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Randolph Acoustics, Inc. v. Roxville Associates

A-3515-97T1 (N.J. Super. App. Div. 1999) (Unpublished)

GUARANTIES; INTEREST—Where a guarantor voluntarily undertakes to execute a guaranty, knows of a claim, deliberately withholds its payment, and challenges the creditor to sue, an award of pre-judgment interest is appropriate.

When this matter was first before the Appellate Division, the Court dismissed a contention by a property owner that a construction subcontractor’s attempt to seek payment from the property owner pursuant to an oral guarantee was barred by the statute of frauds. Its decision rested on the “main purpose” rule under which a court will enforce an oral promise to answer for the debt of another if the main purpose of the promisor is to promote its interests rather than to benefit the original debtor. Consequently, the original matter was returned to the lower court where a jury held in favor of the subcontractor. On this appeal, the property owner argued that the lower court should have instructed the jury that the subcontractor had to prove a breach of contract claim by “clear and convincing evidence.” The Appellate Division held against the property owner and found that although an action for specific performance of an alleged oral agreement might require such a higher standard, there was no case law support for an expansive assertion that any action based on an alleged oral guarantee must be so proven. The property owner also argued that the lower court abused its discretion in awarding prejudgment interest in this contract case. In upholding the prejudgment interest, the Court stated “[t]he award of prejudgment interest in a contract action is within the discretion of the trial court, and an appellate court ‛will defer to the trial court’s exercise of discretion ... unless it represents a manifest denial of justice.’” The Appellate Division noted that the lower court, when making the award, pointed out that when the subcontractor requested that the property owner make good on its guarantee, the owner said “So, sue me.” In addition, the subcontractor continued work at the site for the full benefit of the property owner, even though the debt was due and owing. According to the lower court, the equities of the case existed in favor of the subcontractor where the property owner voluntarily undertook the “guarantee,” knew of the claim, withheld its payments, and encouraged the litigation.


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