Missouri State Contract Cases 2012 (Part 16): Spousal Guarantees and Independent Contractors

Missouri Contract Cases

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.

The court stated that the covenant of good faith is not the same as a general reasonableness requirement. About the latter, the court stated, “‘Reasonableness’ is only used as evidence of subjective intent to undermine fulfillment of a contract.” And about the former, the court stated, “Good faith is an obligation imposed by law to prevent opportunistic behavior, that is, the exploitation of changing economic conditions to ensure gains in excess of those reasonably expected at the time of contracting” (internal quotation marks omitted). Still, important facts remained in dispute, so summary judgment by the trial court was improper.

The appellate court affirmed the trial court’s judgment that the bank couldn’t enforce an unlimited personal guarantee of the spouse of a borrower under the notes, because Frontenac Bank violated the Equal Credit Opportunity Act (ECOA) by requiring the spouse to sign it. The court also briefly discussed whether Regulation B, which was promulgated under the ECOA, should apply to spousal guarantees, as several federal courts have held. But the court followed binding Missouri precedent and held that the guarantee wasn’t enforceable because it violated the ECOA. (See my recent post discussing Regulation B.)

Grant v. Sears

Reversing the trial court, the Missouri Court of Appeals, Western District held that correspondence between a plaintiff’s attorney and an insurance company in connection with settlement negotiations in a personal injury suit didn’t form a contract because there wasn’t a mirror image acceptance of an offer.

Sakabu v. Regency Construction Co., Inc.

The Missouri Court of Appeals, Eastern District reversed the trial court’s judgment granting summary judgment to a contractor in a suit alleging breach of contract and negligence. The trial court erroneously held that the contractor’s subcontractor was an independent contractor, without analyzing the relationship. According to the appellate court, “A person can meet the definition of a subcontractor, but if that person is subject to the control of his employer, he would not be an independent contractor.” Courts use the well-known analysis of employment law, which focuses on the extent to which the subcontractor is under the control of the contractor, to determine whether the subcontractor is an independent contractor. The appellate court enumerated the following factors:

(1) the extent of control which, by the agreement, the employer may exercise over the details of the work; (2) whether the person employed is engaged in a distinct occupation; (3) local practice of whether the work is done under the direction of the employer or without supervision; (4) the skill required in the particular occupation; (5) whether the employer or the workman supplies the instrumentalities, tools, and place of work; (6) whether the work is part of the employer’s regular business; (7) whether the method of payment is by the time or the job; and (8) whether the parties believe they are creating an independent contractor or employee relationship.

MacLallen v. Tillman

The Missouri Court of Appeals, Southern District reversed the trial court’s granting of summary judgment in a quiet title action, holding that the legal description “lying North and West of Elk River” in three deeds contained a latent ambiguity where the Elk River had two distinct channels and the relative volume of water flowing through the two channels had changed.

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