Merchant v. O'Rourke

Waterman, T.

The parties unite in presenting for determination but a single issue, and that is whether the answer set up a legal defense. It seems to be conceded that, if it does, there was no error in granting the new trial. While we interfere very reluctantly with an order of this kind made by the. trial court, yet we have no hesitation in passing upon the correctness of the ruling where the exact ground on which it is based is shown. Turley v. Griffin, 106 *354 Iowa, 161. There are two contracts set up in the answer, and we shall take them up in their order.

1 2 I. Was the agreement valid by which Carmichael undertook to take the shares from defendant whenever tire latter desired, and pay him therefor what the same had cost ? On the part of appellant it is insisted that the invalidity of this contract is settled by the decision of this court in Kauffman v. Harstock, 31 Iowa, 472 . In'that case plaintiff had subscribed for certain shares of stock upon defendant’s promise to buy them for the price paid, on certain conditions. The action was brought to enforce this agreement, it being alleged that the conditions were all performed. It was conceded that parol proof of the agreement was not admissible unless it was found to be a present sale of the stock, and this court held that it was not such a sale, and therefore could not be established by parol. This is all that is decided in the cited case. We do not regard the question of the statute of frauds as material in considering this first contract. If it was a lawful agreement, it is of no concern how it might be proved, for there is no attempt made here to enforce it. It is set up only as a basis for the second agreement, which is relied upon as a defense. The statute of frauds does not prohibit an oral contract, nor make such agreement illegal because certain formalities are not complied with. It relates only to the method by which proof may be made. Townsend v. Hargraves, 118 Mass. 334 . We shall have more say on this subject further on. At present we devote our attention to the question of the validity of this first agreement, which seems to be denied for want of mutuality, and because it was without consideration. Option contracts are of frequent occurrence in the business world. Benjamin Sales, section 39. Had defendant offered to sell his stock to plaintiff at a certain price, giving him a definite' time within which to accept, an acceptance within the time would have constituted a binding contract. Benjamin Sales, *355 supra; Pratt v. Prouty, 104 Iowa, 419 . If such, an option given the purchaser is valid, we can see no reason why a seller’s option would not be likewise legal. The acceptance of the offer to sell in the one case, and of the offer to purchase in the other, makes the contract mutual. As to the matter of consideration, it is elementary that a detriment to the promisee is sufficient, and this is found here in the purchase of this stock by defendant, against his desire, because of Carmichael’s promise. The first contract was clearly legal.

3 II. The second agreement, which is set up as a defense, was to the effect that defendant released Carmichael from his obligation to purchase said stock, and gave him the right to vote it, and the latter agreed to pay any liability that might be incurred on account of such investment. Let us suppose the first agreement was within the statute of frauds; it still might have been established by Carmichael’s testimony. Code, section 4268. If Carmichael’s oral admission could thus establish liability against him, we do not see why a recognition by him was not sufficient to give to this first contract vitality enough to make a release from its obligation operative as a consideration for the new agreement.

4 III. It is contended that the second contract was a promise to answer' for the debt, default, or miscarriage of another, and therefore within the statute of frauds. Generally speaking, to bring a promise of this nature within the statute, it must be made to the person entitled to enforce the liability assumed by the promisor. A promise to the debtor to pay his debt, and thereby relieve him from the payjnent of it himself, is not within the statute. 1 Beach Contracts, section 507 et seq. It is apparent that those entitled to enforce the liability assumed by Carmichael were the creditors of the corporation, and no promise was made to them. In Beaman’s Adm’rs v. Russell, 20 Vt. 205 , the rule is thus stated: “If a promise of in *356 demnity be not collateral to the liability of some other person to the same party to whom the promise is made, it is not within the statute.” That this is the general rule, see Tighe v. Morrison, 116 N. Y. 263 (22 N. E. Rep. 164); Chapin v. Merrill, 4 Wend. 657 ; Alger v. Scoville, 1 Gray, 391 ; Goetz v. Foos, 14 Minn. 265 ( Gil. 196 ); Nelson v. Bank, 48 Ill. 36 . We are not without authority on this point in our own state. In Bartlett v. Insurance Co., 77 Iowa, 155, there was a contract on defendant’s part with another company, in which plaintiff was insured, to reinsure its risks. It was claimed that this contract was within the statute, and could only be established by written evidence. In passing on the point this court said: “An agreement to reinsure is not an undertaking to answer for the debt or default of the first insurer, but is an original undertaking, entered into with him, to indemnify the owner of the property in case a loss occurs. It is in no' sense a contract of guaranty or suretyship-, but under it, as between the immediate parties, the reinsurer assumes the risk absolutely. He takes the place of the first insurer, assuming his liabilities, and is bound in any event to him or to the owner of the property, and the statute of frauds has no application to a contract of that nature.” In the -case at bar the contract was an original undertaking of Carmichael, made upon a consideration which moved directly to him. It was collateral to no promise of defendant, and, for the reason heretofore given, was not within the statute. That there was a sufficient consideration for this second contract seems clear, without argument. Carmichael obtained the right to vote this stock, and secured a release from the obligation of His first agreement. The district coiirt did not err in granting a new trial. — Affirmed.