2010-02-24 Notice of Filing of Order Hennen Construction CoState of Minnesota
Wright County
MICHAEL CHRISTOPHER COURI
COURI & MACARTHUR LAW OFFICE
P O BOX 369
ST MICHAEL MN 55376
District Court
Tenth Judicial District
Court File Number: 86-CV-08-10906
Case Type: Contract
Notice of Filing of Order
Hennen Construction Co vs Contractor Property Developers Company, Alliance Bank,
City of Albertville
You are notified that an order was filed on 2/23/10.
Dated: February 24, 2010
cc: Contractor Property Developers Company
GLENN A BERGMAN
DAVID J LENHARDT
Peggy Gentles
Court Administrator
Wright County District Court
10 2nd Street NW Rm 201
Buffalo MN 55313-1192
763-682-7539
A true and correct copy of this notice has been served by mail upon the parties herein at the last
known address of each, pursuant to Minnesota Rules of Civil Procedure, Rule 77.04.
MNCIS-CIV-139 STATE Notice of Filing of Order Rev. 12/2002
STATE OF MINNESOTA
COUNTY OF WRIGHT
Hennen Construction Co.,
Plaintiff,
Mm
Contractor Property Developers
Company, a Minnesota corporation;
Alliance Bank, a corporation; and
City of Albertville, a Minnesota
municipal corporation;
Defendants.
DISTRICT COURT
TENTH JUDICIAL DISTRICT
Case Type: Other Contracts
Court File No.: 86-CV-08-10906
The above -entitled matter came before the undersigned Judge of District Court on
January 8, 2010 at the Wright County Courthouse, Buffalo, Minnesota, pursuant to Defendant
Alliance Bank's motion for summary judgment.
Patrick Michenfelder, Esq. represented Plaintiff; Glenn Bergman, Esq. represented
Defendant Alliance Bank; Michael Couri, Esq. and Sarah Schwarzhoff, Esq. represented
Defendant City of Albertville; Defendant Contractor Property Developers Company did not
appear.
The Court, based upon the files, records, submissions of the parties, and being duly
advised in the premises, makes the following:
1. Defendant Alliance Bank's motion for summary judgment is GRANTED. Accordingly,
Plaintiff's claim against Alliance Bank is dismissed with prejudice.
The attached memorandum of law is incorporated herein by reference.
Dated: L3 LO LD _
Dale E. Mosey
Judge of District Court
L R
bA9GHTG'CUIt NPNNE5DTA
Y
MEMORANDUM OF LAW
On September 7, 2005, Defendant Contractor Property Developers Company ("CPDC")
and Defendant City of Albertville ("the City") executed a Planned Unit Development Agreement
("Development Agreement") to govern the development of the Towne Lakes 6`h Addition
subdivision in Albertville, Minnesota. The Development Agreement required CPDC to provide
the City with an irrevocable letter of credit to secure CPDC's obligations under the Development
Agreement,
On December 20, 2005, via application from CPDC, Defendant Alliance Bank
("Alliance") issued an irrevocable letter of credit ("the Letter of Credit") in favor of the City.
The Letter of Credit did not mention Plaintiff nor any other person or entity. It also contained
the following paragraph:
This Letter of Credit is not assignable or transferable by
endorsement or in any other manner. This Letter of Credit sets
forth our full understanding which shall in no way be modified,
amended, amplified or limited by reference to any other
documents, instrument or agreement, whether or not referenced to
herein.
(Pass Aff. Ex. 1, 2.)
On September 21, 2005, Plaintiff contracted with CPDC to perform certain work on the
development. CPDC agreed to pay Plaintiff $89,938.82. Plaintiff fully performed on August 24,
2007. To date, CPDC has not paid any money it owes Plaintiff under the contract.
On March 9, 2009, Plaintiff filed suit against CPDC, Alliance, and the City. Plaintiff
alleged, among other things, that it is an intended beneficiary of the Development Agreement
and, accordingly, that the City is required to draw upon the Letter of Credit to satisfy CPDC's
payment obligation.
