First Nat. Bank of Unadilla v. Betts

first nAtionAl BAnk of unAdillA, C ountryside
BAnk , AppellAnt , v . JACk d. B etts , Appellee .
748 N.W.2d 76
Filed May 9, 2008. 	No. s-07-023.
1. Courts: Appeal and Error. the district court and higher appellate courts gener-
ally review appeals from the county court for error appearing on the record.
2. ____: ____. When a district court reverses a county court’s judgment and enters
findings, a higher appellate court still reviews the county court’s judgment for
errors appearing on the record.
3. Judgments: Appeal and Error. When reviewing a judgment for errors appearing
on the record, the inquiry is whether the decision conforms to the law, is supported
by competent evidence, and is neither arbitrary, capricious, nor unreasonable.
4. ____: ____. In instances when an appellate court is required to review cases for
error appearing on the record, questions of law are nonetheless reviewed de novo
on the record.
5. Contracts: Guaranty: Debtors and Creditors: Words and Phrases. a guaranty
is a contract by which the guarantor promises to make payment if the principal
debtor defaults.
6. Contracts: Guaranty: Appeal and Error. to determine the obligations of a guar-
antor, an appellate court relies on general principles of contract and guaranty law.
7. Contracts: Guaranty: Intent. because a guaranty is a contract, it must be under-
stood in light of the parties’ intentions and the circumstances under which the
guaranty was given.
8. Guaranty: Liability. When the meaning of a guaranty is ascertained, or its terms
are clearly defined, the liability of the guarantor is controlled absolutely by such
meaning and limited to the precise terms.
9. Contracts: Guaranty: Liability. the liability of a guarantor is not to be enlarged
beyond the strict terms of the contract.
10. Contracts: Guaranty. a guaranty, as any other contract, must be interpreted by
reference to the entire document, with meaning and effect given to every part of
the guaranty whenever possible.
appeal from the District Court for Nemaha County, dAniel
e. B ryAn , J r ., Judge, on appeal thereto from the County Court
for Nemaha County, C urtis l. mAsCHmAn, Judge. Judgment of
District Court affirmed in part and in part reversed, and cause
remanded with directions.
David Watermeier, of Morrow, poppe, otte & Watermeier,
p.C., L.L.o., for appellant.
angelo M. Ligouri, of Ligouri Law office, for appellee.
FIrst Nat. baNk oF uNaDILLa v. betts 	665
Cite as 275 Neb. 665
Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
11/01/2026 04:55 AM CST

666 	275 Nebraska reports
H eAviCAn, 	C.J., 	wriGHt, 	C onnolly, 	G errArd, 	stepHAn,
mCC ormACk, and miller -lermAn, JJ.
wriGHt, J.
Nature oF Case
the First National bank of unadilla, Countryside bank
(bank), sought a judgment against Jack D. betts, based on
a guaranty Jack signed for a loan made to his son, brad M.
betts. the Nemaha County Court entered judgment in favor
of the bank. Jack appealed to the district court for Nemaha
County, which reversed the judgment of the county court. the
bank appeals.
sCope oF reVIeW
[1,2] the district court and higher appellate courts gener-
ally review appeals from the county court for error appearing
on the record. Stover v. County of Lancaster, 271 Neb. 107,
710 N.W.2d 84 (2006). When a district court reverses a county
court’s judgment and enters findings, a higher appellate court
still reviews the county court’s judgment for errors appearing on
the record. Thomas Lakes Owners Assn. v. Riley, 9 Neb. app.
359, 612 N.W.2d 529 (2000).
[3,4] When reviewing a judgment for errors appearing on
the record, the inquiry is whether the decision conforms to the
law, is supported by competent evidence, and is neither arbi-
trary, capricious, nor unreasonable. Stover, supra. However, in
instances when an appellate court is required to review cases for
error appearing on the record, questions of law are nonetheless
reviewed de novo on the record. Id.
FaCts
brad received a loan for $6,200 from the bank in November
1995. at the time, brad did not own real estate or have adequate
assets to secure the loan, and Jack signed a guaranty for it.
on april 27, 1996, brad renewed the loan in the amount of
$7,668.63, and Jack signed a guaranty for the renewal of the
loan. brad renewed the loan for a second time on July 21, 1998,
in the amount of $11,951.71. the loan, referred to as “Note
#8026,” indicated that the security for the loan was a 1988

