This opinion will be unpublished and

may not be cited except as provided by

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







Stephen P. Hernick, et al.,
Appellants (CX-02-1424),
Respondents (C0-02-1478),


Verhasselt Construction, Inc.,
Defendant and Third Party Plaintiff,
Respondent (CX-02-1424),
Appellant (C0-02-1478),


Olson Brothers Drywall, n/k/a
Olson Construction,

Third Party Defendant (CX-02-1424),

Respondent (C0-02-1478).



Filed April 8, 2003

Reversed and remanded

Wright, Judge


Chisago County District Court

File No. C5011213



David D. Hammargren, Jeffrey C. Paulson, Hammargren & Meyer, P.A., 7301 Ohms Lane, Suite 360, Minneapolis, MN  55439 (for Stephen and Susan Hernick)


Patrick J. Sweeney, JoAnn C. Toth, Spence, Ricke, Sweeney & Gernes, P.A., 600 Degree of Honor Building, 325 Cedar Street, St. Paul, MN  55101 (for Verhasselt Construction)


Edward F. Kautzer, Ruvelson & Kautzer, Chartered, 510 Spruce Tree Centre, 1600 University Avenue West, St. Paul, MN  55104-3829 (for Olson Construction)


Considered and decided by Randall, Presiding Judge, Shumaker, Judge, and Wright, Judge.


U N P U B L I S H E D  O P I N I O N



            On appeal from summary judgment, Stephen and Susan Hernick argue that the district court erred by holding (1) that the two-year statute of limitations for claims based on defective and unsafe conditions arising out of a contract to improve real property, Minn. Stat. § 541.051, subd. 1(a) (2000), barred their action against Verhasselt Construction for breach of a settlement agreement, in which Verhasselt Construction made a new promise to remedy stucco defects; and (2) that the settlement agreement was invalid for lack of consideration.  In a separate appeal, Verhasselt Construction challenges the district court’s holding that its claim for indemnity and contribution against Olson Construction was barred by Minn. Stat. § 541.051.  We reverse and remand. 



On May 10, 1993, Stephen and Susan Hernick (the Hernicks) and Verhasselt Construction, Inc. (Verhasselt) entered into a written agreement for the construction of the Hernicks’ home.  Verhasselt subcontracted Olson Construction (Olson) to apply stucco to the exterior of the home.

The parties closed on the construction contract on December 22, 1993.  At the time of the closing, the Hernicks noted a number of construction defects.  Verhasselt indicated that all of the defects would be repaired within six months after the closing.  On October 10, 1994, the Hernicks sent a letter to Verhasselt listing the remaining construction deficiencies.  Among those deficiencies were problems with stucco, roofing, garage doors, and various interior items.  Verhasselt indicated that Olson would repair the stucco defects.  But virtually nothing was done by either Verhasselt or Olson to remedy the construction defects.  From December 20, 1994, through January 22, 1997, the Hernicks sent a series of letters to Verhasselt, complaining about the remaining construction problems and Verhasselt’s failure to remedy them.  Finally, on February 28, 1997, the Hernicks filed a complaint against Verhasselt with the Minnesota Department of Commerce (the department). 

            During the rest of 1997 through early 1998, the department facilitated negotiations between Verhasselt and the Hernicks.  After the parties identified the defects, Verhasselt started the repairs.  On November 9, 1998, Verhasselt and the Hernicks executed a settlement agreement.  The agreement specifically stated that

[i]ssues of stucco application, stucco cracking and its relation to house movement will still remain to be remedied.  Cracking will be monitored throughout this winter.  Also, in the spring [of 1999,] any patch and repair stucco resulting from corrective work done at the entry porch column and reconfiguration of facsia and soffit will be remedied by the contractor.  The amount of $3,000 will be payable to the Hernicks * * * and both Mr. and Mrs. Stephen Hernick agree to hold harmless Verhasselt Construction Company, Inc. and also Gary Verhasselt personally for any past or present claims on their home, * * * excluding any statutory obligations as far as structural issues would go.


While the settlement agreement did not mention Olson, Verhasselt had indicated in earlier communications that Olson would return to complete the stucco repairs. To date, the stucco repairs have not been completed. 

