Hills Bank & Trust Company, Hills, Iowa, David E. Moore, And John Moore Vs. Cynthia J. Converse

IN THE SUPREME COURT OF IOWA
No. 07–0535
Filed September 11, 2009
HILLS BANK & TRUST COMPANY,
Hills, Iowa, DAVID E. MOORE, and
JOHN MOORE,
Appellees,
vs.
CYNTHIA J. CONVERSE,
Appellant.
On review from the Iowa Court of Appeals.
Appeal from the Iowa District Court for Johnson County,
Douglas S. Russell, Judge.
A secondary obligor of a debt seeks further review of a court of
appeals decision affirming the district court decision granting summary
judgment by holding the secondary obligor does not have a right of
reimbursement or contribution against a principal obligor and cosurety.
DECISION OF COURT OF APPEALS AFFIRMED IN PART AND
VACATED IN PART; DISTRICT COURT JUDGMENT REVERSED AND
CASE REMANDED.
Gregg Geerdes, Iowa City, for appellant.
Matthew L. Preston of Brady & O’Shea, P.C., Cedar Rapids, for
appellees David and John Moore.
2
H. Raymond Terpstra, II & Gregory J. Epping of Terpstra, Epping &
Willett, Cedar Rapids, for appellee Hills Bank & Trust Company.
3
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
4
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.
5
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
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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.
7
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
8
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 guaranteed
another note, it was due to a misrepresentation by the bank. She also
contended her obligation on the later note was discharged due to the
increased risk. Lastly, she alleged Hills Bank failed to reasonably collect
what it could from the collateral seized.
The district court granted Hills Bank’s cross-motion for summary
judgment finding there was not a genuine issue of material fact as to
whether Cynthia guaranteed the February 7, 2002, loan, and the bank
was not required to show it liquidated the collateral in a reasonable
manner. The district court denied Cynthia’s motion for summary
judgment finding the release of David E. Moore did not release her.
As to Cynthia’s cross-claim against the Moores, the court found
that no common liability existed between Cynthia and the Moores after
the Moores settled their claim with the bank. The court found without
common liability, contribution could not occur, so the court granted the
Moores’ motion for summary judgment. Instead of entering judgment,
the court instructed Hills Bank to submit a proposed decree for the court
to sign.
9
Cynthia filed a motion to reconsider. In this motion, Cynthia
argued the court must hold a trial regarding the collateral and proceeds
the bank obtained from the debtors to determine how much she actually
owed Hills Bank. The court denied the motion to reconsider. It entered
judgment against Cynthia for the following items of damage: (1) $30,000
for the principal; (2) $10,385.16 for accrued interest to January 30,
2007; (3) $8,279.65 for attorney fees; and (4) $136.08 for court costs.
The total judgment was for $48,800.89 plus interest on the principal
from and after January 30, 2007, at the rate of 7.95% per annum. The
judgment also dismissed Cynthia’s cross-claim against the Moores.
Cynthia appealed, and we transferred this case to the court of
appeals. The court of appeals determined the district court’s grant of
Hills Bank’s cross-motion for summary judgment was in error. The court
of appeals found there was a genuine issue of material fact regarding
whether the November 14, 1996, guaranty was continuing and whether
the June 5, 1997, promissory note was an extension of the original
November 14, 1996, note. The court of appeals further decided there
was a genuine issue of material fact regarding the effect of the
February 7, 2002, letter. Additionally, the court of appeals determined
that if Cynthia was the guarantor of the debt, she was entitled to a
hearing on whether the bank disposed of the collateral in a commercially
reasonable manner.
The court of appeals upheld the district court’s ruling in favor of
the Moores determining Cynthia could not cross-claim for contribution or
reimbursement. The court of appeals stated no common liability existed
between Cynthia and the Moores due to Hills Bank’s release of the
Moores.
