Opinion ID: 37729
Heading Depth: 2
Heading Rank: 2

Heading: The Implied Condition on Monroe's Repayment Obligation

Text: 17 Mumblow argues that the trial court erred when it found that Mumblow's right to demand repayment was conditioned on the sale or the merger of Monroe's assets because there was not enough evidence to support that determination. Under Louisiana law, an obligation is conditional if it is dependent on an uncertain event. Kaufmann v. Corporate Realty, Inc., 759 So.2d 969, 976 (La.Ct.App.2000). Conditions on an obligation may be implied by the law, the nature of the contract, or the intent of the parties. La. Civ.Code art. 1768. A finding that the parties intended an obligation to be conditional is a finding of fact that we review for clear error. Gebreyesus v. F.C. Schaffer & Assoc., Inc., 204 F.3d 639, 642 (5th Cir.2000); Kaufmann, 759 So.2d at 976; Hampton, 713 So.2d at 1189 (Intent is an issue of fact which is to be inferred from all of the surrounding circumstances.). We conclude that clear error exists when: 18 (1) the findings are without substantial evidence to support them, (2) the court misapprehended the effect of the evidence, and (3) if, although there is evidence which if credible would be substantial, the force and effect of the testimony, considered as a whole, convinces the Court that the findings are so against the great preponderance of the credible testimony that they do not reflect or represent the truth and right of the case. 19 Moorhead v. Mitsubishi Aircraft Int'l, Inc., 828 F.2d 278, 283 (5th Cir.1987). Before we will disturb the trial court's factual findings, we must be left with the definite and firm conviction that a mistake has been made. Otto Candies, L.L.C. v. Nippon Kaiji Kyokai Corp., 346 F.3d 530, 533 (5th Cir.2003). Because we have thoroughly reviewed the record and are left with such a conviction, we reverse. 20 As evidence that the parties intended Monroe's repayment obligation to be subject to a suspensive condition, the trial court found that Mumblow knew that Monroe's financial condition was weak, that Mumblow testified that when he was making the loan, he did not expect to demand repayment, and that Mumblow and the others making the loans only hoped to be repaid. (Reasons for J. at 7). The court inferred that, because everyone knew that Monroe was not in a position to immediately repay the loan extended by Mumblow, ... it is clear that everyone intended that repayment would occur only when Monroe was sold at a profit or if Monroe, or its assets, was merged into CCA. ( Id. ). Because the record does not contain substantial evidence to support the trial court's finding, we conclude that the court clearly erred in inferring a suspensive condition. 21 None of the evidence the trial court cited substantially supports its inference that the parties intended Monroe's repayment obligation to be conditioned on the sale or merger of its assets. The effect of a suspensive condition is that no obligation to perform arises on the part of Monroe, unless and until the condition is fulfilled. In other words, if Monroe is never sold or merged, Mumblow will never have the right to be repaid his $140,000. Perhaps in recognition of the fact that suspensive conditions mean that one party intends to assume an added contractual risk before that party can demand reciprocal performance, i.e., that the condition be fulfilled, Louisiana courts do not infer such conditions without very strong proof. See Southern States Masonry, Inc., 507 So.2d at 205 (finding that to construe an agreement as requiring one party to wait for payment until a condition is fulfilled, which might never occur, would give the agreement an unreasonable construction which the parties did not intend). Indeed, they do so only when the express language of the contract compels such a construction. See Hampton, 713 So.2d at 1190. In the context of an oral agreement such as this one, such a condition should not be inferred unless there is clear evidence that the parties agreed on such a condition. Further, the party who relies on a suspensive condition, in this case Monroe, has the burden of proving its existence. Sam's Style Shop, 694 F.2d at 1004. The trial court neither discussed nor assigned the burden of proof when it found the suspensive condition. Because suspensive conditions are disfavored and the burden of proof is on the party relying on the condition, the trial court should not have inferred a suspensive condition in the absence of evidence that would at least substantially support that inference. In this case, no such evidence exists, and the trial court's inference is therefore clearly erroneous. 22 The trial court first relied on Monroe's weak financial condition and Mumblow's knowledge of that condition to infer that the parties intended Monroe's repayment obligation be suspended until after a sale or merger of its assets. Significantly, no witness actually testified that the parties intended to condition Monroe's repayment obligation to Mumblow on a sale or merger of Monroe's assets. Mere evidence of Monroe's weak financial condition neither requires nor substantially supports the trial court's inference that the parties intended Monroe's repayment obligation to arise only if Monroe's assets were sold or merged. That Mumblow knew that Monroe was financially weak simply does not overcome the common sense understanding, mandated by Louisiana precedent, that the parties to a contract do not intend a suspensive condition in the absence of strong evidence of such intent. 