Lowell Thorud, Respondent, vs. Larry Grimlie, Appellant.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2002).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A03-330

 

Lowell Thorud,

Respondent,

 

vs.

 

Larry Grimlie,

Appellant.

 

Filed October 7, 2003 Affirmed Randall, Judge Concurring specially, Halbrooks, Judge

 

Wright County District Court

File No. C2-00-2657

 

 

James B. Fleming, Metcalf, Larson, Muth & Fleming, P.C., 313 W. Broadway, P.O. Box 446, Monticello, MN  55362 (for respondent)

 

Steven H. Silton and Charles A. Horowitz, Mansfield, Tanick & Cohen, P.A., 1700 Pillsbury Center South, 220 South Sixth Street, Minneapolis, MN  55402 (for appellant)

 

 

            Considered and decided by, Randall, Presiding Judge, Halbrooks, Judge, and Hudson, Judge.

U N P U B L I S H E D   O P I N I O N

RANDALL, Judge

            On appeal from a bench trial in which the district court entered judgment in favor of respondent for the full amount of a promissory note, appellant argues (1) the district court's exclusion of respondent's deposition as substantive evidence of intent to form a partnership was plain error; (2) the district court erred by denying appellant's motion for directed verdict at the close of evidence; and (3) the district court erred by interpreting the document executed by appellant as a promissory note rather than a partnership agreement.  We affirm.

FACTS

            Respondent, Lowell Thorud, was the owner of Thorud Incorporated, which manufactured various hydraulic valves.  During the course of his involvement with Thorud Inc., respondent became acquainted with appellant, Larry Grimlie, a machine-tool salesman.  In the fall of 1996, appellant approached respondent with a business proposition to purchase and resell equipment that appellant knew was available for sale in Germany.  This equipment included certain industrial boring and drilling machinery and various items of equipment used in conjunction with the operation of boring mills. 

            Appellant and respondent met several times to discuss the proposal, and on October 21, 1996, the parties executed a promissory note payable to the order of respondent.  The note consisted of a face amount of $270,000, and the terms of the note stated that, "the interest paid will be calculated as the difference in value between the purchase price plus expenses versus the selling price of the following described equipment."  Pursuant to the note, this amount was to be split 50-50 between appellant and respondent.      

            Following the execution of the promissory note, respondent advanced the full amount of $270,000 to appellant.  This amount was used to purchase the equipment referenced in the note, and shortly thereafter, appellant imported the machines and set them up in preparation for sale.  However, by the maturity date of the note, appellant was unsuccessful with his attempts to sell the equipment.  Although respondent was frustrated that the equipment had not sold, respondent permitted appellant to continue with his attempts to sell it. 

            In September 2000, the equipment was destroyed in a warehouse fire occurring on appellant's property.  Respondent discovered that appellant had not insured the equipment against casualty loss, and respondent demanded payment on the note.  Appellant refused payment and respondent brought this action to collect the amounts owing.  At trial, respondent testified under direct examination that it was his understanding that the business relationship between him and appellant was a debtor/creditor type of relationship.  Under cross-examination, appellant read portions of respondent's deposition in which respondent stated that his relationship with appellant, with respect to the equipment, was a partnership.  There was no objection, and the deposition testimony was admitted for impeachment purposes.  Later, under recross-examination, appellant attempted to read additional portions of the deposition into the record.  Respondent objected because appellant failed to read the selected portions of the deposition verbatim.  The district court sustained the objection, and appellant moved to admit the whole deposition into evidence.  The district court denied the motion, concluding that the entire deposition was not admissible as substantive evidence and would only be considered for purposes of impeachment.

            After respondent rested, appellant moved for a directed verdict, arguing that respondent's deposition testimony constituted substantive evidence of a partnership relationship.  The district court denied the motion determining that the parties did not have a partnership relationship.  Following the trial, judgment was entered in favor of respondent for the full amount of the note.  This appeal followed.

D E C I S I O N

I.

            Appellant argues that the court's exclusion of respondent's deposition as substantive evidence of intent was plain error.  Absent erroneous interpretation of the law, the question of whether to admit or exclude evidence is within the district court's discretion.  Kroning v. State Farm Auto Ins. Co., 567 N.W.2d 42, 45-46 (Minn. 1997).  "Entitlement to a new trial on grounds of improper evidentiary rulings rests upon the complaining party's ability to demonstrate prejudicial error."  Id. at 46 (quotation omitted).

