In Yoost v. Zalcberg, 2010 Ind. App. LEXIS 632 (Ind. Ct. App. 2010) (.pdf) , the Indiana Court of Appeals addressed the issue of whether an alleged oral release of a mortgage was enforceable. At issue was Indiana’s Statute of Frauds, a subject I covered on April 16, 2010. There are a handful of exceptions to the Statute of Frauds, and the Court in Yoost discussed one of them – the doctrine of promissory estoppel. As explained, oral releases from loan documents are very difficult to uphold.
Backdrop. In Yoost, the defendant (Yoost) was the plaintiff’s (Zalcberg’s) paid personal assistant. Zalcberg agreed to lend money to Yoost to buy a house, and the parties executed a note and a mortgage. Yoost defaulted but claimed Zalcberg had orally agreed to release Yoost from the mortgage. Yoost continued to work for Zalcberg for another year in reliance on the alleged oral release.
Statute of Frauds. The first step in the Court’s analysis was to examine Indiana’s Statute of Frauds, specifically Ind. Code § 32-21-1-1(b):
A person may not bring any of the following actions unless the promise, contract, or agreement on which the action is based, or a memorandum or note describing the promises, contract, or agreement on which the action is based, is in writing and signed by the party against whom the action is brought or by the party’s authorized agent:
(4) An action involving any contract for the sale of land.
Promissory estoppel exception. Yoost conceded that the alleged promise (release) was in contravention of the Statute of Frauds. The question was whether the doctrine of promissory estoppel removed the alleged release from the writing requirement. A party seeking to preclude application of the Statute of Frauds based on this doctrine must establish:
1. a promise by the promisor;
2. made with the expectation that the promisee will rely on the promise;
3. that induces reasonable reliance by the promisee;
4. of a definite and substantial nature; and
5. that injustice can be avoided only by enforcement of the promise.
Yoost cited to an Indiana Supreme Court opinion expanding on this concept:
in order to establish an estoppel to remove the case from the operation of the Statute of Frauds, the party must show that the other party’s refusal to carry out the terms of the agreement has resulted not merely in a denial of the rights which the agreement was intended to confer, but the infliction of an unjust and unconscionable injury and loss.
Thus, to prevail on a claim of promissory estoppel, a party must establish that there is a genuine issue of material fact that his reliance injury is not only (1) independent from the benefit of the bargain and the resulting incidental expenses and inconvenience, but also (2) so substantial as to constitute an unjust and unconscionable injury.
No independent reliance injury. Yoost asserted that he suffered the required “independent reliance injury” by continuing to work for over a year at an extremely low rate of pay in reliance on the alleged oral release of mortgage. But the Court found “nothing about [Zalcberg’s] alleged oral promise substantially changed either party’s behavior.” The Court saw no inconvenience to Yoost, much less any unjust and unconscionable injury.
Borrowers in Indiana will have a difficult time overcoming the Statute of Frauds, as well as the Lender Liability Act about which I posted on October 29, 2010, December 31, 2008, and July 11, 2008. Yoost is more good precedent for creditors. Courts generally focus on the written terms of the agreement and do not unravel loan documents absent written, signed representations to the contrary.