Farmers Union Oil Co. of New England v. Maixner

• Decision Date: 29 October 1985
• Docket Number: No. 10943,10943
• Citation: 376 N.W.2d 43
• Parties: FARMERS UNION OIL COMPANY OF NEW ENGLAND, a cooperative, Plaintiff and Appellee, v. William S. MAIXNER, Defendant and Appellant, Lew Spears and New England Agri-Services, Inc., Defendants. Civ.
• Court: North Dakota Supreme Court

Page 43

376 N.W.2d 43

FARMERS UNION OIL COMPANY OF NEW ENGLAND, a cooperative Plaintiff and Appellee, v. William S. MAIXNER, Defendant and Appellant Lew Spears and New England Agri-Services, Inc., Defendants.

Civ. No. 10943.

Supreme Court of North Dakota.

Oct. 29, 1985.

James D. Gion, Regent, for plaintiff and appellee.

Freed, Dynes, Reichert & Buresh, Drawer K, Dickinson, for defendant and appellant; argued by Ronald A. Reichert.

ERICKSTAD, Chief Justice.

William S. Maixner appeals from the judgment of the District Court of Hettinger County, awarding Farmers Union Oil Company of New England (Farmers Union) damages of $22,036.78 plus interest and costs, and reasonable attorney's fees in the sum of $750.00.

The Defendant, William S. Maixner, is the principal stockholder and president of New England Agri-Services, Inc. (Agri-Services). Agri-Services is in the business of selling chemicals, feed, seed, and various other products along with performing related services for its customers. Most of the chemicals were purchased from Farmers Union on an open account and sold on the retail level. Agri-Services' account with Farmers Union became overdue and delinquent in the amount of $22,036.78.

On December 17, 1983, after the account had been outstanding for 14 months, Maixner executed and delivered to Eldon Kaufman, the chairman of the Board of Directors of Farmers Union, a document entitled PERSONAL GUARANTEE. The document was prepared by Farmers Union's attorney and read as follows:

"PERSONAL GUARANTEE

"The undersigned does represent to Farmers Union Oil Company of New England that he is one of the principals or owners in the business organization known as Agri-Business, Inc. Further, in consideration of the forbearance of Farmers Union Oil Company of New England from bringing suit on the account of that business organization at this time, the undersigned does personally and individually guarantee payment of all payments due upon the business credit account with Farmers Union Oil Company of New England, together with payment of any and all expenses incurred by creditors as a result of non-payment of said credit account when due.

"Dated this 17 day of December, 1983.

/s/ William S. Maixner

Individual Guarantor

New England, N.D.

Residence Address"

The trial court found there was no credible evidence of fraud or duress and that Maixner signed and delivered the guarantee of his own free will. Maixner testified that he read the guarantee. He made no objection or comments about the guarantee and asked no questions. No explanation of the guarantee was made by Kaufman and there was no discussion concerning a possible lawsuit.

On February 17, 1984, two months after the signing of the guarantee, a Summons and Complaint was served, asking for judgment against Maixner and Agri-Services, jointly and severally, for the sum of $22,036.78, the amount due on Agri-Services account, plus costs, attorneys' fees and disbursements. The case was tried without a jury September 13, 1984. Agri-Services did not answer or appear and as such judgment by default was entered against Agri-Services for the amount sued in the complaint. On December 21, 1984, judgment was entered against Maixner in the amount of $22,036.78 plus interest and costs. Farmers Union was also awarded reasonable attorneys' fees in the sum of $750.00.

There are two basic issues raised on appeal. The first one involves the concepts of lack of consideration, failure of consideration, forbearance to sue and the reasonableness of the time of forbearance. The second one involves the propriety of the allowance of attorneys' fees.

I

A written instrument is presumptive evidence that there was consideration for the written instrument. Section 9-05-10, N.D.C.C.; Mid-America Real Estate & Inv. Corp. v. Lund, 353 N.W.2d 286, 290 (N.D.1984); Farmers & Merchants National Bank of Hatton v. Lee, 333 N.W.2d 792, 794 (N.D.1983). The burden of proving lack of consideration lies with the party seeking to avoid the instrument. Section 9-05-11, N.D.C.C.; Mid-America Real Estate, 353 N.W.2d at 290; Farmers & Merchants National Bank of Hatton, 333 N.W.2d at 794. In light of these rules Maixner makes two arguments in challenging the trial court's conclusion that there was adequate consideration on the part of Farmers Union.

A.

First, Maixner alleges that Farmers Union did not forbear instituting a lawsuit against Agri-Services and therefore did not give any consideration for Maixner's guarantee. Maixner supports this argument by interpreting the facts to support his claim that the Board of Directors had the responsibility of instituting lawsuits; that the Board of Directors did not make the decision to initiate this lawsuit; that the members of the Board of Directors did not discuss the possibility of initiating a lawsuit relevant to the signing of the guarantee; and that Kaufman had no authority to institute this lawsuit but did so without the knowledge or approval of the Board of Directors.

