In re Schanke & Co.

• Decision Date: 16 March 1926
• Docket Number: 37357
• Citation: 207 N.W. 756,201 Iowa 678
• Parties: IN RE RECEIVERSHIP OF SCHANKE & COMPANY. v. E. W. CLARK, Receiver, et al., Appellees AMERICAN NATIONAL BANK OF BEAVER DAM, WISCONSIN, Appellant,
• Court: Iowa Supreme Court

207 N.W. 756

201 Iowa 678

IN RE RECEIVERSHIP OF SCHANKE & COMPANY.

AMERICAN NATIONAL BANK OF BEAVER DAM, WISCONSIN, Appellant, v. E. W. CLARK, Receiver, et al., Appellees

No. 37357

Supreme Court of Iowa, Des Moines

March 16, 1926

Appeal from Cerro Gordo District Court.--J. J. CLARK, Judge.

As the result of a hearing of four claims against the receiver of Schanke & Company, it was adjudicated that a note and mortgage for $ 4,500, originally given by E. L. Anderson to Schanke & Company, but now held by the American National Bank of Beaver Dam, Wisconsin, had been paid. The American National Bank appeals.

Reversed.

Blythe Markley & Rule, for appellant.

Senneff Bliss, Witwer & Senneff, for appellee E. W. Clark, Receiver of Schanke & Company.

Thompson Loth & Lowe, for appellee E. L. Anderson.

L. T. Bosworth, for S. S. Westly, appellee.

Blythe, Markley & Rule, for Ella R. Roberts, appellee.

MORLING, J. DE GRAFF, C. J., and EVANS and ALBERT, JJ., concur.

OPINION

MORLING, J.

The only question brought before us is whether the note and mortgage of claimant E. L. Anderson for $ 4,500, held by claimant American National Bank of Beaver Dam, Wisconsin, has been paid. This depends upon the relationship of the parties to and the effect of their transactions with Schanke & Company. The claimant E. L. Anderson, owning a quarter section, on October 15, 1919, gave his note for $ 4,500, payable to the order of Schanke & Company, and a mortgage on the south 80, to secure it. On June 1, 1922, Anderson gave a mortgage for $ 2,000 on the north 80 to claimant Ella R. Roberts. The $ 4,500 mortgage was sold to the Beaver Dam bank (appellant), but the assignment was in blank, and not recorded. In January, 1924, Anderson, through Olson, opened negotiations with Schanke & Company for a new loan for $ 8,000, with which to take up both these mortgages and to procure additional money for other uses. Neither of the mortgages was then due. Schanke & Company advised the Beaver Dam bank of Anderson's purpose to make a new loan, and inquired whether the bank would be willing to accept prepayment. The Beaver Dam bank expressed its willingness to do so, and forwarded to Schanke & Company the abstract, note, mortgage, the blank assignment, and a release, authorizing Schanke & Company to release or to use the assignment and its release as might best satisfy Schanke & Company. Schanke & Company wrote the Beaver Dam bank that they would "take care of the matter as soon as he [Anderson] has the new loan in shape to do so." The Beaver Dam bank requested Schanke & Company to "let us have the proceeds in Chicago exchange if all the same to you." In acknowledging the receipt of the papers, Schanke & Company wrote the Beaver Dam bank: "As soon as we can get the new loan in shape we shall be pleased to forward remittance to you."

Schanke & Company advised Olson that their client would accept payment of the $ 4,500 mortgage at any time, and that they could place a loan of $ 8,000, which Anderson, through Olson, agreed to accept. Anderson made application to Schanke & Company for an $ 8,000 loan, authorizing Schanke & Company to use the proceeds to remove all existing liens, and to have any necessary corrections in the title made before the loan was completed. Anderson executed the new note and mortgage for $ 8,000, and forwarded them through Olson to Schanke & Company, March 1, 1924. Schanke & Company had been previously instructed to bring the abstract up to date, and in the letter of March 1, 1924, were instructed to "close this loan up as soon as possible, deducting interest on the old loan, paying for abstracting, recording, revenue stamps, and deducting the bonus agreed upon and your commission of one per cent and send us draft for the balance." On March 11, 1924, Schanke & Company were requested to send as soon as possible "draft for balance above your present mortgage that we may take up the mortgage on the north 80 and close the matter up with Mr. Anderson." This letter was from Olson, who procured release of the Roberts mortgage. The Roberts release was sent to Schanke & Company for use in closing the new loan.

