Opinion ID: 1467960
Heading Depth: 2
Heading Rank: 3

Heading: Existence and Enforceability of Oral Guarantee

Text: Sawyer argues that his motions below for directed verdict, for judgment notwithstanding the verdict, and for a new trial, all of which were denied, should have been granted for one or more of the following reasons: by the only reasonable view of the evidence 1) no contract of guarantee was formed; 2) the present suit is barred by the Statute of Frauds; and 3) Sawyer was discharged as a matter of law from any duty he may have owed Graybar because of Graybar's failure to perfect its materialman's lien. It is not our function on appeal to supplant the findings of the jury with our own interpretation of the evidence. Nevertheless, if the evidence is not susceptible of any reasonable interpretation that would support the jury's conclusions, then we may overturn its verdict. Such is not the case here.
Taking the evidence in the light most favorable to Graybar, we confront the issue whether a jury rationally could find by a preponderance of the evidence that a binding contract of guarantee existed between it and Sawyer. We hold that it could. As evidence showing the existence of a binding contract of guarantee, the jury could consider the September 23, 1980, letter from Graybar's finance manager to Sawyer; the testimony of three witnesses that Sawyer had orally promised to pay the Pine Tree account if Pine Tree did not; the testimony of a fourth witness that Sawyer said he would take care of any problems with payment of Pine Tree's account with Graybar; and the course of conduct followed by Graybar after the second meeting, including its refraining from placing a lien on the Pine Tree job in Lewiston. That evidence was sufficient to warrant the jury's conclusion that such a contract was in fact made.
Title 33 M.R.S.A. § 51(2) (1978) provides that no action shall be maintained in any of the following cases: ... to charge any person upon special promise to answer for the debt, default, or misdoings of another... unless the promise, contract or agreement ... is in writing and signed by the party to be charged therewith. This traditional component of the Statute of Frauds has, however, long been subject to an exception in a case where the promisor's main purpose in making his promise is to secure some benefit for himself. See Emerson v. Slater, 63 U.S. (22 How.) 28, 16 L.Ed. 360 (1859); Davis v. Patrick, 141 U.S. 479, 12 S.Ct. 58, 35 L.Ed. 826 (1891). That so-called main purpose exception to the Statute of Frauds was first applied in Maine in Colbath v. Everett B. Clark Seed Co., 112 Me. 277, 91 A. 1007 (1914). In Colbath, the plaintiff refused to send one Mr. Klippel a shipment of potatoes because Klippel was reputed to be no good financially. The defendant seed company, to which Klippel was supposed to supply the potatoes, contacted the plaintiff and agreed that it would pay for the potatoes if Klippel did not because the defendant needed to have the potatoes. The potatoes were delivered directly to the defendant, bypassing Klippel altogether. The court held that the element of benefit to the defendant was so plainly apparent that his promise was taken out of the Statute of Frauds. In Maine Candy and Products Co. v. Turgeon, 124 Me. 411, 130 A. 242 (1925), this court again held that a promise, though made in the form of an agreement to answer for the debt of another, was nevertheless outside the Statute of Frauds when based upon a consideration flowing directly to the promisor. In Starkey v. Lewin, 118 Me. 87, 90, 105 A. 858, 860 (1919), another case involving the main purpose doctrine developed in Colbath, the court held that it was necessary in such a case that the jury be instructed to examine whether the indirect benefits to the promisor were sufficient to constitute consideration for the promise. More recent formulations of the rule have abandoned the theory that the main purpose exception enforces an original promise in favor of the idea that the promise, though collateral, is enforceable because the promisor does not need the protection against his own generous impulses afforded by the Statute of Frauds. Restatement (Second) of Contracts § 116 (1981). Where a surety's main objective is to serve his own pecuniary or business advantage, the gratuitous element of the suretyship is eliminated, the likelihood of disproportion in the values exchanged is reduced, and the context of commercial dealings provides evidentiary safeguards. Id., comment a. Both the common law rule and the Restatement formulation focus on whether the evidence adduced at trial justifies the conclusion that the promisor's main purpose was to advance his own interests. The benefit that a promisor must expect to receive under the main purpose rule in order to be held to his promise must be substantial, immediate, and pecuniary, though it may flow to the promisor through benefit to the principal obligor. See id., comment b. That is, although the promisor need not receive cash in hand from the promisee, the path of benefits flowing to the promisor must not be so circuitous or uncertain that obtaining those benefits cannot be said to have been his main purpose in making the promise. As a matter of practicality, the promisor's advantage must be served in a straightforward way in order for the main