Union Trust Co. v. Woodrow Mfg. Co., 9557.

• Decision Date: 08 February 1933
• Docket Number: No. 9557.,9557.
• Citation: 63 F.2d 602
• Parties: UNION TRUST CO. OF CLEVELAND, OHIO, et al. v. WOODROW MFG. CO. et al.
• Court: U.S. Court of Appeals — Eighth Circuit

63 F.2d 602 (1933)

UNION TRUST CO. OF CLEVELAND, OHIO, et al. v. WOODROW MFG. CO. et al.

No. 9557.

Circuit Court of Appeals, Eighth Circuit.

February 8, 1933.

Casper Schenk, of Des Moines, Iowa (Charles S. Bradshaw and Rex H. Fowler, both of Des Moines, Iowa, on the brief), for appellants.

Robert J. Bannister, of Des Moines, Iowa (Henry C. Korf, of Newton, Iowa, and Stipp, Perry, Bannister & Starzinger, of Des Moines, Iowa, on the brief), for appellees.

Before KENYON, GARDNER, and SANBORN, Circuit Judges.

KENYON, Circuit Judge.

This case has been here before. 48 F.(2d) 194, 197. It is an action by trustees (appellants here and plaintiffs in the trial court) under a mortgagee's declaration of trust to recover against appellees (defendants in the trial court) damages for waste of mortgage security.

The parties will be designated as in the trial court.

Upon the former trial a verdict was instructed for all the defendants. This court held that action to be error and reversed and remanded the case for a new trial. This time the trial court directed a verdict for defendants Van Niewaal, Van Zante, Vogelaar, Awtry, and Vanden Berg. The jury returned a verdict in favor of defendants Van Gorp and Woodrow Washing Machine Company.

A brief statement of the facts is necessary.

On January 21, 1926, the Woodrow Manufacturing Company, which was engaged in manufacturing washing machines at Newton, Iowa, executed to R. W. Sheffer a promissory note in the sum of $37,000, secured by a mortgage on certain property in Newton, Iowa, consisting of real estate and the buildings and equipment thereon, used as a washing machine manufacturing plant. Said note and mortgage were duly assigned by Sheffer to the plaintiff Union Trust Company of Cleveland under a trust instrument. A portion of this real estate was subject to a prior mortgage of $40,000 given to the Central State Bank of Des Moines, Iowa. In July, 1926, the personal defendants secured control of a majority of the stock of the Woodrow Manufacturing Company (sometimes herein called the Newton Company). On August 3, 1926, they entered into a contract for the purchase of its property, which contract referred to two former agreements, one relating to the purchase of shares of stock of the Woodrow Manufacturing Company, which was canceled by the new contract; the other relating to the removal of the plant and business to Pella, Iowa, which was confirmed and ratified by the new contract. In the meantime these defendants had formed the Woodrow Washing Machine Company at Pella (sometimes called the Pella Company), which was duly incorporated under the laws of Iowa, and the contract of August 3, 1926, was on said 3d day of August, 1926, duly assigned to said Woodrow Washing Machine Company. April 21, 1927, this Pella Company entered into another contract with the Newton Company, which, referring to the contract of August 3, 1926, recited that to complete the sale of the stock of the Pella Company it was necessary to dispose of the real estate holdings of the Newton Company, and to remove the plant to the city of Pella, and it was agreed therein that in view of the fact that the Newton Company might have to pay a certain amount of the Sheffer mortgage, in order to obtain the right to remove the machinery and equipment in said building and to have the same released from said mortgage, that any amount which the second parties might pay to obtain the release of said machinery and equipment, not to exceed $12,000, should be credited upon the purchase price of the property described in the contract of August 3, 1926. On July 1, 1927, the Pella Company, acting through its officers, removed all the personal property described in the Sheffer mortgage from the Newton plant to Pella, where the business was to be carried on by the Pella Company. In 1929, the holders of the second or Sheffer mortgage, as trustees, brought foreclosure proceedings and secured decrees and judgment against the Woodrow Manufacturing Company for $42,879.45. Thereafter the owners of the first mortgage obtained a decree in foreclosure and judgment for $42,047.36. The real estate was sold under this decree for $20,534.86, and the personal property for $7,000, leaving a deficiency judgment of some $14,000. The second mortgage covered some property not included in the first, and that foreclosure resulted in a return to the mortgagee of some $5,905, subject to costs and attorneys' fees, leaving a deficiency judgment of some $35,000. There has been no redemption in either case.

