Hyde v. German National Bank

The following opinion was filed June 19, 1902: Baedeen, J. The facts in this case are vastly complicated, and the rights of the parties are not easy of ascertainment. The method of trial adopted, and the manner in which the referee’s report was made up¡, has greatly increased the difficulty of following the course of appellant’s argument. The statement of the account by reference to certain exhibits put in evidence has made it necessary to refer to> the testimony at length in order to ascertain and understand the conclusions arrived at. The facts and circumstances in proof have received our careful consideration, and the conclusions we have arrived at are the restdt of most extended examination of the record. Such assignments of error as are not noticed are considered not to be well founded or are not of sufficient importance to require extended discussion. The trial court found that plaintiff did not at any time pledge his interest in the land and contracts mentioned to' secure the payment of the debts of the Paulding Lumber Company to the defendant bank. This conclusion is most earnestly contested. It was purely a question of fact The testimony was voluminous and contradictory. Nothing would be gained if we were to discuss it at length. When the plaintiff assigned his contracts to secure the first loan made to him, he received from the president of the bank a writing which so effectually gave character to1 the transaction — 183 — as to leave no room fox dispute. That paper recited that plaintiff had left the Bradley and Paulding Lumber Company contracts in trust with the bank as collateral security for his notes, upon the understanding that they were to be returned when the notes were paid. Oral testimony of any other agreement was not admissible. But, assuming that it was, the surrounding circumstances and the subsequent conduct of the parties does not materially alter the situation. The conclusion contended for is out of harmony with all reasonable probabilities, is contrary to plaintiff’s express testimony, and opposed to the written document before referred to. There is ample testimony to support the court’s conclusions, and we do not see how he could have reached a different result. His conclusion as to the counterclaims is also well founded, and we seo no reason for disturbing the result reached. The testimony of defendants’ several witnesses relative to the rotten timber was perfectly impeached by the showing that not a foot of timber from the section where they located such timber ever went into the mill, and by the letters of Mr. Weed describing the timber cut by Lando as “ simply excellent.” The testimony as to delay in getting logs down was very unsatisfactory and inconclusive, and we fully agree with the statement of the trial court that the “proof was not satisfactory that any damage was suffered.” The item of $62.50 paid by the bank for.insurance was a proper one to have been included with the allowance for liens and taxes paid. Its allowance, however, as a first lien with the other items mentioned, does not affect the judgment in the slightest degree. It simply postpones the plaintiff’s recovery to that- amount, but does not affect the ultimate result. It is claimed, further, that plaintiff agreed that the saw bill for sawing the logs cut on his lands should be deducted from the purchase price due from the Paulding Lumber Company. The court found against such agreement. Mr. Weed testified — 184 — that such, an agreement was made and the plaintiff denies it. No claim of any such‘agreement was made in the pleadings, either by the bank or the company. The matter being in dispute, and there being no such preponderance of testimony against the finding as to warrant us in setting it aside, it must stand as a settled fact in the case. The troublesome question in the case is as to the adjustment of the equities between the bank and the plaintiff with reference to the proceeds of the property. The bank, being defeated in its claim that plaintiff agreed to pledge his interest In the several contracts as security for its advances to the Paulding Lumber Company, now seeks to hold such advances as paramount to plaintiff’s claim for the purchase price of the timber sold the Paulding Lumber Company, on the theory that such advances were essential to' the preservation of the property pledged to it by both parties, and that plaintiff tacitly waived his lien. No such issue was tendered by the pleadings. No defense of waiver or estoppel was set up in the answer. The case stands and must be determined upon the equities of the parties as their rights appear under the contract in evidence. On the 1st of March, 1894, the bank held an absolute assignment of plaintiff’s interest in the Bradley contract and in his contract with the Paulding Lumber Company as security for his notes to Jenkins and the bank. It also had taken up and held the last note given by plaintiff to the Bradleys to complete the purchase price of the timber, and was undoubtedly subrogated to their rights under the original contract. It also held the interest of the Paplding Lumber Company in its contract with plaintiff as collateral’to certain debts and as security for advances it agreed to make for its benefit. Prior to this time, under its agreement with the Paulding Lumber Company, the bank had been making large advances to it under its contract, considerably in excess of the amounts it had agreed to advance. On March 1, 1894, plaintiff made an agreement supplementary to his former one — 185 — with the Paulding Lumber Company, by the terms oí which plaintiff was given the right to “pay any claim or claims now existing or that may hereafter arise for labor and work done