This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (2004).







Jerome G. Nelson,





Woodlands National Bank,



Filed June 6, 2006


Hudson, Judge


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 Law Office, P.O. Box 16, Duluth, Minnesota 55801; and


Stanley R. Parker (pro hac vice), Parker & Hay, LLP, 1129 Southwest Wanamaker Road, Topeka, Kansas 66604 (for respondent)


            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.


            In 2002, S.J. Ritzer Excavating, Inc. (S.J. Ritzer) contracted for a road-construction project in North Dakota and sought a surety bond for that project.  Appellant Jerome Nelson was senior vice president of S.J. Ritzer.  Granite Re, Inc. (Granite Re) is an Oklahoma corporation that provides security bonds for contractors.  In August 2002, S.J. Ritzer entered into a general indemnity agreement with Granite Re to have Granite Re act as an indemnitor for the North Dakota project.  The indemnity agreement obligated S.J. Ritzer to obtain a line of credit as security for its agreement with Granite Re.

            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.


When 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, 4 (Minn. 1990). 


Appellant 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 Minn. 223, 238, 219 N.W.2d 641, 651 (1974); see also Minn. R. Civ. P. 52.01 (stating that a district court’s findings must be upheld unless clearly erroneous). 

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 (Minn. App. 1987) (quoting Wendlandt v. Sohre, 37 Minn. 162, 163, 33 N.W. 700, 701 (1887)).  When a surety pays the debt of the primary obligor, the surety (as a secondary obligor) is entitled to be subrogated to the rights of the obligee creditor.  Nelson vs. Munch, 28 Minn. 314, 322, 9 N.W. 863, 867 (1881). 

Because 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 surety.  Id.  Accordingly, if the debt is secured by a security interest in collateral and the creditor impairs the value of that interest, the surety is discharged to the extent that the creditor impairs the ability of the surety who has paid the debt to pass the cost of its performance to the primary obligor.  Restatement (Third) of Suretyship and Guaranty § 42 (1996); see also Manchester Sav. Bank v. Lynch, 151 Minn. 349, 352, 186 N.W. 794, 795–96 (1922) (stating that a “surety is discharged to the extent of the value of the security lost, where the creditor, without the surety’s consent, affirmatively releases collateral security”).

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.

Respondent’s 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. Summit Nat’l. Bank of St. Paul, 363 N.W.2d 116, 120 (Minn. App. 1985).  It was appellant’s responsibility to ensure that S.J. Ritzer applied the value of its pledged collateral to the line of credit.

Furthermore, appellant waived his right to assert the common-law defense of impairment of collateral by contractual agreement.  Under Minnesota law, the construction and effect of a contract is a question of law reviewed de novo.  Employers Mut. Cas. Co. v. A.C.C.T., Inc., 580 N.W.2d 490, 493 (Minn. 1998).  To ascertain the parties’ intentions, the court must interpret that contract as a whole and attempt to harmonize all of the contract’s terms.  Brookfield Trade Ctr., Inc. v. County of Ramsey, 584 N.W.2d 390, 394 (Minn. 1998).  This court gives the language of the contract its plain and ordinary meaning.  Id. 

If 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].”  Id. cmt. a.; see also MacKenzie, 363 N.W.2d at 120–21 (holding that a surety was not released from his obligation, even though the creditor altered the common-law surety arrangement by extending the loan agreement, because the surety’s agreement with the creditor specifically authorized the creditor to extend the loan “from time to time” without notice to the surety). 

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.