Opinion ID: 175882
Heading Depth: 5
Heading Rank: 1

Heading: Surety Prong

Text: The Estoppel Certificate does not fall within the surety prong of the Arkansas Statute of Frauds. Although we may infer the jury found KFI promised in the Estoppel Certificate to answer for the debt, default, or miscarriage of Acklin, the Arkansas Supreme Court has indicated that not all such promises fall within the plain language of the Arkansas Statute of Frauds. The surety prong of the Arkansas Statute of Frauds only applies when the would-be surety does not receive new consideration for his promise. See, e.g., Patten v. Robbs, 175 Ark. 784, 300 S.W. 388, 389 (1927) ([A] subsequent promise by a third person to pay the pre-existing debt of another must be in writing and signed in order to bind the obligor, unless the promise is made for a new consideration.); Powell v. Jones & Son, 170 Ark. 809, 281 S.W. 366, 367 (1926) (holding consideration for a new promise took an agreement outside the surety prong of the Arkansas Statute of Frauds); Burgie v. Bailey, 91 Ark. 383, 121 S.W. 266, 268 (1909) (similar). The Arkansas Court of Appeals summarized the law as follows: All oral undertakings to answer for the debt of another are not unenforceable under the [Arkansas Statute of Frauds]. A promise by a third party to discharge a preexisting debt of another, without any new consideration or benefit passing to him, is a collateral understanding and unenforceable under the [Arkansas Statute of Frauds]. However, notwithstanding the [Arkansas Statute of Frauds], such a contract is an original one and enforceable if founded on new consideration or benefit moving to the promisor. In determining whether the undertaking is collateral or original the court should consider the words of the promise, the situation of the parties, and all circumstances surrounding the transaction. Landmark Sav. Bank, F.S.B. v. Weaver-Bailey Contractors, Inc., 22 Ark. App. 258, 739 S.W.2d 166, 168 (1987). The Arkansas Supreme Court's construction of the surety prong of the Arkansas Statute of Frauds is consistent with its English ancestry, which was designed to prohibit proof of gratuitous or sentimental promises and to forestall the attendant dangers of perjury. See Blackstone's Commentaries on the Laws of England (1765), at 376; see also N.Y. Trust Co. v. Eisner, 256 U.S. 345, 349, 41 S.Ct. 506, 65 L.Ed. 963 (1921) ([A] page of history is worth a volume of logic.). Any promise by KFI in the Estoppel Certificate to place $675,000 in an escrow account and pay that sum into a trust or tax-deferred account upon Acklin's default would not be gratuitous or sentimental, i.e., collateral to Acklin's obligations in the Note and Mortgage. KFI received new consideration for its promises, namely, certain assurances from Shelton, including (1) a written concession that the value of the Mortgage was not more than $675,000, and (2) waiver of the Note's non-prepayment clause. See Landmark, 739 S.W.2d at 168 (defining consideration as any benefit conferred or agreed to be conferred upon a promisor to which he is not lawfully entitled, or any prejudice suffered or agreed to be suffered by a promisee other than that which he is lawfully bound to suffer). There is no evidence KFI wished to help Shelton for gratuitous or sentimental reasons. KFI clearly made a business decision and sought to profit from the fees and interest Acklin would pay on the bridge loan. [9] Because KFI received new consideration for its promises, the Estoppel Certificate does not fall within the surety prong of the Arkansas Statute of Frauds. See Patten, 300 S.W. at 389; Landmark, 739 S.W.2d at 168.