Rule Sales & Serv. v. United States Bank Nat'l Ass'n

133 Idaho 669, 991 P.2d 857 (Ct. App. 1999)



Rule 1: The court conclude that Idaho Code § 9-505(5) did not invalidate the alleged oral agreement at issue. The agreement for modification of the loan had two components: it changed the date on which the Bank could treat the loan as being in default, and it placed a new precondition upon the Bank's right to realize on its security by collecting Rule's accounts receivable. Neither of these components falls within § 9-505(5).

Rule 2: It is the general common law rule in this country that an oral modification of a written contract may be enforceable, notwithstanding a clause prohibiting unwritten modifications, at least in circumstances where one party has relied upon the modification.


Plaintiff borrower defaulted on a loan from defendant bank but relied on defendant's oral promise to forebear collection procedures for 30 days and did not borrow funds to pay off the loan. Defendant initiated enforcement of its security agreement contrary to its representation. Plaintiff sued for damages resulting from loss of business. The trial court granted defendant summary judgment on alternative bases, holding that the oral agreement asserted by plaintiff was: invalid under the statute of frauds, Idaho Code § 9-505(5); unenforceable for lack of consideration; and violative of clauses in the note and security agreements that prohibited oral amendments. On appeal, plaintiff urged that summary judgment should not have been granted these grounds. The appellate court reversed the trial court’s judgment, holding each of the grounds upon which the trial court granted summary judgment to be erroneous, and instructed the trial court that on remand it could consider attorney's fees under Idaho Code § 12-120(3). The court reversed the trial court's grant of summary judgment in favor of defendant, holding that an oral promise to modify a loan agreement was not invalid under the statute of frauds, unenforceable for lack of consideration, or violative of no oral modification clauses in the loan and security agreements.


Issue 1: Was the enforcement of an alleged oral agreement to modify a loan contract rendered unenforceable by the statute of frauds?

Issue 2: Was the enforcement of an alleged oral agreement to modify a loan contract rendered unenforceable by a contract clause prohibiting oral modifications?


1. No.; 2. No.


Conclusion 1: The plain language of Idaho Code § 9-505(5) did not mandate that all terms of a loan agreement and as sociated security arrangement be in writing. The apparent purpose of the statute is to protect banks and other businesses from claims that they made an oral commitment to lend money or to grant credit and breached such commitment by failing to deliver the funds. Once the loan funds have been delivered to the borrower, there is no longer an executory promise to make a loan, the statute, by its plain language, has no further application.

Conclusion 2: Rule's evidence of the discussion between Thompson and Frye, and of Rule's reliance thereon, is sufficient to raise a factual issue as to whether the Bank waived or abandoned the clause prohibiting oral modifications of the note and security agreements. It is for a jury to decide whether this testimony is to be believed and what inferences should be drawn therefrom. Therefore, the summary judgment in favor of the Bank cannot be sustained on the basis of the clause in the loan documents prohibiting unwritten alterations or amendments.

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