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Nebraska Supreme Court Advance Sheets

310 Nebraska Reports

COMMUNITY FIRST BANK v. FIRST CENTRAL BANK McCOOK

Cite as 310 Neb. 839

Community First Bank, appellant, v. First 

Central Bank McCook, appellee.

___ N.W.2d ___

Filed February 4, 2022. No. S-21-143.

1. Summary Judgment: Appeal and Error. An appellate court affirms a 

lower court’s grant of summary judgment if the pleadings and admitted 

evidence show that there is no genuine issue as to any material facts or 

as to the ultimate inferences that may be drawn from the facts and that 

the moving party is entitled to judgment as a matter of law.

2. ____: ____. In reviewing a summary judgment, an appellate court views 

the evidence in the light most favorable to the party against whom the 

judgment was granted, and gives that party the benefit of all reasonable 

inferences deducible from the evidence.

3. Summary Judgment: Jurisdiction: Appeal and Error. When reviewing cross-motions for summary judgment, an appellate court acquires 

jurisdiction over both motions and may determine the controversy that 

is the subject of those motions; an appellate court may also specify the 

issues as to which questions of fact remain and direct further proceedings as the court deems necessary.

4. Contracts. The meaning of a contract and whether a contract is ambiguous are questions of law.

5. Judgments: Appeal and Error. On a question of law, an appellate court 

is obligated to reach a conclusion independent of the determination 

reached by the court below.

6. Loans: Banks and Banking. In a participation, the lead bank generally 

collects payments from the borrower and forwards the appropriate portion of payments to the participating bank, and the duty to pay loan participants arises when proceeds are derived from the participating loan.

7. Contracts: Loans: Banks and Banking. Participations are not loans; 

they are contractual arrangements between a lender and a third party, in 

which the third party, or participant, provides funds to the lender. The 

Nebraska Supreme Court Online Library

www.nebraska.gov/apps-courts-epub/

04/28/2022 08:08 AM CDT
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COMMUNITY FIRST BANK v. FIRST CENTRAL BANK McCOOK

Cite as 310 Neb. 839

lender, in turn, uses the funds from the participant to make loans to the 

borrower.

8. Banks and Banking: Intent. Factors that indicate that a transaction 

is a true participation include (1) money is advanced by a participant 

to a lead lender, (2) a participant’s right to repayment only arises when 

a lead lender is paid, (3) only the lead lender can seek legal recourse 

against the borrower, and (4) the document is evidence of the parties’ 

true intentions.

9. Loans: Banks and Banking: Interest. Factors that indicate that a purported participation may in fact be a disguised loan include (1) guarantee of repayment by the lead lender to a participant, (2) participation that 

lasts for a shorter or longer term than the underlying obligation, (3) different payment arrangements between the borrower and the lead lender 

and the lead lender and the participant, and (4) discrepancy between the 

interest rate due on the underlying note and interest rate specified in the 

participation.

10. Contracts: Loans: Intent. To determine whether an agreement is a 

true participation agreement or a disguised loan, courts first look to the 

written agreement to discern the parties’ intent, limiting their inquiry to 

the words of the agreement itself so long as the agreement sets forth the 

parties’ intent clearly and unambiguously.

11. Contracts: Words and Phrases. A contract is ambiguous when a word, 

phrase, or provision in the contract has, or is susceptible of, at least two 

reasonable but conflicting interpretations or meanings.

12. Contracts. When the terms of a contract are clear, a court may not 

resort to rules of construction, and the terms are to be accorded their 

plain and ordinary meaning as an ordinary or reasonable person would 

understand them.

13. Contracts: Evidence. A contract found to be ambiguous presents a 

question of fact and permits the consideration of extrinsic evidence to 

determine the meaning of the contract.

14. Contracts. A contract must receive a reasonable construction and must 

be construed as a whole. And, if possible, effect must be given to every 

part of a contract.

Appeal from the District Court for Red Willow County: 

David W. Urbom, Judge. Reversed and remanded for further 

proceedings.

Michael D. Samuelson and Robert B. Reynolds, of Reynolds, 

Korth & Samuelson, P.C., L.L.O., for appellant.
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COMMUNITY FIRST BANK v. FIRST CENTRAL BANK McCOOK

Cite as 310 Neb. 839

David W. Pederson, of Pederson Law Office, for appellee.

Heavican, C.J., Miller-Lerman, Cassel, Stacy, Funke, 

Papik, and Freudenberg, JJ.

Miller-Lerman, J.

NATURE OF CASE

Community First Bank (Community First) appeals the order 

of the district court for Red Willow County which overruled Community First’s motion for summary judgment, sustained the motion for summary judgment of First Central Bank 

McCook (First Central), and dismissed Community First’s 

complaint in which it set forth “causes of action” all based 

on a claim for breach of contract. Community First generally 

argues that the district court erred when it determined that the 

contract between the two banks was a participation agreement 

that did not create a debtor-creditor relationship between the 

two banks. We conclude that the contract between the parties 

is ambiguous, and we further determine that a genuine issue 

of material fact exists regarding the provisions of the contract 

between the parties as to whether their contract is a participation agreement or a loan and that neither party has shown 

that it is entitled to judgment as a matter of law. We therefore 

reverse the order granting summary judgment in favor of First 

Central, and we remand the cause to the district court for further proceedings.

