Bellevue State Bank v. Hailey National Bank

MCCARTHY, J. — Respondent brought this action to recover $3,507, the proceeds of a sale of mortgaged property, claimed to have been wrongfully converted by appellant. In March, 1919, Brown Bros., a copartnership, gave respondent a mortgage on 150 head of cattle as security for a $6,000 note. Appellant held a second mortgage on 205 head of Brown Bros.’ cattle including the 150 head mortgaged to respondent. In September, 1919, Brown Bros, shipped and sold two carloads of the cattle covered by the mortgages. Both appellant and respondent consented to the sale. Wm. F. Brown, who represented Brown Bros, throughout the transaction, notified respondent of the sale by telegram. The money realized was deposited to Brown Bros.’ account in the appellant bank, where they did their general banking business. There is no evidence as to the conditions upon which respondent and appellant consented that the sale might be made. Wm. F. Brown testified that, before he shipped the cattle, Mr. Ensign, appellant’s cashier, asked him if he was going to apply the money on the first mort [124] gage or any part of it, and that he said “Yes.” Brown volunteered the information that he expected the cattle would bring more money than they did. Again, in response to a question as to what directions he gave -appellant or any of its officers in regard to the application of the proceeds of the sale, he answered: “The only thing that there was was the day when the cattle were shipped. Mr. Ensign asked me if I was going to apply any of. this money on to the mortgage of the Bellevue Bank and I told him I was.” On the second or third of October, after returning from Omaha where the cattle were sold, Wm. F. Brown saw Mr. Ensign. The money had not arrived and the latter, said they would wait until it came. The money reached appellant October 3d. In the meantime Wm. Brown had fallen ill with the “flu,” and Ensign, upon learning this, said to him: “Well, just let it go then until you get on your feet'. You come up as soon as you can.” On October 1st, Ensign had a conversation with T. D. Perry, vice-president of respondent. He asked Ensign if he proposed to pay off the balance of respondent’s first mortgage, to which Ensign replied that he would not give an answer at that time, but would take the matter up with Will Brown when he returned and they saw how his affairs checked up, but possibly they would want to do it. While Brown was sick, without waiting to hear further from him or from respondent, Ensign applied the money on Brown Bros.’ indebtedness to his bank. The indebtedness to respondent on account of the note and first mortgage was $3,433 at the time appellant applied the money to its own claim. The verdict and judgment are for that amount. Ensign, testifying for appellant, denied that he made the above statements attributed to him by Brown and Perry. The jury must have believed that he did. While the evidence is conflicting, there is substantial evidence in the record to establish the facts above outlined. The principal specification of error -and the only one which we find .it necessary to expressly discuss is that the evidence is insufficient to sustain the verdict -and judgment. [125] By consenting to the sale respondent waived its mortgage lien on the cattle. Having consented to the sale, the mere fact that it had had a mortgage on the cattle did not necessarily imply ownership, part interest in, or a lien upon, the proceeds. (Durkee v. National Bank, 102 Fed. 845, 42 C. C. A. 674; Fairweather v. Nelson, 76 Minn. 510, 79 N. W. 506; Maier v. Freeman, 112 Cal. 8, 53 Am. St. 151, 44 Pac. 357; Carr v. Brawley, 34 Okl. 500, 125 Pac. 1131, 43 L. R. A., N. S., 302; Waters v. Cass County Bank, 65 Iowa, 234, 21 N. W. 582.) The complaint alleges in effect an agreement to apply the proceeds in payment of the respondent’s first mortgage, known to appellant, and also alleges that Brown Bros, instructed appellant to thus apply them. In Rock Springs Nat. Bank v. Luman, 6 Wyo. 123, 42 Pac. 874, it was held that a bank, which receives a deposit knowing that the money represents the proceeds of the sale of mortgaged chattels, cannot apply the same in payment of a claim which it holds against the mortgagor, and, if it does so, is liable to him. Emphasis is laid on a Wyoming statute providing that the proceeds must be applied to the payment of the mortgage debt. We have no similar statute. In Morrison v. Elzy, 190 Ill. App. 374, the court held that, where a bank was the holder of a second chattel mortgage, knew of the prior mortgage, consented to the sale of the chattels, and received the proceeds of the sale, they were held in trust for the holder of the first mortgage. It appeared, however, in that case, that the first mortgagee did not know of the sale nor consent thereto. This would appear to materially distinguish it from a case like the instant one where the first mortgagee did consent. In People’s Nat. Bank v. Myers, 65 Kan. 122, 69 Pac. 164, the court held that, where mortgaged chattels were sold by the mortgagor, and the proceeds transmitted to a bank which knew of the mortgage, the bank could not apply the proceeds on a debt owing to it by the mortgagor. It does not appear in the statement of facts whether or not the mortgagee consented to the sale. If he did not, it would seem that the [126] case falls within the principle of Morrison v. Elzy, supra. If he did, then the ease is an authority in support of respondent’s contention. In Smith v. Crawford County State Bank, 99 Iowa, 282, 61 N. W. 378, 68 N. W. 690, it is held that, even where the mortgagor agrees -to pay a first mortgage with the proceeds of the sale of the mortgaged chattels, a bank in which the proceeds are deposited is not 'bound by such agreement unless it has knowledge of it. In Idaho-Utah etc. Bank (U. S. District Court for Idaho), decided April 2, 1921, but not reported, it is held that, where the mortgaged chattels were sold with the consent of the mortgagee, and the proceeds deposited in a -bank, the latter is not liable to the mortgagee for the proceeds, unless there was an agreement 'between the mortgagee and the mortgagor that the money should be applied to the payment of the mortgage, and the bank had notice. We conclude that, if Brown Bros, agreed with respondent, in consideration of its consenting to the sale, to apply the proceeds on its mortgage, and if appellant had notice of such agreement, it would be liable to respondent. The court so instructed the jury. There is absolutely no evidence to show such an agreement. It cannot be inferred merely from the fact that respondent consented to the sale and that William Brown notified it by telegram. Therefore the evidence is insufficient to support the verdict and judgment upon this theory. We conclude also that, if Brown Bros, directed appellant to apply the proceeds on the first mortgage or hold them subject to their orders, appellant would be liable for refusing to carry out those directions and for applying the money on its own mortgage. The court so instructed the jury. If such were the facts we think that an action based on this ground of liability could be sustained by respondent. Such are not the facts, however. The conversation which Wm. Brown had with Ensign before the cattle were shipped •amounted to no more than a rather vague and ambiguous expression of intention. There was never any explicit direction given to apply the money on the first mortgage. The [127] evidence is therefore insufficient to support the verdict or judgment upon this theory. There is evidence tending to show that Ensign stated nothing would he done about the matter until Wm. Brown recovered and the matter was taken up with him, and then proceeded to apply the money on appellant’s claim without waiting to hear further from Brown as he had promised. If Brown, upon learning that Ensign had applied the money on appellant’s mortgage, had repudiated this transaction and ordered that it be applied on respondent’s, appellant might have been liable. The difficulty is that, after learning what Ensign had done, Brown ratified it by accepting the fruits, that is the satisfaction of his debt and the canceled note and mortgage. In view of these facts it is not possible to say, that the bank acted in violation of the mortgagor’s instructions. Viewing the evidence in the light of any theory of liability, which has been suggested, it is insufficient. Exceptions arej taken to several of the instructions, but we find no reversible j error in them. i The judgment is reversed. Costs are awarded to appellant. ■ Dunn and Wm. E. Lee, JJ., concur. Budge, C. J., dissents.