Paying the Debt of Another

By: J. Mason Williams IV

A question arose not too long ago about whether paying the debt of another would require continued payments.    In other words if company A pays company B’s existing creditor for one month, or even several months, does company B now have an obligation to continue paying company A’s creditor?  If company B does have an obligation, then the creditor can likely come after company B for company A’s debt should both companies fail to make a payment.

Everyone, or nearly everyone knows that a loan can be guaranteed and many of them are, unless you have enough capital or other insurance to back up the loan.  In this case, typically the guaranty is in writing.  Florida for over 150 years has held the position that the promise to pay the debt of another when in writing and signed by the party guarantying the debt is a valid agreement to pay the debt if the debtor fails to pay it.

A fairly typical situation can be found in the Second District Court of Appeal case, Riba v. Pila, 543 So. 2d 429 (Fla. 2d DCA 1989).  In this case, the wife of the debtor orally agreed to pay her husband’s creditor $100 per month to pay off the debt.  The wife argued that the statute of frauds barred enforcement of her oral agreement to pay the debt of another, her husband.  Since the wife was not a direct obligor of her husband’s loans, she was not required to make the payments since her agreement was not in writing and there was a lack of consideration.

Although there is a written requirement, this is not always required.  In J.F. Hoff Elec. Co. v. Goldstein, 560 So. 2d 419, 421 (Fla. 4th DCA 1990), the Fourth District Court of Appeal explained that in a general contractor, subcontractor, owner situation, an oral promise to pay can be enforceable.  In this case, the general contractor hired a subcontractor to do a portion of the work.  The subcontractor stopped work because it was not paid by the general contractor.  The subcontractor alleged that the owners agreed to pay the subcontractor to finish its work.  The court, citing an 1897 Florida Supreme Court case, noted that if there was sufficient consideration, then the promise to pay the debt due him by the general contractor, although oral, would be valid and would not be barred by the statute of frauds.

As one can see from these two examples, making a promise to pay the debt of another can be a bit tricky.  If you have made an oral promise to pay the debt of another and plan to stop payment, consult an attorney first.  If you plan to accept a promise to pay debt owed to you by a third party, make sure you get it in writing.

If you need assistance with a debtor or a creditor, feel free to contact me. You can also follow me on Twitter, LinkedIn and Facebook for even more information.