Case Name: A. R. Smith, Appellant, v. The Crawford County State Bank
Court: Iowa Supreme Court
Jurisdiction: Iowa
Decision Date: 1894-12-15
Citations: 99 Iowa 282
Docket Number: 
Parties: A. R. Smith, Appellant, v. The Crawford County State Bank.
Judges: 
Reporter: Iowa Reports
Volume: 99
Pages: 282–292

Head Matter:
A. R. Smith, Appellant, v. The Crawford County State Bank.
1 3 6 9 2 A bank held a second mortgage upon certain cattle. ■ At the instance of the mortgagor, it obtained the notes given to the holder of the first mortgage, with the understanding that payments made by the mortgagor should be indorsed upon said notes. The holder of the first mortgage consented to a sale of the mortgaged property by the mortgagor, and no arrangement was made that the sale should be made in the name of the mortgagee. First mortgagee and the mortgagor agreed that the proceeds of said sale should be sent to the bank, to be applied on the first mortgage. Said proceeds were deposited with this bank, to the credit of the mortgagor, and the bank applied a large part of them to the payment of its said second mortgage. The bank knew that the first mortgage was to be paid when the cattle were sold, but did not know that the money deposited with it was the proceeds of those cattle, nor that an agreement had been made that the money sent it should be applied in payment of said first mortgage. Held :
4 7 a. Said funds were impressed with no trust in favor of the holder of the first mortgage.
. 2 6 7 b. The facts stated did not give the bank notice that any agency existed between first mortgagor and the mortgagee, nor that an agreement to apply the proceeds of the sale had been made, and did not put it upon inquiry as to said matters.
8-10 7 c. The bank was free to apply the deposit made, to its second mortgage.
Appeal from Crawford District Court. — Hon. Gr. W. Paine, Judge.
Saturday, December 15, 1894.
Action in equity, to establish a trust in favor of plaintiff, as to certain funds in defendant’s hands, and for a judgment against defendant. Decree for defendant. Plaintiff appeals.
Affirmed.
T. J. Garrison and Parker & Richardson for appellant.
J. P. Connor and C. C. Cole for appellee.

Opinion:
Bjnne, J.
I. The facts as disclosed by the pleadings and evidence are that in 1890 and 1891 one John Carvell, a cattle buyer, became indebted to plaintiff, on three promissory notes in a principal sum of about eight thousand dollars, which notes were given in payment of cattle purchased by him of plaintiff. At the time this suit was commenced, and after adding interest and deducting payments made, there was still due plaintiff over six thousand dollars on said notes. In September, 1891, said Carvell executed two chattel mortgages to plaintiff to secure said notes, on two hundred and thirty-eight head of cattle, which he had purchased of plaintiff. On February 3, 1892, said Carvell executed to defendant a chattel mortgage on three hundred and nine head of cattle, which included the cattle described in plaintiff's mortgages. This mortgage to defendant was given to secure a note of eight thousand dollars due the bank for money advanced Carvell with which to feed cattle. The bank's mortgage was by its terms subject to the plaintiff's mortgage. Only five thousand dollars was in fact paid by the bank to Carvell on this eight thousand dollar mortgage. Plaintiff resides in the state of New York, but owns land in and raises cattle in this state. For several years prior to 1891 he had sold cattle to Carvell, who gave him notes for the purchase price, and sometimes securedjthem by a chattel mortgage upon his cattle, including those purchased of the plaintiff. Carvell would then feed the cattle, and ship them at such times and in such numbers as he chose, and to whom he pleased, including cattle other than those purchased of plaintiff; and the proceeds of such shipments would be remitted to a bank in Denison to Carvell's credit, and from the proceeds of such sales Carvell would pay plaintiff such amounts upon the notes as he saw fit. For a year or two prior to the spring of 1892, plaintiff sent his notes to defendant bank, and the payments were made as aforesaid. At Carvell's request, made at about the time he executed the mortgage to the bank, its officers wrote to plaintiff for his notes against Carvell, so that payments made might be credited thereon when the money should be received. The notes were accordingly sent to defendant. In February, 1892, Carvell shipped the cattle, in his own name, to a commission house in Chicago, and the proceeds were, by his direction, remitted to [¡he defendant bank, and were by the bank placed to Carvell's credit upon its books. The proceeds amounted to eight thousand five hundred and forty-four dollars and nineteen cents. For the difference between the amount received and the amount of Carvell's indebtedness to the bank — some two thousand dollars — Carvell drew a check in favor of plaintiff, and the same was applied upon his notes due plaintiff. The balance of the proceeds of sales of the cattle were applied in payment of Carvell's indebtedness to defendant. Thus far, it is believed, the facts are not in controversy. Plaintiff seeks by this action to have a trust declared in his favor as against the fund received by the bank, and as a reason therefor, avers that he had an arrangement with Carvell that he should, as his agent, and in his name, sell the cattle in Chicago, and that the proceeds of such sale should be paid to him, and that said sum should be placed in defendant bank to plaintiff's credit, and applied upon his notes. He charges that defendant knew of this arrangement when it took its mortgage, as well as when Carvell shipped the cattle; that, as a matter of fact, Carvell shipped the cattle in his own name, and placed the proceeds in defendant bank to his (Carvell's) credit, and that defendant, knowing that said money was to be applied in payment of' plaintiff's notes, took and appropriated the same to his own use. Other allegations of the petition need not be noticed. Defendant denies substantially all of the allegations of the petition, except that Carvell sold the cattle, and placed the proceeds in the defendant ' bank to his credit. It alleges the execution of the mortgage to it by Carvell to secure his eight thousand dollar note; that he shipped the cattle, sold them, and placed the proceeds to his own credit in defendant bank; that with Carvell's consent it applied sufficient of the proceeds of such sale to the payment of his indebtedness to the bank. Carvell testifies that he never agreed to ship the cattle in plaintiff's name. The court dismissed plaintiff's bill, and rendered judgment against him for costs.
