Bailey v. Hawthorn Bank

• Decision Date: 31 July 2012
• Docket Number: WD74240,WD74278
• Parties: EDWARD E. BAILEY, ET AL., Appellants-Respondents, v. HAWTHORN BANK, Respondent-Appellant.
• Court: Missouri Court of Appeals

EDWARD E. BAILEY, ET AL., Appellants-Respondents, v. HAWTHORN BANK, Respondent-Appellant.

WD74240

WD74278

Missouri Court of Appeals Western District

OPINION FILED: July 31, 2012

Appeal from the Circuit Court of Jackson County, Missouri

The Honorable Robert M. Schieber, Judge

Before Division One: James M. Smart, Jr., Presiding Judge, Lisa White Hardwick, Judge

and Gary D. Witt, Judge

Hawthorn Bank ("Bank") appeals following a jury trial in which a verdict was rendered in favor of the plaintiffs, Edward Bailey ("Bailey") and Darlene Briggs ("Briggs").¹ Plaintiffs cross-appeal.²

For the reasons explained below, we affirm in part, and reverse in part.

Factual Background

Since 2000, Bailey owned a business in Lee's Summit, Missouri called Bailey's Wine Bistro. The business served wine and cold food, as it did not have a kitchen. The Bank over the years was Bailey's business lender, providing Bailey a loan to purchase the restaurant (but not the building in which it was located), a line of credit, and provided Bailey business and personal checking accounts.

Near the end of 2008, Bailey spoke to Kurt Lutz ("Lutz"), the "market president of the Independence market" for the Bank, regarding the Bank extending Bailey a significant loan so that Bailey could buy the building in which the restaurant was located, and also so that Bailey could renovate the building to add a kitchen and convert the business into a full service steak and seafood restaurant. It is undisputed that at this time Bailey's Wine Bistro was struggling financially, and had never shown a profit since before it was purchased by Bailey. Absent significant changes the business was on the verge of having to be shut down.

Lutz referred Bailey to another customer of the Bank, Forbes Cross ("Cross"), who was an experienced restaurateur who had owned and operated several successful restaurants in the Kansas City area. Cross agreed to prepare a detailed business plan for Bailey's proposed new restaurant concept. The business plan called for Bailey to purchase the building in which the restaurant was located, do extensive renovations to the building to add a kitchen and upgrade the customer areas. Bailey decided to move forward under this business plan.

Lutz reviewed the business plan that Cross prepared, approved it and recommended that the Bank loan Bailey the sum of $510,000 to execute this business plan. On February 13, 2009, Lutz created a loan summary ("Loan Summary"), which was a detailed document that discussed Bailey's business plan (and attached the plan as support as to why the Bank should loan Bailey $510,000). The Loan Summary based the loan on a 6% interest rate, and calculated the principal and interest payment to be $3,269.59 for the "25 year amortization, 5 year balloon note" on the $510,000 loan. The Loan Summary also stated other relevant conditions, including that "all past due payments" on Bailey's other existing loans with the Bank be "current and maintained with no further delinquency." Finally, the Loan Summary also stated that "Bailey has a source to obtain funding for the proposed down payment, payment of the aforementioned past due payments & overdrafts and some working capital in an amount equal to $120,000." Lutz was aware that the source for the $120,000 was going to be a loan from Bailey's sister, Briggs. Lutz asked Bailey if he needed a letter from the Bank showing its commitment to make the loan and Bailey requested such a letter.

The Bank approved Lutz's proposed loan to Bailey as set forth in the Loan Summary. Lutz then sent Bailey a letter on the Bank's stationery ("Loan Commitment Letter") on February 26, 2009, which stated, in part, the following: "Please accept this letter as confirmation of Hawthorn Bank's commitment to provide $510,000 in financing for acquisition and improvements relative to completing a restaurant kitchen and private banquet meeting room and is predicated on an improved 'as constructed' minimal appraised value of $600,000." (Emphasis added.)

Bailey took two other major steps in attempting to re-structure his business in February 2009, after the Bank approved the loan. On February 23, 2009, Bailey had Briggs wire $120,000 from her bank account in Texas to the Bank. Briggs spoke to Lutz personally, and Lutz assisted Briggs in making the wire transfer. Briggs obtained the $120,000 by borrowing the funds and placing a mortgage on her previously unencumbered home in Texas. Bailey also entered into a contract to purchase the building in which the business was located for the purchase price of $540,000.

It is undisputed that the Bank never loaned Bailey the $510,000 as contemplated by the Loan Summary and Loan Commitment Letter. The parties dispute what events transpired to cause the failure of the loan to close. But it is undisputed that after this dispute, Bailey was forced to close his business.

