Court Opinion

ID: 3045129
Source: CourtListenerOpinion
Date Created: 2015-10-13 23:15:42.042657+00
Date Added: 2024-06-11T08:53:23.810258
License: Public Domain

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.

      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.
                                         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

                                         -3-
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

                                          -4-
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

                                          -5-
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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