Umpqua Valley Bank v. Wilson

252 P. 563, 120 Or. 396, 1927 Ore. LEXIS 7

• Court: Oregon Supreme Court
• Decided: December 22, 1926
• Status: Published

Opinion

BEAN, J.

The principal errors assigned by defendant are that the court erred in overruling defendant’s motion for judgment on the pleadings; that it erred in making the several findings of fact; and that the court also erred in permitting plaintiff to introduce any testimony at the trial of the cause which had to do with any oral promise alleged to have been made by plaintiff H. L. Wilson to J. 0. Lystul, Thomas A. Lawson or to the plaintiff.

The question in' this case is whether or not the promise made by the plaintiff to Lystul and Lawson to pay the plaintiff bank is within the statute of frauds. Defendant contends that the promise made by him to pay the note of the Fir-Pine Lumber Company was merely an agreement to answer for the debt of the Fir-Pine Lumber Company and not in writing expressing’ the consideration nor signed by defendant therefore within the statute of frauds under the provisions of Section 808, subdivision 2, Or. L.

The defendant Wilson owned stock in the Fir-Pine Lumber Company of the par value of $20,000. His brother-in-law, F. F. Williams, prior to his death owned most of the remaining shares of stock. The corporation was insolvent and bankruptcy was proposed. Wilson desired to obviate this. He therefore entered into an agreement wherein defendant agreed with Lystul and Lawson to cause all of the property of Fir-Pine Lumber Company to be conveyed to Lystul and Lawson and to personally pay the indebtedness of Fir-Pine Lumber Company to plaintiff, in consideration of Lystul and Lawson canceling’ all their indebtedness against Fir-Pine Lumber Company and assuming and paying the indebtedness of Fir-Pine Lumber Company to Grlendale State Bank, and its other incidental indebtedness, and the further consideration of Lystul and Lawson, giving and granting to defendant Wilson individually an option for one year to purchase from Lystul and Lawson all of said corporate properties for an amount equal to the indebtness assumed and paid by Lystul and Lawson.

This agreement of defendant Wilson made with Lystul and Lawson for a consideration or benefit to him, to assume and pay the notes to the bank, and relieve the property of the corporation, thereby fulfilling a duty resting upon Lystul and Lawson, constituted an original promise on the part of Wilson, and made the debt his own, and was not within the statute of frauds. The agreement being partly for the benefit of plaintiff, it can maintain an action thereon: Feldman v. McGuire, 34 Or. 309, 312, 314 (55 Pac. 872); Kiernan v. Kratz, 42 Or. 474, 478 (69 Pac. 1027, 70 Pac. 506); Miles v. Bowers, 49 Or. 429, 434 (90 Pac. 905); Baker City M. Co. v. Idaho C. Co., 67 Or. 372, 377 (136 Pac. 23); Riddle St. Bank v. Link, 78 Or. 498, 502 (153 Pac. 1192); Phez Co. v. Salem Fruit Union, 103 Or. 514, 531 (201 Pac. 222, 205 Pac. 970); The Home v. Selling, 91 Or. 428, 435 (179 Pac. 261); Seaver v. Ransom, 224 N. Y. 233 (120 N. E. 639, 640, 2 A. L. R. 1189); Am. & Eng. Ann. Cas. 1913D, note, p. 851; Am. & Eng. Ann. Cas. 1912B, note, page 222.

In Hurst Hardware Co. v. Goodman, Ann. Cas. 1912B, 218 (68 W. Va. 462, 69 S. E. 898, 32 L. R. A. (N. S.) 598), the syllabus reads thus:

“If the main purpose of an oral promise by one person to pay a sum of money for which another is liable or may become liable is to secure a direct, personal and pecuniary benefit to the promisor, the promise is original and not within the statute of frauds, though such third person remains liable for the debt.”

In a note to the latter case, at page 222, we read as follows:

“In Yracheta v. Stanford, 120 N. Y. Supp. 117, the court said that a stockholder’s oral promise to pay a debt of the corporation is not within the statute of frauds provided it is founded on a new consideration moving to the promisor, as for example a valid agreement of forbearance.”

In Ann. Cas. 1913D, at page 851, a note reads thus:

“The distinction between original and collateral agreements should, of course, be borne in mind. It is only the latter that are within the statute. This distinction was pointed out in the recent case of Beall v. Board of Trade, 164 Mo. App. 186 (148 S. W. 386), wherein it appeared that a debt was originally that of a corporation of which the plaintiff was the president and a stockholder, and the creditor agreed to release the corporation from the whole debt on the payment of thirty per cent of it, if the plaintiff, individually, would assume the remaining seventy per cent. This was done, and it was held that the balance of the total sum thereby became the plaintiff’s obligation, and his promise was therefore a promise to pay his own debt.”