and materials furnished” in the cutting or sawing of the timber mentioned in the original contract, and was given a lien upon the product thereof to the same extent as therein mentioned. In addition, the plaintiff agreed that he would “pay all claims now existing for the work and supplies aforesaid, and such as shall arise from this date to the 1st day of April next inclusive, as shall he subject to lien.” Under this contract plaintiff made a number of payments to the company, but failed to carry it out completely, as hereinafter set forth. The bank had knowledge of this contract, and was compelled to pay certain claims which plaintiff had agreed to pay. The rights of the bank as pledgee are not in dispute. Whatever reasonable expense is incurred by a pledgee in protecting, keeping, or caring for pledged property, and protecting it from liens, taxes; and assessments, and asserting title to it or rendering it available, is a fair charge against the property. Furness v. Union Nat. Bank, 147 Ill. 570, 35 N. E. 624; Hills v. Smith, 28 N. H. 369; Starrett v. Barber, 20 Me. 457; McCalla v. Clark, 55 Ga. 53; Raley v. Ross, 59 Ga. 862; Fagan v. Thompson (C. C.) 38 Fed. 467. The notes given by the several pledgors contained an expiress power of sale in case of default. Prior to the time the logs were sawed into lumber the bank took no possession. It permitted the Paulding Lumber Company to conduct its business in the regular way, and continued making advances and taking its notes. It gave the plaintiff no notice that it would seek to hold its advances as paramount to his claim against the Pauld-ing Lumber Company, but gave the company full rein to carry on its affairs and handle the property as it saw fit. Oases sometimes arise, as in Rowan v. State Bank, 45 Vt. 160, where the creditor takes possession of pledged property in such an unfinished state that a court of chancery would order — 186 — it finished by a receiver, and the creditor does in that respect what a court of chancery would have ordered,, he will be protected for the advances made. He is protected because he has taken possession and in good faith worked the property into salable condition. In this case the bank must be protected for all claims paid that were liens upon the property or necessary for its preservation, but we know of no rule of law or principle of equity that demands that it shall be reimbursed as against plaintiff’s claim for advances made the Paulding Lumber Company on general account while it was controlling- and handling the property. Judged by results, the administration of the lumber company was most extravagant and expensive. The circumstances point to- the most reckless and extravagant management, and in one instance, at least, to absolute dishonesty. The keeper of the boarding house- sold $500 or $600 worth of supplies and decamped. No sufficient books of account were kept. Everybody bought supplies, and money was paid out, and no account kept except on slips of' paper. The bank knew of these conditions, and kept on advancing money to the company. If it desired to- make its. advances a claim paramount for preservation of the property and manufacture of the logs into lumber, it should have taken possession and conducted the business in an economical and prudent manner. See Boody v. Goddard, 57 Me. 603. It took possession of the manufactured product and sold it, and, under the court’s findings, was allowed the expenses of inspection and loading, together with certain claims for taxes paid and.liens satisfied. The bank now claims that, as against the plaintiff’s demand, it should be allowed for all sums it was obliged to pay that plaintiff failed to pay under his contract of March 1st. That he failed to fully carry out that contract is a conceded' fact in the case. It is also satisfactorily shown that the bank was compelled to pay certain claims which the plaintiff ought to have paid under his contract. At the date of this contract,. — 187 — the bank stood as pledgee for both parties to the original contract. The writing of March 1st bound the plaintiff to pay all claims that were subject to liens accruing before April 1st. This contract was additional and supplemental to the first one between the same parties, and we think inured to the benefit of the pledgee. The bank acted on that assumption when it demanded payment of plaintiff of certain of its advances. It may be remarked in passing that its conduct in this respect is entirely inconsistent with its claim that this property had been pledged by plaintiff as security for the Paulding Lumber Company debt. In making up the account the court allowed the bank a first lien on the property for $1,394.53 paid September 1, 1894, to discharge a lien for labor on the property. Of this amount $543.53 of the Barnette claim, $280 of the Morse claim, and $60 of the Boehmer claim, aggregating $883.53, was for labor performed by than prior to April 1, 1894, and which plaintiff was under direct obligation to pay. On April 9, 1894, a committee of the bank went to Paulding, and took up and paid the following claim: Ex. 4a 43 . $ 912 42 Ex. 4a 44. 311 70 Ex. 4a 46 . 786 53 Total.'