Opinion ID: 1246677
Heading Depth: 1
Heading Rank: 1

Heading: Facts. The first chapter of the case deals with International Materials Corporation (IMC) and T.H.E. Investment Corporation (T.H.E.).

Text: A. IMC bought and sold agricultural commodities for a number of years. It lacked sufficient capital to do business on a large scale. Beginning in 1974 it established a credit accommodation arrangement with T.H.E., a securities holding company. T.H.E. had a Dun & Bradstreet credit rating sufficient to support large transactions on credit. When a supplier of agricultural commodities refused to accept IMC's own credit, IMC would offer T.H.E.'s credit, which T.H.E. permitted subject to certain restrictions: (1) IMC could not surpass a certain dollar limit of outstanding credit ($3.5 million at times pertinent to this lawsuit); (2) the transaction had to be a closed loop (when IMC purchased a product, it already had a buyer); and (3) IMC was to obtain permission to use T.H.E.'s credit on a transaction-by-transaction basis. IMC paid T.H.E. a fee for use of its credit (in 1976, 1977, and 1978 IMC paid $9336.00, $44,267.00, and $70,135.00, respectively). For reasons which do not appear of record, T.H.E. itself desired to be the owner of the commodity during the transactions. In December 1977, T.H.E. formalized the arrangement in the following letter to IMC: We have been operating for some time in purchasing chemicals, raw materials and other types of products for resale to other parties. This letter will confirm our agreement that in any such case, that you are acting as our agent and bailee and that the chemicals, raw materials and other types of products are purchased and will be purchased in our name and on our behalf by you as our agent, and that we shall be the sole owners thereof. We hereby authorize and direct you to invoice the ultimate purchaser for the selling price of the chemicals, raw materials and other types of products that are sold by you on our behalf and to collect the proceeds arising from such invoices as our agent. Once collected you will make payment of the funds to our suppliers in our name and on our behalf. The letter was signed by Ernest Friedlander, a vice-president and director of T.H.E., and Marc S. Newkirk, president of IMC. In practice, IMC generally requested and received credit approval from Friedlander, who doubled as treasurer and a director of IMC. Carroll Baum, treasurer of T.H.E., also sometimes authorized the use of T.H. E.'s credit. When approval was given, T.H.E. contacted the supplier and stated that it would accept billing. At the request of IMC, T.H.E. also sent its financial statements to suppliers so they could better assess its financial capability. At trial, Friedlander and Baum testified that the initial restrictions upon IMC and the course of doing business were never modified. T.H.E., however, did not have an accounting system of its own to monitor IMC's activities. Instead, it relied upon IMC to determine the dollar amount of the fees owed and to provide monthly reports that included the amount of outstanding credit. These reports were typically months in arrears. As a result, T.H.E. had no simple way of determining how many transactions IMC was entering on T.H.E.'s credit and had difficulty knowing at any given time whether IMC was complying with established credit limits. By the beginning of 1979, IMC was using T.H.E.'s credit without the required transaction-by-transaction request on more than one half of its T.H.E.-backed purchases. Newkirk believed he and Friedlander had an understanding permitting this procedure, though Friedlander claims he first knew of such conduct when this lawsuit was commenced. Newkirk testified Friedlander had to be aware of this practice because of the volume of business being conducted and the fees generated and paid (though the evidence showed IMC paid no fees in 1979). Also early in 1979, IMC exceeded its credit limit. At one point in April the amount reached $5.4 million. Newkirk attributed this to seasonal aberrations and continued to use T.H.E. credit. When Friedlander became aware of the excess he warned Newkirk to reduce the outstanding credit to within $3.5 million. Early in August, Baum became aware that IMC still was not within the credit limit and sent Newkirk a letter informing him that the IMC-T.H.E. relationship could not continue if the outstanding credit was not reduced