Opdyke v. Pacific R.

18 F. Cas. 744, 3 Dill. 55

• Court: U.S. Circuit Court for the District of Eastern Missouri
• Decided: July 1, 1874
• Status: Published

Opinion

DILLON, Circuit Judge.

On June 14th, 1S70. the defendant made a contract with the St. Louis, Lawrence & Denver Railroad Company, to lease its road for thirty years. This “lease and contract” is under the seal of the two companies. It appears from the instrument that the road thus leased was then located, but was thereafter to be constructed by the lessor. The defendant agreed to operate the road during the whole of the demised term and to keep the same In use and repair. The defendant was to pay to the lessor (the Lawrence Company) “as an annual rental for the use of said road thirty-five per cent of the gross earnings thereof for the first ten years, and thirty-three and one-third per cent for the next twenty years.” Then follows the sixth section of the contract, which recites that the Lawrence Company is about to issue $1,000,000 first mortgage six per cent, gold bonds, payable at the Bank of Commerce, New York, and that that company had agreed to pay all taxes upon its road and to fence the same, and concludes thus: “Now, for the purpose of providing a fund sufficient to meet said interest (and to make the other payments referred to), the Pacific Railroad Company covenants and agrees to pay the said Bank of Commerce on account of said rental, to the credit of the interest account of said St. Louis, Lawrence & Denver Railroad, the sum of $00,000 in gold annually, $30,000 of which shall be paid on or before the 1st day of May, and $30,000 on or before the 1st day of November in each year, and has also agreed to pay said company $15,000 in current money each year, making in all $75,000 to be paid annually during the entire period of the lease.” This was to be paid irrespective of what at the stipulated rate the actual rental would amount to. Any excess was to be charged by the defendant to the Lawrence Company, and was made a lien upon its road and franchises.

The bonds subsequently issued by the Lawrence Company, as to amount, rate of interest, place and times of payment, corresponded with these provisions in the contract between the two companies, and contained on their face this statement: “Payment of interest guaranteed by the Pacific Railroad of Missouri;” also the statement: “The payment of interest is secured by a contract of lease with the Pacific Railroad of Missouri, dated June 14th, 1870.” These bonds were sold in the market, and the plaintiff, as he alleges, became the owner of seventy-three of them, on which interest was paid out of the fund provided for in the lease until November 1st, 1S73, when the payment of interest ceased, and in December, 1S73, as the answer alleges, the contract and lease of June 14ih, 1870, was rescinded and the property surrendered by the defendant to the Lawrence Company.

The plaintiff alleges that to induce persons to buy the bonds, the present defendant requested the statements to be made therein that the payment of interest was guaranteed by it and secured by the contract of lease of June 14th, 1870; that it approved of this statement in the bonds, and afterwards, with full knowledge of these facts, and that the purchase of bonds had been induced thereby, paid to the Bank of Commerce the several installments of interest on said bonds up to that which fell due November 1st, 1S73.

Assuming these allegations of the petition to be true, our opinion is that they constitute a good cause of action in favor of the plaintiff. and one which may be enforced in an action at law directly against the defendant. The petition does not count upon the promise of the defendant in the sixth article of the contract to provide annually a fund of $ou,-000 with which to pay that amount of interest on the bonds, as the sole ground of the defendant’s liability to the bondholders, but states this promise on the part of the defendant as only one of the elements of such liability.

There ¡s much conflict in the judgment of the courts as to the right of third persons for whose benefit stipulations are made m a contract between other persons, to enforce those stipulations against the promissor. And the generahyule undoubtedly is, that one who is a strange}- to the contract, that is not a party to it, and from whom the consideration for the promise does not move, and to whom the promise is not made, cannot enforce it by action, although he would be benefited if the promise were kept and be injured if broken; and the difficulty has frequently been considered to be increased where the contract is under seal. The adjudications on the subject are collected and examined by the editors of the American Leading Oases (volume 2, pp. 164, 337), and it is not proposed here to review them, nor to determine whether the present case, if the plaintiff relied alone upon the promises of the defendant in the lease and contract of June 14th, 1870. would fall within the general principle. In form the promise of the defendant in the sixth article of that lease is to the Lawrence Company; and. in form, at least, that company, and not the bondholders, furnished the consideration for the promise of the defendant to pay annually on account of the interest on the proposed loan, the sixty thousand dollars. In reality, however, it is probable the bondholders under the mortgage furnished to the Lawrence Company the means to build the road, the use of which under the lease constituted the consideration of the defendant’s promise. But it is not necessary to determine whether upon the lease alone the plaintiff would have any action, because, as above observed, he does not bring his suit upon this theory. This claim of the plaintiff is, that the defendant being interested in the construction and completion of the Lawrence road, and having become bound to the Lawrence Company to pay it $60.000 in gold, annually, to enable it to negotiate its bonds and raise money to build the road, and to keep the road when built out of the way of the foreclosure of the mortgage securing the bonds (the Lawrence road having no resources except its earnings or rental), the defendant caused or consented to the representations contained in the bonds, that it had guaranteed and would pay the interest on them annually during the entire term of its lease, which was longer than the period when the bonds by their terms fell due. If this allegation can be proved, our opinion is that the defendant is bound to make good the guaranty, and that this guaranty attaches to and follows the bonds and is available to every holder of them who relied upon it. In this view the promise by the defendant is a direct one to whoever becomes the holder of bonds on the faith of it, and, although the facts are different, the case falls within the principle of morality, fair dealing, and enlightened justice asserted by the supreme court of the United States in the eases of Lawrason v. Mason, 3 Cranch [7 U. S.] 492, annotated 2 Am. Lead. Cas. 298; Woodruff v. Trapnall, 10 How. [51 U. S.] 206; Curran v. Arkansas, 15 How. [56 U. S.] 304; Furman v. Nichols, 8 Wall. [75 U. S.] 50. If the foregoing is a correct view of the legal relations and rights of the parties, it follows that the contract between the defendant and the plaintiff was complete when the plaintiff bought the bonds upon the strength of the promise or representation which the defendant authorized (as it is alleged) to be made, and that the plaintiff’s rights are in no wise dependent upon whether the Lawrence Company kept its contract in respect to taxes, fences, &c., and could not be affected by a subsequent rescission of the contract of June 14th, 1870, and the surrender of the road by the defendant to the Lawrence Company. For these reasons the demurrer to the affirmative defence in the answer is sustained.

NOTE. As to the enforcement of promises made by one person to another for the benefit of a third, the latest cases in New York are Claflin v. Ostrom, 54 N. Y. 581, decided by the commissioners of appeals in January. 1874. and Merrill v. Green, 55 N. Y. 270, decided by the court of appeals in December, Í853, and which seem to be conflicting.

Judgment accordingly.