Get It in Writing

The Kansas Commercial Statute of Frauds precludes “a debtor or creditor from maintaining an action for legal or equitable relief or a defense, based in either case upon a failure to perform on an alleged credit agreement, unless the material terms and conditions of the agreement are in writing and signed by the creditor and the debtor.”  K.S.A. § 16-118(a) (2011).

The statute defines credit agreement as “an agreement by a financial institution to lend or delay repayment of money, goods or things in action, to otherwise extend credit or to make any other financial accommodations.”  A creditor is “a financial institution which extends credit or extends a financial accommodation under a credit agreement with a debtor.”  A debtor is simply a person who obtains credit or receives a financial accommodation under a credit agreement with a financial institution.

A purpose of the Commercial Statute of Frauds is to prevent misunderstandings between banks and borrowers when borrowers attempt to renegotiate their notes or indebtedness.  Often is the case where a bank officer makes certain statements or appears to promise concessions that the borrower misconstrues.  Unless such statements are in writing, contain the material terms, and the writing is signed by both the bank and the borrower, they are not enforceable.

Another example is after a notice of foreclosure is sent.  The borrower in default might call the bank in hopes of working out a postponement or cancellation of the foreclosure.  However, a diligent bank requires that the borrower come to the bank and in exchange for the postponement or cancelation offer some sort of consideration.  The agreement, including the consideration offered by the borrower, to postpone or cancel the foreclosure should be in writing.

If banks and borrowers follow the Commercial Statute of Frauds, each will be protected.  The intent of the statute is “to insure there is written evidence of credit agreements and to prevent lawsuits based on disputed oral agreements to lend money or the disputed terms for lending the money.”  In Re Bryant Manor, LLC v. Bank of America, N.A., 434 B.R. 629, 633 (Bankr. D. Kan. 2010).

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