STATEMENT OF FACTS

On April 15, 2020, Community First filed a complaint 

against First Central in which it set forth causes of action for 

breach of contract, breach of implied covenant of good faith 

and fair dealing, conversion, unjust enrichment, and declaratory judgment. Community First generally alleged that in 2017, 

First Central had approached Community First “about providing [$300,000] in financing.” Community First alleged that it 

accepted First Central’s offer and that the parties entered into 

a contract dated June 1, 2017, pursuant to which Community 
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310 Nebraska Reports

COMMUNITY FIRST BANK v. FIRST CENTRAL BANK McCOOK

Cite as 310 Neb. 839

First’s interest under the June 2017 contract “matured on 

August 1, 2017.” Community First alleged that on four subsequent occasions, First Central sought extensions of the maturity date and Community First agreed to the extensions, the 

last of which extended the maturity date to December 15, 

2018. Community First alleged that it did not agree to any 

further extensions and that following the final maturity date, it 

requested payment in full from First Central. Community First 

alleged that First Central refused to pay what was owed under 

the contract and its extensions. As more fully described below, 

the contract between the parties consisted of a document entitled “Participation Agreement,” sometimes referred to herein 

as “agreement,” into which a June 1, 2017, letter between the 

parties is incorporated.

In support of the cause of action for breach of contract, 

Community First alleged that First Central had breached 

the contract when it refused to provide the funds to which 

Community First was “entitled upon maturity” under the contract. In setting forth causes of action for breach of implied 

covenant of good faith and fair dealing, conversion, and unjust 

enrichment, Community First similarly alleged that First Central 

had committed the claimed torts when it refused to pay what 

Community First alleged it was owed under the contract.

Community First sought a judicial declaration of its rights 

under the 2017 contract and its extensions, including a determination of when and from whom Community First was 

entitled to be repaid its $300,000 plus interest. Community 

First also sought a judgment of damages against First Central 

for what it allegedly was owed under the 2017 contract and 

extensions.

First Central filed an answer in which it admitted that it 

and Community First had entered into a contract that it characterized as a “Participation Agreement” on June 1, 2017, and 

that the parties had entered into a “subsequent Participation 

Agreement” on November 1, 2017, that replaced the June 

contract. First Central further admitted that Community First 
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COMMUNITY FIRST BANK v. FIRST CENTRAL BANK McCOOK

Cite as 310 Neb. 839

had requested payment in full from First Central and that First 

Central had declined the request. However, First Central denied 

that it had breached the contract with Community First or 

committed any of the torts claimed by Community First. First 

Central denied every other allegation in Community First’s 

complaint and asserted that “such allegations incorrectly or 

inaccurately describe subsequent interactions between” the parties. First Central asserted that Community First’s claims were 

without legal basis under the terms of the contract between 

the parties.

Both parties moved for summary judgment, asserting that 

there was no genuine issue of material fact and that the respective party was entitled to judgment as a matter of law. The 

district court held an evidentiary hearing on the competing 

motions for summary judgment on November 23, 2020. At the 

hearing, the court received evidence offered by Community 

First that included the parties’ filings in this case and the affidavit of a Community First officer, which affidavit included various attachments. The court also received evidence offered by 

First Central that included affidavits of First Central officers.

Community First offered, and the court received, the affidavit of Jon Hidy, a branch president and member of the board of 

directors of Community First. Hidy attached several documents 

to his affidavit and stated that each of the attachments was a 

true and correct copy that had been retained by Community 

First or had been produced by First Central as part of discovery 

in this case.

Among the attachments to Hidy’s affidavit was a document titled “Participation Agreement” and executed between 

First Central and Community First on June 1, 2017. In the 

agreement, First Central was designated as “Originating 

Financial Institution” and Community First was designated as 

“Participant.” Recitals at the beginning of the agreement stated 

that First Central “has made or will make one or more advances” 

and “may, from time to time, make additional advances” to 

Donald and Norma Klein, designated as “Borrower,” and that 
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COMMUNITY FIRST BANK v. FIRST CENTRAL BANK McCOOK

Cite as 310 Neb. 839

Community First “has contributed or will contribute toward 

advances made by” First Central to the Kleins. The terms of 

the agreement provided, inter alia, as follows: First Central 

would sell to Community First “an ownership interest in certain indebtedness owed by” the Kleins and that Community 

First would purchase such interest “without recourse to” First 

Central. Such transaction “shall not be construed as creating a debtor-creditor relationship between” First Central and 

Community First. Community First would purchase an undivided interest in the “Shared Obligation,” which was defined 

as “[t]he Loan(s) and corresponding security outlined in a 

Commitment Letter dated June 1, 2017.” As part of the agreement, Community First represented to First Central, inter alia, 

that “[t]he decision to purchase a participation interest in the 

Shared Obligation is based solely on [Community First’s] independent evaluation of [the Kleins, the Kleins’] creditworthiness 

and existing information relating to the lien status of any collateral given to secure the obligation.” The agreement included 

signature pages for each of the parties. The signature page for 

Community First was signed by an officer on June 1, 2017, and 

stated, inter alia, that its “Funding Commitment” was $300,000 

and “Maturity Date” was August 1, 2017. The signature page 

for First Central was signed by an officer and stated, inter alia, 

that its “Funding Commitment” was $561,006.04 and, instead 

of August 1, 2017, the “Maturity Date” was December 15, 

2030. The June 1, 2017, letter from First Central to Community 

First incorporated into the agreement stated that it was written 

“to confirm [Community First’s] interest in participating in 

the credit facility to [First Central’s] borrower, [the Kleins].” 

The letter then set forth “the terms under which [First Central 

was] prepared to offer this participation to [Community First].” 

