Story Case

Roy Gates, a young man of eighteen years, desired ardently to own an automobile. He tried to negotiate with the Overland agency in Chicago for the purchase of a car, making an offer to settle the debt in thirty days. The agency was unwilling to extend credit to so young a customer, and recommended that he secure his father's approval of the transaction. When the matter was presented to Mr. Gates, he said to the agent, "Oh, that's all right. If he doesn 't pay, I will." The automobile agents failed in their attempt to collect the price of the machine. The young man eluded their efforts with this reply, "As an infant I can avoid completing this transaction. I intend to exercise this privilege." When the father was approached, he was likewise reluctant to settle. He said, "I, too, am not liable. I undertook to answer for my son's obligation. If there was no obligation on his part, there is none on mine." Can the father escape?

Ruling Court Case. Yorkshire Railway Wagon Company Vs. Maclure, Volume 19 Chancery Division, Law Reports, Page 478

The Cornwallis Minerals Railway Company was financially embarrassed, and its borrowing power under its charter was exhausted. In order to raise money, it sold a part of its rolling stock to the Yorkshire Railway Wagon Company for $30,000. At the same time, it entered into a contract with the wagon company for the hire of this rolling stock at a rent which would repay the $30,000 and interest in five years. Three of the directors of the Minerals Railway Company guaranteed the payment of the rent.

The wagon company now brings this action against the sureties and railway company for rent due.

Mr. Justice Kay said: "The facts of this case clearly indicated that the accepted sale and hiring back was in fact a borrowing of $30,000 on the security of the rolling stock, and such a transaction is forbidden by statute. Accordingly, the obligation is not en-forcible as against the corporation. But, this obligation is valid against the three directors who guaranteed the payment of the rent." Judgment was given for the wagon company as against Maclure.

Ruling Law. Story Case Answer

The Statute of Frauds states that no action can be brought on a promise to answer for the debts, default of miscarriage of another, etc. The words "of another" show that the statute is intended to apply only when there is an actual primary debt to which the guarantor is collaterally responsible. If there is no principal the statute is not applicable, and the promisor is bound, although the contract is not in writing. Thus, when one person guaranteed to stand for the purchase price of goods sold to an estate, and the estate was never liable thereon, the promisor is bound, though his contract is oral. There is conflict on the point whether a person who guarantees the payment of an obligation entered into by one as an infant, whose contract is merely voidable is within the Statute of Frauds. The better rule is that such contracts are collateral, and, if oral, are not enforcible. Therefore, a contract to answer for the debt of an infant is collateral. The infant is an actual principal, since the contract is not void, but only voidable on his part.

Therefore, in the Story Case, the father is not liable. His contract is merely an oral one.