When Oral Business Contracts Are Enforceable in Georgia: Exceptions to the Statute of Frauds

Posted by Greg Teitelbaum on May 16, 2011

In our previous blog post, Enforceability of Oral Business Contracts in Georgia, we explained the types of contracts that must be in writing to be enforceable under Georgia law.  The law requiring these types of contracts to be in writing is called the Statute of Frauds.  There are, of course, exceptions to this rule.  Under O.C.G.A. § 13-5-31, the following types of cases are excluded from the requirement that they must be in writing in order to be enforceable:

  1. When the contract has been fully executed; 
  2. Where there has been performance on one side, accepted by the other in accordance with the contract; 
  3. Where there has been such part performance of the contract as would render it a fraud of the party refusing to comply if the court did not compel a performance.

That means that an oral contract is enforceable even if it falls under the Statute of Frauds as long as it meets one of the 3 requirements above.

Example:

Atlantis Realty Co., Inc. v. Morris, 142 Ga. App. 470, 236 S.E.2d 163, (Ga. Ct. App. 1977), provides an example of how the exception to the Statute of Frauds is applied. 

Atlantis, a real estate firm, hired 3 salesmen to find tenants for a shopping center managed by Atlantis. Atlantis agreed to pay the 3 salesmen 75% of the management commission and the remaining 25% would go to Atlantis for as long as the tenants continued to occupy the leased premises. This agreement was oral.  The commissions were paid for 10 years when suddenly Atlantis unilaterally changed its policy and notified the salesmen that it would stop paying them any further commissions.  The salesmen sued Atlantis.

Atlantis argued that because the contract could not be performed in less than 1 year, it fell within the statute of frauds.  Therefore, the contract was not enforceable because it was oral and not written. 

The court held in favor of the salesmen because all of the tenants recruited by the salesmen were still occupying the premises when Atlantis decided to stop paying commissions.  Atlantis had agreed to pay the commissions so long as the tenants continued to occupy the leased premises. The salesmen were responsible for finding the tenants.  Once the salesmen found tenants, they had completed their performance under the contract.  Since there was full compliance by the salesmen, the oral contract was not within the Statute of Frauds. 

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Georgia Insurance Law: Giving Timely Notice of a Potential Claim to a Business's CGL Carrier

Posted by Esther Vayman on May 15, 2011

As explained in a previous article, An Insurance Carrier's Duty to Defend an Insured Georgia Business in a Lawsuit, insurance carriers have a duty to provide a paid defense to a lawsuit for their insureds in certain circumstances.  The insured, however, has to comply with all of the requirements in the insurance policy or the insurance carrier may have grounds to deny the claim out right. 

As a Georgia insurance lawyer, one such requirement in every liability policy I have ever come across is that the insured must provide the insurer with timely notice of the claim.  In many circumstances, the insured is required to provide notice to their insurance carrier before a lawsuit is ever filed.  The exact wording varies by policy, but generally that means that as soon as the insured has reason to believe someone may file a claim against the insurance policy or may file a lawsuit, the insurance carrier must be notified. 

According to Georgia courts, a determination of whether an insured was justified in delaying providing such notice to its insurance carrier should be evaluated based on the conclusions a reasonable person under the circumstances would draw.  These factors include: 

  • The nature of the event;
  • The extent to which it would appear to a reasonable person in the circumstances of the insured that injuries or property damage resulted from the event;
  • The apparent severity of any resulting injuries or damage;
  • Whether anyone gave an indication that they intended to hold the insured responsible for the event and resulting injury or damage; and
  • The extent to which the insured acknowledged the likelihood that a claim could arise from the event, either by offering compensation to the injured person or asking them to sign a release.

This was the very subject of a recent lawsuit between an insurance carrier and a Georgia gas station it insured in Forshee v. Employers Mutual Casualty Company.  In 2007, a woman fell in the parking lot of the service station as she was walking towards the convenience store.  No employee of the service station saw the fall, but the owner saw her on the ground and helped her up.  This woman and her male companion walked back to their car.  She refused the owner’s offer to call for medical assistance and told the owner she was just going to go home.  She commented that her arm hurt, but then she and her companion left.  No one at the convenience store was able to identify this woman.  This woman was not heard from again until almost 2 years later when she filed a personal injury lawsuit. 