and if fee payments and credit reports, then months overdue, were not brought up to date. Friedlander and Baum testified that at this point they decided to stop approving IMC's credit requests, and Baum closed a lock box bank account that was used in the arrangement. Neither, however, informed IMC that the relationship had ceased, nor did they attempt to inform those who dealt with IMC, which continued to operate. B. Olin Corporation (Olin) makes products for agriculture. Late in July 1979, Olin manufactured a quantity of urea fertilizer near Lake Charles, Louisiana. Early in August, it loaded 1533.76 tons of the fertilizer into a Midwest Towing Company barge for shipment up the Mississippi River to Savage, Minnesota, to be stored for the winter. While the barge was en route, Olin salesmen Sam Stiles and Joe Carl Montgomery took steps to sell the fertilizer by contacting potential buyers. On the morning of Friday, August 24, 1979, Montgomery received a telephone call from Skip Coppolla, who at that time was an employee of IMC. Montgomery testified: Q. [W]ould you state, please ... what Mr. Coppolla stated to you when he called you that morning? A. He called me and ... said, I understand that Olin has a barge of urea on the Mississippi that you want to sell, and I said, Yes. We are considering selling it. He said, Well, I'd like to buy it. He asked me what I wanted for it; and I computed him a price; and he said, I believe I can handle it for that price; but let me check, and I will call you back. Q. Did you know Mr. Coppolla prior to that phone call? A. I don't believe I had met him. I can't say that for certain. I attended a trade meeting in July of that year in New Orleans; and I may or may not have met him; but I had talked to him on the phone on numerous occasions. Q. Did he identify the business firm that he was with or did you know? A. I knew that he was with International Materials. Q. All right. Was that the extent of that conversation, then, by telephone? A. Yes. Q. What was the next thing that occurred on that date with reference to your activity and this barge of urea? A. Skip Coppolla called me back probably about thirty minutes to an hour later and said that they would like to buy the barge of urea. Q. Who is they? A. Well, International Materials. Q. And, then, what was said? A. Okay. I said, Skip, we agreed on price; however, I cannot sell to you on a credit basis. I do not have any credit set up on International Materials. The only way that I can do business with you is on transfer of funds, cash. And he said, well, he wasn't prepared to do that. Q. What do you mean by transfer of funds, cash? A. Transfer of funds from one bank to the other, and I told him who our bank was and started to give him the account number; and he said, Hold it. We are not prepared to do that. And I said, Well, that's the only way that I can do business. And he said, Well, let me do this, then. Let me bill it to my parent corporation, T.H.E. Investment, and let them purchase it. And I said, Well, Skip, I don't have the authority to do that. You will have to call Mr. Huff, our credit manager; and he can rule on that. Q. Who is Mr. Huff? What's his first name? A. John Huff. He wasat that time, he was credit manager of the agriculture credits department. Q. Up to that point, had the agriculture division or department in Little Rock made any sales on credit to International Materials Corporation? A. No. Q. Had it had any business dealings with International Materials Corporation? A. No. Q. Was [sic] was the extent, then, of the conversation? A. I connected him with Mr. Huff's office. Q. Did you know at that time whether there was any relationship between International Materials Corporation and T.H.E. Investment Corporation? A. Mr. Coppolla or somebody from that firm told me that International Materials was a subsidiary of T.H.E. Investment. Q. What was your next connection, then, with this sale, transaction, regarding the urea from barge MWT7236? A. I went to lunch and came back and asked Mr. Huff if he had talked to Skip Coppolla and people from T.H.E., and he said he had. John A. Huff testified: Q. Now, you've been testifying about receiving a telephone call with respect to the sale of approximately 1500 tons of urea on August 24, 1979; is that correct? A. Yes. Q. Do you recall at this time what was your first contact or your first involvement with that particular