Sinnard v. Roach

• Citation: 414 N.W.2d 100
• Decision Date: 21 October 1987
• Docket Number: No. 85-1438,85-1438
• Parties: Linda E. SINNARD, Appellee, v. Jack W. ROACH, John M. Walsh, and Key City Bank Trust Company, an Iowa Banking Corporation, Appellants.
• Court: United States State Supreme Court of Iowa

Page 100

414 N.W.2d 100

Linda E. SINNARD, Appellee, v. Jack W. ROACH, John M. Walsh, and Key City Bank Trust Company, an Iowa Banking Corporation, Appellants.

No. 85-1438.

Supreme Court of Iowa.

Oct. 21, 1987.

W. Don Brittin, Jr., and K.J. Walker of Nyemaster, Goode, McLaughlin, Emery & O'Brien, P.C., Des Moines, for appellants Roach and Key City Bank.

Frank D. Gilloon III of Gilloon Law Offices, Dubuque, for appellant Walsh.

Victor V. Sprengelmeyer, Dubuque, for appellee.

Considered en banc.

McGIVERIN, Chief Justice.

This matter comes before us on applications for further review from the court of appeals. Defendants Jack W. Roach and Key City Bank suffered an adverse jury verdict on plaintiff Linda E. Sinnard's claim of fraudulent misrepresentation. In an equity proceeding in the same case, defendant bank also lost its cross-claim to foreclose a mortgage on plaintiff's home. Defendant John M. Walsh also was found by the jury to be liable to plaintiff for fraudulent misrepresentations. All posttrial motions were overruled. The court of appeals affirmed the trial court's entry of judgment for plaintiff and the denial of defendants' posttrial motions. Defendants appeal several rulings of the trial court. We affirm the district court as to defendant Walsh and reverse as to defendants Roach and the bank. The decision of the court of appeals is affirmed in part and vacated in part accordingly.

I. Background facts. The factual background of this action is complex and in dispute. We recite the facts in the light most favorable to the jury verdict.

Linda Sinnard's husband, Carroll Sinnard, died in September 1979, leaving her the sole owner of their home valued at approximately $250,000 and the beneficiary of a $300,000 life insurance policy. For tax reasons, she elected to take the insurance payments in three yearly installments of $100,000. Her first insurance check arrived in January 1980, and Linda used it to purchase a twelve-month certificate of deposit (CD) of $100,000 at East Dubuque Savings Bank.

Over the course of the next year she met and began dating defendant John Walsh. Following John's unsuccessful reelection bid for the Iowa Senate, the two were married in December 1980. John then went to work for his father in the family company.

Linda received her second $100,000 insurance check in January 1981. Her first CD was cashed to pay various outstanding loans not relevant to this proceeding and she purchased a second CD with the insurance check. Linda had the interest from her CD paid directly into her savings account each month to cover living expenses.

Shortly after the marriage, John became interested in the prospects of investments in South Africa. Attempts to interest his father in his foreign investment schemes were unsuccessful and caused considerable tension in the family. John eventually quit working for his father and established his own investment business. He also tried to get Linda to mortgage her house for the purpose of obtaining investment capital. Her refusal caused frequent quarrels. Perhaps as a result of this conflict, Linda placed the deed to her house and the abstract of title in a safe deposit box at her bank to which John did not have access.

In April 1981 and again in May of that year, John took out loans totaling $29,000 under the name of B & W Trading Company from the East Dubuque Savings Bank. In June, John changed the name of his business to Walsh Trading Company. When the B & W notes came due in September, John dictated a letter to Linda in which he had her pledge her CD on deposit at East Dubuque Savings as collateral for "Walsh Trading Company" loans. The letter, signed by Linda, also stated that Linda was the only other owner of the company with John, and gave him complete authority for handling the company's business. He then paid the former notes by renewal with a note for $70,000 secured by Linda's CD. Linda testified she was not aware of the purpose of the letter or of the subsequent $40,000 advance to John.

Later in September, John traveled to South Africa in an effort to arrange sales of a small three-wheeled all-terrain vehicle, called a tractor for importation rule purposes. The trip was successful and Walsh Trading Company received an order for 100 tractors from a South African company. Dissatisfied with East Dubuque Bank, and perhaps because he had reached his borrowing limit there, John approached Jack Roach, the president of Key City Bank, to procure a loan to purchase the tractors in the United States before shipping them to South Africa. Roach agreed to make the loan if John would put up significant collateral other than the tractors themselves. Linda testified that John asked her to talk to Roach about using the check coming from her insurance agent in January 1982 as collateral for the loan to purchase tractors.

