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Homefield Commons Homeowners Association v. Roy H. Smith Real Estate Co.

Court of Appeals of Missouri, Eastern District, Fourth Division

October 11, 2016


         Appeal from the Circuit Court of St. Charles County Honorable Norman C. Steimel, III



         Appellant Roy H, Smith Real Estate Company, d/b/a Smith Management Group ("SMG"), appeals the judgment of the trial court entered after a bench trial. SMG entered into a one-year contract with respondent Homefield Commons Homeowners Association ("HCHOA") to provide property-management services. Section 4 of the parties' contract specified the method by which either party could terminate the contract for cause prior to its expiration. HCHOA contends that it properly terminated the contract pursuant to Section 4. Following a bench trial, the trial court agreed. Because the trial court erroneously applied the terms of the contract as required by law, we hold that HCHOA did not terminate the contract in conformance with the requirements of Section 4. We reverse the judgment of the trial court and remand this matter to the trial court with instructions to enter judgment in favor of SMG on HCHOA's petition; to consider SMG's counterclaim and make the required factual findings; and to enter judgment on SMG's counterclaim in accordance with its finding of facts.

         Factual and Procedural History

         Homefield Commons is a subdivision of detached villas in St. Charles County. Homefield Commons is governed by a homeowners' association, respondent HCHOA, and is part of a larger real-estate development. The entire development is governed by a master homeowners' association, Homefield Master Homeowners Association ("Homefield Master"). In other words, Homefield Master controls the entire development, while the HCHOA subassociation only governs the Homefield Commons subdivision.

         HCHOA entered into a valid contract with SMG to manage the Homefield Commons subdivision. The contract between HCHOA and SMG ran for the calendar year of 2014. Included in the contract was the following termination clause, contained in Section 4:

[E]ither party may terminate this Agreement for cause by the dissatisfied party giving the other party written notice of the concerns, along with a written list or matters on which said dissatisfaction is based. The dissatisfied party will allow the other party thirty (30) days to rectify and address such concerns. If the dissatisfied party is still not satisfied with the management relationship thereafter, said dissatisfied party shall give the other party written notice terminating this Management Agreement for cause effective thirty (30) days from the date of said written notice.

         In a letter to SMG dated March 29, 2014, [1] HCHOA wrote, "Pursuant to [Section] 4 of our Management Agreement, 30 day notice is hereby given to terminate the agreement." The letter asserted that SMG's management of both Homefield Master[2] and HCHOA created a conflict of interest. This conflict allowed HCHOA's issues "to go unaddressed or ignored" because the SMG property manager followed the direction of Homefield Master rather than HCHOA. The letter identified two issues that illustrated the conflict problem, "the Trash Can Screening issue and the Solar Panel issue, " but lacked any specificity regarding those issues. However, with both issues, HCHOA alleged that it had given specific directions to an SMG property manager and those directions were ignored. The letter concluded that a "person cannot have two masters and therefore we respectfully wish to terminate our management agreement with [SMG]." Although the letter was dated in March, the trial court found that SMG did not receive the letter until April 23.

         SMG responded by letter dated April 28. In its letter, SMG expressed disappointment that HCHOA would want to terminate the agreement and stated it was confident it could "correct and/or explain the issues if given the opportunity." The letter also declared SMG's position that HCHOA had not followed the proper procedure under Section 4 to terminate the agreement. Specifically, SMG expressed that the concerns listed were vague or inaccurate, and that the termination letter did not allow SMG the requisite thirty days to rectify HCHOA's concerns.

         SMG sent another letter dated May 5. The letter provided notice that SMG was appointing a new manager for HCHOA. This new manager, SMG stated, would follow all of SMG's operational procedures. Nothing in SMG's letter acknowledged HCHOA's claim that a conflict of interest existed.

         HCHOA responded by letter dated May 6 rejecting SMG's appointment of a manager as a solution to the conflict of interest. HCHOA reiterated its complaint about the perceived conflict of interest and its desire to terminate the contract. HCHOA emphasized that the termination letter to SMG dated March 29 would "stand" because SMG's efforts to rectify the conflict of interest were not acceptable. In its letter, HCHOA instructed SMG to transition all files associated with HCHOA to another management company.

         When SMG did not transfer the files to another management company, HCHOA sent an email to SMG on May 21 repeating HCHOA's termination of the contract, and again directing SMG to transfer all files to the new management company.

         Despite HCHOA's communications, SMG continued to collect its management fees from HCHOA-at the contractual rate of $2, 385 per month-from HCHOA's bank account[3] for June, July, and August. In September, HCHOA closed the bank account accessible to SMG, and SMG ...

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