Daily Development for
Friday, April 24, 1998

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

Once again, a generous contribution by "guest DD editor" Professor Dale Whitman of BYU Law School. This time I am speechless. All of the Comments are Dale's. [Ed]

STATUTE OF FRAUDS; LOAN COMMITMENTS: A loan commitment is unenforceable under Georgia law unless the written commitment contains "all terms and conditions" of the loan, including the maturity date.

OceanMark Bank, F.S.B. v. Stubblefield, 496 S.E.2d 465 (Ga. App. 1998).

The Stubblefields applied with Brighter Day Mortgage Co. for a home loan. They told the loan officer that they were not willing to disclose their federal income tax returns as part of the loan application process. The mortgage company subsequently sent them a letter advising them that their application had been approved, subject to their providing certain documents (which didn't include their tax returns). Several weeks later, the mortgage company sent another letter, stating that they had been approved for an ARM loan with a one year adjustment period. This letter stated the amount and interest rate of the loan, but not the term or maturity date.

At closing, the attorney handling the transaction for Brighter Day insisted that the Stubblefields disclose their tax returns. Because they refused, the loan did not close. They subsequently obtained a loan from a different lender at a higher rate, and sued Brighter Day for damages.

The Georgia Court of Appeals held that the loan commitment, as represented by the letters, was unenforceable because it failed to state the loan's maturity. An amendment to the Georgia Statute of Frauds in 1988 required loan commitments to be in writing, and the court, citing earlier Georgia cases, held that this meant that "unless an agreement is reached as to all terms and conditions and nothing is left to future negotiations, the agreement is of no effect."

Comment 1: The court confused two distinct issues: first, what must the parties' agreement contain,and second, what must their writing contain? The two aren't the same at all. It's common for the courts to enforce contracts on the basis of a writing that includes only a small subset of the totality of the parties' agreement. For example, in land sale contracts, the Statute of Frauds is usually construed to require the inclusion in the writing of only (1) the parties' names or identifiers, (2) an identification of the land being sold; (3) some words indicating that a sale is intended; and (4) in most states, the sale price (and the terms, if the sale is not for cash). Obviously, the parties to the sale often agree orally to numerous other terms the date of closing, the seller's duty to repair the property before closing, etc. But the Statute of Frauds doesn't require that all of this information be in the writing.

The same principle should apply here. There is some minimum, irreducible quantum of information that must be included in a written loan commitment in order to satisfy the Statute of Frauds. But to suggest that the writing must include "all terms and conditions" is absurd. To satisfy such a test, the lender would have to include or incorporate in the loan commitment every term of the note and mortgage, plus every term of the construction loan agreement if it's a construction loan. In many cases this simply isn't practical, and it isn't necessary either. If the court is satisfied that the basic information is in writing, it can take testimony as to the other terms, or can resort to local custom to establish them.

Comment 2: In this case, it's highly likely that the parties (both lender and borrowers) were fully in agreement that the term of the loan was to be 30 years (or perhaps some other number they had discussed). In other words, in all probability they had actually satisfied the court's requirement that "agreement had been reached" as to the term; it was merely absent from the writing. Because the 30 year residential loan is so common, a court ought not to render a residential commitment unenforceable under the Statute of Frauds on account of the omission of the loan term from the writing unless there is evidence that the parties actually disagree about what term was agreed to. In other words, the term should not generally be regarded (in a residential loan commitment) as part of the irreducible minimum of information that the writing must state.

Comment 3: The concurring judge felt bound by Georgia precedent, but believed that the result was unconscionable. He pointed out that many residential loan commitment letters probably don't mention the loan term, and observed that it would be quite a surprise to the borrowers who received such letters to learn that they were unenforceable. For borrowers who are represented by counsel,of course, the lesson of the case is clear: Insist that the lender cover, in the written commitment, all of the major loan terms.

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