Koch v. Kiron State Bank of Kiron

• Decision Date: 08 April 1941
• Docket Number: 44736.
• Citation: 297 N.W. 450,230 Iowa 206
• Parties: KOCH et al. v. KIRON STATE BANK OF KIRON et al.
• Court: Iowa Supreme Court

297 N.W. 450

230 Iowa 206

KOCH et al. v. KIRON STATE BANK OF KIRON et al.

No. 44736.

Supreme Court of Iowa.

April 8, 1941

Appeal from District Court, Crawford County; R. L. McCord, Judge.

Suit in equity by plaintiffs to establish their prior liens upon land, as superior to a tax title thereto, acquired through alleged collusion, by the defendant bank, the holder of a junior mortgage against the land. From a decree for plaintiffs, the bank has appealed.

Affirmed.

Superseding opinion in 289 N.W. 447.

STIGER, J., dissenting.

E. A Norelius, of Denison, and William Welch, of Logan, for appellants.

Powers & Gilchrist, of Denison, for appellees.

BLISS Justice.

An opinion was rendered in this case on January 9, 1940, and reported in 289 N.W. 447, which reversed the decree of the trial court. A rehearing was granted on petition of the appellees, and upon resubmission it is our judgment that the trial court was right and that its decree should be affirmed. Our first opinion, noted above, is, therefore, set aside and this opinion is substituted in its stead.

Plaintiffs' petition was filed on February 19, 1938. By pleading and proof it appears without dispute that: In 1922 the parents of plaintiffs, for $1 and love and affection, deeded to their son, Chris Koch, a quarter-section farm, subject to annual payments during the lives of the grantors, and subject to aggregate payments of $12,000 to be made to plaintiffs within one year after the death of the surviving grantor; these payments were liens upon the land; Chris was a patron of and a borrower from the defendant bank, and in November, 1931, he renewed his notes for $4,100, and gave separate mortgages on the land and on livestock, implements, and crops securing his indebtedness; he did not pay the taxes on the land for 1931 or any subsequent year; on February 4, 1935, J. W. Miller, Jr., bought the land at tax sale; the bank had constructive notice by record, and actual knowledge, of plaintiffs' liens; the bank paid taxes for its patrons; subscribed for a service giving it tax sale reports; it kept track of whether the taxes were paid on this land, and received the delinquent tax list each year, and knew it was listed as being up for tax sale; when the list was published, it was looked over to see what items the bank might be interested in; it knew of the stipulations in the deed to Chris, and realized its real estate mortgage was of little value as security, and that it had no equity in the land, and that it was impossible for Koch to refinance the farm under the liens against it; the father of Chris died in 1929 and the mother in 1937.

The trial was had on June 13, 1938. The defendants did not use any witnesses. Chris, used by plaintiffs as a witness, testified that: He had paid no taxes since 1930; that " he kind of thought it was sold for taxes, but did not know who bought it", until Miller served the redemption notice on him in the fall of 1937, that he was about to get a tax deed; he then went to see Miller, who told him he had bought the farm, and asked him if he had some money to pay the taxes, and he told Miller that he had none; a while afterward, he went to the defendant bank and told them the farm was sold for taxes. Miller testified that he and his brother were out of pocket about $1,200 in the matter of the tax sale transaction; that when he found the certificate was ready for deed, he wrote Chris to come and see him, which he did; that he told him to make arrangements for redemption, as he didn't want the land, and that he (Chris) should go and see his banker; that before he received the tax deed, Dahl, the cashier of the defendant bank, came to see him, and he told Dahl that he didn't want the farm and was going to sell it and wanted $1,600; that the price was later reduced to $1,500, and Dahl asked him to put the agreement in writing, which he refused, but he told Dahl that the first person who put $1,500 on the line after the tax deed was issued was going to buy the farm. He further testified that: " We (his brother and he) didn't want to be mixed up in any litigation. I didn't know whether there would be any. We expected to make a little profit." Respecting the reduction of the price from $1,600 to $1,500, Miller testified:

" Q. But you gave him (Dahl) to understand if it wasn't redeemed he could have it at your price for $1,600, and they finally talked you down? A. It was talked that way. Q. But you later reduced it to fifteen? A. He offered us fifteen and we took it."