Dodge pickup and a 1988 Ford Mustang. the guaranty Jack
signed for Note #8026 is the subject of this action.
on May 8, 2000, brad and his wife, elizabeth r. betts, took
out a loan from the bank in the amount of $3,900. the loan,
referred to as “Note #9200,” was not a renewal and was not
guaranteed by Jack. brad and elizabeth were employed, and
their combined annual income was $52,880.
on May 15, 2000, brad and elizabeth were issued “Note
#9224” in the amount of $19,418.26. the note was a renewal
of Notes #8026 and #9200 and was secured by a deed of trust
in a house in Lincoln, Nebraska. the note included $5,636.74
owed on Note #8026, $6,751.51 of new funds, $3,911.75 owed
on Note #9200, and $3,118.26 for credit disability and joint
credit life insurance.
brad testified that the bank’s vice president, bruce Hassler,
had told him a guaranty from Jack was not needed for Note
#9224 because there was enough equity in the house and
because brad and elizabeth were both employed. Hassler pre-
pared a financial statement which indicated brad and elizabeth
had a net worth of $23,568. brad testified that Hassler sug-
gested that Note #8026 from July 1998 and Note #9200 from
May 8, 2000, be combined because there was sufficient equity
in the home and the parties were employed. the deed of trust
and second mortgage on the house were the collateral used by
the bank for Note #9224. brad stated that Hassler said brad
and elizabeth could demonstrate creditworthiness based on
their income and equity.
on December 17, 2003, the bank received notification that
brad and elizabeth’s house in Lincoln was to be offered at a
trustee’s sale. after the bank received no funds from the sale of
the house, it sought to collect from Jack based on the guaranty he
signed for Note #8026 in 1998. the bank alleged that Jack owed
$11,951.71 plus interest from and after august 8, 2002, the last
date the bank received a payment from brad. the bank claimed
that brad and elizabeth’s failure to make payments constituted a
breach of Notes #8026 and #9224 and the personal guaranty.
In 	his 	answer, 	Jack 	asserted 	that 	the 	obligation 	under
Note #8026 was terminated by Note #9224 and that Note
FIrst Nat. baNk oF uNaDILLa v. betts 	667
Cite as 275 Neb. 665

668 	275 Nebraska reports
#9224 was based on brad and elizabeth’s assets, income,
and creditworthiness.
at trial in the county court, Hassler testified that Jack had
previously signed guaranties for brad which had been required
because the collateral of the two vehicles given by brad was not
of sufficient value to cover the loans. Hassler stated that Note
#8026 renewed a prior note and included credit for $2,445.96
paid on a prior loan. Note #9200 was a bridge loan and was
not an addition to or an extension of Note #8026. He said Note
#9224 renewed Notes #8026 and #9200 and included additional
funds of $6,751.51. Hassler said Note #9224 was intended to
pay for home improvements to brad and elizabeth’s house
in Lincoln.
Hassler testified that at the time Note #9224 was executed,
neither brad nor elizabeth met the bank’s standard of credit-
worthiness. Hassler claimed the bank required that the 1998
guaranty on Note #8026 executed by Jack remain in place
because brad had been slow to pay on prior notes and there was
not enough collateral when the bank was “in second position on
the house” due to an existing mortgage. Hassler said brad and
elizabeth never met the bank’s standard of creditworthiness to
authorize a new loan without a guaranty. Hassler testified that
by March 2000, brad had “corrected his overdrawn account.”
Hassler said that to determine whether to grant Note #9224, he
prepared and relied on a financial statement based on informa-
tion provided by brad and elizabeth. the bank understood
that brad planned to make improvements to the house which
would place the bank in a better position. Hassler said that of
the $19,000 loaned to brad and elizabeth, Jack had guaranteed
$12,000, so the bank was at risk for $7,000.
Jack testified that he guaranteed three loans between brad
and the bank—in November 1995, april 1996, and July 1998.
He did not know the terms and conditions of the July 1998
loan before he executed the personal guaranty. on previous
occasions, the bank had always asked him to sign a new guar-
anty to go along with a new note, but when Notes #9200 and
#9224 were issued in May 2000, no one from the bank con-
tacted him. He said it was the bank’s prior practice to notify
him when brad renewed a loan. He was not informed that