Among the terms listed were a loan amount of $861,006.04 

and a participation amount of $300,000. The “Purpose” was 

listed as “Refinance Existing Debt.” Referring to the length of 

time, the “Term” listed in the June 1, 2017, letter was described 

as “[y]our commitment shall be until August 1, 2017,” and 
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COMMUNITY FIRST BANK v. FIRST CENTRAL BANK McCOOK

Cite as 310 Neb. 839

“Payments” were described as “[a]ll principal and accrued 

interest is due on August 1, 2017.” Provisions regarding the 

interest rate, servicing fee, and security were also set forth. The 

letter concluded, “If the terms and conditions of this letter meet 

with your approval, please indicate your acceptance of this 

commitment by signing and returning the enclosed copy.” The 

letter was signed as being acknowledged and accepted on June 

1, 2017, by an officer of Community First.

Documents which indicated extensions of the June 2017 

contract were also attached to Hidy’s affidavit. As stated 

above, the letter dated June 1, 2017, and the signature page 

for Community First that was part of the agreement indicated 

a “Maturity Date” of August 1, 2017. Additional documents 

attached to Hidy’s affidavit purported to extend the “Maturity 

Date” from August 1, 2017, to, respectively, November 1, 

2017; February 1, 2018; July 15, 2018; and finally, December 

15, 2018.

The document indicating an extension to November 1, 2017, 

was a letter from First Central to Community First, which was 

virtually identical to the June 1, 2017, letter except that the 

“Term” was described as “[y]our commitment shall be until 

November 1, 2017,” and “Payments” were described as “[a]ll 

principal and accrued interest is due on November 1, 2017.” 

Included with the letter was a signature page similar to the signature page for Community First that was part of the June 2017 

agreement except that it listed “Maturity Date” as November 

1, 2017. The letter was signed as being acknowledged and 

accepted by an officer of Community First, and the attached 

signature page was also signed by the officer.

The documents indicating an extension to February 1, 2018, 

were a letter dated November 30, 2017, from First Central to 

Community First and a participation agreement between First 

Central and Community First dated November 30, 2017. As 

with the document indicating the earlier extension, the letter and the agreement were virtually identical to the June 1, 

2017, letter and the June 2017 agreement. In the November 30 
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COMMUNITY FIRST BANK v. FIRST CENTRAL BANK McCOOK

Cite as 310 Neb. 839

letter, the “Term” was described as “[y]our commitment shall 

be until February 1, 2018,” and “Payments” were described as 

“[p]rincipal and accrued interest payment due on December 

15, 2017.” The letter was signed as being acknowledged and 

accepted by a Community First officer. The November 30 

agreement was virtually identical to the June 2017 agreement 

but the signature page for Community First listed a “Maturity 

Date” of February 1, 2018.

The documents indicating an extension to July 15, 2018, were 

a letter dated June 29, 2018, from First Central to Community 

First and a participation agreement dated June 29, 2018, 

between First Central and Community First. The content of the 

letter was virtually identical to that of the June 1, 2017, letter except that “Term” was described as “[y]our commitment 

shall be until July 15, 2018,” and “Payments” were described 

as “[p]rincipal and accrued interest payment due on July 15, 

2018.” Also, the content of the agreement was virtually identical to that of the June 2017 agreement except that the “Shared 

Obligation” was defined as “[t]he Loan(s) and corresponding security outlined in a Commitment Letter dated June 29, 

2018,” and that the signature page for Community First listed 

“Maturity Date” as July 15, 2018. The agreement was executed 

by officers of the respective parties on June 29, 2018.

The document indicating the alleged final extension to 

December 15, 2018, was a copy of an email chain between 

officers of the respective parties. The first email was sent from 

an officer of First Central to an officer of Community First at 

2:25 p.m. on September 27, 2018, and stated, “If we pay one 

year’s interest—$170.76 per day for 360 days would you be 

OK extending the note until 12-15-18?” The next email was a 

response from the officer of Community First at 2:31 p.m. that 

same day and stated, “Yes.” The final email was a reply from 

the First Central officer at 2:57 p.m. that same day and stated, 

“Done—we’ll send it in the morning.”

In addition to these documents regarding the contract 

and extensions between Community First and First Central, 
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310 Nebraska Reports

COMMUNITY FIRST BANK v. FIRST CENTRAL BANK McCOOK

Cite as 310 Neb. 839

Hidy attached three documents obtained from First Central 

through discovery. The first document was a copy of a promissory note in the amount of $861,006.04 dated March 30, 2011. 

The borrowers were listed as the Kleins, and First Central 

was listed as the lender. The promissory note had a maturity date of December 15, 2030, and it was to be paid in 20 

annual installments beginning December 15, 2011. The second 

document was a participation agreement between First Central 

and another bank that was not Community First. The agreement was executed March 30, 2011. The signature pages for 

both First Central and the participating bank stated that the 

“Maturity Date” was December 15, 2030. The respective signature pages also stated that the “Funding Commitment” for First 

Central was $461,006.04 and that the “Funding Commitment” 

for the participating bank was $400,000. The third document 

was First Central’s transcript for the Kleins’ promissory note 

showing transactions and outstanding balances between March 

31, 2011, and March 17, 2020.

In addition to describing the attached documents set forth 

above, Hidy stated the following in his affidavit: In 2017, 

First Central approached Community First “about providing 

[$300,000] in financing.” At the same time the June 2017 

contract was entered into, Community First provided $300,000 

to First Central. On September 28, 2018, Community First 

received $26,249.22 from First Central, but no other funds 

had been received from First Central relating to Community 

First’s advance of $300,000 and Community First had not 

agreed to any further extensions beyond December 15, 2018. 

Following that date, Community First requested payment in 

full from First Central, and First Central declined the request. 

Hidy stated that Community First was owed principal and 

accrued interest of $355,217.45 as of October 22, 2020, with 

interest continuing to accrue. Hidy concluded his affidavit by 

stating that Community First and First Central did not agree 

“on whether the $300,000 financing . . . constitutes a loan or 

a participation interest” and that First Central asserted that 
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COMMUNITY FIRST BANK v. FIRST CENTRAL BANK McCOOK

Cite as 310 Neb. 839

Community First had acquired a participation interest while 

Community First contended that the arrangement was a loan 

from Community First to First Central.