The owners of the convenience store immediately notified their CGL carrier of the lawsuit.  The insurance carrier then filed a separate action with a Georgia Court arguing that they should not have to provide the convenience store with a defense to the lawsuit since the owners of the convenience store waited 2 years to inform the insurer of the event and the policy requires the insured to provide notice as soon as practicable.  The trial court held that an accident resulting in injuries as severe as those sustained in this case should be promptly reported to the insurance carrier and since this incident was not promptly reported, the insurance carrier did not need to provide a defense.

The Georgia Court of Appeals told the trial court they did not apply the right analysis to this case and told them to try again.  The Georgia Court of Appeals explained as follows:

[T]he law only requires an insured to act reasonably under the circumstances.  So, if a reasonable and ordinarily prudent person would conclude that an event forms no basis for a possible claim, the failure of the insured to give notice of the event is justified and no bar to coverage.  Sometimes an event is so trivial or inconsequential that a court properly may conclude as a matter of law that no reasonable person would think that a claim could arise from the event and, therefore, no notice of the event is required.     

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An Insurance Carrier's Duty to Defend an Insured Georgia Business in a Lawsuit

Posted by Esther Vayman on May 14, 2011

Most Georgia businesses have (or should have) some sort of an insurance policy to provide protection in the event the business is sued for some act of negligence.  This policy may be a Commercial General Liability (“CGL”) policy, a professional negligence or malpractice policy, or an automobile insurance policy. 

This liability insurance provides protection to an insured business in 2 separate and distinct ways:

  1. The insurance carrier has the duty to defend its insured business in the event the business is sued, and
  2. Sometimes the insurance carrier has the duty to pay any claim or judgment awarded against the insured business.  

A duty to provide a defense is not the same as a duty to pay a claim.  The duty to provide a defense generally means that the insurance company will select and pay for a lawyer to represent the insured business.      

The insurance carrier’s duty to provide a defense is triggered when:

  1. A lawsuit is filed against the insured business AND
  2. The lawsuit contains an allegation against the business that, if true, would be a covered loss under the insurance policy.  The allegation need not actually be true to trigger an insured’s duty to defend the lawsuit.        

There are certain allegations that would not trigger the insurance company’s duty to provide a defense.  For example, a breach of contract claim generally would not trigger the duty to defend.  Another example is an intentional act by the insured that causes harm to another may not trigger the duty to defend.  Damage caused by the insured’s violation of a law would probably not trigger the duty to defend either. 

Generally, a defense is only provided for claims arising out of an “accident” or “occurrence” as defined by each particular insurance policy.  Often, if a lawsuit against a business contains a combination of claims that trigger the duty to defend and claims that do not, the insurance company will provide a defense to the lawsuit. 

If an insurance carrier refuses to provide a defense when it is required to do so under the insurance policy, the insured can sue its insurance carrier for damages.

The insurance carrier’s obligation to actually pay for the damage caused by the accident is a completely separate obligation and is triggered under a separate set of circumstances.   

 

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Georgia Physicians Must Disclose If They Do Not Have Malpractice Insurance

Posted by Greg Teitelbaum on May 13, 2011

According to an article entitled “Docs must disclose lack of insurance”, by Carla Caldwell, in the Atlanta Business Chronicle a new bill requires Georgia doctors to reveal if they are not covered by a malpractice insurance policy.  The article explains that some doctors do not get insurance because they are trying to save money on insurance premiums or because they are unable to get insurance as a result of their malpractice history.  A doctor who does not have malpractice insurance would be required to pay for any damages caused by his/her negligence out of his/her own pocket.  Not all physicians have the funds necessary to pay a large judgment if one is awarded against the physician.  If a prospective patient is concerned about the physician’s ability to pay such a claim, this bill would provide them with the notice that would allow the patient to determine whether they would still like to seek treatment from that physician.  The article does note that very few physicians in Georgia lack malpractice insurance.          

