This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (2002).






City of Foley,

a municipal corporation,





Lehmann Farms, Inc., et al.,



Filed February 11, 2003

Affirmed in part, reversed in part, and remanded

Hudson, Judge


Benton County District Court

File No. CX991403


Gerald W. Von Korff, Pamela A. Steckman, Rinke-Noonan, 700 Wells Fargo Center, P.O. Box 1497, St. Cloud, Minnesota 56302 (for appellant)


Arlo H. Vande Vegte, Arlo H. Vande Vegte, P.A., 1850 West Wayzata Boulevard, P.O. Box 39, Long Lake, Minnesota 55356 (for respondents)


            Considered and decided by Halbrooks, Presiding Judge, Schumacher, Judge, and Hudson, Judge.

U N P U B L I S H E D   O P I N I O N


Appellant city loaned money to respondents under a state program to promote jobs and development; the loan was secured by a personal guaranty.  When respondents defaulted on the loan repayment and development objectives, appellant sued to recover the money it had loaned respondents.  The district court ruled that, to the extent that the state had offered to release appellant from its loan obligation, appellant had partially waived repayment.  Appellant contends that the guaranty obligation was not modified, and there was no evidence of waiver.  We affirm in part, reverse in part, and remand.



            This case involves a guaranty agreement securing funds loaned by appellant City of Foley to respondents Mike and Jolynn Berns and their business, Lehmann Farms, under a Minnesota Department of Trade and Economic Development (DTED) grant for small business development.  Lehmann Farms, a wholesale food company, sought the grant to construct an industrial building in Foley. 

In the July 1997 grant agreement, the DTED agreed to grant the City of Foley $140,000 under the Minnesota Investment Fund Program pursuant to Minn. Stat. § 116J.991 (1996).  Under the terms of the agreement, the city would lend Lehmann Farms $140,000 and establish a revolving loan fund with the principal and interest payments from the loan.  The city was entitled to retain the first $100,000 of repayment; subsequent payments were to be reimbursed to the state.  The agreement also required that Lehmann Farms meet certain wage-level and job-creation goals by June 30, 1999; if it did not, “the [city] and/or business must repay the assistance to the [DTED].”  The DTED grant agreement also required that, in separate agreements, the city lend the Bernses $100,000 out of its general funds, and that Benton County and Central Minnesota Initiative Fund lend the Bernses $165,000 to construct the building.

The Bernses, d/b/a/ Lehmann Farms, signed (1) an agreement with the city incorporating the grant agreement of $140,000 and the city loan of $100,000, and (2) two promissory notes to secure payment of the $140,000 and the $100,000 loans.  They also signed a personal guaranty in favor of the city for $240,000.  The guaranty stated that the Bernses “absolutely and unconditionally guarantee[d]” performance of all of Lehmann Farms’ obligations under the notes and loan agreement.  The guaranty further provided that the guarantors’ liability would be unaffected by any waiver, release, compromise, or settlement granted to Lehmann Farms.  In addition, the Bernses, as guarantors, waived all defenses except that of discharge by payment in full.

Lehmann Farms ceased doing business in 1999 without meeting the job and wage targets specified in the state grant.  After repaying about $10,000, Lehmann Farms and the Bernses defaulted on their loans.  They then began to negotiate a sale of the newly-constructed Lehmann Farms building to a third party.

In preparation for this sale, the Bernses requested that the city release them from their personal guaranty.  On August 15, 2000, upon the Bernses’ request, the Foley City Council passed a resolution

authoriz[ing] the Mayor and City Clerk to sign the documents to release the City’s security interests in the Lehmann Farms property contingent upon the City receiving written confirmation from the State of MN that the City is not responsible for repayment of the DTED grant and loan to Lehmann Farms through the City of Foley. 


Two days later, Foley City Attorney David Meyers sent a proposed mutual release to attorneys for the Bernses and Benton County, specifying the city’s position that it would agree to release its security interest in personal property and the guaranty, “conditional upon written approval by the State of Minnesota and obtaining this Mutual Release.”  The release was to be signed by both the Bernses and the city.  Meyers also wrote to the DTED regarding the proposed arrangements.  The DTED responded that, to consider a request for release, the department would need further financial information from the Bernses.  Nevertheless, it froze the repayments for use by the city and terminated the remaining balance of the grant.  The DTED indicated that it had, to date, released a total of $86,012.34.  Meyers forwarded the DTED request for further financial information to attorneys for the Bernses and Benton County.

