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Vulcan Iron Works v. Pittsburg-Eastern Co.

Supreme Court of New York, Appellate Division

May 3, 1911

VULCAN IRON WORKS, Respondent,
v.
PITTSBURG-EASTERN COMPANY, Appellant.

Page 828

APPEAL by the defendant, the Pittsburg-Eastern Company, from an interlocutory judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Rensselaer on the 13th day of October, 1910, upon the decision of the court, rendered after a trial at the Albany Special Term, sustaining the plaintiff's demurrer to defendant's first and partial defense and to the second and third defenses contained in its answer to the amended complaint.

COUNSEL

Andrew P. McKean [J. K. Long of counsel], for the appellant.

Thomas H. Guy [H. D. Bailey of counsel], for the respondent.

SMITH, P. J.:

The amended complaint alleges the execution and delivery of three promissory notes by one Egan to the plaintiff in part payment of two locomotives, that said notes were discounted with certain banks and that two of said notes were not paid at maturity and were protested for non-payment, whereby plaintiff was compelled to take up said two notes, and now sues to recover the amounts due thereon, including protest fees. The complaint further alleges a certain written contract between defendant and said Egan and others whereby defendant assumed and agreed to pay said notes, which contract is annexed to and made a part of the amended complaint. This contract, in the form of a sealed instrument and acknowledged by all of the parties thereto, provides among other things for the payment of a certain sum by the party of the first part, this defendant, to the party of the second part for and on account of himself and the parties of the third and fourth parts, and also for the payment of certain notes, including the notes in question, by said party of the first part. The parties of the second and fourth parts and Egan, party of the third

Page 829

part, in turn severally release the party of the first part from certain claims of theirs to stock of the defendant company. The demurrer to the defenses set up in the answer on the ground of their insufficiency require the sufficiency of the complaint itself to be examined ( Baxter v. McDonnell, 154 N.Y. 432, 436), and defendant now claims that said complaint does not state facts sufficient to constitute a cause of action.

The complaint is evidently drawn on the theory of Lawrence v. Fox (20 N.Y. 268), which holds that an action lies at the instance of a third party upon promise made for a valid consideration for the benefit of such third party, although he is not privy to the consideration passing between the parties to the contract. This case has long been regarded as the foundation of the so-called 'American doctrine,' now generally adopted in this country, and especially of the law in this State. Later cases, however, have somewhat limited the apparent scope of this decision with the result that now, to enable a third party to a contract to sue, 'the contract must have been entered into for his benefit, or at least such benefit must be the direct result of performance and within the contemplation of the parties. There must also be a legal obligation [or] duty on the part of the promisee to such third party, the theory of the cases being that such an obligation so connects him with the contract as to be a substitute for any privity with the promisor.' (7 Am. & Eng. Ency. of Law [2d ed.], 107, citing Durnherr v. Rau, 135 N.Y. 219, 222. See, also, Barlow v. Myers, 64 N.Y. 41; Vrooman v. Turner, 69 id. 280, 283-285; Haefelin v. McDonald, 96 A.D. 213, 221-224; Pond v. New Rochelle Water Co., 183 N.Y. 330, 333-338; Rochester Dry Goods Co. v. Fahy, 111 A.D. 748, 751-753; affd., without opinion, 188 N.Y. 629.)

The contract in question being under seal a good consideration is presumed for all the promises therein contained. The Lawrence v. Fox doctrine applies as well to contracts under seal as to simple contracts. (Pond v. New Rochelle Water Co., supra, 334.) There was clearly in this contract a legal obligation or duty on the part of the promisee, Egan, to the third party, this plaintiff, inasmuch as he was indebted to the plaintiff on his promissory notes. The question then remains, in

Page 830

order to invoke the doctrine, as to whether the contract was entered into for the benefit of this plaintiff, in contemplation of law. As is said in the case of Fish v. First National Bank (150 F. 523, 524): 'As to what contracts are, and what are not, made for the benefit of a third person, within the meaning of the rule, there is much diversity of opinion and the decisions are not reconcilable.' This contract, however, although not mentioning the name of the plaintiff, clearly identifies the notes in question which the promisor 'hereby assumes and agrees to pay,' in addition to the payment of a large sum in money. The amount of the notes was evidently estimated as a part of the total payment to be made by this defendant in exchange for the releases secured by it, so that the practical effect of the arrangement was the same as if Egan owing the notes had then paid the money direct to the defendant upon its promise to satisfy the notes, which would have been the exact situation in Lawrence v. Fox, where money was paid to the promisor in consideration of his promise to pay the payor's debt to another. The difference between actually paying over money to a person and the withholding by such person of money otherwise payable to the debtor seems negligible so far as the general intent and purpose of the parties are concerned. In each case the third party presumably has money or its equivalent in credit to be devoted to the payment of a debt owed to such creditor, and if in one instance the contract can be said to have been entered into for his benefit then the same reasoning must apply to the other situation. The present contract had in view among other things the payment of a sum of money by defendant direct to the other parties thereto as well as the payment of the notes, but in so far as it provided for the payment of the notes we think it can fairly be said that the third party was benefited by having in effect another name on the notes held by it and that this benefit was 'the direct result of performance and within the contemplation of the parties.' We accordingly think that this complaint is not insufficient upon its face.

The question then arises as to the sufficiency of the defenses demurred to. The first, a partial defense only, alleges an overpayment by ...


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