Commercial Credit Agreements Must Be in Writing in Order to Be Enforceable

The Eastern District of Missouri’s recent decision in BancorpSouth Bank v. Paramont Properties, L.L.C., 2011 Mo. App. LEXIS 899 (June 28, 2011)[1] is the only case to date interpreting the application of § 432.047.2, R.S.Mo., Missouri’s Commercial Statute of Frauds.  This case is significant because it makes it clear that in a commercial setting, a debtor may not maintain an action upon or a defense, regardless of legal theory, in any way related to a credit agreement unless the credit agreement is in writing.  In Paramont, BancorpSouth filed suit against Paramont for the deficiency owed on four promissory notes.  The Notes were secured by deeds of trusts on two developments.  The deeds of trust were foreclosed upon and the properties were acquired by BancorpSouth through its credit bids.  Two individuals executed guaranty agreements with respect to the repayment of the Notes and those guarantors were also joined as defendants in the action.

After taking the depositions of the guarantors, BancorpSouth filed its motion for summary judgment based on § 432.047.2, R.S.Mo.  Paramont responded by asserting defenses to BancorpSouth’s claims based upon certain alleged oral promises of forbearance and modifications to the terms of the Notes, which Paramont claimed negated BancorpSouth’s right to pursue the deficiency.

In granting BancorpSouth’s motion for summary judgment, the trial court found, “the absence of a written credit agreement setting out the terms defendants [Paramont] rely on to support their affirmative defenses and counterclaims is fatal to those affirmative defenses, as well as to their counterclaims.”  Id. at *2-3.  The trial court found by the terms of Missouri’s Commercial Credit Statute of Frauds, § 432.047, such agreements were required to be in writing in order to be effective.  Id. at *3.  Although Paramont appealed, the judgment of the trial court was affirmed.

In its analysis, the Eastern District of Missouri cited § 432.047.2, R.S.Mo., which provides that, “[a] debtor may not maintain an action upon 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.”  Id. at *4.  A “credit agreement” is defined as, “an agreement to lend or forebear repayment of money, otherwise extend credit, or to make any other financial accommodation.”  Id.  The court found there was no dispute that the agreement upon which Paramont based its affirmative defenses was a credit agreement.  The court further found that under the terms of § 432.047, in order to be enforceable, the credit agreement clearly had to be in writing, which it was not.  The court further noted that by passing § 432.047, it demonstrated the legislature’s intent to eliminate all claims and defenses relating to a credit agreement if that credit agreement is not in writing.

Based on this recent ruling, all commercial credit agreements must be in writing in order to be effective.  This will protect banks from claims based upon certain alleged oral promises.  It should be noted this only applies to commercial transactions.

 Submitted by: Abbey Gentle


[1] NOTICE:  This Opinion is not final until the expiration of the rehearing period.

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About the Author

Abbigale Gentle

Abbey Gentle concentrates her practice on general civil litigation, including insurance litigation, the defense of personal injury claims, and commercial disputes. Abbey has trial... More about Abbigale Gentle

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