Commercial Nat. Bank v. Stockyards Loan Co.

• Decision Date: 31 December 1926
• Docket Number: 7245.,No. 7244,7244
• Citation: 16 F.2d 911
• Parties: COMMERCIAL NAT. BANK OF INDEPENDENCE, KAN., v. STOCKYARDS LOAN CO. STOCKYARDS LOAN CO. v. COMMERCIAL NAT. BANK OF INDEPENDENCE, KAN.
• Court: U.S. Court of Appeals — Eighth Circuit

16 F.2d 911 (1926)

COMMERCIAL NAT. BANK OF INDEPENDENCE, KAN., v. STOCKYARDS LOAN CO.

STOCKYARDS LOAN CO. v. COMMERCIAL NAT. BANK OF INDEPENDENCE, KAN.

Nos. 7244, 7245.

Circuit Court of Appeals, Eighth Circuit.

December 31, 1926.

R. B. Caldwell and David A. Murphy, both of Kansas City, Mo. (H. L. McCune, of Kansas City, Mo., on the brief), for plaintiff.

Charles W. German, of Kansas City, Mo. (Lee C. Hull and Charles Z. German, both of Kansas City, Mo., on the brief), for defendant.

Before BOOTH, Circuit Judge, and PHILLIPS and JOHN B. SANBORN, District Judges.

BOOTH, Circuit Judge.

This was a suit by the Stockyards Loan Company (hereafter called the loan company), a citizen of Missouri, against the Commercial National Bank of Independence, Kan. (hereafter called the bank), a citizen of Kansas, for an accounting of alleged proceeds from the sale of cattle owned and sold by Albert Gottlieb, but upon which the loan company claimed to hold chattel mortgages. Gottlieb, for many years prior to the commencement of the present suit, was engaged in the cattle business. His residence was Bartlesville, Okl. The loan company's place of business was in Kansas City, Mo.

The cause was referred to a special master, who made voluminous findings, among them the following:

"For some 20 years prior to 1918 * * * Gottlieb * * * had been a customer of the defendant bank. * * * He owned a large body of land and also held leases on large pastures in * * * Oklahoma. He * * * raised horses, cattle, sheep, and hogs, and he bought cattle in different parts of Oklahoma, Kansas, Texas, and New Mexico. When he bought cattle, he would take them to one or more of his pastures above mentioned, would brand them, and would prepare them for the market. For 10 or 12 years prior to 1918 he had been buying large numbers of cattle in Texas and Oklahoma, shipping them to his various pastures, and, after branding them, would pasture and feed them until he deemed they were ready to be marketed.

"During all this time, and during the time involved in this controversy, the said Gottlieb kept in the defendant bank an open deposit and checking account, depositing therein money derived from different sources and checking thereon for the purchase of cattle and various purposes. He very frequently, when buying cattle, would draw a check or draft upon the defendant bank without having sufficient means therein to meet such check or overdraft. In such cases, he usually gave the bank an unsecured note to cover the overdraft, and in this way he was very often indebted to the bank in large sums of money. When his indebtedness to the bank equaled the amount which, by law, the bank was authorized to loan him, he frequently borrowed money of the president of the bank individually. These notes were sometimes time notes and sometimes demand notes. Upon the purchase of cattle, and after he had taken the cattle to some pasture and branded them, he would go to Kansas City, Mo., and borrow of plaintiff large sums of money, evidenced by notes secured by chattel mortgages upon the cattle, and usually out of such loan he would pay defendant bank the amounts borrowed of it for the purchase of the cattle. The fact that Gottlieb kept a checking account with the defendant bank was well known to plaintiff, and the fact that he was borrowing of plaintiff money upon chattel mortgages on purchased cattle was well known to the defendant bank. In fact, in many instances, the money of plaintiff borrowed by Gottlieb was remitted directly to defendant by plaintiff. In some instances he would draw drafts upon the plaintiff, payable to defendant bank, to pay the money originally borrowed, and in some instances the plaintiff deposited the proceeds of mortgage loans to Gottlieb in a Kansas City bank to the credit of the defendant bank.

"Each and every mortgage given by Gottlieb to plaintiff contained the following stipulation and agreement: `Until the default herein, or until possession has been taken by the second party as aforesaid, or the representative or the assigns of the second party as aforesaid, the first party may retain possession of said property. When marketed, the written consent of the second party having been first obtained, said property shall be consigned to the Stockyards Loan Company, Kansas City, Mo., and the proceeds applied to the payment of the above-mentioned indebtedness, and the surplus, if any, being paid to the first party. The first party shall not sell or attempt to sell, except in conformity herewith, or remove or attempt to remove, from its present location in the county aforesaid, all or any part of said property.'"

