Wegener v. Emmetsburg National Bank

• Decision Date: 15 May 1923
• Docket Number: 35068
• Citation: 193 N.W. 627,195 Iowa 1267
• Parties: HENRY WEGENER, Appellee, v. EMMETSBURG NATIONAL BANK et al., Appellants
• Court: Iowa Supreme Court

193 N.W. 627

195 Iowa 1267

HENRY WEGENER, Appellee, v. EMMETSBURG NATIONAL BANK et al., Appellants

No. 35068

Supreme Court of Iowa, Des Moines

May 15, 1923

Appeal from Palo Alto District Court.--JAMES DE LAND, Judge.

SUIT for the possession and cancellation of certain promissory notes executed by the plaintiff, as maker, to the Midland Packing Company, as payee. Said notes were held by the Emmetsburg National Bank, as the indorsee thereof. The decree was entered for plaintiff, as prayed. The same decree canceled also certain certificates of deposit executed by the Emmetsburg National Bank to the Midland Packing Company, as payee, the said certificate being held by the Continental National Bank of Sioux City, as indorsee. Each defendant bank has appealed.

Reversed.

McCarty & McCarty, F. E. Gill, and Davidson & Burt, for appellants.

E. A. & W. H. Morling, for appellee.

EVANS J. PRESTON, C. J., STEVENS, ARTHUR, and FAVILLE, JJ., concur.

OPINION

EVANS, J.

The pleadings are voluminous and complicated, though the salient facts are few. A preliminary statement of the facts will simplify the statement of the issues.

The plaintiff, being induced by fraudulent representations contracted to purchase 250 shares of capital stock in the Midland Packing Company at par value of $ 100 per share. Under the contract, he was to pay one fourth the contract price in cash and to give his notes for the balance. In lieu of the cash payment, however, he executed and delivered to the packing company his two negotiable promissory notes for an aggregate sum of $ 6,250. This was on November 20, 1919. Immediately thereafter, the payee sold the notes to the Emmetsburg National Bank (now in the hands of a receiver), of which bank Wegener was a director. It paid full value therefor on a basis of 7 per cent interest. In payment therefor, it delivered to the packing company its certificate of deposit for $ 5,625, and paid the difference in cash. Shortly thereafter, the packing company negotiated the certificate of deposit to the Continental National Bank of Sioux City, which paid full value therefor, on the basis of 7 per cent interest. This certificate was drawn to mature in 12 months after date. Plaintiff's notes were drawn to mature on November 1, 1920, and December 1, 1920, respectively. Shortly prior to November 22, 1920, on which date this suit was begun, the plaintiff notified the Midland Packing Company of his repudiation or rescission of the contract of subscription and of the notes. He thereupon brought this action against the Emmetsburg National Bank alone. He tendered payment to the bank of the full amount paid by it for the notes in excess of the certificate of deposit for $ 5,625. He averred that the bank had paid nothing upon such certificate, and was, therefore, not entitled to receive anything because of the issuance thereof. Upon this theory, he averred that the bank had acquired the notes and was still holding them for no other consideration than the amount of cash paid in excess of $ 5,625, and that, because of his tender, the bank was holding the same without consideration. He also pleaded facts constituting fraud on the part of the Midland Packing Company which would have constituted a good defense to the notes as against such payee. The prayer of his petition was as follows:

"Wherefore plaintiff demands judgment against the defendant for the immediate possession of the said two promissory notes, or for the value thereof, and costs."

