Blue Sky Real Estate, LLC, Appellant,

This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2018).

STATE OF MINNESOTA
IN COURT OF APPEALS
A19-1411

Blue Sky Real Estate, LLC,
Appellant,

vs.

Sunrise Banks, N.A.,
f/k/a University National Bank successor by merger with
Park Midway Bank, NA f/k/a Park Midway Bank,
f/k/a Saint Anthony Park State Bank,
Respondent.

Filed May 4, 2020
Affirmed
Smith, Tracy M., Judge

Ramsey County District Court
File No. 62-CV-18-6733

Kelly Vince Griffitts, Griffitts Law Office, PLLC, Eagan, Minnesota (for appellant)

Lindsay W. Cremona, Garth G. Gavenda, Anastasi Jellum, P.A., Stillwater, Minnesota (for
respondent)

Considered and decided by Hooten, Pr esiding Judge; Connolly, Judge; and Smith,
Tracy M., Judge.
U N P U B L I S H E D O P I N I O N
SMITH, TRACY M., Judge
This dispute arises from appellant Blue Sky Real Estate, LLC’s purchase, for
$75,000, of respondent Sunrise Banks, N.A.’s rights under a promissory note and mortgage

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after the mortgagors received a bankruptcy discharge. In its complaint, Blue Sky asserted
several claims against Sunrise, seeking either to undo the purchase or to recover damages.
The district court dismissed Blue Sky’s compla int for failure to state a claim. Blue Sky
argues that the district court erred because (1) the complaint alleges facts sufficient to show
a lack of consideration for the contract and, therefore, a basis to rescind it; (2) the complaint
alleges that, if a contract was formed, S unrise breached express and implied warranties
because it did not assign an existing note and mortgage and there was not $86,443.82 due
and owing as it warranted; and (3) the complaint alleges facts sufficient to justify rescission
of the contract based on mutual mistake. We conclude, based on the facts as alleged in the
complaint and its attached a ssignment agreement, that the contract was supported by
consideration, that Blue Sky accepted the no te and mortgage pursuant to a nonrecourse
agreement in which Sunrise expressly disclaimed any warranties as to their enforceability
or collectability, and that Blue Sky assumed the risk of any mutual mistake. We therefore
affirm.
FACTS
Blue Sky purchased respon dent Sunrise’s rights under a promissory note and
mortgage in August 2017. A year later, Blue Sky served a complaint alleging five counts
against Sunrise: (I) breach of contract, (II) re scission of contract due to mutual mistake,
(III) rescission of contract due to lack of consideration, (IV) breach of express and implied
warranties, and (V) misrepresentation. Sunrise moved to dismiss the complaint for failure
to state a claim upon which relief can be grante d pursuant to Minn. R. Civ. P. 12.02(e),
arguing that the promissory note and mortga ge were assigned by means of a nonrecourse

3
agreement that expressly precludes the action. The district court agreed and dismissed Blue
Sky’s claims with prejudice. Blue Sky now appeals. The facts as alleged in the complaint
are as follows.
On November 21, 2003, Michael and Nanc y Akpe obtained a loan of $85,200 from
Sunrise1 in order to fund the operation of their bus iness. In connection with the loan, the
Akpes executed a promissory note in favor of Sunrise in the original principal amount of
$85,200. The note was secured, in part, by a mortgage in favor of Sunrise encumbering
certain real property (specifically, their co ndominium unit) located in St. Paul (the
property).
After the Akpes defaulted on their loan, Sunrise sued them under the note in Ramsey
County District Court and, on July 27, 2010, obtained a judgment in the amount of
$75,982.31. Shortly thereafte r, on September 17, 2010, the Akpes filed a petition for
bankruptcy pursuant to chapter 13 of the United States Bankruptcy Code. 2 In their
bankruptcy petition and schedule, the Akpes listed the property as an asset and listed
Sunrise as a creditor holding an unsecured claim. Sunrise did not object to its treatment as

1 At the time the Akpes executed the note an d mortgage, it was with Park Midway Bank
(formerly known as St. Anthony Park State Bank). Sometime thereafter, Park Midway
Bank became known as Park Midway Bank, NA, and then it merged with University
National Bank, which then changed its name to Sunrise Bank. We refer to the bank as
“Sunrise” at all times for clarity.

