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Statute of Frauds Requirement of a Signed Agreement is Upheld

In a decision last month, the Supreme Court of Ohio ruled that a party’s breach of an alleged promise to sign an agreement does not eliminate the requirement (under Ohio’s statute of frauds) that a contract must be in writing and signed by the party against whom enforcement is sought in order to be enforceable.

The Court’s decision also held that a party may not invoke the doctrine of “promissory estoppel” (failure to keep a promise on which another party has relied to its detriment) to prevent an opposing party from asserting the affirmative defense of the statute of frauds and that damages recovered under promissory estoppel are an adequate remedy for the breach of an oral promise in the absence of a signed agreement.

The case involved a proposed business arrangement between a group of title companies Olympic Holding Company LLC (Olympic) and a reinsurance company, ACE Capital Title Reinsurance Company (ACE). Over a period of months, the parties negotiated terms of a business venture in which Olympic would jointly acquire ownership of a separate company, the Olympic Title Insurance Company (OTIC), and ACE would then enter into a joint venture with OTIC to provide a new integrated system of title insurance and reinsurance that would be marketed nationally.

After exchanging multiple drafts of a proposed reinsurance agreement with ACE, Olympic went forward with the purchase of OTIC. When they informed ACE that the acquisition was complete, ACE advised them that it was likely to be spun off by its corporate parents and was unlikely to proceed with the reinsurance agreement. The day after learning of ACE’s cancellation, Olympic signed
collectively known as and sent its own draft of the residential reinsurance agreement to ACE for signature. ACE refused to execute the agreement. Olympic sued ACE and its parent companies asserting multiple claims including breach of contract and promissory estoppel. ACE asserted that, under the Ohio statute of frauds, no party may assert a breach of contract claim against another party for allegedly violating an agreement that will not be completed within one year “unless the agreement upon which such action is brought, or some memorandum or note thereof, is in writing and signed by the party to be charged therewith…” Because there had never been a signed agreement between the parties, ACE argued, it had no contractual obligations to the plaintiffs.

Upon review of ACE’s argument and the lower court’s decision, Supreme Court wrote that while courts in a number of other jurisdictions have held that, under various circumstances, promissory estoppel may be used to remove an agreement from having to comply with the statute of frauds, “(W)e decline to adopt that exception under the circumstances of this case because it is both unnecessary and damaging to the protections afforded by the statute of frauds.”

The Court noted that the purpose of the statute of frauds is to prescribe a clear standard of what is needed to form a contract, and to strongly motivate parties to follow those requirements.

For more information see full opinion at:
http://www.supremecourt.ohio.gov/rod/docs/pdf/0/2009/2009-Ohio-2057.pdf

© 2008 Ott & Associates Co., LPA

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