10
Hills Bank did not file an application for further review. Cynthia
filed an application for further review, which we granted. In her
application she claims the court of appeals erred when it decided she did
not have a claim of contribution or reimbursement against the Moores
and failed to address the issue as to whether the bank’s release of
David E. Moore releases her under the law as set forth in the
Restatement (Third) of Suretyship and Guaranty (1996).
II. Issues on Further Review.
When we take a case on further review, we have the discretion to
review any issue raised on appeal regardless of whether a party expressly
asserts such issue in an application for further review. In re Marriage of
Ricklefs, 726 N.W.2d 359, 361–62 (Iowa 2007). In this further review, we
will exercise that discretion and only review whether the court of appeals
erred in affirming the district court’s decision that Cynthia did not have a
claim of contribution or reimbursement against the Moores. Before
reaching the merits of the appeal, we will first review the Moores’ claim
that Cynthia’s appeal was untimely as to them.
As to the other issues raised in the briefs, we will let the court of
appeals opinion stand as the final decision of this court. State v. Effler,
769 N.W.2d 880, 883 (Iowa 2009). Accordingly, we hold genuine issues
of material fact exist as to whether Cynthia was the guarantor of the
debt. If Cynthia was the guarantor of the debt, she was entitled to a trial
on whether the bank disposed of the collateral in a commercially
reasonable manner.
We will not decide whether the district court erred in denying
Cynthia’s motion for summary judgment on the grounds that Hills
Bank’s release of David E. Moore, as a primary obligor, releases her
under the Restatement (Third) of Suretyship and Guaranty section 39.
11
We refuse to address this issue because Cynthia raised the issue for the
first time on appeal in her reply brief. 1 Young v. Gregg, 480 N.W.2d 75,
78 (Iowa 1992) (stating “an issue cannot be asserted for the first time in
a reply brief”).
III. Scope of Review.
We review an order granting summary judgment for correction of
errors at law. Kragnes v. City of Des Moines, 714 N.W.2d 632, 637 (Iowa
2006). The moving party has the burden of showing the nonexistence of
a material fact. Pillsbury Co. v. Wells Dairy, Inc., 752 N.W.2d 430, 434
(Iowa 2008). The nonmoving party should be afforded every legitimate
inference that can be reasonably deduced from the evidence, and if
reasonable minds can differ on how the issue should be resolved, a fact
question is generated. Id. Our review “is limited to whether a genuine
issue of material fact exists and whether the district court correctly
applied the law.” Id.
IV. Analysis.
Before we can reach the merits of Cynthia’s appeal against the
Moores, we must first decide if she filed a timely appeal.
A. Timeliness of the Appeal. The district court entered its ruling
on the motions for summary judgment on February 1, 2007. In that
ruling, the court granted Hills Bank’s and the Moores’ motions for
summary judgment. The ruling instructed Hills Bank to submit a
proposed decree consistent with the court’s ruling for the court’s
signature. On March 7, after ruling on Cynthia’s motion to reconsider,
1Even if the issue was preserved, in division IV.B of this opinion we find a
genuine issue of material fact exists as to whether David E. Moore was a primary or
secondary obligor.
12
the court entered a decree giving the Moores a judgment on their motion
for summary judgment. Cynthia filed her notice of appeal on March 14.
Our rules require appeals to our court must be taken within, and
not after, thirty days from the entry of the order, judgment, or decree
being appealed. Iowa R. App. P. 6.101(1)(b). 2 A failure to file a timely
notice of appeal leaves us without subject matter jurisdiction to hear the
appeal. Doland v. Boone County, 376 N.W.2d 870, 876 (Iowa 1985). The
Moores contend Cynthia should have filed her notice of appeal thirty
days from February 1, 2007, the date of the court’s original ruling.
Under most situations, they would be correct. See Flynn v. Lucas County
Mem’l Hosp., 203 N.W.2d 613, 614–15 (Iowa 1973) (holding a ruling on a
motion for summary judgment adjudicating the rights of a party is a final
judgment subject to appeal) superseded by statute on other grounds as
recognized in Peterson v. Pittman, 391 N.W.2d 235, 237 (Iowa 1986).
