Colonial Ford Truck Sales, Inc. v. Schneider

• Decision Date: 18 January 1985
• Docket Number: No. 812157,812157
• Parties: COLONIAL FORD TRUCK SALES, INC. v. Harry SCHNEIDER, et al. Record
• Court: Virginia Supreme Court

Page 91

325 S.E.2d 91

228 Va. 671

COLONIAL FORD TRUCK SALES, INC. v. Harry SCHNEIDER, et al.

Record No. 812157.

Supreme Court of Virginia.

Jan. 18, 1985.

James W. Tredway, III, Richmond (William F. Etherington, Christian, Barton, Epps, Brent & Chappell, Richmond, on briefs), for appellant.

Dennis T. Lewandowski, Richmond (J.A. Lucas, Hunton & Williams, Richmond, on brief), for appellees.

Present: CARRICO, C.J., COCHRAN, POFF, COMPTON, STEPHENSON and RUSSELL, JJ., and HARRISON, Retired Justice.

POFF, Justice.

This is a plaintiff's appeal from a judgment sustaining the defendants' demurrer on the ground that "the claims asserted by the plaintiff ... are barred by the Statute of Frauds". Under familiar principles, we consider as true all allegations of material facts. Ames v. American National Bank, 163 Va. 1, 37, 176 S.E. 204, 215 (1934).

Colonial Ford Truck Sales, Inc. (Ford), filed a two-count motion for judgment against Harry Schneider (Schneider) and two corporations of which he was president and principal owner, viz., Schneider's Investment Corp. and Schneider's Leasing & Repair, Inc., d/b/a Schneider Transport (collectively, the Schneider corporations). The Schneider corporations owned a share of Morton Transfer, Inc. (Morton). Schneider's brother, Morton Schneider, was president and part owner of Morton, and the three corporations conducted their businesses in the same building.

Beginning in August 1980, Ford made several shipments of automotive parts to that building. The invoices showed that the goods were "Sold To" Morton. In April 1981, Ford acquired a default judgment against Morton in the sum of $37,068.11. Morton notified Ford that it was no longer doing business, that it had sold some of its vehicles to the Schneider corporations, and that it was unable to pay its creditors.

Ford then filed this action against Schneider and the Schneider corporations. In the first count, Ford claimed $37,068.11 in damages for breach of an oral contract. Ford alleged that it had been induced to supply the parts to Morton because Schneider, acting in proper person and as agent for his corporations, had promised that "Ford would be paid for all parts and equipment furnished directly to Morton" and that "Ford would 'not lose a penny' ". Ford further alleged that some of the parts had been installed on the Schneider vehicles, that some had been installed on Morton vehicles pledged as collateral for a bank loan, that the money Schneider paid when it acquired Morton's vehicles had been applied to curtail Morton's bank loan, a debt guaranteed by Schneider, and, consequently, that the defendants "benefited directly ... and had a personal, immediate, and pecuniary interest in the transaction."

We consider first whether Ford's contract claim was barred by the statute of frauds. "No action shall be brought ... [t]o charge any person upon a promise to answer for the debt, default, or misdoings of another ... [u]nless the promise ... be in writing." Code § 11-2(4). Ford concedes that Schneider's promises were oral but contends that the statute does not apply to its contract claim because those promises "were original undertakings for which defendants received direct benefits."

Ford cites Lawson v. States Constr. Co., 193 Va. 513, 521, 69 S.E.2d 450, 455 (1952), where we said that "[t]he kind of benefit that takes the promise out of the statute is one which the promisor receives or expects to receive when he makes the promise, resulting in an original, independent undertaking by the promisor." Ford reasons that, at the time Schneider made his several promises, the defendants expected to receive and later did receive direct benefits from the use of the parts Ford sold to Morton.

Ford reads our comment in Lawson out of context with the facts and holding in that case. There, the promisor expected to receive, and ultimately did receive, a benefit induced by the promise. Yet, noting that "it was a benefit arising after the alleged promise, not one received at the time the promise was made", id. at 520, 69 S.E.2d at 455, we held that the promise was collateral rather than direct.

Whether an undertaking is collateral and governed by the statute of frauds or direct and exempt from the statute is not to be judged by the unilateral intent of the promisor but by the mutual understanding between the promisor and promisee.

In ascertaining to whom credit was extended, the intention of the parties governs. This intention is to be ascertained from the words used by the parties and all of the circumstances surrounding the transaction. The real character of the promise does not depend altogether upon the words or form of expression used, but largely upon the situation of the parties and what they mutually understood from the language, whether they understood the transaction to be a direct or a collateral promise.

Id. at 518, 69 S.E.2d at 453 (citations omitted) (emphasis added).

Although the promisee in Lawson had sent an invoice to the promisor and the promisor had made payment, we held that the undertaking was collateral. Here, there was no allegation of such facts. To the contrary, Ford's allegation that it had sued Morton and obtained a judgment before it instituted this action tends to show that Ford understood that Schneider's promise was merely a collateral undertaking. "[I]f the original contractor ... remains liable and the undertaking of the third party is merely that of surety or guarantor, the undertaking is collateral and within the statute of frauds." Id. at 517, 69 S.E.2d at 453. This rule applies even when the collateral promise was the principal inducement to performance by the promisee. Mid-Atlantic Appliances v. Morgan, 194 Va. 324, 328-29, 73 S.E.2d 385, 387-88 (1952).

Ford asks us to hold that, even if its contract claim was barred by the statute of frauds, the defendants are estopped to assert the statute as a defense. Ford relies upon T... v. T..., 216 Va. 867, 224 S.E.2d 148 (1976). There, a mother in a divorce case sought to enforce an oral promise, made by her former husband as an inducement to marriage, to support her unborn child which she had conceived by another man. The trial court ruled that the mother's claim was barred by the statute...