Farmers Trust and Sav. Bank v. Manning, 65175

• Decision Date: 21 October 1981
• Docket Number: No. 65175,65175
• Citation: 311 N.W.2d 285
• Parties: FARMERS TRUST AND SAVINGS BANK, Appellee, v. Ralph F. MANNING and Florence M. Manning a/k/a Florence Margaret Manning, Appellants.
• Court: Iowa Supreme Court

Page 285

311 N.W.2d 285

FARMERS TRUST AND SAVINGS BANK, Appellee, v. Ralph F. MANNING and Florence M. Manning a/k/a Florence Margaret Manning, Appellants.

No. 65175.

Supreme Court of Iowa.

Oct. 21, 1981.

Robert W. Sackett and Rosemary Sackett of Sackett, Sackett, Hemphill & Howe, Spencer, for appellants.

Christopher A. Bjornstad and David A. Scott of Cornwall, Avery, Bjornstad & Scott, and Joel Greer of Greer, Nelson, Bertell, Montgomery & Barry, Spencer, for appellee.

Considered by LeGRAND, P. J., and UHLENHOPP, HARRIS, McCORMICK, and LARSON, JJ.

LeGRAND, Justice.

This case arose when a twenty-year debtor-creditor relationship broke down. It was tried partially at law and partially in equity. The legal issues were determined by a jury and, with one exception, are not involved in this appeal. The equitable issues were tried to the court, and judgments were entered against defendants on a series of notes. The judgments also foreclosed several mortgages. Defendants appeal; we affirm in part and reverse in part.

Ralph F. Manning and Florence M. Manning (Mannings) are husband and wife. They are engaged in the business of raising poultry. For many years they had financed their operation with plaintiff, Farmers Trust and Savings Bank (bank). In 1977, the bank refused the Mannings further financing. They were then obligated to the bank on a series of notes, some executed by both Ralph and Florence and some by Ralph alone.

The circumstances which brought about this litigation began on May 24, 1976, when the Mannings executed a note for $69,000 secured by a mortgage on a seventy-nine-acre tract owned by them as tenants in common. The mortgage contained an open-end (or dragnet) provision which pledged the mortgaged property as security for additional advances up to a total of $100,000.

Following execution of the $69,000 note, Ralph alone borrowed additional sums over the next thirteen months on five notes in the respective amounts of $6,000, $5,000, $8,000, $9,000, and $3,000. These advances totaled $31,000 and were intended to reach the limit the bank had placed on the Mannings' credit.

These notes all carried a one-year maturity date and charged interest at 9 percent. None was signed by Florence nor did she know of them until later, although she testified she would have executed them if her husband had requested that she do so.

When the $5,000 note came due on August 30, 1977, Ralph presented two checks to the plaintiff, one for principal and one for interest. Delivery, however, was made on condition the bank would lend him money to cover them. The bank refused further financing and rejected the tender as made.

This suit was then instituted, and the bank invoked the acceleration clause of the mortgage permitting it to declare the entire amount of Mannings' indebtedness due in the event of default.

Mannings filed a counterclaim, alleging breach of contract in refusing them further credit and stating the bank's conduct was "outrageous and grossly negligent." These issues were tried to a jury, which denied the counterclaim. There is no appeal from that result except for one issue relating to instructions, which we discuss later. The equitable issues had been reserved for consideration by the court on the same record.

Based on that record, the trial court entered judgments against Ralph and Florence jointly on two separate notes in the amount of $101,700.62, plus interest and costs. The trial court also entered judgment against Ralph alone on six separate notes, in the amount of $72,576.89, plus interest and costs.

Although the issues are stated somewhat differently by the Mannings, the two determinative questions to be answered are (1) the effect of the Iowa Consumer Credit Code (ICCC) on the notes sued upon and (2) the construction to be given the open-end mortgage dated May 24, 1976.

In addition the Mannings assert one error in the trial of their counterclaim, claiming there was reversible error in the trial court's definition of line of credit. We first treat that issue briefly.

I. Jury Instruction.

The Mannings' counterclaim resulted in a verdict adverse to them. They complain about a jury instruction defining "line of credit." One witness distinguished "line of credit" (the amount available to a borrower) from "credit line" (the amount actually borrowed). However, the terms were used interchangeably throughout the trial. The trial court did not distinguish between them in the instructions.

During its deliberations, the jury asked the trial court to define both terms. The court responded with a short supplemental instruction that there was no difference between the two "for the purposes of this case."

