§ 399. Invalidity of debt assumed. Another kind of defence to a promise to pay a debt has given rise to considerable litigation. May the promisor set up that the debtor did not owe the debt or that it was an illegal debt? The answer to this question depends upon the true meaning in fact of the promise rather than upon any rule of law. If the promisor's agreement is to be construed as a promise to discharge whatever liability the promisee is under, the promisor must certainly be allowed to show that the promise was under no liability." Thus one who in return for an assignment of property assumed all the grantor's debts would certainly be allowed to dispute the validty of any debt.18 On the other hand, if the promise means that the promisor agrees to pay a sum of money to A, to whom the promisee says he is indebted, it is immaterial whether the promisee is actually indebted to that amount or at all. The promisee has decided that question himself. Where the promise is to pay a specific debt, for example to assume a specific mortgage, especially if the amount of it is deducted from the consideration paid by the promisor for the mortgaged property, this construction will generally be the true one.19 Most of the cases accordingly refuse to allow one who has assumed a specific debt to set up usury 818; Robertson v. Stuhlmiller, 93 Ia. 326, 61 N. W. 986. 17 Paul v. Vancouver, 89 Wash. 331, 154 Pac. 453, and see cases in the following note. 18 See Gate City Nat. Bank v. Chick, 170 Mo. App. 343, 156 S. W. 743; Crowe v. Malba Land Co., 76 N. Y. Misc. 676, 135 N. Y. S. 454. 19 If the debt in fact was not due the promise will be to pay a sole beneficiary; if, however, the debt was due, the promisee will be of the debtor and creditor type. It seems immaterial that the parties are ignorant, when they contract, to which class the promise belongs. 20 Millington v. Hill, 47 Ark. 301, 1 S. W. 547; People's Bank v. Collins, 27 Conn. 142; Key West Coal Co. v. Porter, 63 Fla. 448, 58 So. 599; Hen 20 derson v. Bellew, 45 Ill. 322; Valentine v. Fish, 45 Ill. 462; Essley v. Sloan, 16 Ill. App. 63; Flanders v. Doyle, 16 Ill. App. 508; Cleaver v. Burcky, 17 Ill. App. 92; Stephen v. Muir, 8 Ind. 352, 65 Am. Dec. 764; Spinney v. Miller, 114 Ia. 210, 86 N. W. 317; Williams v. Eagle Bank, 172 Ky. 541, 189 S. W. 883; Hough v. Horsey, 36 Md. 181; Log Cabin Assoc. v. Gross, 71 Md. 456, 18 Atl. 896; Scanlan v. Grimmer, 71 Minn. 351, 74 N. W. 146, 70 Am. St. Rep. 326; Cramer v. Lepper, 26 Ohio St. 59, 20 Am. Rep. 756; Jones v. Insurance Co., 40 Ohio St. 583; Spaulding v. Davis, 51 Vt. 77; Conover v. Hobart, 24 N. J. Eq. 120; Post v. Dart, 8 Paige, 639; Cole v. Savage, 10 Paige, 583; Root v. Wright, 21 Hun, 344; Sands v. Church, 6 N. Y. 347; Hartley v. Harrison, 24 N. Y. 170; or other defences, 21 of which the debtor might have availed himself. § 400. All parties should be joined. In dealing with any of these defences it is obvious that all three parties should have an opportunity of litigating the question since all are interested in it, and it is desirable to have all concluded by the judgment. If a creditor who sues the promisor and is met by the defence of fraud or mistake in the contract nevertheless prevails, but being unable to collect his judgment sues the original debtor, as he would be allowed to do in many jurisdictions, clearly the debtor cannot be concluded Ritter v. Phillips, 53 N. Y. 586 (payment). But see Mollohan v. Masters, 45 App. D. C. 414; Knickerbocker Life Ins. Co. v. Nelson, 78 N. Y. 137. The