Farmer v. The Bank of Graettinger

• Decision Date: 08 May 1906
• Parties: FARMER, THOMPSON AND HELSELL, Appellees, v. THE BANK OF GRAETTINGER, ET AL., Appellants
• Court: Iowa Supreme Court

107 N.W. 170

130 Iowa 467

FARMER, THOMPSON AND HELSELL, Appellees, v. THE BANK OF GRAETTINGER, ET AL., Appellants

Supreme Court of Iowa, Des Moines

May 8, 1906

Appeal from Palo Alto District Court.-- HON. A. D. BAILIE, Judge.

ACTION at law to recover damages for a conversion of personal property. At the close of all the evidence in the case, there was a directed verdict and judgment in favor of plaintiffs and defendants appeal.-- Reversed.

Reversed.

E. A Morling, for appellants.

Carr Hewitt, Parker & Wright, F. H. Helsell, and Kelly & Kelly, for appellees.

OPINION

BISHOP, J.

Quite necessary to an understanding of the questions presented in argument are the facts in the case, and we shall set forth the substance thereof. October 10, 1898, Morris & Cuthbert sold and delivered to J. W. Smith, a farmer and cattle feeder living near Graettinger in Palo Alto county, sixty-five head of two year old steers. In payment, Smith gave his two notes, one for $ 1,650, due June 10, 1899, and the other for $ 750, due October 10, 1899. Said notes were in ordinary form, except that in the body of each thereof was this provision: "Sureties hereby consent that time of payment may be extended from time to time, without notice thereof." To secure said notes, Smith gave a chattel mortgage in ordinary form covering the steers purchased, and such mortgage was duly recorded October 26, 1898. In January, 1899, a payment of $ 816 was made to Morris & Cuthbert and indorsed on the $ 1,650 note. In April, 1899, Morris & Cuthbert sold and transferred said notes and mortgage for full value to plaintiffs, a banking firm doing business at Sioux Rapids in Buena Vista county. When transferred, the notes were indorsed in blank by Morris & Cuthbert. It does not appear that any formal assignment of the mortgage was executed, and certainly none was recorded. At the time of their purchase of said notes, plaintiffs also held by purchase a further note for $ 295, due May 10, 1899, given by Smith to Morris & Cuthbert and indorsed by the latter. Such note was secured by chattel mortgage on cattle, other than those included in the mortgage of October 10, 1898. On May 29, 1899, Smith drove into Graettinger forty-one head of the steers included in the October, 1898, mortgage, and on that day or the next they were shipped, together with forty head of hogs, to Chicago, the shipment being made in the name of the defendant Bank of Graettinger. Sale was made in Chicago to various persons, butchers, and packers, and the proceeds returned to the defendant bank and credited to Smith.

Respecting the connection of the defendant bank with the transaction, it appears that some time early in the spring of 1899 Smith applied to Donlon, cashier in charge of the bank, for a loan of money to be used in buying feed for his stock. At the time thereof Smith advised Donlon of the existence and approaching maturity of the $ 295 and the $ 1,650 notes given to Morris & Cuthbert. It may be here remarked that Donlon, as a witness on the trial, testified that he was not advised of the $ 750 note, or the mortgage, and that, as matter of fact, he did not know of the same until long after the cattle had been sold. Smith obtained the loan desired, and, later on, a further loan with which to buy a car load of hogs. Upon receiving notice from plaintiff's bank, of the maturity of the two notes, Smith went to the defendant bank and an arrangement was made with Donlon, one result of which was a letter addressed and mailed by Donlon to plaintiff's bank as follows: "Graettinger, Iowa, May 20, 1899. Bank of Sioux Rapids, Sioux Rapids -- Gentlemen: J. W. Smith wishes us to write to you asking that you send his two notes to us for collection, the one of $ 295 past due since May 10, and the balance on large note, $ 917.85, due June 10. He will ship his cattle about June 1, and make sight draft through us on shipment, so that we can guarantee the payment of the notes as soon as he ships if you send them. [Signed] P. H. Donlon, Cashier." Plaintiffs at once sent by mail the two notes as requested, and on May 23d, Donlon, as cashier, acknowledged receipt thereof. Following this, the shipment was made as above stated. The amount realized from the steers was $ 2,472.50, less a proportionate share of the total expense, which was $ 201. Upon check executed by Smith, the bank sent draft to plaintiffs for $ 1,233.90, being the amount due on the two notes; it took a check for the amount due itself from Smith, and the balance was paid out on checks drawn by Smith in favor of various other persons. Soon thereafter, Smith became insolvent, and failed to pay the $ 750 note. Plaintiffs having made discovery that the steers included in the June shipment were of those covered by the mortgage held by them, this action followed. The further material facts will be stated as we proceed, and in connection with the particular subject-matter to which they have relation.

