Union Bank of Louisiana v. Bowman
9 La. Ann. 195 (1854)
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Rule of Law:
When a purchaser of property agrees to pay the seller's pre-existing debt to a third-party creditor as part of the purchase price, the creditor's right to enforce that promise is not absolute and is subject to any defenses, such as failure of consideration, that the purchaser could assert against the seller.
Facts:
- In 1833, Gayle and Wife mortgaged land and slaves to the Union Bank to secure a loan for which they became stockholders.
- In 1834, Gayle and Wife sold the mortgaged land and their bank shares to Bowman.
- As part of the sale agreement, Bowman assumed the responsibility of paying the outstanding debt that Gayle and Wife owed to the Union Bank.
- After the sale, Bowman discovered a significant portion of the land he purchased was in the possession of a third party, Bowles, from whom Bowman was forced to purchase it.
- Another portion of the land was, and remained, in the possession of another individual, Lissenby.
- Lissenby had also initiated legal proceedings to set aside Gayle's entire original claim to the land, alleging it was obtained through fraud.
Procedural Posture:
- The Union Bank filed a lawsuit against Bowman in a lower court.
- The Bank sought to foreclose on the mortgaged land and obtain a personal judgment against Bowman for the assumed debt.
- At trial, Bowman attempted to introduce evidence of the title defects as a defense to the personal judgment.
- The trial court excluded this evidence, ruling that the Bank was not affected by any equities existing between Bowman and Gayle.
- The trial court entered a decree in favor of the Bank, ordering the land to be sold and holding Bowman personally liable.
- Bowman, the defendant, appealed the judgment to the present appellate court.
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Issue:
Does a purchaser's promise to pay a seller's debt to a third-party creditor, made as part of the purchase price for land, allow the creditor to enforce that promise absolutely, without being subject to the purchaser's defenses against the seller arising from defects in the sale?
Opinions:
Majority - Slidell, C. J.
No. A third-party beneficiary's right to enforce a promise made for its benefit is subject to the equities and defenses that exist between the original contracting parties. Bowman's promise to pay the Bank was made in his capacity as a purchaser and was part of the price of the sale; it was not an absolute, independent obligation. The promise was qualified and dependent upon the seller, Gayle, fulfilling his warranty of title. Because Gayle could not demand the full price from Bowman due to the failure of consideration (the defective title), the Bank, whose rights derive from the contract between Gayle and Bowman, cannot claim a superior right. The Bank's right is a promise 'sub modo'—a promise to pay as part of the price, subject to the defenses incident to that transaction. While subsequent actions between the promisor (Bowman) and the beneficiary (Bank) could create a new, independent obligation, Bowman’s two initial payments on the bond were insufficient to do so here.
Analysis:
This decision establishes that in a 'stipulation pour autrui' (a contract for a third-party beneficiary), the beneficiary's rights are derivative, not independent of the underlying contract. It prevents a third-party creditor from being in a better position than the original promisee. This ruling protects promisors, like purchasers who assume debt, by allowing them to raise valid contractual defenses against the third party, thereby ensuring that they are not forced to pay the full price for a flawed or failed transaction. It tempers the third-party beneficiary doctrine by linking the beneficiary’s enforcement power directly to the validity and performance of the original agreement.
