Arthaud v. Farmers' & Merchants' State Bank of Wash.

• Decision Date: 06 July 1920
• Docket Number: No. 32939.,32939.
• Court: Iowa Supreme Court
• Parties: ARTHAUD ET AL. v. FARMERS' & MERCHANTS' STATE BANK OF WASHINGTON, IOWA.

178 N.W. 342

ARTHAUD ET AL.

v.FARMERS' & MERCHANTS' STATE BANK OF WASHINGTON, IOWA.

No. 32939.^a1

Supreme Court of Iowa.

July 6, 1920.

Appeal from District Court, Washington County; John F. Talbott, Judge.

Action in equity. Opinion states the facts. Decree dismissing plaintiffs' petition. The plaintiffs appeal. Affirmed.Eicher, Livingston & Eicher, of Washington, Iowa, for appellants.

Brookhart Bros., of Washington, Iowa, for appellee.

GAYNOR, J.

[1] The plaintiffs bring this action in equity and pray that the defendant bank be required to place a credit of $2,000 upon certain promissory notes, signed by these plaintiffs and others, payable to one Edward Klopfenstein, and held by the bank as collateral security for certain indebtedness due it from the Klopfensteins. Plaintiffs further pray the cancellation and surrender to them of the notes so held as collateral, and that they have judgment against the defendant for $1,000, with interest from January 26, 1916, which they claim is an overpayment on said notes made under protest, and for the purpose of securing a release of a certain mortgage given by them to secure the notes.

The defendant, answering, denies that plaintiffs are entitled to a credit of $2,000, and prays that it have judgment for $1,000 with interest against the plaintiffs.

The parties seem to have dealt with each other so loosely that we may credit each with an honest motive, and yet find a basis in this record for an honest difference of opinion as to what their legal rights are in the matter out of which the controversy arises.

The defendant bank is located at Washington, Iowa. The Klopfensteins, Edward and D. B., also reside at Washington, Iowa. The plaintiffs, we take it, reside at Chillicothe, Mo. On and prior to the 25th day of January, 1916, the plaintiffs were indebted to the Klopfensteins in a sum approximately $14,000. This indebtedness was evidenced by promissory notes, one half of it due to D. B., and the other half to Edward Klopfenstein. The Klopfensteins were indebted to the defendant bank on promissory notes in a considerable sum. Certain notes of plaintiffs were pledged with the bank as collateral security for the Klopfensteins' indebtedness, and the matter so stood on and prior to the 25th day of January, 1916. Just prior to January 25, 1916, the Klopfensteins notified the plaintiffs that they were in need of money, and asked the plaintiffs to make some payment upon the notes which they held against them. One of the plaintiffs replied that it was not convenient to make payment at that time, but that they had some land that was clear of incumbrance in the state of Missouri, and they would give a first lien on that land to secure a note of $3,000; or, in other words, that they would give the Klopfensteins a note for $3,000, and would secure this note by a first lien mortgage on 120 acres of land in Missouri. One of the plaintiffs came to Washington, and the matter was talked over between him and the Klopfensteins, and it was tentatively agreed that D. B. Klopfenstein would take a note to himself for $3,000 secured by mortgage as proposed, and, if the bank would advance the money on the note so secured, they would get the money from the bank and give plaintiffs credit on their indebtedness when the note was paid. Thereupon the parties went to this defendant bank and talked with its assistant cashier. Some time after D. B. Klopfenstein executed his note for $3,000 to the bank. The plaintiffs executed their notes to D. B. Klopfenstein, one for $1,000 and one for $2,000, and secured the same by the first mortgage as aforesaid. One of the plaintiffs testified:

“I made the statement to the assistant cashier of the bank that we (meaning himself and his brother) were owing the Klopfenstein boys, and it was not convenient for us to make payment, but that we did have some land clear on which we were willing to give them a mortgage securing a note in the sum of $3,000, if they [the Klopfensteins], would accept it as payment on the original indebtedness, and that the Klopfensteins said that if this bank can handle the paper they are willing to accommodate us.”

