Last Spring, we discussed on this blog a trifecta of noteworthy lending cases pending before the Ohio Supreme Court. Today, the Court resolved one of them, and in doing so also resolved a certified conflict among Ohio’s appellate districts regarding whether Ohio’s Statute of Frauds bars a party from relying on an oral forbearance agreement to defeat a judgment that was entered pursuant to a written contract. The court’s unanimous opinion in FirstMerit Bank, N.A. v. Inks, Slip Opinion No. 2014-Ohio-789, is available here.

Daniel Inks, Deborah Inks, David Slyman, and Jacqueline Slyman guaranteed that Ashland Lakes, LLC would repay a $3.5 million loan from FirstMerit Bank. When the LLC defaulted, FirstMerit sued the guarantors, and the trial court awarded judgment to FirstMerit based on confessions of judgment entered by the defendants under warrants of attorney. The Slymans and Inkses then appealed to Ohio’s Ninth District Court of Appeals on the basis that the confessing lawyer did not produce the original warrants of attorney. After filing that (ultimately unsuccessful) appeal, the Slymans and Inkses also moved the trial court for relief from judgment, arguing that FirstMerit was not entitled to recover because it had entered into an oral forbearance agreement with the LLC. The trial court concluded that this argument was barred by Ohio’s Statute of Frauds, and the Slymans and Inkses appealed from that decision as well. The Ninth District Court of Appeals reversed the trial court’s decision on the Statute of Frauds, saying:

By its plain language, the [Statute of Frauds] prohibits a party from “bringing an action on a loan agreement” unless the agreement is in writing. In this case, the Slymans and Inkses did not attempt to “bring an action” against FirstMerit, they merely raised the oral forbearance agreement as a defense to FirstMerit’s action against them.

FirstMerit asked the Ninth District to certify a conflict between its decision and that of multiple other appellate districts, and the Ninth District agreed that its judgment conflicted with that of Ohio’s Tenth District Court of Appeals more than a decade ago in Nicolozakes v. Deryk Babrield Tangeman Irrevocable Trust, 10th Dist. No. 00AP-7, 2000 WL 1877521 (Dec. 26, 2000). In Nicolozakes, the Tenth District held that the Statute of Frauds barred Ms. Tangeman from defending against a foreclosure action by alleging that Mr. Nicolozakes had orally released her from a note and mortgage.

FirstMerit’s certified-conflict case in the Ohio Supreme Court attracted the attention of the Ohio Banker’s League, which filed an amicus brief supporting FirstMerit. The Bankers’ League noted that allowing parties to enforce oral forbearance agreements would undermine the Statute of Frauds’ key role in reducing systemic risk in the financial services industry.

Today, the Ohio Supreme Court reversed the Ninth District and followed the Tenth District’s approach. Justice O’Donnell’s opinion for the unanimous Court relies on caselaw from the nineteenth century to bolster the Statute of Frauds’ application to bar certain oral agreements from being used as the basis for defenses, in addition to affirmative claims. The Court also confirmed that the alleged oral agreement between the Inkses and FirstMerit “does pertain to an interest in land, because it involves the terms upon which FirstMerit allegedly agreed to release the mortgage. As such, even if it is characterized as a settlement agreement, it falls within [the Statute of Frauds].” Opinion, para. 25.