878 N.W.2d 515
Minn. Ct. App.2016Background
- Araz borrowed $700,000 from NJK under written loan documents (revolving credit agreement, amended promissory note, security agreement) dated 1997–1998; Araz made minimal payments and NJK wrote off the loan for tax purposes.
- Araz’s CEO Nazie Eftekhari testified that NJK representatives orally told her the debt was forgiven; Araz later made sporadic payments and did not report cancellation-of-debt income or receive IRS Form 1099-C.
- NJK sent a written demand for payment in September 2012; Araz replied that all matters were settled and no debt remained, then NJK sued for breach of contract.
- The district court granted summary judgment to NJK on Araz’s defense that the debt had been forgiven because no written agreement of forgiveness existed under Minn. Stat. § 513.33; the court left for trial Araz’s separate gift-defense, which a jury later rejected.
- Judgment was entered for NJK for principal, interest, and attorney fees; Araz appealed the district court’s ruling that an oral promise to forgive debt must be written to be enforceable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an oral promise to forgive debt is a "credit agreement" under Minn. Stat. § 513.33 requiring a writing | Araz: forgiveness is not a "forbearance" or "financial accommodation" covered by the statute and thus need not be in writing | NJK: a promise to forgive debt falls within the statute’s broad definition of credit agreement (including forbearance or other financial accommodation) and must be written | The court held oral promises to forgive debt are credit agreements under § 513.33 and require a writing; Araz’s defense fails as a matter of law. |
Key Cases Cited
- Commerce Bank v. W. Bend Mut. Ins. Co., 870 N.W.2d 770 (Minn. 2015) (standard of review for summary judgment on appeal)
- McKee v. Laurion, 825 N.W.2d 725 (Minn. 2013) (no genuine issue for trial standard)
- Greuling v. Wells Fargo Home Mortg., Inc., 690 N.W.2d 757 (Minn. App. 2005) (claims on unwritten credit agreements fail as a matter of law)
- BankCherokee v. Insignia Dev., LLC, 779 N.W.2d 896 (Minn. App. 2010) (an "action" under § 513.33 includes affirmative defenses)
- Rural Am. Bank of Greenwald v. Herickhoff, 485 N.W.2d 702 (Minn. 1992) (origins and purpose of § 513.33; broad reading of "financial accommodation")
- Resolution Tr. Corp. v. Thompson, 989 F.2d 942 (7th Cir. 1993) (oral forgiveness characterized as a credit agreement under Illinois statute)
- Westinghouse Elec. Corp. v. McLean, 938 F. Supp. 487 (N.D. Ill. 1996) (district court holding definition of credit agreement includes oral agreements to forgive debt)