Idaho Bank of Commerce v. Chastain

• Decision Date: 19 July 1963
• Docket Number: No. 9221,9221
• Citation: 86 Idaho 146,383 P.2d 849
• Court: Idaho Supreme Court
• Parties: IDAHO BANK OF COMMERCE, a corporation, Plaintiff-Respondent, v. Charles CHASTAIN, R. M. Chastain, Frances C. Chastain and R. A. Chastain, Individually and as partners, doing business under the firm name and style of R. M. Chastain & Sons, Defendants, and James S. Johnston, Defendant-Appellant.

Page 849

383 P.2d 849

86 Idaho 146

IDAHO BANK OF COMMERCE, a corporation, Plaintiff-Respondent, v. Charles CHASTAIN, R. M. Chastain, Frances C. Chastain and R. A. Chastain, Individually and as partners, doing business under the firm name and style of R. M. Chastain & Sons, Defendants, and James S. Johnston, Defendant-Appellant.

No. 9221.

Supreme Court of Idaho.

July 19, 1963.

Anderson & Beebe, Blackfoot, for appellant.

Rigby & Thatcher, Rexburg, for respondent.

TAYLOR, Justice.

In 1958 R. M. Chastain & Sons, a partnership, was engaged in sheep raising and contracting. October 8th of that year the partnership executed and delivered to plaintiff (respondent) a chattel mortgage to secure the payment of a loan in the amount of $60,000. January 16, 1961, the balance of the obligation amounted to $23,593.16, and was evidenced by a renewal note bearing that date, and maturing March 1, 1961. This action for the foreclosure of the mortgage was commenced May 1, 1961. All of the defendants except James S. Johnston (appellant) defaulted and judgment was entered against them September 11, 1961.

Johnston answered, claiming title to two HD21 Allis-Chalmers tractors and the attachments thereon, free and clear of the lien of plaintiff's mortgage. All of the remaining property, except the tractors, was sold under the judgment of September 11th and the proceeds, amounting to something in excess of $8,000, was applied in reduction of the judgment.

The cause as against Johnston was tried to the court without a jury May 17 and 18, 1962. Pursuant to suggestion of the court and agreement of counsel, defendant Johnston assumed the affirmative, and the burden of proving his claim to the tractors. Plaintiff's note and mortgage, having been admitted in evidence at the time of the entry of default judgment, no evidence was offered by plaintiff on the hearing as against Johnston. At the close of Johnston's evidence, plaintiff moved for judgment against Johnston. The court granted the motion, treating it as one for nonsuit. However, on June 4th following, the court made and entered findings of fact, conclusions of law, and judgment, granting plaintiff foreclosure of its claimed lien on the two tractors, ordering a sale and application of the proceeds on the judgment, and requiring defendant Johnston to account for the use of the tractors from and after July 21, 1961.

This appeal is from the judgment.

Chastains have been adjudged bankrupt.

Since there is no issue remaining in the case involving the partnership, and since Charles Chastain was the managing partner and executed the partnership documents on behalf of the partnership, reference herein to Charles Chastain will include the partnership.

The facts are summarized as follows:

The plaintiff, Idaho Bank of Commerce, at the times involved, was a corporation engaged in the business of banking at Rexburg, Idaho. The Bank of Commerce was a corporation engaged in the banking business at Idaho Falls, Idaho. S. M. Meikle, Sr., was the president and general manager of both banks. Meikle died in August, 1960.

In 1956 Chastain purchased the two HD21 tractors on conditional sales contracts from the Southern Idaho Equipment Company at Idaho Falls. The tractors, along with other heavy equipment, were being used by Chastain in the execution of construction contracts entered into by Chastain. One of these was a subcontract with Diversified Builders involving construction work at the site of the National Reactor Testing Station west of Idaho Falls. This contract had been assigned by Chastain to the Southern Idaho Equipment Company to secure payments as they came due on contracts executed by Chastain for the purchasing and leasing of equipment.

