On March 4, 2014, the Ohio Supreme Court issued its decision in First Merit Bank v. Inks, 138 Ohio St.3d 384. In this case, the court held that the statute of frauds prohibited both a claim and the assertion of a defense by guarantors who alleged an oral amendment of a written forbearance agreement. That forbearance agreement came within the statute of frauds because in addition to settling the liability of the borrower and guarantors, it would have impacted the mortgage securing the debt – specifically by releasing that mortgage.
The Supreme Court indicates that this decision resolves a conflict between Court of Appeals cases by holding that the statute of frauds prevents both the assertion of claims and the use of alleged oral promises as a defense.
The practice pointer is that if any interest in land is somehow involved in a forbearance agreement, that fact should be made clear in the forbearance agreement so that any future alleged oral modification will come within the statute of frauds, Ohio Revised Code Section 1335.05. This is true despite the fact that the guarantors were not owners of the property and did not mortgage the property.
Unless an interest in the land is involved, there is no necessary Section 1335.05 protection from oral promises related only to the obligation of the guarantor. SeeLoveland Properties v. Ten Jays, Inc., et al., 57 Ohio App.3d 79 (Hamilton Co. 1988) (Personal guaranty of performance by a lessee not governed by statutes concerning real property interests).