Massachusetts Court Holds Owner’s Oral Promise to Pay Subcontractor Enforceable Under Main Purpose Exception to Statute of Frauds

Central Ceilings, Inc. v. Nat’l Amusements, Inc.,
70 Mass. App. Ct. 172, 873 N.E.3d 754 (Sept. 18, 2007)

National Amusements, Inc., entered into a contract with Old Colony Construction Corporation for the construction of National’s cinema theater complex. Old Colony subsequently entered into a subcontract with the plaintiff, Central Ceilings, Inc., for a portion of the construction of the Project. Although delays made meeting the original completion date next to impossible, National stressed to Central its strong desire to have the theatre complex open for the Labor Day weekend. In response, Central made it clear to National that meeting such an aggressive completion date would require it to accelerate the work schedule. In addition, since Old Colony was experiencing cash flow problems and owed Central a substantial sum of money for work already completed, Central demanded assurances from National that it would be paid for its work before it would continue with the accelerated work on the Project. As a result, one of National’s agents orally agreed to pay Old Colony’s obligations to Central. Thereafter, Central completed its work and achieved substantial completion by August 25.

When National refused to pay Central its unpaid balance from Old Colony, Central brought an action against National for breach of its oral agreement. A jury found that Central was entitled to receive the unpaid balance from National under its oral agreement. National appealed. The main issue on appeal was whether National’s oral promise to pay Central was enforceable under the Statute of Frauds.

Under the Massachusetts’ Statute of Frauds (and that of many other states), a promise to pay the debt of another (usually called a guarantee) must be in writing to be enforceable. However, there is a well recognized exception to this rule known as the “leading object” or “main purpose” exception. This exception applies when an oral agreement is made to pay the debt of a third party and the promise to pay is made primarily or solely to serve the promisor’s own interests. Additionally, the exception applies even where the promise to pay does not extinguish the third party’s liability.

The Massachusetts Court of Appeals held the National’s promise was enforceable under the leading object exception based on the following evidence: (1) National wanted to finish the project by a certain date for business reasons; (2) the work had to be completed in a “tight time frame”; (3) Central was a “core” subcontractor and was responsible for significant portions of the work; (4) Central completed its preliminary work; and (5) Central was one of the few subcontractors in the state capable of delivering the necessary work in the desired time frame. The court held that this evidence was sufficient to warrant a finding that National’s promise was given to secure Central’s continued and expedited performance at the Project and that the satisfaction of any obligation on the part of Old Colony was merely incidental to that promise.

The court dismissed National’s argument that Central’s performance, including compliance with all schedule changes, was a benefit to which National was already entitled. The court noted that National had failed to demonstrate that such contractual obligations ran in favor of National rather than Old Colony.

Click here to view full opinion as PDF (provided with the permission of LexisNexis).

This entry was posted in Delay, Payment dispute, Subcontract and tagged , , , , , , . Bookmark the permalink.