• November 1, 2010

[UPDATE: Hearing of the Minnesota Supreme Court appeal is set for Wednesday, November 3.  Barbara Jean D’Aquila will argue for the appellant.  Kevin Decker and Jonathan Schmidt of Briggs & Morgan are identified as counsel for the respondent.

The issues:

On appeal to the supreme court, the following issues are presented:  (1) what standard of review should an appellate court apply to a district court’s decision to grant equitable relief; (2) does Minnesota law permit reformation of a contract based on mutual mistake when the transaction is a sale of stock; and (3) does Minnesota law permit rescission of a contract based on mutual mistake when the transaction is a sale of stock?  (Dakota County)

[Original post:]  Imagine you sell a car, “lock, stock, and barrel,” and forget about the gold coins in the trunk, which double the value of the property you thought you sold.  Presumably, you would seek to rescind the transaction and, presumably, you would strenuously argue that no party to the transaction was aware of this, it would be unfair to let the purchaser walk away with your gold, and the transaction should be voided due to “mutual mistake.”  You would probably lose.

Based on the recent published Minnesota Court of Appeals decision, SCI Minnesota Funeral Services, Inc. v. Washburn-McReavy Funeral Corporation (Judges Wright, Larkin, and with Judge Worke, dissenting), you might find yourself out of luck.  In SCI Minnesota Fun. Servs.,  the seller meant to sell three cemetery and funeral-home businesses  through a stock sale, with a cost of $1 million.  Neither seller nor buyer knew at the time that the entity whose stock was sold also was the titled owner of about 12 acres of land with an additional value of $1 million.

Sellers were behind the eight ball at the Minnesota Court of Appeals when they relied on a 1969 Iowa Supreme Court case that recognized and rejected contrary 1919 precedent from the Minnesota Supreme Court.  “The opinions of foreign jurisdictions are not binding on this court.  We are bound to follow Minnesota Supreme Court precedent.”

The Court of Appeals did not just mechanically apply precedent but also highlighted the policy underpinning its decision:  “Ignoring the stock-sale form of a contract under these circumstances would excuse the seller from exercising due diligence to identify the corporate assets that will transfer pursuant to the sale. We decline to endorse this approach.”

(In other words, if you’re selling a corporate entity, “scrub” it to ensure that you’re not giving away more than you bargained for or else.)

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