the bank intended to extend the guaranty on Note #8026 to
Notes #9200 and #9224, and he took no action to revoke the
1998 guaranty.
the county court found that the guaranty for Note #8026 was
an absolute unconditional continuing guaranty, which continued
unless revoked or until full payment was made and all of brad
and elizabeth’s indebtedness was discharged. the court found
that brad and elizabeth did not meet the bank’s standard of
creditworthiness when they executed Note #9224.
In entering judgment for the bank, the county court found
that the guaranty executed by Jack on Note #8026 was extended
by Note #9224. the court found that a default on Note #9224
occurred on December 17, 2003, when a notice of trustee’s sale
was issued. the court held that Jack had not taken any action to
revoke the 1998 guaranty and that he was therefore still liable
on the guaranty.
the county court concluded that the bank was entitled to
judgment on the limit of the guaranty in the principal sum of
$11,951.71 plus interest at the rate specified in Note #9224 of
101⁄2 percent from and after the last payment date of august 8,
2002, for a total of $5,081.61 as of august 25, 2006. Judgment
was entered for the bank in the total sum of $17,033.32 with
interest to accrue on the principal until paid in full.
Jack appealed to the district court. the court found that the
guaranty signed by Jack was not ambiguous or vague and that
it was an absolute and unconditional guaranty to the bank of
the full and prompt payment when due of Note #8026, dated
July 21, 1998, and any extensions, renewals, or replacements of
it. However, contrary to the county court’s finding, the district
court found that the guaranty continued only until there was full
payment and discharge of the indebtedness evidenced in Note
#8026, its extensions, renewals, or replacements.
the district court concluded that under the terms of the
guaranty, the indebtedness guaranteed by Jack did not include
any obligations entered into between brad and elizabeth and
the bank after brad and elizabeth met the bank’s standard
of creditworthiness. this standard was based upon brad and
elizabeth’s own assets and income. the court opined that the
indebtedness guaranteed by Jack would not extend to Note
FIrst Nat. baNk oF uNaDILLa v. betts 	669
Cite as 275 Neb. 665

670 	275 Nebraska reports
#9224 if brad and elizabeth met the bank’s standard of credit-
worthiness when Note #9224 was issued, even though it was a
renewal of Note #8026.
the district court found that the bank failed to prove that brad
and elizabeth did not meet the bank’s standard of creditworthi-
ness and that it was clear error for the county court to so find.
the district court concluded that this failure required a finding
that the indebtedness created by Note #9224 was not subject
to Jack’s guaranty. It reversed the decision of the county court,
entered judgment for Jack and against the bank, and remanded
the case to the county court for further proceedings.
assIGNMeNts oF error
the bank assigns as error: the district court erred and
abused its discretion (1) in finding that the bank failed to pro-
vide sufficient evidence to show that brad did not qualify for
the May 15, 2000, note on his own creditworthiness and (2) in
holding that Jack was no longer liable under the terms of the
guaranty because the bank failed to sufficiently define its stan-
dard of creditworthiness.
aNaLysIs
the issue in this case is framed by the terms of the written
guaranty signed by Jack on July 21, 1998. Jack guaranteed to
the bank the payment of Note #8026 and any extensions, renew-
als, or replacements referred to as “indebtedness.” the guaranty
provided that the term “indebtedness” shall not include “any
obligations entered into between borrower and Lender after the
date” of the guaranty, including any extensions, renewals, or
replacements of such obligations “for which borrower meets
the Lender’s standard of creditworthiness based on borrower’s
own assets and income without the addition of a guaranty.” the
guaranty stated:
No act or thing need occur to establish the liability of the
[guarantor], and no act or thing, except full payment and
discharge of all indebtedness, shall in any way exoner-
ate the [guarantor] or modify, reduce, limit or release the
liability of the [guarantor].
. . . .

