Opinion ID: 175882
Heading Depth: 4
Heading Rank: 1

Heading: Arkansas Statute of Frauds

Text: The Arkansas Statute of Frauds prohibits enforcement of certain oral or unsigned contractual agreements. In relevant part, the Arkansas statute provides: (a) Unless the agreement, promise, or contract, or some memorandum or note thereof, upon which an action is brought is made in writing and signed by the party to be charged therewith, or signed by some other person properly authorized by the person sought to be charged, no action shall be brought to charge any: . . . . (2) Person, upon any special promise, to answer for the debt, default, or miscarriage of another; [or] . . . . (4) Person upon any contract for the sale of lands, tenements, or hereditaments, or any interest in or concerning them[.] Ark.Code Ann. § 4-59-101. The Arkansas Statute of Frauds mirrors the English Statute of Frauds, 29 Chas. II, c. 3 (entitled An Act for the Prevention of Frauds and Perjuries), which Parliament enacted in 1677. See, e.g., Sims v. Roberts, 188 Ark. 1030, 68 S.W.2d 1001, 1002 (1934) (Our statute is a re-enactment of the English Statute of Frauds.). [8] KFI stresses it never signed the Estoppel Certificate. Characterizing Shelton's breach-of-contract claim as an attempt to charge [KFI] upon [a] special promise, to answer for the debt, default, or miscarriage of another, Ark.Code Ann. § 4-59-101(a)(2) (the surety prong), or charge [KFI] upon [a] contract for the sale of lands . . ., or any interest in or concerning them, Ark.Code Ann. § 4-59-101(a)(4) (the real estate prong), KFI concludes any alleged promises on its part in the Estoppel Certificate are unenforceable under the surety and real estate prongs of the Arkansas Statute of Frauds. Shelton denies either prong applies. In the alternative, Shelton maintains the promissory estoppel exception takes KFI's promises in the Estoppel Certificate outside the Arkansas Statute of Frauds, because Shelton relied upon those promises to his detriment. The district court, finding the statute of frauds did not apply, never explained why the Estoppel Certificate falls outside the surety or real estate prongs of the Arkansas Statute of Frauds. KFI raised the statute-of-frauds issue in its motion for summary judgment, but the district court rejected KFI's argument without elaboration. When KFI re-raised the statute-of-frauds issue at the close of Shelton's case in chief, the district court tentatively f[ound] by a preponderance of evidence that the Statute of Frauds does not bar the claims. The court elaborated on its ruling the next day. Assuming without deciding the Estoppel Certificate fell within at least one of the two proffered prongs, the district court held: Even if the contract is unenforceable, [Shelton] reasonably relied upon [KFI's] promise to his detriment. [Shelton] honestly and reasonably believed he performed all that was required of him. That is enough to trigger the promissory estoppel exception and take this agreement out of the statute of frauds. Accordingly, I find by clear and convincing evidence that the statute of frauds does not apply to the parties' alleged contract and will not give any jury instructions relating to the statute of frauds. We may affirm the district court on any ground finding support in the record. See, e.g., Zoltek Corp. v. Structural Polymer Group, 592 F.3d 893, 895 (8th Cir.2010) (avoiding the issue of whether the economic loss doctrine barred recovery on a fraud claim because the allegations in the plaintiff's complaint were not sufficiently plausible to survive Fed.R.Civ.P. 12(b)(6) scrutiny). We choose to examine the threshold question the district court never answered, that is, whether the Estoppel Certificate falls within the surety or real estate prongs of the Arkansas Statute of Frauds. Whether a promise falls within a statute of frauds is a question of law for the court. See Gen. Trading Int'l, Inc. v. Wal-Mart Stores, Inc., 320 F.3d 831, 835-36 (8th Cir.2003) (applying Arkansas law).
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.
We also conclude the Estoppel Certificate, which in relevant part essentially obligates KFI to pay off the Mortgage in the event of Acklin's default on the bridge loan, does not fall within the real estate prong of the Arkansas Statute of Frauds. Although the parties do not cite any cases on point, in Riley v. Atherton, 185 Ark. 425, 47 S.W.2d 568, 568 (1932), the Arkansas Supreme Court held that an oral or unsigned agreement to satisfy a mortgage does not fall within the Arkansas Statute of Frauds. The reason for the rule is . . . that a mortgage is a mere security for a debt, and the property may be released from the mortgage by parol agreement, or by a written one. Id. (internal marks omitted). See also Schlumpf v. Shofner, 210 Ark. 452, 196 S.W.2d 747, 749-50 (1946) (holding an oral agreement by a second mortgagee to purchase the first mortgage and permit the mortgagor to redeem the first mortgage did not fall within the real estate prong of the Arkansas Statute of Frauds, because such agreement [is] not . . . regarded as a contract for the sale of land or a transfer of title thereto). Not every oral or unsigned agreement relating to real estate falls within the real estate prong of the Arkansas Statute of Frauds. See, e.g., Russell v. Williams, 197 Ark. 1086, 126 S.W.2d 614, 617-18 (1939) (holding an oral agreement to create a partnership to speculate in lands did not fall within the statute of frauds); Johnson v. Bellmont, 172 Ark. 851, 291 S.W. 77, 80 (1927) (holding an oral agreement relating to an oil lease did not fall within the statute of frauds). The statute is not so broad as to prevent proof by parol of an interest in lands; it is simply aimed at the creation or conveyance of an estate in lands without a writing. Russell, 126 S.W.2d at 617 (quoting Chester v. Dickerson, 54 N.Y. 1, 13 (1873)); cf. Ozan Lumber Co. v. Price, 219 Ark. 709, 244 S.W.2d 486, 486-88 (1951) (holding an oral agreement to purchase timber fell within the statute of frauds). The Estoppel Certificate neither creates nor conveys an estate in land and, therefore, does not fall within the real estate prong of the Arkansas Statute of Frauds.
Because the surety and real estate prongs do not apply, the Arkansas Statute of Frauds does not bar enforcement of KFI's unsigned promises in the Estoppel Certificate. We need not decide whether the promissory estoppel exception removes such promises from the Arkansas Statute of Frauds, which is ordinarily a question of fact for the jury. See Dickson v. Delhi Seed Co., 26 Ark. App. 83, 760 S.W.2d 382, 388 (1988).