McCoy, Guardian v. Hydrick ( 1928 )

I do not concur in the opinion of Mr. Justice Blease, and will respectfully state the grounds of my dissent.

The bald facts stand out in this case, that the plaintiff, a widow, as guardian of her three small children, who had inherited quite a sum of money from their father, committed to the defendant as an attorney, for investment, certain funds of the guardianship estate, and that the net result of the transactions negotiated for her by Mr. Hydrick is a loss of nearly $14,000, possibly reducible by the disposition of certain mortgaged real estate which she was forced to take over upon foreclosure sales.

The embarrassing question presented by the litigation is whether the defendant shall be required to make good that loss, whatever it may be ascertained to be. The immediate question before the Court, upon this appeal, is whether his Honor, the presiding Judge, erroneously directed a verdict in favor of the defendant, upon the ground that the agreement relied upon by the plaintiff was to answer for the debt, default, or miscarriage of another, was within the Statute of Frauds, and that such agreement, not being in writing, could not be established by parol evidence.

The plaintiff in her complaint relied upon two distinct causes of action, which, however, were not separately stated, as the Code requires:

(1) An express agreement on the part of the defendant to indemnify the plaintiff from any loss which might be sustained by the failure to realize upon the securities taken for the contemplated loans and investments.

(2) Damage sustained by the plaintiff by reason of the negligence of the defendant in disobeying her instructions, after the said agreement, in reference to the character of the loans to be made.

It is stated in the remarks of the Circuit Judge, in directing a verdict:

"The counsel for the plaintiff, when required by the defendant's counsel to elect on which cause of action he would rely for relief, whether ex contractu or ex delicto, elected to rely upon the ex contractu cause of action as set out in the complaint."

Although this fact does not elsewhere appear in the transcript, as no objection to the statement has been made by the appellant, I will assume it to be a fact, not questioning, of course, the statement of his Honor.

The allegations of the complaint as to the cause of action upon which the plaintiff elected to proceed were as follows:

"That on or about the 15th day of June, 1917, the defendant, Andrew J. Hydrick, called at the residence of the plaintiff, in the City of Orangeburg, S.C. and while there told the plaintiff that he would be glad to invest and loan for her, as guardian for her children or otherwise, any amount of money that she had to loan or invest; that, after some time elapsed, the plaintiff agreed to let the defendant, Andrew J. Hydrick, handle, invest, and loan on real estate security a large amount of money that she had as guardian for her little children, Nellie Brady McCoy, Jessie Addison McCoy, and Addison E. McCoy, infants, left them by their father, A.C. McCoy, deceased, with the distinct understanding and agreements that he (defendant, Andrew J. Hydrick) would pass on the value of all security and make good in cash any loss, by reason of an investment or loan that he made, and would repay to the plaintiff in cash any loss sustained, if the security taken for any loan or investment made by him failed to bring enough to repay to the plaintiff, after foreclosure and sale, the full amount of such loan or investment, with interest, attorney's fees, and cost, and such agreement was duly entered into by the plaintiff and the defendant, Andrew J. Hydrick."

The plaintiff offered parol evidence to sustain this cause of action; it was excluded by the presiding Judge, upon the ground that the alleged agreement was within the Statute of Frauds, as an agreement to answer for the debt, default, or miscarriage of another. Section 5516, Vol. 3, Code 1922. A directed verdict for the defendant inevitably followed.

I think there are two very substantial grounds upon which the testimony offered by the plaintiff was admissible, to establish the agreement: (1) It tended to show an original independent contract between the defendant and the plaintiff; (2) assuming that it was intended as a guaranty of the loans, the contract was based upon a distinct consideration of benefit to the defendant and of harm or risk to the plaintiff — in neither of which conditions does the Statute of Frauds have any application.

I. The defendant is and was an attorney of the very highest character. Nothing that I may say is intended or may be construed as a reflection upon him, whom I have known for many years. It is unfortunate for me that my views may appear hostile to his interests.

It is not entirely clear, even from Mr. Hydrick's testimony, which of the parties approached the other in reference to the investment. He says:

"I don't recall whether I offered my services or not, but I know the question of getting her money out came up, andI presume that I offered to assist her."

That, however, is not material; if an agreement was entered into between them that he should supervise the investment upon certain terms, it matters not whether he first approached her or she him.

Whether she has correctly stated the terms of the agreement or not, it is clear that a contractual relation of some kind was established. It was at least a contract in the line of the defendant's business; he was a lawyer, and one of the sources of income of that profession, with some exceptions, is the examination of titles for loans and the preparation of papers, for which the borrower usually pays. The testimony shows that this line of employment was followed by the defendant in several instances connected with the plaintiff's loans. It seems to me not at all an unreasonable stipulation, as an inducement to get the business and the opportunity to make fees out of it, that the defendant would indemnify the plaintiff from loss. I do not consider that a promise to answer for the debt, default or miscarriage of another, but one which entered directly into the contract made by the defendant with the plaintiff.

II. But, considered as an express guaranty of the loans, the same elements of personal benefit to the defendant and risk to the plaintiff entered into the contract and removed it from the operation of the statute. The case of Gaines v.Durham, 124 S.C. 435; 117 S.E., 732, with the many citations therein, seems to me conclusive of the issue. The following additional authorities sustain the position:

In Hindman v. Langford, 3 Strob. 207, the Court said:

"Langford's agreement was a promise to answer for the debt of a third person, who was still held liable; but it was founded on a new and distinct consideration, coextensive with it, and moving not to the third person, but to the person who made the promise."