2 Chapter 13 bankruptcy, also referred to as a wage earner’s plan, allows individuals with
regular income to develop a plan to repay all or part of their debts over a period of three to
five years. See 11 U.S.C. § 1322 (2018). During the pl an period, creditors are forbidden
from making collection efforts. 11 U.S.C. § 1301 (2018). The debt or is entitled to a
discharge upon completion of all payments un der the plan so long as all other statutory
requirements are satisfied. 11 U.S.C. § 1328 (2018).

4
an unsecured creditor; in fact, on January 19, 2011, Sunrise filed a proof of claim in the
Akpes’ bankruptcy case indicating that its claim of $75,982.32 was unsecured. 3 The
bankruptcy court entered an order confirming the Akpes’ chapter 13 plan. On October 20,
2015, after completion of their chapter 13 plan, the Akpe s received a discharge from the
bankruptcy court.
About a year and a half later, in the summer of 2017, an agent of Blue Sky contacted
a representative of Sunrise, seeking to negoti ate an assignment of the note and mortgage.
Blue Sky alleges that the Sunrise representativ e indicated to the Blue Sky agent that the
mortgage was still subject to foreclosure despite the Akpes’ bankruptcy. The parties, both
represented by counsel, ultimately came to an agreement that Sunrise would assign the note
and mortgage to Blue Sky in exchange for $75,000. The assignment agreement, titled
“NON-RECOURSE ASSIGNMENT AGREEMEN T,” disclaims any representations,
warranties (express or implied), or recourse against Sunrise, except for four warranties
specified therein. Specifically, the assignment agreement states:
Assignment and Payment. In exchange for the amount of
$75,000.00 hereby paid by As signee to Assignor for the
assignment of the Note and Mortgage, Assignor does hereby
grant, bargain, sell, transf er, and assign unto Assignee,

3 “Secured claim” and “unsecured claim” are terms of art within the Bankruptcy Code. See
11 U.S.C. § 506(a)(1) (2018); see also In re Okosisi, 451 B.R. 90, 93 (Bankr. D. Nev. 2011)
(explaining that “‘[s]ecured claim’ is a term of art within the Bankruptcy Code, and means
something different than it does for a creditor to have a security interest or lien outside of
bankruptcy”). Under the code, “[a]n allowe d claim of a creditor secured by a lien on
property in which the estate has an interest . . . is a secured claim to the extent of the value
of such creditor’s interest in the estate’s interest . . . and is an unsecured claim to the extent
that the value of such creditor’s interest . . . is less than the amount of such allowed claim.”
11 U.S.C. § 506(a)(1) (emphasis added).

5
absolutely and not upon any co ndition, all such right, title,
interest and claim Assignor may have in, to, and under the Note
and Mortgage, to have and to hold the same unto Assignee, its
successors and assigns forever, without any representation,
warranty (express or implied) or recourse, against Assignor,
whatsoever except as follows:

Assignor represents and warrants that: (i) it has
executed no prior assignment of the Note and Mortgage;
(ii) the individuals executin g this Agreement have the
appropriate power and authorit y to bind Assignor hereto;
(iii) Assignor is the sole owne r and holder of the Note and
Mortgage; and (iv) the amount due and owing under the terms
of the Note and Mortgage as of the date hereof is $86,443.82
and interest accrues on the outstanding principal balance in the
amount of $3.03 per day. This Agreement is made without
representation or warranty of any kind except as expressly
stated herein, including but no t limited to, any representation
or warranty regarding the enforc eability or collectability of
the Note and Mortgage, any default or even of default
thereunder, or compliance w ith any applicable laws or
regulations and is made without recourse whatsoever.