The Mannings did not object to the instructions as originally given nor to the supplemental instruction. They raise the issue for the first time on this appeal. It comes too late, and we decline to consider it. Julian v. City of Cedar Rapids, 271 N.W.2d 707, 708-09 (Iowa 1978); Miller v. International Harvester Co., 246 N.W.2d 298, 301 (Iowa 1976); Rush v. Sioux City, 240 N.W.2d 431, 441 (Iowa 1976); Iowa R.Civ.P. 196. We affirm the judgment for the bank on the counterclaim, and we move to a consideration of the issues raised in connection with the judgments entered on the notes and mortgages.

II. Default in Payments.

Although the Mannings concede they were in default long before trial, they argue the petition should have been dismissed because they were not in default when suit was started. This depends on whether Ralph made a valid tender of payment at the time the $5,000 note came due on August 30, 1977. The offer of payment by Ralph was coupled with a request that the bank advance him additional funds to cover the checks. He says the bank was obligated to do this by the terms of its commitment to lend him and his wife $100,000. This is not true. If additional loans were made, the mortgage of May 24, 1976, was to secure them up to a total of $100,000. However, the bank was not obligated to make any advances and could, as it in fact did, refuse further credit.

A tender must be absolute and unconditional. Lyon v. Willie, 288 N.W.2d 884, 894 (Iowa 1980). One who makes a tender may insist that the other party fulfill his or her contractual obligation without affecting the validity of the tender. Id. As we have already said that the bank need not extend Ralph additional credit to meet this obligation, the tender as made was conditional, and the bank was justified in refusing to accept it. As a result, the Mannings were in default when suit was brought.

III. Open-End Mortgage.

The mortgage dated May 24, 1976, was an open-end or "dragnet" instrument, pledging real estate as security for future as well as present loans. The dragnet clause provided as follows:

This mortgage shall stand as security for said note, and for any and all future and additional advances made to the Mortgagors by the holder of said note in such amount or amounts so that the total of such future additional advances outstanding and unpaid at any one time shall not exceed $100,000.00 and Mortgagee is hereby given authority to make such future and additional advances to Mortgagors herein, upon their signed order or receipt, and secured as the original obligation herein.

The $31,000 difference between the original mortgage indebtedness of $69,000 and the total authorized indebtedness of $100,000 was quickly exhausted by a series of notes executed by Ralph alone in amounts of $6,000, $5,000, $9,000, $3,000, and $8,000. (The $8,000 note was rejected by the trial court as not being properly executed. It is not involved in this appeal.)

The Mannings do not attack the validity of this mortgage as security for the $69,000 advanced at the time of its execution. They do, however, challenge the bank's claim that it also secures the series of notes later executed by Ralph but not by Florence.

The bank insists the mortgage should stand as security for loans made to either Ralph or Florence. The Mannings argue its terms limit it to those loans made to both of them. The trial court held the notes signed by Ralph alone were secured by the open-end mortgage to the extent of his interest in the real estate, but that they did not encumber Florence's interest. We hold the trial court should have gone farther by saying the notes were not secured by the mortgage at all, even as to Ralph's interest.

Mortgages of the type here considered dragnet mortgages are valid but are not favored by the law. They are strictly construed against the mortgagee. Freese Leasing, Inc. v. Union Trust and Savings Bank, 253 N.W.2d 921, 925 (Iowa 1977). The instant mortgage was executed as the joint obligation of Ralph and Florence. It pledges real estate owned by them as tenants in common as security for future advances made to the mortgagors on their signed order or receipt. Nowhere does the instrument refer to advances made to only one of them.

The bank relies on First v. Byrne, 238 Iowa 712, 715, 28 N.W.2d 509, 511 (1947). If only the bank and Ralph were involved, Byrne might be controlling as it appears both of them intended these loans to be secured. See Freese, 253 N.W.2d at 926. However, we must consider, too, the rights of Florence; and when we do, Byrne supports the Mannings rather than the bank. In Byrne we said:

The mortgagors owned the premises as tenants in common and the mortgage was specifically given to secure their joint note. The "dragnet" clause would, of course, be effective to make it secure other existing and future joint indebtedness of the mortgagors to the mortgagee. But its language is broader than that: " * * * shall stand as security for any other indebtedness * * * that the mortgagee may now hold or in the future * * * acquire against the said mortgagors, or either or any of them."

Does this mean the interest of each in the mortgaged premises was intended to be absolutely pledged to secure existing and future debts of the other as...