Title: Berger v. CAS'FEED STORE, INC.

State: iowa

Issuer: Iowa Supreme Court

Document:

543 N.W.2d 597 (1996) Denny BERGER, David Brezina, Calvin Dostal, Stanley Dostal, Dennis Gienger, Gary Hanus, Stanley Hanus, Ray Kubik, Bruce Morrison, Sash Farms Company, Harold Vorba, Evan Wilson, Paul Wobeter, Ada Krutzfeldt, Emma Kubik, and Pete Wobeter, Appellees, Kenneth Strohbehn, Plaintiff, v. CAS' FEED STORE, INC., Defendant, and Farmers Savings Bank & Trust-Traer, Appellant. No. 94-688. Supreme Court of Iowa. February 14, 1996. *598 Eugene J. Kopecky and Karen A. Volz of Ackley, Kopecky & Kingery, Cedar Rapids, for appellant. James C. Ellefson and James L. Goodman of Welp, Harrison, Brennecke & Moore, Marshalltown, for appellees. Thomas E. Salsbery and Diane M. Stahle of Davis, Hockenberg, Wine, Brown, Koehn & Shors, P.C., Des Moines, for amici curiae Iowa Bankers Association and American Bankers Association. Considered by McGIVERIN, C.J., and LARSON, CARTER, LAVORATO, and SNELL, JJ. LARSON, Justice. Cas' Feed Store (Cas) in Traer, Iowa, had a long-standing arrangement with its customers by which the customers prepaid (usually at the end of the tax year) for future crop expenses such as chemicals, seed, and fertilizer. Several reasons were given for this arrangement, but the greatest impetus seems to be to offset income, for tax purposes, by making these payments in the current tax year. Cas deposited some of these prepayments in the Farmers Savings Bank and Trust in Traer. Cas also borrowed money from the bank and, during the time in question, was heavily indebted to it. Cas defaulted on its loan, and the bank seized the funds in the Cas account that included the farmers' prepayments. The customers sued the bank and Cas on the theories of intentional interference with a contract and constructive trust. The case went to trial to a jury, which awarded damages to the plaintiffs. The court entered judgment on the jury's verdict in the intentional interference case, and because the plaintiffs had recovered on that theory, the court ruled that the constructive trust aspect of the case was moot. The court of appeals affirmed, and we granted further review. We now vacate the court of appeals decision and reverse the district court. Cas' agreement with the bank allowed the bank to exercise its rights as follows: It is clear that the bank was aware that some of the funds in the Cas account were prepayments from its customers, but it is also clear that these funds were not placed in a separate trust account nor otherwise identified as prepayment funds. In fact, we recently reversed the conviction of the president of Cas for theft by misappropriation because there was no trust agreement between Cas and its customers. See State v. *599 Caslavka, 531 N.W.2d 102, 104-06 (Iowa 1995). The bank's general right of setoff is well established. See, e.g., Farmers Coop. Elevator, Inc. v. State Bank, 236 N.W.2d 674, 677 (Iowa 1975); Hanby v. First Sav. Bank, 197 Iowa 150, 152, 197 N.W. 51, 52 (1924); Porter Auto Co. v. First Nat'l Bank, 185 Iowa 844, 848, 171 N.W. 121, 122 (1919). The key is whether this setoff was "improper" for purposes of establishing the plaintiffs' claim of intentional interference with a contract. See, e.g., Wilkin Elevator v. Bennett State Bank, 522 N.W.2d 57, 62 (Iowa 1994); Nesler v. Fisher & Co., 452 N.W.2d 191, 198 (Iowa 1990). The plaintiffs rely on the proposition that offset rights are still subject to "equitable principles," citing Olsen v. Harlan National Bank, 162 N.W.2d 755, 760 (Iowa 1968). That case, however, is clearly distinguishable. It involved a bank's attempted offset against a depositor for a debt owed by a third party to whom the depositor owed money. We held it could not. Id. at 761-62. We do not believe that a bank must investigate the source of the funds of its depositor against which it exercises its right of setoff. None of the cases cited above suggest that, and the practical implication would be significant if the bank were required to trace the source of the deposits when they are not identified as separate funds. The elements of intentional interference with a contract are: Nesler, 452 N.W.2d at 198. Loss of the plaintiffs' funds was, unfortunately, a fallout from the bank's exercise of its legal rights of setoff; but the fact that the bank acted intentionally in seizing these assets does not make it "improper" for purposes of intentional interference with a contract. As the Restatement explains: Restatement (Second) of Torts § 767 cmt. d. In Wilkin Elevator, 522 N.W.2d at 62, an analogous case, a feed store had an agreement with the bank to allow it the right of setoff. The bank exercised the right and caused the debtor to be unable to perform its contracts with its customers. We said: As we noted in Wilkin Elevator, other recent cases have determined that a party does not improperly interfere with another's contract by exercising its own legal rights in protection of its own financial interests. Id. We conclude that there was no evidence of a predominant purpose of causing injury to the plaintiffs, and the district court erred in *600 not granting a directed verdict on the intentional interference claim. Accordingly, we vacate the court of appeals decision and reverse the district court judgment. As previously noted, the plaintiffs also asserted a constructive trust theory, which the trial court deemed to be moot in view of the fact that a judgment had been entered for the plaintiffs on their interference-with-a-contract claim. The constructive trust issue must still be resolved, in the light of our decision in this case, and we accordingly remand the case for further proceedings. DECISION OF COURT OF APPEALS VACATED; DISTRICT COURT JUDGMENT REVERSED; CASE REMANDED WITH INSTRUCTIONS.