Nat'l Citizens' Bank of Mankato v. McKinley

• Citation: 118 Minn. 162,136 N.W. 579
• Parties: NATIONAL CITIZENS' BANK OF MANKATO v. McKINLEY et al.
• Decision Date: 07 June 1912
• Court: Supreme Court of Minnesota (US)

118 Minn. 162
136 N.W. 579

NATIONAL CITIZENS' BANK OF MANKATO
v.
McKINLEY et al.

Supreme Court of Minnesota.

June 7, 1912.

Appeal from District Court, Blue Earth County; I. M. Olsen, Judge.

Action by the National Citizens' Bank of Mankato against George A. McKinley and others. From an order denying an alternative motion for judgment or a new trial, defendants appeal. Affirmed.

Syllabus by the Court

A manufacturer who executes a chattel mortgage upon his raw material has no right, in the absence of an agreement so authorizing, to convert the material into manufactured articles and sell and dispose of the same upon the market. His act in doing so, without the consent of the mortgagee, constitutes a wrongful conversion of the mortgaged property.

Contract construed, and held not to confer the right to convert the raw material into manufactured articles.

Where a senior lien holder consents to the conversion by the debtor of the property burdened with the lien, his right of priority over a junior lien holder is lost; and the latter, whose claim is in the form of a chattel mortgage upon the property, may maintain an action against the mortgagor for the wrongful conversion of the property.

In such an action the mortgagor cannot set up in defense the paramount lien of the senior creditor, for as to the junior creditor the right of priority ceased by reason of his consent to the wrongful conversion of the property.

The record held to present no reversible errors, and the evidence supports the verdict.

[136 N.W. 579]

H. L. & J. W. Schmitt, of Mankato, for appellants.

C. E. Phillips and Lorin Cray, both of Mankato, for respondent.

BROWN, J.

Action for an alleged wrongful conversion of certain logs and timber, in which plaintiff had a verdict, and defendants appealed from an order denying their alternative motion for judgment or a new trial.

The action was before the court on a former appeal, and was remanded for a new trial. 115 Minn. 378, 132 N. W. 290. The facts are there stated, but to an understanding of the questions presented on this appeal a short restatement is necessary. Before the last trial defendants amended their answer, in response to suggestions in the former opinion, setting up in defense (1) a paramount outstanding lien against the property in favor of one Hoerr of an amount exceeding the value of the property; and (2) that all the proceeds from the sale of the property were used to defray the cost and expense incurred in the manufacture, sale, and disposal of the property, which defendants claim were authorized by the contracts presently to be mentioned. The complaint was also amended. The short facts are as follows:

Defendant McKinley, in 1906, entered into a contract with the Itasca Cedar & Tie Company, under which he agreed to cut and deliver to that company a large number of cedar posts, poles, and ties, to the amount and value of about $200,000. The contract provided for payments during the progress of the work, namely, 50 per cent. of the purchase price when the logs were cut and banked in the woods, 25 per cent. on arrival at Brainerd, and the balance when delivered to the company. McKinley was without funds, and to procure the necessary money to enable him to perform the contract he entered into a further contract with one Hoerr, by which Hoerr undertook and agreed to advance the sum of $20,000 for that purpose. To secure the repayment of this money McKinley assigned to Hoerr the Itasca Company contract, by which assignment Hoerr became entitled to receive all payments from that company for material delivered to the extent of the advances made to McKinley. Under this arrangement Hoerr advanced to McKinley the sum of $26,500, and became surety for the payment of claims against

[136 N.W. 580]

McKinley, incurred...