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Note: In order to obtain a commercial LC to purchase high definition radios from China, Riveradio, L.L.C. (Buyer) requested Vantus Bank (Bank) to issue an LC for approximately USD 137,000. Bank required Buyer's chief executive, William Graber (Guarantor), to execute a "commercial guaranty" (Guaranty) and Buyer to issue a note for USD 100,000. Although the amount due on the LC was reimbursed to Bank, various extensions and modifications took place on the note so that USD 78,154.61 was outstanding. When Bank became insolvent, the U.S. Federal Deposit Insurance Corporation, as receiver of Bank, assigned the note to Great Southern Bank (Assignee).

When Buyer defaulted on this note, Assignee sued Buyer, Guarantor, and others and moved for summary judgment. The Iowa District Court for Woodbury County, Scott, J., granted the motion. On appeal, the Court of Appeals of Iowa, in an opinion by Vogel, P. J., affirmed.

Guarantor argued that the Guaranty only related to the commercial LC and not to Buyer's promissory note, or its extension, claiming that the Guaranty was ambiguous in this respect. The Guaranty, however, defined the term "note" as that issued for USD 100,000 "together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the promissory note or agreement." The appellate opinion then referenced the opening clause of the Guaranty which stated:

"CONTINUING GUARANTY OF PAYMENT AND PERFORMANCE. For good and valuable consideration, Guarantor absolutely and unconditionally guarantees full and punctual payment and satisfaction of Guarantor's Share of the Indebtedness to Lender, and the performance and discharge of all Borrower's obligations under the Note and the Related Documents. This is a guaranty of payment and performance and not of collection, so Lender can enforce this Guaranty against Guarantor even when Lender has not exhausted Lender's remedies against anyone else obligated to pay the indebtedness or against any collateral securing the Indebtedness, this Guaranty or any other guaranty of the Indebtedness. Guarantor will make any payments to Lender or its order, on demand, in legal tender of the United States of America, in same-day funds, without set-off or deduction or counterclaim, and will otherwise perform Borrower's obligations under the Note and Related Documents. Under this Guaranty, Guarantor's obligations are continuing."

The appellate Judge also noted that the guaranty provided:

"THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS GUARANTY TO LENDER THAT ... THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE MANNER SET FORTH IN THE SECTION TITLED 'DURATION OF GUARANTY.'"

The provision pertaining to the duration of the guaranty provided:

"This Guaranty ... will continue in full force until all the indebtedness incurred or contracted before receipt by Lender of any notice or of revocation shall have been fully and finally paid and satisfied and all of Guarantor's other obligations under this Guaranty shall have been performed in full. If Guarantor elects to revoke this Guaranty, Guarantor may only do so in writing. Guarantor's written notice of revocation must be mailed to Lender, by certified mail, at Lender's address listed above or such other place as Lender may designate in writing. Written revocation of this Guaranty will apply only to new indebtedness created after actual receipt by Lender of Guarantor's written revocation. For this purpose and without limitation, the term 'new indebtedness' does not include the indebtedness which at the time of notice of revocation is contingent, unliquidated, undetermined or not due and which later becomes absolute, liquidated, determined or due. For this purpose and without limitation, 'new indebtedness' does not include all or part of the indebtedness that is: incurred by Borrower prior to revocation; incurred under a commitment that became binding before revocation; any renewals, extensions, substitutions, and modifications of the indebtedness. ... It is anticipated that fluctuations may occur in the aggregate amount of the indebtedness covered by this Guaranty, and Guarantor specifically acknowledges and agrees that reductions in the amount of indebtedness, even to zero dollars ($0.00), shall not constitute a termination of this Guaranty. This Guaranty is binding upon Guarantor and Guarantor's heirs, successors and assigns so long as any of the Guarantor's Share of the Indebtedness remains unpaid and even though the Guarantor's Share of the Indebtedness may from time to time be zero dollars ($0.00)."

The appellate Judge stated that "[t]he language used is clear that the Guaranty was a continuing guaranty, not just for the amount secured in the letter of credit. 'A continuing guaranty contemplates a future course of dealing during an indefinite period' and 'is ordinarily effective until revoked by the guarantor.'" (citation omitted) Accordingly, the appellate court concluded that the Guaranty was not restricted to reimbursing Bank for the LC.

[JEB/jdc]

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