Though several later amendments to the petition were filed, this prayer was never amended. Up to this point, the action was in the form of dentine, and was pending at law. Thereupon, the Emmetsburg National Bank, being at that time the only defendant which had been served with notice, filed its answer and cross-petition, wherein it alleged its purchase in good faith and ownership of the notes in question, and asserted its right to recover thereon from the plaintiff, and asked judgment thereon. It also averred that the Continental National Bank of Sioux City was making demands upon it for the payment of the certificate of $ 5,625, as the alleged indorsee of the same from the Midland Packing Company. It prayed that the Continental National Bank be made a party defendant, and that such bank and the plaintiff be required to interplead, and that the court should adjudicate which of said parties was entitled to said certificate or its proceeds. It offered to pay the full amount thereof to whichever party should be found thus entitled. Pursuant to this pleading and the order of the court, the Continental National Bank was brought in by notice. It filed various motions in resistance to its being thus interpleaded, and alleged misjoinder, all of which objections were overruled. It then pleaded to the merits, set up its certificate, and averred its ownership thereof in good faith and for full value, and that the same was duly indorsed to it by the payee. It prayed judgment thereon against the issuing bank. To this cross-petition by the Continental National Bank, the Emmetsburg National Bank made no answer or reply. The plaintiff replied by a general denial, and by specific denial of every allegation of the cross-petition. He specifically denied that the said certificate was ever the property of the said Continental National Bank, or that there is any sum due thereon to said bank. He also averred that the "said Continental Bank had full notice and knowledge in the premises." This was the only affirmative averment. Before the evidence was taken, the parties, by stipulation, transferred the case to the equity side, and it was so tried. The decree canceled the certificate and canceled the notes.

This is a companion case to that of Frink v. Commercial Bank of Emmetsburg, and appears to have been tried at or about the same time, and under the momentum of the trial of that case. We have had occasion to consider that case on appeal. Frink v. Commercial Bank of Emmetsburg, 195 Iowa 1011, 191 N.W. 513. The case involved largely the same legal questions, and our discussion in the Frink case has much application to the present one. We shall avoid, as far as may be, undue repetition herein of the discussion therein.

I. Each defendant has appealed. We give our first consideration to the appeal of the Continental National Bank. What right or remedy was open to the plaintiff, as against this defendant? We will assume that he was defrauded by the Midland Packing Company, which is not a party to the case. He had a right to set up the fraud as a defense to the notes, as against the payee or any other person not a holder in due course. We will assume that he had a right also to bring a suit in equity for the cancellation of the notes, as against any holder not in due course. If, therefore, the Emmetsburg National Bank was not a holder in due course, and was charged with notice of the fraud by which the notes were obtained, then plaintiff had a complete remedy by proceeding against the Emmetsburg National Bank alone, and obtaining a cancellation of the notes. In such a case, he had no legal interest whatever in obtaining a cancellation of the certificate of deposit issued by the one bank and held by the other.

On the other hand, if the Emmetsburg National Bank was a holder in due course, and was, therefore, not subject to the maker's defense thereto, then the plaintiff was entitled in equity to impress a trust upon the certificate of deposit, as a part of the fruit of the fraud perpetrated upon him, provided he could find such certificate in the hands of the alleged payee, or could trace it into the hands of another who had notice of his equity and was not an innocent purchaser for value. This question is fully discussed in the Frink case, supra. The plaintiff did not, by any allegation in any of his pleadings, charge the Emmetsburg National Bank with any notice of his defense. It is also a perplexing omission from plaintiff's pleadings that he does not claim to impress any trust upon such certificate in his own behalf. The following are the allegations of his petition as against the Continental National Bank:

"That the Emmetsburg National Bank and the said Bernard Ulrich, as receiver, claim to hold the said certificate of deposit because of an alleged claim by the defendant, the Continental National Bank of Sioux City, Iowa, that it is the owner and holder of the said certificate of deposit; but plaintiff alleges that, by reason of the premises, the Continental National Bank of Sioux City, Iowa, is not entitled to any funds or deposit purporting to be represented by said certificate, and the said certificate does not, in fact, represent any deposit of funds, but the said promissory notes or any alleged proceeds thereof or any liability represented by said certificates are not the property of the said Continental National Bank, and it has no right, title or interest whatsoever in the premises against the Emmetsburg National Bank or the said Bernard Ulrich, as receiver, or this plaintiff, and the said certificate of deposit is wholly void in its hands. That the plaintiff's interest in the said promissory notes is the full ownership thereof, and that the value of the said promissory notes, because of their possible misuse and as evidenced, is, to wit, a sum equal to their face, with interest; that said promissory notes were neither taken on the order or judgment of a court against the plaintiff or under an execution or attachment against him or against the property. That the Continental National Bank of Sioux City, Iowa, is, by reason of the premises, indirectly claiming an interest in the said promissory notes, but it in fact has no interest, direct or indirect, therein. Wherefore, plaintiff demands judgment against the...