Siegel v. Spear & Co.
138 N.E. 414 (1923) (1923)
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Rule of Law:
When a gratuitous bailee accepts goods for storage after promising to procure insurance on them, the act of taking possession of the goods constitutes sufficient consideration to make the promise to insure binding and enforceable.
Facts:
- In 1917 and 1918, Siegel purchased household furniture from Spear & Co. and gave back two chattel mortgages.
- The mortgages stipulated that the furniture could not be removed from Siegel's residence without Spear & Co.'s written consent.
- In May 1918, Siegel arranged with Spear & Co.'s creditman, McGrath, to store the furniture at their warehouse free of charge while he was away for the summer.
- When Siegel stated he would get his own insurance, McGrath told him it was unnecessary and promised that he would procure the insurance for Siegel's benefit.
- Relying on McGrath's promise, Siegel sent his furniture to Spear & Co.'s warehouse around May 15, 1918.
- Around June 15, 1918, the furniture was destroyed by a fire at the warehouse.
- McGrath had failed to place any insurance on the furniture.
Procedural Posture:
- Siegel (plaintiff) commenced an action against Spear & Co. (defendant) in the City Court of the city of New York.
- The trial court found in favor of Siegel.
- Spear & Co. (appellant) appealed to the Appellate Division, which affirmed the trial court's judgment.
- The Appellate Division then certified that a question of law was involved that should be reviewed by the Court of Appeals of New York (the state's highest court).
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Issue:
Does a gratuitous bailee's promise to insure the bailed goods become an enforceable contract supported by consideration when the bailor delivers the goods in reliance on that promise?
Opinions:
Majority - Crane, J.
Yes. A gratuitous promise to perform an act becomes a binding obligation when the promisor enters upon performance and the promisee relies on it by entrusting property to the promisor. The court reasoned that while Spear & Co.'s agreement to store the furniture was a gratuitous bailment, McGrath's promise to insure it was part of the whole transaction. Unlike a mere naked promise, this promise was made before Siegel parted with his property. When Spear & Co. accepted the furniture, it entered upon the execution of the trust, which included the promise to insure. The court distinguished this case from Thorne v. Deas, where the promisor never took possession of the property and thus never entered upon performance of the trust. Here, the confidence placed in the bailee and the subsequent undertaking to execute the trust, including the insurance promise, supplied sufficient consideration to make the promise enforceable.
Analysis:
This decision refines the doctrine of consideration in the context of gratuitous bailments. It narrows the traditional rule, established in cases like Thorne v. Deas, that a purely gratuitous promise is unenforceable. By holding that entering upon performance (i.e., taking possession of the goods) after making a promise provides the necessary consideration, the court moves closer to a theory of promissory estoppel. This precedent establishes that a promise which induces a party to entrust their property to the promisor is not a 'naked promise' but is integrated into the bailment itself, making it legally enforceable upon the bailee's acceptance of the goods. Future cases will likely use this reasoning to enforce promises made in connection with a bailment, even if the bailment itself is without charge.
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