Court Opinion

ID: 9593025
Source: CourtListenerOpinion
Date Created: 2023-08-22 00:18:53.767206+00
Date Added: 2024-06-11T18:01:18.337252
License: Public Domain

ANDREASEN, Justice
(dissenting).
After Lavern and Janice Waschkat signed the December 29, 1982 promissory note and security agreement that conveyed a security interest in their farm machinery, the American Savings Bank made a number of loans to Lavem Waschkat that were secured by collateral other than the farm *207machinery. While this lawsuit was pending, the bank made four loans to Lavem totaling $17,500. None of these loans were secured by the farm machinery.
In the summer of 1985, Lavem met with Thomas Dental, the vice-president and chief executive officer of the bank. He advised Lavem that because of his loan status, it would be difficult for the bank to advance him a loan. It was then decided that the farm machinery would be sold. Lavem was to employ the auctioneer and the bank was to clerk the sale at no expense to Lavem. Dental testified that after the farm machine sale, “Lavern agreed the balance of the money should probably go to the bank to pay off notes that the machinery secured.” The net proceeds of the sale were applied on the notes that were not secured by the farm machinery.
Because Janice no longer had any interest in the farm machinery after the dissolution of marriage, the majority of this court holds that she has no right to object to the bank’s application of the proceeds from the sale of collateral upon Lavern’s debts. The majority relies on the case of Cain v. Vogt, 138 Iowa 631, 116 N.W. 786 (1908). In Cain, the court recognized as a significant fact in support of its ruling that the lien of the chattel mortgage did not follow or attach to the money received from the sale of mortgaged property. Id. at 636, 116 N.W. at 788. The Cain court also recognized that the payments were applied on the notes that were mature, while the note secured by the chattel mortgage was not due at the time the payments were made. Under such circumstances there is a presumption that the payments were intended to be applied to the mature debt. Id. at 636, 116 N.W. at 788. I agree with the district court that Cain is distinguishable.
I recognize the general rule that when a debtor owes a creditor multiple debts, the debtor may direct the application of payments to one or more of the debts. If the debtor does not direct the application of payments, the creditor may normally apply the payment as it chooses. See Lumber Supply Inc. v. Hull, 158 N.W.2d 667, 669 (Iowa 1968). These general rules also apply to joint debts. Thus, as set forth in 60 Am.Jur.2d Payments § 119 (1972):
A joint obligor making a payment with his own funds may designate that it is to be applied only to his share of the debt, and the creditor must apply the payment accordingly. Where an undirected payment is made by a debtor who has both a joint obligation and an individual obligation with his creditor, the creditor may apply the payment to either debt, as suits his pleasure.... A creditor who knows that a payment represents the proceeds of collateral for a joint note must apply the payment on the note rather than on one joint debtor’s individual debt to him.
Id. (footnotes omitted) (emphasis added). Under this exception to the general rule, a creditor with knowledge that the payment is from the sale of collateral securing a joint note would be required to apply the payment on the joint note rather than on a separate note signed by one of the debtors.
Had the bank sold the farm machinery, Iowa Code section 554.9504 (1987) would require the net proceeds from the sale of collateral by a secured party be applied to satisfy the indebtedness secured by the security interest under which the disposition is made. The fact that a codebtor had no interest in the collateral sold would not alter the statutory requirement. As a cosigner, Janice would be a debtor entitled to the statutory protection in that situation even if she had no rights in the collateral. See generally Stockdale, Inc. v. Baker, 364 N.W.2d 240 (Iowa 1985).
Although the bank did not sell the collateral, it did participate in the sale and was aware of the source of the $12,500 payment. A creditor, with knowledge that the payment is from the sale of collateral securing a joint note, should apply the payment on the joint note which was secured by the collateral, rather than on a separate note signed by one of the debtors.
For the above reasons, I respectfully dissent.
McGIVERIN, C.J., joins this dissent.