Court Opinion

ID: 9692928
Source: CourtListenerOpinion
Date Created: 2023-08-25 16:12:46.081938+00
Date Added: 2024-06-11T11:59:25.145324
License: Public Domain

OPINION
SCHUMACHER, Judge.
This is an appeal from a summary judgment granted in favor of respondent Borg Warner Acceptance Corporation. On June 11, 1986, Borg Warner initiated this suit against Shakopee Sports Center, Inc. and the principals of Shakopee Sports for money due on an inventory security agreement and on personal guaranties. The suit against Shakopee Sports was stayed due to bankruptcy, and on April 14, 1987, the trial court granted summary judgment against appellants on the personal guaranties. We reverse and remand.
FACTS
Beginning in 1972, John Dobson was employed by Shakopee Sports Center, Inc. as *750a boat rigger and service manager. In 1978, he became a 6% shareholder of Shak-opee Sports. Beginning in 1979, Shakopee Sports entered into a series of 3 inventory security agreements with Borg Warner Acceptance Corp. in 1979, 1982 and 1984. All three security agreements were secured by personal guaranties of the principals of Shakopee Sports and their spouses. In 1982, this included Dobson and his wife, the appellants herein.
On January 25, 1984, Dobson left Shako-pee Sports and tendered his 6% share back to the corporation. The stock purchase agreement contained the following language:
Shakopee Sports Center, Inc. will hold John Dobson harmless from any and all dealings of this corporation from and after the date of this agreement.
At that time however, Dobson failed to notify Borg Warner that he wished to revoke his personal guaranty, which respondent admits could have been accomplished by a simple one sentence letter. In support of his motion for summary judgment, John Dobson submitted an affidavit establishing that in January of 1984, he was aware that Borg Warner would be seeking new personal guaranties from the remaining principals for future inventory. Appellant contends that he simply forgot to mail the notice of revocation.
On September 18, 1984, Shakopee Sports entered into a new inventory security agreement with Borg Warner for inventory to be delivered in late 1985 and 1986. At the approximate time the inventory was to be delivered, Borg Warner sought personal financial statements and new personal guaranties from the principals of Shakopee Sports. These were provided by defendants Bjorklund and Aslakson on September 25, 1985.
On June 1, 1986, Shakopee Sports ceased doing business because Borg Warner would no longer agree to finance their inventory. Apparently, Aslakson and Bjork-lund then sold the remaining inventory out of trust and pocketed the proceeds.
In granting summary judgment in favor of respondents, the trial court found that the unconditional language of the 1982 personal guaranty executed by the Dobsons extended to the 1984 security agreement. Because of the insolvency of the other defendants, Borg Warner is looking to the Dobsons for the entire sum.
ISSUE
Did the trial court err in granting summary judgment in favor of respondent on the ground that appellant was liable on the personal guaranties?
ANALYSIS
On appeal from summary judgment, it is the function of this court to determine whether there are any genuine issues of material fact and whether the trial court erred in its application of the law. Betlach v. Wayzata Condominium, 281 N.W.2d 328, 330 (Minn.1979), pet. for rev. denied (July 11, 1979).
When interpreting a guaranty agreement, “each case must depend upon the terms of the instrument under consideration.” Tolerton & Stetson Co. v. Barck, 81 Minn. 470, 471, 84 N.W. 330, 331 (1900). A guaranty agreement is to be given a fair and reasonable construction and will not be enlarged beyond the fair and natural import of its terms. American Tobacco Co. v. Chalfen, 260 Minn. 79, 81, 108 N.W.2d 702, 704 (1961).
At first glance, the guaranty in question appears to be absolute, unconditional and continuing. However, under American Tobacco, the agreement should be construed fairly and reasonably. Regardless of the language, the law is clear that the guaranty does not continue forever and will be construed to be limited to a reasonable time under the circumstances of the case. The supreme court held that a reasonable time was at least three years in Continental Can Co. v. Lanesboro Canning Co., 180 Minn. 27, 29, 230 N.W. 121, 122 (1930). In a case similar to this, involving a guaranty which this court found to be absolute, unconditional and continuing, we adopted the three-year rule of Continental Can as a reasonable time for that guaranty *751to continue also. Tri-County State Bank of Ortonville v. Golf Properties, Inc., 395 N.W.2d 409, 412 (Minn.Ct.App.1986). Both of these cases based the three year limit on the specific facts and circumstances of each case.
