Kurth v. Van Horn

• Decision Date: 15 January 1986
• Docket Number: No. 84-963,84-963
• Parties: William D. KURTH, Trustee of Herman B. Gerdes Trust, et al., Appellees, First Miss, Inc.; Grettenberg's, Inc.; and Glen Lowman, agent, Cross- Appellants, v. Robert VAN HORN and First National Bank in Glidden, Appellants.
• Court: Iowa Supreme Court

Page 693

380 N.W.2d 693

William D. KURTH, Trustee of Herman B. Gerdes Trust, et al., Appellees, First Miss, Inc.; Grettenberg's, Inc.; and Glen Lowman, agent, Cross- Appellants, v. Robert VAN HORN and First National Bank in Glidden, Appellants.

No. 84-963.

Supreme Court of Iowa.

Jan. 15, 1986.

Rehearing Denied Feb. 25, 1986.

Brent B. Green and Sam F. Scheidler, of Gamble, Riepe, Webster, Davis & Green, Des Moines, and Raymond O. Snook, of Snook Law Office, Glidden, for appellants.

James R. Van Dyke, of Van Dyke & Werden, P.C., Carroll, for appellees and cross-appellants.

Considered by HARRIS, P.J., and McGIVERIN, LARSON, CARTER, and WOLLE, JJ.

LARSON, Justice.

Thomas P. Hall, a Glidden area farmer, became financially strapped and asked his landlord, Herman B. Gerdes, to help him get a loan from the defendant bank. Gerdes agreed to do so and cosigned, with Hall, a note to the bank, secured by a mortgage on farmland owned by Gerdes. Gerdes then turned the proceeds over to Hall. Shortly afterward, Gerdes died. The trustee of the Herman B. Gerdes Trust, and two beneficiaries of the Gerdes estate, sued the bank and its president, Robert Van Horn (hereinafter referred to jointly as the bank), alleging fraud and breach of fiduciary duty. They demanded damages, both actual and punitive, and cancellation of the Gerdes mortgage. Other creditors of Hall joined the action as plaintiffs, claiming Hall and the bank had conspired to defraud them of the amounts owed them on their accounts.

Hall was originally a defendant but was released by the plaintiffs prior to trial, leaving only the bank and Van Horn as defendants.

The suits on account were dismissed on a motion for directed verdict. On the claims against the bank by the Gerdes trust and the beneficiaries of the Gerdes estate (hereinafter referred to jointly as Gerdes), the jury found no fraud. It did, however, find a breach of fiduciary duty by the bank, returning a verdict for actual and punitive damages. The district court, acting in equity, then granted Gerdes' request to cancel the real estate mortgage.

The bank filed notices of appeal from these judgments (the one granting actual and punitive damages and the one canceling the real estate mortgage). The account claimants appealed from the order for directed verdict. By order of this court, the three separate appeals were consolidated. (Although the account claimants filed an independent appeal, they refer to themselves as cross-appellants, and we will so consider them on appeal.)

On appeal, the bank asserts: (1) the court erred in overruling the bank's motion for directed verdict based on insufficiency of the evidence to support a finding of fiduciary duty; (2) that, assuming there was sufficient evidence to submit the issue, the court erred in its instruction on the elements necessary to establish a fiduciary relationship; (3) that the court erred in submitting the issue of punitive damages and in allowing interest on the punitive damages from the date of the filing of the action. Because of our disposition of the case under the first of these issues, it is unnecessary to address the remaining two.

In its separate appeal from the order in equity, the bank contends that, because there was insufficient evidence of the existence of a fiduciary duty, the court erred in canceling its real estate mortgage from Gerdes. The account claimants assert error in granting the directed verdict in their action based on alleged conspiracy.

I. The Law Action.

We first address the issues raised under the law claim of breach of fiduciary duty. At the close of the plaintiffs' evidence, the bank moved for directed verdict on the ground there was not sufficient evidence upon which a jury could reasonably find a fiduciary relationship existed between the bank and Gerdes. The court reserved ruling. The issue was raised again, after all the evidence, and was denied. Motions for new trial and judgment notwithstanding the verdict, based on this ground, were also denied.

The legal principles regarding the evidence required to withstand a motion for a directed verdict have been summarized by several recent cases. Each element of a claim must be supported by substantial evidence. If not, a directed verdict or a judgment notwithstanding the verdict is appropriate. Valadez v. City of Des Moines, 324 N.W.2d 475, 478 (Iowa 1982). If reasonable minds could differ on an issue under the evidence presented, it is properly submitted to a jury. Larsen v. United Federal Savings & Loan Association, 300 N.W.2d 281, 283 (Iowa 1981). When considering a motion for directed verdict or judgment notwithstanding the verdict, we must, of course, consider the evidence in the light most favorable to the party against whom the motion is directed.

