Luson Intern. Distributors, Inc. v. Mitchell

• Decision Date: 09 August 1991
• Docket Number: No. 89-2178,89-2178
• Citation: 939 F.2d 493
• Parties: LUSON INTERNATIONAL DISTRIBUTORS, INCORPORATED, Plaintiff-Appellant, v. Joe MITCHELL, and Elk-Bend Supply & Machine Company, Incorporated, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 493

939 F.2d 493

LUSON INTERNATIONAL DISTRIBUTORS, INCORPORATED, Plaintiff-Appellant, v. Joe MITCHELL, and Elk-Bend Supply & Machine Company Incorporated, Defendants-Appellees.

No. 89-2178.

United States Court of Appeals Seventh Circuit.

Argued Sept. 13, 1990.

Decided Aug. 9, 1991.

Robert Sutton (argued), Sutton & Kelly, Milwaukee, Wis., for plaintiff-appellant.

Aladean M. DeRose (argued), South Bend, Ind., for defendants-appellees.

Before COFFEY, RIPPLE and KANNE, Circuit Judges.

KANNE, Circuit Judge.

Luson International Distributors, Inc. brought this diversity action against Elk-Bend Supply & Machine Co. and Joe Mitchell, Elk-Bend's president, in order to collect on a debt Elk-Bend owed for machinery it had purchased on consignment. Unfortunately for Luson, Elk-Bend filed for bankruptcy before Luson could collect the money it was due. With its action against Elk-Bend stayed by the bankruptcy filing, Luson continued to pursue its claim solely against Mitchell on the basis of his alleged oral promise guaranteeing the repayment of Elk-Bend's debt to Luson. ¹ At the close of Luson's evidence, the court directed a verdict in favor of the defendant, finding that Luson had not adduced sufficient evidence to take Mitchell's oral promise outside the protection of the statute of frauds. The sole question presented by this appeal is whether the district court erred when it directed the verdict in favor of Mitchell. Because we agree with the district court that Luson failed to introduce sufficient evidence to support a verdict in its favor, we affirm.

I.

The relationship between Luson and Elk-Bend began in 1980. Under the terms of their distributorship agreement, Luson was to ship its metalworking machinery--mills, grinders, and lathes--to Elk-Bend on consignment; in return, Elk-Bend agreed to remit payment for each machine received within thirty days of its sale. Elk-Bend, however, experienced business difficulties and became unable to make timely payments to Luson for the goods received. When Luson finally terminated its agreement with Elk-Bend in 1984, Elk-Bend owed it over twenty thousand dollars.

Approximately two years later, Elk-Bend decided that it wanted to renew its business relationship with Luson. Discussions between the companies were initiated when Mitchell contacted Robert Lu, the president of Luson, and requested a meeting to talk about their companies' past dealings and the possible resumption of the previous business relationship. Lu agreed to consider Elk-Bend's proposal and subsequently met with Mitchell at Luson's headquarters in Ravenswood, West Virginia on February 21, 1986. Mitchell, recognizing that Luson might be reluctant to enter into a second arrangement because of Elk-Bend's previous delinquency, brought a partial payment of Elk-Bend's debt to Luson--a check for ten thousand dollars--as a sign of good faith. At the meeting, Mitchell also promised to guarantee Elk-Bend's debt, stating: "Bob, I will do anything. I will personally guarantee. I will sign any paper you wish me to sign, and I will even retain a CPA to supervise my floor when you consign a machine to me so that my machine will not be abused." ² Finally, Mitchell agreed to remit the invoice cost of any Luson machine sold, as well as some extra money from each sale in order to pay off Elk-Bend's previously incurred debt.

Relying on Mitchell's promise to guarantee the past and future indebtedness of Elk-Bend, Lu agreed to resume the parties' past business relationship. As a result of the meeting, Mitchell received approximately $140 worth of Luson machinery parts Elk-Bend needed to service machines previously sold to its customers. In addition, over the next year and a half, Luson sent eleven machines to Elk-Bend on consignment. The companies' second business venture was no more successful than the first, however, and after approximately six months Elk-Bend was again delinquent in its payments to Luson.

To collect on Elk-Bend's debt, Luson brought suit against Elk-Bend and Mitchell for $35,649.51 in damages on October 8, 1987. ³ At trial in the district court, Luson argued that Mitchell was personally liable for Elk-Bend's debts because of his oral promise to Lu. As a defense, Mitchell maintained that he had never made any oral promise to Luson, and that, in any event, the oral agreement was unenforceable under the statute of frauds. When Luson had concluded its case, Mitchell made a motion for a directed verdict pursuant to Fed.R.Civ.P. 50(a). Reasoning that Luson had not presented evidence demonstrating "any consideration flowing to Mr. Mitchell that would provide him with 'a personal, immediate, and pecuniary interest in the transaction,' ... so as to remove the suit from the statute of frauds," the district court granted Mitchell's motion.

II.