On March 25, 1924, Schanke & Company notified Olson of the attorney's report on the abstract, and asked for further certificates, to show authority of an executrix to release a prior mortgage. On March 27, 1924, Olson wrote Schanke & Company that he had sent for the required certificate, and stated, as he had previously done, that Anderson was in need of a part of the money, and asked for $ 1,000 advance on the loan. The new note and mortgage were made payable to Schanke & Company. Schanke & Company, on March 29, 1924, advanced taxes and drainage assessment, but stated their preference to "withhold further remittance until the title is in shape, which should not be longer than the first part of next week."

On March 6, 1924, Schanke & Company advised claimant Westly that they had an application for the $ 8,000 loan. The negotiations between them resulted in the sale of the $ 8,000 mortgage and note by Schanke & Company to Westly, on April 8, 1924. On that date, Westly gave Schanke & Company two certificates of deposit for $ 1,000 each, a check on one bank for $ 2,500, and on another bank, check for $ 3,235.31, and $ 250 in Liberty bonds, all of which, with accrued interest, amounted to the principal and interest of the new Anderson $ 8,000 note and mortgage. Schanke & Company delivered to Westly the note and mortgage, and stated to him that the abstract was being continued, to show the complete transaction and the recording of the assignment, and that the mortgage would be shown as a first mortgage. Westly knew, in a general way, from the application, that he was paying off previous mortgages of $ 6,500, which the application said would be paid, but did not know whether that had already been done or was being done. He says that nothing was said about the old mortgages at the time he made the payment, because he had previously told Schanke & Company that he would not consider anything but a first mortgage, which the Anderson mortgage purported to be. The two checks amounting to $ 5,535.21 were deposited in Schanke & Company's local bank account, that will be presently referred to, and a memorandum check for that amount drawn in favor of, but not delivered to, Anderson.

Schanke & Company's representative, who had charge of the sale, testified that he talked the matter over with other officials of Schanke & Company. He did not think he told them they should pay the prior mortgage, because he "did not have authority to. It was understood between us. Mr. Schilling [vice president] and I talked it over. There was talk between me and Mr. Schilling that this money was now ready to be used, and should be used to pay the existing first mortgages, and it was with that understanding that I deposited Dr. Westly's checks in the general banking account. Depositing the proceeds of the certificates of deposit and the bonds was done by others.

"Q. This talk between you and Mr. Schilling was that the money was to be held separate until the loan was finally closed, for Mr. Anderson? A. It was merely speaking to others in the office that I would like to have it that way; I had no authority to segregate it. I simply called their attention to the fact that that money was for a special purpose, I presume.

"Mr. Loth: They did not say that they would not follow your suggestion?

"A. No. * * * There was no controversy. * * * I don't recall having any talk with anyone else about it. * * Q. But the check as made to E. L. Anderson,--who would indorse it? A. It would be merely canceled by the same person who drew it, never having been delivered to Mr. Anderson. * * * That was a method we had employed quite frequently in similar transactions; there was nothing at all unusual about it. It was not the purpose, in making this check, to deliver it to Mr. Anderson at all. * * * I saw a voucher dated the day following, indicating that this check had been passed to Mr. Anderson's credit and canceled. Q. Just showing the credit on your books to Anderson? A. Yes. Q. Now let's suppose that the $ 5,700 had been used to pay these prior mortgages,--what would the book entry have been? A. The check would have been canceled, and the entry would have shown the application of the funds as it might have been made. It might have passed through Mr. Anderson's account on our books, and it might not, according to the circumstances. "

The Liberty bonds were sold, the full amount of the price of the mortgage to Dr. Westly, $ 8,053.33, was realized, and the whole was deposited by Schanke & Company in their general bank account with the local bank, and, as noted, credited on Schanke & Company's books to Anderson. The books of Schanke & Company (those of the bank itself not being produced) showed that at that time Schanke & Company's bank account was overdrawn over $ 31,000, after the deposit of the proceeds of the mortgage, and continued overdrawn to more than $ 21,000 until the appointment of a receiver of Schanke & Company, on May 26, 1924. Schanke & Company's books, however, were not accurate, because they showed the entry of memorandum checks similar to that referred to, which were not in fact delivered, and the bank honored all checks up to May 14th, whether there was money in the account to meet them or not. The condition of the bank account is not more definitely shown. No remittance was made by Schanke & Company to the American National Bank or Anderson or Mrs. Roberts. The president of Schanke & Company testified:

"I understood that the money which came from Dr. Westly was a fund which would ultimately be used for the payment of the two mortgages which we held for collection."

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