II. The record presents but two questions for our consideration. First. Do the facts disclosed by the testimony establish a trust in favor of plaintiff? Second. Has plaintiff shown that defendant had notice thereof? Primarily, the relation of debtor and creditor existed between plaintiff and Carvell. Does this record show that the situation of these parties, in that respect, was changed? What facts are established by the testimony which show such a change in the relation of these parties as that it can be said that Carvell became, as to the plaintiff, a trustee, as regards the disposition of this mortgaged property? Plaintiff's claim that a trust was established is based upon an alleged agreement with Carvell, whereby the latter is said to have agreed to ship and sell the cattle in plaintiff's name, and to place the proceeds to plaintiff's credit. If those facts were established, and it appeared that defendant was a party thereto, or took the fund derived from such sale charged with notice of such trust character, there might be some ground for claiming that defendant should be held to hold the proceeds of sale as a trust fund in favor of plaintiff. We do not discuss the many authorities cited by appellant to show that such facts would establish a trust relation which would inure to plaintiff's benefit, for the reason that, conceding the rule of law to be as claimed, the facts established do not bring the case within the rule contended for. To establish the trust relation, as between himself and Oarvell, plaintiff must; prove that the cattle were to be shipped and sold in his name. This he has failed to do. True, he so testifies, but Oarvell positively denies that any such agreement existed. We do not understand that • there is any denial of Carvell's right to sell the cattle. The claim is that he was to ship and sell in plaintiff's name, and, as we have said, this claim is not sustained by the testimony. In making the sale, then, Oarvell was not acting as agent for plaintiff, but dealing upon his own account. The funds, therefore, which were the proceeds of the sale, were Carvell's, in so far, at least, that his disposition of the same would bind plaintiff, he having assented to Carvell's making the sale. They were not in any manner impressed with a trust character. Plaintiff could not, by virtue of his mortgage alone, claim a lien upon the proceeds of sale of the property, when, as it appears, the sale was made with his authority and not in his name. Waters v. Bank, 65 Iowa, 234 (21 N. W. Rep. 582); Nordby v. Clough, 79 Iowa, 428 (44 N. W. Rep. 697.) In view of the fact, that the evidence does not establish the arrangement, as claimed by plaintiff, that the cattle were to be shipped and sold in his name, the question as to the existence of a trust, must be determined without reference thereto, Plaintiff had, by virtue of his mortgage, no legal control over the fund in defendant's hands. Having, as we think, assented to a sale being made by Carvell, plaintiff, after the sale, had no lien upon the money derived therefrom. No lien was thereafter obtained by plaintiff upon this money. But plaintiff claims, that it was agreed between him and Carvell, that the proceeds of the sale of the cattle should be sent to the bank, to be applied upon the notes held by plaintiff against Carvell. This claim is not conceded by Carvell. But suppose, for argument's sake, that it be conceded, that such was, in fact, the arrangement. Carvell had the consent of plaintiff to sell the property. The lien of plaintiff, as we have seen, ceased when the sale was consummated, and the plaintiff then, in law, and so far as third parties are concerned, must look either to the purchaser of the cattle or to Carvell personally, in case he fails to apply the proceeds of sale as agreed. Carvell's failure to carry out such an agreement would not affect the rights of defendant in, and to such proceeds of sale, and especially so, when, as in this case, defendant has no notice pf the alleged arrangement. Bank v. West, 46 Me. 15; Herman Chat. Mortg. pages 247, 254.
III. From what we have said it appears that when the proceeds of the sale of the cattle came to defendant bank they were not impressed with a trust character by reason of any arrangement between plaintiff and Carvell. The money was remitted by Carvell's order, to his own credit, or at least subject to his power of disposal, so far' as defendant knew. Defendant and all of its officers deny any knowledge that the funds were of a trust character. It is claimed that, as defendant knew of plaintiff's mortgage, of the previous course of dealings between the parties, of the fact that Carvell was about to sell the cattle, and that he requested defendant to send for plaintiff's notes, that all these matters were such as to have put defendant upon inquiry as to the transaction and its trust character. But we hold that the evidence fails to show that by the shipment and sale of the cattle any trust relation was created between plaintiff and Carvell; that, as plaintiff had ceased to have a lien upon the cattle, and had no lien upon their proceeds, defendant did not receive the fund charged with any trust. In this view we need not consider the question as to notice to defendant of the existence of a trust relation, though we may properly say that we are satisfied that, even if a trust relation existed between plaintiff and Carvell, as claimed, still it is not shown that defendant had notice of it, or of the facts from which it can be said, under the circumstances, that it should be held to have been put upon inquiry to ascertain the existence of such a relation. There is no reason for disturbing the- decree of the district court. — Affirmed.
Saturday, October 17, 1896.