 

When Can a Georgia Business Sue a Non-Georgia Business in Georgia?

Posted by Esther Vayman on May 06, 2011

The reality is that at the time most people enter into a contract, they are excited about a new business venture and optimistic about what the future of this new relationship will hold.  Most people do not believe that they will actually have to enforce or seek protection under any of the provisions of the contract.  That is why many people never have an attorney review the contract and, honestly, many people never even read the contract themselves before signing it.  Scary, but true.

We, of course, frequently hear from Georgia business owners after a promising business venture has gone south.  The first issue in these situations is, if we need to file a lawsuit, legally, where should the lawsuit be filed?  The general rule is that a lawsuit needs to be filed in the state where the defendant resides.  So if a Georgia business owner wants to sue a South Carolina business, that lawsuit probably needs to be filed in South Carolina.  That means extra hassle, expense, and irritation for a Georgia business owner who already feels they have suffered an injustice.  

There are statutory exceptions to this rule, some of which are discussed below, but the best way to avoid a dispute over jurisdiction is with a simple paragraph in all contracts that says that in the event a dispute arises, the parties agree that all lawsuits will be brought in Georgia (specifying the county and court) and that the contract will be interpreted under Georgia law.  Litigation over which state is the proper state to bring a lawsuit (known as “jurisdiction”) can be very costly and time consuming and proper jurisdiction must be determined before the merits of the case can be addressed.        

There is a statute in Georgia (O.C.G.A. § 9-10-91) that provides, in relevant part, that a lawsuit can be brought in Georgia over a nonresident if the nonresident:

  1. Transacts any business within Georgia;
  2. Commits a tortious act or omission in Georgia;
  3. “Commits a tortious injury in this state caused by an act or omission outside this state if the tort-feasor regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered in this state;” and
  4. Owns, uses, or possesses any real property situated within Georgia. 

This statute is known as the “Long-Arm Statute.”  You may be able to imagine how complicated it can become to try and seek shelter under this law.  It is an extremely fact-intensive analysis.  

The best course of action is to avoid the long-arm statute and litigation over jurisdiction.  Simply specify in the contract where any disputes will be litigated.         

A Georgia Corporation Must Be Represented By An Attorney In Court

Posted by Greg Teitelbaum on April 29, 2011

In order for a Georgia corporation to file a lawsuit or defend itself against a lawsuit in any Georgia Court, the corporation must be represented by an attorney.  At the outset, this seems like an unfair burden to place on a business.  After all, an individual can technically represent him or herself in court.  There is even a term for it called appearing pro se.   So why is, for example, the sole shareholder of a corporation prohibited from representing the corporation?

Though an individual can represent him or herself in court, the law in Georgia is that a non-attorney (or layman) cannot represent someone else in court.  That would be considered the unauthorized practice of law.  So your friend who is a dynamic public speaker and who could convince an Eskimo to buy ice may not represent you in court if he or she is not an attorney. 

A corporation is thought of and treated much like an individual in the eyes of the law.  Therefore, to permit a shareholder of the corporation to represent the corporation in court would be to permit the unauthorized practice of law.  It would be allowing a non-attorney to represent another person in court.  Specifically, the Supreme Court of Georgia held, “A layman who is representing a corporation in a legal matter is in no sense representing himself, but is acting as the legal  representative  of another ‘person’ entirely.”  485 S.E.2d 22 (1997).  This rule does not apply to non-corporate businesses.   

Will Your Georgia Corporation Protect You From Personal Liability?

Posted by Esther Vayman on April 22, 2011

One of the first things every (savvy) new business owner does is incorporate their business.  That is, the business owner forms a Limited Liability Company or Corporation by filing the appropriate documents with the Georgia Secretary of State.  Often, this is where liability protection begins and ends for business owners. 

Why is liability protection important? 

If your business incurs debts that the business cannot pay, taking the necessary precautions can prevent creditors from coming after your family’s personal money and assets (such as your home).  Such debts can include bank loans, automobile loans, financed equipment, money owned to service providers (like lawyers, accountants, website designers, etc.). 