In the present suit it is claimed by the plaintiffs that defendants committed waste of plaintiffs' security by removal to Pella of the machinery in the plant at Newton, to the damage of plaintiffs in the sum of $35,000.

We may pass over much of the detail. This court held in its former opinion that, "The measure of damages here is the difference in value of the equipped plant before it was dismantled and the value of the parts thereafter."

At the first trial the court directed a verdict for defendants on the theory that plaintiffs failed to show that they were damaged by the removal. This court in reversing that ruling, and referring to values placed upon the property by witnesses before and after dismantling, stated, "This was sufficient evidence of damage beyond the deficiency of the prior mortgage to justify submission to the jury." It also held that: "The lien was upon the plant as an equipped unit. The value of such unit was the security provided by this mortgage." Referring to the severed parts of the plant sold under foreclosure of the mortgage, it said: "If these severed parts were as valuable as they had been when united into an equipped plant at Newton, there would be no loss of value of the mortgaged security through the separation and removal, and, therefore, no damage therefrom. Appellees were entitled to present and try this issue, which was that the removal had not lessened the value of the entire security provided by this mortgage. This was an issue of fact."

The court in considering some of the questions of evidence held that any question of impending insolvency which might result in shutting down the plant had no legal connection with the measure or amount of damages to the security of the mortgage; that the mortgage created a status as to the property which could not be altered or changed by the foreclosure. It held that all of the individual defendants were participants in or actively interested in the organization of the new company and therefore the two prospectuses of the Pella Company were admissible as admissions against them as to the value of the Newton property. It pointed out that evidence relating to the expense of removing the equipment from Newton to Pella had nothing to do with the issues of the case; that the removal was without the consent of the mortgagee and was in violation of the mortgage; and that the expense of defendants in committing the waste was not a material matter.

The errors assigned are as follows:

1. Directing a verdict for five of the defendants, in that all of the defendants were participants in the wrongful acts.

2. Failing to follow the law of the case as laid down in the former opinion.

3. Admitting incompetent testimony by unqualified witnesses as to the value of the security before and after dismantlement.

4. Unduly restricting plaintiffs' direct evidence, and also cross-examination as to Exhibit D, a letter to Sheffer signed, "Woodrow Washing Machine Company by P. H. Van Gorp, Treas. & Gen. Mgr.," and unduly limiting the cross-examination of witnesses Bruggen and Green by not permitting plaintiffs to show on cross-examination that during the time of the decline in the business of the Newton Company the individual defendants were in control and responsible therefor.

5. Overruling plaintiffs' motion for a new trial, in that the verdict was contrary to the evidence.

We take up these assignments in the order presented.

Did the court err in directing a verdict for some of the defendants?

On the former appeal this court held that, under the record presented, there was sufficient evidence of damage beyond the deficiency of the prior mortgage to justify submission to the jury, and further that all the individual defendants were participants in or actively interested in the organization of the new company, and plaintiffs argue that this became the law of the case, that all were bound by acts of the others, and under the former decision the case must be submitted to the jury as to all defendants. If the evidence here were the same as in the former case, there would of course be merit in the contention, Standard Acc. Ins. Co. v. Rossi (C. C. A. 8) 52 F.(2d) 547, but it is not the same. Each individual defendant took the stand in the present case and the record is quite different from the former one. We do not think the trial court intended in the former case to hold that all of these defendants must be liable if any one might be liable. There is doubt in our minds as to whether the court should have instructed a verdict as to certain of the defendants. However, if it be granted that such action was error it was without prejudice, for the reason that the jury returned a verdict in favor of Van Gorp and the Pella Company. The record clearly shows that Van Gorp is the only defendant who took an active part in the removal of the personal property from Newton to Pella. He was general manager of the Newton Company in 1926. In 1927 he was general manager and treasurer and a director of the Pella Company. The machinery was moved from Newton to Pella under his direction, acting for and in behalf of the Pella Company. He was the chief actor in the removal. The liability of the other defendants rested on the acts of Van Gorp. It seems clear that if under these circumstances a verdict had been returned in favor of Van Gorp and the Pella Company and against the other defendants it could not...