Feiler v. Rosenbloom

Gilbert, C. J., delivered the opinion of the Court. Two divergent schools of thought are involved in this appeal. The appellant, Alfred W. Feiler, urges that we follow that expressed by the late Samuel Goldwyn that "[a] verbal contract isn’t worth the paper it’s written on.” * 1 2 The appellees, Benjamin Rosenbloom, Adolph Farber, William Chanoff and Charles Ellerin, suggest we adhere to that stated in Don Quixote 2 "an honest man’s word is as good as his bond.” Indeed, the appellees actually go one step beyond Don Quixote and entreat that "a man’s word be made to be as good as his bond.” Being men of conviction, the appellees invoked the jurisdiction of the Superior Court of Baltimore City (Sklar, J.) to assure that the appellant’s word was not only his bond, but a "negotiable bond.” After a non-jury trial, a judgment was entered against the appellant for $41,666.67 plus interest. This appeal is an out-growth of that judgment. —THE FACTS— ■ The facts from which this litigation arose were fully and ²⁹⁹ accurately set out by the trial judge.

We, with very minor editing, quote therefrom: "In the latter part of 1972, the ... [appellant and the appellees] were members of the Board of Directors of .. . [Togs, Inc. (Togs)], a Maryland Corporation, which was concerned in marketing a new concept in the manufacturing of buttons. At that time, the corporation needed additional financing to sustain itself in further business endeavors, including the marketing of buttons. On December 18, 1972, ... [a] Bank made a $250,000 loan to . .. [Togs] as principal obligor, that loan being due for payment on June 18, 1973. To assure itself of repayment, the [B]ank required certain members of the ... [Togs] Board of Directors to sign the loan note as guarantors.

Testimony at trial [of this case] was that at a meeting of the Board of Directors on December 19, 1972, the note was presented to the parties/directors for their signatures as guarantors. ... [Appellant] objected to his being required to guarantee the loan because of other pending personal financial negotiations which the new bank guarantee might adversely affect. According to ... Rosenbloom’s testimony, [he, Feiler,] Farber and Kahn left the meeting room to discuss the matter. .. . Mr. Kahn returned to the meeting .. . [but appellant,] Rosenbloom and Farber continued discussing the matter.

Messrs. Rosenbloom and Farber testified that an agreement was reached whereby ... [Feiler] was not required to sign as a guarantor, but [he] would still accept his responsibility for a pro rata one-sixth share of the loan payable to the five signatory guarantors who would be required to pay in the event of default by the corporation. ... Mr. Rosenbloom ... signed the note as a guarantor on the day it was issued. ... Chanoff, ³⁰⁰ Farber and Ellerin testified that they agreed to sign the note as guarantors only because of... [Feiler’s] promise to be responsible for his pro rata share ... [even though he did not sign as a guarantor].

Another director, Mr. Edward Kahn, who also signed the note was subsequently released as a guarantor because of bankruptcy. In a letter to ... Farber dated December 20,1972, ... the day after the Board Meeting, the ... [appellant] confirmed his separate agreement to pay one-sixth of the note .. . [even though he did not sign] it, but [he] included in that letter a statement 'my share of the financial responsibility would automatically be considered as void if for any reason there might be a change in the Executive Committee as established in yesterday’s meeting of the Board of Directors.’ ... [Feiler, however,] admitted in a deposition prior to trial that his oral agreement at the Board Meeting had been unqualified. ... [Appellant’s] deposition reads as follows: 'Q Now, are you saying you did or did not accept a one-sixth share obligation under the statute? A With qualifications.

Q Now the qualification was what again, please? A In substance as long as I am in charge of running of the company by an Executive Committee. Q And did you say that to them on the previous day when you were speaking with them in person? A I have to answer at length.

I said . . Q No, no, first of all, before you answer at length — A Yes. ³⁰¹ Q — answer yes or no whether you said to them on the previous day the substance of your last answer? A No.’ . . . Feiler’s answer at the deposition clearly indicates that at the time he orally promised the . . . [appellees] to be partially responsible for the loan guarantee, which promise induced the . . . [appellees] to become guarantors, no condition or qualification of liability was mentioned.

Testimony at trial of Mr. Flagg, Vice-President for Commercial Banking at . . . [the] Bank, revealed that on June 18,1973, the $250,000 six-month loan note of December 18, 1972, was renewed, but at an increased interest rate of 8V2%. In addition, the character of the note was testified to as having changed from a time instrument to a demand one. The bank records revealed that the loan note was further renewed at other times and at various rates of interest. . . . [Togs] failed to evolve into a profitable business operation. Ultimately, it failed to meet its financial obligations and the guarantors of the $250,000 note were called upon to pay off the loan and accrued interest.

Testimony of Mr. Flagg was that the records of the bank show that the note and interest were paid in full by the . . . [appellees] in this action. . . . [Feiler] resigned from . . . [Togs] on October 9, 1973. ... To date, he has never paid any money to the . . . [appellees], which they claim is owed to them based upon . . . [Feiler’s] agreement to pay a proportionate share of the . . . guarantee, should the need to do so arise. The essence of this case is whether. . . Feiler can be legally required to pay . . . and if so, what amount. . . .” ³⁰² —THE ISSUES— Feiler asserts that Judge Sklar erred in a number of respects, namely: "I. The trial judge erred in finding that the oral guarantee of appellant was not within the Statute of Frauds.

