Opinion ID: 2229364
Heading Depth: 1
Heading Rank: 1

Heading: As to the first part of the appeal, Merchants assigns a number of errors of law.

Text: (a) Merchants begins by arguing that the district court erred in overruling its motions to consolidate and to dismiss based on the ground that two other claimants sued on the bond and the claims aggregate more than the face of the bond. The other claimants are William True and Harry Michael. Merchants states that those claimants are indispensable parties to this case under rule 25(b), Rules of Civil Procedure. The district court held the motion to consolidate premature and the other claimants not to be indispensable. We find no necessity to say whether the court was right or wrong in its ruling on the motions, in view of the posture of the three claims. We hold today in the True case that Merchants is not liable to True. Hence True's claim may be placed aside. In the Michael case we hold that Merchants may or may not be liable, depending on further findings by the trial court. If the trial court finds against Michael, only the bank's claim will remain, which is only for the amount of Merchants' bond. If however the trial court finds for Michael, the bank and Michael claims will total more than the amount of the bond. Neither the bank nor Michael contend, however, that Merchants can be held for more than the amount of its bond. Indeed, the district court held Merchants' motions premature because the parties conceded that Merchants' total liability was limited to the amount of its bond and contended that the matter of sorting out the amount each claimant should have from the bond fund should come later. The district court having on that basis required Merchants to go to trial separately on the three claims, Merchants should have the right to avail itself of further proceedings in district court should the bank and Michael, together or separately, try to hold it for more than the amount of its bond; and we so hold. We find no basis for reversal at this point. (b) In ruling on the motion to dismiss based on absence of indispensible parties, the district court stated that the bank could not bring itself within the parameters of Merchants' bond. Merchants argues that this statement became the law of the case so that the district court could not hold otherwise at the trial. Even if the statement in the ruling on the motion to dismiss became the law of the case as to the district court, it would not bind us on appeal. Rules 110, 331(b), R.C.P. Moreover, except for adjudications under rule 105, district court rulings in a case ordinarily do not prevent that court, either through the same or another judge, from ruling otherwise in the later progress of the case. The law of the case arises only after a ruling becomes final. Richman v. Board of Supervisors of Muscatine County, 77 Iowa 513, 524, 42 N.W. 422, 426 (We are not prepared to hold that if, during the trial of the issues of an action a court becomes convinced of an error he may not correct it. It would be a serious impediment to a fair and speedy disposition of causes if such a rule was to obtain.); Whitfield v. Grimes, 229 Iowa 309, 294 N.W. 346. We find no error here. (c) Merchants next contends the trial court should have ruled for it as a matter of law because the bank did not introduce substantial evidence that free grain existed in the warehouse on which Myler could issue receipts to himself for transfer to the bank. This contention raises a fundamental issue as to the coverage of a warehouseman's bond under chapter 543 of the Code. Merchants appears to hold the view that bonds cover only conversion of existing grain, as when a farmer deposits grain in an elevator, the operator issues a warehouse receipt, and later the operator disposes of the grain without permission of the holder of the receipt. We are not willing to isolate the coverage of warehouse bonds to the conversion-type situation. The statutory condition of a warehouseman's bond under chapter 543 is faithful performance of his obligations as a warehouseman under the terms of this chapter (and under rules imposed and obligations assumed). § 543.12. One of the several obligations of a licensed warehouseman under chapter 543 is issuance of warehouse receipts. § 543.18. That section refers to § 554.7203 of the Uniform Commercial Code, which renders the issuer of a warehouse receipt liable for nonreceipt of the goods. From this we hold that if a warehouseman issues a warehouse receipt for grain which he does not have, he breaches his duty of faithful performance as warehouseman, and his bond covers. See I.C.C. Rule 12.15(543), 1971 I.D.R. 127. The Supreme Court of Georgia dealt with this situation in Maryland Cas. Co. v. Washington Loan & Banking Co., 167 Ga. 354, 365, 145 S.E. 761, 766: An obligation rests upon a warehouse company not to issue receipts for goods in which it recites that it owns such goods, and that it will deliver the same to the holder of such receipts, when in fact such goods are not in existence or are not stored with it. The purpose of the bond is to protect persons dealing with the warehouseman, in the usual and customary method of business, and against fraudulent and unlawful acts of the warehouseman in issuing receipts for goods in which it recites their storage, when the recital is false. For a breach of this obligation the