This opinion will be unpublished and

may not be cited except as provided by

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




430 Kickernick Associates

Limited Partnership, et al.,



Lacey, LaMaster, Larson, Farmer, Inc.,

d/b/a LaMaster, Farmer, et al.,


James W. Farmer,


Filed May 6, 1997


Harten, Judge

Hennepin County District Court

File No. 939927

Gordon B. Conn, Jr., Faegre & Benson, LLP, 2200 Norwest Center, 90 South Seventh Street, Minneapolis, MN 55402 (for Appellant)

Gary A. Van Cleve, Daniel W. Voss, Larkin, Hoffman, Daly & Lindgren, Ltd., 1500 Norwest Financial Center, 7900 Xerxes Avenue South, Bloomington, MN 55431 (for Respondent)

Considered and decided by Harten, Presiding Judge, Toussaint, Chief Judge, and Amundson, Judge.



James W. Farmer appeals from a judgment holding him personally liable for a breached business lease because of his status as director and debtor of an insolvent corporation. There being insufficient evidence to support the district court's finding that Farmer's indebtedness to the insolvent corporation had been forgiven, we reverse.


At all relevant times, Farmer and Gary R. LaMaster were 50 percent shareholders and directors of the advertising agency Lacey, LaMaster, Larson, Farmer, Inc. (the Corporation). In exchange for promissory notes, the Corporation loaned approximately $40,000 to Farmer; Farmer thereafter made periodic payments to the Corporation on this indebtedness.

The Corporation became insolvent, owing its creditors $500,000 while valuing its assets at $50,000. In April 1993, the Corporation defaulted on a lease payment to its landlord, 430 Kickernick Associates Limited Partnership (430 Kickernick); 430 Kickernick evicted the Corporation and commenced this action for damages. The Corporation avoided bankruptcy by entering into an arrangement with another advertising agency to complete its work in progress. The Corporation hired Myles Spicer, who devised a repayment plan and assisted the Corporation in settling its debts. Although 430 Kickernick became aware of the voluntary repayment plan for the Corporation's creditors, it did not participate in the plan. Instead, 430 Kickernick pursued this action against the Corporation and also sought to hold Farmer and LaMaster personally liable.

Before trial, the district court granted partial summary judgment, finding the Corporation liable for breach of lease; the parties stipulated to damages. A two-day bench trial was held to determine Farmer and LaMaster's personal liability, if any, for the breached lease. 430 Kickernick based its claim on an illegal preference theory, alleging that the insolvent Corporation's directors breached a fiduciary duty owed to creditors when Farmer's $32,000 indebtedness to the Corporation was forgiven. The district court found that Farmer's indebtedness had been forgiven. Concluding that the loan's forgiveness constituted an impermissible preference, the district court found Farmer personally liable. This appeal followed.


When a district court tries a case without a jury, our review is limited to determining whether the district court's findings are clearly erroneous and whether it erred in its conclusions of law. Schweich v. Ziegler, Inc., 463 N.W.2d 722, 729 (Minn. 1990). The standard of review of a bench trial is broader than the standard for jury verdicts. Runia v. Marguth Agency, Inc., 437 N.W.2d 45, 48 (Minn. 1989). A district court's findings will not be reversed unless manifestly contrary to the weight of the evidence or not reasonably supported by the evidence as a whole. Northern States Power Co., v. Lyon Food Prods., Inc., 304 Minn. 196, 201, 229 N.W.2d 521, 524 (1975).

Farmer argues that the evidence was insufficient to support the district court's finding that his indebtedness had been forgiven. He contends that 430 Kickernick failed to present any evidence demonstrating corporate action to forgive his loan. We agree. The record demonstrates that: (1) the Corporation's records indicated that Farmer's loan remained outstanding; (2) the Corporation's unfiled bankruptcy petition showed $37,038 as due from officers; (3) Farmer continued to make payments on the debt as the Corporation wrapped up its business; and (4) Farmer testified that his debt remained outstanding, although he felt the amount had been reduced. In response, 430 Kickernick failed to produce any evidence to establish that the Corporation had acted to forgive Farmer's indebtedness. See LaFavor v. American Nat'l Ins. Co., 279 Minn. 5, 11-12, 155 N.W.2d 286, 291 (1967) (quoting Routh v. Routh, 256 Minn. 203, 207-08, 97 N.W.2d 644, 647-48 (1959)) (stating burden of producing evidence rests on party asserting existence of particular fact to be established).

After a thorough review of the record, the only evidence that arguably supports the district court's finding is LaMaster's testimony indicating his personal belief that Farmer's debt had been forgiven "[f]or all intents and purposes." This testimony standing alone is insufficient to support the district court's finding because it does not indicate that the Corporation, as a distinct legal entity, forgave Farmer's indebtedness. See Di Re v. Central Livestock Order Buying Co., 246 Minn. 279, 283, 74 N.W.2d 518, 523 (1956) (corporation is distinct legal entity with rights and liabilities that are independent from those of natural persons composing corporation); cf. Sparta Sportsfabrikk v. Nortur, Inc., 407 N.W.2d 128, 131 (Minn. App. 1987) (holding evidence, including minutes from board of directors meeting and board's authorization of directors, sufficient to support finding that corporation agreed to forgive portion of debt).

This is not a case in which the Corporation's directors ignored corporate formalities. The Corporation's board of directors presumably passed a resolution authorizing a loan to Farmer. See Minn. Stat. § 302A.501, subd. 1 (1996) (requiring affirmative majority vote of directors present to loan money to officer or other employee of corporation). The Corporation's board of directors met and passed a resolution to authorize the bankruptcy petition. For Farmer's indebtedness to the Corporation to have been forgiven, board action was required, but there is no evidence of such action. LaMaster's personal belief that "for all intents and purposes" the loan did not have to be repaid, was insufficient by itself to constitute forgiveness of the loan. Accordingly, based on the record before us, we conclude that the district court's finding on loan forgiveness was not reasonably supported by the evidence as a whole.

Given our conclusion, we need not consider Farmer's remaining arguments. Without a sound finding of loan forgiveness, there was no impermissible preference and Farmer cannot be held personally liable for the Corporation's breached lease. Finally, we note that 430 Kickernick no longer seeks review of the issues raised in its notice of review.