Warren v. White

• Decision Date: 29 January 1960
• Docket Number: No. 399,399
• Parties: T. P. WARREN v. Edward R. WHITE, Jr.
• Court: North Carolina Supreme Court

Page 522

112 S.E.2d 522

251 N.C. 729

T. P. WARREN v. Edward R. WHITE, Jr.

No. 399

Supreme Court of North Carolina.

Jan. 29, 1960

Clyde C. Randolph, Jr., Winston-Salem, for defendant, appellant.

Eugene H. Phillips, Winston-Salem, for plaintiff, appellee.

BOBBITT, Justice.

Defendant's principal assignments of error, directed to rulings on evidence, failure to nonsuit, submission of issues and portions of the charge, draw into focus this crucial question: Is recovery on the alleged oral agreement barred by the statute of frauds?

G.S. § 22-1, in pertinent part, provides: 'No action shall be brought * * * to charge any defendant upon a special promise to answer the debt, default or miscarriage of another person, unless the agreement upon which such action shall be brought, or some memorandum or note thereof, shall be in writing, and signed by the party charged therewith or some other person thereunto by him lawfully authorized.' (Statute of Frauds and Perjuries, 1678, 29 Car. II, c. 3, § 4, Wigmore on Evidence, § 2454, note 6.)

The following statement by Mr. Justice Clifford in Emerson v. Slater, 22 How. 28, 16 L.Ed. 360, was quoted with approval by this Court in Dale v. Gaither Lumber Co., 152 N.C. 651, 68 S.E. 134, 135, 28 L.R.A.,N.S., 407, and in Garren v. Youngblood, 207 N.C. 86, 176 S.E. 252, 95 A.L.R. 1132, viz.: 'But whenever the main purpose and object of the promisor is not to answer for another, but to subserve some pecuniary or business purpose of his own, involving either a benefit to himself, or damage to the other contracting party, his promise is not within the statute, although it may be in form a promise to pay the debt of another, and although the performance of it may incidentally have the effect of extinguishing that liability.' (Our italics.)

Too, in the Dale and Garren cases, this Court quoted with approval this summary (headnote in official U. S. report) of the rules underlying decision in the leading case of Davis v. Patrick, 141 U.S. 479, 12 S.Ct. 58, 35 L.Ed. 826, viz.: 'In determining whether an alleged promise is or is not a promise to answer for the debt of another, the following rules may be applied: (1) if the promisor is a stranger to the transaction, without interest in it, the obligations of the statute are to be strictly upheld; (2) but if he has a personal, immediate and pecuniary interest in a transaction in which a third party is the original obligor, the courts will give effect to the promise. The real character of a promise does not depend altogether upon form of expression, but largely upon the situation of the parties, and upon whether they understood it to be a collateral or direct promise.' (Our italics.)

In Garren v. Youngblood, supra, the plaintiff recovered on an oral agreement by defendant, an officer, director and stockholder of a bank, that he would be personally responsible for any loss plaintiff might sustain if her funds were permitted to remain on deposit with the bank. This agreement was held to be an original promise upon sufficient consideration and that G.S. § 22-1 did not apply. It is noted that the plaintiff, after the bank closed, had filed her claim against the bank and had received a dividend thereon.

In Brown v. Benton, 209 N.C. 285, 183 S.E. 292, the defendants, the main stockholders of a corporation, agreed orally to be personally responsible for merchandise shipped to the corporation. According to plaintiff, the understanding was that plaintiff would ship and bill the lumber to B. L. Johnson Company 'and they (defendants) would be personally responsible to me.' It was held that plaintiff had declared upon an original promise, not within G.S. § 22-1. Plaintiff's recovery was upheld.

In Farmers Federation, Inc. v. Morris, 223 N.C. 467, 27 S.E.2d 80, 81, plaintiff sold merchandise to a corporation engaged in the restaurant business upon the defendant's request that credit be extended to the corporation and that he (defendant) would be responsible for all bills so contracted. It was admitted that the defendant was the president and a stockholder in the corporation. The defendant, by answer and by his testimony, denied that he had made the alleged oral promise. Upon the plaintiff's appeal from a verdict in favor of the defendant, a new trial was awarded for error in excluding testimony proffered by plaintiff tending to show the extent of the defendant's interest in the corporation and its business. Plaintiff's said proffered testimony was held competent 'to show that the defendant had a personal, immediate and pecuniary interest in the transaction.'

