Erickson v. Grande Ronde Lbr. Co. , 162 Or. 556 ( 1939 )

The petition for a rehearing and its accompanying briefs, filed by the two respondents, criticize not only the conclusion announced in our decision but also the facts and legal principles which we employed in reaching it.

In our decision we stated that the capital stock of the Nibley-Mimnaugh Company, the Grande Ronde Company and the Stoddard Company (the latter two being the respondents) was "largely owned by the same individuals." This statement is criticized by the respondents as unsupported by the record. We observe, however, that one of the briefs accompanying the petition for a rehearing states: "It is true that certain members of the board of directors of the Stoddard Lumber Company were also members of the board of directors of the Grande Ronde Company and of the board of directors of the Nibley-Mimnaugh Lumber Company until its dissolution in 1924." That admission, which is clearly warranted by the record, to some extent substantiates the statement of fact contained in our opinion. The evidence abounds with facts and circumstances, some of which are mentioned in our decision, which indicate that the capital stock of the three corporations to a substantial extent was held by the same group of individuals. We remain satisfied with our original statement. The respondents seem to believe that since we stated that (1) the capital stock of the three corporations was owned to a large extent by the same individuals, and (2) at least three members of the board of directors of the Stoddard Company knew of the plaintiff's employment, we concluded that the Stoddard Company was responsible for the payment of the plaintiff's services. We hope that we shall be spared the humiliation of ever deciding an important issue upon such an insufficient foundation. We have read our opinion again and feel very certain that it contains no intimation of the kind suggested by the respondents. The relationship of the parties to each other is always one of the circumstances which affect them when they choose the language which expresses their agreements and intentions. The surrounding circumstances, while never incorporated in the written instruments, are a valuable aid to anyone who later seeks to ascertain the intention of the parties and the meaning of any ambiguous words found in their writings. This being true, the courts when construing a contract receive testimony concerning the circumstances which surrounded the parties at the time it was written. The relationship between the parties is one of those attendant circumstances. Such was our understanding when we wrote our opinion and we considered the relationship which existed between the parties purely for the purpose of ascertaining their intentions and construing the offer and acceptance.

We shall take note of only one other criticism which the defendants make of our statement of the facts. They quote the following sentence from our decision: "There can be no doubt that the Stoddard Company received enough property from the Grande Ronde Company to discharge all liabilities of that company which had originated in its (Grande Ronde's) activities." Concerning this statement the respondents' brief accompanying the petition for a rehearing says: "We are unable to find any testimony in the record in support of this statement. There is nothing to show what the assets of the Grande Ronde Lumber Company were which were transferred. * * * The record is utterly void of proof of any of these matters." The answer of the Stoddard Lumber Company states: "At the time the negotiations were carried on between the Grande Ronde Lumber Company and the Stoddard Lumber Company for the purchase by the Stoddard Lumber Company of the assets of the Grande Ronde Lumber Company, numerous conferences were held between the said Grande Ronde Lumber Company and the Stoddard Lumber Company, * * *." From the offer made by the Stoddard Company to and accepted by the Grande Ronde Company which culminated in the sale by the Grande Ronde of all of its assets to the Stoddard Company, we quote:

"The Stoddard Lumber Company does hereby offer to purchase all of your property and assets of every nature and description for thirty-six hundred (3600) shares of the capital stock of this company.

It is understood that in addition to the stock to be delivered to you that we are to assume all of the indebtedness of the Grande Ronde Lumber Company except liability for income tax incurred or accrued prior to January 1st, 1929. * * *

All real and personal property is to be conveyed by you free and clear of all incumbrances except mortgage on real property in favor of the Title and Trust Company of Portland, Oregon, (mortgage on lumber in favor of Joseph J. Heilner, Trustee), and current taxes. Abstracts of title shall be submitted showing you to be the owner of the property involved in this transaction free and clear of all incumbrances except the mortgage referred to and the current years taxes. The conveyance of the property shall be subject to the mortgages and taxes but shall not recite an assumption of the indebtedness. * * *"