Three affidavits of officers of First Central were offered by 

First Central and, with minor exception for certain paragraphs, 

received by the court. Two of the affidavits were by Don Moore, 

the president and chief executive officer of First Central.

In his first affidavit, Moore stated that based on his experience in banking, he was familiar with participations and applicable banking regulations. The form that was the basis for the 

participation agreement between First Central and Community 

First was regularly used by First Central for participations and 

generally provided that the participating bank was being sold 

an ownership interest in indebtedness, that such interest was 

an undivided interest in the debt of the borrower, that such 

sale was without recourse against the originating financial 

institution, and that the agreement was not to be construed 

as creating a debtor-creditor relationship between the original 

financial institution and the participating bank. The reason 

participation was sought in this case was that in 2017, First 

Central was in the process of refinancing the indebtedness of 

the Kleins, and Moore referred to the loan for $861,006.04 that 

First Central had made to the Kleins in 2011 with a maturity 

date of December 15, 2030. First Central was looking to participate portions of the Kleins’ indebtedness in order to keep 

First Central within regulatory lending limits. Community First 

expressed interest in acquiring a share of the Klein indebtedness. Thereafter, First Central and Community First executed 

the June 1, 2017, agreement, as well as the letter dated June 1, 

2017, and Community First transferred $300,000 “in exchange 

for an undivided interest in the Klein loans.” Although Moore 

referred to the 2011 loan to the Kleins, he did not refer to 

the existence of other loans, if any, to the Kleins or why he 

referred to the Klein “loans” in the plural.

Moore also stated that the Kleins experienced difficulties 

with respect to the refinancing and that therefore, Community 
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310 Nebraska Reports

COMMUNITY FIRST BANK v. FIRST CENTRAL BANK McCOOK

Cite as 310 Neb. 839

First agreed to certain extensions in order to enable the refinancing to be completed. With each extension, the parties 

signed a new participation agreement with the same terms 

as the June 1, 2017, agreement. The last such agreement was 

executed in June 2018. Thereafter, in July and August, First 

Central “discovered some shortage in collateral which was 

to serve as security for the Klein indebtedness,” and First 

Central “immediately advised [Community First] of the potential problem with the collateral.” After discovering the collateral shortage, First Central made no additional loan advances 

to the Kleins. When the Kleins made an interest payment of 

$26,249.22 in September, First Central paid the full amount to 

Community First “in an effort to work with [Community First] 

in good faith due to the Klein default.” The Kleins filed for 

bankruptcy on June 3, 2019, and again on August 13, 2020. 

Collection procedures that First Central had initiated after 

discovering the collateral shortage were stayed by the Kleins’ 

bankruptcy filing.

Moore further stated that as a general matter, in circumstances such as the present case, a financial institution may 

execute a participation agreement with another bank when the 

originating bank cannot loan additional funds to a borrower 

because to do so would exceed regulatory lending limits. A 

participation agreement in such a circumstance must be without 

recourse because if the originating institution could be liable to 

the participating bank in the event of the borrower’s default, 

then the originating institution could be in excess of regulatory lending limits. Moore attached to his affidavit a copy of a 

statement of policy of Nebraska’s Department of Banking and 

Finance to the effect that when a loan is participated in order to 

avoid exceeding the originating bank’s legal lending limit, the 

originating bank may not place the participation with recourse 

or otherwise agree to buy the debt back if the borrower defaults 

or otherwise fails to make payment. Moore finally stated that 

any attempt to classify the arrangement between First Central 

and Community First in this case as a loan “would not only 
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310 Nebraska Reports

COMMUNITY FIRST BANK v. FIRST CENTRAL BANK McCOOK

Cite as 310 Neb. 839

be contrary to the specific terms of the Agreement itself, but it 

would convert this into a ‘with recourse’ relationship in violation of the regulatory lending limits.”

In the admitted portions of his second affidavit, Moore stated 

that if the agreement was a loan as claimed by Community 

First, then First Central would have been in violation of regulatory lending limits and would have been subject to sanctions.

The other exhibit offered by First Central, received by the 

court in whole, was the affidavit of an officer of First Central 

who stated that he had been personally involved in the agreements with Community First that were the subject of this 

action. He generally stated that during his communications 

with officers of Community First, none of them had stated or 

implied that they believed the participation agreement to be a 

loan with recourse or that they understood the contract to create a debtor-creditor relationship between the parties.

On January 20, 2021, the district court filed an order ruling 

on the competing motions for summary judgment. The court 

began its analysis by stating that Community First claimed 

that the June 2017 contract created a debtor-creditor relationship between the parties, whereas First Central contended that 

the agreement was a participation and not a loan. The court 

noted that “there is little law on what constitutes a participation 

agreement in Nebraska,” and it cited Nebraska case law which 

generally described participation agreements. The court then 

cited precedent from another jurisdiction that set forth “factors 

that determine whether a participation agreement amount[s] to 

the sale of an undivided interest in the total loan package or 

creates a debtor-creditor relationship.” The court noted that the 

agreement in this case provided, inter alia, that First Central 

“‘will sell’” and Community First “‘shall buy’” an “‘undivided interest’” and that First Central was required to hold 

Community First’s portion of interest payments “‘in trust’” for 

the benefit of Community First. The court particularly noted an 

express provision that the agreement “‘shall not be construed 

as creating a debtor-creditor relationship.’” The court found 
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COMMUNITY FIRST BANK v. FIRST CENTRAL BANK McCOOK

Cite as 310 Neb. 839

that the agreement was a participation and did not create a 

debtor-creditor relationship between the parties. The court also 

found that there was no genuine issue of material fact and that 

First Central was entitled to judgment as a matter of law. The 

court therefore sustained First Central’s motion for summary 

judgment, overruled Community First’s motion for summary 

judgment, and dismissed the complaint.