Decisions in many jurisdictions are reviewed in Annotation, 35 A.L.R.2d 906, under the caption, 'Statute of frauds: promise by stockholder, officer, or director to pay debt of corporation.' Two quotations point out the distinction recognized in our decisions, viz.:

'As applied to promises by stockholders, officers, or directors, to pay a debt of the corporation, it may be said that the promise is original where the promisor's primary object was to secure some direct and personal benefit from the performance by the promisee of his contract with the corporation, or from the latter's refraining from exercising against the corporation some right existing in him by virtue of the contract. The benefit to the promisor is to be distinguished from the indirect benefit which would accrue to him merely by virtue of his position as a stockholder, officer, or director. If the benefit accruing is direct and personal, then the promise is original within the rule above discussed, and the validity thereof is not affected by the statute of frauds.' 35 A.L.R.2d 910. As supporting this statement, these North Carolina decisions are cited: Satterfield v. Kindley, 144 N.C. 455, 57 S.E. 145, 15 L.R.A.,N.S., 399, 12 Ann.Cas. 1098; Beck v. Halliwell, 202 N.C. 846, 163 S.E. 747; Brown v. Benton, supra; Farmers Federation, Inc. v. Morris, supra. Gennett v. Lyerly, 207 N.C. 201, 176 S.E. 275, discussed below, is cited as 'recognizing rule.'

'Where an oral promise by a stockholder, officer, or director of a corporation is collateral in form and effect, and the consideration was not intended to secure or promote some personal object or advantage of the promisor--as distinguished from the benefit accruing to a person from the mere fact of his being a stockholder, officer, or director--, the promise is collateral and within the statute of frauds.' 35 A.L.R.2d 914. As supporting this statement Gennett v. Lyerly, supra, is cited. Satterfield v. Kindley, supra, is cited as 'recognizing rule.'

Defendant relies largely on Gennett v. Lyerly, supra, and on Myers v. Allsbrook, 229 N.C. 786, 51 S.E.2d 629.

In Gennett v. Lyerly, supra, the defendant, E. Lyerly, who was otherwise engaged in the hosiery business, was the president, treasurer and the owner of a large amount of stock in the Yeager Manufacturing Company, of which his brother, Walker Lyerly, was secretary and general manager. Yeager Manufacturing Company was engaged in the manufacture of furniture; and, on certain orders to plaintiff for lumber, notations made by Walker Lyerly were to the effect that payment was guaranteed by 'E. Lyerly.' There was no evidence that E. Lyerly had guaranteed payment, orally or otherwise, or had authorized Walker Lyerly to obligate him for such payment. The language upon which the present defendant relies is part of a discussion to the effect that, if an oral promise had been made by defendant, such oral promise would be within G.S. § 22-1 because the evidence in that case did not disclose that E. Lyerly had 'a personal, immediate, and pecuniary benefit in the transaction.' While the decision in Gennett v. Lyerly, supra, is fully supported on other grounds set forth in the opinion, it is noted that the opinion cites in support of the statement upon which the present defendant relies the original decision in Peele v. Powell, 156 N.C. 553, 73 S.E. 234, apparently overlooking the fact that this decision was reversed on rehearing in Peele v. Powell, 161 N.C. 50, 76 S.E. 698.

Myers v. Allsbrook, supra, involved an entirely different factual situation. There the plaintiff sued on defendant's alleged oral promise to pay his brother's pre-existing debt. Moreover, there was neither allegation nor evidence that the alleged oral promise was made for the defendant's benefit or that he had any personal, immediate or pecuniary interest in the transaction.

Walker, J., in Whitehurst v. Padgett, 157 N.C. 424, 73 S.E. 240, 241, citing Peele v. Powell, supra, said: '* * * a promise is not within the statute of frauds, if it is based upon a consideration and is an original one, and * * * it is original if made at the time or before the debt is created, and the credit is given solely to the promisor or to both promisors, as principals, * * *' The decision in the Whitehurst case is succinctly and accurately stated in the third headnote, viz.: 'When a...