Rafferty was the sole shareholder of Continental Corporation and, as a result, h
ID: 2764758 • Letter: R
Question
Rafferty was the sole shareholder of Continental Corporation and, as a result, he received the all of the dividends. Continental was anxious to close an important deal for iron ore products to be used in its business. A written contract was presented to Stage Corporation for the sale of the ore to Continental. Stage, however, was cautious about signing the contract, and it was not until Rafferty called Stage Corp. on the telephone and orally stated that, if Continental did not pay for the ore, he would pay, that Stage signed the contract. Business reverses struck Continental and it failed. Stage sued Rafferty for the sales price of the ore. Rafferty asserts the defense of the Statute of Frauds (i.e. his guarantee was not in writing). Should it apply or should the main purpose/leading object exception apply? Explain.
Explanation / Answer
Rafferty has the defense that his oral agreement to pay for the iron ore was a contract to guarantee the payment of the debt of another which the statute of frauds requires to be in writing to be enforceable. Rafferty's oral promise to pay Continental Corporation's debt was collateral to the debt or liability of Continental Corporation. Rafferty's promise cannot be said to be an original promise or undertaking even though he was the principal shareholder in Continental Corporation. However, the main purpose doctrine will be available to Stage Corporation and bind Rafferty to his oral promise.
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