Ohio St.2d 451, 377

2d 514 (1978)



In December of 1971, Wilson Floors Company (hereinafter "Wilson") entered into a contract with Unit, Inc.(hereinafter "Unit"), a Texas corporation, to furnish and install flooring materials for "The Cliffs" project, a development consisting of new apartments and an office building to be located in Columbus, Ohio. Sciota Park, Ltd., a Texas limited partnership, was the owner of the project. Unit, the general partner of Sciota Park, Ltd., was the general contractor for the project. The Pittsburgh National Bank  (hereinafter the bank), as the construction lender for the project, held mortgages on The Cliffs property as security for construction loans which the bank had made to Sciota.


    As the work progressed on the project Unit fell behind in making payments to Wilson for its completed work in the spring of 1973. At that time, the project was approximately two-thirds completed, the first mortgage money of seven million dollars having been fully dispersed by the bank to Sciota. Appellant thereupon stopped work in May of 1973 and informed Unit that it would not continue until payments were forthcoming. On May 15, 1973, the bank conducted a meeting with the subcontractors in The Cliffs project, including Wilson.


    At the meeting, the bank sought to determine whether it would be beneficial at that stage of the project to lend more money to Sciota, foreclose on the mortgage and hire a new contractor to complete the work, or do nothing. Subcontractors were requested to furnish the bank an itemized account of what Unit owed them, and a cost estimate of future services necessary to complete their job contracts. Having reviewed the alternatives, the bank determined that it would be in its best interest to provide additional financing for the project. The bank reasoned that to foreclose on the mortgage and hire a new contractor at this stage of construction would result in higher costs.


    There is conflicting testimony in regard to whether the bank made assurances to Wilson at this meeting that it would be paid for all work to be rendered on the project. However, after the May meeting, Wilson, along with the other subcontractors, did return to work.


    Payments from Unit again were not forthcoming, resulting in a second work stoppage. The bank then arranged another meeting to be conducted on June 28, 1973.


    At this second meeting, there is conflicting testimony concerning the import of the statements made by the bank representative to the subcontractors. The bank representative who spoke at the meeting testified at trial that he had merely advised the subcontractors that adequate funds would be available to complete the job. However, two representatives of Wilson, also in attendance at the meeting, testified that the bank representative had assured Wilson that if it returned to work, it would be paid.


    After the meeting, Wilson returned to work and continued to submit its progress billings to Unit for payment. Upon completion of its portion of The Cliffs project, Wilson submitted its final invoice of $15,584.50 to Unit. This amount was adjusted downward to $15,443.06 upon agreement of Unit and Wilson.

However, Wilson was not paid this amount.


    As a result of nonpayment, Wilson filed suit in the Court of Common Pleas of Franklin County against Unit, Sciota Park, Ltd., and the bank to recover the $15,443.06. On September 26, 1975, Wilson, Unit, and Sciota stipulated that judgment for the sum of $15,365.84, plus interest, be entered against Unit and Sciota. When Unit and Sciota failed to satisfy the judgment, appellant proceeded with its action against the bank. [The trial court decided in favor of Wilson, but the intermediate appellate court reversed the trial court decision.]


No action shall be brought whereby to charge the defendant, upon a special promise, to answer for the debt, default, or miscarriage of another person . . . unless the agreement upon which such action is brought, or some memorandum or note thereof, is in writing and signed by the party to be charged therewith or some other person thereunto by him or her lawfully authorized.


    In paragraph one of the syllabus in Crawford v. Edison (1887), 45 Ohio St. 239, however, this court stated:


« When the leading object of the promisor is, not to answer for another, but to subserve some pecuniary or business purpose of his own, involving a benefit to himself, or damage to the other contracting party, his promise is not within the statute of frauds, although it may be in form a promise to pay the debt of another and its performance may incidentally have the effect of extinguishing that liability. »


Because it is unquestioned that the bank in the instant cause did not become primarily liable when it guaranteed the subcontractors that they would be paid, the Court must apply the second test set forth in Crawford to determine the enforceability of the verbal agreement.


Under the second test, it is of no consequence that when such promise is the original obligor remains primarily liable or that the third party continues to look to the original obligor for payment. So long as the promisor undertakes to pay the subcontractor whatever his services are worth irrespective of what he may owe the general contractor, and so long as the main purpose of the promisor is to further his own business or pecuniary interest, the promise is enforceable. See 3 Williston on Contracts (3 Ed. 1960), 466467, Section 481. Thus, under this test it is not required to show as a condition precedent for enforceability of the oral contract that the original debt is extinguished.


    The facts in the instant cause reflect that the bank made its guarantee to Wilson to subserve its own business interest of reducing costs to complete the project. Clearly, the bank induced Wilson to remain on the job and rely on its credit for future payments. To apply the statute of frauds and hold that the bank had no contractual duty to Wilson despite its oral guarantees would not prevent the wrong which the statute's enactment was to prevent, but would in reality effectuate a wrong.


    Therefore, this court affirms the finding of the Court of Common Pleas that the verbal agreement made by the bank is enforceable by Wilson, and reverses the judgment of the Court of Appeals.