. . . the liability of the [guarantor] shall be limited to a
principal amount of $11,951.71 . . . plus accrued interest
thereon . . . .
as framed by the terms of the guaranty, the issue is whether
brad and elizabeth were creditworthy at the time they signed
Note #9224. If brad and elizabeth were creditworthy, we must
consider whether Note #9224 absolved Jack of any of the liabil-
ity described in the guaranty.
[5-10] a guaranty is a contract by which the guarantor prom-
ises to make payment if the principal debtor defaults. NEBCO,
Inc. v. Adams, 270 Neb. 484, 704 N.W.2d 777 (2005). to
determine the obligations of the guarantor, this court relies on
general principles of contract and guaranty law. Id. because a
guaranty is a contract, it must be understood in light of the par-
ties’ intentions and the circumstances under which the guaranty
was given. Id. When the meaning of a guaranty is ascertained,
or its terms are clearly defined, the liability of the guarantor is
controlled absolutely by such meaning and limited to the pre-
cise terms. Eagle Run Square II v. Lamar’s Donuts Internat., 15
Neb. app. 972, 740 N.W.2d 43 (2007), citing Knox v. Cook, 233
Neb. 387, 446 N.W.2d 1 (1989). the liability of the guarantor is
not to be enlarged beyond the strict terms of the contract. Eagle
Run Square II, supra, citing In re Estate of Fischer, 227 Neb.
722, 419 N.W.2d 860 (1988). a guaranty, as any other contract,
must be interpreted by reference to the entire document, with
meaning and effect given to every part of the guaranty when-
ever possible. Knox, supra.
B rAd And elizABetH met stAndArd of C reditwortHiness
the guaranty provided that the standard of creditworthiness
was to be based on brad’s “own assets and income without
the addition of a guaranty.” there was no further definition of
creditworthiness. the bank’s own financial statement showed
that brad and elizabeth had sufficient net worth to cover the
debt owed to the bank. the bank also took a deed of trust on
the home owned by brad and elizabeth.
based on the financial statement prepared by the bank, brad
and elizabeth’s net worth exceeded the amount of the new loan.
the financial statement showed that brad and elizabeth had a
FIrst Nat. baNk oF uNaDILLa v. betts 	671
Cite as 275 Neb. 665

672 	275 Nebraska reports
net worth of $23,568. His annual income was $30,000, and hers
was $22,880. according to the financial statement, the home
had a fair market value of $77,000 subject to a first mortgage
of $63,500. the new note, #9224, included $9,550 of previous
debt which was included on the liability side of the financial
statement. In effect, the bank was lending brad and elizabeth
approximately $10,000 in new money.
We conclude that the county court was clearly wrong in find-
ing that brad and elizabeth did not meet the bank’s standard
of creditworthiness. the guaranty limited its creditworthiness
requirement to the assets and income of the borrower, and there
is no evidence to support the conclusion that brad was not credit-
worthy. the couple’s net worth exceeded the amount of the new
loan, and about one-half of the existing debt was already listed
on the liability side of the financial statement.
on appeal, the bank argues that its determination of credit-
worthiness is a subjective standard which the bank can employ.
It asserts that “late payments and encumbrances are necessary
factors in determining a borrower’s assets and income.” brief
for appellant at 14. However, the guaranty itself did not provide
that the bank could subjectively determine a borrower’s credit-
worthiness. the guaranty specifically stated that the standard of
creditworthiness was based on the borrower’s own assets and
income without the addition of a guaranty.
based on this language, if the assets and income of the
borrowers, brad and elizabeth, demonstrated creditworthiness,
no guaranty would be needed. the bank prepared a financial
statement for brad and elizabeth that showed their net worth
to be more than the amount of the note. In addition, the note
included prior loan amounts that were also listed as liabilities in
the financial statement. thus, brad and elizabeth demonstrated
their creditworthiness.
liABility of JACk As G uArAntor
Having determined that brad and elizabeth were creditwor-
thy at the time they signed Note #9224, we proceed to consider
whether the note released Jack from all liability.

