Robertson v. U.S. Live Stock Co.

• Decision Date: 19 February 1914
• Citation: 164 Iowa 230,145 N.W. 535
• Parties: ROBERTSON ET UX. v. UNITED STATES LIVE STOCK CO. ET AL. (LIVE STOCK NAT. BANK, INTERVENER).
• Court: Iowa Supreme Court

164 Iowa 230

145 N.W. 535

ROBERTSON ET UX.

v.UNITED STATES LIVE STOCK CO. ET AL. (LIVE STOCK NAT. BANK, INTERVENER).

Supreme Court of Iowa.

Feb. 19, 1914.

Appeal from District Court, Dallas County; J. H. Applegate, Judge.

Action to set aside a certain conveyance of real estate, made by the plaintiff to the United States Live Stock Company, on the ground of fraud. The Live Stock National Bank intervened and claimed that, after the conveyance sought to be set aside was made and the deed executed, delivered, and recorded in pursuance of such conveyance, the United States Live Stock Company, grantees in the deed from the plaintiff, executed a mortgage on said premises to defendants Smith and Thompson to secure a note of $1,075; that said note and mortgage were sold and transferred to the intervener bank by said Smith and Thompson, for a valuable consideration, before due; and that intervener had no notice or knowledge of any fraud, perpetrated by said Live Stock Company, in securing title to the land from the plaintiff. A decree was entered dismissing intervener's petition, and intervener appeals. Reversed.D. L. Johnson, of Omaha, Neb., and Burton Russell, of Adel, for appellant.

D. H. Miller, of Adel, for appellee.

GAYNOR, J.

On March 1, 1911, plaintiff J. H. Robertson was the owner of lot 6, block 9, in the town of De Soto, Iowa, and on that day, his wife joining with him, conveyed said lot to the defendant United States Live Stock Company by warranty deed, and the deed was on the 23d day of March, 1911, duly filed for record in the office of the recorder of deeds in Dallas county, Iowa, and duly recorded. It is conceded that the conveyance was obtained from the plaintiff by the United States Live Stock Company through fraud and misrepresentation, and that the plaintiff, by reason of such fraud, was entitled to have the conveyance set aside as between him and the said defendant.

On the 12th day of July, 1911, the defendant United States Live Stock Company executed a mortgage on the land, so received from the plaintiff, to the other defendants, J. S. Smith and C. M. Thompson, to secure the payment of a promissory note executed by said J. S. Smith and C. M. Thompson in the sum of $1,075, at 8 per cent. interest from date until paid, and the same was filed for record and recorded in the office of recorder of deeds of said county on the 18th day of July, 1911.

The plaintiff brought this action to set aside and cancel the deed, executed by him to the United States Live Stock Company on account of the fraud practiced upon him in procuring the same, and to have the mortgage executed by United States Live Stock Company to Smith and Thompson also canceled for the same reason, alleging (and it appears to be a fact) that the United States Live Stock Company was a corporation; that defendant J. S. Smith was its president; and that Thompson was a member of defendant corporation and had full knowledge of said false representations and of the design and purpose of the United States Live Stock Company to cheat and defraud the plaintiff in said transaction. In the action so brought, the Live Stock National Bank intervened and claimed that, before the maturity of the note described in plaintiff's petition, executed by the United States Live Stock Company to C. M. Thompson and J. S. Smith, and secured by the mortgage on the land in controversy, this intervener, for a valuable consideration, purchased said note from C. M. Thompson and J. S. Smith, and the same was assigned and indorsed to it; that, at the time it purchased said note, it had no knowledge or information of the matters and things set forth by the plaintiff in his petition; and that said mortgage was duly assigned to them as an incident to said note. Wherefore intervener asks that said mortgage be foreclosed and be decreed a first lien upon said premises, and that a special execution issue for the sale of said premises, and the proceeds be applied on the payment of said note. Plaintiff files a general denial to the petition of intervener.

