Farmers State Bank of Fosston v. Sig Ellingson & Co.
| Decision Date | 10 November 1944 |
| Docket Number | No. 33812.,33812. |
| Citation | 218 Minn. 411,16 N.W.2d 319 |
| Court | Minnesota Supreme Court |
| Parties | FARMERS STATE BANK OF FOSSTON v. SIG ELLINGSON & CO. |
Appeal from District Court, Dakota County; W. A. Schultz, Judge.
Action by the Farmers State Bank of Fosston against Sig Ellingson & Company to recover the net proceeds of a shipment of livestock, wherein defendant filed a counterclaim. The plaintiff dismissed his cause of action; the trial on the counterclaim resulted in a decision for the defendant, and the plaintiff appeals.
Reversed and judgment entered on the counterclaim for plaintiff.
O. E. Lewis, of Bagley, and George A. Lewis, of Minneapolis, for appellant.
Kelly & LeVander, of South St. Paul, for respondent.
Plaintiff sued to recover $378.86, the net proceeds of a shipment of livestock consigned by one Christ Christofferson to defendant, which plaintiff claims it is entitled to apply on a draft for $500 in its favor drawn on defendant by Christofferson to raise money to pay for the livestock, the amount of which draft was paid by plaintiff to Christofferson under an agreement with defendant, as modified on May 4, 1940, by the terms of which defendant agreed to pay to plaintiff to apply on such drafts the net proceeds of all shipments of livestock so consigned to it by Christofferson.
Defendant interposed a counterclaim for $16,290 based upon the contract as it was prior to the modification. In substance, its claim was that between September 3, 1935, and May 4, 1940, it advanced to Christofferson, as its agent and trustee, on drafts drawn on it by him money for the sole and exclusive purpose of using the same for the purchase of livestock to be shipped by him to it for sale on commission; that Christofferson placed the proceeds of the drafts in his personal checking account with plaintiff; that he converted and appropriated to his own use $16,665 thereof; and that plaintiff with notice and knowledge participated in the misappropriation by Christofferson.
Plaintiff dismissed the cause of action set forth in the complaint. Thereupon the case went to trial upon the counterclaim.
Plaintiff is a small bank at Fosston. Christofferson resides at Lengby, about eight miles distant, where he is engaged in business as a buyer and shipper of livestock. Defendant is engaged in the business of selling livestock for others on a commission basis at the stockyards at South St. Paul and Fargo. It is a market agency within the meaning of the Packers and Stockyards Act. See 7 U.S.C.A. § 201. Christofferson bought livestock from farmers in the vicinity of Lengby which he paid for with the proceeds of drafts drawn on the commission firms to whom he consigned the livestock for sale. Because of some differences which he had with the bank at Lengby, he decided to transfer his account to plaintiff at Fosston. Thereupon, on August 28, 1935, after talking the matter over with Christofferson, plaintiff (hereinafter referred to as the bank) wrote to defendant to make an arrangement for cashing drafts drawn by Christofferson. After reciting in the letter that Christofferson desired to open an account with it for the reasons mentioned, the bank stated that if defendant would honor sight drafts drawn on it by Christofferson "whenever needed for his business we [the bank] will credit these to his checking account and he can issue checks in payment of the stock that he buys," and requested defendant to advise whether it would honor such drafts. On September 3, 1935, defendant answered advising the bank
From September 3, 1935, to May 4, 1940, a period of four years and eight months, the bank accepted 259 drafts aggregating $175,155.75. There was some testimony that the bank was to be paid exchange for its services at the rate of ten cents per hundred dollars. It received less than that amount for its services, namely, $135.55. No other compensation was agreed upon or paid. Christofferson deposited the proceeds of the drafts in his personal checking account as the bank's letter of August 28 to defendant contemplated. No arrangement was made or suggested that either Christofferson or the bank segregate the proceeds of the drafts and carry them in an account with Christofferson as agent, trustee, or other fiduciary for defendant. It was Christofferson's practice to go into the country to purchase livestock from farmers, for the payment of which he issued his personal checks. He arranged to have truckers pick up the livestock later and take them to Lengby, where arrangements were made to ship them to defendant at one of the stockyards mentioned. In order to provide funds to pay the checks, Christofferson left with the bank two or three drafts on defendant signed by him as drawer, with the amount in blank, with directions to the bank to fill them in in a sufficient amount to meet the checks when presented. All the livestock, except two shipments to defendant at the stockyards at Fargo, was shipped to it at the stockyards at South St. Paul. There the livestock was weighed, inspected, graded, and sold by defendant as Christofferson's agent. Defendand charged Christofferson, as his agent, with sales expense such as yardage, feed, weighing, insurance, inspection, and selling commissions and credited him with the balance as a charge against the drafts.