            On January 22, 2001, the Hernicks commenced this lawsuit in district court against Verhasselt, alleging breach of the settlement agreement.  Verhasselt filed a third-party claim against Olson, seeking contribution and indemnity.  Both Verhasselt and Olson moved for summary judgment, arguing that the two-year statute of limitations, Minn. Stat. § 541.051 (2000), barred the Hernicks’ claims.  The district court granted summary judgment in favor of Verhasselt and Olson.  The Hernicks appeal the summary judgment in favor of Verhasselt and Olson.  In order to preserve the contribution and indemnity issues against Olson, Verhasselt appeals the entry of summary judgment in favor of Olson.  This court consolidated the appeals.



On appeal from summary judgment, this court asks whether there are any genuine issues of material fact and whether the district court erred in its application of the law.  State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990).  No genuine issue of material fact exists “[w]here the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party.”  DLH, Inc. v. Russ, 566 N.W.2d 60, 69 (Minn. 1997) (alteration in original) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 1356 (1986)).  “[T]he party resisting summary judgment must do more than rest on mere averments.”  Id. at 71.  A genuine issue for trial must be established by substantial evidence.  Id. at 69-70.  This court views the evidence in the light most favorable to the party against whom summary judgment was granted.  Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993).  Summary judgment is appropriate when a party fails to make a showing sufficient to establish the existence of an element essential to the party’s case.  Bersch v. Rgnonti & Assocs., Inc., 584 N.W.2d 783, 786 (Minn. App. 1998), review denied (Minn. Dec. 15, 1998).


The Hernicks argue that the district court erred in concluding that their claims are barred by the two-year statute of limitations, Minn. Stat. § 541.051 (2000), applicable to construction defects.  Because their claim arose out of the breach of a settlement agreement, the Hernicks assert that the six-year statute of limitations for contract disputes, Minn. Stat. § 541.05 (2000), applies to their case.  We agree.

            Minn. Stat. § 541.051 applies to disputes arising out of defective and unsafe improvements to real property.  Sherbrook Co. v. E & H Earthmovers, Inc., 419 N.W.2d 818, 819 (Minn. App. 1988), review denied (Minn. Mar. 1, 1988).  The statute provides, in pertinent part,

                        [e]xcept where fraud is involved, no action by any person in contract, tort, or otherwise to recover damages for any injury to property, real or personal, or for bodily injury or wrongful death, arising out of the defective and unsafe condition of an improvement to real property, nor any action for contribution or indemnity for damages sustained on account of the injury, shall be brought against any person performing or furnishing the design, planning, supervision, materials, or observation of construction or construction of the improvement to real property or against the owner of the real property more than two years after discovery of the injury * * * .


Minn. Stat. § 541.051, subd. 1(a).  The legislative purpose of enacting section 541.051 was

to eliminate suits against architects, designers and contractors who have completed the work, turned the improvement to real property over to the owners, and no longer have any interest or control in it. 


Red Wing Motel Investors v. Red Wing Fire Dept., 552 N.W.2d 295, 297 (Minn. App. 1996) (quoting Sartori v. Harnischfeger Corp., 432 N.W.2d 448, 454 (Minn. 1988)), review denied (Minn. Oct. 29, 1996).  Accordingly, Minn. Stat. § 541.051 applies where the owner sues the contractor because a defective and unsafe condition arose on the property due to negligence or breach of some contractual duty under the original construction contract.  See Greenbrier v. Keller Inv., Inc., 409 N.W.2d 519, 523 (Minn. App. 1987) (section 541.051 covers “actions sounding in contract or in warranty, based on defective workmanship and brought by an owner against his architect or contractor.” (quotation omitted)).