It is true that the evidence does not disclose the value of these assets, but there is much evidence in the record which indicates that the Grande Ronde Company was a going concern engaged in the manufacture of lumber when the transfer was made. No one claims that it was insolvent. It will be remembered that the Stoddard Company gave in consideration for the Grande Ronde assets 3,600 shares of Stoddard Company capital stock and assumed all of the Grande Ronde Company's liabilities, with the exception of the income tax claims mentioned in our preceding decision. This consideration in itself indicates that the Grande Ronde assets must have been worth more than the outstanding liabilities. Moreover, a ledger sheet of the Stoddard Company, which constitutes a part of the record before us, and the respondents' explanation thereof, indicates that the Stoddard Company received or created a fund aggregating over $18,000 for the discharge of the Grande Ronde income tax liabilities. The very fact that income tax deficiencies in very large amounts were being asserted by the federal government against the Grande Ronde Company and were later in large part sustained, in itself, indicates that the Grande Ronde properties were earning profits and therefore possessed great value. The record does not indicate what, if any, liabilities in addition to the plaintiff's account were unsatisfied when the transfer of assets was made. Hence, it was not necessary that the plaintiff should have shown that the Stoddard Company received properties worth more than the amount of his claim. We believe that these facts show that our statement above quoted is not subject to the criticism which the respondents have offered.

The petition for a rehearing criticizes many of the legal principles which we employed in arriving at our conclusion. We considered these rules carefully before arriving at our opinion. We have analyzed them again, but remain satisfied that in embracing them we did not err. We shall now consider some additional contentions advanced by the respondents.

The petitioners argue that after the Stoddard Company had agreed to pay the Grande Ronde Company's debts, the plaintiff, as a creditor of the Grande Ronde Company, was not entitled to judgment against both of these companies. They insist that he was entitled to a remedy against only one of them, and that it was incumbent upon him to make an election. The respondents argue: "It may even be that so far as the commencement of the action was concerned that he had a right to pursue his remedy against both, but manifestly when the time came for the case to be decided he was not entitled to judgment against both." They argue that since he took judgment against the Grande Ronde Company he made his election and, therefore, cannot have relief against the Stoddard Company. In support of these contentions, the respondents cite:Wood v. Moriarty, 15 R.I. 518, 9 A. 427; Bohanan v. Pope, 42 Me. 93; Verrill v. Weinstein, 135 Me. 126, 190 A. 634; 13 C.J., p. 705, § 815; and 12 Am. Jur., p. 841, § 288.

The first two of the decisions just cited support the respondents' position. The section of Corpus Juris on which they rely is not concerned with the precise problem with which we are now dealing. It states that the English doctrine which denies to the beneficiary the right to maintain an action against the promisor is not the prevailing rule in the United States. The section of American Jurisprudence upon which they rely is concerned with the problem whether the beneficiary must formally accept the promise made in his behalf by the promisor. The essence of the section is stated in the following words which we quote from it: "By suing on the contract, the beneficiary accepts or adopts the same." Neither of these treatises considers the question of whether judgment may be entered against both the promisor and the promisee. In the Verrill case, the defendant in purchasing a parcel of real property from one Katz signed a note and mortgage which finally came into the ownership of the plaintiff. Before maturity of the note the defendant conveyed her equity in the property to two individuals named Hecht who assumed and agreed to pay the mortgage debt. Thereafter the defendant made no payments upon the note, but payments were made by the Hechts. The question before the court was whether the payments made by the Hechts interrupted the running of the limitation period against the liability of the defendant. The plaintiff argued that the promisor is in effect the agent of the original debtor, and that accordingly his payments interrupt the running of the statutory period against the latter. In rejecting this argument, the court said: "Such claim misconceives the theory on which the liability of the promisor is based. His obligation is not on the note, not as agent of the mortgagor, but to pay a debt of his own."

