Farmers State Bank v. United Cent. Bank of Des Moines, Iowa, 89-1235

• Decision Date: 21 November 1990
• Docket Number: No. 89-1235,89-1235
• Citation: 463 N.W.2d 69
• Parties: FARMERS STATE BANK and J.E.M.S., Inc., Appellants, v. UNITED CENTRAL BANK OF DES MOINES, IOWA and First Interstate Bank of Des Moines, Iowa, N.A., Appellees.
• Court: Iowa Supreme Court

Page 69

463 N.W.2d 69

FARMERS STATE BANK and J.E.M.S., Inc., Appellants, v. UNITED CENTRAL BANK OF DES MOINES, IOWA and First Interstate Bank of Des Moines, Iowa, N.A., Appellees.

No. 89-1235.

Supreme Court of Iowa.

Nov. 21, 1990.

David P. Jennett of the McCullough Law Firm, Sac City, for appellants.

W. Don Brittin, Jr. and Hayward L. Draper of Nyemaster, Goode, McLaughlin, Voigts, West, Hansell & O'Brien, P.C., Des Moines, for appellees.

Considered by McGIVERIN, C.J., and LARSON, SCHULTZ, SNELL, and ANDREASEN, JJ.

SCHULTZ, Justice.

This appeal arises out of a dispute between banks over the renewal of a loan participation agreement. Farmers State Bank of Lakeview (Farmers) used United Central Bank of Des Moines, now named First Interstate Bank of Des Moines, N.A. (Interstate) as a correspondent bank and also sold it loan participations. ¹ J.E.M.S., Inc., a one-bank holding corporation, owns over eighty percent of Farmers' stock. In 1982, Farmers loaned money to a farmer, evidenced by three notes, and Interstate purchased loan participations in the notes. After the notes were due in 1983, Farmers consolidated the three notes into one. Interstate refused to continue as a loan participant in the renewal of the loan. J.E.M.S. then participated in this loan.

Following a loss on the loan, Farmers and J.E.M.S. filed an action against Interstate for reimbursement of the portion of the loss attributed to Interstate's failure to renew its loan participation. The district court granted Interstate's motion for summary judgment. We affirm.

The factual dispute centers on whether or not Interstate agreed to participate in the loan renewal. It is undisputed that when a participation loan comes due for payment at the end of its term, the participating bank may renew the loan by signing a new agreement. However, neither the written participation agreement nor any practice in the banking industry requires the participating bank to renew or extend a participation loan. The president of Farmers, who is also the president of J.E.M.S., claims that he met with an Interstate loan officer after the loans became due and that the officer agreed to renew the loan. Interstate denies this meeting or promise.

When Farmers renewed the farmer-debtor's note by consolidating them into one, it paid Interstate the amount of the existing loan participation by a debit on its correspondent bank account. Farmers maintained that it mailed a copy of the new note to Interstate with a request for a credit. Interstate did not credit Farmers' account for a new loan participation agreement and later refused to participate in the new loan. Since Farmers exceeded its legal lending limit, J.E.M.S. purchased the identical participation loan that Interstate declined.

In its ruling, the district court stated that plaintiffs sought recovery from Interstate on three theories: (1) promissory estoppel based on the alleged promise made by Interstate's loan officer to renew a loan participation; (2) negligent misrepresentation based on the same alleged promise; and (3) breach of paragraphs 14 and 15 of the 1982 written participation agreement between Farmers and Interstate. In granting Interstate summary judgment, the district court reasoned that Farmers suffered no damages because J.E.M.S. assumed the loan participation agreement and J.E.M.S. had no contractual or other relationship with Interstate. We address the claims of each corporation.

I. Farmers' claim. On appeal and in response to the trial court's determination that Farmers had not suffered damages, Farmers raises the issues of: (1) detrimental reliance upon Interstate's representations, and (2) applicability of the collateral source rule. We find no merit in either issue and affirm the dismissal of Farmers' action.

First, Farmers claims that it suffered damages when it paid off the Schulte loan participation, relying on representations made by Interstate's loan officer. Even if we assume Farmers could prove that its reliance upon Interstate's representations arose out of promissory estoppel, negligent misrepresentation, or breach of the written participation agreement, Farmers suffered no damages. The undisputed facts show that J.E.M.S., rather than Farmers, suffered the loss on the portion of the loan that Interstate formerly carried when the farmer-debtor only paid part of his obligation. Moreover, the loss occurred after Farmers transferred this portion of the loan to J.E.M.S. Thus, Farmers suffered no damages as a matter of law.

Second, Farmers urges that it can recover damages under the collateral source rule. It asks that the rule be applied to its tort claim of negligent misrepresentation. It contends that J.E.M.S. was not in the business of banking or loan participations and thus assumed the loan obligation only to prevent Farmers from a lending overline violation. It claims that J.E.M.S.'s payment was from a source other than the wrongdoer and should not be credited against Interstate's liability.

The collateral source rule has been summarized as follows:

Payments made to or benefits conferred on the injured party from other sources are not credited against the tortfeasor's liability, although they cover all or a part of the harm for which the tortfeasor is liable.

Restatement (Second) of Torts § 920A(2) (1979). It is important to determine the type of benefits that qualify under the rule. A comment to the Restatement rule defines the types of benefits as follows:

The rule that collateral benefits are not subtracted from the plaintiff's recovery applies to the following types of benefits:

(1) Insurance policies, whether maintained by the plaintiff or a third party.

....

(2) Employment benefits.

....

(3) Gratuities. This applies to cash gratuities and to the rendering of services.

....

(4) Social legislation benefits.

....

Id. § 920A comment c. In Clark v. Berry Seed Co., 225 Iowa 262, 271, 280 N.W. 505, 510 (1938), we similarly observed that payments under the rule may come "from affection, philanthropy or contract...."

Our first inquiry is whether the payment made by J.E.M.S. is a true "other source" within the meaning of the collateral source rule. Stated otherwise, the issue is whether the assumption of a portion of the farmer-debtor's loan is the type of payment or benefit that is envisioned under the collateral source rule. We conclude that it is not.

In support of its claim that the collateral source rule is applicable, Farmers cite several tort cases in which we applied the rule. See, e.g., Atkins v. Baxter, 423 N.W.2d 6, 7-8 (Iowa 1988) (dram shop liability, insurer paid medical bills); Stewart v. Madison, 278 N.W.2d 284, 293-94 (Iowa 1979) (property damage, insurer paid loss); Clark v. Berry Seed Co., 225 Iowa 262, 271, 280 N.W. 505, 510 (1938) (personal injury, employer paid medical expense). In all of these cases, the source of the payment was either an insurance policy or employment benefit. In this case, the payment was made by a parent corporation to prevent a banking regulation violation by its subsidiary. The payment received from...