Power Entertainment, Inc. v. National Football League Properties, Inc.
1998 U.S. App. LEXIS 18733, 151 F.3d 247, 1998 WL 472050 (1998)
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Rule of Law:
Under the 'main purpose doctrine' exception to the suretyship statute of frauds, an oral promise to pay the debt of another is enforceable if the promisor's primary objective is to obtain a direct, personal, and economic benefit for themselves.
Facts:
- Pro Set, Inc. had a licensing agreement with National Football League Properties, Inc. (NFLP) to market official NFL cards.
- Pro Set owed NFLP approximately $800,000 in unpaid royalties from card sales.
- In August 1992, Pro Set filed for bankruptcy.
- In September 1993, representatives of Power Entertainment, Inc. met with NFLP to discuss the licensing agreement.
- Power Entertainment alleges that it orally agreed to assume Pro Set's $800,000 debt in exchange for NFLP transferring Pro Set's license to Power Entertainment.
- NFLP subsequently refused to transfer the licensing agreement to Power Entertainment.
Procedural Posture:
- Power Entertainment, Inc. filed a breach of contract suit against National Football League Properties, Inc. (NFLP) in a Texas state court.
- NFLP removed the lawsuit to the U.S. District Court on the basis of diversity jurisdiction.
- The district court granted NFLP's motion to dismiss, holding that the alleged oral contract was unenforceable under the statute of frauds.
- The district court denied Power Entertainment’s motions for reconsideration and for a new trial.
- Power Entertainment (appellant) appealed the dismissal to the U.S. Court of Appeals for the Fifth Circuit.
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Issue:
Does the suretyship provision of the statute of frauds render an oral agreement unenforceable when the promisor's main purpose for assuming another's debt is to secure a direct and valuable benefit for themselves?
Opinions:
Majority - Benavides, J.
No, the suretyship provision of the statute of frauds does not render an oral agreement unenforceable if the promisor's main purpose for assuming the debt is to serve their own purpose. The court found that the 'main purpose doctrine' applies when a promisor agrees to pay another's debt not to benefit the debtor, but to induce a benefit for themselves. Here, Power Entertainment alleged it agreed to assume Pro Set's debt not to aid the bankrupt Pro Set, but solely to acquire the valuable NFL license from NFLP for its own use and benefit. This self-serving motive, if proven, would remove the agreement from the statute of frauds' writing requirement because the risk of perjury is lower when the promisor receives a direct benefit, which serves as evidence corroborating the promise.
Analysis:
This decision clarifies and reinforces the application of the 'main purpose doctrine' as a significant exception to the statute of frauds in Texas. The court's analysis confirms that the doctrine's focus is on the promisor's motivation, effectively preventing the statute from being used as a shield to escape a bargain where the promisor stood to gain a substantial, direct benefit. The ruling is also notable for applying the doctrine in a suit brought by the promisor (the party assuming the debt) against the obligee, demonstrating the doctrine's symmetrical application regardless of which party seeks to enforce the contract.
