New Minnesota Court Of Appeals Decision Questions The Effectiveness Of Statutory Cancellations

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Update (Jan. 27, 2012): On November 22, 2011, the Minnesota Supreme Court denied Naomi Farr’s petition for review.  Looks like, for better or worse, this one is on the books. 

Original Post (Sep. 22, 2011):

In a new published decision, Dimke v. Farr, the Minnesota Court of Appeals has called into question the effectiveness of the statutory process for cancelling residential purchase agreements. Minnesota’s statutory cancellation process afforded sellers three primary benefits: (1) no need for court, (2) finality, and (3) certainty. Has this new decision thrown these benefits out the window?

Before getting into the Dimke decision, a little background on statutory cancellations is in order. The Minnesota legislature has provided for a non-judicial process to cancel residential purchase agreements. The process works like this: If either the buyer or seller refuse to mutually cancel a purchase agreement, either one of them can serve a Notice of Cancellation on the other. If the party served with the Notice believes that the PA should stay in effect, they must go to court and seek an injunction within 15 days. If they don’t, then the PA is deemed cancelled. The principal benefit of this process is that it allows a PA to be cancelled without the need to go to court.

Before Dimke, I also believed the process brought the benefits of certainty and finality: Once you serve the Notice of Cancellation and the deadline to respond expires, the PA is cancelled…done,…finished. How else can a seller feel comfortable entering into a new PA with a new buyer?

The provision of the statutory cancellation statute at issue in Dimke reads like this:

[i]f an unfulfilled condition exists after the date specified for fulfillment in the terms of the purchase agreement for the conveyance of residential real property, which by the terms of the purchase agreement cancels the purchase agreement, either the purchaser or the seller may confirm the cancellation by serving upon the other party to the purchase agreement…a [cancellation] notice.

Now, on to the Dimke case. In Dimke, a seller served a buyer with a Notice of Declaratory Cancellation. The buyer never sought a court order suspending the cancellation.  Instead, the buyer sued the seller, seeking to enforce the purchase agreement. The district court decided that the Notice of Cancellation effectively cancelled the purchase agreement.  Case closed.

The buyer appealed, arguing that the case was not so open-and-shut. According to the buyer, the district court could not declare the PA cancelled without first considering whether the Notice of Cancellation was valid. The Court of Appeals accepted this argument, and held that a Notice of Cancellation under Minnesota Statute 559.217, subd. 4 would be effective only if there was an “unfulfilled condition” in the PA. Otherwise stated, a Notice of Cancellation is not valid unless preceded by an “unfulfilled condition.” On that basis, the Court of Appeals remanded the case back to the district court to decide whether there was an “unfulfilled condition.”

The Dimke case risks depriving sellers of the certainty and finality that they expected from the statutory cancellation proceeding. Now, all but the clearest instances of “unfulfilled conditions” might end up in court, where a judge will have to decide: “Is this really an unfulfilled condition?” Of perhaps greater concern, the Minnesota Court of Appeals seems to have left open the possibility that deciding whether a contract clause is an “unfulfilled condition” presents a genuine issue of material fact. If so, it will require a trial. Ughh!

In the meantime, the moral of this one is clear to me: Before serving a statutory cancellation, a turf warrior must carefully review the PA and the facts and circumstances to make darn sure that there is an unfulfilled condition warranting service of a declaratory cancellation. If not, then a cancellation with a right to cure under Minnesota Statute 559.217, subd. 3 may be the better option.