            Because the parties do not dispute that the problems with stucco resulted in both defective and unsafe conditions, and because Minn. Stat. § 541.051 applies to actions based on breach of contract, the Hernicks’ claims would have been precluded by a two-year statute of limitations had they sued based on the original construction contract.  However, this action arose out of the settlement agreement entered into by the Hernicks and Verhasselt on November 9, 1998, in which Verhasselt specifically promised to resolve “[i]ssues of stucco application, stucco cracking and its relation to house movement.”  This new promise, albeit related to the original construction contract, was a contract to fix the agreed-upon defects resulting from the original contract to construct the Hernicks’ home; and the Hernicks’ suit was an action for breach of the promise to fix those defects, not an action for damages arising out the “defective and unsafe condition.”  Under these circumstances, we conclude that the applicable limitations period is six years under Minn. Stat. § 541.05 (2000) (prescribing limitation to action in contract or other obligation), not two years as contemplated by Minn. Stat. § 541.051 (prescribing limitation to action for damages resulting from defective and unsafe condition from improvement to real property).  Because the limitation period begins to run against a cause of action when it accrues, in a breach-of-contract case the limitation period begins to run at the time of the breach.  Bachertz v. Hayes-Lucas Lumber Co., 201 Minn. 171, 176, 275 N.W. 694, 697 (1937).  Verhasselt allegedly breached the settlement agreement in the spring of 1999, less than two years before the commencement of the action in January 2001.  Under the six-year limitation period, therefore, the lawsuit was timely filed and summary judgment in favor of Verhasselt and Olson was erroneously granted. 


Having resolved the statute-of-limitations issue, we next review the district court’s determination that the settlement agreement with the Hernicks was invalid because it lacked consideration.  “Settlement agreements are contractual in nature.”  Chalmers v. Kanawyer, 544 N.W.2d 795, 797 (Minn. App. 1996).  A contract must be supported by consideration.  Baehr v. Penn-O-Tex Oil Corp., 258 Minn. 533, 538-39, 104 N.W.2d 661, 665 (1960).  The determination of whether sufficient consideration underlies an agreement raises a question of law, which we review de novo.  Brooksbank v. Anderson, 586 N.W.2d 789, 794 (Minn. App. 1998), review denied (Minn. Jan. 27, 1999).  Verhasselt argues that the release by the Hernicks of any past or present claims against Verhasselt did not constitute adequate consideration, because any claims against Verhasselt were barred by the statute of limitations under Minn. Stat. § 541.051.  We disagree. 

            “Consideration requires the voluntary assumption of an obligation by one party on the condition of an act or forbearance by the other.”  Cady v. Coleman, 315 N.W.2d 593, 596 (Minn. 1982) (citation omitted).

Minnesota follows the long-standing contract principle that a court will not examine the adequacy of consideration as long as something of value has passed between the parties. 


C & D Inv. v. Beaudoin, 364 N.W.2d 850, 853 (Minn.App.1985) (citing Estrada v. Hanson, 215 Minn. 353, 356, 10 N.W.2d 223, 225-26 (1943)), review denied (Minn. June 14, 1985).  Settlement of a dispute can be consideration.  Hillmeyer v. Watz, 415 N.W.2d 89, 92 (Minn. App. 1987).  The disputed claim that is the subject of a settlement must be asserted in good faith, even if it is ultimately determined that the claim is not objectively valid.  C. J. Duffy Paper Co. v. Reger, 588 N.W.2d 519, 525 (Minn. App. 1999).  While a “wholly baseless or utterly unfounded claim is not consideration,” Nybladh v. Peoples State Bank of Warren, 247 Minn. 88, 96 n.11, 76 N.W.2d 492, 498 n.11 (1956), forbearance of a doubtful claim is sufficient consideration to support a contract.  Charles v. Hill, 260 N.W.2d 571, 575 (Minn. 1977). 

The record demonstrates that, at the time of the settlement agreement, there were a number of disputed claims between the parties.  In their complaint to the department, the Hernicks listed problems with the quality of Verhasselt’s workmanship, including warranty issues, noncompliance with the building codes, structural defects in the house, and negligent installation of the waterline that resulted in damages to the trees on the property.  Verhasselt’s argument rests on the proposition that the Hernicks’ “valid claims” were solely claims barred by Minn. Stat. § 541.051.  But section 541.051 only applies to defective and unsafe conditions on the property.  Griebel v. Andersen Corp., 489 N.W.2d 521, 522 (Minn. 1992).  Here, however, whether all of the settled claims arose out of defective and unsafe conditions and thus were barred by section 541.051 had not been resolved when the parties entered the settlement agreement.  Moreover, at no time did Verhasselt attempt to raise the statute-of-limitations defense during the settlement negotiations.  On the contrary, it agreed to settle all of the disputed issues by paying $3,000 to the Hernicks and specifically agreeing to remedy the stucco defects.  On this record, we do not conclude as a matter of law that the settlement agreement between Verhasselt and the Hernicks lacked consideration.  Because the agreement was a settlement of a good-faith dispute, we conclude that it was supported by consideration.[1]


