First National Bank of Hawarden v. Branagan
| Decision Date | 13 May 1924 |
| Docket Number | 35888 |
| Citation | 198 N.W. 659,198 Iowa 453 |
| Parties | FIRST NATIONAL BANK OF HAWARDEN, Appellant, v. W. I. BRANAGAN et al., Appellees |
| Court | Iowa Supreme Court |
REHEARING DENIED SEPTEMBER 20, 1924.
Appeal from Palo Alto District Court.--N. J. LEE, Judge.
ACTION at law, upon a written contract of guaranty. The dispute between the parties is one of construction of the contract sued on. Parol evidence was introduced by the plaintiff, to show the circumstances surrounding the parties at the time the contract was made, and like evidence of subsequent conduct, to show the practical construction adopted by both parties. At the close of the evidence, the trial court struck from the record all such evidence, and, adopting the construction contended for by the defendants, directed a verdict in their favor. The plaintiff has appealed.--Reversed and remanded.
Reversed and remanded.
W. S Randall, Davidson & Burt, and Kelleher & Mitchell, for appellant.
E. A. & W. H. Morling, for appellees.
The contract of guaranty sued upon will be presently set forth. It was duly signed by the directors of the Emmetsburg National Bank, in furtherance of a plan promulgated by the officials of the respective banks for an exchange of discounts, whereby the discounts transferred were to be personally guaranteed respectively by the directors of the transferring bank.
The contract of guaranty was preceded by considerable correspondence between Wilson, as president of the Emmetsburg Bank, and Coffman, as cashier of the Hawarden Bank. This correspondence is a full disclosure of the mutual purpose and intent of the parties and of the circumstances out of which the contract of guaranty arose. Such correspondence also constitutes all the prior negotiations had. It appears therefrom that the Emmetsburg Bank was carrying a large amount of excess loans, and was under criticism from the banking department for that reason, and under peremptory instruction to reduce the same. What is meant by an "excess loan" is a loan to any patron, however responsible, in excess of the legal limit of 10 per cent of the bank's capital and surplus. This legal limit for the Emmetsburg Bank was $ 7,000. This problem of "excess loans" to responsible patrons is a prevalent problem in the experience of many, if not all, banks. The method of its solution often, if not usually, adopted is to transfer the "excess" to some other bank. In order to be effective as a compliance with the law, such transfer must be "without recourse." It is obvious from the record in this case that the officers of both of these banks, as well as the bank examiners, proceeded upon the theory and belief that it was the law that, if such "excess" should be rediscounted by ordinary indorsement, the liability of the transferring bank as an indorser would still remain, and that such rediscount would still be an excess loan to the borrower. Whether or not these parties were correct in this interpretation of the law is not before us, and we are not called upon to decide the question of whether or not an excess loan so rediscounted is to be taken into consideration in determining the amount that can be loaned to a customer after his paper has been so rediscounted. We make no pronouncement whatever as to the law on this question. We state the situation as we find it to be from the record and as it was regarded and acted upon by the parties. Under the circumstances disclosed in the record, and with the parties acting as they did, and in their belief, it is manifest that neither bank would purchase the discounts of the other "without recourse" unless some other form of guaranty was provided.
The Hawarden Bank also had "excess loans" which it needed to place with other banks, in order to conform to the law. The antecedent correspondence between these two banks was upon this subject, and amounted to a mutual arrangement whereby each would accept paper from the other, the same to be personally guaranteed by the directors of the transferring bank. Pursuant to this correspondence, the Hawarden Bank sent to the Emmetsburg Bank certain of its paper and a written guaranty, signed by its directors. Thereupon the Emmetsburg Bank sent an identical written guaranty, signed by its directors, to the Hawarden Bank, and likewise sent some of its paper. All the paper thus sent by the respective banks to each other purported to be transferred "without recourse." This mutual transferring of paper continued until the closing of the Emmetsburg Bank, in March, 1921. At that time, the plaintiff bank held, of the paper thus transferred to it by the Emmetsburg Bank, notes by insolvent makers amounting to more than $ 20,000. These notes furnish the basis upon which they seek to recover from the defendants on their contract of guaranty. The defense is that the contract of guaranty does not by its terms create any liability on the part of the defendants for such notes, in that such notes were all transferred "without recourse."
The argument is, in brief, that the grantors guaranteed only to pay indebtedness due from the Emmetsburg Bank to the plaintiff, and that, inasmuch as the bank owed nothing under its indorsement, its guarantors likewise owed nothing. This brings us to the vital dispute, which is as to the construction of the contract.
The construction presented by the defendants is that the contract held them to a payment only of sums of money "owing to you by Emmetsburg National Bank."
Such construction may be illustrated by setting forth a literal copy of the contract, and indicating thereon by numerals the two grounds of liability upon which the obligation of the defendants is predicated, as claimed by them, as follows:
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