. $2,010 65 The bank insists that these claims were lienable, and should be charged against plaintiff’s claim for purchase money. The first is a claim for supplies furnished by Barnette to the Paulding Lumber Company prior to1 April 1st, which were used in its logging and sawing operations. It will be observed' that plaintiff’s engagement was to pay .for such work and supplies “as shall be subject to liens.” The Paulding Lumber Company’s operations were carried on in the state of Michigan. Ho proof of the law of that state in relation to a lien for supplies was given. In such case we must presume the law of Michigan to be the same as our own. . MacCarthy — 188 — v. Whitcomb, 110 Wis. 113, 85 N. W. 701. No law of this state, of which we are aware, gave any lien for supplies furnished in logging operations. Such being the case, plaintiff was under no legal obligation to' pay the bill mentioned. Ch. 139, Laws of 1891, which was in force at the date of this transaction, only gives a lien for labor. The second claim above mentioned was for labor claims paid. As near as we can get at the circumstances from the confused way in which the evidence appears in the printed case, Morse, who was employed in working on the logs, became the owner of various claims for labor performed by workmen upon these logs prior to April 1, 1894, for which he might have filed a lien. The claim was paid by the bank before any lien was filed. The claim as a whole came within the terms of plaintiff’s engagement, and, being one that was directly enforceable against the property, no good reason is perceived why he should not respond to the bank for the amount thereof. The third claim arose in this way: One Fletcher kept a saloon at Paulding. The men there employed patronized him with great liberality. Under some arrangement with the company, Fletcher reported his accounts to the persons in charge, and the amount of the saloon accounts was deducted from the amount due each man at final settlement. While it is true the amount so paid, in a way, represented work done upon the logs, Fletcher had no claim that he could enforce. There was no transfer to him of any specific claim, and none of the many claims he held were subject to1 liens in his hands. The bank, therefore, obtained no legal right to charge plaintiff for the amount so paid. We conclude from the foregoing that plaintiff was under direct legal obligation to the Paulding Lumber OomjDiany to pay said sum of $883.53 of the lien claim paid by the bank on September 1, 1894, and also the sum of $311.70 paid April 9, 1894. In equity we think this obligation inures to the benefit of the bank. It was compelled to pay out these sev — 189 — eral suras to protect the property, and because the plaintiff failed to carry out his contract. In doing equity between the parties, we think these sums should he deducted from the amount due plaintiff from the Paulding Lumber Company, so that the hank shall be in no worse position because of plaintiff’s default. It does not properly meet the existing conditions to give the bank a first lien upon the whole propi-erty for these payments. The proceeds of the properly were not sufficient to meet all demands. Hence, in the adjustment of the equities of the parties, the intervening circumstances should be considered, and the results of plaintiff’s default be declared to rest upon him, rather than others who' suffer no default. This adjustment leaves the bank in the same position as it would have been had the plaintiff carried out his agreement. What has been said regarding a lien for supplies applies1 to the claim made by the bank for reimbursement for the Mendel, Smith & Co. bill paid by it. It is in no position to enforce claims against plaintiff except snch as were “subject to liens.” Under the court’s findings, the bank received sufficient funds from the proceeds of this lumber, on October 24, 1894, to cancel the plaintiff’s indebtedness to the bank in full, and to leave several thousand dollars applicable on the amount due plaintiff from the Paulding Lumber Company. In subsequent transactions he stood as the owner of the property, upon which the bank had the second claim. Its advancements thereafter, while resulting to plaintiff’s benefit in a way, were also for its own benefit as well. It made no attempt to take possession of the property and conduct the business. It gave plaintiff no notice that it would seek to hold the various advances as having been made for the absolute protection of the property. On the contrary, it permitted the Paulding Lumber Company to continue its reckless and extravagant management, and continued to turn over money, which, the result — 190 — shows, must Raye been diverted, to other purposes. The circumstances furnish no ground for holding' that the bank should be preferred as against plaintiff’s claim. The court allowed plaintiff $100 and interest, $39.50, “for taxes paid as found by referee.” The only evidence in the record bearing upon this matter was given by Mr. Barnette, who was an officer of the Paulding Lumber Company. It is to the effect that in January, 1894, Mr. Weed gave him some money, which he said came from plaintiff. Witness used it generally to pay bills, and paid $80 taxes on the mill, and $10 taxes on the land upon which the mill stood. So far as anything that appears in the record shows, plaintiff’s advance was on general account. No circumstance is suggested why plaintiff should be preferred for this item more than any other, save that the company happened to-use a part of the money advanced to pay its taxes. This is not sufficient to create a lien in plaintiff’s favor. There being m> proof that the advance was made for the specific purpose, or that it was anything more than a payment on their general account, we think the court erred in allowing this item. The judgment will be modified by striking out the allowance of taxes and interest last mentioned, and by deducting therefrom tire sum of $883.53 and legal interest from September 1, 1894, and the further stun of $311.10 and interest from April 9, 1894. The account between the parties may be adjusted accordingly, and the judgment as so^ modified is affirmed. By the Court. — So ordered. Costs will be taxed in favor of appellant. A motion for a rehearing was denied September 23, 1902.