            The Minnesota Rules of Civil Procedure state that the deposition of a party may be used by an adverse party for any purpose.  The Rules state:

Any deposition may be used by any party for the purpose of contradicting or impeaching the testimony of deponent as a witness or for any purpose permitted by the Minnesota Rules of Evidence.

 

Minn. R. Civ. P. 32.01(a).  But, in referring to rule 26.04 (now rule 32.01), the Minnesota Supreme Court stated that "[w]e do not read into this rule a mandatory requirement that a court must admit the deposition of an adverse party regardless of trial circumstances."  State, by Clark v. Wolkoff, 85 N.W.2d 401, 412 (Minn. 1957).

            Here, the district court admitted the deposition testimony as impeachment evidence.  The witness was present in the courtroom, and the court decided it was not necessary to admit and rely on the deposition as substantive evidence of respondent's intent.  Instead, the court looked at respondent's in-court testimony with regard to the parties' intent and the effective cross-examination by appellant of respondent on this issue.  See Wolkoff, 85 N.W.2d at 412 (stating that a deposition of an adverse party may be used "for any purpose," but it is not a compulsory substitute for examination in open court) (quotation omitted).  Appellant presents a strong argument, but it was a bench trial, and the district court judge, as fact-finder, ruled against him.  We cannot conclude the district court erred by excluding the entire deposition as substantive evidence.  Appellant was allowed to impeach with any relevant part of the deposition for which he laid the proper foundation.

II.

            Appellant contends that the district court erred by denying his motion for directed verdict at the close of evidence.  An appellate court reviews de novo the denial of a motion for a directed verdict.  Am. States Ins. Co. v. Ankrum, 651 N.W.2d 513, 521 (Minn. App. 2002).

            In reviewing an order denying a directed verdict, an appellate court will consider whether the evidence was sufficient to present a fact question to the jury.  Claflin v. Commercial State Bank, 487 N.W.2d 242, 247 (Minn. App. 1992), review denied (Minn. Aug. 4, 1992).  The district court should grant a directed verdict only where, viewing the evidence as a whole, the verdict is manifestly contrary to the evidence or to the law.  Id.  The district court must assume that all evidence favorable to the non-moving party is true, including the reasonable inferences drawn from that evidence.  Id.  Appellate courts apply the same standard when reviewing the denial of a directed verdict-motion.  Id.

            Appellant argues that based on the evidence presented at trial, the court erred by denying the motion for a directed verdict against respondent on his breach-of-contract claim. Appellant's argument relies heavily on the statements made by respondent in his deposition. Specifically, appellant's entire case is built around respondent's references in his deposition that he and appellant "were partners" in a business venture.  As stated earlier, the district court did admit the testimony for impeachment purposes.  The court apparently found respondent's in-court testimony more credible than his deposition testimony.  See In re Welfare of L.A.F., 554 N.W.2d 393, 396 (Minn. 1996) (stating credibility determinations are left to the fact-finders because they are "in a superior position to assess the credibility of witnesses").  Appellant literally attempts to argue that the deposition testimony should control the fact-finder, as a matter of law, even though respondent's testimony at trial raised differences.  It simply does not work that way.  The fact-finder hears both in-court testimony and deposition testimony and is entitled to assess its respective weight and credibility.

            Appellant contends that some of the terms of the agreement existed outside the four corners of the alleged promissory note, and those terms indicate the intent of the parties was to form a partnership.  These terms included (1) restrictions on appellant's use of the $270,000 for venture-only purposes; (2) respondent's right to solicit offers for the property; (3) inclusion of rent as an expense for storage off (but not on) appellant's premises; and (4) appellant's right to a 5% commission.  Appellant asserts that these terms were the basis for the district court's ruling that the promissory note was ambiguous and that parol evidence was necessary to interpret the note.  Then, based on partnership law, appellant argues the court erred by denying his motion for a directed verdict.

            The Minnesota Uniform Partnership Act prohibits an inference of partnership drawn if profits are to be received as interest on a loan.  Minn. Stat. § 323 A. 2-02 (c)(3)(v) (2002)  Here, the district court determined the note was ambiguous with respect to the payment of interest, and admitted parol evidence to decipher the parties' intent.  After considering the parol evidence, the district court concluded that one-half of the profits were to be received by respondent as interest on the $270,000 loan.  Because profits were to be received as interest on the loan to appellant, a partnership cannot be inferred.  The district court found that appellant executed a promissory note payable to respondent.  The court considered the testimony at trial and found respondent's in-court testimony regarding the business relationship to be credible.  Additionally, the court noted that the insurance claim for the loss of the equipment was made in appellant's name, rather than in the name of any alleged partnership. 

