U.S. Oil Co. v. Midwest Auto Care Services, Inc.
150 Wis. 2d 80, 440 N.W.2d 825, 1989 Wisc. App. LEXIS 419 (1989)
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Rule of Law:
The statute of frauds, which requires a promise to answer for the debt of another to be in writing, cannot be invoked as a defense to bar a claim based on promissory estoppel when enforcement of the promise is necessary to avoid an injustice.
Facts:
- U.S. Oil Company, Inc. (U.S. Oil) supplied products on credit to Midwest Auto Care Services, Inc. (Auto Care), a new company formed by Guy Theune and other shareholders.
- To induce U.S. Oil to extend credit, the shareholders promised that Auto Care would participate in a Uniroyal dealer financing program.
- As part of this arrangement, the shareholders promised U.S. Oil they would execute personal guarantees for a letter of credit required by Uniroyal.
- Relying on these promises, U.S. Oil began supplying products to Auto Care on an open account.
- Auto Care never applied for the letter of credit, and consequently, the shareholders never executed the personal guarantees.
- Approximately ten months after the agreement, the shareholders informed U.S. Oil they had changed their minds and would not provide personal guarantees.
- Auto Care subsequently failed to pay U.S. Oil for the supplied products, leaving an outstanding debt of over $45,000.
Procedural Posture:
- U.S. Oil Company, Inc. sued Midwest Auto Care Services, Inc. and its individual shareholders in a state trial court.
- The complaint against the shareholders included claims for negligent misrepresentation, strict responsibility for misrepresentation, and promissory estoppel.
- The shareholders moved for summary judgment, arguing the claims were barred by the statute of frauds.
- The trial court granted the shareholders' motion for summary judgment and dismissed the complaint.
- U.S. Oil Company, Inc. (as appellant) appealed the trial court's judgment to the Court of Appeals of Wisconsin (an intermediate appellate court).
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Issue:
Does the statute of frauds bar a claim for promissory estoppel when the underlying promise to guarantee the debt of another was not in writing?
Opinions:
Majority - Moser, P.J.
No, the statute of frauds does not bar a claim based on promissory estoppel. While the shareholders' promise to provide personal guarantees is a promise to answer for the debt of another and would typically fall under the statute of frauds, equity can prevent a defendant from using the statute as a defense to prevent a fraud or injustice. The court reasons that the statute's purpose is to prevent fraud, not to provide a technical escape from a fair agreement. Citing precedent, the court equates the treatment of promissory estoppel with equitable estoppel, holding that if the elements of promissory estoppel are met—a promise inducing reasonable and detrimental reliance where injustice can only be avoided by enforcement—the claim can proceed despite the lack of a written agreement. However, the court also affirmed the dismissal of the misrepresentation claims, finding that U.S. Oil failed to present evidence that the shareholders had a present intention not to perform when they made their promise, which is a necessary element for a misrepresentation claim based on a future promise.
Analysis:
This decision solidifies the principle that promissory estoppel serves as a crucial equitable exception to the statute of frauds in Wisconsin. It clarifies that a party who has detrimentally relied on an oral promise, which would otherwise be unenforceable, can seek recourse if failing to enforce the promise would be unjust. The case prevents the statute of frauds from being used as a sword to perpetrate an injustice rather than a shield to prevent fraud. This ruling instructs lower courts to look beyond the technical writing requirement and conduct a substantive equitable analysis, thereby strengthening the power of promissory estoppel as a tool for fairness in commercial dealings.
