Citation. 101 Ariz. 378, 420 P.2d 163
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Brief Fact Summary.
Party 1 purchased a used tractor from party 2. Party 1 failed to make various payments for the tractor and party 3 orally agreed to make many of these payments.
Synopsis of Rule of Law.
"[W]here the leading object of a person promising to pay the debt of another is actually to protect his own interest, such promise if supported by sufficient consideration, is valid, even though it be oral."
The Appellee, Neil B. McGinnis Equipment Co. (the "Appellee"), sold a used tractor to Russell in August of 1957. Russell was required to make twenty-three monthly installment payments of $574. Russell never even made the first payment. The Appellant, Yarbro (the "Appellant"), agreed to make the first payment and did make the first installment payment for Russell. Russell consistently failed to make any of the required installment payments throughout the late months of 1957 and early months of 1958. The Appellant on more than one occasion orally agreed to make certain of the missed monthly payments for Russell. Several of the Appellant's payments, paid by check, were returned by the bank for insufficient funds. In May of 1958, the Appellee threatened to repossess the tractor, but the Appellee made assurances that the payments would be made. The payments were never made. Additionally, in July of 1958, the Appellee made another similar promise that he never satisfied. Repossession proceedings did not begin until August 1859 and the tractor was not repossessed until January 1959. The Appellant then brought suit against the Appellee and Russell to recover payments under the conditional sales contract. The trial court entered a default judgment against Russell and found the Appellee liable for the entire balance of the conditional sales contract.
Were the Appellee's oral promises to pay Russell's debts unenforceable because they violated the Statute of Frauds ("SOF")?
The court first observed that the Appellee's promises were those that are covered in the suretyship SOF. This exception "provides that where the leading object of a person promising to pay the debt of another is actually to protect his own interest, such promise if supported by sufficient consideration, is valid, even though it be oral." The premise of this exception is that the "[s]tatute does not apply to promises related to debts created at the instance, and for the benefit, of the promisor, (i.e., 'original' promises) but only to those by which the debt of one party is sought to be charged upon and collected from another (i.e., 'collaterial' promises). Although a third party is the primary debtor, situations may arise where the promisor has a personal, immediate and pecuniary interest in the transaction, and is therefore himself a party to be benefitted by the performance of the promisee. In such cases the reason which underlies and which prompted the above statutory provision fails, and the courts will give effect to the promise."
• The court then considers whether this rule applies to the facts before it. The court recognizes that to determine if this rule applies, "regard must be had to the form of expression, the situation of the parties, and to all the circumstances of each particular case." In other words, it is a case-by-case determination. The court then recognized that "[t]he assumption behind the exception is that it is possible for a court to infer from the circumstances of any given case whether the 'leading object' of the promisor was to become a surety for another or whether it was to secure a pecuniary advantage to himself and so, in effect, to answer for his own debt." Further, "there must be consideration and benefit And that benefit must be the primary object of making the promise as distinguished from a benefit which is merely incidental, indirect, or remote. It is when the leading and main object of the promisor is not to become surety or guarantor of another, even though that may be the effect, but is to serve some purpose or interest of his own, that the oral promise becomes enforceable."
• The court observes that the Appellee sought to purchase the tractor from the Appellant prior to Russell attempting to purchase it. After Russell purchased the tractor, the Appellee borrowed it on several occasions. When the Appellant threatened to repossess the tractor, the Appellee on several occasions asked for it not to be repossessed, and then promised to pay the monies owing on the tractor. The court found their was substantial evidence to "support the trial court's conclusion that the main and leading object of Yarbro in making his promises to McGinnis Co. was not to become Russell's guarantor but rather was to serve interests of his own."
• The court found that the forbearance by the Appellant in not repossessing the tractor was not only a legal detriment to the Appellant, but also a substantial benefit to the Appellee. The court also found that the damage award was excessive.
It is very interesting to read this case alongside [Lawrence v. Anderson] to obtain a comprehensive understanding of the suretyship SOF.