same result has been reached even though the purchaser of the equity of redemption does not assume the mortgage provided the amount of the mortgage is deducted from the purchase price. Scull v. Idler, 79 N. J. Eq. 466, 81 Atl. 746; Higbee v. Ætna Building & Loan Assn., 26 Okla. 327, 109 Pac. 236. But if the amount of the mortgage is not thus deducted, nor payment of the mortgage assumed, the purchaser may set up usury. First Nat. Bank v. Drew, 226 Ill. 622, 80 N. E. 1082, 117 Am. St. Rep. 271, 10 L. R. A. (N. S.) 857; Grove v. Great Northern Loan Co., 17 N. Dak. 352, 116 N. W. 345, 138 Am. St. 707. See also Ford v. Washington Nat. Building, etc., Co., 10 Idaho, 30, 76 Pac. 1010, 109 Am. St. Rep. 192. 21 Pope v. Porter, 33 Fed. 7 (informal execution); Santa Cruz v. Wykes, 202 Fed. 357, 120 C. C. A. 485; Kennedy v. Brown, 61 Ala. 296 (coverture); Davis v. Davis, 19 Cal. App. 797, 127 Pac. 1051 (statute of limitations); Key West Coal Co. v. Porter, 63 Fla. 448, 58 So. 599 (failure of consideration); Mackey v. Ballou, 112 Ind. 198, 13 N.E. 715; Gowans v. Pierce, 57 Kan. 180, 45 Pac. 586 (unauthorized signature to note); Cox v. Hoxie, 115 Mass. 120 (erroneous amount); Comstock v. Smith, 26 Mich. 306 (coverture); Miller v. Thompson, 34 Mich. 10 (invalid execution); Crawford v. Edwards, 33 Mich. 354 (failure of consideration); Lee v. Newman, 55 Miss. 365 (invalidity); Johnson v. Parmely, 14 Hun, 398 (payment); Ferris v. Crawford, 2 Denio, 595 (payment); Horton v. Davis, 26 N. Y. 495 (want of record); Freeman v. Auld, 44 N. Y. 50 (failure of consideration); Parkinson v. Sherman, 74 N. Y. 88, 30 Am. Rep. 268 (failure of consideration); Bennett v. Bates, 94 N. Y. 354, 370 (invalidity of mortgage); Howard v. Robbins, 67 N. Y. App. Div. 245, 73 N. Y. S. 172; Newton v. Evers, 143 N. Y. App. Div. 673, 128 N. Y. S. 327 (lack of title in mortgagor). As stated in Oglesby v. South Georgia Grocery Co., 18 Ga. App. 401, 402, 89 S. E. 436: "If one assumes to pay a definite amount of the indebtedness of another, it is none of his concern whether the debt thus assumed is greater or less than the actual indebtedness. Bush v. Roberts, 4 Ga. App. 531, 62 S. E. 92.” But see Goodman v. Randall, 44 Conn. 321; Bowser v. Patrick, 23 Ky. L. Rep. 1578, 65 S. W. 824 (champerty). by the judgment in the first case and the creditor must try the same question again and perhaps with a different result.22 § 401. Contracts under seal. None of the earlier cases which allowed a right of action to one who was not a party to the contract related to contracts under seal, and where statutes have not taken away the importance of the distinction between sealed and parol contracts the rule that one who is not a party to a contract under seal cannot sue upon it is still applied to contracts to benefit or pay a debt to a third person. 23 But in some States the rules of the common law distinguishing contracts under seal from other written contracts have been abolished or diminished, so that it is not surprising that the distinction as to the right of a third person to sue has often been disregarded.24 22 In Green v. Stone, 54 N. J. Eq. 387, 34 Atl. 1099, 55 Am. St. Rep. 577, the court held that the defence that the clause assuming payment of a mortgage was inserted in a deed by mistake must be asserted by a cross bill to which the promisee must be made a party. 