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Minnesota: Supreme Court Says “No” regarding Borrowers Claiming Equitable Estoppel in Oral Credit Agreements

Posted By USFN, Tuesday, October 11, 2016
Updated: Monday, October 3, 2016

October 11, 2016

by Paul A. Weingarden and Kevin Dobie
Usset, Weingarden & Liebo, PLLP – USFN Member (Minnesota)

In the law, there is an old saying 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, ending 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 states, 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.”

Promissory Estoppel
Both state and federal courts in Minnesota 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 has been consistently denied by federal courts as well. See Brisbin v. Aurora Loan Services, LLC, 679 F.3d 748 (8th Cir. 2012); LaBrant v. Mortgage Electronic Registration Systems, Inc., 870 F. Supp. 2d 671 (2012); Bracewell v. U.S. Bank, N.A., 748 F.3d 793 (8th Cir. 2014); and St. Jude Medical S.C., Inc. v. Tormey, 779 F.3d 894 (8th Cir. 2015).

Equitable Estoppel
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, N.A. v. Midwestern Machinery Co., 481 N.W.2d 875 (Minn. Ct. App. 1992); Highland Bank v. Dayab, unpublished, (Minn.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 challenging for mortgagees, including Bracewell v. U.S. Bank, N.A., 748 F.3d 793 (8th Cir. 2014) and Stumm v. BAC Home Loan Servicing, LP, 914 F. Supp. 2d 1009 (D. Minn. 2012). United States District Court judges accepting the concept of equitable estoppel include Judge Magnussen in Racutt v. U.S. Bank, N.A., No. 11-2948, 2012 WL 12423210, at *3 (D. Minn. 2012), and Judge Ann Montgomery in Laurent v. Mortgage Electronic Registration Systems, Inc., No. 11-2585, 2011 WL 6888800, at *4 (D. Minn. 2011).

In cases raising the equitable estoppel argument, the debtor alleges that the creditor acted in bad faith or that 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 provided what is hoped to be the definitive answer. [Figgins v. Wilcox, A14-1358 (Minn. June 1, 2016)]. In Figgins, the debtor alleged that the creditor orally told him not to make the balloon payment and that the creditor would refinance the loan. When the debtor checked on terms with a different bank, the creditor gave a poor credit response, resulting in a rejection and an ultimately higher interest rate on refinancing, all to the debtor’s 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 ‘[a]n agreement may be taken outside the statute of frauds by equitable or promissory estoppel.’ Id. at 880. Norwest Bank, a court of appeals decision, has never been explicitly overruled, but other court of appeal 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 expressly ruled in Figgins that “the text of section 513.33 is plain, clear, and unambiguous — no action on a credit agreement may be maintained unless the writing requirement is satisfied.” Presumably, as BOTH equitable and promissory estoppel concepts were noted in the opinion, it is anticipated that because the Minnesota Supreme Court is the ultimate arbiter in state law matters, both state and federal courts will refuse to consider equitable estoppel claims pertaining to alleged oral credit agreements in the future.

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