof relating to tbe third and fourth notes is not sufficient to fix upon Rowe any liability for those notes. Rowe admits be signed tbe first two notes for $800.00 and $300.00, respectively, and received the proceeds thereof, but be expressly denies that be signed either the third or fourth note; and be further says be did not receive any part of the proceeds of tbe third or fourth notes. Furthermore, Drake, who was tbe managing partner in this transaction, admits Rowe did not sign tbe third and fourth notes, but says Rowe authorized Hill to sign them, and that Hill did so; and Drake further says Rowe admitted be bad authorized Hill to sign tbe notes. Rowe denies both statements, and Hill also denies that be signed tbe notes for Rowe, or that be bad any authority to do so. It is true Pannell says Hill told him that Rowe bad authorized Hill to sign tbe notes; but Hill contradicts Pannell, and tbe testimony, if true, would not be competent against Rowe. So, under tbe proof, it must be said tbe appellants have failed to make out tbeir case against Rowe upon tbe third and fourth notes. Tbe appellants’ right to recover, therefore, must be limited to tbe first two notes for $800.00 and $300.00, respectively, aggregating $1,100.00. Tbe third and fourth notes, aggregating $400.00, being excluded from tbe total [652] bill of $1,786.86, which Eowe owed the manufacturing company, leaves a gross indebtedness by Eowe of $1,386.86; and deducting from this the credit of $700.80, there remains a net balance of $686.06. Prom this net balance there should be deducted the credit of 32% per •oent., amounting to $222.80, which was not paid by Drake and Morton, thus leaving a final net balance of $463.25, for which appellants should have judgment, with interest thereon from August 24th, 1900, the date of its payment by appellants to the manufacturing company. The judgment is reversed, with instructions to the circuit court to enter a judgment as above indicated.