Gendler v. Sibley State Bank, Civil Action No. 195.

• Decision Date: 18 October 1945
• Docket Number: Civil Action No. 195.
• Citation: 62 F. Supp. 805
• Parties: GENDLER v. SIBLEY STATE BANK et al.
• Court: U.S. District Court — Northern District of Iowa

62 F. Supp. 805

GENDLER v. SIBLEY STATE BANK et al.

Civil Action No. 195.

District Court, N. D. Iowa, W. D.

October 18, 1945.

Thos. H. Quinn, of Faribault, Minn., and S. D. Crary and Free & Free, all of Sioux City, Iowa, for plaintiff.

George E. Gill, of Sibley, Iowa, and Sifford, Wadden & Jepson, of Sioux City, Iowa, for defendant Sibley State Bank.

No appearance for defendant Roy Sanders.

GRAVEN, District Judge.

Case involving question of liability of bank for money allegedly paid it by mistake and liability of bank in regard to deposit after receiving notice that deposit is claimed by a third party. In this case the plaintiff was and is a resident of Lake Crystal, Minnesota. The defendant, Roy Sanders, was and is a resident of Sibley, Osceola County, Iowa. The defendant, Sibley State Bank, was and is an Iowa banking corporation engaged in the banking business in the Town of Sibley, Osceola County, Iowa. The defendant Roy Sanders for some time prior to the year 1943, was a customer of the defendant, Sibley State Bank. He kept a checking account with that Bank and from time to time borrowed money from it. In the year 1943 he was engaged in the purchase of wool from wool producers in the area around Sibley. In the spring of 1943 he had accumulated and was accumulating wool on a considerable scale. Sanders needed funds to pay and settle for such wool, and needed an outlet for the wool. The matter of the marketing of wool was at that time covered by Government war time regulations. Under such regulations Sanders could only sell wool to those authorized by the Government to purchase it. O. J. Ditto of Sibley, Iowa, was at that time vice-president and a member of the board of directors of the Sibley Bank. Mr. Ditto did not work in the Bank and was engaged in another line of business. At the request of Sanders, Mr. Ditto sought to find an authorized purchaser for the wool. Mr. Ditto contacted the plaintiff, Israel Gendler, who was engaged in the purchasing of wool, and who had been authorized by the Government to purchase wool. The plaintiff handled a good part of his wool business by one F. H. Klemer of Faribault, as his attorney-in-fact. There was located at Faribault, Minnesota, a warehouse of the St. Paul Terminal Warehouse Company, an independent warehouseman, which was a properly licensed warehouse for the storage of wool and the issuance of warehouse receipts therefor. Under the regulations then in effect wool so stored could not be sold until after it had been graded and appraised by Government appraisers.

