Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-07-03052/USCOURTS-ca8-07-03052-0/pdf.json

Parties Involved:
Richard R. Henning
Appellant
Mainstreet Bank
Appellee

Document Text:

1

The Honorable Michael J. Davis, now Chief Judge, United States District

Court for the District of Minnesota. 

2

The Honorable Nancy C. Dreher, Chief Judge, United States Bankruptcy Court

for the District of Minnesota. 

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 07-3052

___________

Richard R. Henning, *

*

Appellant, *

* Appeal from the United States

v. * District Court for the

* District of Minnesota.

Mainstreet Bank, *

*

Appellee. *

___________

Submitted: May 16, 2008

Filed: August 22, 2008

___________

Before WOLLMAN, MURPHY, and SMITH, Circuit Judges.

___________

WOLLMAN, Circuit Judge.

Richard Henning contends that the mortgage he granted to Mainstreet Bank on

his home as collateral for business loans should be released under the terms of their

agreement. The district court1

 affirmed the bankruptcy court’s2 grant of summary

judgment to Mainstreet, and Henning now appeals. We affirm.

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I.

Henning was a principal and officer in several businesses that borrowed money

from Mainstreet. In July 2003, Henning, those businesses, and Mainstreet

consolidated and restructured the debt into a single amended and restated promissory

note for $600,000 pursuant to the terms of an assumption agreement and consent of

guarantors (“assumption agreement”). Dick Henning Landscape, LLC, was the

primary debtor, and Henning personally guaranteed the debt. Henning presented no

evidence that disputes Mainstreet’s assertion that the promissory note was secured by

personal and real property valued at $700,000. The real property consisted of

Henning’s home, which secured $250,000 of the note. The assumption agreement

provided that Mainstreet would release its mortgage on the home once $200,000 of

the promissory note had been paid off. The relevant portion of the assumption

agreement provides:

7. Guarantors Not Released. The Guarantor hereby consents to and

understands and acknowledges that the transfer of the Assets and the

assumption by the Purchaser of the obligations under the Financing

documents shall not release the Guarantor from any personal liability

under the Guaranty Documents and that such Guaranty Documents shall

remain in full force and effect.

Notwithstanding the foregoing, the Lender hereby agrees that when

$200,000 of the outstanding principal balance of the Amended and

Restated Note has been paid, Lender upon written request from the

Guarantor, will agree to release the Mortgage. Furthermore, the Lender

hereby agrees that when an additional $200,000 of the outstanding

principal balance of the Amended and Restated Note has been paid,

Lender upon written request from the Guarantor, will agree to release the

Guarantor from his Guaranty.

App. 77 (italics added). 

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In July 2004, Mainstreet filed proceedings against Henning and Dick Henning

Landscaping, alleging default under the terms of the promissory note. Dick Henning

Landscaping apparently never made a timely payment, and it ceased making payments

altogether in October 2004. At that time, $124,061.10 had been paid toward the

principal. In 2005, Mainstreet recovered approximately $196,000 by enforcing its lien

rights in certain equipment and accounts. In October 2005, Henning filed for Chapter

7 bankruptcy, including an adversary proceeding against Mainstreet. Henning and

Mainstreet filed cross-motions for summary judgment on whether Mainstreet was

required to release its mortgage on Henning’s home. The amount of outstanding

principal currently remaining on the promissory note is about $280,000, with

Henning’s home being the only collateral remaining to secure the loan. 

II.

Summary judgment is appropriate when, viewing the record in the light most

favorable to the nonmoving party, there are no genuine issues of material fact and the

moving party is entitled to judgment as a matter of law. City of Jefferson City, Mo.

v. Cingular Wireless, LLC, 531 F.3d 595, 605 (8th Cir. 2008). On appeal from a

district court’s review of a bankruptcy proceeding, we sit as a second court of review,

reviewing the bankruptcy court’s conclusions of law de novo and any factual findings

for clear error. In re Miller, 276 F.3d 424, 428 (8th Cir. 2002). 

Under Minnesota law, the determination of whether a contract is ambiguous and

the interpretation of an unambiguous contract are matters of law for the court to

decide. Bores v. Domino’s Pizza, LLC, 530 F.3d 671, 674 (8th Cir. 2008); Team

Nursing Servs., Inc. v. Evangelical Lutheran Good Samaritan Soc’y, 433 F.3d 637,

640 (8th Cir. 2006). A contract is ambiguous if the terms are reasonably susceptible

to multiple interpretations. Team Nursing Serv., 433 F.3d at 640. The purpose of

interpreting a contract is to effectuate the parties’ intent, which is derived from the

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plain and ordinary meaning of the contract’s terms in their context. Bores, 530 F.3d

at 674; Team Nursing Servs., 433 F.3d at 640. 