If your business is sued, it can prevent the plaintiff from collecting your personal money and assets to pay a judgment.  Here are a few examples of when a lawsuit could be filed against a business causing the business to incur liability. 

  • An employee is driving to a client or to make a delivery and causes a car accident.  Auto insurance often provides insufficient coverage to pay all medical bills and property damage arising from the accident.
  • Someone trips and falls in your office.
  • Your product or service causes financial or physical injury to a client.
  •  A client’s money is mismanaged.

Here are a few simple and low-to-no cost tips to help better protect yourself and your family from personal liability.    

  • The Georgia Secretary of State requires a corporate entity to be renewed every year.  The cost is about $30.00 and the process takes less than 5 minutes.  Make sure to keep the corporation alive by renewing the corporate entity.  If annual payments are not made, the Georgia Secretary of State will dissolve the corporations and all liability protection will be dissolved along with it.
  • Keep a separate corporate and personal bank account.  Do not comingle the money in the two accounts.  Do not pay personal expenses out of the business account.  Do not pay for your haircut from your business account.  Do not buy your wife jewelry out of the business account. Do not pay for your kid’s summer camp out of the business account.
  • Maintain the appropriate insurance for your business (be it property insurance, professional liability insurance, general liability insurance, any necessary automobile insurance policy, or a landlord insurance policy).  Make sure the “named insured” on the policy is the corporation name – not your personal name - if the corporation is what is being insured.  A good insurance agent should be able to properly guide you with regard to who should be the named insured.  Make sure you get it in writing that you had this discussion with the insurance agent and they instructed you on how to insure the business (email communications will do).  Many business owners should also consider purchasing a personal umbrella policy for additional personal protection.
  • Do not personally guarantee any loans or financing arrangements if it can be avoided.  If you personally guarantee something, the creditor can and will look to you to personally pay the debt if the business is unable to make the necessary payments.
  • Enter into all business contracts in the proper corporate name – not your individual name, even if you are the sole shareholder.  

Georgia Lenders Go After Personal Guarantors of Commercial Property a Different Way

Posted by Greg Teitelbaum on April 18, 2011

In the previous article, we discussed the confirmation statute in Georgia and how it can protect borrowers by requiring a lender to sell a foreclosed property for fair market value before any guarantor is found liable for a deficiency judgment.  The problem that we touched upon in the previous article that we find with some of our clients is that they have assets that are not in the business that they are hoping to protect as a personal guarantor of the company’s loan.  The lender, many times, suspects that the guarantor has assets to cover the loan as well and wants to go after them.  

Today, the lender has two primary options to get a guarantor to pay.  The first is to go through the confirmation process and have the selling price of the property be determined by the court as the true market value.  The risk is that the court will not agree with the lender that the selling price is the true market value and will bar the lender form seeking the difference from the personal guarantor in a deficiency action.  That could mean a huge loss for the lender and they do not generally like that.

So, recently we have seen a different tactic where the lender first sues the borrower on the promissory note.  Then the lender obtains a judgment against the borrower for the outstanding loan balance.  The lender then forecloses on the property and sues the guarantor for the difference after application of the foreclosure bid amount against the lender’s judgment.  All of this is done without the need for confirmation. 

Some think that this is an end run around the confirmation statute and challenged the validity of this approach.  However, the Georgia Court of Appeals has recently sided with the lenders and allowed this alternative approach in (DuPree v. SunTrust Bank, 305 Ga. App. 507 (2010)).  It now seems apparent that lenders in Georgia have another tool at their disposal in trying to recover on unpaid debts.

Deficiency Judgments on Foreclosed Commercial Property in Georgia

Posted by Greg Teitelbaum on April 11, 2011

We receive a lot of calls about what can be done in the event that your property looks to be going into foreclosure, particularly in the commercial property area.  With the foreclosure rate in the Metro Atlanta area hovering around 10% in recent months for all property, it is easy to see why many people are concerned and want to know their options.  In particular, many borrowers for commercial property are concerned that lenders will go after them personally to make up the difference because of any loan guarantees they may have made on behalf of the borrowing company.