The crux of Maixner's argument is the assumption that the Farmers Union Board of Directors did not formally agree to institute a lawsuit before the signing of the guarantee. It is argued that without a formal agreement to institute a lawsuit Farmers Union could not have forborn instituting a lawsuit and thus gave no consideration. This argument, however, misinterprets the requirements of consideration. Refraining from doing something which one has a legal right to do constitutes good consideration. Gulden v. Sloan, 311 N.W.2d 568, 572 (N.D.1981). It is not necessary that Farmers Union had actually decided to institute a lawsuit and then agreed to forbear taking such action on account of the guarantee. All that is necessary is proof that Farmers Union gave up its right to institute a lawsuit against Agri-Services in exchange for the guarantee by Maixner. Gulden, 311 N.W.2d at 572; Pioneer Credit Co. v. Medalen, 326 N.W.2d 717, 719 (N.D.1982); Divide County v. Citizens' State Bank of Ambrose, 52 N.D. 29, 201 N.W. 693, 694 (N.D.1924); Section 9-05-01, N.D.C.C. The personal guarantee specifically states that Farmers Union will forbear from bringing suit. We thus conclude that there was an agreement to forbear from bringing a lawsuit and that forbearance from bringing suit can constitute good consideration.

Maixner has questioned the authority of Kaufman to initiate a lawsuit on behalf of Farmers Union. Whether or not Kaufman had actual authority to initiate a lawsuit is unimportant as Maixner cannot object to Kaufman's alleged lack of authority. As a general rule, if a corporation does not object to an officer's lack of authority, a third person may not object. Village of Brown Deer v. City of Milwaukee, 16 Wis.2d 206, 114 N.W.2d 493, 497 (1962). Farmers Union did not object to any lack of authority on the part of Kaufman; therefore, Maixner may not do so.

Maixner also argues that the guarantee is ineffective because Farmers Union did not accept the guarantee. In our view the acceptance of the guarantee by the chairman of the Board of Directors of Farmers Union, after execution of the guarantee by Maixner in the chairman's presence, constitutes acceptance by Farmers Union.

B.

Maixner next argues that he did not receive adequate consideration because Farmers Union did not forbear from bringing suit for a reasonable period of time. The personal guarantee does not provide a specific time period during which Farmers Union will forbear from bringing suit. It merely states that Farmers Union will not bring suit "at this time." This seems to be more of a failure of consideration argument, to wit: Farmers Union failed to forbear bringing suit for a reasonable time, rather than a lack of consideration argument, to wit: the guarantee lacked consideration at the time of execution of the guarantee agreement. We have said that the determination that consideration has failed is a question of fact. First National Bank of Belfield v. Burich, 367 N.W.2d 148, 152 (N.D.1985). We also said in Burich:

"3. Failure of consideration should be distinguished from lack of consideration. When there is a lack of consideration no contract is ever formed. Harrington v. Harrington, 365 N.W.2d 552 (N.D.1985). When there is a failure of consideration, a contract, valid when formed, becomes unenforceable because the performance bargained for has not been rendered. Franklin v. Carpenter, 309 Minn. 419, 244 N.W.2d 492 (1976). See also, 1 Williston, Contracts, Secs. 119A (3d ed.); 1 Corbin, Contracts, Sec. 133."

Both parties acknowledge that "[a]n agreement to forbear need not be in express terms or for an exact period of time." First National Bank of Red Bud v. Chapman, 51 Ill.App.3d 738, 9 Ill.Dec. 426, 430, 366 N.E.2d 937, 941 (1977); Baker v. Citizens State Bank of St. Louis Park, 349 N.W.2d 552, 559 (Minn.1984). When an exact period of time is not stated, it will be inferred from the surrounding circumstances that the forbearance should be for a "reasonable time." Chapman, 9 Ill.Dec. at 430, 336 N.E.2d at 941. If the surrounding circumstances indicate that the forbearance has not been for a reasonable time, then there is a failure of consideration and the guarantor is discharged from liability. Baker, 349 N.W.2d at 559.

The question which must be resolved is whether or not Farmers Union's forbearance from bringing suit for two months is a reasonable time and thus not a failure of consideration. This issue of the reasonableness of the time of forbearance is a question of first impression in North Dakota. ¹

While Farmers Union briefly discussed the issue of reasonable time of forbearance at the trial level and in its brief, Maixner did not raise this specific question until his reply brief. Therefore, we are faced with the preliminary question of whether or not it is appropriate for us to review this issue. We recognize the ample authority that generally a party may not raise an issue for the first time on...