Merriman v. Sandeen

• Decision Date: 31 March 1978
• Docket Number: Nos. 47730,47754,s. 47730
• Parties: 24 UCC Rep.Serv. 718 Calvin A. MERRIMAN, Appellant, v. Winston E. SANDEEN, et al., Respondents.
• Court: Minnesota Supreme Court

Page 714

267 N.W.2d 714

24 UCC Rep.Serv. 718

Calvin A. MERRIMAN, Appellant, v. Winston E. SANDEEN, et al., Respondents.

Nos. 47730, 47754.

Supreme Court of Minnesota.

March 31, 1978.

Rehearing Denied May 1, 1978.

Syllabus by the Court

1. Where plaintiff used a personal check to make payment to extend an option and payment was due on August 1, 1975, and where the check was dishonored at plaintiff's bank on presentment by the payee on that date, the option lapsed.

2. The finding of the trial court that the parties considered time to be of the essence on any payments due pursuant to the option agreement was not clearly erroneous.

Gray, Plant, Mooty, Mooty & Bennett and Michael R. Cunningham, Minneapolis, for appellant.

Eckberg, Lammers, Briggs & Wolff, and Lyle J. Eckberg, Stillwater, for respondents.

Heard before TODD, YETKA and IRVINE, JJ., and considered and decided by the court en banc.

YETKA, Justice.

This is an appeal by plaintiff from an order denying motions for amended findings of fact, conclusions of law, and order for judgment or a new trial. The district court sitting without a jury determined that plaintiff's tender of a check which was dishonored by the drawee bank caused the lapse of the option to purchase defendants' land. Plaintiff originally sued for specific performance. With the consent of defendants, a claim for compensatory damages was added. At trial plaintiff dropped his claim for specific performance. Because the trial court found that the option had lapsed, it made no determination of damages. We affirm.

On June 1, 1971, defendants entered an option agreement concerning 282 acres of land which they owned in Washington County. The contract was with Property Underwriters, Inc., a corporation owned by plaintiff. Property Underwriters assigned its interest to the Pine Springs Limited Partnership. Macro, Inc., of which plaintiff is the president, was the general partner of Pine Springs Limited Partnership, and defendant Winston Sandeen was one of the limited partners. In 1972 the agreement was amended and in 1974, when the partnership dissolved, the interest in the option was purportedly assigned to plaintiff.

The contract ¹ granted the option holder the right to purchase defendants' land for $797,500. In order to maintain the right to purchase, the option holder was required to make periodic payments which would be applied to the ultimate purchase price. The payments consisted of a $5,000 payment June 1, 1971, a $30,000 payment on August 1, 1971, and a $10,000 each year thereafter on August 1, until 1975. These payments were to be accompanied by notice of intent to renew. The payments could, according to the contract, be made by check. The original contract dated June 1, 1971, also contained the following clause:

"Buyer shall perform the conditions and comply with the terms of this option, all within the times above specified and a failure to give such notice and comply with the terms and perform the conditions hereof (except as hereinafter provided) within the times specified, shall terminate this option, and all rights thereunder, without further act or notice whatsoever, time being of the essence of this agreement." ² (Italics supplied.)

The 1972 amendment also provided that the option could be extended for an additional 5 years. The 5-year extension would have required a payment of $100,000 on August 1, 1976, in addition to continued annual payments of $10,000.

Between 1971 and July 1975, the option was renewed on a yearly basis; a total of $65,000 was paid to defendants. The payments were each made by check from plaintiff or his predecessors in interest. Each check was deposited in a bank where Mr. Sandeen maintained a personal account.

In 1974 plaintiff requested an extension of the August 1, 1974 payment date because of inability to raise the funds. Mr. Sandeen testified that he insisted the check be timely tendered. On July 22, 1975, when a waiver or renegotiation was requested, Mr. Sandeen informed plaintiff and his attorney that he insisted on timely payment of the 1975 $10,000 installment. ³

On July 31, 1975, plaintiff deposited $9,900 in his checking account in the Summit State Bank of Bloomington. The deposit consisted of checks which were collected from former members of the Pine Springs Limited Partnership. The deposit slips for July 31, and Aug. 1, 1975, were marked "hold for 3 days." On August 1, 1975, an additional $12,000 was deposited, bringing the stated account balance to over $22,000. On July 31, 1975, Mr. Sandeen received from plaintiff a certified letter and an uncertified personal check for $10,000 drawn on Summit State Bank in Bloomington, Minnesota. Plaintiff spoke to Mr. Sandeen that afternoon and Sandeen acknowledged receipt of the check.