Even though they had not received a signed release from the city, or any of the other parties, on September 14, 2000, the Bernses closed the transaction.  Shortly thereafter, on September 22, 2000, the DTED wrote to the mayor of Foley stating that, because Lehmann Farms had not met the conditions of job creation and wage goals specified in the grant, “the city will be required to repay to this department the entire amount of repayments made on the loan.”  Meyers informed the other attorneys involved that the city would be willing to execute the release documents without receiving any money from the Bernses, but that he did not believe the city council would agree to pay any sums still owed the state.

The city sued the Bernses to enforce the notes and personal guaranty and moved for summary judgment.  The Bernses made a cross-motion for summary judgment, arguing that the city council’s resolution to release them from their personal guaranty bound the city to proceed with the release. 

After a hearing, the district court granted the city’s motion, concluding that the contingency in the city council’s resolution to execute the release had not been met.  But the court also found that the council’s resolution contained an implicit agreement to waive the Bernses’ guaranty to the extent that the city was released from its obligation to the state.  Upon the court’s order that the city verify the amount owed to the state, the DTED asserted that, after deducting payments made of $9,359.29, the city still owed to the state $76,653.05.  The Bernses then moved the district court for entry of judgment only for the amount of the payments made.  After a second hearing, the district court found that the DTED’s September 22, 2000 letter operated as waiver of any claim to amounts over the amount of repayment made and ordered judgment against the Bernses and in favor of the city for the amount of repayment made, $9,359.29.  The court also concluded that its determination would not collaterally estop the state from asserting claims against the city, in which case the city could request indemnification based on its contract with Lehmann Farms, or based on the personal guaranty made by the Bernses.  The city appeals. 



On appeal from summary judgment, this court must determine whether there are any genuine issues of material fact and whether the district court erred in its application of the law.  Offerdahl v. Univ. of Minn. Hosps. & Clinic, 426 N.W.2d 425, 427 (Minn. 1988).  In reviewing summary judgment, we examine the evidence in the light most favorable to the party against whom judgment was entered.  Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993).  Nonetheless, the party opposing summary judgment must do more than rest on mere averments; a genuine issue for trial must be established by substantial evidence.  DLH, Inc. v. Russ, 566 N.W.2d 60, 69-70 (Minn. 1997).

            Waiver has been defined as the voluntary relinquishment of a known right.  Engstrom v. Farmers & Bankers Life Ins. Co., 230 Minn. 308, 311-12, 41 N.W.2d 422, 424 (1950).  Waiver must be knowing and intentional, and it normally presents a question for the jury.  Id.  Intent to waive will not be inferred as a matter of law unless a party’s conduct is “so inconsistent with a purpose to stand upon one’s rights as to leave no room for a reasonable inference to the contrary.”  Farnum v. Peterson-Biddick Co., 182 Minn. 338, 341, 234 N.W. 646, 647 (1931).

            The Bernses argue that the city council resolution should be interpreted as a waiver of the city’s right to enforce the guaranty.  They contend that the resolution itself formed an ordinance, creating legal support for the district court’s interpretation that waiver existed.  Authorization to release the city, however, required the satisfaction of the express condition that the city receive written confirmation from the state that the city was not responsible for repayment of the DTED funds.  “A condition precedent * * * is one which is to be performed before the agreement of the parties becomes operative.”  Lake Co. v. Molan, 269 Minn. 490, 498, 131 N.W.2d 734, 740 (1964) (quotation omitted).  In Minneapolis Cablesystems v. City of Minneapolis, 299 N.W.2d 121 (Minn. 1980), the Minnesota Supreme Court held that, when a city council resolution awarded a franchise and authorized city officials to negotiate a final agreement “subject to final approval by the city council,” no binding contract to award the franchise had been entered into by the city.  Id. at 122; see also Massee v. Gibbs, 169 Minn. 100, 104, 210 N.W. 872, 874 (1926) (holding that when one party intends not to be bound until a formal contract is signed, no contract has been created until the condition has been fulfilled).  While passage of the resolution here authorized a release and established intent to perform a future act, the authority could only be exercised upon the city’s receipt of the stated documents.  It is undisputed that those documents were neither executed nor delivered to the city.  See also Minn. Stat. § 412.201 (2002) (requiring that every contract or written instrument authorized by the council shall be executed on behalf of a city by the mayor and clerk).  Here, no contract or release was signed by city officials because the condition precedent named in the resolution—that the city receive written confirmation from the state that the city was not responsible for repayment of the DTED funds—was never fulfilled.  The district court did not err in holding that absent the written confirmation, the contingent resolution did not operate to waive the city’s rights. 

