Opinion ID: 1924664
Heading Depth: 1
Heading Rank: 1

Heading: Alleged Consumer Credit Code Violation as a Defense to Guaranty Agreement.

Text: We first consider the respective arguments of the parties concerning defendants' affirmative defense based on Iowa Code section 537.3208 (1981). That statute, which is part of the Iowa Consumer Credit Code, provides, in part: No natural person, other than the spouse of the consumer, is obligated as a cosigner, comaker, guarantor, endorser, surety, or similar party with respect to a consumer credit transaction, unless before or contemporaneously with signing any separate agreement of obligation or any writing setting forth the terms of the debtor's agreement, the person receives a separate written notice that contains a completed identification of the debt he may have to pay and reasonably informs him of his obligation with respect to it. It appears without dispute that none of the defendants received the separate written notice contemplated by the foregoing statute. Defendants assert that this failure precludes the imposition of liability against them under the written guaranty agreement upon which the bank's claims are predicated. The trial court in directing verdicts both for and against the bank, held that section 537.3208 was not a defense to the bank's claim against defendants for the unpaid balance of the December 5, 1978 loan to Sayer because that note and the contract of guaranty arose from a single transaction. As to defendants' liability for the second loan to Sayer, made on June 4, 1979, the trial court held that section 537.3208 was applicable and failure of the bank to give defendant a separate written notice of that debt renders the guaranty agreement inoperative as to Sayer's obligations under the second loan. On appeal, defendants assert that section 537.3208 should be applied so as to preclude their being obligated to repay either loan to Sayer. The bank on the other hand contends that from the inception, the entire guaranty transaction was for purposes of financing a commercial venture, that the two loans to Sayer were both made incident to that purpose, and that as a result no consumer credit transaction is involved. In considering the bank's contention, we note that section 537.3208, by its own terms, is only applicable to a consumer credit transaction. In the definition portion of the Iowa Consumer Credit Code, section 537.1301(11) provides that the only loan transaction which is a consumer credit transaction is a consumer loan. An essential element of a consumer loan under section 537.1301(14) is that the debt is incurred primarily for a personal, family or household purpose. It is undisputed in the record that the purpose of both loans to Sayer was to finance a commercial venture for construction of two four-plex dwelling units. Neither loan was, therefore, within the definition of consumer loan or consumer credit transaction. The defendants do not dispute that the transactions in question were for commercial purposes. Notwithstanding this circumstance, they rely on language in the notes executed by Sayer to support their claim that a consumer credit transaction was involved in both loans. Both the December 5, 1978 note and the June 4, 1979 note executed by Sayer contain the following language: This loan is subject to the provisions of the Iowa Consumer Credit Code applying to consumer loans. At the bottom of each note in bold-faced type is the statement: This is a consumer credit transaction. Defendants urge that under our holding in First Northwestern National Bank v. Crouch, 287 N.W.2d 151, 153 (Iowa 1980), such language is sufficient to make the remedies of the Consumer Credit Code available in a transaction which otherwise failed to satisfy the definitional requirements of a consumer credit transaction. In Crouch, we held that ordinary principles of contract law permit the parties to a loan transaction to contract as to remedies. Such right permits a creditor to extend to a debtor the protections of the Consumer Credit Code even though they would otherwise not apply to the type of transaction involved. The rule, as applied in that case, was utilized to determine the remedies available to the parties to the agreement as between themselves. In the present case, the bank urges that the Crouch holding is without application because the contract of guaranty is solely between it and the defendants and was a commercial transaction which in no way adopted the remedies of the Consumer Credit Code. In regard to the facts of the present case, we agree with the bank's contention. The agreement of guaranty was entered into between the bank and the three defendants on November 29, 1978, prior to the time either note was executed by Sayer. The agreement is by its terms a continuing guaranty as that term is applied in our decision in Maresh Sheet Metal Works v. N.R.G. Ltd., 304 N.W.2d 436, 440-41 (Iowa 1981). It does not relate to specific loan transactions but instead contemplates a course of loans in the future which were to be made in relation to financing a project which might extend for an indefinite period of time. Defendants' obligations under the guaranty agreement are to assure payment by Sayer of sums advanced to him by the bank in the event that Sayer fails to repay these obligations. Within the context of the agreement between defendants and the bank, the terms of the loans to Sayer are not material except as such terms may ultimately result in Sayer owing money to the bank and not repaying it. There is no claim in the present case that Sayer has any defense to repayment based on any provisions of the Consumer Credit Code. We hold that there was no agreement between the bank and the defendants to adopt the remedies of the Consumer Credit Code with respect to the defendants' obligations under the written guaranty agreement of November 29, 1978. Defendants' motion for summary judgment was properly denied. Because there is no factual dispute as to the extent of Sayer's indebtedness with respect to the transactions involved in the present case, the trial court erred in not directing a verdict in favor of the bank and against the defendants for all of that indebtedness under both the December 5, 1978 note and the June 4, 1979 note. To the extent the judgment entered failed to include all these sums, it is reversed.