I. There was evidence before the jury sufficient upon which to sustain a finding to the effect that, at the time he shipped the cattle, Smith did not know plaintiffs were the owners of the notes and mortgage. As a witness for defendant, Smith was interrogated in chief as to conversations had by him with members of the firm of Morris & Cuthbert having reference to the feeding, marketing, and selling the mortgaged steers, and the disposition of the proceeds upon sale being made. These interrogatories were directed in part to the time before plaintiff acquired ownership of the notes and mortgage, and in part to a time subsequent and just before the shipment. All such interrogatories were objected to by plaintiffs, and the objections sustained. Therein, we think, was error. It will be remembered that the assignment of the mortgage to plaintiffs was not made a matter of record, and it is to be said that no evidence was brought forward by them in proof of actual notice given to Smith, or to the defendant bank, of their ownership. As the record stands, the jury would have been warranted in finding, as matter of fact, that neither Smith nor the bank knew of such ownership. Now, in such situation, if Smith was not chargeable with a conversion, the bank could not be, and this seems too plain for argument. In favor of defendant, we must assume that Smith would have testified, if allowed to answer, that subsequent to the execution of the mortgage, and, conforming to the questions asked, in January, 1899, and again just before the shipment in May, Morris & Cuthbert consented to and directed a sale of the cattle by him on the market, to be made at such time as in his judgment would be expedient and proper; further, that the sale as made was pursuant to such consent and direction.

With such facts established it would go without saying that Morris & Cuthbert could not be heard to charge a conversion. In case of a sale thus made, the purchaser takes the property divested of the lien of the mortgage. Smith v. Bank, 99 Iowa 282, 61 N.W. 378; Harlan v. Ash, 84 Iowa 38, 50 N.W. 41; Livingston v. Stevens, 122 Iowa 62, 94 N.W. 925. And the mortgagee may not be heard to claim a lien on the proceeds. Harlan v. Ash, supra; Nordby v. Clough, 79 Iowa 428, 44 N.W. 697; Waters v. Bank, 65 Iowa 234. 7, 21 N.W. 582 Cyc. page 46 and cases cited in note. There being no lien, a third party who has received and applied the proceeds of such a sale, acting in good faith, and in the ordinary course of business, will be protected. Smith v. Bank, supra; Smith v. Clark, 100 Iowa 605, 69 N.W. 1011.

In Smith v. Bank, the facts appearing were that each of the parties held mortgages executed by one Carvell upon a certain herd of cattle -- that of plaintiff being the prior lien. The bank had actual knowledge of the existence of plaintiff's mortgage. Plaintiff consented that Carvell might ship and sell the cattle, and this was done. By direction of Carvell the proceeds were remitted to and deposited in his name in the defendant bank, and, upon this being done, Carvell gave the bank a check for the amount due upon its mortgage indebtedness, and directed that payment of the balance be made to plaintiff. It was held that as the proceeds of the sale were not impressed with any lien, and as upon the facts no relation of trust was established, plaintiff had no right as against the bank to question the payment made by Carvell to it in satisfaction of its debt. See, also, Maier v Freeman, 112 Cal. 8 (44 P. 357, 52 Am. St. Rep. 155); Estes v. McKinney (Tex. Civ. App), 43 S.W. 556; Fairweather v. Nelson, 76 Minn. 510 (79 N.W. 506); Bank v. Bernard (Tex. Civ. App.), 30 S.W. 580; Evans v. Bank, 76...