In 27 C. J., Section 31, pages 147 and 148, we read as follows:

“Perhaps the most accurate statement of the rule which can be made is as follows: Where the primary debt subsists and was antecedently contracted, the promise to pay it is original when it is founded on a new consideration moving to the promisor and beneficial to him, and such that the promisor thereby comes under an independent duty of payment irrespective of the liability of the principal debtor. The rule in this form has met with practically universal acceptance. [Citing a long list of authorities.] * * Accordingly the true test is not the presence or nature of a consideration, but whether or not the promise is such that the promisor became, within the intention of the parties, a principal debtor primarily liable.”

The defendant was interested in the Fir-Pine Lumber Company and had stock therein of the par value of $20,000. He was engaged in merchandising. It was to his interest and he desired to prevent the Fir-Pine Lumber Company being declared bankrupt. The deal made by him with Lystul and Lawson was to his advantage. As a part of the transaction Lystul and Lawson gave the defendant an option to purchase the property for a certain amount at any time within one year. This gave the defendant the benefit of any improvement in the market for the property that the Fir-Pine Lumber Company was selling to Lystul and Lawson. If during that time business conditions had been such that the value of the property had largely increased or doubled, Wilson would have had an opportunity to save a portion of the money he had invested in the lumber company. It was no doubt beneficial to him, in a business way, to obviate the corporation in which he was interested, being adjudged bankrupt. The fact that business conditions were such during the life of the option that the value of the, property did not increase sufficiently for him to exercise his option would not change the legal aspect of the transaction. The defendant in making this agreement was bound to comply therewith and pay the bank, just as firmly as he would have been if he had purchased all of the corporate property and agreed to pay this indebtedness to the bank. See 20 Cyc. 174.

It is argued in behalf of defendant that the option was executed a month or two after the transfer of the property and was not a part of the same transaction. The trial court found that the option was a part of the agreement. The testimony supports the finding, therefore, that question is settled.

In the brief of defendant it is stated that the complaint does not state any agreement between the respondent bank and the appellant Wilson, based upon any consideration. This action is founded upon the agreement between Lystul and Lawson on the one part, and the defendant Wilson on the other. This agreement was fully executed on the part of Lystul and Lawson and also on the part of defendant Wilson, except for part payment of the debt due the plaintiff. See McLeod v. Despain, 49 Or. 536, 563 (90 Pac. 492, 92 Pac. 1088, 124 Am. St. Rep. 1066, 19 L. R. A. (N. S.) 276), and McDaniels v. Harrington, 80 Or. 628, 631 (157 Pac. 1068).

Whenever the main purpose and object of the promisor is not to answer for another, but to subserve some pecuniary or business purpose of his own, involving a benefit to himself, his promise is not within the statute, although it may be in form a promise to pay the debt of another and its performance ineidently may have that effect. And when there is a benefit to the promisor or to a third party at his instance, it is a good consideration upon which to maintain an action: Emerson v. Slater, 63 U. S. 28 (16 L. Ed. 360); Davis v. Patrick, 141 U. S. 479; (35 L. Ed. 826, 12 Sup. Ct. Rep. 58); Ludwick v. Watson, 3 Or. 256, 258.

As a general rule, a stockholder not being liable for the corporation debts, his promise to pay such a debt is in the strict sense a promise to answer for the debt of another, but there is a well-established qualification of this general rule, as in cases where the corporation is discharged of the debt or where the stockholder made his promise to pay such corporate debt for the purpose of subserving some direct pecuniary interest and business purpose of his own. In all such cases his promise is not within the statute: 25 R. C. L., § 94, p. 510.

When defendant’s corporation, Fir-Pine Company, transferred all its corporate property to Lystul and Lawson, leaving nothing to pay plaintiff’s claim, this was not a transfer in the ordinary course of business and Lystul and Lawson took the property subject to an equitable lien in favor of plaintiff and made the property a trust fund for the benefit of the creditors. This imposed a duty and obligation from the promisees Lystul and Lawson, to the plaintiff, and brings the case within the rule laid down by the authorities cited. See, also, Williams v. Commercial Nat. Bank, 49 Or. 492, 498 (90 Pac. 1012, 91 Pac. 443, 11 L. R. A. (N. S.) 857).

Tbe finding of facts made by tbe trial court are supported by tbe evidence. Tbe conclusions of law are correct and tbe judgment is affirmed.

Affirmed. Rehearing Denied.

Brown, Belt and Rand, JJ., concur.