Pursuant to negotiations by Mr. Ditto, the plaintiff agreed to buy a quantity of wool from Sanders through the St. Paul Terminal Warehouse at Faribault. Sanders in May, 1943, then shipped 23,678 pounds of wool to the St. Paul Terminal Warehouse Company at Faribault. On May 29, 1943, the Warehouse Company issued Warehouse Receipt No. F W 41087, certifying that it "had received in storage for the account of Sibley State Bank, Sibley, Iowa, from Roy Sanders" 11,413 pounds of wool. On June 10, 1943, the Warehouse Company issued Warehouse Receipt Number 9962 certifying that it "had received in storage for the account of Sibley State Bank, Sibley, Iowa (Re: Roy Sanders)," 12,265 pounds of wool. While Sanders had previously had loans from the Sibley Bank from time to time, he did not have any loans from that bank from January 1, 1943, up to May 11, 1943. On May 12, 1943, Sanders borrowed $1,500, from the Sibley Bank. On May 17, 1943, he borrowed $941.92 additional. On June 3, 1943, his loan was increased to the sum of $4,811.94. On June 14, 1943, the Bank loaned Sanders the additional sum of $4,000. Upon the making of this loan for $4,000 Sanders owed the Sibley Bank the total sum of $8,811.84. These loans were all evidenced by promissory notes. Sanders borrowed the greater part of the money to settle for the wool he purchased and was purchasing. It was the contemplation and understanding of the Bank and Sanders that the Bank was to have security on the wool for the loans, and that the Bank was to hold the warehouse receipts for the wool as collateral security therefor. Following the receipt by the Bank of the Warehouse receipts dated May 29, 1943, heretofore referred to, the Bank as heretofore referred to on June 3, 1943, increased Sanders' loan to the sum of $4,811.94. The Bank then held that warehouse receipt as collateral security for the loan of $4,811.94. Following the receipt by the Bank of the warehouse receipt dated June 10, 1943, heretofore referred to, the Bank as heretofore referred to, loaned Sanders the additional sum of $4,000, and held that warehouse receipt as collateral security. On June 22, 1943, the Sibley Bank sent the two warehouse receipts to the Security National Bank at Faribault, Minnesota, for collection, writing that bank that it had been informed that the wool had been sold, and requested the Faribault Bank to make remittance to it. On July 6, 1943, the Faribault Bank sent the Sibley Bank a draft in the sum of $7,106 payable to the order of the Sibley Bank. The Faribault Bank in its letter of remittance stated that 17,765 pounds of the 23,768 pounds of wool represented by the warehouse receipts had been sold. The Faribault Bank further stated that the remittance was at the rate of 40 cents a pound for the wool sold, but that 40 cents a pound did not represent the full amount due for the wool sold. The Faribault Bank further stated that it had requested the Warehouse Company to issue a warehouse receipt for the balance of the wool unsold. The Warehouse Company made out warehouse receipt number F.W.N. 10006 dated July 6, 1943, reciting that it had "received in storage for the Sibley State Bank, Sibley, Iowa (Re Roy Sanders)," 5,913 pounds of wool, which receipt was sent to the Sibley Bank. About this time Sanders made another shipment of wool to the Warehouse Company for sale to the plaintiff, and on July 9, 1943, the Warehouse Company issued its warehouse receipt number F.W.N. 10030, reciting that it "received in storage for the account of Sibley State Bank, Sibley, Iowa (re Roy Sanders)" 7,933 pounds of wool. These two warehouse receipts were held by the Sibley Bank as collateral for the Sanders indebtedness to it. Upon receipt by the Sibley Bank of the draft for $7,106 dated July 6, 1943, referred to, the same was deposited in the checking account of Sanders. Sanders on July 7 and 8, 1943, issued checks on his account payable to the Sibley Bank in the sum of $2,000 and $4,843.65 respectively to apply upon his notes to the Bank. The check of $4,843.65 paid up the note of $4,811.89 dated June 3, 1943, in full with interest, and the check of $2,000 reduced the principal of the $4,000 note dated June 14, 1943, to $2,000. On July 10, 1943, the situation was that Sanders owed the Sibley Bank a note for $2,000, and that Bank held as collateral security therefor two warehouse receipts dated July 6 and July 9, 1943. The matter of the disposal of the wool covered by the last two warehouse receipts and the settlement for the balance due on the first two warehouse receipts dragged along with the Sibley Bank making frequent inquiry as to progress. On September 4, 1943, the Faribault Bank wrote the Sibley Bank that the wool had been graded and appraised and that as soon as it had been bagged and weighed the plaintiff would settle up the account, and suggested that the Sibley Bank send the two warehouse receipts to it for collection of the balance due from the plaintiff. On September 7, 1943, the Sibley Bank sent the Faribault Bank the two warehouse receipts as suggested by the latter bank. On September 28, 1943, the plaintiff by his attorney-in-fact, F. H. Klemer, sent a personal check in the sum of $12,775.88 to the Sibley State Bank. The check was made out jointly to Roy Sanders and Sibley State Bank. Mr. Klemer stated in the letter accompanying the check that it was in settlement of the wool sold by Sanders to the plaintiff. Attached to the letter was a somewhat lengthy statement showing the different grades and amount of wool sold. Mr. Klemer further stated in the letter that it had been "a complicated long drawn out transaction." Mr. Klemer in sending the check for $12,775.88 overlooked and forgot that the draft for $7,106 dated July 6, 1943, had previously been sent in part payment of the Sanders' wool, so that the check for $12,775.88 was $7,106 in excess of what was due Sanders. Upon the check of $12,775.88 being received, it was endorsed by Sanders and the Bank and deposited in the checking account of Sanders on September 30, 1943. On the same day Sanders issued his check to the Bank in the sum of $2,044 in full payment with interest of his note for $2,000. This payment paid Sanders' indebtedness to the Bank in full and was the only payment received by it out of the proceeds of the check for $12,775.88. It appears that Harold Scott, the president of the Sibley Bank, had been unenthusiastic about the Bank making loans to Sanders. When Sanders came into the Bank in connection with the endorsing of the check for $12,775.88, Mr. Odens, the cashier of the Bank, called Mr. Scott from his office in the Bank to the cashier's desk and showed him the check. Sanders then stated that he had made a profit of around $7,000 on the wool transactions. None of the officers of the Bank or those connected with the Bank had any actual knowledge or notice that Sanders had received an over-payment of $7,106. It is believed that it could hardly be expected that the Bank which was only collaterally interested in the transaction would recollect details of a transaction when the agent for the plaintiff who was directly concerned could not keep them in mind. The Sibley Bank acted innocently and in good faith in the transaction, and without any knowledge of any wrongdoing on the part of Sanders. Whether an investigation by the Bank at that time would have disclosed the overpayment is problematical. The...