Colorado law has long required certain types of contracts to be in writing to be enforceable. The well known ones are contracts for interests in land, contracts that cannot be performed within one year, and contracts to answer for the obligations of another. There are, of course, other requirements for written agreements scattered about the statutes, but this brief is concerned with the law that relates to credit agreements and is of interest to lenders and borrowers.
C.R.S. § 38-10-124 provides that no debtor or creditor may file or maintain an action or a claim relating to a credit agreement involving a principal amount in excess of twenty-five thousand dollars unless the credit agreement is in writing and is signed by the party against whom enforcement is sought. This law is generally referred to as the Credit Statute of Frauds.
A credit agreement is any contract, promise, undertaking, offer or commitment to lend, borrow, repay or forbear repayment of money, to otherwise extend or receive credit, or to make any other financial accommodation. That includes any amendment, cancellation, waiver or substitution of a credit agreement, and any representation, warranty or omission made in connection with a credit agreement. A creditor is a financial institution which offers to extend, is asked to extend, or extends credit under a credit agreement with a debtor, and a financial institution is a bank, saving and loan, savings bank, industrial bank, credit union or mortgage or finance company. A debtor is a person or entity that obtains credit or seeks a credit agreement with a creditor or who owes money to a creditor. Credit agreements may not be implied under any circumstance, including from the relationship of the parties or from performance or partial performance by the parties, or by promissory estoppel.
The Colorado Legislature intended that the Credit Statute of Frauds put an end to litigation between banks and their borrowers based upon claims of oral agreements, and to require that the parties to credit agreements reduce their agreements to writing as a condition to enforcement. The Colorado Courts have been diligent in enforcing the Credit Statute of Frauds. The Courts have not allowed claims based upon reliance upon oral agreements, or tort claims based upon oral credit agreements, or claims or defenses based upon unjust enrichment or fraudulent inducement seeking rescission.
If a court finds that a claimed oral agreement, representation or other statement relates to a credit agreement, it is likely that the challenge to a written credit agreement will not succeed. A court will allow oral testimony to explain the intended meaning of an ambiguous credit agreement, and will allow email messages to satisfy the requirement for the credit agreement, or any amendment to a credit agreement, to be in writing. Courts also will not necessarily find that any transaction with a bank is a credit agreement; the transaction must entail the extension of credit or the grant of some form of financial accommodation to have the benefit of the Credit Statute of Frauds. A transaction must also be between a financial institution and a debtor for the Credit Statute of Frauds to apply. It would not apply to an individual making a loan or to an organization that does not engage in the business of extending credit to debtors in its regular course of business.
So, if you are going to ignore your granny’s admonition to “neither a borrower nor a lender be", don’t forget to follow the law’s requirement to “put it in writing".