This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
A stranger to the contract who does not act as the agent of the debtor, can not discharge the debt by paying it unless the creditor assents.1 Since this question usually arises in cases in which the creditor has refused to accept the payment, it is discussed under the subject of tender.2 It has been said, however, that at least in cases in which the party who offers payment has a financial interest growing out of the transaction between the debtor and the creditor, he may make such payment as is necessary to protect his own interest, and the creditor is bound to accept it.3 If A sells property to B on credit, and B resells such property to C, it is held that C may make payment of B's debt to A.4
4 Lawrenceburgh National Bank v. Stevenson, 51 Ind. 504; Raymond v. Baar, 13 S. & R. (Pa.) 318, 15 Am. Dec. 603; McDonald v. Allen, 67 Tenn. (S Baxt.) 446.
5 West Philadelphia National Bank v. Field, 143 Pa. St. 473, 24 Am. St.
Rep 562, 22 Atl. 829; Bank v. Buchanan, 87 Tenn. 32, 10 Am. St. Hep. 616, 1 L. R. A. 109, 9 S. W. 202.
6 Bank v. Buchanan, 87 Tenn. 32, 10 Am. St. Rep. 616, 1 L. R. A. 109, 9 S. W. 202.
1 Second National Bank v. Prewitt, 117 Tenn. 1, 110 Am. St. Rep 987, 9 L. R. A. (N.S.) 581, 96 S. W. 334.
See ch. LXXXIII.
2 Second National Bank v. Prewitt, 117 Tenn. 1, 110 Am. St. Rep. 087, 9 L. R. A. (NS.) 581, 96 S. W. 334.
3 Green v. Bolster, - Mass. - , 122 N. E. 740 (obiter).
4 In re Kruger's Estate, - Pa. St. - , 107 Atl. 379.
1 See ch. LXXXIII.
The civil law, as codified in Louisiana, takes a view of the right of a third party to make payment on behalf of the debtor, radically different from that of the common law. The Louisiana Code provides: "A third person may, for the advantage of the obligor, put the obligee in default by offering to perform the obligation on the part of the debtor, even without his knowledge; but it must be for the advantage of the obligor, not merely to change the creditor."5
It is generally held that if payment which is made by one who is not a party to the transaction and who is not the agent of the debtor, is accepted by the creditor in satisfaction of the obligation, the contract is discharged,6 even if there is no privity between the party making the payment and the debtor, and if the debtor is therefore under no obligation to reimburse such third party.7 A, who had a judgment against B, attached certain bonds of a railroad company. The railroad company wished to retire such bonds and so made an arrangement by which A had the bonds sold, bought them in himself, and transferred to X, who, acting on behalf of the railroad company, paid part of the judgment in cash and gave notes for the balance. Whatever might be the nature of the transaction between B and X, A was paid and could not recover again from B.8 A gave a note which was subsequently indorsed by the holder thereof to a bank "for collection." The bank paid the note without consulting A, and then sought to recover from A. As the agreement between the bank and the holder of the note was for payment and not for assignment, the bank could not be treated as the holder of the note.9 Neither could the bank recover from A for money expended on his behalf.10 Even if A has paid B's note by mistake to one who holds it for collection, such payment operates as a discharge of the note, and the agent who holds it for collection can not indorse it over to A and thus pass title thereto.11
2 See ch. LXXXIII.
3 Yeager v. Groves, 78 Ky. 278.
4Yeager v. Groves, 78 Ky. 278.
5 Article 2131 of the civil code of Louisiana.
For an application of this rule, see State v. Pilsbury, 29 La. Ann. 787.
6 Idaho. Donaldson v. Thousand Springs Power Co., 29 Ida. 735, 162 Pac. 334.
Minnesota. Clark v. Abbott, 53 Minn. 88, 39 Am. St. Rep. 577, 55 N. W. 542.
Montana. Tanner v. Bowen, 34 Mont. 121, 7 L. R. A. (N.S ) 534, 85 Pac. 876; Penwell v. Flickinger, 46 Mont. 526, 129 Pac. 323.
Ohio. People's & Drovers' Bank v. Craig, 63 O. S. 374, 81 Am. St. Rep. 639, 52 L R. A. 872, 59 N. E. 102.
