B & G Crane Service, Inc. v. Dolphin Titan International, Inc.

Citations: 762 F.2d 1292; 120 L.R.R.M. (BNA) 2328; 1985 U.S. App. LEXIS 30599Docket: 84-3552

Court: Court of Appeals for the Fifth Circuit; June 17, 1985; Federal Appellate Court

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Dolphin Titan International, Inc. appeals a judgment from the United States District Court for the Eastern District of Louisiana that enforced an alleged oral promise to guarantee the debt of Gonzales Marine Enterprises, Inc., the contractor for two jack-up drilling rigs. Dolphin contracted with Gonzales for the rigs at a total cost of $12.3 million, during which Gonzales rented equipment from B. G Crane Service, Inc. After Gonzales defaulted, B. G sued Dolphin, claiming it breached an oral promise to pay for the equipment rentals. 

Dolphin's President and Secretary had allegedly promised B. G that Dolphin would cover the rental bill, leading B. G to lease additional equipment and keep existing equipment on-site. Dolphin managed payments through a zero balance account at Whitney National Bank, where checks from Gonzales were approved by a Dolphin employee, resulting in overdrafts covered by Dolphin’s account.

The district court ruled that the Mississippi statute of frauds, which applies to promises to pay another's debt, was inapplicable because Dolphin's promise was deemed non-gratuitous due to the benefits received from the equipment. The court also cited Mississippi's doctrine of unjust enrichment, asserting that denying B. G recovery would unjustly enrich Dolphin. Consequently, the court awarded B. G the value of the equipment usage provided. However, the appellate court reversed this decision, concluding that the lower court misapplied the statute of frauds.

Section 15-3-1 of the Mississippi Revised Statutes mandates that any special promise to answer for another's debt must be in writing to be enforceable, with no exceptions for non-gratuitous guarantees. The district court's reliance on dicta from *Carolina Transformer Co. v. Anderson* is noted, where the Mississippi Supreme Court indicated that the statute of frauds applies to gratuitous promises, but this was not central to the case since the defendant was not a third party to the contract in question. If Dolphin had leased equipment directly from B. G. Crane, the statute would not have been a barrier, but as a third party to the contract, Dolphin's situation is distinct.

Past cases demonstrate a consistent interpretation of the statute of frauds in Mississippi. In *Phillips v. F.G.H. Millwork Manufacturing Co.*, the court ruled that Phillips was not liable for a subcontractor's claim due to an alleged oral promise, as such an agreement is invalid under the statute. Similarly, in *King v. Hankins*, the court found no liability for King regarding materials purchased by the contractor, emphasizing that oral promises to cover a contractor's debt are unenforceable.

Mississippi courts do not recognize exceptions for oral promises like the one alleged in this case. It is acknowledged that Dolphin fulfilled its contractual obligations to Gonzales Marine Enterprises, meaning that subcontractors like B. G. Crane cannot claim against Dolphin for debts owed by Gonzales. Once an owner discharges their obligation under a construction contract, any subsequent promise to pay additional amounts becomes gratuitous and falls under the statute of frauds.

B. G Crane Service cannot avoid the statute of frauds based on unjust enrichment claims because Dolphin has not been unjustly enriched; it fully paid Gonzales for the rig construction and did not receive anything unpaid. If any party is unjustly enriched, it is Gonzales Marine, not Dolphin, who will not be required to pay twice for the drilling rigs. The district court misapplied Mississippi law, leading to a reversal of its judgment. B. G filed its contract claim in Louisiana state court, which was removed to federal court due to diversity jurisdiction. The district court determined that Mississippi law applied, citing various factors including the location of the rig construction and the parties involved. Mississippi's statute of frauds requires written agreements for certain promises, which were not present in this case, further supporting the ruling against unjust enrichment claims. A similar case was referenced where a Mississippi chancery court denied recovery based on the same legal principles, affirming that Gonzales was an independent contractor without any guarantee of payment by Dolphin. The application of promissory estoppel was not considered since it was not argued in lower courts or on appeal.