plaintiff deliver to the defendant the policies, the plaintiff was allowed to recover. The opinion states that: "This is to be considered as a purchase by the defendant of the plaintiff's interest in the policies. It is not a bare promise to the creditor to pay the debt of another due to him, but a promise by the defendant to pay what the plaintiff would be liable to pay if the plaintiff would furnish him with the means of doing so."' 97 The same principle is involved in the well established line of cases holding that where a debtor induces his creditor to take in settlement of his obligation the note of a third person, and the debtor verbally guarantees the payment of the note, it is in effect a promise to pay his own debt, and even though incidentally he guarantees another's obligation, it is not within the spirit of the statute. The defendant is therefore liable on his verbal promise. The form was a guaranty, but in fact the guaranty was to pay the promisor's own debt.98 Is there a distinction between a case where the verbal promise is to guarantee a note made to the promisee as payee, and one made to the promisor or a third party as payee? The Massachusetts Supreme Judicial Court in Dows et al. v. Swett 99 held that a verbal promise to guarantee a note made directly to the plaintiff-promisee-payee as an inducement for him to accept it in exchange for a due-bill, was within the statute. The maker of the note was liable thereon to the plaintiff. The defendant's verbal promise was therefore collateral, and unenforceable. The defendant's agreement was to pay the debt of the maker of the note, and not the promisor's own debt which was extinguished by the acceptance of the note. In many other cases where the payee was a third person who indorsed the note to the verbal promisor, or the latter was the payee, and verbally agreed to guarantee it if the plaintiff would 97 Castling v. Aubert (1802) 2 East 325, 332. 98 Milks v. Rich (1880) 80 N. Y. 269, 36 Am. Rep. 615; Malone v. Keener (1862) 44 Pa. St. 107; Kiernan v. Kratz (1902) 42 Ore. 474, 69 Pac. 1027, 70 Pac. 506; 99 (1883) 134 Mass. 140, 45 Am. Rep. 310. accept it in the discharge of the promisor's debt, it has been held to fall within the main purpose rule, and the guarantor is liable. By such a view it is a promise to pay the promisor's own debt. "The form, however, is not decisive; for where the leading purpose of the promise is, not to become surety for another, not for the benefit in any way of such other, but to promote the interest, to effect some purpose of the promisor, as independent of the debt or contract guaranteed, as where it is to enable the guarantor to transfer the debt or contract, or to satisfy or discharge an obligation resting on himself, it is, notwithstanding its form, and although it incidentally guarantees the debt of another, regarded as an original, and not a collateral, undertaking, and so not within the statute of frauds.100 § 63. The del credere cases.1 A del credere agreement is one by which an agent, in consideration of an additional payment, guarantees the solvency of the debtor and the punctual discharge of the debt. Clearly, the purchaser is primarily liable for the debt, and the agent is but secondarily liable. The line b-c coexists with the line a-b. (See Sec. 52.) Yet the authorities are quite uniform that a verbal promisor is liable because "this debt or duty is his own, and arises from an ade 100 Crane v. Wheeler (1892) 48 Minn. 207, 50 N. W. 1033. Accord: The Mobile and Girard R. R. Co. v. Jones (1876) 57 Ga. 198; Hassinger v. Newman (1882) 83 Ind. 124, 43 Am. Rep. 64; Bryant v. Rich's Estate (1895) 104 Mich. 124, 62 N. W. 146; Sheldon v. Butler et al. (1878) 24 Minn. 513; Barker v. Scudder (1874) 56 Mo. 272; Brown v. Curtiss (1849) 2 N. Y. 225; Cardell v. McNiel (1860) 21 N. Y. 336; Malone et al. v. Keener (1862) 44 Pa. St. 107. 1 Referred to by Vaughn-Williams, L. J., in Harburg India Rubber Comb Co. v. Martin (1902) 1 4 quate consideration." The principal object of the defendant in making his promise was the extra compensation. As Parke B., observed concerning such verbal promises: 66 though it may terminate in a liability to pay the debt of another, that is not the immediate object for which the consideration is given." 5 In the del credere cases, the main object is a pecuniary benefit to the promisor. It is not controlling that as an incident to the defendant's promise, there is a coexisting liability of a third person. The statute of frauds never was intended to require 4 Wolff v. Koppel (1843) 5 Hill (N. Y.) 458. Wolff v. Koppel was approved in Sherwood V. Stone (1856) 14 N. Y. 267, 269, in which case it was pointed out that the English courts had changed their view and explained the ground for divergence between the English and American courts as follows: "In England they understand the guaranty to be a contract to pay if the money cannot be collected of the purchaser. Here it is understood to be a contract, directly with the principal, to pay him on the expiration of the time of credit, whether the purchaser be solvent or not; that is the whole contract between the factor and his principal, and is an original undertaking, without any relation to the debtor or liability of another." See also Bradley v. Richardson (1851) 23 Vt. 720, 731. See the article by Professor C. K. Burdick of the Cornell Law Faculty on "Suretyship and the Statute of Frauds" in (1920) 20 Col. L. R. 153, 156-157, where he says various authorities have given three different grounds for holding the verbal promisor liable in the del credere cases. (1) The del credere agent is in substance the debtor to whose obligation that of the purchaser is added subsequently. (2) The factor, being a bailee, his promise was to account, which was not understood to be a "special promise" when the statute was enacted. (3) The main purpose theory, the principal object being to establish the relationship of principal and agent between the contracting parties, to which the promise to answer for the purchaser's debts is merely incidental. 