Hills Bank & Trust Co. v. Converse

• Decision Date: 11 September 2009
• Docket Number: No. 07-0535.,07-0535.
• Parties: HILLS BANK & TRUST COMPANY, Hills, Iowa, David E. Moore, and John Moore, Appellees, v. Cynthia J. CONVERSE, Appellant.
• Court: Iowa Supreme Court

772 N.W.2d 764

HILLS BANK & TRUST COMPANY, Hills, Iowa, David E. Moore, and John Moore, Appellees, v. Cynthia J. CONVERSE, Appellant.

No. 07-0535.

Supreme Court of Iowa.

September 11, 2009.

Gregg Geerdes, Iowa City, for appellant.

Matthew L. Preston of Brady & O'Shea, P.C., Cedar Rapids, for appellees David and John Moore.

H. Raymond Terpstra, II & Gregory J. Epping of Terpstra, Epping & Willett, Cedar Rapids, for appellee Hills Bank & Trust Company.

WIGGINS, Justice.

In this case, we must determine whether a bank can enforce a guaranty against a guarantor (secondary obligor). We must also decide that, if the bank can enforce a guaranty against the secondary obligor whether the secondary obligor has a right of reimbursement against the borrower (principal obligor) and a right of contribution against a coguarantor (cosurety). All parties filed summary judgment motions to determine the rights and liabilities of each party. The district court found no genuine issues of material fact existed and enforced the bank's obligation against the secondary obligor. The district court further determined that the secondary obligor did not have the right of reimbursement or contribution against the principal obligor or cosurety.

The secondary obligor appealed. We transferred the case to our court of appeals. The court of appeals found genuine issues of material fact existed as to whether the bank could enforce the guaranty against the secondary obligor and remanded the case for further proceedings on that issue. The court of appeals affirmed the district court's holding that the secondary obligor did not have the right of reimbursement or contribution against the principal obligor or cosurety. The secondary obligor sought further review of the court of appeals' decision, which we granted.

On further review, we adopt the court of appeals' determination that genuine issues of material fact exists as to whether the bank could enforce the guaranty against the secondary obligor. We do not agree, however, with the court of appeals' decision regarding the secondary obligor's right of reimbursement or contribution against the principal obligor or cosurety. On the contrary, we find genuine issues of material fact exist as to these issues. Accordingly, we affirm in part and vacate in part the decision of the court of appeals. Furthermore, we reverse the judgment of the district court and remand this case to the district court for further proceedings.

I. Background Facts and Proceedings.

Viewing the record in the light most favorable to the nonmoving party, Cynthia Converse, we find the following facts. On November 14, 1996, Daverse, Inc., Lew Converse, and David E. Moore signed a $30,000 promissory note payable to Hills Bank and Trust Company. The face of the note contained a customer number of 5080338-05 and a loan number of 29:151:16. This loan had a maturity date of May 15, 1997. Cynthia was present when Daverse, Lew Converse, and David E. Moore signed the note. At the same time, Cynthia signed a document entitled Continuing Guaranty (Limited). Cynthia guaranteed loan number 29:151:16 for customer number 5080338-05, the note executed by Daverse, Lew Converse, and David E. Moore. The guaranty limited Cynthia's liability to $30,000.

At the time of signing this guaranty, Cynthia questioned the term "continuing" as contained in the title of the document. Steve Gordon, a senior bank officer, assured her that the guaranty she signed was only for this one note. He also told her the bank could not "double dip" and she and John Moore, a coguarantor, would not be responsible for more than $15,000 each. Although the bank gave her these assurances, the guaranty stated:

Guarantor's Obligations are absolute and continuing and shall not be affected or impaired if Lender amends, renews, extends, compromises, exchanges, fails to exercise, impairs or releases any of the indebtedness owed by any Borrower, Co-guarantor or third party or any of Lender's rights against any Borrower, Co-guarantor, third party, or collateral.

On June 5, 1997, Hills Bank marked the November 14, 1996, note as paid and sent a copy to Cynthia. On the same day, Daverse, Lew Converse, and David E Moore signed a fixed rate revolving or draw note from Hills Bank. The principal on this note was $50,000 with a maturity date of June 5, 1998. The customer number was 5080338-06 and the loan number was 29:151:16. The note had a box checked on it indicating that another document constituted security for this note and identified Cynthia's continuing guaranty of November 14, 1996, as one of those documents.