On appeal, Luson maintains that the district court erred in granting Mitchell's motion for a directed verdict. In a diversity case, we apply the "same standard as a state court in passing on a motion for directed verdict." Tacket v. General Motors Corp., 836 F.2d 1042, 1045 (7th Cir.1987); see also Cincinnati Ins. Co. v. Taylorville, 818 F.2d 1345, 1348 (7th Cir.1987); Chaulk v. Volkswagen of America, Inc., 808 F.2d 639, 640 (7th Cir.1986). Under Indiana law, ⁴ an appellate court reviewing a trial court's grant of a motion for directed verdict must "inquire whether the evidence, taken with reasonable inferences in the light most favorable to the party opposing the motion, supports a judgment in favor of the non-moving party." Tacket, 836 F.2d at 1045; Goldman v. Fadell, 844 F.2d 1297, 1301 (7th Cir.1988); Knight v. Baker, 363 N.E.2d 1048, 1050 (Ind.App.1977). If no evidence supports the non-moving party, the motion for the directed verdict must be granted. Bishop v. Firestone Tire & Rubber Co., 814 F.2d 437, 439 (7th Cir.1987); American Optical Co. v. Weidenhamer, 457 N.E.2d 181 (Ind.1983). Even if some evidence supports the non-movant, a grant of a directed verdict is still proper if the court determines the evidence is qualitatively inadequate. Tacket, 836 F.2d at 1045; Bishop, 814 F.2d at 441. Evidence fails qualitatively "when it cannot be said, with reason, that the intended inference may logically be drawn therefrom; and this may occur either because of an absence of credibility of the witness or because the intended inference may not be drawn therefrom without undue speculation." American Optical Co., 457 N.E.2d at 184; see also Dettman v. Sumner, 474 N.E.2d 100, 104 (Ind.App.1985) (qualitative failure of evidence if witness "presenting such evidence is not ... credible" or "inference the burdened party's allegations are true may not be drawn without undue speculation").

Designed to "guard against the dishonesty of parties and the perjury of witnesses," Starkey v. Galloway, 119 Ind.App. 287, 84 N.E.2d 731, 734 (1949), the Indiana statute of frauds provides that "no action shall be brought to charge any person upon a promise to answer for the debt of another unless that promise is in writing" and signed. Tolliver v. Mathas, 538 N.E.2d 971, 977 (Ind.App.1989); see also Pettit v. Braden, 55 Ind. 201 (1876); National By-Products, Inc. v. Ladd, 555 N.E.2d 518 (Ind.App.1990); IND.CODE ANN. Sec. 32-2-1-1 (West 1979). ⁵ In this case, the parties agree that Mitchell's oral assurances were not reduced to a written agreement. Therefore, the Indiana statute of frauds bars enforcement of Mitchell's promise to guarantee the debt of Elk-Bend unless an exception exists to its application in this case.

Not surprisingly, Luson argues that two exceptions apply so that the statute of frauds does not prevent the enforcement of Mitchell's oral promise. Luson first maintains that the oral promise was an original promise outside the statute of frauds that benefitted Mitchell directly. In the alternative, it argues that the statute of frauds does not prevent the enforcement of an oral promise when necessary to prevent an unjust or unconscionable result. We address each contention in order.

Indiana case law has long held that the statute of frauds does not apply when the party receives a direct benefit as the result of his promise. In Voris v. Star City Bldg. & Loan Ass'n, 20 Ind.App. 630, 50 N.E. 779, 782 (1898), for example, the court stated:

wherever there is in existence an obligation on the part of another, a promise to perform that obligation, if he does not, or to guaranty his performance, is not within the statute of frauds, if it is made upon a new consideration inuring to the benefit of the promisor, although the former obligation is not extinguished, provided the chief purpose of the promisor is to obtain a benefit to himself.

Or, in an alternative statement of the exception, the statute of frauds does not apply when the promisor received some consideration from his promise that provided him with a "personal, immediate and pecuniary interest in the transaction." New Amsterdam Casualty Co. v. Madison County Trust Co., 81 Ind.App. 157, 142 N.E. 727, 729 (1924) (promisor's potential relief from $30,000 personal liability constituted sufficient direct, pecuniary interest to support enforcement of oral promise).

Luson maintains that it presented sufficient evidence of two immediate, personal and pecuniary benefits to Mitchell--the $140 of machinery parts and the resumption of Elk-Bend's business relationship with Luson--to defeat a motion for directed verdict. Luson's primary argument is that because Mitchell was the president, chief executive officer, and principal shareholder of Elk-Bend there should be a per se presumption that he was directly benefitted by Luson's resumption of business with Elk-Bend. Shareholder status by itself, however, is not enough to demonstrate that the defendant enjoyed a direct personal benefit as a result of the promise. Cf. Mishawaka Brass Mfg., Inc. v. Milwaukee Valve Co., 444 N.E.2d 855, 858 (Ind.App.1983) (sole shareholder not liable...