            We conclude the evidence, when viewed in favor of respondent, supports the district court's decision to deny appellant's motion for a directed verdict on the breach-of-contract claim.

III.

            Finally, appellant argues that the district court erred as a matter of law by interpreting the document executed by appellant as a promissory note rather than a partnership agreement.  Construction of the contract of the parties is a matter of law that this court reviews de novo.  Turner v. Alpha Phi Sorority House, 276 N.W.2d 63, 66 (Minn. 1979).

            A negotiable instrument is defined as:

an unconditional promise or order to pay a fixed amount of money, with or without interest or any other charges described in the promise or order, if it:

            (1) is payable to bearer or to order at the time it is issued or first comes into possession of a holder;

            (2) is payable on demand or at a definite time.

 

Minn. Stat. § 336.3-104(a)(1), (2) (2002).  A promissory note is a form of negotiable instrument.  Minn. Stat. § 336.3-104(b), (e) (2002).  A promissory note is also an unconditional promise in writing for the payment of a certain amount of money.  Smith v. First State Bank of Tyler, 95 Minn. 496, 497, 104 N.W. 369 (Minn. 1905).

            Minn. Stat. § 336.3-104(a)(3) (2002) states that negotiable instruments may "not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money."  Appellant argues that because the contract expressly requires appellant to provide undertakings in addition to the payment of money, the document cannot be a negotiable instrument under Minnesota law.  Appellant specifically addresses the statement in the document that provides "LARRY GRIMLIE will provide LOWELL THORUD complete accounting of expenses and sales for review."  However, this statement relates only to the calculation of interest due on the note and not to any additional undertaking outside the terms of the unconditional promise to repay the debt.  Minn. Stat. § 336.3-112 (2002) provides that:

[T]he amount or rate of interest may be stated or described in the instrument in any manner and may require reference to information not contained in the instrument.

 

Thus, the explanation about calculating interest does not except the document from the definition of a negotiable promissory note.

            Appellant also contends that pursuant to Minn. Stat. § 323A.2-02(c)(3) (2002), there is a presumption that a person who receives a share of the profits of a business is presumed to be a partner in the business.  But, the statute also states that the partnership status is no longer presumed if the profits are received in payment of interest or other charge on a loan, even if the amount varies with the profit of a business.  Minn. Stat. § 323A.2-02(c)(3)(v).

            Here, the note contained an unconditional promise or order to pay a fixed amount of money, with interest described in the promise, and was made payable to order at the time it was issued and by its terms was payable at a definite time.  The rate of interest was defined in the note as a share of the profits to be received by the business venture.  Respondent testified that it was not his intent to form a partnership and that it was his understanding that the document evidenced an underlying loan of money to appellant, made for the purpose of purchasing equipment that was to be sold and the loan repaid together with the interest based upon a share of the profits from the sale.  The district court determined that pursuant to Minn. Stat. § 323A.2-02(c)(3)(v) a partnership agreement between the parties could not be inferred because one-half of the profits were to be received by respondent as interest on the loan, even if the amount were to vary with the profit of the sale.  The evidence supports the decision.  We conclude the district court did not err by interpreting the document as a promissory note rather than a partnership agreement. 

            Affirmed.

 

 

HALBROOKS, Judge (concurring specially)

 

            I concur in the court's decision, but write separately because I disagree with the characterization of the trial court's use of the admitted portions of respondent's deposition.  The majority accepts the appellant's assertion that the trial court did not properly consider the deposition testimony as substantive evidence.  I read the record differently.

            In paragraph 9 of its findings of fact, conclusion of law, and order for judgment, the trial court stated, "[Appellant's] counsel, in his letter of argument, made extensive argument regarding [respondent's] deposition.  Said deposition was not admitted into evidence and, except to the extent used for impeachment of [respondent], it is improper for [appellant's] counsel to argue about matters not in evidence."  I understand that finding and the overall record to mean that the trial court ruled that (1) the respondent's deposition in its entirety was not admissible when the respondent was called as a witness at trial; (2) appellant's counsel was permitted to impeach respondent with his deposition testimony on the critical issue of whether the parties' relationship was a partnership; and (3) the portions of the deposition admitted into evidence, while impeachment of respondent's trial testimony, were substantive evidence to be weighed by the court in the context of all the other evidence.

            I think the record reflects that the trial court treated the deposition evidence as substantive evidence.  The court just was not persuaded to accept appellant's theory that was based on it.