The district court, however, also concluded that the resolution implicitly contained an agreement to waive the guaranty to the extent the city was released from its obligation to the state, a sum the court later deemed to be $9,359.29.  We disagree.  The DTED originally expressed a willingness to accept the amount actually repaid under the loan.  Later, however, the DTED demanded from the city the full amount of the unpaid loan that it had disbursed.  Under these circumstances, a material factual issue exists concerning whether the city knowingly and intentionally waived the right to enforce its right to enforce the guaranty.  See, e.g., Silver Ball Too, Inc., v. B & E Enters., 390 N.W.2d 12 (Minn. App. 1986) (holding that buyer of video arcade business did not waive condition precedent to closing transaction that seller also transfer license, and district court therefore did not err in concluding that transaction never closed), review denied (Minn. Aug. 27, 1986).  In this context, the city council’s resolution may be viewed as a conditional offer to waive repayment and furnish a release, creating an issue as to whether the city later revoked that offer when the Bernses expressly declined to reimburse the city for the amount of payments made under the loan.  In that case, if the offer were revoked, the Bernses no longer would have had the power to accept it.  See, e.g., New England Mut. Life Ins. Co. v. Mannheimer Realty Co., 188 Minn. 511, 512, 247 N.W. 803 (1933) (holding that evidence established mortgage holder’s revocation of offer to waive right to deficiency judgment on condition that premises were immediately conveyed to it, so that subsequent attempted acceptance was ineffectual).  Thus, the district court erred in granting summary judgment on the issue of waiver, and we remand for trial of this issue. 

The Bernses also contend that under Minnesota statutory law, their obligation ran only to the DTED.  They argue that, because the city had no statutory liability to repay the entire grant, any contract that so indicated was in derogation of statutory law.  While the relevant statutes allow a recipient to pay the state, they do not prohibit the recovery of grant money by the state from the local governmental agency.  See Minn. Stat. §§ 116J.8731, subd. 7 (2002) (providing that a recipient of Minnesota investment fund grants “must repay the grant directly to the commissioner”); 116J.991 (1996) (requiring that a business failing to meet its wage level and job creation goals must repay the assistance to the government agency).[1]  Furthermore, the plain language of the contract signed by the city and the state provides that if the business did not meet wage level and job creation goals, “the Grantee [city] and/or business must repay the assistance to the Grantor [state]” (emphasis added).  Thus, the contract clearly contemplates the city’s liability for the amount of grant money released.  It is reasonable under these circumstances that the city would anticipate that it could be sued by the state to recover the grant money and wish to protect itself with a guaranty and signed releases.

In fact, the city received this protection when it obtained from the Bernses an absolute and unconditional guaranty securing the repayment of the loans.  An unconditional guaranty forms a separate obligation from the principal obligation.  Nat’l City Bank of Minneapolis v. Lundgren, 435 N.W.2d 588, 591 (Minn. App. 1989), review denied (Minn. Mar. 29, 1989).  Guarantors may contractually waive defenses and make themselves unconditionally liable for the indebtedness at issue.  See id. at 592.  The guaranty signed by the Bernses specifically provided that the guarantors waived all defenses, and that their obligations would not be affected by any waiver granted to the borrowers.  Thus, according to the plain language of the guaranty, the Bernses were obligated under this separate instrument, regardless of any waiver of the note itself.  

Affirmed in part, reversed in part, remanded.

[1] This provision was repealed by the 1999 legislature but reinstated for funding facilities extended between July 1, 1995 and July 1, 1999, by the 2000 legislature.  See 2000 Minn. Laws ch. 482, § 14.