Community First appeals the order of the district court 

which ruled on the parties’ motions for summary judgment and 

dismissed Community First’s complaint.

ASSIGNMENTS OF ERROR

Community First claims that the district court erred when 

it overruled Community First’s motion for summary judgment 

and when it sustained First Central’s motion for summary 

judgment.

STANDARDS OF REVIEW

[1,2] An appellate court affirms a lower court’s grant of 

summary judgment if the pleadings and admitted evidence 

show that there is no genuine issue as to any material facts or 

as to the ultimate inferences that may be drawn from the facts 

and that the moving party is entitled to judgment as a matter of 

law. In re Estate of Lakin, ante p. 271, 965 N.W.2d 365 (2021), 

modified on denial of rehearing ante p.389, 966 N.W.2d 268. 

In reviewing a summary judgment, an appellate court views the 

evidence in the light most favorable to the party against whom 

the judgment was granted, and gives that party the benefit of 

all reasonable inferences deducible from the evidence. Id.

[3] When reviewing cross-motions for summary judgment, 

an appellate court acquires jurisdiction over both motions and 

may determine the controversy that is the subject of those 

motions; an appellate court may also specify the issues as to 

which questions of fact remain and direct further proceedings 

as the court deems necessary. Id.

[4,5] The meaning of a contract and whether a contract is 

ambiguous are questions of law. In re Estate of Karmazin, 
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COMMUNITY FIRST BANK v. FIRST CENTRAL BANK McCOOK

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299 Neb. 315, 908 N.W.2d 381 (2018). On a question of law, 

an appellate court is obligated to reach a conclusion independent of the determination reached by the court below. Id.

ANALYSIS

Community First claims that the district court erred when 

it sustained First Central’s motion for summary judgment and 

when it overruled Community First’s motion for summary 

judgment. We have jurisdiction over both cross-motions for 

summary judgment, and therefore, we may determine the controversy that is the subject of the motions or we may specify 

the issues as to which questions of fact remain and direct further proceedings. See In re Estate of Lakin, supra.

As framed by the parties and the district court, the controversy in this case is whether the contract between the parties is 

a participation or a loan. The assumption of the parties and the 

district court appears to be that if the contract is a participation 

agreement, then First Central did not breach the agreement and 

it is entitled to judgment in its favor, but if the arrangement is 

a loan, then First Central breached the contract when it refused 

to pay all principal and interest after the last extended maturity 

date of December 15, 2018, and Community First is entitled to 

judgment in its favor.

Although the legal distinctions between a participation and 

a loan inform our resolution of the cross-motions for summary judgment, the action brought by Community First hinges 

on Community First’s allegation that First Central breached 

the contract between the parties. The first cause of action set 

forth in Community First’s petition is the allegation that First 

Central breached the contract between the parties when it 

refused to pay Community First all principal and interest after 

the 2018 applicable maturity. Community First set forth additional causes of action, but those causes of action all hinged on 

Community First’s allegation that First Central had breached 

the contract. Community First also sought declaratory judgment regarding First Central’s obligations under the contract. 
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COMMUNITY FIRST BANK v. FIRST CENTRAL BANK McCOOK

Cite as 310 Neb. 839

Therefore, determining the controversy in this case requires us 

to focus on the specific requirements of the contract to which 

the parties agreed, that is whether the transaction between the 

parties is properly characterized as a participation or as a loan, 

in order to determine whether First Central breached the contract. Therefore, jurisprudence regarding the interpretation of 

contracts guides our analysis.

Our analysis of the meaning of the contract in this case is 

informed by the law regarding participations and, in particular, the law related to the distinctions between participations 

and loans. Following our review of the law pertaining to 

the identified distinction, we next review the law governing 

interpretation of contracts. We then apply general concepts of 

contract law, informed by our understanding of the law relating 

to participations and loans, to determine whether the district 

court in the context of summary judgment motions properly 

determined that the contract was a participation and granted 

judgment in favor of First Central, whether Community First 

was entitled to judgment as a matter of law, or whether there 

remain genuine issues of material fact which preclude entry of 

summary judgment.

Law Regarding Participations and Distinguishing 

True Participations From Disguised Loans.

Although there are some Nebraska cases discussing participation agreements, we do not appear to have addressed standards for determining whether a given arrangement constitutes 

a true participation or whether it is instead a disguised loan. 

We review Nebraska law generally describing participations, 

and we look to precedent from other jurisdictions regarding 

standards for distinguishing between participations and loans.

In Northern Bank v. Federal Dep. Ins. Corp., 242 Neb. 591, 

593, 599, 496 N.W.2d 459, 461-62, 464 (1993), we described 

the following features of participations:

[A] “participated loan” arises under an agreement in 

which one bank, known as the lead bank, transfers a 
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loan it has arranged, or a part thereof, to a second bank, 

known as the participating bank. The participated loan 

device is intended to create in the borrower the illusion 

that it is the lead bank which is making the loan. For that 

reason it is used whenever the lead bank cannot or does 

not wish to lend its own funds, but nonetheless wishes 

to keep the borrower as a potential customer for other 

banking services. When a participated loan is transferred 

without recourse against the lead bank, . . . the participating bank assumes the credit risk, that is, the risk of the 

borrower’s repayment or default.