If Miller was not then driving a bargain with the bank, instead, as the appellant insists, of being ready to deal with any one, why did he reduce his price $100 without waiting for a better bid? And why was the bank interested in having the price reduced $100 unless it, instead of some other purchaser, was going to get the benefit of the reduction?

Mr. Dahl testified that: Early in the year 1938, in January or February, sometime before the tax deed issued, he talked with Miller about this land; when he came down there Miller said that after he received title, he didn't care particularly to own the land, and if he could get his price for it he would sell it; he put the price at $1,500; he didn't state exactly that if the bank would give him a profit of around $300 in excess of the taxes, after he got the deed, he would deed it to us; the bank knew the land was worth a great deal more than that; the farm would be worth sixty or sixty-five dollars an acre. In answer to questions, Mr. Dahl testified:

" Q. So that you expected him to sell it to you for $1,500 when he got the deed? A. Well, yes. Of course he didn't say he would hold it for us, but that is what we expected to pay.

Q. You relied on his word he would let you have it for $1,500? A. That was his price, yes. We had no agreement with him in writing and I do not know of any one that did have an agreement in writing with Mr. Miller. * * *

Q. Well, you indicated to him that you would buy it when he got it, didn't you? A. Well, naturally we were interested in it."

He further testified that after talking with Miller " we consulted Mr. Everett Norelius; he handled the case for us." Just who besides Dahl was included in the word " we", used by him repeatedly, does not appear. We do not have the benefit of his testimony. The consultation with the bank's attorney, Mr. Norelius, was not later than February 4, 1938, because on that date the bank executed a release of the Chris Koch real estate mortgage acknowledging full payment and satisfaction. Of that transaction, Mr. Dahl testified: " I looked after the satisfaction of the Chris Koch mortgage. It was executed and filed on the strength of our attorney's recommendation. He told us we would be in a better position to take title from Miller if the mortgage was satisfied and that is the reason we did it . We did not feel that we had anything to lose by filing the satisfaction. We felt the mortgage didn't amount to anything. Realizing the lien against it, we felt that there was no object in paying taxes, throwing good money after bad."

The reasoning is sound. Releasing the mortgage would lose them nothing, and might pay them handsomely.

On February 10, 1938, the bank gave a check for $1,500 payable to Mr. Norelius. On February 11, 1938, the release of the Koch mortgage was filed for record. The tax deed had not yet issued, but notwithstanding, Miller's price was delivered to Mr. Norelius, and the bank's mortgage was irrevocably released. It is quite convincing proof that a definite agreement had been previously made between the bank and Miller that he was to get the tax deed and then convey to the bank on receiving the $1,500. It was important that the mortgage release be recorded before the deed from Miller was delivered to the bank, so that it could be said that the bank was not then a junior lien-holder. The tax deed was issued on February 14, 1938, and on the following day Miller conveyed the land to the bank, and received the $1,500 check.

Mr. Dahl testified:

" Naturally we were expecting trouble. We felt there was a contest in the case and we really didn't know what grounds we had. Q. But you knew it was questionable whether you could hold title after you got it? A. We realized it was a cloud in the title."

The bank was fully aware of what it was attempting to do, and of the way which they thought would place them in a better position. It knew that it was their right and their duty to make redemption from the Miller tax sale, and thus save what security there was for all the lien holders. It would have taken no chances in making redemption for it would have had a first lien for any sum so expended. But, it wished to " better its position" by making its entire indebtedness a first lien, by cutting out the plaintiffs' prior liens. It had not surrendered its notes when it released the real estate mortgage. All it was looking for was better security. And that is all that it is in fact claiming now. As Mr. Dahl testified:

" Banks are not buying tax titles. * * *

Q. All you wanted was your money he owed you? A. That was the first consideration, yes, sir. * * *

Q. But you would have deeded it back to Chris, wouldn't you, if your indebtedness was paid? A. Well, naturally, we are not aiming to keep any real estate we might acquire. * * *

Q. You didn't feel that Chris Koch had any peculiar or special claim on this land after your debt was paid? A. Well, as I just said, we were concerned about our-the money we had advanced and we wanted to recover it, naturally. * * * We expected that subject to some legal difficulties that had already been pointed out to us, if we got title we would at least have security for Chris' debt. * * *

Q. In any event you are not scalping farms; if you...