Appeal from the District Court of the United States for the Western District of Wisconsin; Patrick J. Stone, Judge.
Before EVANS and SPARKS, Circuit Judges, and BRIGGLE, District Judge.
Plaintiff (appellant here) sued defendants (appellees here) in the District Court for damages for wrongful conversion of a certain promissory note and mortgage. Defendant bank is the successor of certain other Wisconsin banks that were in existence at the time of some of the transactions complained of, but in view of the conceded liability of the defendant bank for the acts of its predecessors, they will all, for the sake of clarity, be referred to as defendant. At the conclusion of plaintiff's case the trial court directed a verdict for defendant, upon which judgment was rendered. It is this action of the court, together with rulings leading thereto, of which plaintiff complains.
It appears from the undisputed facts that on February 17, 1928, defendant loaned one Rupert Batz who was a vice president of the Farmers & Merchants Bank of Sun Prairie, Wis. (not a party to this proceeding and hereinafter referred to as Sun Prairie Bank), the sum of $15,000, and Batz pledged as collateral to said loan the note and mortgage which are the subjectmatter of this suit. This note, so pledged as collateral, was a note given by the Cities Housing Corporation on November 27, 1926, in the sum of $22,000, payable to the order of Ganley Brothers Company, and secured by a second mortgage on certain real estate in the city of St. Paul, Minn. This note and mortgage had been duly indorsed and assigned by the payee to one Milo J. Evans of the county of Shawnee, state of Kansas, and by him later to the Sun Prairie Bank and one R. O. Gmeinder as joint assignees. Later, and on August 13, 1927, the same had been assigned by such joint assignees to one Milton P. Firestone, and on February 14, 1928, by Milton P. Firestone to Rupert J. Batz. The assignments of the mortgage to Firestone and by Firestone to Batz were filed for record in the office of the registrar of titles in St. Paul at about the same time on February 14, 1928.As heretofore indicated, Batz assigned the mortgage to defendant on February 17, 1928, and the same was filed for record on February 20, 1928. The real estate covered by the mortgage had been registered under the Torrens Act of Minnesota (Mason's Minn. St. 1927, § 8247 et seq.), and all of the assignments referred to were duly recorded under the provisions of the Minnesota law.
The proceeds of the $15,000 loan to Batz were, at the direction of Batz, placed to the credit of the Sun Prairie Bank, it being a correspondent of the defendant, and on the same date Batz' account with the Sun Prairie Bank was credited with $15,000. Subsequently, and within a few days, Batz checked out practically the entire sum. The balance due on the Cities Housing Corporation note at the time it came into the hands of defendant was $20,714.53, and certain collections were afterwards made by defendant upon this collateral note and applied to the credit of the Batz note. On July 15, 1931, the Batz note had, by reason of these collections, on the collateral note been reduced to $9,181.79 and on that date defendant sold the collateral note for $9,281.79 to satisfy such remaining balance and costs. At the time of the transfer of the collateral note to defendant it was complete and regular upon its face and unmatured.
It does not appear from the evidence by just what chain of title plaintiff claims ownership of the note in question, by reason of the sustaining of objections to such proof by the trial court, but it sufficiently appears that one E. C. Vogt, plaintiff's husband, claimed to have acquired ownership of the note through certain transactions had by him with officers of the Sun Prairie Bank after the note had come to their hands and prior to its transfer to the defendant. Batz, Gmeinder, and Firestone were officers of the Sun Prairie Bank, and Vogt was a customer of such bank, and Vogt claims that by reason of some wrongful conduct on their part, Batz was permitted to pledge the note in question with defendant when in truth he, and not Batz, was the rightful owner of the note. Vogt's alleged interest or right in the note and mortgage nowhere appears of record and his name does not appear upon the note as an endorsee or otherwise, and no actual notice was given to defendant of Vogt's alleged rights in the note until after assignment to defendant. Under the above facts Vogt claims a wrongful conversion of the note and mortgage by the defendant and plaintiff claims to be the assignee of such cause of action.
The pertinent portions of the Wisconsin Statutes are sections 116.30, 116.32, 116.57, 116.60, 116.61, and 116.64 of the Negotiable Instruments Act.
It was conceded by plaintiff on the trial that the note was complete and regular upon its face, that defendant acquired same before maturity and for value, and that no actual notice of plaintiff's claim was given defendant until after it had accepted the note as collateral. To further recite the circumstances relied upon by plaintiff to show constructive notice to defendant of defect in the title of Batz, or to bring home to defendant knowledge of such facts as would charge defendant with bad faith in taking the instrument, would unduly lengthen this opinion without any useful purpose. It is sufficient to say that we have carefully examined the record and find it devoid of any competent proof of this element of plaintiff's case. Plaintiff undertook at the trial to go into the controverted question of plaintiff's title to the note in question but before opening up what gave promise of being an extended hearing on this question the court directed plaintiff to first offer all her proof of notice to defendant. The trial court's attitude is best illustrated in the following colloquy between the court and counsel for plaintiff:
"Mr. Joss (for Plaintiff): Do I understand from the court's ruling that we have not proved to the court's satisfaction that there are circumstances which would put that bank on notice?
"The Court: So far I am satisfied you have not proved any fact or incident or circumstance that shows any actual notice or shows any bad faith which would really be dishonest on the part of the bank receiving it. * * *
"The Court: Well, we are concerned here with a transaction which, briefly stated, is that Batz negotiated with the Madison Bank his note for $15,000, secured by a note for $22,000 of the Cities Housing Corporation, which Mr. Batz delivered to the bank, with an assignment of a second mortgage on the St. Paul property. The evidence, either in the record now or which the court is advised will be offered, is that on that day the credit of $15,000 was credited to the Farmers and Merchants Bank of Sun Prairie. So far the record is silent as to any actual notice the bank had of any fraud or any defect in the title of the paper negotiated, and so far as the record is now there is nothing in the record, there is no evidence in the record of any bad faith on the part of the Madison bank in its transaction, and until there is some evidence in this record establishing some instance or some fact which establishes bad faith, either actual knowledge or bad faith on the part of the plaintiff (defendant), I do not see where we are concerned with all these collateral issues at all. That is the first step. * * *
"The Court: I will agree with you the question of bad faith or actual notice is a question for the jury, but until there is some evidence in the record, some relevant or material or competent evidence in the record that tends to establish either actual notice or bad faith, there is nothing to go to the jury. What have you got in the record now, do you contend, or that you expect to submit or prove, that will establish either bad faith or actual knowledge? Now, I think, Mr. Joss, that this case is going to turn upon that point. I think that is all there is to this case now, as I can see it. Unless that is established I do not see that the plaintiff can recover.
"Mr. Joss: Your Honor, I wish also to call your attention to this fact; that invariably in these cases where the question of bona fides arises, it ...