This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2004).
IN COURT OF APPEALS
Jerome G. Nelson,
Woodlands National Bank,
Filed June 6, 2006
Mille Lacs County District Court
File No. 48-C7-04-001479
James W. Hess, Hess Law Office, P.A., 19230 Evans Street, Suite 202, Elk River, Minnesota 55330 (for appellant)
Steven W. Schneider, Schneider
Considered and decided by Hudson, Presiding Judge; Klaphake, Judge; and Peterson, Judge.
U N P U B L I S H E D O P I N I O N
On appeal from summary judgment in a declaratory-judgment action in which appellant and several others pledged security as collateral for a letter of credit, appellant argues that the district court erred in concluding that the security agreement he entered into with respondent as a surety contained language that waived appellant’s common-law defense of impairment of collateral. Because respondent did not impair appellant’s right to subrogation, and because the agreement unambiguously provides that appellant’s obligations were independent of the other parties’ obligations, we affirm.
2002, S.J. Ritzer Excavating, Inc. (S.J. Ritzer) contracted for a
road-construction project in
S.J. Ritzer contacted respondent Woodlands National Bank to obtain the necessary line of credit. Respondent agreed to extend a line of credit to S.J. Ritzer in the amount of $175,000, enabling S.J. Ritzer to satisfy its obligation to Granite Re under the indemnity agreement. Before respondent agreed to issue the letter of credit, however, it required S.J. Ritzer to pledge collateral, which, in this case, took the form of several certificates of deposit. S.J. Ritzer pledged a CD in the amount of $68,969.18; Patricia Sweeney pledged a CD in the amount of $31,030.82; and appellant pledged a CD in the amount of $75,000. Each party pledged a CD as collateral on the same loan, and each party entered into separate identical security agreements with respondent.
On August 1, 2003, Granite Re reduced the amount required on the letter of credit from $175,000 to $107,000. Respondent then released the excess collateral by returning S.J. Ritzer’s CD. Appellant was unaware that respondent had released S.J. Ritzer’s CD.
On March 2, 2004, Granite Re submitted to respondent a $40,000 draft against the existing line of credit, which respondent honored by issuing a cashier’s check for that amount. The following day, respondent sent a letter to S.J. Ritzer notifying S.J. Ritzer of the previous day’s draft and that monthly payments on the $40,000 loan would be due beginning the following month. S.J. Ritzer failed to make its April loan payment, which prompted respondent to send a second letter to S.J. Ritzer demanding payment and giving S.J. Ritzer until May 26, 2004, to cure the default.
Respondent issued a subsequent draft to Granite Re on November 16, 2004, in the amount of $67,000. S.J. Ritzer failed to make payments on that draft as well. Respondent eventually foreclosed on Sweeney’s and appellant’s CDs to cover S.J. Ritzer’s default.
Appellant filed suit for a declaratory judgment against respondent, alleging that appellant was a surety for S.J. Ritzer and that respondent’s action in releasing S.J. Ritzer’s collateral damaged appellant. Appellant alleged that respondent’s interference with the collateral altered its security agreement with appellant and, thereby, operated to discharge appellant’s obligation.
The parties filed cross-motions for summary judgment. In June 2005, the district court issued an order denying appellant’s motion for summary judgment and granting respondent’s motion for summary judgment. The district court assumed for purposes of the parties’ motions that appellant was a surety but held that respondent’s decision to release S.J. Ritzer’s collateral did not affect appellant’s obligation under the indemnity agreement. The district court entered judgment on July 25, 2005. This appeal follows.
D E C I S I O N
reviewing an appeal from a grant of summary judgment, this court determines
whether there are any genuine issues of material fact and whether the district
court erred in applying the law. State by Cooper v. French, 460 N.W.2d 2,
first challenges the district court’s findings, arguing that the record
evidence demonstrates that S.J. Ritzer, and not Jill and Scott Ritzer individually,
pledged a CD as collateral for the line of credit. “Findings of fact in a summary judgment
proceeding are not entitled to the respect which an appellate court is required
to give findings made pursuant to Rule 52.01, Rules of Civil Procedure.” Rathbun
v. W.T. Grant Co., 300
The district court erred in its findings. The commercial security agreement lists S.J. Ritzer Excavating, Inc. as the debtor and states that the “type of debtor” is a corporation. Although Jill Ritzer and Scott Ritzer signed the agreement, their respective company titles are listed below their signatures. There is no indication on the face of the agreement that Jill and Scott Ritzer signed in their individual capacities.