The mortgages were "duly recorded under the laws of Oklahoma." The transactions particularly involved in the present suit took place in the period from July 5, 1918, to January 20, 1920. The master further found:

"During all of said times, and for some years prior thereto, plaintiff never required Gottlieb to obtain its written consent to the sale of mortgaged steers, nor required him to consign the mortgaged steers to it, but, on the contrary, allowed and permitted him to sell when, where, and to whom, and for what prices, he chose.

"At no time were any of the mortgaged cattle, consigned to and sold by the commission companies, consigned in the name of plaintiff, but in each and every instance they were consigned either in the name of Gottlieb, or of Gottlieb and one Darnell (whose interest in the cattle is not material here), and were sold on account of Gottlieb, who directed the disposition of the proceeds of the sale. The plaintiff never, in any way, advised any of the commission companies what cattle were mortgaged to it, or what proceeds of cattle sold should be forwarded to it, but in each and every instance, allowed and permitted Gottlieb to advise it what mortgaged cattle he had sold and the proceeds of such sale, and from the statement of Gottlieb, sometimes accompanied by a copy of the account sale, would credit Gottlieb upon that mortgage which Gottlieb said covered the cattle sold. In other words, the plaintiff relied implicitly upon the honesty and fidelity of Gottlieb in making the sales and paying it the proceeds of the sales of cattle, upon which it held a mortgage. * * * In this manner it received by direction of Gottlieb, from the commission companies of Kansas City and St. Louis, the proceeds of something like 1,745 cattle, aggregating more than $163,000."

The master further found that during said period Gottlieb had sold cattle which were mortgaged to the loan company and caused the proceeds to be deposited in the defendant bank to his credit, in the aggregate sum of $65,160.32; that of such amount $40,504.62 was paid by Gottlieb by check on the defendant bank to the bank itself, and was applied upon pre-existing indebtedness owing by Gottlieb to the bank. The master further found:

"During all of the time that Gottlieb was thus selling steers mortgaged to plaintiff and causing the proceeds of such sales to be transmitted to the defendant, the plaintiff, by and through its officers, knew that Gottlieb was selling live stock upon the markets of Kansas City, Mo., and East St. Louis, Ill., and causing the proceeds to be transferred to defendant bank for his credit; but it did not know that Gottlieb was selling cattle mortgaged to it and causing the proceeds of such cattle to be transmitted to the defendant bank.

"During all of the time that Gottlieb was thus selling steers mortgaged to plaintiff, and causing the proceeds of such sales to be transmitted to the defendant, he was depositing in his account with the bank money from other sources, and drawing upon said account checks for various purposes, including the purchase of cattle and the payment to the bank of notes evidencing his indebtedness to the bank.

"During all of the time the defendant bank was receiving from commission companies and banks in Kansas City, Mo., and East St. Louis, Ill., remittances to be placed to the credit of Gottlieb, it, by and through its officers, knew that such remittances were the proceeds of live stock sold by Gottlieb in the markets of those cities.

"All of the money deposited or caused to be deposited by Gottlieb in defendant bank, including the money arising from the sales of mortgaged cattle to plaintiff, was by the defendant bank credited to the account of Albert Gottlieb, and was paid out by it upon the checks and orders of said Gottlieb, duly presented to it for payment in the usual and ordinary course of business.

"The evidence fails to establish that the defendant had any actual notice or knowledge that the money being remitted to it for the credit of Albert Gottlieb, as hereinbefore found, was the proceeds of cattle mortgaged to the plaintiff, and I find that it had no such actual notice or knowledge, and notice or knowledge of no fact sufficient to be held constructive notice or knowledge, of the fact that Gottlieb was selling cattle mortgaged to the plaintiff and causing the proceeds to be remitted to the defendant bank."

The master recommended judgment in favor of the bank. The loan company filed numerous exceptions to the master's report. The trial court, after a careful consideration and review of the master's report, disposed of the exceptions in an opinion which concludes as follows:

"I overrule the exceptions taken to the report of the master in all save this: To his finding there is no sum of money found due from defendant to complainant, and declare as a matter of law, equity, and good conscience the sums of money derived from the proceeds of cattle mortgaged to complainant and employed by the bank to pay the indebtedness of Gottlieb to it, as stated in the findings of fact made by the master, to be, under all the facts and circumstances of this case, the property of complainant, and that the complainant has therein a superior right to defendant bank."

Decree was entered awarding plaintiff the sum of...