Plaintiffs then brought suit against the Bank. In their First Amended Petition, Bailey alleged causes sounding in contract, fraud, negligent misrepresentation and promissory estoppel, and Briggs also alleged causes of action against the Bank for negligent misrepresentation and promissory estoppel.

The case was tried to a jury from February 22 through 25, 2011. At trial, Bailey argued that from February 26 to May 22, 2009, Lutz ignored Bailey's repeated inquiries and pleas to close on the $510,000 loan. In response, the Bank contended that there was no enforceable agreement between the parties. The Bank further contended that there was reason for the Bank not to close on the loan immediately because the parties agreed that the property had to be appraised, and that it was the appraiser that failed to provide the requisite appraisal until March 31. The Bank also produced evidence to support itscontention that Bailey would not have had the funds required to close on the Loan, as required by the purported agreement.

At the conclusion of the trial, the jury returned verdicts in favor of Bailey on his claims against the Bank for breach of contract and negligent misrepresentation.³ Bailey was awarded $310,000 in actual damages, and, in addition, punitive damages in the amount of $200,000 on his claim of negligent misrepresentation.

The jury also returned verdicts in favor of Briggs on her claims for negligent misrepresentation and promissory estoppel. Briggs was awarded actual damages in the amount of $120,000, but the jury did not award any punitive damages on her claims.

The parties filed post-trial motions, the bulk of which were denied by the trial court. The trial court initially entered judgment on the jury's verdicts, but on August 5, 2011, the Court entered an amended judgment that granted the Bank's motion for judgment notwithstanding the verdict solely as it pertained to the jury's punitive damage award of $200,000 to Bailey. Thus, the trial court struck down the jury's award of punitive damages, but entered judgment otherwise in accordance with the jury's verdict in all respects.

Both the Plaintiffs and the Bank now appeal.

Further details will be outlined as relevant in the analysis section herein.

Analysis

In Point One, the Bank argues that the trial court "erred in denying the Bank's motion for judgment notwithstanding the verdict because the Missouri Credit AgreementAct bars Plaintiffs' contract and tort claims in that the purported written credit agreement on which Plaintiffs sued did not provide for the payment of interest or set forth the relevant terms and conditions."

"When the grant or denial of a directed verdict or a JNOV is based upon a matter of law . . . we review the trial court's decision de novo." Trinity Lutheran Church v. Lipps, 68 S.W.3d 552, 557 (Mo. App. E.D. 2001). Because resolving the instant issue turns on the "interpretation of a statute," the parties on appeal do not dispute that our review is de novo. See Montgomery v. Wilson, 331 S.W.3d 332, 338 (Mo. App. W.D. 2011).

Sections 432.045⁴ and 432.047 collectively require that credit agreements be in writing.⁵ Section 432.047.2 provides that "[a] debtor may not maintain an action upon or a defense, regardless of legal theory in which it is based, in any way related to a credit agreement unless the credit agreement is in writing, provides for the payment of interest or other consideration, and sets forth the relevant terms and conditions." A "credit agreement" is defined as "an agreement to lend or forbear repayment of money, to otherwise extend credit, or to make any other financial accommodation." Section 432.047.1.

Here, "there is no dispute that the agreement upon which [the Bank] based its affirmative defenses is a credit agreement." BancorpSouth Bank v. Paramont Properties,L.L.C., 349 S.W.3d 363, 366 (Mo. App. E.D. 2011). The question is whether the credit agreement in this case falls within the terms of Section 432.047. "Under the terms of Section 432.047, to be enforceable, this credit agreement clearly had to be in writing." Id.

Here, the Bank argues that "the parties never entered into a written credit agreement" pursuant to Section 432.047, and thus Bailey's contract claim is barred under this statute. We disagree.

All that Section 432.047 requires of a "credit agreement" is that it: (1) be "in writing," (2) "provide[] for the payment of interest or for other consideration," and (3) "set[] forth the relevant terms and conditions." Id. "[T]he primary rule of statutory interpretation is to give effect to the legislative intent as reflected in the plain language of the statute." Akins v. Dir. of Revenue, 303 S.W.3d 563, 565 (Mo. banc 2010).

When one puts together the Bank's letter of Commitment and the Loan Summary, which were admitted into evidence at trial, the agreement, as reflected in those documents was indisputably "in writing." Furthermore, the Loan Summary provided "for the payment of interest." Specifically, the Loan Summary calculated interest based on a 6% interest rate, and even went as far as to calculate the precise...