Missouri Contract Cases

Post image for Whelan Security Co. v. Kennebrew Update: Noncompetes in Missouri

In this 2013 post, I blogged about Whelan Security Co. v Kennebrew, an important Missouri case involving an employee noncompetition agreement. In that case, the Missouri Supreme Court enforced a general noncompetition agreement and modified a non-solicitation agreement against out-of-state former employees.

Specifically, the Court held that a general restriction on competition within a 50-mile radius was enforceable. However, a covenant restricting the employees from soliciting the employer’s customers for two years after termination of employment was too broad as written, because the covenant was not limited geographically and there was no other language that would have limited the scope of the provision (such as restricting the prohibition to customers with which the employees had contact during the course of their employment). The Court modified the covenant accordingly. The Court also held that a covenant restricting the employees from soliciting prospective customers was too broad, not to mention the fact that the Missouri Supreme Court questioned in Healthcare Services of the Ozarks, Inc. v. Copeland whether an employer has a legitimate interest in prospective customers.

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Post image for Signing a Personal Guarantee Can Be Surprisingly Costly

When you own a small business, signing personal guarantees often seems like a necessary evil. Unless your company has strong credit, landlords, lenders, and others will often require you to personally guarantee your company’s obligations to them. One of the most harrowing experiences I had when I set up my own law firm was signing a merchant services agreement so I could accept payment by credit card — which of course required a personal guarantee.

Although business owners can protect their personal assets from their business’s liabilities by doing business through a corporation or a limited liability company, your company can’t shield you from liability arising out of your own actions. Also, you’ll be on the hook for company debts that you personally guarantee.

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Post image for Revisiting Liquidated Damages

Last week I discussed a case in which a Missouri appellate court upheld personal guarantees when the purported guarantors had signed a promissory note under the words “Personal Guaranty and Acceptance of Terms.” In that same case, the court held that a “late fee” was an unenforceable penalty, rather than an enforceable liquidated damages clause.

I’ve discussed liquidated damages provisions in these virtual pages before. In Liquidated Damages Provisions Can Be Your Friend, But Don’t Overreach, I talk about the difference between enforceable liquidated damages provisions and unenforceable penalties. So many people followed Google to that piece looking for sample contract language that I later posted a Liquidated Damages Clause Example.

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Post image for Revisiting Personal Guarantees

There are a surprising number of cases dealing with whether people who purportedly signed a personal guarantee actually agreed to personally guarantee a contract.

Many of the issues I’ve seen arise when someone signs at the bottom of a contract as “guarantor” rather than signing a separate guarantee document. There’s nothing wrong with doing that, but it can cause issues. For example, I discussed a case in 2012 involving a corporate officer who signed a credit application that contained guarantee language. The officer signed the document only once, the signature did not indicate whether he was signing in his individual capacity or on behalf of the company, there was only one signature line, and the guarantee language did not clearly evidence that a personal guarantee was intended. The court held that the officer had not agreed to personally guarantee the company’s obligations and stated:

When considering whether a signatory to a contract intended to sign the agreement in his corporate or individual capacity, the determinative question is whether, in view of the form of the signature to the agreement, the language of the so called guaranty clause is sufficient to manifest a clear and explicit intent by [the signatory] to assume a personal guaranty contract. … Accordingly, our courts have adopted the policy that in order to hold a corporate officer individually liable in signing a contract of guaranty … the officer should sign the contract twice[,] once in his corporate capacity and once in his individual capacity…. By signing the contract twice, the officer executing the contract for his corporation clearly manifests his intent to assume personal liability. [citations and internal quotation marks omitted]

Drafters should clearly indicate that persons signing guarantees in contracts are signing in their individual capacities and they should include a separate signature block for them the sign in that capacity. [click to continue…]

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Post image for Be Careful about Contractual Duties to Provide Insurance

When someone takes on a contractual obligation to provide insurance, that duty can preclude them from looking to the other party for damages covered by the required insurance.

In Storey v. RGIS Inventory Specialists, Kenneth Storey leased property to RGIS. The property was destroyed by a fire allegedly caused by one of RGIS’s employees. The lease required RGIS to repair damages to the leased premises caused by the negligence or intentional acts or omissions of RGIS, its agents, servants, or employees. Storey sued RGIS for damages resulting from the fire. The court dismissed Storey’s case on a summary judgment motion.

