In this week's ALWU, we bring you a case from the Alabama Supreme Court on whether an oral agreement to refinance entered with the lender in conjunction with a loan's origination is enforceable.
Branch Banking & Trust Company et al v. Rex A Nichols and Claudene Nichols, [Ms. 1130631, April 24, 2015] — So. 3d. —(Ala. 2014) (Statute of Frauds bars oral agreements to refinance).
The Alabama Supreme Court recently reiterated the long-established legal principal that the Statute of Frauds prohibits enforcement of oral agreements to refinance debt. In this case, the Nichols entered into a two-year loan agreement in order to finance the purchase of land for a real estate development. The Nichols claim that they were told by the bank's representative that the Nichols could pay only interest for two years, at which time the Nichols could get a new loan to refinance the debt and pay for the future development costs. BB&T, Colonia's successor, refused to refinance the loan or lend the money to fund the development. The Nichols sued under various theories to enforce the unwritten agreement to refinance the loan.
The Alabama Supreme Court held that the oral agreement was not enforceable because it was barred by the Statute of Frauds. The relevant section of the Statute of Frauds requires that all agreements or “commitment[s] to lend money, delay or forbear repayment  or to modify the provisions of such an agreement or commitment” must be written unless the principal amount financed is under $25,000. Although the Nichols argued there was some indication the loan may be paid off by future development, which would require additional financing, the Alabama Supreme Court held that those general statements were too vague to overcome the Statute of Frauds. Accordingly, the oral agreement was not enforceable.