surety upon its bond becomes liable to the pledgee of the receipts for the falsity of such statement. Merchants' bond thus covers whether Myler had or did not have the grain on which he issued receipts that he pledged to the bank. If he had the grain and disposed of it without the receipts, the bond covers. If he did not have the grain and issued the receipts and pledged them to the bank without notice, the bond covers. National Bank of Wilkes v. Maryland Cas. Co., 167 Ga. 737, 146 S.E. 739; Bascom, Articles Seven and Nine of the Uniform Commercial Code Security Interest in Warehouseman's Own Receipts Covering Fungibles, 1969 Wash.U.L.Q. 105, 120; 78 Am.Jur.2d Warehouses § 95 at 239; 93 C.J.S. Warehousemen & Safe Depositaries § 28 at 442. We find no error at this point. (d) Another contention by Merchants is that the bank did not prove a formal demand upon the warehouseman for the grain supposedly stored under the receipts. The record establishes beyond any question that when Myler closed his doors, no grain existed to fulfill these receipts. The law does not require a useless act. State v. Farmers Elevator Co., 59 N.D. 679, 686, 231 N.W. 725, 727 (demand was not necessary, for the reason that the defendant elevator company was at no time after the closing of the elevator in October in a position to comply therewith, and therefore a demand would have been unavailing); 8 Am.Jur.2d Bailments § 113 at 1010; 93 C.J.S. Warehousemen & Safe Depositaries § 51 at 478. The trial court did not err on this issue. (e) Merchants next relies on § 554.7503(1) of the Uniform Commercial Code. The substance of that provision so far as now relevant is that a warehouse receipt confers no right in goods against a person who before issuance of the document had a perfected security interest in the goods. Merchants argues that the bank had a perfected security interest in Myler's free grain; hence under the wording of § 554.7503(1), the warehouse receipts conferred no right. Obviously however § 554.7503(1) contemplates a situation in which a third party holds the perfected security interest. E.g. Cleveland v. McNabb, 312 F.Supp. 155 (W.D.Tenn.) (contest between third-party landlord holding lien and holder of receipt). No error appears. (f) Next Merchants contends its bond does not cover because the bank did not show that Myler stored for compensation or that the bank or its transferor deposited grain. Under section 543.12, the bond covers obligations of the principal as a warehouseman. Section 543.1(8), as it read at the time of these events, defined a warehouseman as one who uses a warehouse to store agricultural products for compensation. Myler had a license to operate a warehouse under chapter 543. Section 543.28 required that a warehouseman establish rates, and Myler did so; the Commission could not have permitted him to operate at all if he had not done so. Moreover, the same section established minimum rates, below which Myler could not have gone. Indeed the very warehouse receipts in suit state that Myler claimed a lien for charges of storage, delivery, and conditioning. Under the law and the facts, a finding that Myler did not use his warehouse to store for compensation could not stand. Merchants' insistence that only actual depositors of grain and their transferees come under its bond flies in the face of § 543.20, which permits a warehouseman to issue receipts on his own grain and to dispose of the receipts as a third-party depositor of grain might do. Merchants' assertion that § 543.20 can only be used as a basis of liability of a surety when the warehouse man issues receipts on his grain actually on hand misconceives the purpose of the bond requirement to protect the public against the unworthy warehouseman who has statutory authority to issue receipts on his grain but abuses that authority by issuing receipts on grain which he purportedly has but in fact does not have. We do not find merit in this assigned error. (g) Merchants assigns error in the failure of the trial court properly to submit the damage issue to the jury. Section 543.14 authorizes a person injured by breach of any obligation of a warehouseman to recover any damages he may have sustained by reason of such breach. The damages here could not exceed the least of three items: the amount of the bond, the sum of the three notes, or the value of the pledged grain. The amount of the bond is $52,000, and the sum of the three notes is $60,940. As to the value of the pledged grain, the value to be taken is the highest price between the time of the wrong and commencement of suit. United States v. Merchants Mut. Bonding Co., 242 F.Supp. 465 (N.D.Iowa). According to the notes and warehouse receipts themselves, Myler pledged to the bank 1700 bushels of beans worth $5100 and 58,000 bushels of corn worth $55,800 (other evidence showed corn to be worth considerably more), for a total of $60,900. Under the record, a finding that the beans and corn were worth less than $52,000 could not stand. The trial court did not instruct the jurors on the measure of damages, but did tell them that they could not find for more than $52,000. They found for the bank in that amount. The trial court should have instructed the jury that they should return a verdict for $52,000 or nothing. It was error for the court to instruct the jury that they could return a verdict for not more than $52,000; this