Cooper Petroleum Co. v. LaGloria Oil and Gas Co.
436 S.W.2d 889 (1969)
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Rule of Law:
An oral promise to guarantee the debt of another is unenforceable under the Statute of Frauds unless the promisor's main purpose in making the promise was to secure a direct, personal benefit. However, the doctrine of promissory estoppel may preclude the promisor from asserting the Statute of Frauds as a defense if the promise was to execute an enforceable written guaranty and the promisee detrimentally relied on that promise.
Facts:
- LaGloria Oil and Gas Company (LaGloria) sold petroleum products to International Marketing, Inc. (I.M.I.) on credit.
- Cooper Petroleum Company (Cooper), whose president was Albert E. Fagan, had previously provided written guarantees for some of I.M.I.'s accounts with LaGloria.
- In December 1963, concerned about I.M.I.'s large unpaid balance, LaGloria requested a personal guaranty from Fagan to cover new sales contracts.
- James A. Clark, Fagan's son-in-law and a vice-president at both Cooper and I.M.I., orally assured LaGloria that Fagan would sign the requested personal guaranty.
- In reliance on Clark's assurance, LaGloria continued to make credit sales to I.M.I. under the new contracts.
- Fagan learned of Clark's promise on or before January 4, 1964, but remained silent and did not inform LaGloria he would not sign until a meeting on January 23, 1964.
- During this period, Fagan and Cooper took over I.M.I.'s most valuable contracts and Fagan purchased I.M.I.'s main asset, a subsidiary company, through a complex transaction.
- I.M.I. was subsequently declared bankrupt, and LaGloria sought payment from Fagan based on the alleged oral guaranty.
Procedural Posture:
- LaGloria Oil and Gas Company sued Cooper Petroleum Company and Albert E. Fagan in a Texas district court (trial court).
- A jury returned a verdict in favor of LaGloria.
- The trial court entered a judgment on the verdict against Cooper Petroleum and Fagan.
- Cooper Petroleum and Fagan, as appellants, appealed to the Texas Court of Civil Appeals (intermediate appellate court).
- The Court of Civil Appeals affirmed the trial court's judgment.
- Cooper Petroleum and Fagan, as petitioners, were granted a writ of error for review by the Supreme Court of Texas (highest court).
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Issue:
Does an oral promise to guarantee a corporation's debt fall outside the Statute of Frauds under the 'main purpose' doctrine when the promisor's only benefit is indirect, derived from his stock ownership in a separate corporation that does business with the debtor?
Opinions:
Majority - Walker, Justice.
No, an oral promise to guarantee another's debt is not removed from the Statute of Frauds by the 'main purpose' doctrine if the promisor's benefit is indirect and not the primary consideration for the promise. The court first held that the invoices used to prove I.M.I.'s debt were inadmissible hearsay because LaGloria failed to provide testimony from a person with personal knowledge of the transactions, as required by the business records exception. Regarding Fagan's liability, the court analyzed the 'main purpose' doctrine, which requires looking at the consideration the promisor received for the promise. To fall outside the Statute of Frauds, the promisor must have bargained for a direct, personal benefit that was their primary objective. Here, the only consideration was LaGloria's continued credit sales to I.M.I., which primarily benefited I.M.I. Fagan's benefit as a stockholder in Cooper Petroleum was too remote and indirect to satisfy the doctrine. Therefore, the promise is within the Statute of Frauds. However, the court concluded that because Clark promised a written, enforceable guaranty, and LaGloria detrimentally relied on that promise, Fagan may be prevented by promissory estoppel from using the Statute of Frauds as a defense. The case was remanded for a new trial to determine the facts supporting estoppel.
Analysis:
This decision significantly clarifies and narrows the 'main purpose' doctrine exception to the Statute of Frauds in Texas. The court established that an indirect or derivative benefit, such as that received by a shareholder, is insufficient to render an oral guaranty enforceable. The analysis shifts the focus from the promisor's subjective motive to an objective examination of the consideration bargained for and received. Furthermore, the case demonstrates the interplay between the Statute of Frauds and promissory estoppel, affirming that estoppel can defeat a Statute of Frauds defense when a promise to execute a written agreement induces reliance and enforcement is necessary to prevent injustice.
