Opinion
No. C2-00-246.
Filed August 15, 2000.
Appeal from the District Court, Hennepin County, File No. 9714312.
Gregory Alan Wohletz, (for appellant)
Ronald John Walsh, (for respondent)
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (1998).
UNPUBLISHED OPINION
Appellant Hermitage Gallery, Inc., challenges the district court's judgment denying its motion for summary judgment on its breach of contract claim against respondent Art Sales and dismissing all claims and counterclaims. Appellant claims that respondent breached the contract by: (1) becoming insolvent; (2) failing to maintain his inventory with a cost basis of at least the balance due; (3) liquidating the inventory; and (4) ceasing operation of the business before the end of the five-year term. Because the district court did not consider the default provisions in the security agreement and exhibit B to the asset sale agreement, we reverse and remand for proper consideration.
FACTS
On October 18, 1996, appellant Hermitage Gallery and respondent Art Sales entered into an agreement, whereby appellant sold respondent the assets of Hermitage Gallery. The parties signed an asset sale agreement with exhibits A and B, a bill of sale, a promissory note, and a security agreement. The asset sale agreement provided as follows:
Purchase Price. The total purchase price for the Assets is the equivalent of the cost basis of inventory (subject to change prior to closing) payable as follows:
$138,370.35 cash down payment at closing, receipt of which is hereby acknowledged by Seller.
Up to $50,000 payable pursuant to terms of an Agreement attached hereto as Exhibit B.
Exhibit B provided that the agreement would be for five years and would "terminate upon either the end of [the] five (5) years from closing or payment to Seller of $50,000, whichever first occurs."
Under Exhibit B to the asset agreement, respondent
agree[d] to maintain inventory with a cost basis of at least the remaining unpaid balance under [the] Agreement until the Promissory Note is paid in full.
Pursuant to the security agreement, respondent also agreed to neither: (1) sell, offer to sell, or otherwise transfer the assets other than in the normal course of business, nor (2) become insolvent. The asset agreement also provided that
[i]n the event of default by Buyer in the terms and conditions contained in this Agreement, the Note, or Security Agreement, Seller shall have the right, at its option after providing ten (10) days notice to declare all or any part of the obligations set out in the Note immediately due and payable * * * .
Subsequent to entering into the agreement but before the expiration of the five- year period, respondent made no payments to appellant and ceased operation of Hermitage Gallery.
On September 8, 1997, appellant filed a complaint in district court against respondent, alleging breach of contract, and on October 15, 1997, moved for summary judgment, which was denied by the district court on February 11, 1998. Concluding that genuine issues of material fact existed as to whether: (1) "the voluntary closing of the Gallery by [respondent] triggered the payment of the $50,000"; and (2) "closing the business was a good faith business decision," the district court denied the motion. Appellant renewed its motion and the district court filed an amended order on October 18, 1999, in which it found that the agreement was silent as to whether respondent was required to run the business for five years: (1) in a commercially reasonable manner; and (2) in spite of making no profits. While it concluded that it could not imply these terms into the agreement, it also allowed appellant to submit additional evidence as to the issue of fraud. On December 7, 1999, the district court filed a second amended order concluding that appellant had made no showing of fraud and dismissing all claims.
DECISION I.
Appellant claims the district court erred in denying its motion for summary judgment and dismissing all claims.
On an appeal from summary judgment, we must examine two questions, whether there are any genuine issues of material fact and whether the lower courts erred in their application of the law." Cummings v. Koehnen, 568 N.W.2d 418, 420 (Minn. 1997) (citation omitted). "A reviewing court must view the evidence in the light most favorable to the party against whom summary judgment was granted."
Vetter v. Security Continental Ins. Co., 567 N.W.2d 516, 520 (Minn. 1997) (citations omitted).
Specifically, appellant claims summary judgment should have been granted in its favor because there was uncontroverted evidence in the record that respondent defaulted on its agreement under three of its provisions, accelerating respondent's debt under the agreement. First, appellant claims respondent defaulted on its agreement when it became insolvent. Paragraph 13 of the Security Agreement provides that "[d]ebtor shall be in default under this Agreement upon * * * becom[ing] insolvent or unable to pay debts as they mature * * *." The record shows that Bruce J. Cripe, President of respondent Art Sales, stated in his affidavit that he incurred claims against the business in excess of $114,000, but was unable to pay this debt. In addition, on appeal, respondent admitted that it was insolvent. However, the district court did not address this default provision or Cripe's affidavit before dismissing all claims.
Next, appellant claims respondent failed to maintain inventory with a cost basis of at least $50,000, which constitutes a default under the asset sale agreement. Paragraph 8 of exhibit B to the asset sale agreement provides:
Buyer agrees to maintain inventory with a cost basis of at least the remaining unpaid balance under this agreement until the Promissory Note is paid in full.
The record shows that Cripe stated in his affidavit that the total wholesale value of the listed assets was only $25,730 and the retail value was $47,805, which was contrary to the requirement of the contract. Moreover, on appeal, respondent admitted that it failed to maintain inventory with a cost basis of at least $50,000. The district court did not address this default provision or Cripe's affidavit either.
Finally, appellant claims respondent breached the contract in its attempt to liquidate assets, in violation of Paragraph 7 of the security agreement, which provides that the
[d]ebtor will not, without prior written consent of the Secured Party * * * sell or otherwise transfer the Collateral other than in the normal course of business.
In the district court, appellant accused respondent of attempting to liquidate the inventory pledged as collateral for satisfaction of respondents' obligations under the assets sale agreement, and respondent did not deny the allegation. On appeal, appellant admitted that it attempted to liquidate assets. The district court did not consider this default provision in dismissing appellant's claims.
While appellant suggests that the district court's failure to address the default provisions, in light of Cripe's admissions, mandates that this court conclude, as a matter of law, that respondent defaulted under the contract, we disagree. Because the default provisions were part of the contract, these provisions, as well as any evidence regarding respondent's failure to comply with these provisions, would have to be considered before determining whether there are genuine issues of material fact regarding appellant's breach of contract claim. Here, the district court did not consider any of the default provisions or Cripe's admissions in the record before dismissing appellant's claims. Accordingly, we reverse and remand to the district court to consider the default provisions as well as the relevant evidence before determining whether appellant's claims raise genuine issues of material fact.
Appellant also alleges that respondent defaulted on its agreement because it closed the business before the five-year period expired. But, because we are reversing and remanding this case to the district court for consideration of the default provisions, we need not address this claim.
II.
Next, appellant claims that it is entitled to attorney fees and asks this court to remand the case to the district court solely for the determination of the amount of attorney fees incurred by appellant in litigating this case. "Generally, attorney fees are not recoverable in litigation unless authorized by contract or statute." Riley Washington v. Independent School Dist. No. 625, 610 N.W.2d 347, 349 (Minn.App. 2000) ( citing Barr/Nelson, Inc. v. Tonto's, Inc., 336 N.W.2d 46, 53 (Minn. 1983)). Here, the promissory note provides that
if any part of the principal or interest of this Note is not paid when due, then the whole principal sum shall immediately become due and payable, together with costs of collection and reasonable attorney fees * * *.
Given our decision to reverse and remand the district court's dismissal of appellant's claims for consideration of the default provisions, we cannot order the district court to award attorney fees but, instead, remand the issue of attorney fees to the district court for reconsideration in light of its final decision.