Title: Seargeant v. Commerce Loan and Inv. Co.

State: arizona

Issuer: Arizona Supreme Court

Document:

77 Ariz. 299 (1954) 270 P.2d 1086 SEARGEANT et ux. v. COMMERCE LOAN AND INV. CO. et al. No. 5752. Supreme Court of Arizona. June 1, 1954. *300 Emmett R. Feighner, Phoenix, for appellants. J.S. Riggs, Phoenix, for appellees. PHELPS, Chief Justice. This is an appeal from a judgment entered in favor of appellees and against appellants in the sum of $4,624.50 and from an order denying appellants' motion for a new trial. We deem it unnecessary to relate the circumstances under which this case got into the trial court or to pass upon the preliminary questions raised relating thereto. Suffice it to say that insofar as it is material here, appellee Commerce Loan Company, a corporation, brought this action as a third-party beneficiary under an alleged contract between appellant L.H. Seargeant and one W.C.O'Brien, a secondhand *301 automobile dealer. It is claimed Seargeant had agreed to finance O'Brien to the extent of $10,000 on a "floor plan" arrangement for the purchase by O'Brien of ten secondhand automobiles from appellee; that Seargeant was to deposit $10,000 in the Valley National Bank to the credit of W.C. O'Brien and that said contract was made by Seargeant and O'Brien for the benefit of appellee. The allegation of appellee relating to this contract follows: A "floor plan" is described by appellee's witness Benjamin as an arrangement whereby a used-car dealer who wants to buy a car and doesn't have the money to pay for it, takes his title to the car to someone who does have the money (either a finance company or an individual) who is able to put up the money and upon receipt of the money required, turns the title *302 to the car over to the person lending the money and usually a conditional sales contract (or a certificate of trust used by the finance company) is executed by the money lender in favor of the used-car dealer. The money lender becomes the legal owner of the car and upon resale of the car by the used-car dealer the money lender is paid the amount loaned. The title is transferred from the money lender to the new purchaser and the dealer retains the profits, if any. Appellee alleged that Seargeant refused to deposit the $10,000 in the Valley National Bank to the credit of W.C. O'Brien as agreed and as a result thereof appellee suffered losses in the sum of $4,624.50 Seargeant denied these allegations generally and specifically. The cause was tried to the court without a jury with the result above set forth. Appellant Seargeant has assigned a number of errors, one of which is that the contract, being verbal, violated the statute of frauds. The case of Steward v. Sirrine, 34 Ariz. 49, 267 P. 598, clearly points out the fallacy of this position. That case holds that a promise made to a debtor (who then owes a debt or is about to incur a debt to another) to pay his debt to another is not violative of the Statute of Frauds. It is only when he makes such oral promise to the creditor that the Statute of Frauds is violated. Here whatever promise was made by Seargeant is alleged in the complaint to have been made to O'Brien and the appellee's evidence supports that allegation. At no time did Seargeant promise appellee that he would pay it $10,000 or any sum whatsoever. The vital question before the court therefore to be determined resolves itself into whether appellee under the terms of the agreement between Seargeant and O'Brien falls within the category of a third-party creditor beneficiary. If it does, appellee is entitled to recover. If it does not, it may not maintain this cause of action. The trial court has found that it does fall within said category and specifically finds: Do the facts as found by the trial court create a third-party beneficiary contract? In other words, do the facts found create a promise on the part of Seargeant to pay the Commerce Loan Company the sum of $10,000? If they do, the judgment of the trial court must be affirmed. If not, it must be reversed. It is not enough that the Loan Company may be incidentally benefitted by the contract between Seargeant and O'Brien. There must be manifested in the language of the contract an intent on the part of Seargeant to assume and discharge O'Brien's obligation to the Loan Company. The promise of Seargeant to O'Brien must in effect be to pay to the Loan Company the $10,000 in order for the agreement to entitle the Loan Company to maintain a cause of action against Seargeant upon a third-party beneficiary contract. In legal effect the agreement must be such as to bind Seargeant to discharge O'Brien's obligation to the Loan Company. The finding of the court is that O'Brien and Seargeant If we attribute to the language of the court above quoted the most favorable interpretation of which it is susceptible in support of its judgment, we cannot possibly find in it a promise by Seargeant to pay *304 the Loan Company one dollar. Nor can we find in the language used by the court any intention that Seargeant assumed the obligation of O'Brien to the Loan Company. The most that can be gleaned from it is that Seargeant agreed to deposit $10,000 in the Valley National Bank to the credit of O'Brien with which O'Brien could pay the Loan Company. Under the terms of the agreement as found by the court O'Brien could have used the money for any purpose he might have chosen regardless of his agreement with Seargeant or his agreement with the Loan Company. In short, under the finding of the court Seargeant would have lost all control over the $10,000 the minute he deposited it with the bank. O'Brien did give the Loan Company his checks to cover the full amount of $10,000. Both O'Brien and the Loan Company understood that O'Brien, not Seargeant, was to pay the Loan Company. If Seargeant agreed to advance the money to O'Brien to pay for the cars and failed to do so, O'Brien alone had a cause of action against him. The Commerce Loan Company is at the most an incidental beneficiary under the agreement as found by the court. This question arose in the case of Pennsylvania Steel Co. v. New York City Ry. Co., 2 Cir., 198 F. 721. After stating the different theories upon which third-party beneficiary actions are maintained, the court said in 198 F. at page 749: In Restatement of the Law of Contracts, page 151, section 133, in illustrating In Restatement of the Law of Contracts, the circumstances under which a third-party beneficiary may recover the following illustration is used: The latter illustration is identical with the situation in this case. We have had this question before us in two cases, the first being Steward v. Sirrine, supra, and in Treadway v. Western Cotton Oil & Ginning Co., 40 Ariz. 125, 10 P.2d 371. In the one case the third party was allowed to recover and in the other, recovery was denied. The court drew a distinction between cases where recovery may be had and where it could not. Justice dictates that if Seargeant breached his contract with O'Brien, he should have been required to respond in damages or if he obtained possession of four of the cars from the Loan Company without paying it therefor, that it should be compensated. But unfortunately the remedy selected in this case cannot possibly reach either situation. For the reasons above stated, judgment of the trial court is reversed with directions to enter judgment for appellant. STANFORD, LA PRADE, UDALL and WINDES, JJ., concur.