Important change to Missouri Commercial Credit Agreement Statute

Effective August 28, 2013, the Missouri statute relating to commercial credit agreements, Section 432.047, has been changed to add the requirement that any credit agreements must be executed by both the debtor and the lender.

Under the prior version of Section 432.047, Subsection 2, a debtor could not maintain an action or defense relating to a credit agreement unless the agreement was in writing, afforded for the payment of interest or for other consideration and set forth the relevant terms and conditions. The new law adds the requirement that “the credit agreement [be] executed by the debtor and the lender.”

However, in order for a lender to be protected by Subsection 2 of the newly revised statute, the lender must include certain language in the signed credit agreement. As of August 28, 2013, the following must be included in written commercial credit agreements in boldface 10-point font:

Oral or unexecuted agreements or commitments to loan money, extend credit or to forbear from enforcing repayment of a debt, including promises to extend or renew such debt, are not enforceable, regardless of the legal theory upon which it is based that is in any way related to the credit agreement. To protect you (borrower(s)) and us (creditor) from misunderstanding or disappointment, any agreements we reach covering such matters are contained in this writing, which is the complete and exclusive statement of the agreement between us, except as we may later agree in writing to modify it.

For background, the credit agreement statute of frauds was originally enacted as Section 432.045 in 1990. The first reported decisions addressing the statute were issued by federal courts which predicted that Missouri appellate courts would interpret and apply the statute broadly to exclude all claims, including those claims or defenses based on fraud See Horseshoe Entertainment, L.P., v. General Electric Capital Corp., 990 F.Supp. 737 (E.D.Mo. 1997); Cavalier Homes of Alabama, Inc. v. Security Pacific Housing Services, 5 F.Supp.2d 712 (E.D.Mo. 1997). However, in Mika v. Central Bank of Kansas City, 112 S.W.3d 82 (Mo.App. 2003), the Missouri Court of Appeals instead recognized certain common law equitable exceptions (including partial performance and fraud) to the prior credit agreement statute of frauds. As a result, the Mika court limited the scope of the original statute to contract law claims and excluded from its coverage claims or defenses based on allegations of fraud or other equitable claims or defenses.

Immediately following the Mika decision, the Missouri legislature passed RSMo. Section 432.047 using specific language that the Mikacourt had stated would indicate clear legislative intent to make the common law equitable exceptions inapplicable to Missouri's credit agreement statute of frauds and to extend the credit agreement statute of frauds to also bar tort claims. As a result, following the passage of RSMo. Section 432.047, the common law exceptions to the general statute of frauds do not apply to Missouri's credit agreement statute of frauds, RSMo. Section 432.047 and both contract and tort claims are barred by RSMo. Section 432.047.

Notwithstanding the Missouri legislature’s effort to follow the specific guidance offered by the Mika court to indicate legislative intent to bar all claims, courts have continued to issue conflicting interpretations of the statute. See U.S. Bank National Association v. Canny, No. 4:10CV421 CDP, 2011 WL 226965, at *2 (E.D. Mo. Jan. 24, 2011); BancorpSouth Bank v. Paramont Properties, 349 S.W.2d 363, 367 (Mo.App. 2011); Smithville 169 v. Citizens Bank & Trust Co., No. 4:11-CV-0872-DGK, 2013 WL 434028, at *2-3 (W.D.Mo. 2013); BancorpSouth Bank v. RWM Properties II, LLC, No. 4: 11CV000373 JCH, 2011 WL 4435271, at *2-3 (E.D.Mo. 2011).

Recently, Section 432.047 was the subject of a limiting interpretation in Bailey v. Hawthorn Bank, 382 S.W.3d 84 (Mo.App. W.D. 2012). The Bailey court held that a loan commitment letter and an internal written loan summary together constituted a written credit agreement as the term is used in the statute even though the loan summary was never delivered to the borrower until after the litigation was pending. In so holding, the Court noted as follows:

Nowhere does Section 432.047 contain any requirement that the "credit agreement" must be delivered to the other party. Where the words are clear and unambiguous, rummaging among the statutory cannons of construction to devise a different meaning is impermissible. (Citations omitted). Here, the lack of such a delivery requirement in the statute is dispositive of the issue.

Id. at 94-95. The recent legislative amendment of Section 432.047 is the legislative response to the Bailey decision. As a result, Section 432.047 now provides that as long as the mandatory disclosure is included in the written commercial credit agreement, borrowers will have to present a credit agreement that has been executed by both the borrower and the lender in order to maintain an action or assert a defense based on a credit agreement.

Submitted by Kristie Orme, Member of McDowell Rice’s Banking and Financial Services Group.

*This information is intended only to provide general information in summary form on legal and business issues. The contents do not constitute legal advice and should not be relied on as such.