Minnesota Supreme Court Ruling in Oral Credit Agreements

• By: ALFN
• On: 09/28/2016 16:00:22
• In: Legal Update

In the law, there is an old adage regarding oral contracts that goes something like this:  “An oral agreement isn't worth the paper it's not printed upon.”  That adage was driven home recently by a Minnesota Supreme Court decision which ended a nagging defense in state and federal courts on a single limited but vexatious issue.
 
The Minnesota Statute of Frauds codified as Minn. Stat. §513.33 sub 2 stats, in pertinent part: “A debtor may not maintain an action on a credit agreement unless the agreement is in writing, expresses consideration, sets forth the relevant terms and conditions, and is signed by the creditor and the debtor.” 
 
In Minnesota, both State and Federal courts have routinely rejected the formation of oral agreements in credit contracts under what is referred to as a promissory estoppel argument that an oral agreement to refinance was breached.  State Appellate Court decisions such as Greuling v. Wells Fargo Home Mortgage, Inc., 690 N.W.2d 757 (Minn. Ct. App. 2005), Bank Cherokee v. Insignia Development LLC, 779 N.W.2d 896 (Minn. Ct. App. 2010), and Rural American Bank of Greenwald v. Herickhoff, 473 N.W.2d 361 (Minn. Ct. App. 1991)have all considered and rejected the doctrine.
 
Similarly, promissory estoppel to prevent oral formation of  mortgage modifications have been routinely rejected by federal courts as well.  Brisbin v. Aurora Loan Services, LLC, 679 F.3rd 748 (8th Circuit 2012), Labrant v. Mortgage Electronic Registration Systems, Inc., 870 Fed. Supp. 2nd 671(d) Minn. 2012, Bracewell v. U.S. Bank, 748 F.3rd 793 (8th Cir. 2014), and St. Jude Medical v. Tormey, 779 F.3rd 894 (8th Cir. 2015).
 
Disturbingly, however, the concept of “equitable estoppel” has remained viable in both the state and federal courts.  The doctrine, based on the concept of detrimental reliance, has been recognized in State Appellate Court decisions such as Norwest Bank Minnesota v. Midwestern Machinery Co., 41 N.W.2d 875 (Minn. App. 1992), Highland Bank v. Zak Dayab (unpublished) Minn. Ct. App. 2011), and Bank Cherokee v. Insignia Development LLC, 779 N.W.2d 896 (Minn. Ct. App. 2010.  Federal cases recognizing the doctrine have been equally vexing for mortgagees, including Bracewell v. U.S. Bank, N.A., 748 F.3d 793 (8th Cir. 2013); Stumm v. BAC Home Loan Servicing, LP, 914 Fed. Supp. 2nd 1009 (D. Minn. 2012). Federal District Court judges accepting the concept of equitable estoppel include Judge Magnussen in Bradley and Elizabeth Racutt v. U.S. Bank, N.A., Civ. No. 11-2948 (Minn. District Court 2012) and Judge Ann Montgomery in Robert Laurent v. Mortgage Electronic Registration Systems, Inc., Civ. No. 11-2585 (Minn. District Court 2011).  In cases raising the argument, the Debtor alleges the creditor acted in bad faith or the debtor refrained from finding alternate credit believing the creditor was bound by an oral promise which was ultimately rejected, resulting in detrimental reliance. 
 
Thankfully, the Minnesota Supreme Court has now given us what is hoped to be the definitive answer.  In Patrick M. Figgins v. Wilcox, et al.(A14-1358 Minn.S.Ct, June 1, 2016), the Supreme Court appears to have slammed the door on equitable estoppel. In Figgins, supra, the Debtor alleged the creditor orally told him not to make the balloon payment and would refinance the loan. When the debtor checked terms with a different bank, the creditor gave a poor credit response which resulted in a rejection and an ultimately higher interest rate on refinancing, all to his detriment. In raising the argument to enforce an alleged oral credit agreement, the Supreme Court noted:
 
To support his position, Appellant cites Norwest Bank Minnesota N.A. v. Midwestern Machinery Co., 481 N.W.2d 875 (Minn. App. 1992), which exempted a claim of promissory estoppel from section 513.33 because “an agreement may be taken outside the statute of frauds by equitable or promissory estoppel.”  Norwest Bank, a court of appeals decision, has never been explicitly overruled, but other court of appeals decisions have declined to follow its holding and have refused to exempt claims of promissory estoppel from section 513.33.
 
In denying relief, the Supreme Court ruled that the text of Section 513.33 is plain, clear and unambiguous and that no action on a credit agreement may be maintained unless the writing requirement is satisfied. Presumably, as BOTH equitable and promissory estoppels concepts were noted in the opinion, it is our belief that since the Minnesota Supreme Court is the ultimate arbiter in state law matters, both state and federal courts will now refuse to consider equitable estoppel claims in the future, and one more arrow in the quiver of plaintiffs counsel has been removed.

By Paul A. Weingarden & Kevin Dobie
USSET, WEINGARDEN & LIEBO, PLLP (Minnesota)