A fiduciary relationship has been generally defined in this way:

A fiduciary relation exists between two persons when one of them is under a duty to act for or to give advice for the benefit of another upon matters within the scope of the relation.

Restatement (Second) of Torts § 874 comment a, at 300 (1979). A fiduciary relationship has also been defined as

[a] very broad term embracing both technical fiduciary relations and those informal relations which exist wherever one man trusts in or relies upon another. One founded on trust or confidence reposed by one person in the integrity and fidelity of another. A "fiduciary relation" arises whenever confidence is reposed on one side, and domination and influence result on the other; the relation can be legal, social, domestic, or merely personal. Such relationship exists when there is a reposing of faith, confidence and trust, and the placing of reliance by one upon the judgment and advice of the other.

Black's Law Dictionary 564 (5th ed. 1979) (citations omitted).

Some relationships necessarily give rise to a fiduciary relationship. Such relationships would include those between an attorney and client, guardian and ward, principal and agent, executor and heir, trustee and cestui que trust. Id.

Some of the indicia of a fiduciary relationship include the acting of one person for another; the having and the exercising of influence over one person by another; the reposing of confidence by one person in another; the dominance of one person by another; the inequality of the parties; and the dependence of one person upon another.

First Bank of Wakeeney v. Moden, 235 Kan. 260, 262, 681 P.2d 11, 13 (1984) (per curiam). See generally 36A C.J.S. Fiduciary, at 386-87 (1961). Because the circumstances giving rise to a fiduciary duty are so diverse, any such relationship must be evaluated on the facts and circumstances of each individual case. Annot., 70 A.L.R.3d 1344, 1347-48 (1976).

It is difficult to categorize the relationship of banks with their customers insofar as any fiduciary duty is concerned. Banks and their customers develop relationships on various levels, and the services provided to any particular customer will vary. Budnitz, The Sale of Credit Life Insurance: The Bank as Fiduciary, 62 N.C.L.Rev. 295 (1984). As a general rule, however, a fiduciary duty or confidential relationship does not arise solely from a bank-depositor relationship. See Manson State Bank v. Tripp, 248 N.W.2d 105, 108 (Iowa 1976); Davis Brothers & Potter v. Fort Dodge National Bank, 216 Iowa 277, 279, 249 N.W. 170, 171 (1933); Leach v. First National Bank, 206 Iowa 265, 270, 217 N.W. 865, 868 (1928); Andrew v. Colorado Savings Bank, 205 Iowa 872, 875, 219 N.W. 62, 64 (1928). See generally Annot., 70 A.L.R.3d at 1347; 10 Am.Jur.2d Banks § 339, at 301-02 (1963); 9 C.J.S. Banks & Banking § 273, at 556-59 (1938). Bank cases based on breach of fiduciary duty must, of course, be distinguished from those based on fraud. See, e.g., First National Bank in Lenox v. Brown, 181 N.W.2d 178 (Iowa 1970).

The plaintiffs in the present case acknowledge it to be the general rule that a fiduciary relationship does not automatically arise through the relationship of banker and depositor but asserts that the rule should be different when the customer becomes a borrower. In this case, they allege that there was sufficient evidence to warrant a jury in finding that such a relationship existed. They point to the fact that Gerdes was eighty years old, that he was pressured by Hall to make the loan, that frequent visits were made by Hall to the bank, and that the bankers had intimate knowledge of Hall's financial problems. With these contentions in mind, we look to the evidence in the case to establish the basis for the fiduciary relationship.

Hall had financial difficulties well before the note in question was executed. According to the record, he faced possible foreclosure as early as 1975. Van Horn, as his banker, was naturally aware of his financial condition. It is also clear that Gerdes knew of Hall's financial condition. In 1976, the record showed Van Horn knew that Hall's debt had reached more than 150 percent of his asset value. Before Gerdes leased his land to Hall, the land was farmed by Gerdes' only son, Charles, who was killed in an automobile accident in 1970. After that time, according to the plaintiffs, "Hall endeared himself to Herman Gerdes and tried to take the place of Gerdes' son." The record shows that apparently there was a mutual feeling in that respect. Gerdes granted Hall more favorable terms...