Almost from the beginning, the amounts of the drafts and those for the livestock purchases did not correspond. Most of the drafts were drawn for round sums such as $300, $500, $600, $800, and so on, and exceeded the amounts for which livestock shipped was sold. The amounts realized from the shipments were for odd sums such as $891.15, $1,142.56, $1,442.72, and so on. Because the amounts of the drafts and those for the shipments did not correspond and because the drafts were for amounts exceeding those for which livestock shipped was sold, it must have been obvious, as it is conceded the fact was, that the drafts were not being drawn for the actual amounts expended by Christofferson for livestock purchases. In less than six months Christofferson became indebted to defendant for a substantial amount in excess of the amounts due him for livestock shipments. By March 1937 (a year and a half after the arrangements were made), Christofferson's overdrafts exceeded $3,100. Thereupon, defendant took Christofferson's note for the amount owing, payable in one year, as evidence of the debt. This was done without notifying or consulting the bank or warning it not to continue the prior course of business. Defendant's president testified that at the time it took the note it did not know that Christofferson used any of the proceeds of the drafts for purposes other than the purchase of livestock and supposed that he had lost money in his business. This testimony was contrary to the plain fact that was apparent to all, namely, that the amounts of the drafts and those expended for livestock shipments did not correspond and that the amounts of the drafts exceeded the amounts realized from sales of the livestock shipped.
On September 25, 1937, while the note was still unpaid, the bank by letter called defendant's attention to its failure to pay a draft. Defendant answered, explaining the delay and reaffirming the arrangement to honor drafts notwithstanding the fact that the amounts of the drafts and those for livestock shipments did not correspond and that Christofferson had drawn in excess of the amounts realized from the shipments of livestock.
The note was not paid at maturity. Later, defendant's president, while at Lengby, made arrangements with Christofferson to accept half the note if defendant got security. Pursuant to that arrangement, defendant on December 17, 1938, sent Christofferson a note for half the amount of the note of March 1937, together with a mortgage on Christofferson's home in Lengby to secure payment thereof, for his and his wife's signature. Christofferson and his wife signed the note and mortgage and returned them to defendant. The bank was not notified of this transaction nor was any demand made upon it to pay the amount of Christofferson's overdrafts. In fact, the arrangement for honoring drafts continued as before until May 4, 1940 (an additional year and four months). On that date defendant discovered that one Clarke, its bookkeeper, had embezzled money from it through manipulation of customer accounts, including Christofferson's. Apparently, when the note and real estate mortgage were given in December 1938, Christofferson claimed credit for $800, the proceeds of war risk insurance, which he paid to defendant, but this was not taken into consideration in making the settlement. Apparently, the trial court, however, allowed him credit for this item.
During the period in question (from September 3, 1935, to May 4, 1940), Christofferson deposited in his personal checking account not only the $175,155.75, the proceeds of the drafts, but also $13,357.55 derived from his meat market and fur-buying business at Lengby, a total of $188,513.30. Out of the account, he paid the expenses of his livestock, meat market, and fur-buying businesses his personal expenses, and some small accounts owing by him to the bank. Apparently Christofferson's wife, as well as he, drew some of the checks. The bank's cashier testified that he knew the purposes for which the checks were drawn. Despite this knowledge, the bank never inquired of Christofferson whether he was using the proceeds of the drafts for purposes other than the purchase of livestock. Apparently defendant abandoned the claim that Christofferson was its agent. The trial court found that Christofferson was a trustee of the proceeds of the drafts; that, because the bank had knowledge and...
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