In Robertson v. Hunter, 29 S.C. 9, 6 S.E., 850, the Court said:

"So that the test is whether there is a new consideration moving to the promisor. This is shown by the case ofHindman v. Langford, 3 Strob., 207, cited by the appellant, where the promise to pay the debt of another was supported because it rested upon a new consideration moving to the promisor."

Robertson v. Hunter is cited with approval and largely quoted from, in Turner v. Lyles, 68 S.C. 392;48 S.E., 301.

In Ellis v. Carroll, 68 S.C. 376; 47 S.E., 679; 102 Am. St. Rep., 679, it is held (syllabus):

"A promise to pay the debt of another upon forbearance to enforce immediately some subsisting lien, is not within the statute of frauds, when the release is a damage to the creditor, or a benefit to the party promised for."

In the case of American Co. v. Mauldin, 128 S.C. 241;122 S.E., 576, the Court, reaffirming Gaines v. Durham,124 S.C. 435; 117 S.E., 732, says:

"* * * This Court has always recognized and approved, and with more or less consistency adhered to, the broad rule laid down by Chancellor Kent in an early leading case (Leonard v. Vredenburgh, 8 Johns. [N.Y.] 29; 5 Am. Dec., 317), that, where a promise to pay an existing debt of another is made on a new and original consideration of benefit or harm moving between the newly contracting parties, it is not within the Statute but is regarded as an original promise."

"An oral `promise to pay' an existing debt of a third person, founded on a new consideration, is not within the Statute of Frauds, being an original and not a collateral promise." Syllabus, Zimmerman v. Holt, 102 Ark. 407;144 S.W. 222.

"Where the promise to pay the debt of another is not the chief purpose of the transaction in which it inheres, and a substantial and valuable consideration therefor inures directly to the benefit of the promisor, * * * the promise does not fall within the Statute, and no writing is necessary to support it. In cases of this character, the fact that the object of the promisors is not to answer for the debts, defaults, or miscarriages of others, but is to obtain substantial benefits or advantages to themselves, which they actually secure as the consideration for their agreements, distinguishes these promises from those within the Statute, and makes them original agreements of the promisors, which are valid without writings." Mine Co. v. Bank (C.C.A.), 173 F., 859.

In Whitehurst v. Padgett, 157 N.C. 424; 73 S.E., 240, it is held that a promise for the benefit of the promisor, where he has a personal and pecuniary interest in the transaction in which a third party is the original obligor, is an "original promise" which is not within the Statute of Frauds.

"An original promise to answer for the debt of another, based on a consideration, is valid, though not in writing. Syllabus, Peele v. Powell, 156 N.C. 553; 73 S.E., 234.

In Whitehurst v. Hyman, 90 N.C. 489, it is held that a promise based upon a valuable consideration, a benefit or harm passing between the promisor and the creditor is not within the Statute.

In Hawes v. Murphy, 191 Mass. 469; 78 N.E., 109, it is held that a verbal promise by defendant to save the plaintiff harmless from all loss on account of a bond signed by plaintiff as surety at the defendant's request, who had an indirect interest in the transaction, was not within the Statute.

"Wherever the leading purpose of a person who agrees to pay the debt of another is to gain some advantage or promote some interest or purpose of his own, and not to become a mere guarantor or surety for another's debt and the promise is made upon a sufficient consideration, it will be valid, although not in writing, and the contract is not within the statute of frauds." Since in such case it will be deemed an original promise. Trulock v. Blair, 8 Okla. 345;58 P., 1097.

"Promise to answer for debt of another if founded on new and sufficient consideration, need not be in writing and subscribed by promisor." Day v. Morgan, 184 Wis. 595;200 N.W., 382.

"A parol promise to pay the debt of another is not within the Statute when it arises from some new and original consideration of benefit or harm moving between the new parties." Burkhart v. Berry, 162 Ark. 123; 257 S.W. 723;Harvey v. Bank, 83 Fla., 55; 90 So., 699.

"Where one on the strength of a defective agreement in good faith parts with a valuable consideration which enriches the promisor, a Court of equity will enforce the agreement, though it requires the lifting of it out of the Statute, and this principle applies to a guaranty of a note where the guarantor received and retained a valuable consideration."Peavey v. Loveland, 174 Wis. 57; 182 N.W., 349.

"In determining whether an agreement is within the Statute of frauds as a promise to `answer for the debt of another,' the distinction is between a promise the object of which is to promote another's interest and one in which the object is to promote the interest of the party making the promise; the former being within the Statute of Frauds, the latter not." Machinist v. Green, 79 N.H. 366; 109 A., 45.

"An oral" agreement "to pay the debt of another * * * to derive some benefit to" promisor "thereby, which he would not otherwise have had, * * * is an original undertaking and not within the Statute of Frauds." Custardv. McNary, 85 W. Va., 516; 102 S.E., 216.

"A promise to pay the debt of another, where founded upon a new, different, and sufficient consideration, is not within the Statute of Frauds. * * * Bryant v. Jones,183 Ky., 298; 209 S.W. 30.

I think, therefore, that the judgment of the Circuit Court should be reversed, and the case remanded to that Court for a new trial.