(Emphasis added.) Further, the agreement spec ifies that Blue Sky “made its decision to
purchase and take an assignment of the Note and Mortgage based upon its own independent
evaluation.” Blue Sky expressly represents mu ltiple times in the agre ement that it is not
relying on anything outside the four corners of the assignment agreement. The assignment
agreement also states that “each Party has car efully read this Agre ement and has had the
opportunity to consult with their resp ective counsel regarding its meaning and
consequences.”
About a year after the parties executed the assignment agreement, Blue Sky initiated
this action. As described above, Sunrise moved to dismiss the complaint for failure to state

6
a claim under rule 12.02(e), and the district court granted Sunrise’s motion and dismissed
Blue Sky’s claims with prejudice.
This appeal follows.
D E C I S I O N
We “review de novo the district court’s gr ant of a motion to dismiss under Minn. R.
Civ. P. 12.02(e)” and, in so doing, “consider only the fact s alleged in the complaint,
accepting those facts as true.” Sipe v. STS Mfg., Inc., 834 N.W.2d 683, 686 (Minn. 2013)
(quotation omitted). The question is “whether the complaint sets forth a legally sufficient
claim for relief.” Barton v. Moore, 558 N.W.2d 746, 749 (Mi nn. 1997). Dismissal under
rule 12.02(e) is appropriate only if “it appears to a certainty that no facts, which could be
introduced consistent with the pleading, exist which woul d support granting the relief
demanded.” Walsh v. U.S. Bank, N.A. , 851 N.W.2d 598, 602 (Minn. 2014) (quotation
omitted). Courts are “not b ound by legal conclusions st ated in a complaint when
determining whether the compla int survives a motio n to dismiss for failure to state a
claim.” Hebert v. City of Fifty Lakes, 744 N.W.2d 226, 235 (Minn. 2008).
I. The district court properly dismissed Bl ue Sky’s claim that the contract should
be rescinded for lack of consideration.

“The basic elements of a contract are offer, acceptance, and consideration.” Mattice
v. Minn. Prop. Ins. Placement , 655 N.W.2d 336, 344 (Minn. App. 2002). Accordingly,
“[w]hen there is a lack of considerati on, no valid contract is ever formed.” Franklin v.
Carpenter, 244 N.W.2d 492, 495 (Minn. 1976). Consideration may consist of a benefit to
one party or a detriment to another party. C & D Invs. v. Beaudoin, 364 N.W.2d 850, 853

7
(Minn. App. 1985), review denied (Minn. June 14, 1985). Valid consideration “requires
that a contractual promise be the product of a bargain.” Baehr v. Penn-O-Tex Oil Corp. ,
104 N.W.2d 661, 665 (Minn. 1960). As the supreme court has explained, though, “in this
usage, ‘bargain’ does not mean an exchange of things of equivalent, or any, value. It means
a negotiation resulting in the voluntary assump tion of an obligation by one party upon
condition of an act or forbearance by the other.” Id. The consideration requirement “insures
that the promise enforced as a contract is not accidental, casual, or gratuitous, but has been
uttered intentionally as the result of some deliberation, manifested by reciprocal bargaining
or negotiation.” Id. Minnesota courts “follow[] the long-standing contract principle that a
court will not examine the adequacy of consid eration as long as something of value has
passed between the parties.” Beaudoin, 364 N.W.2d at 853.
Blue Sky argues that the assignment agr eement lacked consid eration because the
note and mortgage were rendered valueless by the Akpes’ bankruptcy proceedings. The
complaint alleges that (1) the note “did not exist” at the time of the assignment because it
was “reduced to a judgment” in the July 2010 district court proceeding and then discharged
in the bankruptcy proceeding, and (2) the mortgage was “extinguished” in the bankruptcy
proceeding. Blue Sky elaborates on these arguments on appeal by reference to bankruptcy
law and its relationship to notes and mortgages.
Sunrise responds that consideration exists as a matter of law. It points to the
provision in the agreement specifying: “In exchange for the amount of $75,000.00 hereby
paid by Assignee to Assignor for the assignment of the Note and Mortgage, Assignor does
hereby grant . . . all such right, title, interest and claim Assignor may have in, to, and under