5 Couturier v. Hastie (1852) 8 Ex. 40, 155 Eng. Reports Reprint 1250, 1257. Since this case, Bowen, L. J., said in the course of the opinion written for the court by him in Sutton & Co. v. Grey (1893) 69 L. T. R. 354, that it was the settled view that "the terms of a del credere agency, which included a guaranty for the future debt of the person to whom goods were to be sold, was really to be regarded rather as a contract, the object of which was not to guarantee the debt, but to settle the terms upon which the agent should be employed to sell." written evidence of promises to pay one's own obligations; and whenever the promisor agrees to become responsible on the payment of a premium, he does so because he recognizes it as his own debt, even though another's obligation may be incidentally assumed. His promise is original. § 64. Résumé of main purpose rule. The purpose of the enactment of the statute of frauds 250 years ago was to protect a promisor from fraud where he answered for the debt, default or miscarriage "of another person." By special promise was meant a promise especially directed to this end. Every promise where there is no principal debtor, is original. No case ever intimated otherwise. To have a contract of guaranty or suretyship, three persons are required--the principal, creditor, and guarantor. Usually, but not always, if the principal debtor remains liable, the promise of the guarantor is collateral, and must be in writing. If there is a principal liable, a verbal promise is not enforceable if the consideration consists (1) of a detriment to the promisee, or (2) of an incidental benefit to the promisor, because it is a special promise within the meaning of the statute. If the promisor in fact agrees to pay another's liability as an incident to obtaining property, money, or advantage for himself, then in fact he is agreeing to pay his own debt, and not that of another, and he is bound even though his promise is verbally made. His promise is then an original and not a collateral undertaking. This is the meaning of the socalled "main purpose rule." 7 § 65. Cases involving so-called indemnity contracts. The statement is generally accepted that Thomas v. Cook was overruled by Green v. Cresswell, and that the latter case was in turn repudiated by Reader v. Kingham and Wildes v. Dudlow.10 Because American courts have given expression to the same opinion, this view is undoubtedly accepted by most juris 6 Swan v. Nesmith (1828) 7 Pick. (Mass.) 220, 224, 19 Am. Dec. 282. 7 (1828) 8 Barn. & Cres. 728, 108 Eng. Reports Reprint 1213. 8 (1839) 10 Ad. & Ell. 453, 113 Eng. Reports Reprint 172. 9 (1862) 13 C. B. N. S. 344, 143 Eng. Reports Reprint 137. 10 (1874) L. R. 19 Eq. 198. dictions, after much vacillation and without reference to any clear ground of principle.11 But it is submitted that the cases mentioned are distinguishable, and Green v. Cresswell did not necessarily overrule Thomas v. Cook, in spite of the fact that Lord Denman said of the latter case that "the reasoning in this case does not appear to us to be satisfactory in support of the doctrine there laid down." 12 However, one attempting to criticize the cases which are generally accepted to be orthodox must have the feeling of the sage of last century, who, faced with a similar self-imposed task, declared that his "observations are hazarded with great diffidence, as they apparently militate against great authorities." 18 These two hypothetical cases, involving promises to indemnify one who becomes guarantor to a third person, will illustrate concretely the main problems presented by the cases considered: 11 Of the problems arising out of the cases mentioned, the supreme court of Pennsylvania observed in Nugent v. Wolfe (1886), 111 Pa. 471, 4 Atl. 15, that: "During the more than two centuries since its original enactment (the statute of frauds) the construction of this section, and its application to various forms of contract, have been constantly the subject of contention; and on no question, perhaps, has there been greater diversity and contrariety of judicial decision in this as well as in the parent country." These expressions give an idea of the American view: Stearns, Suretyship (1922, 3d Ed.) Sec. 32, says: "Such was the reasoning of Green v. Cresswell, which overruled Thomas v. Cook, but which was, in turn, repudiated by the later cases in England." (1920) 1 Williston on Contracts, 928, note 70: "But in later English cases, Green v. Cresswell seems overruled." |