Why wasn’t Storey able to recover from RGIS? Because provisions in the lease agreement–including Storey’s obligation to provide insurance–showed that the parties intended to exempt RGIS from liability for loss from fire. The lease required Storey  to procure insurance for the benefit of both parties in an amount equal to the replacement costs of the leased premises. In addition, the lease required RGIS to surrender the premises in good order “ … damage by fire … excepted,” which evidenced the parties’ intent to exempt RGIS from liability from loss from fire.

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Duty to Read

When you sign a contract, the law presumes that you’ve read it and understand its contents. This is commonly known as the “duty to read.” The duty to read is one of the concepts that tripped up plaintiff Victoria Major in this case about a browsewrap “contract”; although Major never read the website’s terms of use, she was held responsible for agreeing to them.

In the words of one Missouri court, the law “presumes that a party had knowledge of the contract he or she signed; and those who sign a contract have a duty to read it and may not avoid the consequences of the agreement on the basis that they did not know what they were signing.” Grossman v. Thoroughbred Ford, Inc., 297 S.W.3d 918, 922 (Mo. App. W.D. 2009).

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The Missouri Court of Appeals recently upheld the denial of the Kansas City Chief’s motion to compel its former employee to arbitrate an age discrimination claim. The purported arbitration agreement at issue was not binding because it was not supported by consideration.

The employee had signed an arbitration agreement on her first day of work. However, the Chiefs didn’t present the agreement to her until her first day of work — after she had accepted employment. In Missouri, continued employment on an at-will basis isn’t sufficient consideration to support an arbitration agreement, so the agreement failed for lack of consideration.

The appellate court rejected the Chiefs’ argument that the Chiefs’ mutual agreement to arbitrate constituted consideration because the agreement bound only the former employee, not the Chiefs. Here’s a link to the case, if you’d like to know more.

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Olson v. The Curators of the University of Missouri

Loreen Olson brought an action alleging breach of contract and related claims, in which she asserted that the Dean of the College of Arts and Sciences had offered her the job as chair of the Communications Department at a meeting, and she had accepted. The dean then sent Olson two offer letters, one for a three-year contract period and the other for the preceding two-month period. When Olson emailed the dean about other terms of employment — which she claimed had been discussed at the meeting — the dean instructed his assistant to email Olson to inform her that the dean would be contacting the faculty to select another chair due to irreconcilable differences. The Missouri Court of Appeals, Western District reversed the trial court’s grant of partial summary judgment in favor the university and remanded the case to the trial court, because the undisputed facts didn’t negate Olson’s contention that a contract had been formed during her meeting with the dean.
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FH Partners, LLC v. Complete Home Concepts, Inc.

I wrote about this case, which involves backdating contracts, in Backdating Contracts Is Tricky Business. In addition to the loan I discussed in that post, the appellate court considered FH Partners’ ownership of another loan and held that FH Partners had a partial ownership interest in the loan, reversing the trial court.

Frontenac Bank v. T.R. Hughes, Inc.

On review of the trial court’s granting of summary judgment in favor of Frontenac Bank, the Missouri Court of Appeals, Eastern District found that there were genuine issues of material fact as to whether the bank breached several promissory notes, based on an improper declaration of insecurity and a breach of the bank’s duty of good faith and fair dealing, when it called the notes based on an insecurity provision.

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Arvest Bank v. Uppalapati

The United States District Court for the Western District of Missouri held that the spouse of a debtor was liable under a personal guarantee that she signed. The spouse argued that she was protected by the Equal Credit Opportunity Act (ECOA), which prohibits a creditor from discriminating against any applicant for credit on the basis of race, color, religion, national origin, sex or marital status, age, or because the applicant is on public assistance.

Regulation B, which was promulgated under the ECOA, limits when a creditor can require the signature of persons other than the applicant on the credit documents. The regulations provide:

Except as provided in this paragraph, a creditor shall not require the signature of an applicant’s spouse or other person, other than a joint applicant, on any credit instrument if the applicant qualifies under the creditor’s standards of creditworthiness for the amount and terms of the credit requested. A creditor shall not deem the submission of a joint financial statement or other evidence of jointly held assets as an application for joint credit. [12 C.F.R. § 202.7(d)(1)]

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