Statute of Frauds, Guaranties and the Main Purpose Doctrine

In preparing for this month’s blog, I recently read an article where a Washington State Court, not surprisingly, refused to allow oral defenses to the enforcement of a written guaranty. Union Bank N.A. v. Blanchard, 378 P.3d 191 (Wash. Ct. App. 2016). As a result, I wondered under what circumstances you could have an oral guaranty of a debt that would be enforceable despite the statute of frauds and came across cases discussing the main purpose doctrine.

Texas Business and Commerce Code Section 26.01 entitled “Promise or Agreement Must Be In Writing” states in part that a promise or agreement in subsection (b) of this section is not enforceable unless the promise or agreement, or a memorandum of it, is in writing and signed by the person to be charged with the promise or agreement or by someone lawfully authorized to sign for him. Subsection (b) (2) covers a promise by one person to answer for the debt, default, or miscarriage of another person. In Texas, the main purpose doctrine is used to take an oral promise to pay the debt of another out of the statute of frauds. See Haas Drilling Co. v. First Nat’l Bank, 456 S.W.2d 886 (Tex. 1970), citing, Gulf Liquid Fertilizer Co. v. Titus, 163 Tex. 260, 354 S.W.2d 378, 382 (1962).

In applying the main purpose doctrine, courts must look at the consideration received for the promise and determine: (a) whether the promisor obtained, as part of the consideration, a benefit accruing directly to him personally; and (b), if so, whether the obtaining of that benefit was his main purpose for making that promise. Flo Trend Systems, Inc. v. Allwaste, Inc., 948 S.W.2d 4, 9 (Tex. App. – Houston [14th Dist.] 1997, no pet.), citingHaas Drilling Co. v. First Nat’l Bank, 456 S.W.2d 886, 891 (Tex. 1970). By this test, if an oral promise creates the relationship of a surety and principal between the promisor and the original debtor, and if the fact is known to the creditor-promisee, it is within the statute of frauds and unenforceable. An oral promise creating primary responsibility in the promisor to the creditor-promisee is without the statute of frauds and therefore enforceable. The key is that the promisor has to be the person taking and assuming primary responsibility for the payments and debt. See Flo Trend Systems, Inc. v. Allwaste, Inc., 948 S.W.2d 4, 9 (Tex. App. – Houston [14th Dist.] 1997, no pet.); Iniekpo v. Avstar Int’l Corp., 2010 U.S. Dist. LEXIS 26952 (W.D.Tex., March 19, 2010) (denying application of main purpose doctrine).

I recommend that if you are trying to enforce an oral promise to guarantee the debt of another in Texas that you look at the cases cited in this blog as a starting point. The opinions in this blog are solely the author’s and any comments or replies can be emailed to john@jrjoneslaw.com.

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