sale? A. My first contact, I believe would have been Montgomery contacted me and wanted to know ... if he ... got an order from I.M.C., would I approve it; and I looked in the Dun & Bradstreet book; and I told him that I would not extend the credit. ... Q. ... I gather that a telephone call was, in fact, made to you subsequent to that conversation that you had with Mr. Montgomery? A. [Y]es, I had a call. ... Q. And do you recall what was the first thing that was said on the telephone during that conversation? ... A. Yes. ... [H]e identified himself and says ... that our marketing departments didn't understand the transaction at all; that T.H.E. Investment was going to purchase the material. Q. I gather that today you do not recall the identity of that person whowhen he identified himself? A. No, sir. ... Q. Did you believe that he was from T.H.E.? A. Yes. ... Q. What words did he use to expressly indicate that he was from T.H.E.? A. It was my understanding that he said he was credit manager. ... Q. He told you expressly that he was credit manager from T.H.E.? A. That's what I remember, yes. ... Q. At what point did you approve the sale to T.H.E.? ... A. While we were on the telephone, as I remember. Q. This is the one telephone conversation with this individual who represented that he was the credit manager of T.H.E.? A. I believe that's right, yes, sir. Q. And how long did that telephone conversation last? A. Oh, five, maybe ten minutes, something like that. ... A. ... I approved the credit based upon the financial D & B rating and the numbers he gave me.... Subsequent to the telephone conversation Huff received a copy of T.H.E.'s financial statement by special delivery mail. It arrived in a T.H.E. envelope and without a covering letter. The postage mark was by T.H.E.'s postage machine, though T.H.E. generally did not send such material special delivery. A business card of Donald Hichens, an IMC vice-president, was attached to the financial statement. The evidence shows it was attached by Carroll Baum's secretary, who also mailed the report. She did so without specific authorization, although Baum said his office regularly complied with requests by IMC to send such statements. Huff testified that the report did not confirm T.H.E.'s role in the sale but that it did confirm the previous financial information he had obtained. He made no effort to determine whether the caller had authority to purchase on behalf of T.H.E. Huff sold the urea for $140 per ton in the telephone conversation from which we have quoted, on thirty-days' credit. Olin diverted the urea to Clinton, Iowa, for storage in IMC's space. Later T.H.E. did not respond to Olin's demands for payment. Nor, when the present action was initiated, did T.H.E. assert an ownership interest in the fertilizer. C. In 1978, C.F. Sales, a company engaged in the business of public warehousing and the unloading of bulk materials at Clinton, Iowa, entered into an agreement with IMC for the lease of storage space in its warehouse on the Clinton municipal dock. The lease was in effect on August 24 and 25, 1979. On August 24 or 25, Thomas E. Burken, terminal manager at Clinton for C.F. Industries (parent company of C.F. Sales), received a telephone call from Jim McCain of IMC informing him that a barge load of urea was en route and was to be unloaded and stored in IMC's leased space. McCain gave Burken the barge number, date of arrival, the approximate tonnage of urea, and instructions to have marine surveyors determine the exact tonnage. McCain also provided Burken with release numbers. Release numbers are used in the agricultural commodity business to facilitate the transfer of goods. When a warehouseman is presented such numbers by a purported purchaser of a product, the warehouseman is authorized to release the product if the numbers correspond to those in his possession. No title documents, such as bills of lading, were presented by IMC to C.F. Sales. This was not unusual; those documents are normally weeks behind the goods, which may be bought and sold several times before such documents are even prepared. The barge arrived at Clinton on August 29, 1979, and the urea was unloaded and placed in IMC's storage space. D. On September 7, 1979, IMC sold the urea to Amfert, Incorporated (Amfert), also an agricultural commodities broker, for $143 per ton. That price was offset against an amount IMC owed Amfert for a