Minnwest Bank Cent. v. FLAGSHIP PROPERTIES

• Decision Date: 07 December 2004
• Docket Number: No. A04-476.,A04-476.
• Citation: 689 N.W.2d 295
• Parties: MINNWEST BANK CENTRAL, Respondent, v. FLAGSHIP PROPERTIES LLC, et al., Appellants, U.S. Small Business Administration, et al., Defendants.
• Court: Minnesota Court of Appeals

689 N.W.2d 295

MINNWEST BANK CENTRAL, Respondent, v. FLAGSHIP PROPERTIES LLC, et al., Appellants, U.S. Small Business Administration, et al., Defendants.

No. A04-476.

Court of Appeals of Minnesota.

December 7, 2004.

John F. Bonner, III, Robyn K. Johnson, Bonner & Borhart, L.L.P., Minneapolis, MN, for appellants.

Virginia A. Bell, Mary R. Vasaly, Maslon Edelman Borman & Brand, L.L.P., Minneapolis, MN, for respondent.

Considered and decided by WRIGHT, Presiding Judge; PETERSON, Judge; and FORSBERG, Judge.¹

OPINION

WRIGHT, Judge.

To recover outstanding debts, respondent brought a foreclosure by action. Appellants filed counterclaims, alleging defamation, promissory estoppel, breach of contract, and breach of the implied covenant of good faith and fair dealing. The district court ordered summary judgment in favor of respondent and against appellants' counterclaims. Appellants now challenges the district court's ruling, arguing that the district court erred when it concluded that (1) a condition precedent in the parties' commitment letter was not satisfied and, thus, respondent had no duty to provide long-term financing; (2) respondent was entitled to summary judgment on appellants' counterclaims; and (3) postjudgment interest on a foreclosure decree is calculated at the loan rate, rather than the statutory postjudgment interest rate. Respondent moved to dismiss as moot appellants' appeal as it relates to the postjudgment interest rate on an unsecured debt. We affirm in part, reverse in part, and remand. We also deny respondent's motion.

FACTS

At all times relevant to this appeal, appellants Robert Barwick, Janet Barwick, Flagship Properties LLC, and Barwick Manufacturing Company (collectively Flagship) were in the business of building and operating hotels. In the spring of 1997, Flagship sought financing from respondent Minnwest Bank Central (Minnwest) for the construction of a new hotel. Minnwest granted Flagship a construction loan in July 1997 for $1.3 million, to be paid in full by July 24, 1998. The loan agreement was accompanied by a commitment letter, which reiterated the terms of the construction loan and added the following:

As stated earlier, [Minnwest] intends to participate with the Small Business Administration 504 Loan Program whereby $300,000.00 of the construction loan amount will be sold on the secondary market after project completion at the then prevailing rate. The remaining balance will be financed by the Bank. The terms of this will be an amortization of at least ten years (120 equal payments) at a five-year fixed rate commitment....

Flagship subsequently applied for a Section 504 loan in the amount of $311,000 and, in September 1997, received preliminary authorization from the United States Small Business Administration (SBA).² The preliminary authorization provided that, before final approval, Flagship must certify "that no unremedied material adverse change has occurred in the condition of [Flagship]... since the date of application which would endanger [Flagship's] ability to meet the debt service [for the loan]."

Flagship completed construction and opened its hotel in February 1998. The SBA subsequently received financial statements indicating that the hotel was operating at a loss. As a result, the SBA found a "material adverse change," and in March 1999, it declined to proceed with the Section 504 loan until Flagship could demonstrate positive cash flow.

Until mid-2001, the parties agreed to several extensions on the deadline for the repayment of the Minnwest construction loan. The extensions were based on the parties' expectation that Flagship would eventually generate positive cash flow from the hotel and, thus, would satisfy the requirements to receive the Section 504 loan. But in the meantime, Minnwest did not provide long-term financing for the "remaining balance" of the construction loan.

Minnwest informed Flagship in April 2001 that its construction loan had been "classified" and that it would have to seek long-term financing for the loan elsewhere. Flagship solicited several other institutions but was unable to procure financing, purportedly because it disclosed that Minnwest had "classified" the construction loan.

