Howard M. Schoor Associates, Inc. v. Holmdel Heights Construction Co.

Supreme Court of New Jersey · Contracts

ContractsStatute of FraudsSuretyshiporal promiseanswer for debt of anothermain purposeleading objectoriginal promise

Facts

Plaintiff engineering and surveying firms performed work for Holmdel Heights Construction Company, but substantial bills went unpaid. At an April 14, 1970 meeting, plaintiffs' representatives testified that defendant Alan Sugarman, a lawyer for the corporation and owner of slightly more than 18% of its stock, personally promised to pay past and future charges if plaintiffs continued working, and he gave a $2,000 check from his trust account. A later letter from Sugarman enclosing another $1,000 stated that the corporation did not have the money, that it was his money submitted in good faith, and that he hoped plaintiffs would not let "us" down, while also requesting further engineering work needed for financing. Plaintiffs continued the work, the corporation later went into receivership, and Sugarman denied either making a personal promise or being bound because any such promise was oral.

Issue

Whether Sugarman's oral promise to pay the corporation's past and future debt to plaintiffs was unenforceable under the Statute of Frauds as a special promise to answer for the debt of another, or instead fell outside the statute under the leading object or main purpose rule because the consideration was mainly desired for his own pecuniary or business advantage.

Rule

An oral promise to satisfy the debt of a third person is not within the Statute of Frauds when the consideration for the promise is in fact or apparently desired by the promisor mainly for his own pecuniary or business advantage rather than chiefly to benefit the third person. In applying this leading object or main purpose rule, the factfinder must examine all the circumstances, the parties' relationships, and especially the nature of the consideration and the extent to which the promisee's performance would benefit the promisor directly or indirectly.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Phoenix, Red Mesa Design Studio stopped work on a condominium project after Prairie Gate Development fell behind on its invoices. At a meeting, Nora Levin, who owned 22% of Prairie Gate and was also owed substantial unpaid consulting fees by it, orally told the studio, "Keep working on the site plans needed for the lender package, and I'll pay the overdue and future bills myself if necessary." The studio resumed work, but no writing was ever signed.

If Nora argues that her oral promise is unenforceable as a promise to answer for Prairie Gate's debt, which is the best analysis?

Explanation. The majority adopted the leading object or main purpose rule. An oral promise to pay another's debt is outside the Statute of Frauds when the consideration is mainly desired by the promisor for the promisor's own pecuniary or business advantage, even though the third party also benefits and remains primarily liable. Here, Nora's stake as a shareholder and unpaid consultant, combined with the need for continued work to secure financing, supports treating the promise as an original one rather than a collateral suretyship.