Summary
finding adverse interest exception applicable to knowledge of an agent, who was a vice president and loan officer for the bank, that entered false information on defendant's loan applications and received payments from defendant totaling more than fifty thousand dollars
Summary of this case from Schmidt v. Fortis Ins. Co.Opinion
No. 4-407 / 03-1246.
July 14, 2004.
Appeal from the Iowa District Court for Jasper County, Gregory A. Hulse, Judge.
A debtor appeals from an adverse judgment in a replevin action, in which his creditor was granted possession of collateral that secured payment of multiple defaulted loans. AFFIRMED.
John J. Gajdel of Berger Gajdel, P.C., Urbandale, for appellant.
Donna R. Miller of Grefe Sidney, P.L.C., Des Moines, for appellee.
Considered by Mahan, P.J., and Zimmer and Eisenhauer, JJ.
First Federal Bank (the Bank) filed a petition for replevin, see Iowa Code ch. 643 (2001), seeking possession of six motor vehicles, two boats, and one travel trailer that were in Mark Delaney's possession. The items secured payment of consumer loans made by the Bank to Mr. Delaney. At trial, Mr. Delaney asserted that the loans were illegal. The trial court granted the petition, and Mr. Delaney appealed. We review a replevin action for correction of errors of law. Iowa R. App. P. 6.4; Prenger v. Baker, 542 N.W.2d 805, 807 (Iowa 1995).
In 2000 and 2001, Mr. Delaney obtained fifteen loans from the Bank, totaling $243,488.32. He secured his performance with the various items of collateral listed above but was unable to meet his obligations. After providing him with the required notices to cure, the Bank filed this action, at which time Mr. Delaney's combined delinquency was $194,199.61.
The Bank's representative in the relevant transactions was Everett E. Cook, a vice president and loan officer for the Bank. On numerous occasions, Mr. Cook entered false information on Mr. Delaney's loan applications. Most notably, Mr. Cook would inflate Mr. Delaney's income to increase the likelihood of approval. Mr. Cook, on one application, overstated Mr. Delaney's annual income by over fifty thousand dollars. In the end, Mr. Delaney's monthly payments to the Bank exceeded his gross monthly income.
In addition to purchasing the property listed above, Mr. Delaney used the loan proceeds to pay off other Bank loans as they came due. On multiple occasions, he also gave money, totaling at least fifty thousand dollars, to Mr. Cook. Mr. Delaney, who testified that he considered these transfers to be loans and expected to be repaid, stated that he wanted to help Mr. Cook out because they "were friends." He testified he trusted Mr. Cook and did not find anything improper about making a personal loan to a loan officer. Mr. Delaney was not alone in giving money to Mr. Cook after Mr. Cook had made false entries on loan applications. As the District Court noted, "Delaney and others were encouraged to borrow funds from [the Bank], pledge personal property items as collateral and then give all or a portion of the loan proceeds to Cook." After customers complained about making loans to Mr. Cook, the Bank fired him. In May 2002, Mr. Cook was charged with multiple felonies for similar transactions, and he pled guilty to thirteen counts of fraudulent practices in December 2002. Mr. Delaney was not charged or investigated in Mr. Cook's criminal case. Mr. Delaney was incarcerated from 1992 to 2000 after he pled guilty to eight counts of theft by deception. At trial, he acknowledged his crimes were similar to Mr. Cook's crimes and that he was "a very good liar and thief."
Mr. Delaney was under no duress when he made these transfers to Mr. Cook. He testified Mr. Cook always had him sign blank loan documents. When Mr. Delaney need to sign a completed document, such as a computer generated form, he testified Mr. Cook folded them before presenting them for signature so Mr. Delaney was unable to read them. He testified he paid many of the disputed loans in full. The District Court found that these statements, and much of the rest of his testimony, were "not believable." Substantial evidence supports the trial court's conclusion that he was fully aware of Mr. Cook's actions.
Noting that the contracts were based on false loan applications, Mr. Delaney urges us not to enforce the contracts based on their illegality. It is well established that Iowa courts will not enforce an illegal contract, Marienthal, Lehman Co. v. Shafer, 6 Iowa 223, 225-26 (1858); however, it is just as well established that this rule applies only to the parties to the illegality or "so closely associated or connected therewith as to be held in law to be in pari delicto," Geo. Birrell, Inc. v. Fidelity Cas. Co., 193 Iowa 860, 874, 188 N.W. 26, 32 (1922).
Mr. Delaney's defense turns on whether the Bank and Mr. Delaney were in pari delicto. He asserts they were in pari delicto because Mr. Cook made the loans in the course of his employment with the Bank.
Mr. Delaney's argument is not supported by the facts. The trial court found that Mr. Cook's actions were harmful to the bank and a clear departure from his role as a loan officer. The judge in Mr. Cook's criminal case stated the Bank was the "primary victim" of his fraudulent practices. There was no evidence presented that the Bank knew of Mr. Cook's conduct until it was brought to the Bank's attention by another customer. In Home Indemnity Co. v. State Bank of Ft. Dodge, 233 Iowa 103, 125-27, 8 N.W.2d 757, 772-73 (1943), our supreme court stated that a principal is not charged with knowledge of an agent's actions where the agent's actions are a fraud upon the principal and the agent concealed his actions from the principal.
That rule applies here. In fact, it seems custom-made for this case. An agent cannot bind his principal by frauds upon his principal that he conceals from his principal. Mr. Cook concealed his unauthorized and criminal actions from the Bank. The Bank, not charged with knowledge of Mr. Cook's actions, and Mr. Delaney are not in pari delicto. The Bank is entitled to obtain possession of the collateral.
Whether or not specifically addressed in this opinion, we have considered all issues briefed and argued and affirm the judgment of the district court.
AFFIRMED.