When determining the liability of a guarantor, this court looks to the principal contract to which the guaranty relates. Hungerford v. O’Brien, 37 Minn. 306, 307, 34 N.W. 161 (1887). The principal contract underlying the 1982 guaranty is the contemporaneous inventory security agreement. A new security agreement was signed on September 18, 1984, for inventory which was delivered in late 1985 and 1986. At approximately the time this inventory was delivered, new personal guaranties were requested by Borg Warner, and signed by Bjorklund and Aslakson in September of 1985. It is undisputed that the inventory which is the basis of this lawsuit was ordered pursuant to the 1984 security agreement.
When construing a contract, it is the function of the court to do so in light of the intention of the parties. Carl Bolander & Sons, Inc. v. United Stockyards Corp., 298 Minn. 428, 433, 215 N.W.2d 473, 476 (1974).
The intent of the parties expressed in the 1982 guaranty was that it would continue in effect as long as the Dobsons wished to guaranty future corporate debts. To rescind, the Dobsons could at any time notify Borg Warner in writing that he would no longer guaranty any future debt of Shako-pee Sports. At the time Dobson severed his ties with Shakopee Sports in 1984, he gave no written notice to Borg Warner rescinding his personal guaranty.
The issue thus becomes whether the Dobsons’ April 12, 1982 personal guaranty can be construed fairly and reasonably to apply to merchandise delivered in 1985 and 1986, which was secured by new personal guaranties of Bjorklund and Aslakson. We note that case law interpreting indefinite guaranties has interpreted a “reasonable time,” to be 3 years. See, e.g., Tri-County State Bank, 395 N.W.2d 409. Borg Warner had sought new personal guaranties periodically every three years: 1979, 1982 and 1985.
Relevant to both a determination of the intent of the parties and a fair and reasonable construction of the 1982 security agreement is the fact that in 1985 Borg Warner sought and received new personal guaranties from Bjorklund and Aslakson, the only then shareholders, for the merchandise in question, and did not seek one from the Dobsons. Also relevant to the construction of the 1982 guaranty is whether Borg Warner had knowledge that Dob-son was no longer a principal in Shakopee Sports at the time it sought new personal guaranties from Bjorklund and Aslakson.
Appellant argues that there is a fact issue as to whether Borg Warner had actual or constructive notice that Dobson was no longer a principal in the corporation. It is undisputed that Borg Warner received new personal guaranties from all principals of Shakopee Sports in September 1985, to secure the inventory which was the subject of the 1984 security agreement, and did not seek or receive one from the Dobsons. In fact, Borg Warner submitted the affidavit of Richard D. Key in support of its motion for summary judgment, which states:
The personal guaranty of all shareholders has always been a condition of entrusting inventory to Shakopee Sports Center, Inc. Without such personal guaranties, [Borg Warner] would have refused any credit to Shakopee Sports Center, Inc. (emphasis added).
This is sufficient to create a fact issue as to whether Borg Warner had notice that Dobson had left the corporation. Whether Borg Warner had knowledge is relevant to the construction of the 1982 guaranty under the rule of American Tobacco, which requires that the guaranty be construed fairly and reasonably. Also relevant is the point in time at which Borg Warner may have acquired this knowledge. These facts are not apparent from the record and the parties should be permitted to litigate them.
We conclude that there are genuine issues of material fact as to Borg Warner’s *752knowledge regarding the Dobsons’ interest in Shakopee Sports.
DECISION
Because we conclude that there is a genuine issue of material fact, the summary judgment granted in favor of respondents is hereby reversed and remanded for a trial on the merits.
Reversed and remanded.