The lead bank is responsible for gathering and passing 

credit information on to the participating bank, for securing the proper loan documentation, and for collecting the 

repayments made by the borrower. The lead bank typically receives compensation as the result of the “spread,” 

that is, the difference between the rate of interest charged 

the borrower by the lead bank and the lesser rate of interest the participating bank is to receive.

. . . .

Relying on the diverse contractual language found 

in the various participation agreements, the widespread 

majority of cases holds that the participated loan device 

results in the sale of the designated percentage of the loan 

to the participating bank with the lead bank acting as the 

participant’s agent to collect and forward the appropriate 

repayments and to service the loan.

[6] As stated in Northern Bank v. Federal Dep. Ins. Corp., 

supra, in a participation, the lead bank generally collects payments from the borrower and forwards the appropriate portion of payments to the participating bank. We recognized in 

Central States Resources v. First Nat. Bank, 243 Neb. 538, 

545, 501 N.W.2d 271, 276 (1993), that “[t]he duty to pay loan 

participants arises when proceeds are derived from the participating loan.”
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[7] Other courts have described the following features of 

participations. “Participations are not loans; they are contractual arrangements between a lender and a third party, in which 

the third party, or participant, provides funds to the lender. . . . 

The lender, in turn, uses the funds from the participant to make 

loans to the borrower.” In re ACRO Business Finance Corp., 

357 B.R. 785, 787-88 (D. Minn. 2006) (citing In re: AutoStyle 

Plastics, Inc., 269 F.3d 726 (6th Cir. 2001)).

In the typical participation, the lead lender transfers to 

the participant not only the benefits to be received from 

a share in the underlying loan (i.e. a pro rata share in the 

principal and interest payments) but also the risk of the 

borrower’s default. The lead lender makes no warranties 

or guarantees about the borrower’s ability to repay the 

loan or about the worth of the collateral in the event of 

default. If the borrower does default, the participant is 

entitled to a pro rata share of any monies received upon 

liquidation of the collateral, but it has no right of recourse 

against the lead lender.

In re Sackman Mortg. Corp., 158 B.R. 926, 932 (S.D.N.Y. 

1993).

Although our case law has discussed features of participations as described above, we do not appear to have addressed 

the issue set forth by the parties in this case, that is, how to 

distinguish whether a particular arrangement is a participation 

or whether it is in fact a loan between banks. As explained 

below, courts have recognized that a transaction that purports 

to be a participation may be a disguised loan. Courts have generally developed two tests to determine whether a transaction 

is a true participation or whether it is in fact a disguised loan. 

We describe the two tests below; they inform our analysis in 

this case.

[8] Adhering to the jurisprudential consensus in this area, 

the court in In re Corporate Financing, Inc., 221 B.R. 671, 678 

(E.D.N.Y. 1998) (internal quotation marks omitted), set forth 
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the following factors that indicate that a transaction is a true 

participation:

1) money is advanced by participant to a lead lender;

2) a participant’s right to repayment only arises when a 

lead lender is paid;

3) only the lead lender can seek legal recourse against 

the borrower; and

4) the document is evidence of the parties’ true 

intentions.

[9] The court in In re Corporate Financing, Inc., also set 

forth the following factors that indicate that a purported participation may in fact be a disguised loan:

1) guarantee of repayment by the lead lender to a 

participant;

2) participation that lasts for a shorter or longer term 

than the underlying obligation;

3) different payment arrangements between the borrower and lead lender and lead lender and participant; 

and,

4) discrepancy between the interest rate due on 

the underlying note and interest rate specified in the 

participation.

221 B.R. at 678-79 (internal quotation marks omitted).

Discussing the factors that indicate that a purported participation is instead a disguised loan, the court in In re Corporate 

Financing, Inc., stated:

The most determinative factor of all of these is the risk 

allocation involved in the transaction. If the participant 

does not bear the same risk of loss as the seller, or if the 

seller has made a guarantee of payment to the participant, 

the transaction is generally considered to be a loan and 

not a sale . . . .

221 B.R. at 679. Regarding the length of the term of the 

arrangement, the court stated that when the purported participation “has a stated term longer or shorter than the term of the 

underlying [indebtedness], this is an indication of a loan and 
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not of a participation.” Id. at 680. See In re Coronet Capital 

Co., 142 B.R. 78 (S.D.N.Y 1992).

Another court stated, “Factors which may cause a transaction 

to be other than a true loan participation include anything that 

indicates the participants are not subject to the normal risks of 

ownership, such as guaranteed returns by the lead institution, 

or required repurchase agreements.” McVay v. Western Plains 

Corp., 823 F.2d 1395, 1398 (10th Cir. 1987).

[10] Finally, it is important to note that in cases considering whether an arrangement is a true participation or a disguised loan, courts have stated that to determine whether an 

agreement is a true participation agreement or a disguised 

loan, courts “first look[] to the written agreement to discern 

the parties’ intent, limiting [their] inquiry to the words of the 

agreement itself so long as the agreement sets forth the parties’ intent clearly and unambiguously.” In re Sackman Mortg. 

Corp., 158 B.R. 926, 932 (S.D.N.Y. 1993).

Contract Law.

The federal courts cited above put the focus on the terms 

of the specific agreement between the parties when determining whether the agreement sets forth a participation or a 

loan. We have similarly focused on the words of the parties’ 

contract. Northern Bank v. Federal Dep. Ins. Corp., 242 Neb. 

591, 496 N.W.2d 459 (1993). The causes of action set forth 

by Community First hinge on the allegation that First Central 

breached the contract between the parties, and therefore, the 

determination of whether either party is entitled to judgment as 

a matter of law depends on interpretation of the contract and 

what is required of First Central under the contract. We herefore 

review standards applicable to interpretation of contracts.