permitted them to find for some lesser amount if they found for plaintiff. Since however the jury returned a verdict for $52,000, no reversible error resulted. We therefore do not sustain this assigned error. (h) Finally on this part of the case, Merchants contends the trial court erred in failing to caution the jury that Merchants was not an insurer, guarantor, or surety on Myler's notes to the bank. The trial court narrowed the case to one major issue, as we will relate, and focused the jurors' attention on that issue. The instructions given made clear what the jury had to decide. We are unable to see the necessity for instructing on unrelated issues and introducing confusion into the submission. A trial court has some discretion in the area of cautionary instructions, and we find no abuse here. Lolkus v. Vander Wilt, 258 Iowa 1074, 141 N.W.2d 600. The court did not err. II. As to the second part of the appeal, the crux of the case is factual: whether the bank knew that insufficient grain existed to cover the warehouse receipts but nevertheless took them as ostensible security. We are not dealing here with the usual situation in which the holder of title documents is seeking to uphold the documents and cut off equities or claims of the issuer or of third persons. See § 554.7502, U.C.C. We are dealing with a bank which not only admits but asserts that the warehouse receipts in its possession are invalid, and claims that the wrongdoer's bondsman must therefore pay. The bank claims nothing under the documents themselves but turns to the surety as the one who stands behind the wrongdoing issuer of invalid documents. Without additional facts which negate liability, the bank comes within the coverage of the bond and can recover. 78 Am.Jur.2d Warehouses § 136 at 268-269. At this point however we have the interjection of an additional alleged fact: knowledge by the bank of the invalidity of the title documents when the bank received them. As a matter of common law, what effect does this have upon the right of the bank to hold the bondsman? The Georgia Supreme Court dealt with this issue, and laid down what we deem to be the sound rule, in National Bank of Wilkes v. Maryland Cas. Co., 167 Ga. 737, 757-758, 146 S.E. 739, 749: Furthermore, if the transaction was a mere scheme by which the warehouse company undertook to obtain from the bank funds for its own use, by pledging cotton which it did not own or on which it had no lien for advances made to depositors of such cotton, and which the parties to whom the receipts were issued did not own, or in which they did not have any interest, it was not a genuine warehouse transaction, and if the bank knew the character of the transaction at the time it discounted the notes secured by the warehouse receipts, the surety on the bond of the warehouse company would not be liable to the bank on the receipts so issued and used. Merchants and the bank strenuously disagree about the evidence regarding the bank's knowledge that Myler had insufficient grain to issue the warehouse receipts. Merchants contends the evidence shows as a matter of law the bank knew from Coe's laundromat conversation with Tooley that Myler did not have sufficient grain, but the bank was in so deeply with Myler that it played along with him hoping his situation would improve. Merchants says that when Myler did not pull out of his trouble by the fall of 1972, the bank called in the Commerce Commission and closed him up. Merchants asserts that the bank could not thus bootstrap itself into protection under the bond when it never was fooled by the receipts but knew the truth about them all along. The bank contends the contrary, that under the evidence the bank's knowledge or lack of knowledge from the Coe-Tooley conversation was a question of fact for the jury, which decided the question in the bank's favor. Our examination of the evidence discloses that no question of fact existed as to receipts 78 and 83. They were issued some time before the conversation in question and nothing indicates the bank knew they were infirm. As to the rest of the receipts, we believe the trial court was right in submitting to the jury the issue of the bank's knowledge. The issue is close, as Merchants made a strong showing on the facts that the bank made a bad unsecured loan of $25,000 and endeavored to bail itself out by taking warehouse receipts knowing Myler had insufficient grain, trying to get under the umbrella of Merchants' bond. But under all the evidence we hold the issue of the bank's knowledge was for the trier of fact. Merchants also urges in this connection that the trial court's instructions did not adequately place before the jury the issue of the bank's knowledge. We have examined the instructions. They appear to us to present the matter fairly to the jury. Under the rule of the Wilkes decision by the Georgia Supreme Court, the question was whether the bank through Coe knew that Myler did not own grain on which he purported to issue the receipts. The trial court laid this question before the jury. The court was not required to use the wording in Merchants' requested instructions in submitting the questions. State v. Tensley, 249 N.W.2d 659 (Iowa). Since we find no reversible error here or on the trial court's other rulings, we uphold the judgment. AFFIRMED. All Justices concur except REES, J., who takes no part.