transaction in July 1979. Amfert, in turn, sold the urea on October 1, 1979, to another commodities broker, Pan American Commodities (Pan Am), for $145 per ton. Pan Am paid Amfert. Pan Am then contracted to sell the urea to Royster Company (Royster) for $148 per ton. Throughout this series of transactions the urea itself remained in the space leased by IMC in the C.F. Sales warehouse; the release numbers, however, passed from purchaser to purchaser. For a period of time extending back to April 1979, IMC had failed to pay C.F. Sales for the space it had leased. The outstanding storage charge exceeded $20,000. Because of this, C.F. Sales refused to release the urea to Royster, as it was preparing to secure payment of the delinquent storage by attaching the urea. On October 10, 1979, however, C.F. Sales discovered that IMC had taken bankruptcy on October 3, 1979. C.F. Sales therefore released the urea to Royster, which had produced the proper release numbers. On October 22, five trucks were loaded with 107.935 tons of urea and delivered in accordance with Royster's instructions. Royster paid Pan Am $14,500 for that quantity. Part of the remainder of the urea was loaded on railroad cars for delivery. At this point, Olin discovered that IMC was in bankruptcy. Olin demanded that C.F. Sales retain all the urea that remained, including the part on the railroad cars, and threatened suit if C.F. Sales did not do so. C.F. Sales stopped loading procedures and returned the undelivered urea to the warehouse. E. On October 25, 1979, C.F. Sales filed the present interpleader action against all parties involved except IMC. Royster is a nominal party only. At C.F. Sales' request, the district court ordered C.F. Sales to preserve and maintain the urea, which it did until September 24, 1980, when, by agreement of the parties, it sold the urea for $205,675.60 and deposited the money with the clerk of the district court. Subsequently, C.F. Sales and the interpleaded defendants interposed claims, cross claims, and counterclaims. C.F. Sales sought to recover from Olin storage fees and costs sustained from October 23, 1979, until September 24, 1980, and for attorneys' fees attributable to the interpleader. C.F. Sales initially tried to recover storage fees and costs incurred by IMC from April 1979 to October 23, 1979, but it later dismissed that claim. Pan Am interposed a cross claim against Amfert for breach of an implied warranty of title, seeking to recover the price of the urea and lost profits. Pan Am also sought its attorneys' fees from Amfert that were not directly attributable to the litigation between Pan Am and Amfert. Pan Am and Amfert filed cross claims against Olin, asserting tortious interference with a contractual relationshipPan Am claiming Olin disrupted its contract with Royster, and Amfert claiming Olin interfered with its contract with Pan Am. Amfert also sought indemnity from Olin for any amount it might owe Pan Am, and it asked for its attorneys' fees not arising directly from the Amfert-Olin litigation. Olin initiated a third-party claim against T.H.E. for the price of the urea and for indemnity for the storage charges and fees after October 23, 1979. The parties tried the controversy to the court. The court initially held the interpleader action to be proper. It also held that C.F. Sales was entitled to its storage costs from Olin from October 23, 1979, until September 24, 1980, in the amount of $22,084.63. The court concluded in addition that Olin dealt with T.H.E. as the purchaser of the urea and had a cause of action against T.H.E. for breach of contract, but that Olin's right to stop delivery of the urea terminated on August 29, 1979, when the urea was received in IMC's leased space at C.F. Sales' warehouse. The court concluded that IMC thus obtained voidable title and Amfert and Pan Am subsequently became good faith purchasers for value. Title finally rested, then, in Pan Am. The court therefore entered judgment for Pan Am and against Amfert for $210,337.36. The interpleader fund satisfied $205,675.40 of that judgment and Amfert was charged with the difference of $4661.76 plus interest. Regarding claims that Olin tortiously interfered with the existing contracts of Amfert and Pan Am, the court found for Olin even though Olin without right purposely stopped delivery to Royster knowing the urea had been sold. Also in Olin's favor, the court ruled that an agency