[11-14] The meaning of a contract and whether a contract 

is ambiguous are to be determined by a court as questions of 

law. See In re Estate of Karmazin, 299 Neb. 315, 908 N.W.2d 

381 (2018). In interpreting a contract, a court must first determine, as a matter of law, whether the contract is ambiguous. 

Bierman v. Benjamin, 305 Neb. 860, 943 N.W.2d 269 (2020). 
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A contract is ambiguous when a word, phrase, or provision 

in the contract has, or is susceptible of, at least two reasonable but conflicting interpretations or meanings. Id. When the 

terms of a contract are clear, a court may not resort to rules of 

construction, and the terms are to be accorded their plain and 

ordinary meaning as an ordinary or reasonable person would 

understand them. Id. The fact that the parties have suggested 

opposing meanings of a disputed instrument does not necessarily compel the conclusion that the instrument is ambiguous. Id. 

A contract found to be ambiguous presents a question of fact 

and permits the consideration of extrinsic evidence to determine the meaning of the contract. Id. In addition, a contract 

must receive a reasonable construction and must be construed 

as a whole. Equestrian Ridge v. Equestrian Ridge Estates II, 

308 Neb. 128, 953 N.W.2d 16 (2021). And, if possible, effect 

must be given to every part of a contract. Id.

Application to Facts of This Case.

We apply the above principles of law regarding contracts 

as informed by the jurisprudence regarding participations to 

determine if the contract between Community First and First 

Central is clear or if there is ambiguity regarding the meaning of the contract. As set forth below, we conclude that there 

is ambiguity in the contract caused by the inconsistencies 

between the maturity dates stated in the June 1, 2017, letter 

and on the signature pages for the respective parties, and that 

there is further ambiguity caused by tension between the agreement’s disavowal of the debtor-creditor relationship between 

First Central and Community Bank and the lack of recourse 

language as compared to the arguable promise of absolute payment indicated in the June 1, 2017, letter, as well as the lack 

of clarity regarding who is paying on August 1, 2017. These 

ambiguities create a question of fact regarding what specific 

indebtedness is the subject of the contract. Such ambiguity 

leads us to consider extrinsic evidence which creates a genuine 

issue of material fact regarding whether the specific indebtedness is a 2011 promissory note or some other short-term 
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indebtedness of the Kleins to First Central. The ambiguity also 

creates an issue whether the contract is a disguised loan and, 

if so, what First Central’s obligations were with regard to payment of principal and accrued interest to Community First on 

the stated maturity date. As a result of these genuine issues of 

material fact, neither party has shown that it is entitled to judgment as a matter of law.

We note first that the contract between the parties is composed of the June 2017 agreement; the “Commitment Letter 

dated June 1, 2017,” which is arguably incorporated by the 

“Shared Obligation” provisions of the agreement; and the several extensions. The initial “Maturity Date” in the letter was 

August 1, 2017, and the extensions included the same relevant 

provisions with the exception of the last extended “Maturity 

Date.” We focus on the language of the June 2017 arrangement, 

including the contents of the letter dated June 1, 2017, to determine the meaning of the contract between the parties.

The district court in this case determined that the contract 

between the parties constituted a participation and not a loan 

from Community First to First Central. In reaching this conclusion, the court particularly noted certain provisions of the 

agreement which showed that the agreement had the typical 

features of a participation. We acknowledge that several such 

provisions tend to support a determination that the agreement 

includes the features of a participation such as those identified in the legal precedent set forth above. See Northern Bank 

v. Federal Dep. Ins. Corp., 242 Neb. 591, 496 N.W.2d 459 

(1993). See, also, In re Corporate Financing, Inc., 221 B.R. 

671 (E.D.N.Y. 1998).

However, the precedent cited above also sets forth factors that indicate when a purported participation is actually 

a disguised loan. See In re Corporate Financing, Inc., supra. 

Certain factors, such as “different payment arrangements” and 

“discrepancy between the interest rate due on the underlying 

note and interest rate specified in the participation,” do not 

tend to indicate that the agreement in this case is a disguised 
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loan. See id. at 678, 679 (internal quotation marks omitted). 

But the remaining factors, such as “guarantee of repayment by 

the lead lender to a participant” and especially “participation 

that lasts for a shorter or longer term than the underlying obligation,” may be relevant in this case and may indicate that the 

transaction between the parties is a disguised loan rather than 

a true participation. See id. at 678 (internal quotation marks 

omitted).

The June 1, 2017, letter, which is incorporated into the 

agreement, states with regard to the underlying obligation that 

“[a]ll principal and accrued interest is due on August 1, 2017,” 

and the signature page for Community First in the agreement 

shows that the “Maturity Date” for Community First’s funding 

commitment was also August 1, 2017. This would indicate that 

the term of Community First’s participation was the same as 

the term of the underlying obligation. But in the agreement, 

the signature page for First Central shows a “Maturity Date” 

of December 15, 2030, for First Central’s funding obligation. 

The December 15, 2030, maturity date for First Central’s funding obligation creates an ambiguity within the contract regarding the term of the underlying indebtedness. This discrepancy 

between maturity dates is problematic.

The term of the underlying obligation and whether there is a 

significant difference between the term of the underlying obligation and the term of the contract are factors relevant to consideration of whether a purported participation may instead be 

a disguised loan. The term of the underlying obligation in this 

case is a material fact because the stated term of Community 

First’s participation ends on August 1, 2017 (later extended to 

December 15, 2018), and if the term of the underlying obligation in fact ends on December 15, 2030, as stated on the 

signature page of the agreement for First Central, then the 

term of the participation is significantly shorter than the term 

of the underlying obligation. We further observe that the June 

1, 2017, letter states that “[a]ll principal and accrued interest 

is due on August 1, 2017,” which could suggest a guarantee 
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of repayment to Community Bank, and such guarantee could 

be inconsistent with the language of the agreement under 

which payments to Community Bank were a function of repayments of advances by the Kleins.