Linda spoke to Roach on November 13, 1981, and agreed to assign her insurance proceeds to Key City Bank as collateral for the tractor loan if Roach would purchase a CD with the proceeds and pay the interest into her savings account. As she explained at trial, she preferred borrowing against her CD to buying the tractors directly with her insurance check because she did not want to lose the interest payments. She also agreed to transfer her CD at East Dubuque Savings Bank to Key City Bank, but she did not know that the CD she was transferring was currently being used as collateral for Walsh Trading Company debts at East Dubuque Savings Bank. During the call, Linda explained the importance of having the interest from her CD's paid into her savings account to cover family expenses. Roach told Linda the bank would arrange to purchase a CD with her check and have the interest paid directly into her savings account. Linda agreed to send a letter to the insurance company so the money would be sent directly to the bank.

At some point after committing her insurance proceeds as collateral for the tractor loan in 1981, Linda fortuitously learned about the $70,000 loan John had borrowed at East Dubuque Savings Bank against her CD under the authority of the letter he had her write to East Dubuque Savings Bank. She was quite upset, and testified that she never would have "tied up" her second CD with Key City Bank if she had known that her first CD was being used as collateral at East Dubuque Savings Bank.

On November 24, the Key City Bank board approved a line of credit for Walsh Trading Company for $100,000 secured by Linda's assignment of her life insurance proceeds and a second $100,000 line of credit to be secured by her CD to be transferred from East Dubuque Bank. John took out a loan the next day for $80,000 from Key City Bank. In December, he took out additional loans of $15,000 and $70,000, the latter loan to be secured by a further assignment of equity in Linda's home. Linda was not aware that John took out these later two loans, or that he planned to assign the equity in her house to secure any loans.

Late in December, Linda received a call from Key City Bank saying her final check from the insurance company had arrived. Because the check was dated January 1982, she was told she could come in to the office after the first of the year to sign it.

Between the end of December 1981, and some time in January 1982, the tractors were shipped to South Africa.

Linda went to Key City Bank during the first week of January 1982, to endorse her insurance check. There she met Jack Roach for the first time. He had prepared a CD for $100,000 for her and had placed the excess of $6,000 (interest paid by the insurance company) in her savings account. While there, she remembers signing a note for $80,000 for the tractor loan which she understood was secured by her new CD. No such document appears in the record. She did not realize at this time that the bank had already advanced a total of $165,000 to John through Walsh Trading Co. She also gave Roach a check for $10,000 out of her savings account and asked him to buy her a CD for that amount.

A letter dated January 6, 1982, and signed by Roach was introduced at trial. The letter noted that Linda's $10,000 CD was enclosed along with a form for her to assign her CD being held by Key City Bank and to hypothecate or pledge her CD being held at East Dubuque Savings Bank. Linda testified that a few days after her visit to Key City Bank, John handed her the $10,000 CD she had requested saying it had come in the mail. John did not say anything else came with the CD.

In early 1982, John suggested that he give Linda the right to sign checks on his corporate account, because she had been complaining that her CD's were tied up in his company investments. She fully expected to be able to clear her CD once the sale from the tractors in South Africa materialized. On or about January 25, John handed Linda a number of forms to sign. One of the forms she signed was a corporate resolution of the Walsh Trading Company naming Linda as secretary and authorizing her to sign for the corporation. The testimony is not clear how many other forms Linda signed or whether she believed they were all related to John's corporation. Nevertheless, she did not read the forms before signing them. Two documents introduced at trial bearing the date January 25, 1982, were a certificate to hypothecate her CD for Walsh Trading Company debts, and an unlimited loan guarantee to Key City Bank for Walsh company debts secured by an assignment of equity in Linda's home which was signed by both John Walsh and Linda. Although Linda was not sure when she signed these documents or under what circumstances, she did admit signing them.

Also dated January 25, 1982, were two promissory notes signed by John alone for Walsh Trading Company. The first note for $90,003 was to cover the outstanding loan for $70,000 now due to Key City Bank plus interest and a small advance. It was secured by the assignment of equity. The other note for $95,000 paid off...