Georgia requires lenders to have the sale of foreclosed property to be “confirmed” by the court as being the “true market value of the property” before a lender can seek a deficiency judgment against the borrower.  In theory, the confirmation statute (O.C.G.A. § 44-14-141) protects borrowers from having to make up the difference in a loan after a foreclosed property has been sold for a very low value.  The court requires the lender to get an appraisal (many times the lender will get more than one to be safe) of the property in order to assess the market value of the property and to determine if the price the lender wants to sell the property for is fair.  If the court determines that the selling price of the foreclosed property is even one penny less than fair market value, the judge must rule in favor of the borrower and no deficiency judgment action can be executed against that borrower even if they personally guaranteed the loan. 

The confirmation process works because it attempts to keep lenders honest as to the selling price received for the foreclosed property.  Lenders usually are so concerned about potentially losing out on going after the borrower personally, that they will sometimes sell the foreclosed property even at a bit of a premium in order to be higher than the fair market value threshold.

Now, you may be wondering, if I have no other assets besides the property that is about to be foreclosed upon, then what does it matter to me if the lender gets a deficiency judgment against me for the difference?  There is no more money.  After all, you can not get blood form a stone.  But, the calls we usually receive from our business clients are that they do, in fact, have other assets in their name personally and want to possibly protect them from a judgment.  The lender wants that money as well and they are trying to get it a different way that we will discuss in an upcoming post.  Click here for Part II.    

Enforceability of Oral Business Contracts in Georgia

Posted by Esther Vayman on April 04, 2011

As an Atlanta business attorney, I receive many inquiries from businesses that want to enforce the breach of an oral contract.  Like it sounds, an oral contract is an agreement, in this case usually between 2 businesses, which is not in writing.  What many individuals and businesses do not realize is that Georgia law requires certain contracts to be in writing in order to be enforceable.  This law is called the Statute of Frauds and is defined under the Official Code of Georgia Section 13-5-30.     

The types of oral contracts most commonly faced by businesses which fall under the statute of frauds include the following:

  • An agreement by a third-party to pay the debt of a debtor must be in writing.  For example, a lawn care service orders business supplies and is indebted to the supplier for $1,500.00.  The lawn care service cannot pay the supplier until its client, the owner of a commercial building, pays the lawn care service company for services rendered.  The commercial building owner happens to owe the lawn care service company $1,500.00 so all parties agree that the owner of the commercial building will pay the supplier the lawn care service’s debt directly.  No payment is made.  The supplier wants to sue the owner of the commercial building because the owner promised to pay the supplier.  In order to be enforceable, such a promise must be in writing because the commercial building owner promised a creditor that it would pay a debt it did not incur. 
  • Any contract concerning an interest in real property, including the sale of land.  All contracts for the sale of any real property, lease of real property, interest in the timber or other mineral rights in the real property must be in writing to be enforceable. 
  • Any contract that cannot be fully performed within 1 year from the date it is entered into. For example, an Alpharetta based physician agrees to provide services to a Cumming based hospital for 24 months at a cost of $20,000.00 per month.  In month 4 of the agreement, the physician decides that she wants to purchase a medical practice in Roswell and refuses to work at the Cumming based hospital for the remaining 20 months of the agreement.  Because the physician’s agreement with the hospital was for 24 months, and thus could not be performed in less than 1 year, it must be in writing to be enforceable.
  • Any promise to pay a debt that is otherwise barred by the statute of limitation.  For example, most insurance policies state that an insured only has 1 or 2 years from the date of loss (depending on the policy) to sue the insurance carrier if they wrongfully deny or underpay a claim.  If the insurance carrier agrees to extend that suit period to 3 years from the date of loss, such an agreement must be in writing to be enforceable under the statute of frauds.  A verbal promise to extend the suit limitations period may not be enforceable. 
  • Any promise to lend money.  This one is pretty self-explanatory. 

There are exceptions to the requirement that these types of contracts must be in writing and an Atlanta attorney can assist you with the nuances of this law and how it may apply to your business.  But as a general rule, it is always easier to protect your interests if they are clearly expressed in a written instrument signed by both parties.