This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (1996).

STATE OF MINNESOTA

IN COURT OF APPEALS

C7-96-2228

James A. Trapp,

Appellant,

vs.

Lowell L. Hancuh, et al.,

Respondents.

Filed April 22, 1997

Affirmed in part and reversed in part; motion denied

Mulally, Judge

[*]

Ramsey County District Court

File No. CX938604

Kevin M. Busch, Moss & Barnett, 90 South Seventh Street, Minneapolis, MN 55402-4129 (for Appellant)

John A. Pecchia, Christoffel, Elliott & Albrecht, P.A., 805 Capital Centre, 386 North Wabasha Street, St. Paul, MN 55102 (for Respondents

Considered and decided by Huspeni, Presiding Judge, Parker, Judge, and Mually, Judge.

U N P U B L I S H E D O P I N I O N

MULALLY, Judge

FACTS

Appellant James Trapp and Glenn Mischke owned MAT Properties, a partnership. In March 1989, Trapp, Mischke, and respondent Lowell Hancuh formed LAW Properties, a general partnership (the partnership). Under the partnership agreement, each of the three partners was credited with an original capital contribution of $70,000. The agreement stated:

The parties understand that the original capital contributions as set forth above represent $70,000.00 cash paid by Lowell L. Hancuh, and the transfer by Glenn W. Mischke and James A. Trapp of $140,000.00, being their equity in a certain building at 1990 County Road D, Maplewood, Minnesota, pursuant to the terms of a Purchase Agreement wherein that property has been transferred from MAT Properties, a partnership, to this partnership.

Hancuh's $70,000 contribution was paid to MAT Properties.

In October 1989, Trapp, in his individual capacity, obtained a loan for $57,500 from respondent AAA Wholesale Trucks, Inc., a corporation owned by Hancuh. Trapp agreed to repay AAA at an interest rate of 15% per year based on a 360-day year. Trapp gave his one-third interest in LAW Properties as a security interest. Trapp failed to pay the loan on its due date of April 1, 1990, and AAA said it considered Trapp's interest in the partnership to be forfeited 31 days later. AAA did not send written notice of foreclosure, of Trapp's right to redeem, or of its intent to retain Trapp's partnership interest.

A few months later, Trapp notified AAA that he would pay the loan and did not intend to forfeit his partnership interest. Claiming that Trapp had already forfeited, AAA retained Trapp's interest in the partnership. Hancuh gave Trapp a Form K-1 for the 1990 tax year, stating that Trapp's interest in the partnership decreased from 33.33% to 0. In the 1990 federal income tax return, Trapp represented that he had a capital loss on the "sale of partnership interest." He listed the cost or basis of his partnership interest to be $77,124 and listed its "sales price" as $57,500.

Trapp sued AAA and Hancuh, asserting that the loan was usurious and that Hancuh failed to comply with the Uniform Commercial Code (UCC) notice requirements for forfeiture. The trial court granted summary judgment in favor of AAA and Hancuh. The court of appeals reversed, concluding that (1) the loan was usurious and (2) article 9 of the UCC applied, and AAA failed to complete a proper foreclosure of the security interest. Trapp v. Hancuh, 530 N.W.2d 879, 888-89 (Minn. App. 1995). This court remanded the case for a determination of the amount of Trapp's usury remedy and for findings on the value of Trapp's partnership interest at the time of the foreclosure. Id. at 889.

On remand, the trial court ruled that "book value" should be used. Neither party appeals that ruling. The parties agreed that the best way to ascertain book value was to determine the initial book value (when the partnership was formed in 1989) and adjust that initial book value to reflect transactions until May 1, 1990. The parties further agreed that the proper adjustment to Trapp's equity account to reflect all transactions until May 1, 1990, was a $12,000 increase. The parties' dispute was over the initial book value. The trial court determined that Trapp's share of the partnership's initial book value was $35,000. Hancuh and AAA appeal.