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Alliance now moves the Court for summary judgment dismissing Plaintiff's claim against
Alliance. Summary judgment "shall be rendered forthwith if the [record shows] that there is no
genuine issue as to any material fact and that either party is entitled to a judgment as a matter of
law." Minn. R. Civ. P. 56.03. "When contract terms are not patently ambiguous, summary
judgment is appropriate." Twin City Constr. Co. of Fargo, N.D. v. ITT Indus. Credit Co., 358
N.W.2d 716, 718 (Minn. Ct. App. 1984). And "where the intent of the parties may be
determined entirely from the writing, the construction of the contract is for the court." Id. The
Court concludes that summary judgment is appropriate, and grants Alliance's motion.
"Generally, a stranger to a contract does not have rights under the contract, but an
exception exists if a third party is an intended beneficiary of the contract." Hickman v. SAFECO
Ins. Co. of Am., 695 N.W.2d 365, 369 (Minn. 2005). Minnesota has adopted the intended
beneficiary approach contained in section 302 of the Restatement (Second) of Contracts (1979).
Cretex Companies, Inc, v. Constr. Leaders, Inc., 342 N.W.2d 135, 139 (Minn. 1984). Under this
approach, a third party can recover as an intended beneficiary if (1) recognition of third -party
beneficiary rights is "appropriate" and (2) either the duty -owed or the intent -to -benefit test is
satisfied. Id. The duty -owed test is satisfied if the promisor's performance under the contract
discharges a duty otherwise owed the third party by the promisee. Id. The intent -to -benefit test
is satisfied if the contract expresses some intent by the contracting parties to benefit the third
party through contractual performance. Id. In ascertaining the contracting parties' intent, courts
consider all the circumstances surrounding the contract, including who receives performance.
Buchman Plumbing Co., Inc. v. Regents of the Univ. of Minn., 215 N.W.2d 479, 484 (Minn.
1974). If a third party does not meet either of these tests, it has no right to enforce the contract.
Cretex, 342 N.W.2d at 139.
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Plaintiff argues that it is an intended third -party beneficiary of the Development
Agreement and, accordingly, that the City is required to draw upon the Letter of Credit to satisfy
CPDC's payment obligation. Alliance argues that Plaintiff is not an intended third -party
beneficiary of the Letter of Credit; the City agrees with Alliance. Because the parties disagree
about which contract —the Development Agreement or the Letter of Credit —should be analyzed,
the Court chooses to analyze both and concludes that Plaintiff is not an intended third -party
beneficiary of either.
Development Agreement
To satisfy the duty -owed test, the promisor's performance under the contract must
discharge a duty otherwise owed the third party by the promisee. In the Development
Agreement, CPDC agrees to develop the subdivision in compliance with the City's zoning and
public improvements requirements. Thus, CPDC is the promisor and the City is the promisee.
As applied here, the duty -owed test is not satisfied because CPDC's performance under the
contract does not discharge a duty owed Plaintiff by the City. Indeed, the City owes no duty to
Plaintiff under the Development Agreement.
To satisfy the intent -to -benefit test, the contract must express some intent by the
contracting parties to benefit the third party through contractual performance, and courts
consider who receives performance. Here, the City receives performance under the
Development Agreement. Moreover, the Development Agreement does not identify Plaintiff nor
express any intent to benefit Plaintiff. The purpose of requiring CPDC,.t/o-pre*i4e a letter of
credit is to benefit the City, not Plaintiff. Accordingly, the intent -to -benefit test is not satisfied.
Plaintiff cites Twin City Constr. Co. of Fargo, N.D. v. ITT Indus. Credit Co., 358 N.W.2d
716 (Minn. Ct. App. 1984) and Julian Johnson Const. Corp. v. Parranto, 352 N.W.2d 808
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(Minn. Ct. App. 1984) to support its argument that it is an intended third -party beneficiary of the
Development Agreement. Plaintiffs reliance is misplaced, however, because both cases are
factually distinguishable from this one.
Twin City Constr. involved a contract between Twin City and a developer for the
construction of a hotel. Twin City Constr., 358 N.W.2d at 717. After some performance by
Twin City, the developer stopped making progress payments, and Twin City perfected a
mechanic's lien. Id. The developer then sought a rescue loan from a bank. Id.