23 Further, there was evidence that Monroe could in fact repay the loan. Monroe had an unused one million dollar line of credit at Whitney National Bank until the end of 2002, against which it was free to borrow to pay off debts or otherwise use as it saw fit. (Tr. Transcript at 61). Although there was testimony that the owners of Monroe were opposed to drawing on this line of credit ( see id. at 80), Galloway was obligated to indemnify the owners of Monroe as to any amount they might owe on that debt. ( Id. at 46). But even if the trial court were correct that Mumblow knew that he realistically would not obtain repayment until the company's financial condition improved, it simply does not follow that the parties intended that Monroe's repayment obligation would never arise unless there was a sale or merger of its assets. The condition the court inferred would mean that Mumblow had no right to demand repayment without a sale or merger, even if Monroe generated a positive cash flow and could service its other debts. Not only does evidence of Monroe's weak financial condition, without more, not suggest such a restrictive condition, but the sale or merger condition is also contradicted by Boulanger's testimony that if Monroe generated a positive cash flow, Mumblow would be able to get his money back, even without a disposition of Monroe's assets. ( Id. at 43). 24 The other evidence in the record also does not substantially support the trial court's conclusion that the parties intended Monroe's repayment obligation to be conditional. The trial court characterized Mumblow's testimony as an acknowledgment that when he was making the loan, he did not expect to demand repayment. (Reasons for J. at 8). Mumblow explained that he told Elmore on several occasions that, we could ask for our money any time you wanted to, but I knew that if I asked for payment, I couldn't get payment at that time. ( Id. at 126). This acknowledgment of an economic reality does not substantially support an inference that Mumblow also intended Monroe's repayment obligation to be conditional, a provision that would only further frustrate his ability to collect on Monroe's obligation. This is particularly true since Mumblow denied that there was any such condition. 25 There is not much evidence in the record from which to discern Monroe's intentions as to its repayment obligation. One thing is clear, there is no direct evidence that Monroe intended the obligation to be conditional. The owner of Monroe, Chatelain, testified that he did not know about the loan until Mumblow instituted the current proceedings by demanding repayment. (Tr. Transcript at 51). On Elmore's instructions, the notes were classified by Boulanger, the CCA controller who kept Monroe's books, as notes payable under the category of long-term liabilities. But Boulanger testified that the notes reflecting Monroe's obligation to CCA for services under the consulting agreement were likewise classified as notes payable under the category of long-term liabilities, when they in fact were demand notes. ( Id. at 37). Boulanger did not testify as to the proper way to account for a loan subject to a suspensive condition, or state that Mumblow's loan was accounted for as a long-term liability because it was conditional. Indeed, Boulanger admitted that Mumblow said nothing to him about a condition on his right to demand repayment, although Mumblow joked that Monroe would have difficulty repaying the loan. ( Id. at 30). This scanty evidence plainly does not provide substantial support for the trial court's finding that Monroe's obligation was conditioned on the sale or merger of Monroe's assets. 26 In contrast, the inference that the parties did not intend to impose such a condition is substantially supported by the evidence in the record. Mumblow testified that he expected to demand repayment eventually (Tr. Transcript at 127), that he was sure it was his right to ask for repayment ( id. ), and that he asserted to Elmore on several occasions that they could ask for repayment any time they wanted to ( id. at 126), testimony that neither Elmore nor anyone else contradicted. Mumblow also testified that Elmore told him that Elmore would have notes payable drawn up on the advances, though the notes were never produced. ( Id. at 105). Mumblow wrote payables on the last check he sent to Monroe, by which he meant to indicate that the checks were the notes payable according to the financial statements of Monroe Broadcasting that recorded my loan to them. ( Id. at 100-101). Elmore admitted that Mumblow never said to him that Mumblow was placing a restriction on his right to demand repayment of the money. ( Id. at 60). All of this testimony contradicts the trial court's finding that Mumblow intended Monroe's repayment obligation to be subject to a suspensive condition. 27 The only evidence that could potentially support an inference that Monroe's repayment obligation was conditional is Elmore's testimony that neither he nor Mumblow expected to get his money back unless Monroe's financial condition improved and the company was sold. (Tr. Transcript at 78, 81, 86). Elmore did not testify that either he or Mumblow specifically agreed to forego any right to repayment unless the company was sold or merged. His statement was based on his assertion that both he and Mumblow knew that Monroe was under water to the tune of about $5 million. ( Id. at 81). In fact, Elmore admitted that Mumblow never told him that Mumblow placed any restriction on his right to be repaid. Elmore's weak testimony as to his and Mumblow's expectation is not of the caliber necessary to substantially support the finding of a suspensive condition. See J.C. Frantz v. Vitenas, 347 So.2d 284, 285 (La.Ct.App.1977) (finding that defendant failed to show that his verbal payment obligation was conditioned because the record contained no evidence that he expressly conditioned his obligation on the happening of an uncertain event, and the condition could not reasonably be implied from the nature of the contract or the presumed intent of the parties). Lacking such evidence, bearing in mind that the burden of proof is on Monroe, and considering Mumblow's ample testimony that his intent was for Monroe's repayment obligation to be unconditional, we conclude that the trial court's finding that a condition existed lacks substantial support. 28 Accordingly, we conclude that the trial court clearly erred when it inferred that Monroe's obligation is subject to a suspensive condition, and we reverse the trial court's judgment in favor of Monroe and its dismissal of Mumblow's complaint as premature. 3