White Banners is set in a small town in Indiana, in 1919. On a dreary, cold and snowy day a peddler named Hannah Parmalee-appears at the door of a kind couple, Paul Ward- and his wife, Marcia, selling apple peelers. Asked by Mrs. Ward to come inside and warm up, Hannah sees they are struggling financially and are in need of some domestic help. She offers her services and becomes their cook and housekeeper for room and board.Mr. Ward, a science teacher by day, is an inventor by night attempting to create something that will provide sufficient money for Marcia, their teenaged daughter Sally and their new baby, to have some luxuries in life. Hannah, who is extremely wise and helpful, comes up with some good ideas. She persuades Ward to sell old and useless furniture to raise money and make a place for his work in the basement.

Ward's invention, an "iceless icebox," is unintentionally revealed by Peter to some local mechanics, Joe Ellis and his brother Bill. When the Ellis brothers steal it and have it patented, Peter feels so bad about what he did that he lies when Ward asks him about it. In the meantime, Sally becomes ill with pneumonia.