Minnwest formally demanded payment of the construction loan in full in July 2002 and subsequently brought an action in foreclosure to recover this and other debts. Flagship brought counterclaims, alleging defamation, promissory estoppel, breach of contract, and breach of the implied covenant of good faith and fair dealing. Minnwest then moved for summary judgment on the foreclosure action and on Flagship's counterclaims. The district court granted Minnwest's motion, dismissed Flagship's counterclaims, and ordered judgment for the amount due on the construction loan. The district court further ordered that, following the entry of judgment, interest would continue to accrue at a rate equal to that of the original loan.³ This appeal followed.

ISSUES

I. Did the district court err in holding that Minnwest had no duty to provide long-term financing for the construction loan?

II. Are there sufficient issues of material fact to defeat summary judgment on Flagship's counterclaims?

III. Did the district court err in awarding postjudgment interest at the loan rate instead of the statutory rate?

ANALYSIS

Flagship initially disputes the district court's determination that Minnwest had no duty to provide long-term financing and that Flagship's counterclaims lacked merit.

When reviewing a summary judgment, we determine whether any genuine issue of material fact exists and whether the district court erred in its application of the law. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn.1990). In doing so, we view the evidence in the light most favorable to the party against whom summary judgment was granted. Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn.1993). A genuine issue for trial must be established by substantial evidence. DLH, Inc. v. Russ, 566 N.W.2d 60, 69-70 (Minn.1997). Summary judgment is appropriate when "the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party." Id. at 69 (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986)).

I.

Flagship challenges the district court's determination that Minnwest's duty to provide long-term financing was subject to an unsatisfied condition precedent. Flagship contends that the contract does not contain a condition precedent. In the alternative, Flagship implies that, because Minnwest improperly frustrated the satisfaction of the condition, Minnwest is not excused from its duty to perform.

A condition precedent is an event that must occur before a party is required to perform a certain contractual duty. Carl Bolander & Sons, Inc. v. United Stockyards Corp., 298 Minn. 428, 433, 215 N.W.2d 473, 476 (1974). "[N]o particular code words [are] needed to form an express condition." Id. (citing 5 Samuel Williston, Williston on Contracts § 671 (3d ed. 1961)). In Aslakson v. Home Sav. Ass'n, 416 N.W.2d 786 (Minn.App.1987), we considered the effect of a contract requiring a party to establish credit as a condition precedent. The controversy involved a sales contract, which provided in relevant part, "This offer is contingent upon buyer being able to assume the loan." Id. at 787. We concluded that this language created a condition precedent. Id. at 789. Because the purchaser was unable to demonstrate acceptable credit, the seller had no obligation to complete the sale. Id. at 790.

The Minnesota Supreme Court in 451 Corp. v. Pension Sys. for Policemen & Firemen, 310 N.W.2d 922 (Minn.1981), reached the same conclusion based on a more complex set of facts. The owners of an office building had a short-term construction loan and sought long-term financing from a state pension fund. Id. at 922. The parties executed a contract, which stated that the loan was "subject to approval of the documents as to legality and form" by a state official. Id. at 923. On review of the contract, that state official found an illegal amortization and rejected the loan. Id. The supreme court concluded that, because the approval condition was not met, the pension fund had no obligation to supply the loan. Id. at 924; see also Nat'l Union Fire Ins. v. Schwing America, Inc., 446 N.W.2d 410, 412 (Minn.App.1989) ("[A] breach of contract does not occur when a contract is conditioned on third-party approval and the approval is not received." (quoting Aslaksan,416 N.W.2d at 789)).

Here, the July 1997 commitment letter provided in relevant part:

[Minnwest] intends to participate with the Small Business Administration 504 Loan Program whereby $300,000.00 of the construction loan amount will be sold on the secondary market after project completion at the prevailing rate. The remaining balance will be financed by the Bank.

(Emphasis added.) This language does not provide an unqualified promise to supply long-term financing. Rather, it indicates that Flagship agreed to obtain a portion of long-term financing from a Section 504 loan. Only after this event would the bank have a duty to provide long-term financing for the "remaining balance." The letter explicitly contemplated that Flagship would qualify for credit from the SBA. Thus, it is indistinguishable from other contracts in which conditions precedent require third-party approval. See 451 Corp., 310 N.W.2d at 924. Because the SBA never authorized a Section 504 loan, the condition precedent was not satisfied. Accordingly, Minnwest had no duty to provide long-term financing.⁴

Flagship maintains that the district court relied on inadmissible hearsay to evaluate whether the condition precedent was satisfied. It alleges that the only proof of an unsatisfied condition precedent was a statement, indirectly from the SBA to officers at Minnwest, directing Minnwest not to close the Section 504 loan....