When Note #9224 was signed, $5,636.74 remained on Note
#8026, which was subject to Jack’s guaranty. If brad and
elizabeth were not creditworthy when Note #9224 was exe-
cuted, Jack’s liability on the guaranty would have increased to
the guaranty’s limit of $11,951.71 principal, plus all interest
that accrued thereon. the county court determined that Jack’s
liability had been increased to $11,951.71 by Note #9224, and
it entered judgment accordingly.
the 	question 	is 	whether 	Note 	#9224, 	which 	included
$5,636.74 of existing indebtedness covered by the guaranty,
extinguished Jack’s liability because all new indebtedness was
based upon brad and elizabeth’s creditworthiness. the guar-
anty provided that if brad entered into subsequent obligations
for which he was creditworthy, then such obligations were not
included as indebtedness of the guaranty.
We conclude that Note #9224 did not relieve Jack of liability
for the $5,636.74 which existed under the guaranty at the time
Note #9224 was executed. any new indebtedness would not
be Jack’s responsibility under the guaranty because brad and
elizabeth were creditworthy. the guaranty was not subject to
any subsequent indebtedness for which brad met the bank’s
standard of creditworthiness.
However, the guaranty also provided that no act except
full payment and discharge of all indebtedness shall release
Jack’s liability under the guaranty. at the time Note #9224 was
executed, existing indebtedness of $5,636.74 had not been paid.
thus, although no new indebtedness was subject to the guar-
anty, Note #9224 did not discharge the existing liability.
If we were to conclude that Note #9224 eliminated all
liability under the guaranty, as the district court so deter-
mined, we would have to ignore the provision of the guar-
anty stating that no act except full payment and discharge of
all indebtedness shall release the liability of the guarantor.
the indebtedness of $5,636.74 has not been paid, and Jack
remains liable for this amount plus accrued interest on such
principal amount. Note #9224 did not increase the amount of
the existing indebtedness, but $5,636.74 is still subject to the
FIrst Nat. baNk oF uNaDILLa v. betts 	673
Cite as 275 Neb. 665

674 	275 Nebraska reports
guaranty, and as to this part of the debt, the bank may look to
Jack for payment.
CoNCLusIoN
the judgment of the district court is affirmed in part and in
part reversed, and the cause is remanded with directions to enter
judgment in favor of the bank and against Jack in the amount
of $5,636.74 plus interest from august 8, 2002.
A ffirmed in pArt , And in pArt reversed
And remAnded witH direCtions .
G ood sAmAritAn C offee C ompAny , A neBrAskA
CorporAtion , Appellee , v . lArue distriButinG,
inC., A neBrAskA CorporAtion , doinG Business
As lArue C offee , et Al ., AppellAnts .
748 N.W.2d 367
Filed May 9, 2008. 	No. s-07-300.
1. Arbitration and Award. Whether a stay of proceedings should be granted and
arbitration required is a question of law.
2. Judgments: Appeal and Error. When reviewing questions of law, an appellate
court has an obligation to resolve the questions independently of the conclusion
reached by the trial court.
3. Arbitration and Award: Waiver: Appeal and Error. the legal determination of
waiver of arbitration is reviewed de novo, and the factual findings underlying that
ruling are reviewed for clear error.
4. Federal Acts: Arbitration and Award: Contracts. the Federal arbitration act
applies to contracts evidencing a transaction involving commerce.
5. Federal Acts: Arbitration and Award: Intent: Words and Phrases. the phrase
“evidencing a transaction” in the Federal arbitration act has been construed to
include transactions involving interstate commerce even where the parties did not
contemplate an interstate commerce connection.
6. Arbitration and Award: Waiver: Presumptions: Intent. a waiver defense
raised in the context of prior litigation- related activity is presumed to be decided
by a court, rather than an arbitrator. and shifting of this issue to an arbitrator is
only proper where there is clear and unmistakable evidence of such an intent in
the parties’ arbitration agreement.
7. Arbitration and Award: Waiver. there is a liberal federal policy favoring arbitra-
tion; nevertheless, the right to arbitration may be waived.
8. ____: ____. a party seeking arbitration may be found to have waived its right to
arbitration if it (1) knew of an existing right to arbitration, (2) acted inconsistently
with that right, and (3) prejudiced the other party by these inconsistent acts.