A decree was duly entered in favor of the plaintiff against the defendants, the United States Live Stock Company, J. S. Smith, and C. M. Thompson, and the title adjudged to be in the plaintiff, as against said defendants, and the deed, executed by the plaintiff to the United States Live Stock Company,was, as to those defendants, canceled and set aside. This decree was without prejudice to the rights of the interveners.

On September 24, 1912, after trial, the court found for the plaintiff as to the intervener, and decreed that the plaintiff is the absolute owner of lot 6, in block 9, in fee simple, as against intervener, and adjudged further that in the purchase of said note and mortgage intervener acquired no lien, right, title, or interest in said premises; that it failed to show that it acquired said note and mortgage in good faith, and without notice of the fraud practiced upon the plaintiff in securing the land, and accordingly canceling said mortgage. The intervener alone appeals.

In view of the concessions made in argument, we must assume that the United States Live Stock Company fraudulently obtained the deed to the property in controversy from the plaintiff, and that the United States Live Stock Company, in furtherance of such fraud, executed the mortgage to J. S. Smith and C. M. Thompson, and that the deed and mortgage in question, as between the plaintiff and these defendants, is fraudulent and was, by the court, rightly set aside.

[1] This mortgage having its inception and resting in fraud, the burden rests upon the intervener to show that it took the mortgage in good faith, for a valuable consideration, before maturity, and without notice of the fraud. See Arnd v. Aylesworth, 145 Iowa, 185, 123 N. W. 1000, 29 L. R. A. (N. S.) 638. Did it do this? The evidence shows that the intervener is a corporation, a banking corporation; that Charles F. McGrew was its president, and L. M. Lord was cashier; that it had two assistant cashiers and a vice president; that the vice president took no active part in the management of the bank and had nothing to do with the management of the bank; that neither of the assistant cashiers had anything to do with the making of loans or approving loans; that they worked under the direction of the other officers of the bank; that no one was authorized to make any loans in the bank or to renew loans or make any change in loans, except the president and the cashier; that the agreement to take this note and mortgage was made on behalf of the bank, by Mr. McGrew, the president; and that McGrew represented the bank in the negotiations leading up to the taking of the note. McGrew testifies that the matter of loans was entirely looked after in the bank either by Lord or himself; that the work of the two assistant cashiers would be entirely outside of the negotiation and approving of loans. McGrew and Lord both testified, in behalf of the intervener, that they had no knowledge of any kind whatsoever of a claim that there had been any fraud perpetrated in the obtaining of the title, by the United States Live Stock Company, for the plaintiff. Neither of the assistant cashiers were called to testify.

[2] The question here is not, did McGrew or Lord have notice of the fraud? but did the bank have notice? The burden was on the bank to show that it did not. It has been frequently held that denial of notice, by one who purchases an instrument, that it had its inception in fraud, even though uncontradicted by other witnesses, is not sufficient to justify the court in directing a verdict in his favor. See McNight v. Parsons, 136 Iowa, 390, 113 N. W. 858, 125 Am. St. Rep. 265, 22 L. R. A. (N. S.) 718, 15 Ann. Cas. 665. But it has also been held that, although the uncontradicted evidence of the buyer of fraudulent paper is not sufficient to justify the direction of a verdict, yet the facts and circumstances supporting the denial of notice may be such as would warrant such a direction, but this only in case where the facts and circumstances are such that a reasonable man could not draw therefrom any other conclusion than that contended for.

The mere fact, therefore, that there are other officers of the bank who were not called to testify does not in itself negative a conclusion that the bank did not have notice. Where the officers of the bank, who had charge of the transaction in question, and who acted for the bank in the consummation of the matter out of which the controversy arose, are called as witnesses, and testified that they had no notice or knowledge of the fraud prior to or at the time the deal was consummated, and it is apparent from all the facts and circumstances disclosed by the record that the other officers, who were not called, could not, from the nature of the transaction and the manner in which it was carried on, have notice of the...