South Dakota. Charnock v. Jones, 22 S. D. 132, 16 L. R. A. (N.S.) 233, 115 N. W. 1072.
Utah. Campbell v. Gowans, 35 Utah 268, 23 L. R. A (N.S ) 414, 100 Pac 397.
West Virginia. Crumlish v. Improvement Co., 38 W. Va. 390, 45 Am. St. Rep. 872, 23 L. R. A. 120, 18 S. E. 456.
Wisconsin. Gray v. Herman, 75 Wis. 453, 6 L. R. A. 691, 44 N. W. 248.
The same principle applies to accord and satisfaction received from a stranger. Leavitt v. Morrow, 6 O. S. 71, 67 Am. Dec. 334. See Sec. 2511.
It has been held in England that payment by a stranger is not a discharge. Jones v. Broadhurst, 9 C. B. 173.
This view has been criticized in a later case. See, Coak v. Lister, 13 C. B. (N.S.) 543 (594).
7 Gray v. Herman, 75 Wis. 453, 6 L. R. A. 691, 44 N. W. 248.
If payment is a condition precedent, payment by a third person if accepted in satisfaction is sufficient.12 If the premium on an insurance policy must be paid before the policy takes effect, this condition is performed if the agent advances the premium out of his own funds.13 But where A agreed severally with X and Y to construct a building for each, adjoining that of the other, and X agreed to pay A half the cost of the party wall, while Y agreed to pay A the entire cost of such wall, X's payment of his proportion does not discharge Y from paying the entire amount.14
In other jurisdictions, however, it has been said that the debtor can not take advantage of a payment which is made by a stranger to the transaction,11 especially in the absence of evidence showing that the creditor and the stranger intended that the transaction between them should discharge the debtor.16 A note which is given by a stranger to the transaction who is a mere volunteer and which is accepted as such by the creditor, does not amount to payment, at least if the note is not paid at maturity.17 If the manager of the creditor corporation advanced money to induce it to enter into the transaction with the debtor, the debtor can not treat such advance as payment.18 If C, who is indebted to B, attempts to pay A, to whom B is indebted, and on B's objection A pays such sum to B, the transaction between A and C is not a payment of which D, a subsequent mortgagee whose mortgage is inferior to A's, can take advantage.19
8 Crumlish v. Improvement Co., 38 W. Va. 390, 45 Am. St. Rep. 872, 23 L. R. A. 120, 18 S. E. 456.
9 People's & Drovers' Bank v. Craig, 63 O. S. 374, 81 Am. St. Rep. 639, 52 L. R. A. 872, 59 N. E. 102.
10 See Sec. 1520.
11 Charnock v. Jones, 22 S. D. 132, 16 L. R. A. (N.S.) 233, 115 N. W. 1072.
See also, Hamilton Machine Tool Co. v. Memphis National Bank, 84 O. S. 184, 95 N. E. 777.
12 Lehman v. Gunn, 124 Ala. 213, 82
Am. St. Rep. 159, 5 L. R. A. 112, 27 So. 475.
13 Lehman v. Gunn, 124 Ala. 213, 82 Am. St. Rep. 159, 51 L. R. A. 112, 27 So. 475.
14 Meyer v. Stadtler, 23 Tex. Civ. App. 432, 56 S. W. 108.
15 Benson v. Arkansas Abstract Co., 123 Ark. 620, 185 S W. 1089; Clow v. Borst, 6 Johns. (N. Y.) 37; Bleakley v. White, 4 Paige (N. Y.) 654; Muller v. Eno, 14 N. Y. 597; Thomas Gordon Malting Co. v. Bartels Brewing Co., 206 N. Y. 528, 100 N. E. 457.
Since payment must be intended by both parties as such,20 a transaction between the creditor and a stranger which is intended to operate as an assignment of the claim can not be treated as payment.21
Where the holder, A, indorsed "for collection" to B, and B sold to C after canceling such indorsement, but leaving it still legible, C took with notice and acquired no greater right than B had; but the transaction was not payment.22
The fact that attorney's fees are allowed to one of the parties to litigation, does not operate as a discharge of his liability to his attorney upon the contract of employment.23 This principle has been applied in cases in which a married woman was held liable upon her contract by which she employed an attorney,.although the court made an allowance for her attorney's fees in such action.24