Lockwood v. Nichols

J. F. Daly, J.—[After stating the facts as above.]

There was a sale by defendants to plaintiffs of the 800 shares of stock transferred to the latter, and the covenant entered into by defendants that the indebtedness of the company did not and should not exceed $55,800, was, in effect, a covenant as to encumbrances on the property so sold, and the covenant being broken, the recovery upon it should be for the excess of encumbrance over the agreed amount. The agreement of defendants to pay the excess and save the plaintiffs i harmless therefrom, must be construed as an agreement to pay the plaintiffs, because, if there were no such promise in addition to the covenant, a promise to pay the plaintiffs would be inferred from" the covenant - itself; otherwise there could be no enforcement of the obligation by the parties with whom and for whose benefit it was made.

The objections that the contract is one of indemnity, and that the plaintiffs must show that they have paid the excess of indebtedness, and that the company is unable to respond to them, are not well founded. It was not contemplated by the parties to the agreement that the company should pay, or be liable to pay, the excess of indebtedness. The object of the agreement was to relieve the treasury of the company from the burden. The covenantors cannot therefore ask that the covenantees be remitted to a remedy against the company, nor contend that if the company be found able to pay, there is no liability upon the covenant. Their agreement was to discharge the debt of the company.

As the plaintiffs have the right to enforce the covenant, and their recovery does not depend upon the ability of the company to pay any part of the amount of the excess of indebtedness, there can be no question as to the measure of damages; plaintiffs are entitled to recover the whole excess which defendants agreed to pay.

The question that is presented is not a new one, for we find in adjudged cases, as well as in elementary works, precedents for the disposition that we shall make of this case, Without a review of the authorities, we shall content ourselves with citing from Sutherland on. Damages (vol. 2 pp. 610 et seq.) a statement of the rule that we think applicable to the facts before us: “ Contracts are often made, the general purpose of which is indemnity, but which are not merely to save harmless, or to indemnify against damages, but provide against the cause of damage: they are contracts for the prevention of damage. Of this nature are contracts against the existence of debts or liabilities. Where the contract is for more than indemnity against damages; where a party stipulates against the existence of certain conditions, or for payment or performance of any kind, then damages are not the gist of the action, but the measure of-the damages recoverable for the breach is the value of the performance of the contract. For example, a contract to pay a debt, no time being specified, is a promise to pay it when due, or in a reasonable time if already due. The promisee, for breach of such a contract, is entitled to recover the amount of the debt and interest, though he has not paid it, or any part of it, if it is a debt the discharge of which would be beneficial to him (Gilbert v. Wyman, 1 N. Y. 550).” See also, as directly in point, Belloni v. Freeborn (63 N. Y. 383-390); and Kohler v. Mutlage (72 N. Y. 259-266). The author quoted adds: “Courts of law are not adapted, like courts of equity, to do complete justice to all parties interested in such cases; that is, to protect the defaulting party by requiring the money so recovered to be applied to the debt, though the payment may be important to him. That, however, has been done in some cases.”

The defendant Barrows contends that the evidence shows a breach of plaintiffs’ agreement to advance moneys, carry on the business in as economical manner as possible, etc., and that plaintiffs’ right to recover upon the defendants’ covenant is thereby barred. The finding of the referee, that the plaintiffs fully kept and performed the agreement on their part, is supported by the evidence, and we cannot say that we disagree with his conclusions. The evidence as to alleged improvident management may produce different opinions in different minds, but we are influenced in reaching the conclusion that the plaintiffs acted according to their best judgment and always in good faith, by the consideration that the very large share which plaintiffs acquired in the company and the large outlays they made and liabilities they assumed under their agreement, make it most improbable that they would act counter to the best interest of the company. We are warranted in assuming that their own interests could be subserved only by endeavoring to make the company successful.

None of the exceptions taken call for the reversal of the judgment.

The judgment should be affirmed, with costs.

Larremore, Ch. J., and Van Hoesen, J., concurred.

Judgment affirmed, with costs.