In December 1999 Cynthia called the bank to inquire about her obligation under the guaranty because she and Lew were contemplating filing a divorce. She talked to Gordon who assured her the note had been paid off a long time ago, that her guaranty was complete, and she was no longer liable for the debt.

On February 7, 2002, Hills Bank prepared a letter regarding a refinancing proposal for Daverse, Lew Converse, and David E. Moore's debt. The letter indicated that another lending institution would be providing funds to Daverse, Lew Converse, and David E. Moore. The letter acknowledged that even with these additional funds, Daverse, Lew Converse, and David E. Moore would still owe approximately $45,000 to Hills Bank on the June 5, 1997, loan. The letter identified the June 5, 1997, loan number as 5080338-06. The letter identified David E. Moore, John Moore, and Cynthia as guarantors. To proceed with the refinancing, Hills Bank required the Moores and Cynthia to sign this letter. At the time Cynthia signed this letter, Bradley Marcus, a Hills Bank officer, told her she was signing a financing proposal and consent to mortgage transfer, not a note or a guaranty. She did sign the letter. Her signature line identified her as a mortgagor and limited guarantor to the extent of $30,000 on note number 5080338-06. David E. Moore's signature line identified him as guarantor and mortgagor. John Moore's signature line identified him as a limited guarantor to the extent of $30,000 on note number 5080338-06.

On February 7, 2002, the bank wrote a new promissory note. This note lowered the interest rate and extended the maturity date to February 15, 2004. The note identified the loan the bank was making as loan number 5080338-06. Daverse, Lew Converse, and David E. Moore signed the note as borrowers.

As of February 13, 2006, the principal due on the June 5, 1997, note was $48,869.26 with interest equaling $13,202.52 for a sum of $62,071.78. Hills Bank filed a petition against Cynthia on March 16, 2006, alleging that she guaranteed $30,000 on loan number 5080338-06. The bank requested a judgment against her for the $30,000 guaranty, accrued interest, attorney fees, and costs.

Cynthia answered the petition, claiming a variety of affirmative defenses. She also filed a counterclaim against the bank stating the bank had liquidated collateral that belonged to Daverse in an unreasonable manner that caused her financial loss and then failed to apply the proceeds of the collateral to the debt for which Cynthia was allegedly liable. She also alleged in her counterclaim that the bank misrepresented the purpose of the February 7, 2002, letter that Cynthia had signed.

In addition to filing a counterclaim against the bank, she filed a cross-claim against David E. Moore and John Moore for contribution or reimbursement. Cynthia claimed the Moores were responsible individually for the note. Hills Bank asked for a dismissal of the counterclaim and denied the allegations.

A few days after Cynthia filed her answer, counterclaim, and cross-claim, Hills Bank, David E. Moore, and John Moore signed a release of the Moores' liability. This release stated that Hills Bank "does release, acquit and forever discharge David E. Moore and John E. Moore from their respective personal (in personam) obligations and liabilities as borrower/co-maker/guarantor, on all loans made by Bank to Daverse, Inc." There is also a remark on the release that David E. Moore was released both as the vice president of Daverse and individually. The release was signed on May 15, 2006, by John Benson as the senior vice president of Hills Bank, John Moore as limited guarantor, and David E. Moore as cosignor and guarantor.

David E. Moore and John Moore answered the third-party claim. They denied the allegations and raised two affirmative defenses. First, Cynthia failed to mitigate damages, and second, Cynthia failed to state a claim upon which relief could be granted.

The Moores then filed a motion for summary judgment. They claimed they had satisfied the obligation to Hills Bank and obtained a release from that obligation. The Moores paid $50,000 in consideration for the release.

Cynthia resisted this motion. She claimed that the Hills Bank release should release her because it released the borrower, David E. Moore. In the alternative, she argues that she should have a claim against the primary borrower as long as she is still obligated on the guaranty.

In addition to her resistance to the Moores' motion, Cynthia also filed a motion for summary judgment against Hills Bank. She stated that David E. Moore was the borrower and Hills Bank released him without her knowledge or consent. Thus, she claimed the release discharged her obligation as guarantor because Hills Bank released the borrower without her consent.

Hills Bank not only resisted Cynthia's motion, but also filed a cross-motion for summary judgment. In its resistance, Hills Bank alleged the release of David E. Moore did not release Cynthia's guaranty. It further alleged that she was in default of her guaranty agreement and asked for a judgment for that default. The bank limited its claim to $30,000 plus pro-rata interest and collection costs.

Cynthia resisted Hills Bank's cross-motion claiming the original note she guaranteed was paid and that if she unwittingly...