Most sophisticated business people are aware that all contracts do not have to be in writing. It is possible to have a verbal contract without any written terms at all. However, certain types of contracts are required to be in writing in order to be enforceable.  There are numerous reasons for this requirement, but the primary reason is to make sure that there is reliable evidence of the terms and conditions of contracts that are traditionally important or complex.  Tennessee, like most states, has a statute of frauds that stipulates which contracts must meet this writing requirement to be enforceable in Tennessee courts.  Tennessee’s statute of frauds is actually codified in two separate statutes, Tennessee Code Annotated Sections 29-2-101 and 47-2-201,which require that the following types of contracts be in writing and “signed by the party to be charged therewith:”

1. Contracts of executors and administrators of estates;
2. Contracts promising to answer for the debt of another person (i.e., guaranty or surety);
3. Contracts in consideration of marriage;
4. Contracts transferring an interest in real estate or a lease for a term longer than one year;
5. Contracts that cannot be performed within one year by their terms;
6. Contracts for the sale of goods for $500 or more; and
7. Contracts to lend money or extend credit.

In the commercial real estate context, numbers 2, 4, and 7 above are particularly significant. Most commercial real estate professionals are aware of the signed writing requirement for the transfer of an interest in real estate and for a lease with a term longer than one year. Regarding number 7, the statute of frauds provides that “[n]o action shall be brought against a lender or creditor upon any promise or commitment to lend money or to extend credit, or upon any promise or commitment to alter, amend, renew, extend or otherwise modify or supplement any written promise, agreement or commitment to lend money or extend credit” without a writing signed by the lender or creditor. However, the writing does not have to be signed by the lender or creditor if it is in the form of a promissory note “or other writing that describes the credit or loan” and that is intended to be signed by the debtor but not the lender, has been signed by the debtor, and which the lender has accepted. It is worth noting that this requirement applies to loan modifications as well as loan originations.When negotiating and documenting commercial real estate transactions in Tennessee, it is vital to be aware of the documentation requirements mandated by the statute of frauds. In some circumstances, a contract will not be enforceable unless it is appropriately documented.  As I've written before, all parties should keep in mind that the Tennessee Supreme Court has ruled that certain types of electronic communication may satisfy the statute of frauds.Thompson Burton is experienced in documenting all types of commercial real estate transactions in Tennessee and is available to assist with all of your commercial real estate needs.