The bank agreed to issue the developer a loan, but only if Twin City made several
concessions, including releasing its mechanic's lien. Id. Twin City agreed, and the bank
finalized the loan to the developer. Id. As part of the loan agreement, the developer assigned to
the bank its interest in the original construction agreement with Twin City, and the bank paid
Twin City directly. Id.
Twin City resumed construction, and the bank made all but the final progress payment.
Id. The bank refused to make the final payment because it claimed the developer defaulted on
the loan agreement. Id. Twin City sued, claiming that it was an intended third -party beneficiary
of the loan agreement and could force the bank to make the final payment. Id.
The Court of Appeals held that Twin City was an intended third -party beneficiary of the
loan agreement because both the duty -owed and the intent -to -benefit tests were satisfied. Id. at
718. Regarding the duty -owed test, the court held that the bank's (the promisor) performance
under the loan agreement discharged a duty owed Twin City by the developer (the promisee). Id.
Regarding the intent -to -benefit test, the court held that the bank intended to benefit Twin City
because it agreed to pay Twin City only if Twin City made certain concessions and because
Twin City received performance under the loan agreement. Id.
rd
The facts here are different. First, the developer in Twin City Constr. (the promisee),
unlike the City here, owed the third party a duty of payment under the development agreement.
Here, the City does not make any actionable promises in the Development Agreement; it merely
allows CPDC to develop the subdivision so long as it complies with zoning and public
improvements requirements. Second, the City and CPDC did not intend to benefit Plaintiff when
they executed the Development Agreement. Plaintiff receives no performance under the
Development Agreement. Moreover, Plaintiff did not become part of the project until two
weeks after execution of the Development Agreement.
Parranto involved three contracts related to the development of a plat. Parranto, 352
N.W.2d at 809. Parranto, a developer, and a township executed a development agreement in
which the township agreed to install utilities and build roads and Parranto agreed to develop the
plat in accordance with a development plan. Id. The township then contracted with a
construction company to install the roads. Id. Later, Parranto orally contracted with the
construction company to excavate, fill, and compact certain building sites. Id. The construction
company agreed to comply with the township's soil compaction requirement. Id.
After the construction company excavated, filled, and compacted the building sites,
Parranto prepared to build foundations for houses. Id. The township demanded to inspect the
sites before construction, and the township's inspector found that the sites did not meet the
township's soil compaction requirement. Id. Parranto ultimately expended its own money to
correct the compaction problem, and it sued the construction company to recover those expenses.
Id. at 810.
The district court concluded that Parranto was an intended third -party beneficiary of the
contract between the construction company and the township, and awarded Parranto damages.
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Id. The construction company appealed, and the Court of Appeals affirmed, holding that
Parranto satisfied the intent -to -benefit test. Id. at 811. The Court of Appeals found that at the
time the construction company and the township formed their contract for the installation of
roads (the second contract), the township was already obligated to Parranto to build the roads.
Id. Accordingly, the court found that Parranto was to receive performance under the contract
and, thus, the township and construction company intended to benefit Parranto. Id.
Here, again, the facts are different from Parranto. Unlike Parranto, Plaintiff was not to
receive any performance under the Development Agreement. Moreover, the Development
Agreement does not mention Plaintiff or otherwise express any intent to benefit Plaintiff.
Letter of Credit
Alliance issued the Letter of Credit to the City at the request of CPDC to secure CPDC's
obligations under the Development Agreement. Thus, the duty -owed test is satisfied if
Alliance's performance under the Letter of Credit discharges a duty otherwise owed to Plaintiff
by the City. The City does not owe any duty to Plaintiff. Accordingly, the duty -owed test is not
satisfied.
The intent -to -benefit test is also not satisfied. Performance under the Letter of Credit is
rendered to the City, not Plaintiff. Moreover, the Letter of Credit does not reference Plaintiff nor
express any intent to benefit Plaintiff. Indeed, it expressly disclaims any intent to benefit third
parties. Accordingly, the Court concludes that the intent -to -benefit test is not satisfied.
Conclusion
Plaintiff does not satisfy either the duty -owed or the intent -to -benefit test as applied to
both the Development Agreement and the Letter of Credit. Therefore, it has no right to enforce
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either contract. Accordingly, Alliance's motion for summary judgment is granted. Plaintiff's
claim against Alliance is dismissed with prejudice.
W