8
the Note and Mortgage . . . .” (Emphasis added.) Sunrise further observes that Blue Sky
explicitly recognized the existence of consideration in the recital stating that the agreement
was made “in consideration of the covenants and undertaki ngs contained herein and for
other good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged.” Sunrise argues that Blue Sky received what it bargained for: specifically,
all such right, title, interest, and claim as Sunrise may have in, to, and under the note and
mortgage. Sunrise urges this court not to en tertain Blue Sky’s bankruptcy-law analysis
about the value of the note and mortgage because, Sunrise contends, Blue Sky’s arguments
go towards the enforceability or collectability, not the existence of, the note and mortgage
and, in the assignment agreement, Blue Sky explicitly disclaimed any right to recourse over
“the enforceability or collectability of the Note and Mortgage.”
We conclude that Blue Sky’s lack-of-con sideration argument fails as a matter of
law. The assignment agreement specifically states the consideration, and Blue Sky
acknowledged therein that the consideration was sufficient. The express consideration
stated in the agreement is “all such right, title, interest and claim Assignor may have in, to,
and under the Note and Mortgage,” which indicat es that the parties contemplated that the
note and mortgage may not ha ve any value. Blue Sky ap proached Sunrise about the
assignment, Blue Sky was aware of the Akpes’ bankruptcy, and the parties engaged in a
bargaining process represented by counsel. The assignment agreement is the product of
negotiation and voluntary assumptions of oblig ations by each party; the resulting bargain
is not “accidental, casual, or gratuitous.” Baehr, 104 N.W.2d at 665. And to the extent that
Blue Sky argues that the note and mortgage have little to no value because they are

9
unenforceable or uncollectable, Blue Sky’s argument fails because it explicitly disclaimed
any right to recourse over “the enforceability or collectability of the Note and Mortgage.”4
We accordingly affirm the district court’s de cision to dismiss Blue Sky’s claim that the
contract should be rescinded for lack of consideration.
II. The district court properly dismissed Blue Sky’s claim for breach of express
and implied warranties.

For a plaintiff to prevail on a breach-of-warranty claim, the plaintiff must prove “the
existence of a warranty, a breach, and a ca usal link between the breach and the alleged
harm.” Peterson v. Bendix Home Sys., Inc. , 318 N.W.2d 50, 52-53 (Minn. 1982). The
assignment agreement here expressly disclaims all warranties, express or implied, except
the four specific warranties contained in the agreement:
Assignor represents and warrant s that: (i) it has executed no
prior assignment of the Note and Mortgage; (ii) the individuals
executing this Agreement have the appropriate power and
authority to bind Assignor hereto ; (iii) Assignor is the sole
owner and holder of the Note and Mortgage; and (iv) the
amount due and owing under the terms of the Note and
Mortgage as of the date here of is $86,443.82 and interest
accrues on the outstanding principal balance in the amount of
$3.03 per day.

Blue Sky bases its claim on warra nties (iii) and (iv). As to ( iii), Blue Sky alleges in the
complaint that Sunrise was not in fact the holder of a note and mortgage because the note
had been “reduced to judgm ent and discharged” in bankruptcy and the mortgage was
similarly “eliminated” through the bankruptcy proceeding. Blue Sky’s allegation as to (iv)

4 To the extent that Blue Sky instead argues that the note and mortgage no longer existed
at the time of assignment, this overlaps with its breach -of-warranty claim, which we
analyze next.

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relies on the same premise, with the compla int merely restating that the bankruptcy
proceedings render the stated warranty false.
Sunrise counters that Blue Sky’s argument fails because, again, it goes towards the
enforceability, not the existence, of the note and mortgage, and the assignment agreement
explicitly states that Blue Sky accepted the note and mortgage without “any representation
or warranty regarding [their] enforceability or collectability.” Sunrise argues that Blue Sky
accepted the note and mortgage subject to a nonrecourse agreement and with knowledge
of the Akpes’ bankruptcy proceeding, and that Blue Sky had full opportunity to access the
information regarding the bankruptcy before entering the assignment agreement.
The district court agreed with Sunrise, determining that “Blue Sky contracted away
any ability to seek liability against Sunrise sh ould the Note and/or Mortgage be deemed
uncollectible.”
To support its assertion that the note a nd mortgage no longer existed when the
parties entered the assignment agreement, Blue Sky cites general propositions of
bankruptcy law and applies them to the lim ited facts available re garding the Akpes’
chapter 13 proceeding. For inst ance, it explains that a chap ter 13 plan may “modify the
rights of holders of secured claims,” 11 U.S. C. § 1322(b)(2), and th en cites cases that
discuss “lien-stripping,” or how a creditor’s ability to proceed agains t property may, in
some circumstances, be extinguish ed in bankruptcy proceedings. See Harmon v. United
States ex rel. Farmers Home Admin. , 101 F.3d 574, 584 (8th Cir. 1996) (discussing lien-
stripping under Chapter 12 bankruptcy); In re Siemers, 205 B.R. 583, 586 (Bankr. D. Minn.
1997) (discussing the lien-stripping effects of Chapter 13 bankruptcy).

