This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (2002).






Heritage Bank, N.A.,





American Musical Supply, Inc.,



Filed September 30, 2003


Gordon W. Shumaker, Judge


Kandiyohi County District Court

File No. C4-02-1013


M. Barry Darval, Darval, Wermerskirchen & Frank, P.A., 1601 East Highway 12, P.O. Box 1175, Willmar, MN 56201 (for respondent)


Thomas P. Melloy, Gray, Plant, Mooty, Mooty & Bennett, P.A., 1010 West St. Germain, Suite 600, St. Cloud, MN 56301 (for appellant)




            Considered and decided by Willis, Presiding Judge; Toussaint, Chief Judge; and Shumaker, Judge.


U N P U B L I S H E D   O P I N I O N


The district court granted summary judgment in favor of respondent, holding that the parties’ contract required appellant to guarantee 100% of all loans.  Arguing that the guaranty was limited to 10% of outstanding loans, appellant challenges the district court’s interpretation of the parties’ contract.  Because the district court did not err in its construction of the agreement and grant of summary judgment, we affirm.


            Appellant American Musical Supply (AMS) sells musical instruments, equipment, and supplies.  On June 1, 2000, AMS entered into a contract with respondent Heritage Bank N.A. called the “X-Plan Agreement.”  That agreement was a consumer-loan financing plan that enabled AMS customers to borrow money from Heritage for the purchase of musical instruments, equipment, or supplies.  The agreement provided that AMS would guarantee the loans.

When defaults occurred, Heritage debited a reserve account established by AMS.  AMS disputed the amounts of the debits, contending that there was a “cap” on the guaranty.  Heritage maintained that the agreement required AMS to guarantee 100% of all loans.

Heritage brought a declaratory-judgment action against AMS and then moved for summary judgment, seeking the district court’s declaration that the X-Plan Agreement required AMS to guarantee 100% of the loans made under the agreement.  The district court ruled that the plain language of the guaranty in the context of the entire contract demonstrated that AMS’s obligation was to guarantee each loan 100%.  The court granted Heritage’s summary-judgment motion, and AMS appealed.  The material facts are not in dispute.

Under the X-Plan Agreement, customer loans for $5,000 or less were processed through Heritage’s computer system.  Amounts in excess of $5,000 required a personal authorization by a Heritage official.  AMS was intricately involved in approving borrowers, obtaining credit information, and preparing and processing loan applications.

After a loan was approved, Heritage disbursed 95% of the principal, less a loan-documentation fee, to AMS’s account with Heritage.  The remaining 5% went to AMS’s reserve account.  The reserve account was required to “equal to 5% of the total . . . loans . . . less all amounts paid on loans to date by . . . customers and AMS.”

AMS was responsible for collecting past-due loans.  When a loan became 90 days overdue, Heritage debited the “reserve account for the entire balance remaining due” on the loan and assigned the loan to AMS.

AMS guaranteed to Heritage “the prompt payment of all X-Plan financing plan loans . . . ,” and agreed further:

The promise and liability of AMS shall be to guaranty to pay Heritage 100% of each and every loan assigned to AMS by Heritage under the terms of this Agreement, except that this guaranty shall not exceed an amount equal to 10% of all total outstanding X-Plan loans calculated at the time of and for the determination of each and every guaranty payment due Heritage.


The parties contend that this language is clear, but they disagree as to what it means.  Heritage urges that the guaranty is 100% of each loan and that the limitation refers only to the amount AMS must pay at the time of any particular guaranty payment.  AMS argues that the “cap” limits its guaranty obligation to 10% of all outstanding loans.  The district court agreed with Heritage.


Guaranty Provision

The district court must grant summary judgment “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that either party is entitled to a judgment as a matter of law.”  Minn. R. Civ. P. 56.03.  On appeal, we review the district court’s grant of summary judgment to ascertain “(1) whether there are any genuine issues of material fact and (2) whether the lower courts erred in their application of the law.”  State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990).  This court “must view the evidence in the light most favorable to the party against whom judgment was granted.”  Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993) (citation omitted).  This court need not defer to a district court’s decision on a pure question of law.  Frost-Benco Elec. Ass’n v. Minn. Pub. Utils. Comm’n, 358 N.W.2d 639, 642 (Minn. 1984).

            On appeal from a declaratory judgment, this court reviews the district court’s findings of facts for clear error and reviews questions of law de novo.  Rice Lake Contracting Corp. v. Rust Env’t & Infrastructure, Inc., 549 N.W.2d 96, 98-99 (Minn. App. 1996), review denied (Minn. Aug. 20, 1996). 

            This case involves no issue of fact but rather a question of law as to what the guaranty provision in the parties’ contract means.

            “Where the intention of the parties can be determined wholly from the writing, the construction of the instrument is a question of law for the court to resolve.”  Wolfson v. City of St. Paul, 535 N.W.2d 384, 386 (Minn. App. 1995) (citation omitted), review denied (Minn. Sept. 28, 1995).  We review an unambiguous contract de novo.  City of Virginia v. Northland Office Props. Ltd. P’ship, 465 N.W.2d 424, 427 (Minn. App. 1991), review denied (Minn. Apr. 18, 1991). 