23 Hendrick v. Lindsay, 93 U. S. 143, 23 L. Ed. 855; Willard v. Wood, 135 U. S. 309, 10 S. Ct. 831, 34 L. Ed. 210, 311, 313; 164 U. S. 502, 17 S. Ct. 176, 41 L. Ed. 531; Douglass v. Branch Bank, 19 Ala. 659; Hunter v. Wilson, 21 Fla. 250, 252; Gunter v. Mooney, 72 Ga. 205; Moore v. House, 64 Ill. 162; Gautzert v. Hoge, 73 Ill. 30; Harms v. McCormick, 132 Ill. 104, 109, 22 N. E. 511 (now changed by statute); Hinkley v. Fowler, 15 Me. 285; Farmington v. Hobart, 74 Me. 416; Seigman v. Hoffacker, 57 Md. 321; Montague v. Smith, 13 Mass. 396; Millard v. Baldwin, 3 Gray, 484; Robb v. Mudge, 14 Gray, 534, 538; Flynn v. North American Life Ins. Co., 115 Mass. 449, 27 N. J. Eq. 152; Joslin v. New Jersey Car Spring Co., 36 N. J. L. 141, 146; Cocks v. Varney, 45 N. J. Eq. 72, 17 Atl. 108; Styles v. Long Co., 67 N. J. L. 413, 418, 51 Atl. 710 (but by Stat. of 1898 the rule was extended to sealed contracts. ibid.). Lee v. Newman, 55 Miss. 365, 374; How v. How, 1 N. H. 49; Strohecker v. Grant, 16 S. & R. 237; De Bollé v. Pennsylvania Ins. Co., 4 Whart. 68, 33 Am. Dec. 38; Mississippi R. R. Co. v. Southern Assoc., 8 Phila. 107; McAlister v. Marberry, 4 Humph. 426; Fairchild v. North Eastern Assoc., 51 Vt. 613; Jones v. Thomas, 21 Gratt. 96, 101 (now changed by statute); McCarteney v. Wyoming Nat. Bank, 1 Wyo. 382. 24 Central Trust Co. v. BerwindWhite Co., 95 Fed. Rep. 391; Starbird v. Cranston, 24 Col. 20, 48 Pac. 652; Webster v. Fleming, 178 Ill. 140, 52 N. E. 975; Tapscott v. McVey, 83 N. J. L. 747, 85 Atl. 343; Harts v. Emery, 184 Ill. 560, 56 N. E. 865; Hartman v. Pislorius, 248 Ill. 568, 94 N. E. 131; Robinson v. Holmes, 75 Ill. App. 203; American Splane Co. v. Barber, 91 Ill. App. 359; Torpe v. John, 177 Ill. App. 85; Jefferson v. Asch, 53 Minn. 446, 55 N. W. 604, 25 L. R. A. 257, 39 Am. St. Rep. 618; Rogers v. Gosnell, 51 Mo. 466, 58 Mo. 589; Van Schaick v. Railroad, 38 N. Y. 346; Coster v. § 402. Person incidentally benefited. It sometimes happens that a person who is neither the promisee of a contract nor the party to whom performance is to be rendered will derive a benefit from its performance. A typical case is where A promises B to pay him money for his expenses. A creditor of B is not generally allowed to sue A.25 It is obvious that such a creditor's right can at most be only a derivative one. So under a promise made in a building contract that there may be retained from payments due the contractor a sufficient sum to pay claims for labor and material, there can be no recovery by a creditor of the contractor for labor or material, 26 In Missouri and Nebraska, however, bonds for the erection of public buildings containing such a clause are intended for the protection of the creditors as well as of the public corpora Mayor of Albany, 43 N. Y. 399; Riordon v. First Church, 26 N. Y. S. 38, 6 N. Y. Misc. 84; Vulcan Iron Works v. Pittsburg Eastern Co., 144 N. Y. App. Div. 827, 129 N. Y. S. 676; Lockwood v. Smith, 81 N. Y. Misc. 334, 143 N. Y. S. 480; Emmitt v. Brophy, 42 Ohio St. 82; Hughes v. Oregon Ry. & N. Co., 11 Oreg. 437, 5 Pac. 206; McDowell v. Laev, 35 Wis. 171; Bassett v. Hughes, 43 Wis. 319; Houghton v. Milburn, 54 Wis. 554, 12 N. E. 23, 11 N. E. 517; Stites v. Thompson, 98 Wis. 329, 331, 73 N. W. 774. A third person was allowed to enforce a promise under seal also in the following cases, but the point was not discussed: South Side Assoc. v. Cutler Co., 64 Ind. 560; Anthony v. Herman, 14 Kan. 494; Brenner v. Luth, 28 Kan. 581. See also Va. Code, § 2415; Newberry Land Co. v. Newberry, 95 Va. 111, 27 S. E. 897. 