Cornick v. Weir
| Decision Date | 20 June 1931 |
| Docket Number | 40491 |
| Citation | 237 N.W. 245,212 Iowa 715 |
| Parties | ALBERT CORNICK, Appellant, v. H. C. WEIR et al., Appellees |
| Court | Iowa Supreme Court |
Appeal from Henry District Court.--OSCAR HALE, Judge.
Action at law to recover as Bailor, against the directors of a failed bank, on the claim that the directors converted bonds left at the bank, by using the same as collateral to a loan. The Trial Court sustained certain motions and demurrers interposed by the defendants. Plaintiff appeals. The facts appear in the opinion.
Affirmed.
J. V Gray and Sam Abramson, for appellee H. C. Weir.
McCoid McCoid & McCoid, for appellees, H. A. Geeseka and F. B Montgomery.
McAdam & Nelson, for appellees, D. Skipton, James Bates and H. Hazen.
McCoid, McCoid & McCoid, and Paul B. Galer, for appellee, R. S. Galer.
F. S. Finley, Max Kinney, and B. I. Salinger, for appellant, Albert Cornick.
The pleadings in this case are long and much involved. We will endeavor to very briefly set forth the controversy between the parties.
For many years, the plaintiff has been a resident of Henry County, Iowa, and a patron of the former Farmers & Merchants Savings Bank of Mt. Pleasant, Iowa. For a period of time prior to January, 1924, the plaintiff and his brother were in partnership and as such deposited with said bank $ 17,000.00 of Fourth Liberty Loan Coupon Bonds of the United States. It appears that later, and about the 16th of March, 1928, the partnership was dissolved and these bonds became the property of the plaintiff. The bank issued a certificate or receipt for these bonds.
The original petition is in three counts, and asks for $ 17,510.00, with interest at 6% from January 10, 1924. Various motions and demurrers were filed and ruled upon and later on the 15th of May, 1929, an "amended and substituted petition" was filed, consisting of four counts, and later, on the 18th of October, 1929, plaintiff filed his first amendment to the amended and substituted petition, as Count 5.
Very briefly stated, it is the claim of the plaintiff that these bonds which were deposited by the plaintiff with the bank were used by the bank as collateral to a note given by the bank, for money borrowed from a bank in New York. The said Farmers & Merchants Savings Bank closed its doors May 14, 1924, and went into the hands of a receiver. The loan to which the bonds were pledged as collateral was made January 5, 1924, and consisted of borrowing from a New York bank the sum of $ 30,000.00. The New York bank retained the bonds as security on its loan.
In passing, we may say that a very large majority of the appellant's errors relied upon for reversal utterly fail to comply with the rules of this court. This question of complying with the rules has been dealt with so often in recent opinions that we refuse at this time to encumber the reports with a discussion of the subject generally and as applied to this particular case. In light of the manner in which the appellant has disregarded the rules of this court, we will not attempt to answer his claims by number or otherwise, except to pass upon the important points upon which the case depends.
When finally analyzed, there are found but two real pivotal questions in the case. The first one is whether the directors of the bank, who are the defendants herein, are liable to the plaintiff upon the general basis of negligence in connection with the performance of their duties as directors of the bank. The second question is whether the amendment referred to as Count 5 of the amended and substituted petition, in which said Count 5 the defendants are charged with having personally converted the bonds, is a separate cause of action from that set out in the other counts of the amended and substituted petition, and, if so, it was filed too late and is barred.
We will consider Count 5 first.
I. In the original petition filed April 23, 1928, there were three counts. In the first one, it is claimed generally that the bank (not the defendants) executed a note to the Chase National Bank of New York City for $ 30,000.00 and converted the plaintiff's bonds by pledging the same to the Chase National Bank as security for the payment of said $ 30,000.00 note.
It is alleged in substance in said first count that the bank was in the habit of using customers' bonds as collateral security to loans made by the bank and that the defendants knew said bonds were being used as security to the Chase National Bank.