We next consider Verhasselt’s third-party claim against Olson for contribution and indemnity.  Indemnity is an equitable remedy for restitution.  Blomgren v. Marshall Mgmt. Servs., Inc., 483 N.W.2d 504 (Minn. App. 1992).  Indemnity arises out of a contractual relationship, either expressed or implied by law, which “requires one party to reimburse the other entirely.”  Id. (quoting Hendrickson v. Minn. Power & Light Co., 258 Minn. 368, 371, 104 N.W.2d 843, 847 (1960) (citation omitted)). 

A claimant may recover indemnity:

(1)       [w]here the one seeking indemnity has only a derivative or vicarious liability for damage caused by the one sought to be charged[;]

(2)       [w]here the one seeking indemnity has incurred liability by action at the direction, in the interest of, and in reliance upon the one sought to be charged[;]

(3)       [w]here the one seeking indemnity has incurred liability because of a breach of duty owed to him by the one sought to be charged[;] * * *

(5)       [w]here there is an express contract between the parties containing an explicit undertaking to reimburse for liability of the character involved.

Blomgren, 483 N.W.2d at 506 (footnote omitted) (quoting Hendrickson, 258 Minn. at 372-73, 104 N.W.2d at 848) (citation omitted).[2]  The statute of limitations in an indemnification case ordinarily is six years after final judgment or settlement.  Oanes v. Allstate Ins. Co., 617 N.W.2d 401, 403 (Minn. 2000).  However, in an indemnification case arising out of the defective and unsafe condition of an improvement to real property, the limitation period is two years after final judgment or settlement.  Minn. Stat. § 541.051, subd. 1(b) (2000).  Olson argues that Minn. Stat. § 541.051 bars Verhasselt’s indemnity action against them because more than two years have passed since the Hernicks discovered the stucco defects.  We disagree.  Because the underlying action between the Hernicks and Verhasselt for breach of the settlement agreement has not been resolved, Olson’s statute-of-limitations defense is not ripe at this stage of the proceeding. 

The only alternative for Olson to have asserted the statute-of-limitations defense under Minn. Stat. § 541.051 was via Minn. R. Civ. P. 14.01.  This rule allows a third-party defendant to assert against the third-party plaintiff any defenses that the third-party plaintiff has to the plaintiff’s claim.  Minn. R. Civ. P. 14.01; Minnesota Landmarks v. Mortenson Co., 466 N.W.2d 413, 416 (Minn. App. 1991).  In light of our holding that Minn. Stat. § 541.051 does not bar the Hernicks’ action against Verhasselt for breach of the settlement agreement, the two-year statute-of-limitations defense is likewise not available to Olson in its action against Verhasselt.  See Landmarks, 466 N.W.2d at 415 (holding that third-party defendant is granted the right to assert the defense of another only by rule 14.01 and may not put themselves in a better position than that held by the third-party plaintiff).  Accordingly, Verhasselt’s contribution-and-indemnity action is not barred by the statute-of-limitations defense.

Accordingly, we reverse the summary judgment in favor of Verhasselt and Olson, and remand to the district court for further proceedings not inconsistent with this opinion. 

Reversed and remanded.







[1] In view of our holdings that a six-year limitations period governs this action and that the settlement agreement was not invalid for lack of consideration, we decline to consider the Hernicks’ argument that Verhasselt was equitably estopped from asserting a statute-of-limitations defense.

[2] In Hendrickson, the Minnesota Supreme Court outlined the five elements for indemnification.  Hendrickson, 258 Minn. at 372-73, 104 N.W.2d at 848.  The fourth element, however, was overruled by Tolbert v. Gerber Indus., Inc., 255 N.W.2d 362, 367-68 n.11 (Minn. 1977).