Because there is an ambiguity within the contract, we look 

to extrinsic evidence to clarify the meaning of the contract. In 

particular, we look to extrinsic evidence which would show 

whether the contract provides for participation in indebtedness 

with a maturity date of December 31, 2030, or indebtedness 

with the much earlier maturity date of August 1, 2017, later 

extended to December 15, 2018. The promissory note attached 

to Hidy’s affidavit is relevant to this issue. The Kleins’ promissory note was dated March 30, 2011, in the amount of 

$861,006.04; the borrowers were the Kleins; and First Central 

was the lender. The note was to be paid in 20 annual installments beginning December 15, 2011, and, most significantly, 

although the maturity date in the June 1, 2017, letter was 2017 

later extended to 2018, the maturity date of the promissory 

note was December 15, 2030. The amount of the note and the 

borrower listed on the promissory note were the same as those 

listed in the June 1, 2017, letter, which explained the “Shared 

Obligation” under the agreement, and the maturity date of 

the note was the same as the “Maturity Date” listed for First 

Central on its signature page of the agreement. This would 

indicate the March 30, 2011, promissory note was the underlying obligation in which Community First was to participate 

under the parties’ contract.

Despite such evidence indicating that the promissory note 

is the underlying indebtedness, the June 1, 2017, letter stated 

with regard to the underlying obligation that “[a]ll principal 

and interest is due on August 1, 2017.” Such date is not consistent with the promissory note being the underlying obligation, because as we have stated above, the maturity date of 

the note is December 15, 2030, payable in annual installments 

beginning December 15, 2011. Nothing in the promissory note 

indicates any payment was due August 1, 2017, much less 
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that all principal and accrued interest was due on that date. 

Why did the parties agree to a maturity date of August 1, 2017, 

unless, perhaps, it refers to a due date of another obligation not 

disclosed in the record?

We note that the June 1, 2017, letter and subsequent letters extending the maturity date stated that the purpose of the 

underlying obligation was to “Refinance Existing Debt.” This 

would appear to indicate a refinancing of the promissory note 

and possibly other indebtedness of the Kleins to First Central. 

Such refinancing conceivably could have involved some sort 

of short-term indebtedness of the Kleins with all principal 

and accrued interest being due on the date stated in the letter. However, First Central provided no evidence showing any 

obligation from the Kleins to First Central that had a maturity 

date consistent with the August 1, 2017, date listed in the June 

1 letter or the dates listed in the subsequent extensions.

Conflicting evidence in this case indicates a genuine issue 

of material fact regarding not only the maturity date of the 

underlying obligation, but also the specific indebtedness 

from the Kleins that was arguably the underlying obligation 

in which Community First was participating. It is not clear 

whether the underlying obligation is the 2011 promissory note 

or some other unspecified indebtedness of the Kleins to First 

Central. This uncertainty further creates ambiguity regarding 

the meaning of the contract between the parties, particularly 

the “Maturity Date” listed for Community First. If the only 

underlying obligation is the 2011 promissory note, then the 

statement in the letter dated June 1, 2017, that all principal and 

accrued interest was due on August 1, 2017, becomes ambiguous. The Kleins were not obligated to pay all principal and 

accrued interest on the promissory note on August 1. That creates a question of fact as to whether the principal and accrued 

interest due on August 1 were related to some indebtedness 

of the Kleins other than the note or whether the reference 

meant that First Central was obligated to pay all principal and 

accrued interest to Community First on that date, independent 
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of any payments the Kleins were required to make on the 

underlying debt.

In summary, we conclude that the evidence in this case indicates at least three genuine issues of material fact. First, is the 

maturity date of the underlying obligation that is the subject of 

the contract August 1, 2017, later extended to December 15, 

2018, as indicated by the commitment letters and the signature 

page for Community First, or is it December 15, 2030, as indicated by the signature page for First Central? Second, is the 

underlying obligation the promissory note that has a maturity 

date of December 15, 2030, or is the underlying obligation 

some unidentified short-term indebtedness of the Kleins to 

First Central that has a maturity date of August 1, 2017, later 

extended to December 15, 2018? Finally, if the underlying 

obligation is the promissory note that has a maturity date of 

December 15, 2030, what is the meaning of the reference in 

the commitment letter and its extensions to all principal and 

accrued interest being due on August 1, 2017, later extended to 

December 15, 2018, and does such reference indicate a guarantee by First Central to pay Community First all principal and 

accrued interest on that date, independent of the Kleins’ obligations and performance under the promissory note?

Because genuine issues of material fact exist, First Central 

has not shown that it is entitled to judgment as a matter of law, 

and we therefore reverse the district court’s grant of summary 

judgment in favor of First Central. However, Community First 

also has not shown its entitlement to judgment as matter of law, 

and therefore, the district court did not err when it overruled 

Community First’s motion for summary judgment. Therefore, 

the cause should be remanded to the district court for further 

proceedings to determine, inter alia, the issues set forth in the 

preceding paragraph.

CONCLUSION

We conclude that genuine issues of material fact exist 

regarding First Central’s obligations under the contract between 
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the parties and that neither party has shown it is entitled to 

judgment as a matter of law. The district court therefore erred 

when it sustained First Central’s motion for summary judgment 

and dismissed Community First’s complaint. We reverse the 

district court’s order dismissing Community First’s complaint, 

and we remand the cause for further proceedings.

Reversed and remanded for 

further proceedings.