In Count 3 of the said original petition, it is charged, in substance, that the defendants failed and refused to recall said bonds and return the same to the plaintiff and that said failure constituted a ratification on the part of the defendants of the acts of the bank.
Count 2 of said original petition is a direct allegation that the defendants on the 5th of January, 1924, executed a note to the Chase National Bank and pledged said bonds as security for the payment thereof.
It is unnecessary to encumber the reports with the numerous motions and demurrers which were argued on the part of the various parties to the action. Suffice it to say that when the amended and substituted petition was filed, it did not contain any count which corresponded to Count 2 of the original petition; that is to say, there was no charge that the defendants executed the note and converted the bonds.
The amended and substituted petition was filed on May 15, 1929. It contained four counts, but they all pertained to the general claim that the defendants were negligent as directors of the bank in permitting the bank to convert the bonds and none of said four counts definitely charged the defendants with having borrowed the money from the Chase National Bank nor having pledged plaintiff's bonds as security for the payment of said loan and it was not until October 18, 1929, that Count 5 of the amended and substituted petition was filed as an amendment thereto, in which said count the defendants were charged with having borrowed the money and having pledged the security.
The original four counts of the amended and substituted petition are quite lengthy. It is claimed that the bank had been in the habit for many years of accepting Government Bonds from customers and clients for safe keeping and that the bank had been using said bonds as collateral security in securing loans from its correspondents. It is alleged that the defendants knew of this custom or that they were in possession of facts which, if pursued, would have given them full knowledge of said practice of using said bonds, but the said original four counts of the amended and substituted petition contains no claim whatsoever that the defendants had borrowed $ 30,000.00 from the Chase National Bank and used the bonds of the plaintiff as collateral security for the payment of said loan.
While variously stated in different parts of the substituted petition, the net result is a pleading on the part of the plaintiff in the alternative, claiming, in substance, that defendants knew or, by the exercise of proper diligence, should have known that the custom of using patrons' bonds as collateral was in effect and that the defendants knew, or, by the exercise of proper diligence, should have known that the plaintiff's bonds were so used. When, as in this case, such a pleading is assailed by motion or demurrer, it must be considered as only a pleading of the latter alternative. The plaintiff must be judged by the weaker claim of his alternative pleading. If a demurrer is being considered, the alternative allegation is confessed only as to the weaker charge. The party who demurs only admits that the party "by the exercise of a reasonable degree of care and prudence might have known". In other words, the net result of the plaintiff's pleadings, in this case, on this subject is to charge that the defendants, by the exercise of proper diligence, should have known that the things of which complaint is made existed or transpired. In Greenfield Savings Bank v. Abercrombie, 211 Mass. 252, 97 N.E. 897, 39 L. R. A. (N. S.) 173, when commenting upon an alternative pleading, in the following language, "'as the defendants well knew, or, by the exercise of a reasonable degree of care and prudence, might have known'", the court said:
"It follows, of course, from the recognized rules of equity pleading, that such an averment in the alternative does not charge actual knowledge, but simply that the defendants, by the exercise of reasonable care and prudence, ought to have known the fact."
See, also, Daniels v. Berry, 148 S.C. 446, 146 S.E. 420, 21 R. C. L. 451; Anderson, v. Railway Company (Minn.), 103 Minn. 224, 114 N.W. 1123, 14 L. R. A. (N. S.) 886.
It appears from the record that the charge which subsequently appeared as Count 5 of the amended and substituted petition was purposely omitted from the said substituted petition. We are confronted with the question whether Count 5 of the amended and substituted petition contains a separate and distinct cause of action from that contained in the first four counts thereof. Manifestly, this question must be answered in the affirmative.
Obviously if the claims made by the plaintiff are true, the bank is responsible to the plaintiff for the damages accrued to the plaintiff by reason of the conversion of the bonds. The first four counts of the amended and substituted petition contain such a general claim, stated in different forms. Not only is the bank responsible to the plaintiff for the conversion of the bonds but, it is charged, that by virtue of the official positions held by the defendants in the bank, they either knew or should have known what was being done by the employees of the bank in reference to the use of the Government...
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