Yarbro v. Neil B. McGinnis Equip. Co. - 101 Ariz. 378, 420 P.2d 163 (1966)

Rule:

Simply stated, the leading object or primary purpose exception to the Statute of Frauds provides that where the leading object of a person promising to pay the debt of another is actually to protect his own interest, such promise if supported by sufficient consideration, is valid, even though it be oral. This rule has been adopted by a great number of states although the rationale has often been stated in varying terms. This exception to the Statute of Frauds no matter how stated, is based upon the underlying fact that the Statute does not apply to promises related to debts created at the instance, and for the benefit, of the promisor, (i. e. "original" promises) but only to those by which the debt of one party is sought to be charged upon and collected from another (i. e. "collateral" promises). Although a third party is the primary debtor, situations may arise where the promisor has a personal, immediate and pecuniary interest in the transaction, and is therefore himself a party to be benefitted by the performance of the promisee. In such cases the reason which underlies and which prompted the above statutory provision fails, and the courts will give effect to the promise.

Facts:

A conditional sales contract for the sale of a tractor was entered into between the appellee, McGinnis Equipment Co., and the buyer, Russell. The contract called for twenty-three monthly installments of $ 574.00 each. The buyer failed to make the first monthly payment, and on his suggestion, a McGinnis company representative met with the appellant, Yarbro, to ask if he would help with the payments. As a result of the meeting, appellant agreed to, and did, pay the September installment. Because the buyer continuously failed to make any of the monthly installment payments, the appellee indicated that the tractor would have to be repossessed. Appellant, however, assured the appellee that payments would be made. The promised payments were not made. Consequently, the tractor was repossessed and the appellee brought an action to recover the payments due under the contract. The appellee named Russell and Yarbro as defendants. A default judgment was entered against Russell, and the trial court found Yarbro liable for the entire balance under the contract. On appeal, appellant argued that his oral promises to pay the buyer's debt were unenforceable by reason of the Statute of Frauds, Ariz. Rev. Stat. § 44-101, or, alternatively, that there was insufficient consideration to support the promises.

Issue:

Were the appellant’s oral promises to pay the buyer’s debt enforceable? 

Answer:

Yes, but only with respect to the amount of past due installments.

Conclusion:

The court held that although the promises were of the type covered by the Statute of Frauds, they fell within the leading object or primary purpose exception to the statute. This exception provided that where the leading object of a person promising to pay the debt of another was actually to protect his own interest, such promise was valid, even though it was oral. Here, the record showed that the appellant tried to purchase the tractor for himself, but that he was unable to obtain financing. The appellant’s promises were supported by sufficient consideration because the seller gave up its legal right to repossess the tractor in consideration for his promise to pay delinquent installment payments. However, the court modified the judgment against the appellant. The appellant only promised to pay delinquent installment payments. Therefore, the judgment against him was reduced to the amount of past due installments on the date of repossession.