Peoples Bank & Trust Co. of Cedar Rapids v. Lala

• Decision Date: 04 June 1986
• Docket Number: No. 84-1564,84-1564
• Citation: 392 N.W.2d 179
• Parties: PEOPLES BANK & TRUST COMPANY OF CEDAR RAPIDS, Iowa, Plaintiff-Appellee, v. Leo A. LALA, Jr., Donna D. Lala, Kellie Jo Lala, and Jay Albert Lala, Defendants-Appellants.
• Court: Iowa Court of Appeals

Page 179

392 N.W.2d 179

PEOPLES BANK & TRUST COMPANY OF CEDAR RAPIDS, Iowa, Plaintiff-Appellee, v. Leo A. LALA, Jr., Donna D. Lala, Kellie Jo Lala, and Jay Albert Lala, Defendants-Appellants.

No. 84-1564.

Court of Appeals of Iowa.

June 4, 1986.

As Corrected Aug. 6, 1986.

Keith E. Uhl of Scalise, Scism, Sandre & Uhl, Des Moines, for defendants-appellants.

James F. Pickens of Pickens, Barnes & Abernathy, Cedar Rapids, for plaintiff-appellee.

Heard by SCHLEGEL, P.J., and HAYDEN and SACKETT, JJ.

SACKETT, Judge.

Defendants Leo Lala, Donna Lala, Kellie Lala and Jay Lala appeal from judgment for Plaintiff Peoples Bank and Trust Company in a mortgage foreclosure action. Defendants contend: (1) recovery from defendants as guarantors was barred when the underlying debt was not plead by Peoples Bank; (2) the evidence was sufficient to establish supersession, release and/or discharge of the mortgage instruments; (3) evidence was sufficient to establish that a release executed by Peoples Bank operated as a release of all obligation; (4) evidence was sufficient to establish lack of consideration; and (5) the evidence was sufficient to establish lack of contractual capacity and/or undue influence. We affirm in part and reverse in part.

Over the course of several years, Peoples Bank extended substantial loans to Leo and Donna Lala individually, to a family-owned farming corporation (JaKel Grain Co.), and to a non-family farming corporation in which Leo owned controlling interest (LDL Farms). These loans were undersecured.

In June, 1978, Peoples Bank asked Leo to sign three separate guaranties relating to the various debts. One of the guaranties Leo signed guaranteed the debts of JaKel to the extent of $200,000. At no time was this guaranty withdrawn.

By April, 1979, exclusive of any guaranties, Leo and Donna personally owed the bank $17,861.93, LDL farms owed $386,366, and JaKel owed $273,513.24. The total amount owed was $677,741.17. At that time, Peoples Bank sought additional security for the loans. Leo and Donna Lala executed five mortgages between April 10-20, 1979; two of which are the subject of this lawsuit.

On April 13, 1979, Leo was hospitalized in the coronary care unit of St. Lukes Hospital in Cedar Rapids showing symptoms of myocardial infarction. On April 16, 1979, while Leo was still in the hospital, one of the mortgages relevant to this action was signed by Leo and Donna. The instrument was a $100,000 mortgage on Leo's and Donna's homestead. The other mortgage, dated April 19, 1979, secured two industrial lots as collateral for the preexisting debts. The Lalas signed promissory notes at the time each of the two mortgages were executed. No new consideration was given for either note.

Subsequently Peoples Bank attempted to collect the notes and foreclose the mortgages. This action resulted.

At trial conflicting evidence was presented concerning the circumstances surrounding the execution of the instruments at issue. The trial court entered judgment for Peoples Bank finding: (1) the instruments were not invalidated by defective notarization; (2) a release of indebtedness executed by Peoples Bank in 1979 was not a release of all of the Lalas' indebtedness; (3) the release of a co-guarantor was not a release of the Lalas; (4) an antecedent debt was sufficient consideration to support mortgages given as security; and (5) the actions of Peoples Bank did not relieve the Lalas from liability. Defendants have appealed.

Our review of this equitable proceeding is de novo. Iowa R.App.P. 4. While we give deference to the findings of the trial court, we are not bound by them. Iowa R.App.P. 14(f)(7).

I.

The Lalas contend the trial court erred in allowing recovery on an "unpled debt." In its petition, Peoples Bank specifically referred to the two mortgages which were the subject of foreclosure. The Lalas claim the failure to mention other notes and the guaranty relating to JaKel precludes recovery. The premise of this argument is that no new debt was created at the time the April, 1979, mortgages were executed. The Lalas contend the debt is represented by the other instruments and therefore it was imperative these other notes be mentioned in the petition. We are not persuaded by this argument.