However, a ruling itself is not a final judgment or decision when the
ruling specifically provides for subsequent entry of a final order. In re
Marriage of McCreary, 276 N.W.2d 399, 400 (Iowa 1979); see also State v.
Dudley, 766 N.W.2d 606, 625 (Iowa 2009) (holding because an initial
order contemplated the subsequent entry of a judgment, the initial order
was not considered a final adjudication).
In the court’s February 1 ruling, the court specifically directed one
of the parties to prepare a final decree entering a judgment on its ruling.
Had Cynthia appealed from the February 1 ruling, we would not have
had subject matter jurisdiction to entertain the appeal. See McCreary,
276 N.W.2d at 400 (holding the supreme court was without jurisdiction
to hear an appeal from the court’s finding of facts, conclusions of law,
2At the time of this appeal, the substance of Iowa appellate rule 6.101(1)(b) was
found in rule 6.5(1).
13
and ruling until the court entered the decree that was contemplated by
the finding of facts, conclusions of law, and ruling). Cynthia filed her
notice of appeal within thirty days of March 7, the day the court entered
the judgment as contemplated by it in its February 1 ruling. Thus, we
have subject matter jurisdiction to hear this appeal.
B. Reimbursement between a Principal Obligor and a
Secondary Obligor. We have stated:
“Where a guarantor, who has entered into a contract of
guaranty at the request of, or with the consent of, the
principal obligor, pays or is compelled to pay his principal’s
debt, the law raises an implied promise, unless there is an
express one, on the part of the principal to reimburse the
guarantor, and on the payment of the debt the guarantor at
once has a right of action against the principal for
reimbursement of the amount which he has paid, with
interest thereon at the legal rate.”
Halverson v. Lincoln Commodities, Inc., 297 N.W.2d 518, 522 (Iowa 1980)
(quoting 38 C.J.S. Guaranty § 111, at 1298 (now found at 38A C.J.S.
Guaranty § 125, at 703 (1996))). The Restatement (Third) of Suretyship
and Guaranty is consistent with our language in Halverson. The
Restatement also fills in the details as to how a court should handle a
reimbursement issue. For these reasons, we adopt the Restatement’s
position on reimbursement.
Under the Restatement, when a principal obligor has notice of the
secondary obligation, the principal obligor has the duty to reimburse the
secondary obligor to the extent the secondary obligor is called upon to
perform, or if the secondary obligor settles with the obligee. Restatement
(Third) of Suretyship and Guaranty § 22, at 93–94 (1996). The obligation
to reimburse includes the reasonable costs of performing and incidental
expenses. Id. § 23, at 96.
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As the court of appeals held, there is a genuine issue of material
fact as to whether Cynthia is a secondary obligor in this transaction.
There is also a genuine issue of material fact as to David E. Moore’s
status in this transaction. The notes dated November 14, 1996, June 5,
1997, and February 7, 2002, identified David as a borrower, which may
make him a primary obligor. The February 7, 2002, letter agreement
identifies David as a guarantor and mortgagor, which may make him a
secondary obligor. In his brief, David argues he is a secondary obligor
and that Daverse is the primary obligor. If Hills Bank obtains a
judgment against Cynthia and the finder of fact determines David is a
primary obligor, Cynthia has the right of reimbursement against David
under Restatement (Third) of Suretyship and Guaranty section 22.
C. Contribution between Cosureties. Generally, one party who
satisfies a claim can seek reimbursement through contribution. State ex
rel. Palmer v. Unisys Corp., 637 N.W.2d 142, 149 (Iowa 2001). This right
of contribution is equitable in nature and is used to prevent unjust
enrichment. Id. If the finder of fact determines David and Cynthia
coguaranteed the obligation to Hills Bank, they are cosureties. It would
be inequitable to allow one cosurety to pay the entire debt to the obligee,
without an agreement requiring such an obligation.