This was stated in the presence of the assistant cashier. He further testified:

“The matter was considered a moment, and the assistant cashier said they would handle the paper; that is, they would handle the paper if the security was satisfactory.”

To which the plaintiff replied that, so far as they were concerned, the Klopfensteins had security on their original indebtedness, and that this sum was to be applied upon that indebtedness (that is, the sum to be advanced by the bank on D. B. Klopfenstein's note to which the plaintiffs' note and mortgage were collateral), but that they need not credit this $3,000 on the original indebtedness until these new notes were paid by the Arthauds. The cashier replied that they would handle the paper. Thereafter the papers were prepared and were forwarded to the bank. Thereupon the bank advanced to D. B. Klopfenstein the $3,000, $2,000 of which was paid to Edward Klopfenstein, and $1,000 to D. B.

From this statement it is apparent that by this transaction D. B. Klopfenstein became indebted to the bank in the further sum of $3,000, and that plaintiff's note so given was collateral to that indebtedness, and was secured by the first mortgage aforesaid. It is also further apparent that the plaintiffs did not become indebted to the Klopfensteins in this transaction. It is apparent that it was the intention of the plaintiffs that, if they paid the $3,000 so borrowed from the bank, it was to be a payment to the Klopfensteins of that much money, and was to be applied upon the original indebtedness due from the plaintiff to the Klopfensteins. The amount of the original indebtedness of the Klopfensteins to the bank does not definitely appear, but is conceded to be considerably in excess of $3,000, and totaling approximately $8,000. Plaintiffs claim that this $3,000 paid to the Klopfensteins should have been applied by the bank upon the original indebtedness due from the plaintiff to the Klopfensteins held by the bank as collateral, and that there was in fact credited but $1,000 of the $3,000 on this original indebtedness to the Klopfensteins. Plaintiffs ask now that $2,000 of the $3,000 be credited upon their original indebtedness, and that they have judgment for the other $1,000 against the bank. For some reason Ed Klopfenstein has not paid his indebtedness to the bank, and the bank seeks to hold the plaintiffs therefor on certain notes held by the bank as collateral. The plaintiffs are willing to pay all their indebtedness to the Klopfensteins, and are willing to pay to the bank all sums due on paper held by it against the plaintiffs as collateral, but insist that they have thus already paid $3,000 on this collateral, and should have credit for the same at the hands of the bank. So the real controversy is whether or not plaintiffs should have credit on their collateral now held by the bank to the extent of this $3,000 paid by the bank to the Klopfensteins. Had the Klopfensteins paid their full indebtedness to the bank, all collateral notes held by the bank must be returned to the Klopfensteins, and all payments made by the plaintiffs upon any of the collateral notes should be credited by the Klopfensteins. The $3,000 advanced by the bank to the Klopfensteins on the Missouri mortgage, as between the Klopfensteins and the plaintiffs, when paid by plaintiffs, would be a payment upon plaintiffs' original indebtedness to the Klopfensteins. If the $3,000 advanced by the bank had been credited by the bank, or by the Klopfensteins, on plaintiffs' original indebtedness, plaintiffs would have no ground of complaint if compelled to pay this $3,000 to the bank. It is plain that, as between the plaintiffs and the Klopfensteins, the payment of this $3,000 to the bank by the plaintiffs would be a payment of that much on their indebtedness to the Klopfensteins. It certainly was the talk between the plaintiffs and the Klopfensteins, and certainly the understanding between them when they went to the bank to secure this $3,000, that the $3,000 so obtained would, as between the plaintiffs and the Klopfensteins, be a payment on plaintiffs' indebtedness to the Klopfensteins when paid by plaintiffs to the bank. But it will be observed that, by securing this $3,000 from the bank, the Klopfensteins added $3,000 to their original indebtedness to the bank, and this on the...