Iowa is a notice pleading jurisdiction. Schmidt v. Wilkinson, 340 N.W.2d 282, 284 (Iowa 1983). The petition must contain a short plain statement showing the pleader is entitled to relief. Iowa R.Civ.P. 69. The petitioner need not set forth specific theories of recovery or ultimate facts. Sulzberger Excavating, Inc. v. Glass, 351 N.W.2d 188, 192 (Iowa App.1984). All that is required is that petitioner set forth sufficient facts to give the other party "fair notice" of the claim asserted. Schmidt, 340 N.W.2d at 283.

In the instant case, we find this standard has been satisfied. The petition was sufficient to apprise the Lalas of the incidents giving rise to the claim and the general nature of the action. Accordingly, we affirm on this issue.

II.

The terms of the two real estate mortgages, which are the subject of this foreclosure action, obligate and bind the Lalas for the notes specified in the instruments. The June, 1978, guaranty is the only instrument which personally binds Leo for JaKel's debts. If the instrument is considered ineffective, the Lalas could not be held liable for JaKel's debts under the terms of the mortgages. The record reflects that the principal obligor on most of the unpaid debt was JaKel. Therefore, the validity of the 1978 guaranty and its terms is crucial to Peoples Bank's recovery.

It is the Lalas' claim that the guaranty was superseded, released, or discharged. Specifically, they argue the guaranty was: (1) superseded by other guaranties from the Lalas and from LDL Farms; (2) released when co-guarantor (LDL) was released; and (3) discharged as a matter of law by the acts or conduct of Peoples Bank. We are not persuaded by these arguments.

The terms of the guaranty in question allowed for subsequent guaranties. Thus, it cannot be said that Peoples Bank's acquisition of additional guaranties would affect the terms or supersede the 1978 instrument. The 1978 guaranty specifically provides that it "shall be a continuing, absolute and unconditional guaranty, and shall remain in full force and effect until written notice of its discontinuance shall be actually received by said Bank...." (emphasis added). It also provides that further extension of credit by Peoples Bank to the debtor (JaKel) and/or acquisition of indebtedness of the debtor by Peoples Bank, even in excess of the amount of the guaranty and without notice to the guarantor, is also authorized. Finally, the instrument states that no act of commission or omission on the part of Peoples Bank with respect to the matter would affect or impair the guaranty.

In essence, the language of the guaranty indicates it secured future debts and allowed Peoples Bank to obtain additional security. Such actions cannot be viewed as affecting the terms of the instrument. We conclude, as did the trial court the 1978 guaranty remains effective and was not superseded by the acquisition of additional security. We also conclude that the release of LDL had no effect on Leo's liability. Even assuming LDL could be characterized as a co-guarantor, the terms of the 1978 guaranty specifically provide that Leo's liability would not be affected by any compromise or release of indebtedness. We find that the terms of the agreement are controlling on this issue.

The Lalas' final argument concerning the 1978 guaranty is that the actions of Peoples Bank increased Leo's risk, therefore, the guaranty was discharged. See Fidelity Savings Bank v. Wormhoudt Lumber Co., 251 Iowa 1121, 1127, 104 N.W.2d 462, 466 (1960). The Lalas allege Peoples Bank took over LDL Farms and JaKel with a voting trust and caused the resignation of Leo from LDL. It is further alleged Peoples Bank proceeded to discharge land leases of value, sell hay assets, pay unsecured debt, preferentially select debt to be reduced, release a co-guarantor, and create new debt, all to the detriment of the Lalas.

We agree with the trial court's conclusion that there was insufficient evidence of a trust agreement among the shareholders. See Iowa Code § 496A.33 (1985); Watts v. Des Moines Register & Tribune, 525 F.Supp. 1311, 1316-23 (S.D. Iowa 1981). Moreover, the actions taken by Peoples Bank were within its authority. It was a proper attempt to liquidate the corporation and pay off JaKel's creditors. By the terms of the guaranty, as well as the mortgages, Peoples Bank could apply the proceeds of any security to any debt. Additionally, the creation of new debt was for the purpose of protecting assets yet to be sold. It related to the winding up and liquidation of JaKel. We find no basis for reversal.

III.

The Lalas contend a mortgage release filed June 27, 1979, released them from any indebtedness owed to Peoples Bank.

The release in question referred to a mortgage, dated April 20, 1979, which secured a debt of $677,742.01. The collateral described was farm land which was different from any land described in the two mortgages which are the subject of this action.

Russ Blom, an attorney for Peoples Bank, testified he executed the release because it was later discovered the land described was not owned by the Lalas individually. The intention thereby was to release the collateral, not the underlying debt. The release, however, is couched in much broader terms. It provides that the debt secured by the mortgage "is paid off, satisfied and discharged, and the premises described in said Mortgage are hereby released from the lien thereof."

It is the Lalas' position that the terms of the release conclusively released the underlying debt. Since the debt represented the entire amount owed to Peoples Bank, the mortgages which are the subject of this action secure debt which no longer exists. Thus, it is claimed...