In a recent and common case, goods were sold to a construction corporation, and when it didn’t pay, the seller found it had, in fact, no assets. He went through the motions of instituting a lawsuit against the business and obtained a default judgment when it did not respond. This judgment, against a company without any assets, had very little value.

The dealer, now faced with the prospect of suffering an $11,000 loss, looked for someone else to sue. He and his lawyer decided to try collecting from one of the general contractor’s individual owners. They claimed he was liable for the balance due since he had previously promised to pay if his company did not. A trial was held, and the plaintiff dealer presented his case.

It was established while his company was doing work for the builder’s corporation, he was asked by a company official to look at another completed development in need of repairs. After seeing what was required he gave an official estimate of $12,000 and signed a contract for the work. The treasurer of the builder’s corporation signed on its behalf.

After a few months of work the dealer sent the builder a $6,000 bill. Although the corporation sent him a check for $4,000, the dealer’s bookkeeper subsequently advised him only $1,000 was for the repair work. Upon learning this, the dealer calculated the builder owed him a total of $19,000 for various completed jobs, and he became concerned. He went to the builder’s corporate office and threatened to stop all work unless he was paid.

Shelly, a director and stockholder of the corporation, put his arm around the dealer and said, “Bill, I’m going to make sure you get paid. I have to have this work done, or we don’t get paid. I haven’t become as successful as I am by not paying my debts. I guarantee I will make sure you get paid.”

With this assurance Bill sent his men back to work. Over the next year or so he completed the job and took on additional work for the same builder. He was paid for everything except the $11,000 balance due on the original repair work. In fact, he said Shelly personally paid him for another job even though it was corporate’s obligation to pay.

The trial judge determined upon the above facts, Shelly was obligated to pay $11,000. This decision was immediately appealed, and the appeals court re-examined the evidence and defenses. The issue, it said, was whether the evidence was legally sufficient to establish a prima facie case, allowing the oral payment promise to be binding.

The law, it noted, provides with certain exceptions, a special promise that to answer for the debt of another may not be enforced unless it is in writing. In this case, however, the dealer claimed the promise for the individual was not governed by this rule, but rather he himself had an independent duty to pay, as the promise and obligation was his own.

The purpose of these rules, the court reasoned, was to avoid perjury. Oral contracts are usually enforceable when the one promising to pay has received something. When, however, a party promises to pay the debt of another there is no apparent benefit to the one making the promise, and so it must either be in writing or supported by new consideration going directly to the promissory. It was the dealer’s burden within this rule to produce evidence showing a consideration (benefit) to the individual directly, and it was the intention of the parties that an independent contract had been created between them, which obligated the individual to satisfy the corporation debt.

The appeals court determined the dealer had failed to prove his case according to the above standards. The oral promise was not enforceable, and so the decision of the trial court was reversed.