Whether a contract is ambiguous, meaning reasonably susceptible to more than one construction, is a question of law on which this court owes no deference to the district court’s determination.  Blackburn, Nickels & Smith, Inc. v. Erickson, 366 N.W.2d 640, 643-44 (Minn. App. 1985), review denied (Minn. June 24, 1985).  If an ambiguity in the contract exists, resolution of the ambiguity is a question of fact and extrinsic evidence may be considered.  City of Virginia, 465 N.W.2d at 427.

Because the parties raise no genuine issue of material fact, we review de novo whether the district court properly construed the agreement as requiring AMS to guarantee 100% of each and every loan.

AMS contends that its guaranty is limited to 10% of all total outstanding loans, and that once it has paid an amount equal to 10% of all of the outstanding loans it does not owe Heritage anything further on defaulted loans.

The guaranty is “100% of each and every loan” but not exceeding 10% of all outstanding loans “calculated at the time of and for the determination of each and every guaranty payment due Heritage.”  We first look to the plain meaning of the guaranty.  Turner v. Alpha Phi Sorority House, 276 N.W.2d 63, 67 (Minn. 1979).  On cursory glance, it could appear that the 100% guaranty and the 10% limitation are contradictory and that, in fact, the parties intended a maximum guaranty obligation of 10% of all outstanding loans.  But, in the context of how the loan program worked, the plain meaning of the provisions is apparent and they are not contradictory.

The 100% guaranty is absolute and applies to “each and every loan.”  The 10% limitation applies not to the total amount of the loan guaranty but rather the amount of any particular payment that AMS is obligated to make at any given time under that guaranty.  Thus, the provision does not deprive Heritage of obtaining from AMS all monies in default, but does protect AMS from having to pay those monies all at once in the event of substantial concurrent defaults.

AMS urges that to construe the contract as requiring a 100%, unlimited guaranty would be to eliminate the limitation from the contract.  We disagree and note that to adopt AMS’s reasoning would produce a plain contradiction in the same provision and would make the literal, absolute guaranty amount meaningless.  We must conclude that “the parties intended the language used by them to have some effect” and that we must avoid any interpretation that would “render a provision meaningless.”  Indep. Sch. Dist. No. 877 v. Loberg Plumbing & Heating Co., 266 Minn. 426, 436, 123 N.W.3d 793, 799-800 (1963) (citation omitted).  To read the contested provisions as being an absolute guaranty as to the total defaulted amounts but a limitation on how much of the total guaranteed amount the bank can collect at a given time gives both provisions meaning.

Furthermore, the contract refers at other times to an unlimited, 100% guaranty.  Paragraph 5.j. states that for loans 90 days past due Heritage “shall debit AMS’ reserve account for the entire balance remaining due on the customer X-Plan loan . . . .”  Paragraph 6.c. provides that AMS must replenish its reserve account “to cover 100% of a financed loan more than 90 days past due . . . .”  In paragraph 8, AMS guarantees “the prompt payment of all X-Plan financing plan loans . . . .”  And paragraph 8(a)(ii) provides that AMS’s guaranty endures “until such time as the X-Plan financing loan is fully paid.”  When construing a contract, “[e]ach and every provision of a contract must be given effect if that can consistently and reasonably be done, and all clauses and provisions should be construed to harmonize with one another.”  Oster v. Medtronic, Inc., 428 N.W.2d 116, 119 (Minn. App. 1988).  The district court did not err when it interpreted the parties’ contract as requiring a 100% guaranty of all loans.

            AMS argues that the district court also erred by concluding that the parties intended AMS to bear most of the risk under the loan program.  It is unnecessary to address AMS’s allocation-of-risk argument because the parties were free to enter whatever lawful agreement they desired and are bound by the plain language which they adopted to express their intent.

Finally, AMS suggests that if this court agrees with the district court’s interpretation, we should find the agreement ambiguous because it is susceptible to two different constructions.  A provision is ambiguous if it is susceptible to more than one reasonable interpretation.  Bd. of Regents v. Royal Ins. Co., 517 N.W.2d 888, 892 (Minn. 1994).  AMS’s interpretation produces a clearly contradicting agreement, reads out of existence a literal and absolute guaranty, and reads a limitation into all other references to AMS’s full-payment obligation.  AMS’s interpretation is not reasonable, and we find no ambiguity in the challenged provision.

Attorney Fees

            AMS does not challenge the district court’s attorney-fee award amount, but only argues that Heritage’s award should be reversed if this court reverses the district court’s construction of the agreement.  Because AMS does not contest the award amount and because we affirm the district court’s decision to grant declaratory judgment/summary judgment to Heritage, we also affirm the district court’s decision to award Heritage attorney fees.