25 Cragin v. Lovell, 109 U. S. 194, 199, 3 S. Ct. 132, 27 L. Ed. 903; Thomas Mfg. Co. v. Prather, 65 Ark. 27, 44 S. W. 218; Burton v. Larkin, 36 Kan. 246, 13 Pac. 398, 59 Am. Rep. 541. See also Jackson Iron Co. v. Negaunee Concentrating Co., 65 Fed. 298, 31 U. S. App. 1, 12 C. C. A. 636; Hill v. Omaha, etc., R. Co., 82 Mo. App. 188; Lockwood v. Smith, 81 N. Y. Misc. 334, 143 N. Y. S. 480; Fish & Hunter Co. v. New England Homestake Co., 27 S. D. 221, 130 N. W. 841. But see contra Rothwell v. Skinker, 84 Mo. App. 169; Rounsevel v. Osgood, 68 N. H. 418, 44 Atl. 535; Houghton v. Milburn, 54 Wis. 554, 12 N. E. 23, 11 N. E. 517. And where an insurance company had reinsured its risks, a policy holder was allowed to sue the reinsuring company directly in Glen v. Hope Mut. Life Ins. Co., 56 N. Y. 379; Fischer v. Hope Mut. Life Ins. Co., 69 N. Y. 161; Johannes v. Phenix Ins. Co., 66 Wis. 50, 27 N. W. 414, 57 Am. Rep. 249. 26 Kellas v. Slack & Slack Co., 129 Md. 535, 99 Atl. 677; Grassmann v. Bonn, 30 N. J. Eq. 490; United States Fidelity, etc., Co. v. Newark, 79 N. J. Eq. 584, 81 Atl. 758, 37 L. R. A. (N. S.) 575; Standard Gas Power Corp. v. New England Casualty Co., 90 N. J. L. 570, 101 Atl. 281. tion erecting the building, and the creditors are allowed to sue on the promise.27 § 403. Further illustrations. A mere promise to indemnify against damages must also be distinguished. Here the promisor's liability does not arise until the promisee has suffered loss or expense. Until then the promisee has no right of action, and consequently one claiming damages can assert no derivative right against the promisor, much less a direct right.28 Nor can the promisee sue for the benefit of persons claiming damages. 29 A third person's benefit under a contract may be still more incidental; for instance, where the failure of a grantee of land to keep his promise to the grantor to pay a mortgage, resulted in a loss to the plaintiff of an interest in the land when the mortgagee foreclosed the mortgage. The New York court rightly refused relief.30 So a contractor cannot enforce a contract made by a lumber dealer for his own benefit with the owner of a house, which provided that the contractor should be employed to make the repairs for which the lumber dealer advanced money.31 The contract was not made even partially for the plaintiff's benefit, and as the promisee was under no obligation to the plaintiff it is not possible to work out an indirect right.32 A Louisana case 33 suggests another distinction. 27 See supra, § 395, n. 4. 58 28 Wilson v. Shea, 29 Cal. App. 788, 157 Pac. 543; Hill v. Omaha, etc., R. R. Co., 82 Mo. App. 188; French v. Vix, 143 N. Y. 90, 37 N. E. 612; Embler v. Hartford Ins. Co., 158 N. Y. 431, N. E. 212; Mansfield v. Mayor of New York, 165 N. Y. 208, 58 N. E. 889. An insured person was denied a right of action against a company reinsuring the insurer in Vial v. Norwich Union F. Ins. Co., 257 Ill. 355, 100 N. E. 929, 44 L. R. A. (N. S.) 317, Ann. Cas. 1914 A. 1141. Cf. the cases cited therein where the reinsurer undertook to pay directly to the insured, instead of to the insurer, and where the latter was allowed a direct action against the reinsurer. 29 New Haven v. New Haven & D. R. Co., 62 Conn. 252, 25 Atl. 316, 18 L. R. A. 256. 30 Durnherr v. Rau, 135 N. Y. 219, 32 N. E. 49. See also Pearson v. Bailey, 180 Mass. 229, 62 N. E. Rep. 265. 31 Hollister v. Sweet, 32 S. Dak. 141, 142 N. W. 255. 32 See also Constable v. National Steamship Co., 154 U. S. 51, 14 S. Ct. 1062, 38 L. Ed. 903; Hennessy v. Bond, 77 Fed. Rep. 403, 405, 48 U. S. App. 89, 23 C. C. A. 203. 33 New Orleans St. Joseph's Assoc. v. Magnier, 16 La. Ann. 338. |