We stated that the Bohanan and Wood decisions support the plaintiff's position, but both of them regarded the new promise as the consummation of a novation; and, of course, a novation is the substitution of a new right for an existing obligation. Williston on Contracts, Rev. Ed., § 393, referring to these two decisions, among others, states:

"Courts which hold that the original contract is in effect an offer of novation to the creditor naturally hold that if the creditor accepts the promisor as his debtor he releases the original debtor, and on the other hand, if he elects to sue the original debtor he thereby rejects the proffered novation and cannot afterwards sue the new promisor."

From § 353 of the same treatise, we quote:

"* * * A few states, however, have erroneously resorted to an implied novation theory for enforcement of the creditor beneficiary type of third party contract."

Among the decisions which he states "have erroneously resorted to an implied novation theory" he cites the Bohanan and Wood decisions. In § 393, after the language quoted above, Williston continues:

"The weight of authority, however, in the jurisdictions which allow a creditor beneficiary a direct right against the promisor supports the conclusion that the creditor has rights against both the promisor and the promisee, not merely a choice of rights; being entitled, of course, to but a single satisfaction. And in some states he is allowed to join both as defendants in the same action. He ought to be compelled to do so."

From Restatement of the Law, Contracts, § 141, we quote:

"(1) A creditor beneficiary who has an enforceable claim against the promisee can get judgment against either the promisee or the promisor or against each of them on their respective duties to him. Satisfaction in whole or in part of either of these duties, or of judgments thereon, satisfies to that extent the other duty or judgment."

The principle embraced in the Restatement represents the law of this state. From the carefully prepared annotations to § 141, subd. 1, of the Restatement of the Law of Contracts prepared by Professor Charles G. Howard (12 Oregon Law Review 283), we quote:

"Oregon cases are in accord with this section and hold uniformly that there can be but one satisfaction, though both promisor and promisee are liable. Strong v. Kamm Brown, 13 Or. 172,9 P. 331 (1886); Feldman v. McGuire, 34 Or. 309,55 P. 872 (1899); Miles v. Bowers, 49 Or. 429, 90 P. 905 (1907); The Home v. Selling, 91 Or. 428, 179 P. 261 (1919)."

We have read the decisions cited by Professor Howard and are satisfied that he correctly stated their essence.

We conclude that the plaintiff was entitled to maintain this action against the promisor (the Stoddard Company) as well as against his original debtor (the Grande Ronde Company). He was entitled to judgment against both; however, to only one complete satisfaction.

We shall express in this opinion our conclusions in regard to only one other criticism which is made by the respondents of our original decision. All other principles which they criticize are sufficiently developed, we believe, in our original decision. The respondents state: "The relation between promisor and promisee in a contract made for the benefit of a third party is that of principal and surety." They continue: "Principal and surety may not be sued in the same action and where they are, plaintiff must make an election before the case is submitted to jury." In Feldman v.McGuire, supra, which received very careful consideration by this court, Mr. Chief Justice WOLVERTON, in disposing of a contention similar to that which the respondents make in the language which we have just quoted from their brief, stated:

"There is much conflict in the authorities, but the decided weight thereof supports the contention that the contract or transaction upon which such an action is based is not within the statute. The reasons urged are that the contract is not one of suretyship, but an original undertaking between the debtor and the promisor, based upon a sufficient consideration, which operates to the benefit of the creditor. The party promising has for his object some benefit or advantage accruing to himself, and on that consideration makes the promise; and this, it is said, distinguishes the transaction as an original undertaking. Furthermore, the promise is not to the creditor, but to the debtor, and is to pay such debtor the amount due him, or the consideration agreed upon, by paying or answering for it to his creditor; and the law implies the contract between the promisor and the creditor because it is incidentally for his benefit, and therefore gives him the right of action."

We are satisfied that this contention is without merit.

We have considered the entire petition for a rehearing and its two accompanying briefs but have found no occasion to depart from our original decision. The petition for a rehearing is denied.

RAND, C.J., and BEAN and BELT, JJ., concur.