Otoe County Nat. Bank v. Delany

• Citation: 88 F.2d 238
• Decision Date: 06 March 1937
• Docket Number: No. 10557.,10557.
• Parties: OTOE COUNTY NAT. BANK et al. v. DELANY.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

88 F.2d 238 (1937)

OTOE COUNTY NAT. BANK et al. v. DELANY.

No. 10557.

Circuit Court of Appeals, Eighth Circuit.

February 1, 1937.

Rehearing Denied March 6, 1937.

Henry Monsky, of Omaha, Neb. (William Grodinsky, of Omaha, Neb., and William H. Pitzer and Marshall Pitzer, both of Nebraska City, Neb., on the brief), for appellants.

Arthur F. Mullen and Herman Aye, both of Omaha, Neb. (John C. Mullen, of Falls City, Neb., and Paul P. Massey, of Omaha, Neb., on the brief), for appellee.

Before STONE, SANBORN, and VAN VALKENBURGH, Circuit Judges.

SANBORN, Circuit Judge.

This is an appeal from a decree for the plaintiff in a suit brought by Frank J. Delany against John W. Berger, Otoe County National Bank, John K. Morrison, Hyman Greenberg, Dave Cohn, and G. Mozer, to recover part of the purchase price of certain salvage grain bought by Delany from the defendant Berger, as trustee for the other defendants, on the ground that the grain delivered was not up to sample. No decree was entered either for or against Berger, and he is not a party to this appeal. The remaining defendants are all appellants here. The parties will be referred to as in the court below.

There is little controversy as to the facts out of which this case arose, and they may be summarized as follows: In 1926, the D. Sherman Grain Company was indebted to the defendant bank and to the defendants Morrison, Greenberg, Cohn, and Mozer in the total sum of $17,000. That indebtedness was secured by warehouse receipts covering, in the aggregate, 105,000 bushels of oats and 54,000 bushels of corn, and by a bill of sale of 50,000 bushels of oats. In order to avoid foreclosing their liens and to facilitate the liquidation of the grain company's indebtedness, a contract was executed by the grain company as first party; the defendants Otoe County National Bank, Morrison, Greenberg, Cohn, and Mozer, as second parties; and the defendant Berger as third party. By this contract the grain company transferred title to all of the grain in the Duff Grain Company elevator at Nebraska City, Neb., to Berger, as trustee, to take possession of the grain, to sell it with the consent of the bank and any one other creditor, and to distribute the proceeds, after deducting expenses, among the defendant creditors in proportion to the principal sum due to each of them. The balance, if any, remaining after payment of the creditors in full was to go to the grain company. Berger was to receive $200 a month for his services in caring for and selling the grain.

After the execution of the contract, Berger began cleaning and conditioning the grain. Negotiations for the purchase of the grain were entered into between the plaintiff and Berger, in which the defendant bank and Mr. Monsky, an attorney who, according to Berger's testimony at the trial, was representing all of the defendants with the exception of the bank, participated. Many offers and counter offers were made before an agreement acceptable to the plaintiff, to Berger, to the bank, and to Mr. Monsky was finally reached. Several offers were rejected because of the disapproval of either the bank or of Mr. Monsky.

Finally, after a thorough investigation by all concerned, and after the plaintiff had received a copy of the contract by which the grain was transferred from the grain company to Berger, a contract of sale was drawn up. This contract, drawn in Mr. Monsky's office, was executed by Berger, and forwarded to the plaintiff for execution, together with a sight draft for $2,500, which was paid by the plaintiff as a guarantee of performance.

The contract provided for the sale to the plaintiff of all of the salvage oats at 15¼ cents per bushel f.o.b. cars Nebraska City, and of all the salvage corn at 27 cents per bushel f. o. b. Nebraska City; and further provided that the corn and oats should conform reasonably to the sample of each furnished to the plaintiff; that the plaintiff, while required to pay for each carload of grain when and as loaded, would nevertheless be entitled to a discount from the purchase price for material variations from the original sample, provided that he made objection prior to the unloading of each car shipped, that he served notice of objection on Berger promptly, and that a fair sample was taken by the Grain Exchange or grain inspector at point of destination, preserved and submitted with Berger's sample of the same carload to any one of three arbitrators named in the contract that Berger should select, this arbitrator to determine the difference between the grain shipped and the original sample, and to award the discount to be allowed.

