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Can I Sue for Breach of Contract? Why "a Handshake, a Look in the Eye, and a Personal Relationship" are Not Enough

If you loan money to someone with a verbal agreement that they will repay the loan with interest, can you sue for breach of contract when they stop making payments? If there is a "meeting of the minds" and some evidence of the verbal agreement, is that enough to prove a verbal contract and recover the money that was supposed to be repaid?

It might be enough to sue for breach of contract if the loan meets one of the limited exceptions to the Statute of Frauds and if SC law does not require a written agreement under any other provision of law.

In Kagan v. Simchon, the plaintiff filed suit for breach of contract, breach of contract with fraudulent intent, promissory estoppel, and intentional infliction of emotional distress in an attempt to recover funds owed from three loans totaling $391,000, but all of the claims failed because there was no written agreement for any of the loans.

Why couldn't Kagan sue for breach of contract? What is the rule for when a loan agreement must be in writing?

How to Sue for Breach of Contract

Although the opinion does not say, it's probably safe to assume that Kagan retained a contract attorney before filing his lawsuit to sue for breach of contract. It's probably also safe to assume that Kagan did not consult a contract attorney before making the loans to the defendant.

Kagan testified in his deposition that the loans were based on "a handshake, a look in the eye, and a personal relationship," a nice "trilogy" that summons thoughts of a long-ago age where a handshake and a verbal promise meant something.

Of course, no attorney would advise a client to loan nearly $400,000 without a written agreement, and that long-ago age where everyone was honest, and handshakes meant something, is a myth...

Breach of Contract

If you enter a valid contract - written or verbal, and the other person or business fails to perform their obligations under the contract, you can sue for breach of contract.

There are exceptions to the rule and, in some cases, there are prerequisites to filing suit for breach of contract - contact your Myrtle Beach contract and business litigation attorneyimmediately if someone has breached your contract and you need help collecting the money they owe.

Breach of Contract with Fraudulent Intent

If one side breaches the contract and they intended to defraud the other party when they entered the contract, you may be able to recover punitive damages as well as the value of the contract.

Promissory Estoppel

Even when there is no valid contract, there may be other legal theories that will allow you to recover money or services that are owed.

For example, promissory estoppel is an equitable remedy that may allow you to recover what is owed when 1) a promise was made, 2) you relied on that promise to your detriment, and 3) your reliance on the promise was reasonable.

Why Kagan Could Not Sue for Breach of Contract

Some contracts can be enforced without a written agreement, although it is more difficult and there is certain to be disagreement over the terms or even the existence of the agreement.

On the other hand, many contracts cannot be enforced without a written agreement, and, if you do not consult with your business contract attorney before entering the agreement, you may find that you cannot sue for breach of contract when the other party breaches the agreement...

Statute of Frauds

The statute of frauds requires certain types of transactions to be in writing, including certain types of loans.

SC Code Section 37-10-107 contains SC's "lender statute of frauds," which requires a written agreement for loans, deferment or forbearance of loan repayment, or the renewal, modification, or cancelation of a loan amount in excess of $50,000.

(1) No person may maintain an action for legal or equitable relief or a defense based upon a failure to perform an alleged promise, undertaking, accepted offer, commitment, or agreement:

(a) to lend or borrow money;

(b) to defer or forbear in the repayment of money; or

(c) to renew, modify, amend, or cancel a loan of money or any provision with respect to a loan of money, involving in any such case a principal amount in excess of fifty thousand dollars, unless the party seeking to maintain the action or defense has received a writing from the party to be charged containing the material terms and conditions of the promise, undertaking, accepted offer, commitment, or agreement and the party to be charged, or its duly authorized agent, has signed the writing.

If there is no written agreement, you cannot sue for breach of contract, negligent misrepresentation, or equitable remedies like promissory estoppel:

(2) Failure to comply with subsection (1) precludes an action or defense based on any of the following legal or equitable theories:

(a) an implied agreement based on course of dealing or performance or on a fiduciary relationship;

(b) promissory or equitable estoppel;

(c) part performance, except to the extent that the part performance may be explained only by reference to the alleged promise, undertaking, accepted offer, commitment, or agreement; or

(d) negligent misrepresentation.

Although the statute of frauds prevents most lawsuits based on breach of loan agreements where there is no written agreement, there are some exceptions to the rule.

Exceptions to SC's Lender Statute of Frauds

SC Code Section 37-10-107 contains exceptions to the rule requiring a written agreement:

(3) Subsections (1) and (2) do not apply to:

(a) a loan of money used primarily for personal, family, or household purposes;

(b) an agreement or change in the terms of an agreement relating to a line of consumer credit, lender credit card, or similar arrangement;

(c) an overdraft on a demand deposit or other bank account; or

(d) promissory notes, real estate mortgages, security agreements, guaranty and surety agreements, and letters of credit.

(4) In the event of a conflict between this section and any other provision of law of this State relating to the requirement of a signed writing, the provisions of the other provision of law shall control.

In the case I referenced above, Kagan argued that he should fall into the exception for "a loan of money used primarily for personal, family, or household purposes."

This argument failed, however, because the testimony clearly showed that the borrower used the funds for business purposes - "she routinely engages in this practice as a means of providing an alternate financing option for Greenwood Realty clients who are unable to obtain mortgages from commercial lenders."

Why Do I Need a Contract Attorney?

Although "a handshake, a look in the eye, and a personal relationship" might be enough to enforce some contracts, along with evidence of the existence and terms of the agreement, there are far too many rules and exceptions to the rules in contract law to take a chance on losing your investment.

Your business litigation contract attorney will help you to:

  • Avoid litigation by clearly defining the terms of your agreements;
  • Enforce your written contracts without filing suit whenever possible; and
  • Sue for breach of contract when it is necessary to recover your funds.

Got Axelrod?

Kagan might tell you that the expense of consulting your contract attorney before entering any business agreement is well worth the security of knowing that the terms of your agreement are well-defined and enforceable.

Call your Myrtle Beach business litigation attorney on the Axelrod team now at 843-353-3449 or send us an email to find out how we can help.

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