The Missouri Credit Agreement Act, RSMo §§ 432.045 and 432.047, generally bars lawsuits against banks related to agreements to lend money, extend credit, or forebear repayment of money unless the agreements are in writing, provide for the payment of interest or other consideration, and set forth the relevant terms and conditions. It is often assumed that the Act is satisfied only if there is a formal written loan agreement signed by both the bank and the borrower. This assumption is wrong.

In the recent Bailey v. Hawthorn Bank case, the Missouri Court of Appeals ruled that the Act’s requirements can be satisfied by internal bank documents that indicate that the bank has agreed to make a loan even if the documents are never shared with the loan applicant. As a result, a bank should ensure that its internal documents make clear that the bank has not agreed to make any loan until the bank has actually agreed to make a loan.

In Bailey, the customer of a bank sought a $510,000 loan from the bank. The bank’s loan officer prepared an internal loan summary that discussed the customer’s business plan and loan request, set forth the terms of the proposed loan with an interest rate to be determined (but proposed at a fixed rate of 6 percent), and calculated the monthly principal and interest payment based on a fixed 6 percent interest rate. The bank approved the proposed loan as set forth in the loan summary and sent a letter to the customer that confirmed the bank’s “commitment to provide $510,000 in financing,” but did not include the terms of the loan.

The bank ultimately did not make the loan to the customer. The customer sued the bank, prevailed on claims for breach of contract and negligent misrepresentation, and was awarded $310,000 in actual damages and $200,000 in punitive damages.

The bank argued that the Missouri Credit Agreement Act barred the customer’s claims because there was no written credit agreement that provided for the payment of interest or set forth the relevant terms and conditions of the loan. The court disagreed.

The bank’s commitment letter, standing alone, did not satisfy the Act’s requirements, the court ruled. But the commitment letter combined with the internal loan summary satisfied the Act’s requirements. The court wrote that the two documents amounted to a “writing,” and the internal loan summary sufficiently set forth the terms and conditions of the loan and provided for the payment of interest. The court ruled that it was immaterial that the bank never delivered the internal loan summary to the borrower: “Nowhere does [the Act] contain any requirement that the ‘credit agreement’ must be delivered to the other party.” The court also ruled that the Act does not require that the “credit agreement” specify a definitive interest rate for the loan so long as the “credit agreement” states that interest will be paid.

Again, as a result of the court’s decision in Bailey, a bank’s employees should be careful when crafting internal documents to avoid any premature indications that the bank has promised to make a loan.