Drovers' Deposit Nat. Bank v. Tichenor , 200 F. 318 ( 1912 )

GEIGER, District Judge

(after stating the facts as above).

[1] To sustain the demurrer, the defendant contends that the written undertaking signed by him — if upon it alone liability is predicated — neither expresses nor has the support of a consideration, and hence is avoided by the statute of frauds of Wisconsin and of Illinois; and that the complaint alleges no facts disclosing liability upon any transaction not within such statute.

Upon its face the agreement dated September 30, 1909, certainly purports to be a special collateral undertaking to pay at maturity the notes of A. J. Nicholson, dated and delivered July 27, 1908. Does it express any consideration? Aside from the formal “request” for discount and the “promise to pay,” it contains the statement that the-signers are “interested in the business and success of the Tichenor- < brand Company * * * and desire to assist it in obtaining credit with you and money from you (plaintiff).” This may suffice as a dis.-dosure of reasons or motives which induced the signers to approach the plaintiff, but it is in no sense expressive of a consideration in a contract. And if, standing alone, it does not express a consideration, its combination with the formal statement of a “request” and “promise to pay,” neither of which embodies an expression of consideration, cannot: enlarge the whole to satisfy the statute.

The substance of the memorandum is that, if the plaintiff will discount the notes referred to, the defendant and his associates will pay them at maturity — analogous to cases without number where the undertaking, without expressing a consideration, purported to “guarantee” a specified principal agreement. Taylor v. Pratt, 3 Wis. 674; Parry v. Spikes, 49 Wis. 384, 5 N. W. 794, 35 Am. Rep. 782; Commercial National Bank v. Smith, 107 Wis. 574, 83 N. W. 766. It seems entirely clear that tbe agreement does not express a consideration.

[2] It remains to consider whether, in the light of its other allegations, the complaint discloses a new and independent undertaking, upon a sufficient consideration, nut a promise to answer for the debt of another. In McCord v. Edward Hines Lumber Co., 124 Wis. 509, 102 N. W. 334, the cases upon the general subject of avoiding the statute are thus tersely reviewed:

“This provision (Subdivision 2, § 2307, Stats, of Wis.) comes to us from, the original statute of frauds, 20 Car. II, of which it has been said by an enthusiast that every line was worth a subsidy, and by a cynic that every line has cost a subsidy to interpret. The latter statement has been gaining force as the ingenuity of greed has through centuries, been strained to escape this apparently plain provision, until its application is now surrounded by such a cloud of decisions as to defy exhaustive examination. In them, as might be expected, will be found reasoning and dicta well calculated to confuse exact lines of demarcation. Nevertheless such lines can be traced with reasonable certainty and distinctness. The promise voided by the statute is one to answer for the debt or default of another. Hence the statute has no application unless there be a primary obligation of some one else, and the promise be to answer for that as such. In other words, the promise must be collateral to and dependent upon the breach of a recognized obligation primarily owed by another. If such it be, however, it is void unless in writing. There are many dicta and some decisions indicating that this result may be escaped if there is a new consideration for the guaranty, or if such consideration consist o'f benefit to the guarantor. The statute, however, recognizes no such exception. There must, on general principles, be new consideration for the promise of indemnity in any event to render it valid, written or unwritten; hence to say that the existence of such consideration alone takes the promise out of the statute is to deny the statute any force whatever. 1 Brandt, Sure-tyship (2d Ed.) § 60. Again, there are statements in the eases to support evasion of the statute if the leading object of the promisor is to benefit himself, or if the creditor principally relies on the guarantor. All such statements are misleading. None of such considerations will of themselves prevent the application of the statute if the promise is really to answer for the debt of another. Each of them may, however, serve as evidence in special cases to show that the promise is really'to pay an original obligation of the promisor, to which the statute offers no obstacle, however much such obligation may coexist with or ,be measured by the debt of another. The existence of such original obligation will be found on careful analysis to be the true basis of most of the decisions where a new consideration has been given prominence.”

In the same case it is also stated (124 Wis. 514, 102 N. W. 336):

“A further test, which is often applied, is whether the thing promised by the defendant is identical with the obligation owed by the third person. If not_if it be to do something different, though it may include some part or the whole of the latter’s obligation — it will ordinarily be deemed, not a mere promise to answer for the debt of another, but an original undertaking not affected toy the statute.”

The complaint before us alleges no transaction other than that embodied in the agreement executed, nor further facts relative thereto, excepting that the defendant was president and a stockholder interested in the business and success of the corporation, and as such desired to assist it in obtaining credit with the plaintiff, and that the latter discounted the notes upon defendant’s request and paid the money to the corporation named, in performance of and reliance upon the agreement. These facts fall far short of bringing the case within the recognized principles respecting new and independent agreements not within-the statute. The defendant’s interest as a stockholder was not subserved by the transaction in the sense that he derived any benefit. His incumbency' of the office of president is not pertinent. except that it may emphasize the absence of an original undertaking, upon a consideration, with him personally. His request that plaintiff discount the notes, likewise, his interest in the success of the corporation’s business, both asserted in the agreement, were süch as lie not only could but was bound to make and to have in his representative capacity as president; and the plaintiff cannot, to escape the rigor of the statute, sustain the agreement as one arising out of a situation affecting the defendant personally, without showing clearly elements of an original obligation on his part “to do something different” than was required by the existing notes signed by Nicholson.

Has the defendant promised anything, except to answer for tiie debt or default of another? It is urged that he agreed to pay plaintiff a certain sum upon its advancing the money to the Tichenor-Grand Company, and, in lieu of writing out the conditions of the payment, agreed to pay according to the tenor of the notes in question; that suit is brought, not upon the notes, but upon the agreement. Rut the agreement is to pay the notes; and the defendant’s failure to pay the note in question is the only breach upon which plaintiff’s right of action is predicated. As stated in Bank v. Smith, supra, even though defendant’s agreement “constituted the ground of credit,” it was avoided by the statute. To concede, as is contended, that “defendant’s promise was the consideration upon which the money was paid,” frustrates the statute by introducing a self-contradiction, and thus make it in effect declare that an agreement to answer for the debt of another shall be void, if not in writing and expressing the consideration, unless, because of an implied consideration, it shall be deemed valid.

[3] Counsel for the plaintiff calls attention to the fact that defendant’s agreement was executed and delivered in Illinois, where the statute of frauds provides that the consideration need not be expressed, but may be proved or disproved. That, in an action to enforce the obligation, the complaint must allege such consideration cannot be doubted. The complaint here discloses the entire transaction with the defendant, and, to the extent that a consideration is necessary to support an agreement within or without the statute of frauds, the adjudications in that state, as in Wisconsin, declare it insufficient. Taylor v. Pratt, supra; Parry v. Spikes, supra; McCord v. Edward Hines Lumber Co., supra; Clapp v. Webb, 52 Wis. 638, 9 N. W. 796; Weisel v. Spence, 59 Wis. 301, 18 N. W. 165; Ruehle v. Montelius, 149 Ill. App. 416; Chicago Heights Lumber Co. v. Miller, 219 Ill. 82, 76 N. E. 52, 109 Am. St. Rep. 314.

An order may be entered sustaining the demurrer.