Frank J. Rajkowski, Rajkowski Hansmeier Ltd., 11 Seventh Avenue North, P.O. Box 1433, St. Cloud, MN 56302 (for Respondent)

Considered and decided by Willis, Presiding Judge, Parker, Judge, and Peterson, Judge.

Appellant Rural American Bank of Foley/Gilman (the bank) challenges the district court's dismissal of its claim that respondents Patrick and Gail Albright breached their loan contract. The bank argues that the Albrights did not meet their burden of proving that they paid their loan. The Albrights claim that this court should sanction the bank for appealing the district court decision in bad faith. We affirm.

Absent clear error, this court cannot set aside a district court's findings of fact. Minn. R. Civ. P. 52.01. "A finding can be held to be clearly erroneous if the reviewing court on the entire evidence is left with a definite and firm conviction that a mistake has been committed." Northerly Ctr. Corp. v. Ramsey County, 311 Minn. 335, 341, 248 N.W.2d 923, 927 (1976).

The bank claims that the Albrights failed to establish by a preponderance of the evidence that they paid the renewal loan in full. See Dufresne v. American Nat'l Bank & Trust Co., 374 N.W.2d 763, 766-67 (Minn. App. 1985) ("The defense of payment is an affirmative one, and the burden of proof is on the party asserting it."), review denied (Minn. Dec. 13, 1985). The bank relies on Poppler v. O'Connor, 306 Minn. 539, 235 N.W.2d 617 (1975), where the supreme court reversed the district court's decision to credit the defendants' mortgage obligation because it was not clear that the district court found that the defendants had established payment by a fair preponderance of the evidence. Id. at 540-41, 235 N.W.2d at 618-19. The district court there found no clear evidence that the defendants had made payments to the plaintiff by an assignment of rents, but stated that it was giving the "benefit of the doubt" to the defendants. Id. at 540, 235 N.W.2d at 618. This case is factually distinguishable from Poppler because the district court here did not excuse the Albrights from meeting their burden of proof.

Gail Albright testified that in July 1994, the Albrights had money available to pay off the renewal loan from their $441 state tax refund, their $2131 federal tax refund, and the sale of cattle. She stated that she paid the loan in cash on July 22, 1994, and the bank teller who served her recorded the payment in the "mortgage loan record book" that the bank had given the Albrights for the original loan.[1] The bank teller testified that, although she had no independent recollection of the events of July 22, she would have remembered receiving a cash payment of approximately $3000, and the July 22 entry in the original loan record book merely reflects the fact that the original loan was paid by the renewal loan.

The district court resolved the conflict in evidence by crediting Gail Albright's testimony.

Where two opposing inferences can be drawn with equal justification from the same circumstantial evidence, it cannot be said that one preponderates over the other, in which event the party having the burden of proof must lose, "unless, of course, the issue can be resolved by crediting one of the parties' oral testimony."

Id. at 540, 235 N.W.2d at 618-19 (citation omitted). This court must give due regard to a district court's opportunity to judge the credibility of witnesses. Minn. R. Civ. P. 52.01. The district court did not clearly err in finding that the Albrights paid their renewal loan in full.

2. Sanctions.

The Albrights ask this court to sanction the bank, claiming the bank's arguments show it did not have a good faith belief that a reversal is justified. See Minn. R. Civ. P. 11 (requiring court to impose a sanction for a violation of the rule that an attorney must sign every paper submitted to the court, certifying that the paper is grounded in fact and law and that it is not interposed for any improper purpose); Minn. R. Civ. App. P. 138 (authorizing appellate court to award damages and costs to respondent if an appeal delays proceedings on district court judgment and appears to have been taken merely for delay). We disagree with the Albrights' claim.

"Sanctions are not appropriate merely because a party did not prevail on the merits." Rumachik v. Rumachik, 494 N.W.2d 68, 70 (Minn. App. 1992), review denied (Minn. Feb. 25, 1993). Rule 11 should be construed narrowly to avoid deterring legitimate or arguably legitimate claims. Id. at 71. To obtain damages under rule 138, there must be evidence that the appeal was frivolous or undertaken merely for delay. Bekis v. Schilling, 357 N.W.2d 362, 365 (Minn. App. 1984). Sanctions are not appropriate here. The bank provided substantial evidence to support its argument that the Albrights did not satisfy their loan obligation, and there is no evidence that the bank appealed for the purpose of delaying proceedings on the district court judgment.

Affirmed.

[ ]¹ The bank had recently instituted a system of issuing receipts upon loan payments and the parties provided conflicting testimony as to whether the loan officer told Gail Albright that she could continue using the original loan record book for recording payments.