We are unable to find any Iowa case law governing the right of
contribution between cosureties. We believe, however, just as the
Restatement (Third) of Suretyship and Guaranty was consistent with our
law of reimbursement between a principal obligor and a secondary
obligor, the Restatement’s treatment of contribution between cosureties
is consistent with our equitable principles of contribution. Therefore, we
approve the Restatement’s treatment of contribution between cosureties.
15
Under the Restatement, each cosurety has the right of contribution
against other cosureties. Restatement (Third) of Suretyship and
Guaranty § 55, at 236. The Restatement limits the amount of
contribution between cosureties by any express or implied agreement
between cosureties. Id. § 57(1), at 243. If there is no agreement, each
cosurety’s contributive share is equal to the “aggregate liability of the
cosureties to the obligee divided by the number of cosureties.” Id. A
cosurety is also entitled to the reasonable costs of performing, including
incidental expenses. Id. §§ 23(1), at 96; 55(2), at 236.
There is no factual dispute that John Moore is a secondary obligor
in this transaction. If the finder of fact determines Cynthia is a
secondary obligor, a genuine issue of material fact exists as to whether
she has a right of contribution against John under Restatement (Third)
of Suretyship and Guaranty section 55. If the finder of fact determines
David E. Moore is a secondary obligor, a genuine issue of material fact
exists as to whether Cynthia has a right of contribution against David
under Restatement (Third) of Suretyship and Guaranty section 55.
D. Common Liability. The Moores claim Cynthia was not entitled
to contribution or reimbursement from the Moores because there was no
common liability between Cynthia and the Moores. The right to
contribution can only occur between persons who are both liable on the
same indivisible claim. Am. Trust & Sav. Bank v. U.S. Fid. & Guar. Co.,
439 N.W.2d 188, 189 (Iowa 1989). The common liability element is a
condition to an allowance of contribution. Id. A party may still seek
contribution, however, if the liability rests on different theories. Palmer,
637 N.W.2d at 152–53. Common liability exists when an injured party
has a legal remedy against a party that is seeking contribution and the
party from whom contribution is sought. Id. at 153.
 16
Both the district court and the court of appeals agreed with the
Moores’ claim and held there was no common liability between Cynthia
and the Moores because after Hills Bank released the Moores, the bank
did not have a legal remedy against them. In other words, these courts
required common liability to exist at the time Cynthia filed her action for
contribution against the Moores. We disagree.
Daverse injured Hills Bank when it defaulted on its repayment of
the loan. At that time, John Moore was still an unreleased secondary
obligor by reason of his coguarantee, and David E. Moore was either a
primary obligor that had individually signed the loan or a secondary
obligor by reason of his guarantee. Assuming the finder of fact
determines Cynthia is a secondary obligor when the default occurred,
Hills Bank had a cause of action against both the Moores, as well as
Cynthia. Therefore, at the moment when Hills Bank was injured by
Daverse’s default, common liability existed between Cynthia and the
Moores. We have held that an action for contribution exists so long as
there is common liability at the time of the injury out of which the right
to contribution arose. Estate of Ryan v. Heritage Trails Assocs., 745
N.W.2d 724, 730 (Iowa 2008). Accordingly, the lack of common liability
at the time the action was filed will not defeat Cynthia’s claim for
contribution.
V. Conclusion and Disposition.
We adopt as our decision that part of the court of appeals’ decision
finding genuine issues of material fact exist as to whether Cynthia was a
secondary obligor of the debt. If Cynthia was a secondary obligor, she
was entitled to a trial on whether the bank disposed of the collateral in a
commercially reasonable manner. On this further review, we find
genuine issues of material fact exist concerning Cynthia’s
17
reimbursement/contribution claim against David E. Moore and her
contribution claim against John Moore. Accordingly, we affirm in part
and vacate in part the decision of the court of appeals and reverse the
judgment of the district court. Therefore, we remand this case to the
district court for further proceedings.
DECISION OF COURT OF APPEALS AFFIRMED IN PART AND
VACATED IN PART; DISTRICT COURT JUDGMENT REVERSED AND
CASE REMANDED.