purpose rule to apply. The jury instructions in the present case gave a thoroughly adequate statement of the law on the main purpose rule. In the course of charging the jury, the presiding justice made clear that Mr. Sawyer is not responsible for the debts of Pine Tree that Pine Tree incurred in the ordinary course of its business just because Mr. Sawyer was a shareholder. For Sawyer to be held liable, the justice stated: Graybar must prove by a preponderance of the evidence that Mr. Sawyer made a promise guaranteeing payment and had as his main purpose, in making it, the achievement of a substantial, direct, immediate, personal monetary benefit for himself as opposed to Pine Tree. (Emphasis added) The instructions as a whole were sufficient to inform the jury of the applicable law on the subject of the main purpose exception. [2] The evidence before the jury amply supports its finding, under the instructions, that Sawyer intended by his promise to procure an immediate and substantial benefit flowing directly to himself. Sawyer had outstanding loans to Pine Tree of almost $300,000. He admitted in testimony that he needed to keep the business going in order to be paid back. The activities he undertook to get the business back on its feet financially were extensive. He followed upon his initial loan of $100,000 by lending Pine Tree further large sums of money with the obvious purpose of keeping jobs going. He structured the loan transactions to give himself, as the sole voting stockholder, all of the authority formerly held by the board of directors. He reserved to himself the control of Pine Tree's borrowing. He guaranteed letters of credit necessary for Pine Tree to obtain two other jobs. He elected himself vice president, and had an active hand in rejecting jobs and meeting with suppliers, and he maintained his involvement even while he was in Florida for substantial periods of time. He received interest on his loans to Pine Tree through the fall and winter of 1980 and the spring of 1981. He also received $18,000 in April of 1981 in partial repayment of the principal amount of the loans. He testified at length about his desire to increase Pine Tree's profitability so that he could be paid back. Graybar's Nicholas in his September 23, 1980, letter to Sawyer noted Sawyer's concern that delays in shipment of supplies to Pine Tree would create serious problems for your company. Sawyer also stood to benefit in his capacity as sole preferred stockholder from any increase in the net worth of the company and from the quarterly dividends that Pine Tree was required to pay to him. In view of the necessity of maintaining the flow of supplies to Pine Tree in order to keep the business going, and the necessity of its staying in business if Sawyer was to be repaid, the jury could reasonably find that Sawyer's oral promise, given to avoid serious difficulties for Pine Tree, was intended to confer on him a direct and substantial benefit. Though the evidence does not conclusively establish Sawyer's motivation in guaranteeing the Pine Tree account, it is sufficient to raise a jury question under the main purpose rule. The facts of the present case resemble closely those of the cited Maine cases and are well within the purview of the rule as contemplated in the Restatement. In the Maine Candy case, for example, the promisor gave an oral promise of payment of past debts to keep the business going so that he could recover his own investment. Illustrations 2 and 4 of Restatement § 116 say that promises should be enforceable against a creditor trying to protect his security by orally guaranteeing the debt of another, or of a substantial shareholder in a bank protecting the bank from official examination so as to keep it afloat. Comparison of the present case with those authorities [3] demonstrates that it falls within the accepted ambit of the main purpose doctrine.
Sawyer claims that Graybar's failure to perfect a mechanics lien on the job for which the telephone switch was ordered entitles him as a matter of law to be relieved pro tanto of any duty he might otherwise have owed Graybar as a guarantor. According to the trial evidence, however, part of the understanding between the parties was that Graybar would not place liens on Pine Tree jobs without first consulting Sawyer. There was also evidence that Graybar made several unsuccessful attempts to have Sawyer address the Pine Tree problem while the lien period was still running. That evidence raises a jury question whether it was reasonable for Graybar to act as it did in forebearing to lien the Lewiston Telephone Company building. This question was explicitly submitted to the jury in the court's instructions, and it was specifically answered by the jury in its negative response to question 3 on the verdict form: Should Mr. Sawyer be released from his guarantee on the grounds Graybar did not act in a reasonable manner in attempting to collect the Pine Tree account? The treatment of this issue as a factual question to be decided by the jury was entirely appropriate. Given the testimony in the case, there could be no discharge of Sawyer as a matter of law. The jury had ample evidence to support its conclusion that Graybar was not unreasonable in the actions it took to protect itself through other means than coming back to Sawyer's guarantee.