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HAWLEY FUEL COALMART, INC. v. STEAG HANDEL

July 29, 1985

HAWLEY FUEL COALMART, INC. and HAWLEY FUEL COAL, INC., Plaintiffs, against STEAG HANDEL, GmbH., Defendant


The opinion of the court was delivered by: SPRIZZO

OPINION & ORDER

SPRIZZO, D. J.:

 Plaintiffs Hawley Fuel Coalmart, Inc. and Hawley Fuel Coal, Inc. (collectively referred to as "plaintiff" or "Hawley") seek to enforce an alleged contract of guarantee against defendant Steag Handel, GmbH ("Steag"). Hawley, a supplier of coal to Alla Ohio Valley Coals, Inc. ("Alla"), alleged at trial that defendant Steag agreed to guarantee the debts of Alla to plaintiff in exchange for plaintiff's agreement to continue to deliver coal to Alla, which was a supplier of coal to Steag. Plaintiff contended at trial that it would have ceased shipment of coal to Alla and would have sought to recover coal already shipped had not defendant guaranteed payment of Alla's debts to plaintiff.

 The jury found that Steag had orally guaranteed Alla's debts. The only issue raised by defendant's motion for judgment notwithstanding the verdict is whether the alleged oral contract of guarantee is enforceable pursuant to the New York statute of frauds. N.Y. Gen. Oblig. Law § 5-701(a) (2) (McKinney Supp. 1984-85). *fn1"

 Plaintiff contends that the oral contract of guarantee is enforceable because it is evidenced by writings sufficient to satisfy the statute of frauds, i.e. that there are writings signed by and/or prepared by the defendant which set forth all of the essential terms of the oral contract alleged. See, e.g., Scheck v. Francis, 26 N.Y.2d 466, 470-71, 260 N.E.2d 493, 495, 311 N.Y.S.2d 841, 843-44 (1970); Intercontinental Planning, Ltd. v. Daystrom, Inc., 24 N.Y.2d 372, 379, 248 N.E.2d 576, 579-80, 300 N.Y.S.2d 817, 822 (1969); Crabtree v. Elizabeth Arden Sales Corp., 305 N.Y. 48, 55-56, 110 N.E.2d 551, 554 (1953); Standard Oil Co. v. Koch, 260 N.Y. 150, 155, 183 N.E. 278, 279 (1932); Dorman v. Cohen, 66 A.D.2d 411, 418, 413 N.Y.S.2d 377, 382 (1st Dept. 1979); cf. Martin Roofing, Inc. v. Goldstein, 60 N.Y.2d 262, 265, 457 N.E.2d 700, 701, 469 N.Y.S.2d 595, 596 (1983), cert. denied, 466 U.S. 905, 104 S. Ct. 1681, 80 L. Ed. 2d 156 (1984). However, the Court has reviewed the documents upon which plaintiff relies and concludes that those memoranda are insufficient.

 None of the documents prepared by defendant, with one possible exception, even mentions the word guarantee, and all of these documents taken together do not contain the essential terms of the alleged oral contract of guarantee proved at trial. Thus, there is no mention of any agreement by plaintiff to forebear exercising its legal rights against Alla in exchange for Steag's guarantee, and certainly not the clear and unambiguous expression of an agreement to pay the debt of another, which the New York courts have required as a safeguard against oral testimony. See, e.g., Savoy Record Co. v. Cardinal Export Corp., 15 N.Y.2d 1, 5-7, 203 N.E.2d 206, 208-09, 254 N.Y.S.2d 521, 525-26 (1964); Salzman Sign Co. v. Beck, 10 N.Y.2d 63, 67, 176 N.E.2d 74, 76, 217 N.Y.S.2d 55, 57-58 (1961); Standard Oil, supra, 260 N.Y. at 154, 183 N.E. at 279; Walker v. Roth, 90 A.D.2d 847, 847, 456 N.Y.S.2d 95, 95 (2d Dept. 1982).

 The only document which even contains the word "guarantee" is a telex sent by Bonner, an Alla employee, to Hawley, which refers to defendant's intention to guarantee the debts of Alla. However, without reaching the issue of whether Alla was acting on Steag's behalf in sending this telex, which is not apparent from the telex itself, it is clear that a writing which at best evidences a future intention to guarantee is not sufficient to support an alleged existing oral guarantee.

 Steag did send a telex, jointly with H.C. Sleigh Ltd., a 50% owner of Alla, to Hawley and to all other Alla creditors which stated that they were working to strengthen Alla's "financial capacity" and that "[t]his strengthening is expected to result in a transfer of funds to your account in full payment of the indebtedness presently owed to you." If did not state that payment would be made by steag, and it did not mention a guarantee. *fn2" Moreover, the fact that the joint telex was sent to all creditors of Alla detracts from the conclusion that it can or should be regarded as sufficient to evidence the alleged specific oral contract of guarantee between Steag and plaintiff which plaintiff claims existed. The only other documents which arguably support the alleged oral guarantee were prepared by and signed only by plaintiff, and these are not sufficient. See, e.g., Dorman, supra, 66 A.D.2d at 415, 413 N.Y.S.2d at 380; Brause v. Goldman, 10 A.D.2d 328, 335, 199 N.Y.S.2d 606, 614 (1st Dept. 1960), aff'd, 9 N.Y.2d 620, 172 N.E.2d 78, 210 N.Y.S.2d 225 (1961); Chu v. Chu, 9 A.D.2d 888, 889, 193 N.Y.S.2d 859, 860 (1st Dept. 1959).