D E C I S I O N

When material facts are not in dispute, a reviewing court need not defer to the trial court's application of the law. Hubred v. Control Data Corp., 442 N.W.2d 308, 310 (Minn. 1989). The construction and effect of an agreement are questions of law for the court. Turner v. Alpha Phi Sorority House, 276 N.W.2d 63, 66 (Minn. 1979).

1. Trapp contends that the trial court should have examined the partnership's fair market value when calculating book value. We will not disturb the trial court's discretion in choosing its valuation methods. See Cates v. Cates, 124 S.E.2d 375, 378 (Ga. 1962) (book value of business is not synonymous with market value; rather, book value is based on cost of asset as shown on business's books).

The trial court determined that the partnership owned $140,000 in real estate equity and that Hancuh's $70,000 contribution pursuant to the partnership agreement amounted to two $35,000 capital distributions to Trapp and Mischke. The trial court concluded that after Hancuh's $70,000 contribution, Hancuh was left with a capital account of $70,000, and Trapp and Mischke each had capital accounts of $35,000. We disagree with the trial court's analysis of the transactions surrounding the formation of the partnership. The evidence shows that each partner contributed at least $70,000, and the only reasonable interpretation of the partnership records leads to a conclusion that the initial book value was at least $210,000. Hancuh's $70,000 payment to MAT Properties was made to balance the contribution by Trapp and Mischke of real estate worth at least $210,000.

First, tax records consistently show that the equity in the partnership's real estate was never less than $210,000. Second, Trapp's 1990 tax records establish that he owned a one-third share of the partnership, a fact that cannot be reconciled with the trial court's conclusion that Hancuh had a capital account of $70,000 while Trapp and Mischke's capital accounts stood at $35,000. Third, Hancuh's $70,000 contribution cannot be a capital distribution because it was not paid to the partnership, but to MAT Properties. It was impossible for the partnership to make the alleged capital distributions to Trapp and Mischke because the partnership never received the cash from Hancuh.

2. Trapp argues that he is also entitled to one-third of partnership distributions made after May 1, 1990. In Trapp v. Hancuh, 530 N.W.2d 879, this court held that AAA was liable to Trapp for his interest in the partnership at the time AAA foreclosed on the partnership interest (which the parties agree was May 1, 1990). Id. at 888. This court also stated that "Trapp is entitled to any partnership distribution attributable to his interest." Id. We interpret this statement to mean that Trapp was entitled to distributions made up until the time of the AAA foreclosure. Because this court set a valuation date of May 1, 1990, and Trapp is being paid for his share of the partnership as of that date, it is illogical to award him distributions beyond that date. Moreover, it would be inequitable to award Trapp the distributions after May 1, 1990, because Trapp himself reported on his federal tax returns that he suffered a capital loss on the "sale" of his partnership interest on May 1, 1990. We affirm the trial court on the issue of distributions made after May 1, 1990.

Finally, we deny Trapp's motion to strike Hancuh's brief and appendix. The material to which Trapp objects is part of the trial court file, and the statement of the record states that Hancuh was to submit to the trial court the information at issue. We grant Hancuh's motion to strike that portion of Trapp's reply brief concerning the suspension of an accountant. See Thiele v. Stich, 425 N.W.2d 580, 582-83 (Minn. 1988) (appellate court may not consider matters not offered to and received by trial court). We deny Hancuh's motion for sanctions and costs.

Trapp is entitled to his $70,000 share in the partnership, the $12,000 increase to which the parties stipulated, and $7,285.20 in usury penalties. Because Trapp is still obligated to pay the $57,500 unpaid principal of the loan he received from AAA, Trapp is entitled to collect $31,785.20.

Affirmed in part and reversed in part; motion denied.

[ ]* Retired judge of the district court, serving as judge of the Minnesota Court of Appeals by appointment pursuant to Minn. Const. art. VI, § 10.