Henning argues that the word “paid,” as it is used in paragraph 7 of the

assumption agreement, should be interpreted as meaning that the mortgage must be

released if Mainstreet receives $200,000 towards the debt from any source. He bases

this interpretation primarily on the language, “Notwithstanding the foregoing,” in

paragraph 7, which he asserts requires us to ignore all of the rights and obligations of

the parties and all provisions in the assumption agreement that precede that language.

The term “paid” is not reasonably susceptible to Henning’s definition, and thus

the contract is not ambiguous. Article 3 of the Uniform Commercial Code provides

that “an instrument is paid to the extent payment is made by or on behalf of a party

obliged to pay the instrument, and to a person entitled to enforce the instrument.”

Minn. Stat. § 336.3-602(a). This is a natural and ordinary meaning of “paid,”

especially in the present context, where the payments contemplated in the assumption

agreement are owed on a promissory note. The bankruptcy court adopted a dictionary

definition of “pay,” meaning “to satisfy (someone) for services rendered or property

delivered: discharge an obligation to.” Henning v. Mainstreet Bank (In re Henning),

ADV 06-4108 (BKY 05-49574), at 5 (Bankr. D. Minn. Nov. 22, 2006) (citing

Webster’s Third International Dictionary (Unabridged), 1659 (1976)). Although less

explicit, this definition also implies that a payment must be made voluntarily in

connection with the receipt of a benefit to the source of that benefit. Dick Henning

Landscaping, an obligor on the promissory note, made principal payments of

$124,061.10 to Mainstreet, which is entitled to enforce the instrument. No one

disputes that this amount was “paid” within the meaning of paragraph 7. The

purchasers who paid $140,000 for equipment at the lien foreclosure sale were not

obligors on the promissory note and such purchase cannot be considered a payment

made on the obligor’s behalf. Thus, the $140,000 cannot be considered as having

been “paid” within the meaning of paragraph 7. Nor was the $56,000 “paid” when

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Mainstreet exercised its lien rights in certain of Dick Henning Landscaping’s

accounts. Although the money came from the debtor’s accounts, Mainstreet recovered

the money through legal action; the transfer was not “made by or on behalf of” Dick

Henning Landscaping. 

Henning’s definition of “paid” is contrary to the parties’ clear intention that

Mainstreet be made a secured creditor. The assumption agreement covers multiple

facets of Mainstreet’s becoming and remaining a secured creditor. The first part of

paragraph 7 titled “Guarantors Not Released” makes it clear that the assumption

agreement does not release Henning from his liability. The second part provides that

despite Henning’s continued liability, Mainstreet will release the mortgage when the

principal has been reduced by $200,000, i.e., when the other collateral can fully secure

the remaining debt. If the principal is reduced only because other collateral is

liquidated, the continued existence of the mortgage is necessary to fully secure the

remainder of the loan. Requiring the release of the mortgage upon Mainstreet’s

liquidation of other collateral worth more than $200,000 would render Mainstreet’s

security interest in the home and its status as a fully secured creditor dependent upon

the order in which Mainstreet exercised its rights as a secured creditor and would

thwart the parties’ clear intention that Mainstreet remain fully secured for the duration

of the loan.

III.

Henning argued for the first time on his appeal to the district court that he

should be equitably excused from his obligation as a guarantor. “Ordinarily, we do

not consider an argument raised for the first time on appeal. We consider a newly

raised argument only if it is purely legal and requires no additional factual

development, or if a manifest injustice would otherwise result.” Orr v. Wal-Mart

Stores, Inc., 297 F.3d 720, 725 (8th Cir. 2002). Based on the record before us, we

cannot say that a manifest injustice would result from holding Henning liable on his

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promise made for his benefit. Accordingly, we decline, as did the district court, to

address this argument. 

IV.

In light of our holding, we need not address the bankruptcy court’s alternative

holding that Henning’s breach of the promissory note excused Mainstreet from any

obligation to release the mortgage. 

The judgment is affirmed. 

______________________________

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