11
But we conclude that a detailed analysis under the bankruptcy statutes and case law
is unnecessary because Blue Sky’s argume nts all go towards th e enforceability and
collectability of the note and mortgage.5 The note and the mortgage exist. In the assignment
agreement, Blue Sky specifically acknowledged that it was receiving a note and mortgage
when it acknowledged its re ceipt and the sufficiency of the “good and valuable
consideration” specified in the contract. And, in opposition to Sunrise’s motion to dismiss,
Blue Sky submitted copies of (1) the promissory note, along with various documents
changing its terms; and (2) the mortgage, reco rded in Ramsey County in 2003, both of
which are referenced in the complaint. Cf. Martens v. Minn. Mining & Mfg. Co. , 616
N.W.2d 732, 739 n.7 (Minn. 2000) (noting that courts may consider documents referenced

5 Sunrise asserts that analysis of Blue Sky’s bankruptcy arguments is unnecessary to
resolve this case but that, even if the argumen ts were considered, they do not change the
result. Sunrise asserts that it “received no tr eatment in the Akpes’ Chapter 13 Plan” and
that, as a result, the general bankruptcy prin ciple that a mortgage remains a lien against
real property applies and thus, while the disc harge order in this ca se voids the personal
liability of the debtors, “it [d id] not eliminate the existence of the debt, nor the mortgage
which secures it.” But the record does not c ontain the Akpes’ bank ruptcy plan, and we
must evaluate a motion to dismiss under rule 12 based on the complaint. In any event, Blue
Sky’s arguments for the nonexistence of the mortgage rely on the concept of lien-stripping.
“The term ‘strip off’ is colloquially used when, there being no collateral value for a
mortgage, the entire lien is proposed to be avoided.” In re Fisette, 455 B.R. 177, 179 n.1
(B.A.P. 8th Cir. 2011). But, even assuming lien-stripping occurred as a result of the Akpes’
chapter 13 bankruptcy pr oceeding, nothing suggests that this affects the existence of the
mortgage; the “extinguishing” language th at Blue Sky highlights refers not to
extinguishing the mortgage itself , but rather to extinguishing the creditor’s ability to
proceed against the debtor and the property. See id. at 186-87, 187 n.9 (“The strip off of a
lien under § 1322(b)(2) is not the equivalent of receivi ng a discharge. . . . [A] discharge
releases a debtor’s in personam liability, but it does not affect the lien. A strip off avoids
the lien, thus extinguishing a creditor’s ability to proceed against the debtor in rem .”)
(citations omitted).

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in a complaint on a motion to dismiss). The issue is not the existence of the note and
mortgage, it is their enforceability and collectability.
And as to that, Sunrise specifically disclaimed, in an agreement titled “NON-
RECOURSE ASSIGNMENT AGREEMENT,” any representation or warranty regarding
the enforceability or collectability of the note and mortgage. Whether or not Blue Sky can
now foreclose on the mortgage or collect under the note following the Akpes’ bankruptcy
is thus immaterial. The district court proper ly dismissed Blue Sky’s claim for breach of
express or implied warranties.
III. The district court properly dismissed appellant’s claim for rescission of the
contract based on mutual mistake.