relationship existed between IMC and T.H.E. and that Olin was entitled to judgment against T.H.E. for $214,726.40 as the price of the urea. The court also required T.H.E. to indemnify Olin for C.F. Sales' storage charges (Olin had been held liable for those charges as the loser in the interpleader action). All claims for attorneys' fees were denied, and all court costs were taxed to T.H.E. II. Interpleader, scope of review. Interpleader originated in equity as a means by which a disinterested stakeholder of money or property could avoid vexatious litigation with multiple claimants by making them defendants and requiring them to establish their claims among each other to the fund or res. 45 Am.Jur.2d Interpleader § 2 (1969); 48 C.J.S. Interpleader § 4 (1981). In such a proceeding the first proposition to be established is the entitlement of the plaintiff-stakeholder to maintain interpleader; if the plaintiff establishes that proposition, the trial and adjudication of the defendants' claims follows. 45 Am. Jur.2d, supra, §§ 35, 38; 48 C.J.S., supra, §§ 47, 48. From an early day equitable interpleader has been part of Iowa jurisprudence, although Iowa also had a very limited form of statutory interpleader. Stephenson v. Stephenson, 64 Iowa 534, 21 N.W. 19 (1884); Lindsey v. Western Mutual Aid Society, 84 Iowa 734, 50 N.W. 29 (1891); Hoyt v. Gouge, 125 Iowa 603, 101 N.W. 464 (1904); Kelly, Shuttleworth & McManus v. Central National Bank & Trust Co., 217 Iowa 725, 248 N.W. 9, supplemental opinion, 250 N.W. 171 (1934); Equitable Life Insurance Co. v. Johnston, 222 Iowa 687, 269 N.W. 767 (1936); Iowa Code §§ 1685, 1686 (1851); Iowa Code §§ 11002-11005 (1939). See Comment, 21 Iowa L.Rev. 644 (1936). In the federal rules of civil procedure, the United States Supreme Court adopted a broad form of interpleader as rule 22. When this court adopted civil rules, it followed the substance of that federal rule with some changes in structure. Iowa R.Civ.P. 35-41; 1 Iowa Rules of Civil Procedure Annotated, Comment to Rule 35 (West 1970). These Iowa rules supplanted the prior statutes, 1943 Iowa Acts ch. 278 app. I at 364, and govern Iowa interpleader at the present time. Stolar v. Turner, 238 Iowa 1168, 29 N.W.2d 417 (1947); Spahn & Rose Lumber Co. v. Iowa Steel & Construction Co., 257 Iowa 168, 131 N.W.2d 791 (1964); Iowa State Commerce Commission v. IGF Insurance Co., 309 N.W.2d 445 (Iowa 1981). Rule 35 is the principal one: A person who is or may be exposed to multiple liability or vexatious litigation because of several claims against him for the same thing, may bring an equitable action of interpleader against all such claimants. Their claims or titles need not have a common origin, nor be identical, and may be adverse to, or independent of each other. Such person may dispute his liability, wholly or in part. In the present case the first question before the trial court was C.F. Sales' right to maintain interpleader, a question to be heard and decided by equitable proceedings since the action is equitable in nature under rule 35. Some of the defendants contested this issue, but the trial court upheld interpleader and in this court none of the parties challenge that holding. We therefore take the interpleader as a proper proceeding. The trial court then took up the various claims, cross claims, and counterclaims of the parties. These disputes would respectively be properly tried by equitable or ordinary proceedings according to their nature. Jefferson Standard Insurance Co. v. Craven, 365 F.Supp. 861 (D.C.Pa.1973); 48 C.J.S. Interpleader § 48 (1981). As to disputes to be tried by ordinary proceedings, parties would be entitled to jury trial of issues upon proper jury demand. Iowa R.Civ.P. 177 (b) and (c). Actually the parties tried these disputes to the court in one trial by ordinary proceedings; the court ruled on objections to evidence. See Citizens Savings Bank v. Sac City State Bank, 315 N.W.2d 20, 24 (Iowa 1982) (court's ruling on objections is litmus test for determining whether trial was by equitable or ordinary proceedings). As trial of the parties' claims was by ordinary proceedings, we review on errors of law and not de novo. Id.; Western Bank v. Morrill, 245 Or. 47, 420 P.2d 119 (1966). This is not a momentous point in the present case, however, as the issues presented to us involve questions of law. We thus proceed to the specific issues raised in the appeal.