 In this respect, this case is markedly different from Crabtree, supra, which is heavily relied upon by plaintiff. In Crabtree, all of the essential terms and conditions of the oral contract were set forth in documents signed and/or prepared by the defendant. See 305 N.Y. at 57, 110 N.E.2d at 555. All that the Crabtree case holds is that where the entire contract is contained in such separate documents which all clearly refer to the same subject or transaction, and where the Court can ascertain the essential terms of the agreement by considering all of these various memoranda together and without recourse to oral testimony, the requirements of the statute of frauds can be satisfied. It does not hold, as plaintiff appears to argue, that the Court may take oral testimony to characterize or to establish a connection between the various memoranda at issue or to supply essential missing terms of the contract where the memoranda signed and/or prepared by the defendant are not otherwise sufficient. See 305 N.Y. at 55-56, 110 N.E. at 554.

 Indeed, as New York case authorities make clear, and as the Appellate Division has most recently emphasized in Cunnison v. Richardson Greenshields Securities, Inc., 107 A.D.2d 50, 54, 485 N.Y.S.2d 272, 276 (1st Dept. 1985), the purpose of the statute of frauds is to protect a defendant against having a contract established by oral testimony. See also Martin Roofing, supra, 60 N.Y.2d at 265, 457 N.E.2d at 701, 469 N.Y.S.2d at 596; Ginsberg v. Fairfield-Noble Corp., 81 A.D.2d 318, 320, 440 N.Y.S.2d 222, 224 (1st Dept. 1981). Therefore, the memoranda relied upon to satisfy the statute of frauds must be such that from an examination of the documents themselves all of the essential terms and conditions of the oral contract may be obtained. See, e.g., Intercontinental Planning, supra, 24 N.Y.2d at 378-79, 248 N.E.2d at 579-80, 300 N.Y.S.2d at 822; Crabtree, supra, 305 N.Y. at 55-56, 110 N.E.2d at 554; Standard Oil, supra, 260 N.Y. at 155, 183 N.E. at 279; Poel v. Brunswick-Balke-Collender Co., 216 N.Y. 310, 314, 110 N.E. 619, 620 (1915); Dorman, supra, 66 A.D.2d at 416, 417-18, 413 N.Y.S.2d at 381; Kobre v. Instrument Systems Corp., 54 A.D.2d 625, 626, 387 N.Y.S.2d 617, 618-19 (1st Dept. 1976), aff'd, 43 N.Y.2d 862, 374 N.E.2d 131, 403 N.Y.S.2d 220 (1978); Chu, supra, 9 A.D.2d at 888-89, 193 N.Y.S.2d at 860.

 In this case, the documents signed and/or prepared by the defendant manifest at best an agreement by the defendant to set up new letters of credit. *fn3" An examination of these documents alone, without recourse to oral testimony, does not permit the Court to ascertain all of the essential terms and conditions of the oral contract of guarantee which plaintiff established at trial.

 Plaintiff also argues that the defendant has admitted the existence of the oral contract and that therefore under New York law, see Holender v. Fred Cammann Productions, Inc., 78 A.D.2d 233, 434 N.Y. S.2d 226 (1st Dept. 1980), oral testimony is permissible to resolve disputes between the parties as to the terms of the alleged oral contract. Even assuming the correctness of the case relied upon by plaintiff, *fn4" the defendant in this case has not admitted the alleged oral agreement, but rather has consistently denied any oral contract of guarantee.

 Plaintiff's argument that defendant has admitted the agreement alleged rests largely upon the contention that Steag agreed to open up unconditional letters of credit, which plaintiff claims amounted to an unequivocal guarantee of Alla's indebtedness to plaintiff. In this regard, plaintiff relies, inter alia, on the testimony of Dr. Thomas Mulert. Even assuming that Dr. Mulert's testimony can be construed to state that Steag opened up unconditional letters of credit, which is not clearly the case, see, e.g., Trial Transcript ("Tr.") at 395-97, 468-80, *fn5" it is nonetheless insufficient to support the alleged oral guarantee.

 An agreement to open new letters of credit, even unconditional letters of credit, is not the same as a contract of guarantee, even though the letters of credit, once established, permit plaintiff to secure payment without meeting any of the technical requirements normally set forth in conditional letters of credit. The terms, remedies, and the conduct which would constitute a breach of such a contract are all markedly different from those with respect to a contract of guarantee. It follows that a memorandum reflecting an agreement to open unconditional letters of credit is not sufficient to support an alleged contract of guarantee. See, e.g., Stone v. Metropolitan Life Insurance Co., 12 N.Y.2d 487, 491, 191 N.E.2d 287, 288, 240 N.Y.S.2d 754, 755 (1963) (per curiam); Standard ...


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