For a contract to be rescinded based on a mutual mistake, the mistaken belief must
be material and held by both parties. Winter v. Skoglund , 404 N.W.2d 786, 793 (Minn.
1987); N. Star Ctr., Inc. v. Sibley Bowl, Inc., 205 N.W.2d 331, 332 (Minn. 1973) (“Absent
ambiguity, fraud, or misrepresentation, a mist ake of one of the parties alone as to the
subject matter of the contract is no ground for rescission.”). “A material mistake of fact is
one that goes to the very nature of the purchase.” Beasley v. Medin , 479 N.W.2d 95, 98
(Minn. App. 1992). “A mistake relating merely to the attributes, quality, or value of the
subject of a sale does not warrant rescission.” Costello v. Sykes, 172 N.W. 907, 908 (Minn.
1919). And “[n]either does a mistake resp ecting something which was a matter of
inducement to the making of the contract, where the means of information were open alike
to both parties, and each was equally innocent, and there was no concealment of facts and

13
no imposition.” Id. A party may not avoid a contract on the grou nds of mutual mistake
when that party assumed the risk of mistake. Winter, 404 N.W.2d at 793.
Blue Sky argues that both parties were mi staken about “the subject matter of the
assignment, the existence of th e [m]ortgage and that the mortgage could be foreclosed.”
Sunrise responds that any alleged mistake goes to the value, rather th an the existence, of
the note and mortgage, and courts will not rescind a contract where “[t]here was no mistake
as to [the] identity or existence” of the thing exchanged, but only as to its value. Costello,
172 N.W. at 909.
Even assuming that Blue Sky could prove that both parties were mistaken as to the
existence of the note and mortgage, Blue Sky’s claim still fails as a matter of law if Blue
Sky assumed the risk of mistake. Winter, 404 N.W.2d at 793. In general, a party bears the
risk of mistake when: (1) the agreement of the parties al locates the risk to them; (2) the
party is aware, at the time the contract is made, that the party has only limited knowledge
with respect to facts but treat this limited knowledge as sufficient; or (3) the court allocates
the risk to the party on the ground that it is reasonable in the circumstances. Restatement
(Second) of Contracts § 154 (1981); see Winter, 404 N.W.2d at 796. Sunrise argues that
Blue Sky assumed the risk as to any mistaken belief about the note and mortgage because
it accepted them pursuant to a nonrecourse assignment agreement. It argues that the nature
of the nonrecourse agreement allocates the risk to the assignee and that Blue Sky had all of

14
the information about the Akpes’ bankruptcy proceeding available before the assignment
and still entered into the agreement.6
We conclude that Sunrise indeed assumed the risk of any mistake regarding how the
bankruptcy proceeding affected the note and mortgage. The Akpes’ bankruptcy discharge
occurred almost two years before the assignment agreement. Blue Sky approached Sunrise
about negotiating the assignment, was represen ted by counsel, and expressly represented
in the assignment agreement that it “made its decision to purchase and take an assignment
of the Note and Mortgage based upon its own independent eval uation.” Under these
circumstances, where the bankruptcy information was equally available to both parties and
Blue Sky knew that there had been a bankruptcy proceeding , Blue Sky assumed the risk
that the note and mortgage ha d been affected, or even ex tinguished, by the bankruptcy.
Accordingly, the district court properly dism issed Blue Sky’s claim for rescission of the
contract based on mutual mistake.
Affirmed.

6 Blue Sky contends th at Sunrise’s act of filing its cl aim in the Akpes’ bankruptcy as
unsecured was “highly unusual,” attempting to paint this as an anomalous and thus
unforeseeable situation. As explained above, though, “secured” and “unsecured” are terms
of art in the Bankruptcy Code and do not simply indicate whether a creditor has a security
interest in a general sense; they turn on the value available to satisfy the claim. 11 U.S.C.
§ 506(a)(1); see In re Fisette, 455 B.R. at 182; see also In re Okosisi, 451 B.R. at 93. In
the district court, Sunrise’s counsel argued that when the Akpes filed for bankruptcy in
2010, there was in fact no va lue to secure Sunrise’s mortgage—which was a second
mortgage—in the property, perhaps due to the recent housing market crash. Regardless of
whether this is true, it does no t impact our analysis here; it does not change the fact that
Blue Sky knew of the bankruptcy and had access to the bankru ptcy case prior to entering
into the assignment agreement.