Appellant also challenges the district court’s interpretation of the security agreement, arguing that the agreement did not authorize the release of S.J. Ritzer’s collateral and, therefore, did not waive his common-law defenses as a surety.
We assume for purposes of this analysis that
appellant was a surety. “A surety
is any person who being liable to pay a debt, is entitled, if it is enforced
against him, to be indemnified by some other person who ought himself to have
paid it before the surety was compelled to do so.” In re
Minn. Joint Underwriting Ass’n, 410 N.W.2d 436, 438 (
the equity of a surety depends on this right of subrogation, the creditor has a
duty to preserve collateral held as security for the benefit of the
Here, appellant argues that respondent’s release of S.J. Ritzer’s collateral impaired his ability pass his cost to S.J. Ritzer and, therefore, respondent’s actions discharged appellant’s obligation. We disagree.
release of S.J. Ritzer’s collateral did not impair appellant’s ability to pass
on the cost of its performance.
Respondent did not release S.J. Ritzer’s collateral until there was a
corresponding reduction in the line of credit.
Accordingly, respondent did not impair the value of the security
interest; it released excess collateral.
See Restatement (Third) of
Suretyship and Guaranty § 42 (stating that impairing the value of a security
interest in collateral includes the release of collateral without an equivalent
reduction of the underlying obligation).
Appellant attaches significance to the fact that respondent released the
primary obligor’s collateral as opposed to his.
But “[t]he law governing surety arrangements indicates that although a
creditor must exercise good faith in his dealings, he has no duty to look after
the interests of the surety.” MacKenzie v.
appellant waived his right to assert the common-law defense of impairment of
collateral by contractual agreement. Under
the parties to a suretyship arrangement prefer to order their relationship in a
manner that deviates from the common law, the parties may vary the effect of
the suretyship status by contract.
Restatement (Third) of Suretyship and Guaranty § 6 (1996). “Agreements between the [surety] and the
[creditor] as to the availability and scope of suretyship defenses are
typically incorporated into the contract creating the [suretyship].”
The relevant portion of the security agreement between appellant and respondent reads as follows:
Each Debtor’s obligations under this Agreement are independent of the obligations of any other Debtor. [Respondent] may sue each Debtor individually or together with any other debtor. [Respondent] may release any part of the Property and Debtor will remain obligated under this Agreement. . . . No modification of this Agreement is effective unless made in writing and signed by Debtor and [respondent]. Whenever used, the plural indicates the singular and the singular indicates the plural.
The district court concluded respondent was to treat appellant’s obligations under the security agreement independent of S.J. Ritzer’s obligations, and that respondent’s decision to release S.J. Ritzer’s collateral did not affect appellant’s obligations under his security agreement.
Appellant argues that this interpretation violates the plain meaning of the language of the security agreement. According to appellant, because the security agreement refers to only one “debtor,” the plain language says nothing more than the obligations of appellant are independent of the obligations of appellant. Further, appellant suggests that the term “property” includes only appellant’s certificate of deposit, and, therefore, the agreement authorized only the release of a portion of appellant’s own property and not S.J. Ritzer’s property.
Appellant’s arguments distort the plain meaning of the security agreement. By using the terms “each” and “other” when referencing the “Debtor,” the parties acknowledged the existence of multiple, separate debtors with independent obligations. Although appellant is correct that the security agreement only refers explicitly to the “property” provided by the signatory debtor, appellant’s interpretation fails to harmonize the two provisions because the first provision discusses respondent’s obligations to each debtor and appellant’s relationship to other debtors. While the security agreement could have simply stated, as appellant suggests, that the creditor was authorized to release any collateral pledged by a debtor, there is no requirement that the contract language conform to any particular form. See Restatement (Third) of Suretyship and Guaranty § 48 cmt. d. (stating that “[t]here is no requirement of specificity with respect to the language used to forego discharge,” but there must be “[s]ome indication that suretyship rights are being foregone”).
The security agreement unambiguously states that the signatory debtor “will be in default” if the borrower “fails to make payment in full when due.” Upon default, the agreement authorized respondent to “make all or any part of the Secured Debts [including appellant’s pledged collateral] immediately due.” The plain meaning of the contract language permits respondent’s action in releasing S.J. Ritzer’s collateral and foreclosing on appellant’s security. The district court did not err in granting respondent’s motion for summary judgment.