On Friday, August 1, 1975, Mr. Sandeen took the check to Summit State Bank in Bloomington and presented it for payment. The bank refused payment. Although the check was marked "insufficient funds," the account showed a balance greater than $10,000 on August 1, 1975. Apparently Mr. Sandeen was told both that the check was drawn on "insufficient funds" and that it was drawn on "uncollected funds."

A bank officer from Summit State Bank testified that the check would have been honored had it been deposited in Mr. Sandeen's Stillwater bank and taken several days to process. He also testified that by that time the funds represented by the checks on deposit would have been collected. He was clear that, although the check could have been paid, the bank would not honor it until the funds represented by the checks on deposit had been collected.

Mr. Sandeen testified that he felt a sense of relief when the option lapsed. Sandeen returned the check to his attorney for return to plaintiff by registered mail. Plaintiff received the check on August 4, 1975 and went to Summit State Bank for an explanation. He then procured a certified check for $10,000 which was delivered to defendants' attorney on August 5, 1975. The check was refused and returned to plaintiff. Defendants have refused all subsequent retenders of $10,000.

The issue on appeal is: Was the tender by plaintiff of a $10,000 check adequate to extend the option agreement where the check was dishonored on presentment to the drawee bank? ⁴

Plaintiff argues in the alternative that his tender of the $10,000 check was adequate to extend the contract; that equitable principles excuse any untimeliness; and that the trial court's decision was unconscionable and inequitable. Defendants argue that the dishonor of the check rendered plaintiff's performance inadequate and by its terms the option contract lapsed.

1. Standard of review. Although plaintiff's initial brief implies that this court should apply the "clearly erroneous" standard to the trial court's findings of fact, his reply brief abandons that line of argument and urges that this court review what are essentially conclusions of law. The trial court's findings of fact would support the conclusion that plaintiff's tender of performance failed and the option lapsed. The trial court did not, however, state this as a conclusion of law, but expressed it explicitly in the memorandum accompanying its findings of fact, conclusions of law, and order for judgment. ⁵ There is no serious argument to be made regarding the findings actually made by the trial court. They are amply supported by the evidence as plaintiff indirectly recognizes. The court found, at least by implication, that there was no intent of the parties to vary the literal terms of the contract. It also expressly found that no course of dealing or other agreement required defendant to deposit checks in his own bank.

Insofar as the trial court's determinations are based upon documentary evidence, this court may review them de novo, but to the extent that they depend upon resolution of testimonial conflicts, the "clearly erroneous" standard applies. In re Trust Known as Northern Iron Ore Properties, 308 Minn. 221, 225, 243 N.W.2d 302, 305 (1976). Under either standard, the trial court's decision was correct. Although we could characterize our review as one of mixed findings of fact and legal conclusions, there is authority for the proposition that performance by an option holder is a question of fact. Ferch v. Hiller, 209 Minn. 124, 295 N.W. 504 (1941). We hold that the trial court's findings were not clearly erroneous and that its conclusions of law were adequately supported by its findings.

2. Dishonor of plaintiff's check by drawee bank. Plaintiff argues that the literal language of the contract only required written notice and tender of a check to extend the option for 1 year. Apparently plaintiff's position implies that the check need not be backed by funds and that it was to be taken as absolute, not conditional payment. Plaintiff further argues that he was not required by the agreement to tender a check which was immediately convertible into cash. Defendant argues that the agreement merely removed plaintiff's obligation to tender cash but that the check was nonetheless only conditional payment.

The general rules regarding payment by check were set forth in Wayzata Enterprises, Inc. v. Herman, 268 Minn. 117, 120, 128 N.W.2d 156, 158 (1964), in part as follows:

" * * * Delivery of a check is not payment unless the parties expressly agree that it shall be so.

" * * * When it is claimed that a check was accepted as payment, the burden rests on the one asserting that to be a fact to prove it.

" * * * The presumption is that a check is a conditional payment only and until the check is paid the debt remains. Upon payment of the check, the debt is deemed to have been discharged when the check was given."

Wayzata Enterprises, Inc. upheld the cancellation of a contract for deed where the vendee stopped payment on a check tendered as a contract installment.

In Olsen v. Preferred Risk Mutual Ins. Co., 284 Minn. 498, 170 N.W.2d 581 (1969), Wayzata...