A. Acceptance of collateral liability is within the Statute of Frauds. B. Intent of the parties governs the transaction. C. The letter of December 20, 1972, is not a writing as required by the Statute of Frauds. D. Appellant did not make an admission thereby removing the oral agreement from the Statute of Frauds.

E. Appellees cannot claim detrimental reliance to extract the oral agreements from the Statute of Frauds.

II

The subsequent renewal of the note without the notification or consent of appellent [sic] extinguished his alleged liability.

III

Appellees had a duty to mitigate damages stemming from the obligation to the bank when put on notice that appellant had placed a condition to his acceptance of the obligation which was unacceptable to them.” —THE LAW— I. ' Initially, Feiler argues, as he did in the Superior Court, that the oral agreement he made with appellees on December 19, 1972, was an agreement to guarantee "the debt, default or miscarriage” of another. Hence, Feiler says, ³⁰³ the agreement was required by the Statute of Frauds, 29 Car. 2, Cap. 3 3 as presently codified in Md. Ann. Code art. 39C, § 1, to be in writing in order to be enforceable. 4 Feiler misconstrues both the original Statute of Frauds and that now in effect in Maryland. The current statute, Md. Ann. Code art. 39C, § 1 (1), provides: "No action may be brought: (1) To charge a defendant upon any special promise to answer for the debt, default or miscarriage of another person; Unless the contract or agreement upon which the action is brought, or some memorandum or note of it, is in writing and signed by the party to be charged or some other person lawfully authorized by him.” The essence of the Statute is the promise to answer for the debt, default or miscarriage of another. The promise Feiler made to his co-venturers in Togs was to pay them a one-sixth share of the indebtedness they incurred for themselves and him.

Feiler did not guarantee to pay to the Bank any portion of the loan the appellees obtained for use in Togs. On the ³⁰⁴ contrary, he agreed to indemnify the appellees to the extent of one-sixth of any loss they sustained as a result of the bank loan. Feiler’s promise to pay, by way of indemnity, was a contract with the appellees. No third party was involved, ergo, the Statute of Frauds, past or present, does not apply.

Professor A. Corbin, in his work, A Comprehensive Treatise on the Rules of Contract Law, § 385 (1950), states: "There is one type of case that presents special difficulties and that has resulted in much conflict of decision. This is a promise to indemnify one who is a surety, a guarantor, or bail for a third person. The following are illustrations: A says to S, (1) 'Indorse P’s note to C as surety and I will indemnify you;’ (2) 'Guarantee P’s debt to C and I will save you harmless’; (3) 'Lend P your credit in the purchase of goods from C and I will see that you lose nothing.’ In cases like these the clear weight of authority is that A’s promise is not within the statute; but a good many decisions have been contra....” (Footnote omitted.) L. Simpson, Handbook on the Law of Suretyship § 39 (1950), is in accord with the Corbin view. There it is said: "The type of indemnity contract which has produced the divergence in cases is the four party situation in which it is alleged that the promisor induced the promisee to become surety for P by promising to save him harmless or indemnifying him.

The decided preponderance of judicial opinion is that a promise to indemnify is not within the statute.” (Emphasis supplied.) The contra view is discussed in Williston, 3 A Treatise on the Law of Contracts § 482 (1960) and Restatement of Contracts § 186 (1932). Those courts that have decided to the contrary of Corbin hold that the indemnitor has by his ³⁰⁵ agreement implicitly assumed to answer for the principal debtor’s obligation. 5 Corbin, supra at section 386, recognizes that approach and addresses it in the following manner: "What is the solution of the difficulty? It is believed that mere logic and mere verbal interpretation of the statute afford no certain solution. It must be solved chiefly by a consideration of the policies involved.

In considering these policies, the writer ranges himself unhesitatingly with the majority decisions: .. . [the indemnitor’s] promise should be held not to be within the statute. In reaching this conclusion he may be somewhat influenced by the conclusion, based upon a reading of some thousands of cases, that the statute of frauds should now be regarded as mainly an in terrorem statute to cause important agreements to be reduced to writing and should be allowed to operate as a technical defense in actual cases as seldom as is consistent with uniformity and a reasonable degree of certainty of law... . The first and most fundamental reason underlying the majority decisions is that it is a horrid injustice to let the defendant escape his duty to indemnify after inducing the plaintiff to undertake the suretyship obligation for another person. If the courts have seen reason in so many other classes of cases to narrow the operation of the statute in order to prevent contract breakers from escaping the just penalty, there is certainly no less reason in the present case where the promisee has been induced by the promisor to bind himself for another person in whose welfare he has no interest ³⁰⁶ and to do so on the sole credit of the promise of indemnity.

A second reason is that in these cases there is usually little danger of successful perjury and fraud. If the defendant truthfully denies making the promise the circumstances will corroborate him. The past relations of the promisee with the person for whom he becomes surety can be proved and compared with those between the promisor and such person. Usually it appears that the promisee did not have a sufficient motive for becoming surety for the other person in the absence of indemnity promised, but that the promisor did have such a motive.

The 'mischief against which the statute is supposed to be directed is less menacing in these cases than in others to which the