Opinion ID: 1924664
Heading Depth: 1
Heading Rank: 4

Heading: Directed Verdict Entered on Other Affirmative Defenses of Defendants.

Text: Finally, we consider the defendants' contention that the trial court erred in directing a verdict on various affirmative defenses alleged by them in addition to their defense based on Iowa Code section 537.3208 (1981). Each of these additional affirmative defenses is based on defendants' assertion that the plaintiff bank agreed to monitor the construction funds which were to be disbursed by securing mechanic's lien waivers corresponding in amount to each distribution made to Sayer. It is urged that the bank failed to perform this agreement which resulted in certain of the construction funds being applied to the personal obligations of Sayer. Based on these allegations, three legal theories of defense are espoused by defendants. These theories are: (1) promissory estoppel, (2) breach of condition upon which the guaranty was conditioned, and (3) failure of consideration. We separately consider these three legal theories. A. Promissory Estoppel. Defendants' promissory estoppel theory, as advanced in their argument on appeal, rests on Restatement (Second) of Contracts section 90 (1981). They assert that they were entitled to have the jury consider this defense based on their own testimony of the bank's agreement to monitor the funds, their testimony that they relied on that agreement, and an admission by bank officer Guertmann that some checks had been issued to Sayer without first securing lien waivers. Even assuming defendants' pleading and proof is sufficient to raise a jury issue as to a claim of promissory estoppel under section 90 of the Restatement (Second), we find no basis on which this can serve as a complete defense to the bank's claim against them on the written guaranty agreement. At best, this would give defendants a basis to assert a claim against the bank based on the alleged promise. Such a claim might serve as a pro tanto defense to the bank's claim by way of set-off, but only to the extent defendants can demonstrate that they have been injured. For reasons presently discussed, there is a complete failure of proof as to any injury to defendants sufficient to support a pro tanto defense to the bank's claims based on a theory of promissory estoppel. B. Breach of condition. Defendants also contend that the bank's failure to monitor disbursement of the construction loan funds constitutes a breach of a condition upon which their obligations under the written guaranty agreement were predicated. In addition to the evidence previously discussed relating to the bank's promise and its failure to perform it, defendants also testified that the agreement by the bank to monitor the loan funds came before they executed a written guaranty agreement and that they would not have given the guaranty in the absence of such promise. Based on this evidence, defendants' claim a jury issue was presented concerning whether they were discharged from performing under the written guaranty agreement based on the alleged breach of condition. As authority for this claim, defendants rely on Salinger v. General Exchange Insurance Co., 217 Iowa 560, 250 N.W. 13 (1933). Our reading of that case suggests that the result arrived at turned on the issue of impossibility of performance rather than breach of condition. We believe in order to predicate the discharge of one of the contracting parties upon breach of condition by the other, the party claiming discharge must show the condition breached constituted the entire agreed exchange by the other party, or was expressly recognized in the bargain as a condition for the other's performance. See Canfield Lumber Co. v. Kint Lumber Co., 148 Iowa 207, 127 N.W. 70 (1910). Otherwise, the nonperformance of the other party is a mere breach of contract for which the remedy is damages. Mobley v. Boyt Arms Co., 256 Iowa 106, 126 N.W.2d 280 (1964); Mintle v. Sylvester, 202 Iowa 1128, 211 N.W. 367 (1926). When the foregoing legal principles are applied to the evidence presented at trial, we find no basis for a jury to conclude that the agreement of the bank to monitor the construction loan funds was the entire agreed exchange for defendants' obligation under the guaranty agreement. Nor is there sufficient evidence upon which to predicate a jury finding that in the bargain between the parties, the bank agreed either expressly or by reasonable implication that full performance of its promise to monitor the construction loan funds was a condition to any performance by defendants under the guaranty agreement. C. Failure of consideration. In addition to their other affirmative defenses, defendants contend that the bank's failure to completely perform its promise to monitor disbursement of the construction loan funds is such a failure of consideration for the total agreement between the parties as to discharge defendants' duty of performance under the written guaranty agreement. Just as in the case of an alleged breach of condition which the contract itself does not establish to be a condition precedent to performance, an alleged failure of consideration must ordinarily be total in order to be a complete defense to the return performance of the other contracting party. Mintle, 202 Iowa at 1135, 211 N.W. at 370. 17 Am.Jur.2d Contracts § 398 (1964). There must be some reasonable pairing off of the agreed equivalents in the bargain. Restatement (Second) of Contracts § 240 (1981). In the present case, the consideration which is recited in the loan guaranty agreement is that the bank make construction loans to Sayer. This performance has been completed by the bank. In the absence of proof of the extent of the injuries to defendant as a result of the bank's failure to monitor disbursement of funds, we cannot determine that its breach in this regard should constitute a complete defense to its claims against the defendants. It may, however, be a defense pro tanto. The problem which confronts defendants in showing that there was a jury issue as to even a pro tanto defense of failure of consideration, is the complete failure of proof of any injury sustained by them as a result of the bank's failure to obtain mechanic's lien waivers in all instances. The extent of the defendants' evidence in this regard is Mr. Guertmann's admission that he disbursed $25,000 to Sayer without obtaining lien waivers from subcontractors. But there is no evidence that this resulted in unpaid materialmen or subcontractors filing mechanic's liens on defendants' property or otherwise making claims to defendants' detriment. There was no evidence on which a jury could have found that defendants possessed even a pro tanto defense to the bank's claim based on failure of consideration. The trial court did not err in directing a verdict against the defendants on their affirmative defenses. AFFIRMED IN PART; REVERSED IN PART AND REMANDED.