In the early spring of 1960 Chastain was unable to continue the financing of his contracting business. His contracts with the equipment company were in default, and that company was threatening repossession of the two HD21 tractors and an HD15 tractor. Chastain was leasing the HD15 on a contract which gave him an option to buy the tractor and apply the rental payments on the purchase price. At the time Chastain owed $13,000 rent and the balance required to purchase the tractor was $13,479.18.

Plaintiff refused further to finance Chastain's operations. Chastain then suggested to Meikle that perhaps his, Chastain's, friend Johnston would help him. Johnston was the owner of an extensive farming business in Bingham county. At Meikle's suggestion Chastain and Johnston met with Meikle at The Bank of Commerce in Idaho Falls. Meikle suggested that The Bank of Commerce would finance Johnston's farming operations and loan Johnston sufficient money to pay off the conditional sales contracts and the contract for the HD15 tractor and enough in addition to provide operating expenses for Chastain, if Johnston would give security for the loan, and in turn loan the needed funds to Chastain. This was agreed to. The bank loaned Johnston $28,000 secured by a chattel mortgage on his crops, livestock, farming and other equipment. Johnston then agreed to loan $25,000 to Chastain, for which he requested security. At Meikle's suggestion, Chastain gave Johnston a bill of sale transferring the HD21 tractors and the HD15 tractor to Johnston. This bill of sale was typed at the bank by Meikle's secretary, under his direction, and recites as follows:

'And the said party of the first part does vouch to be the true and lawful owner of the said Goods, Chattels and Property, and have in full power, good right and lawful authority, to dispose of said Goods, Chattels and Property, in manner as aforesaid: And I do, for my heirs, executors and administrators, covenant and agree to and with the said party of the second part, to Warrant and Defend the said Goods, Chattels and Property to the said party of the second part, his executors, administrators, and assigns, against the lawful claims and demands of all and every person and persons whomsoever.'

Further, at the suggestion or direction of Meikle, Johnston listed the three tractors as assets in the financial statement required by the bank, and which was prepared at the bank; and, as further suggested or directed by Meikle, Johnston included the three tractors in the chattel mortgage which he gave to the bank to secure the loan. The chattel mortgage was prepared at the bank by the cashier under the direction of Meikle and contains the following:

'It is covenanted and agreed by the mortgagor that the mortgagor is the sole and lawful owner of the property herein described, and has, and is entitled to, the exclusive possession thereof; that the same is free of all encumbrance, and the mortgagor has full power and authority to convey and mortgage the same, and that the mortgagor will warrant and defend the same against the lawful claims and demands of all persons whatsoever * * *.'

The conditional sales contracts covering the HD21 tractors had been assigned by the equipment company to The Idaho First National Bank. The balance due thereon was $7,055. The contract covering the HD15 tractor was held by the equipment company. Johnston disbursed the $25,000 loaned to Chastain by three checks, one for $7,055 payable to The Idaho First National Bank and Chastain, one for $13,479.18 payable to the equipment company and Chastain, and one for $4,465.82 payable to Chastain. The first two checks were endorsed by Chastain and delivered to the other respective payees. The conditional sales contracts and the rental contract on the HD15 tractor, together with the subcontract with Diversified Builders, were surrendered by the equipment company and held in connection with the Johnston account at The Bank of Commerce. The Diversified Builders' subcontract was assigned by Chastain to Johnston and the bank. It was agreed that payments received on the subcontract would be divided equally between the bank and Johnston.

Johnston advised Meikle and Chastain that he could defer payment of his fertilizer account until October 15th, but it would be necessary for him to have repayment of the moneys he was lending to Chastain for the payment of that obligation not later than October 15th. Chastain accordingly gave Johnston his note for $25,000, maturing at that time. It was agreed that Chastain would have possession and use of the three tractors to enable him to continue with his construction jobs and thus earn the moneys required to pay his obligations to the bank and to Johnston. It was further agreed that should he pay the note to Johnston in full by October 15th, the tractors would become his property.

A short time later it became apparent that Chastain was handicapped in his operations by reason of the fact that he had no scrapers. Johnston, in an attempt to further aid him, sought and obtained permission of the bank to transfer the HD15 to the equipment...