After the execution of the contract of sale, it was discovered that the arbitrators named therein were unavailable, and the sales argreement was therefore amended by a separate instrument, executed by Berger, designating the firm of P. B. & C. C. Miles, of Peoria, Ill., as arbitrator.

Berger, laboring under great difficulties because of the poor condition of the grain, shipped to the plaintiff about 32,000 bushels of corn and 33,000 bushels of oats from August 19, 1926, to February 4, 1927. The cost of fitting the grain for shipment and shipping it was found to be greater than the price received, so shipments were discontinued and the remaining grain was thrown into the Missouri river.

The plaintiff, as he received the grain shipped to him, notified Berger, as provided in the contract, that it was of a materially lower quality than the original sample, but each draft for the contract price was paid by him as it was presented. After shipments were discontinued, the plaintiff submitted his samples to the arbitrator, P. B. & C. C. Miles, who found that the grain shipped was inferior to the original average sample, and made an award of $4,199.14 in favor of the plaintiff. A draft for the amount of the award was drawn on Berger, but was not honored.

On October 25, 1927, the plaintiff commenced an action to recover on the award. In his petition he set up the contract of sale, the substitution of arbitrators, the variation in the quality of grain, payment of the contract price, and the award, and prayed judgment in that amount. In their answers, the defendants, other than Berger, alleged, among other things, that the award as made was entirely unauthorized by them.

Upon the trial, at the close of the plaintiff's case, defendants moved for a directed verdict. The trial court — being of the opinion that Berger had no authority to bind the defendants by the appointment of the Miles firm as substitute arbitrator; that the arbitrator, in determining the amount of the award was bound under the contract to compare a sample of each car with the original average sample instead of using a composite sample of all the oats shipped and a sample of all the corn shipped; and that the plaintiff could not recover against the defendant creditors on the award — sustained a motion of the plaintiff to withdraw a juror and to continue the case so that the plaintiff might reshape his pleadings. The continuance was granted on March 27, 1930.

On April 13, 1931, an amended petition was filed which substantially restated the matters set out in the original petition, and alleged that the sums paid to Berger by the plaintiff were converted to their own use by the defendants and were impressed with a trust in favor of the plaintiff. This amended petition prayed for an accounting and equitable relief and "that the defendants and each of them be required to pay to the plaintiff the sums found due to him in such proportion as the court may deem just and equitable."

Defendants moved to dismiss the amended petition on the grounds that any right to recover on the award had been adjudicated and that the claim for damages was barred by the statute of limitations. These motions were overruled, and in December, 1934, the case was tried. At the beginning of the trial, the case was transferred to the equity docket on motion of a defendant.

The lower court did not find that the defendant creditors received from Berger any funds impressed with a trust in favor of the plaintiff, but found that in the preparation of the trust agreement it was the intention "of the defendants other than defendant Berger to control the acts of defendant Berger as their agent, rather than to clothe him with power as a trustee to act independently of their control"; that the bank, through its officers, and Mr. Monsky, acting for the other creditors, were the moving and controlling factors in the negotiations leading up to and in the making of the sales contract; that defendant Berger's only connection with the entire transaction was the care and preparation of the grain for market; that Berger's authority to change the arbitrators as he did was not established and his act in so doing was not ratified by the other defendants, but was repudiated; that "plaintiff purchased from defendants and paid for at the contract price, 32,964.06 bushels of oats and 32,072 bushels of corn, and that the difference in value between the grain he purchased and that which was delivered to him was 10½¢ per bushel or a total of $3461.28 as to the oats, and 13½¢ per bushel or a total of $4329.72 as to the corn and that the grand total for both the oats and corn amounted to the sum of $7791.00."

A decree was entered adjudging that the plaintiff "shall have and recover judgment against the defendants, Otoe County National Bank, John K. Morrison, Dave Cohn, Hyman Greenberg and G. Moser, and each of them for the sum of $12,052.60 $7,791.00 plus interest at 7% from October 27, 1927 together with interest thereon at the rate of seven per cent. per annum from the 20th day of August, 1935, until paid. * * *" This appeal followed.

As grounds for reversal, the defendants assert: (1) That the decree is not in conformity with and is not supported by the pleadings; (2) that the trust agreement is unambiguous and cannot be construed to create a...