Houston Nat. Exch. Bank of Houston v. Sapp

Findings of Fact. JENKINS, J. The plaintiff, T. M. Sapp, sued out a writ of garnishment on September 30, 1920, ancillary to a suit filed on the same date against the Columbian Refining Company; the amount sued for by plaintiff being the sum of $2,000. Said writ of garnishment was directed to the Planters’ National Bank of Rosebud, Tex., and was served on said bank on the day of issuance. Judgment was thereafter rendered in favor of plaintiff against Columbian Refining Company for $2,000, with interest from -, which judgment remained unpaid at the time of trial of the garnishment proceedings, and at the time of entering judgment therein. Garnishee, Planters’ National Bank, filed an answer on January 8, 1921, admitting that at the time of service of said writ there was on deposit at said bank to the credit of the Col-umbian Refining Company the sum of $2,000, represented by garnishee’s certificate of deposit No. 511, dated July 8, 1920, and reciting that said amount was due three months after date and that said instrument was nonnegotiable. Garnishee impleaded Houston National Exchange Bank on an allegation that said bank claimed to hold said certificate-of deposit as its property. Garnishee’s answer showed no indebtedness or liability on its part other than as represented by said deposit of $2,000. Garnishee bank became the depository of the $2,000 under the following circumstances: The Columbian Refining Company proposed to erect' a gasoline and oil filling station in the town of Rosebud, and desired to have citizens of that town become interested in said enterprise, representing to certain citizens of said town' that if they would buy stock said company would erect the filling station in part with the- money thus raised locally. It was understood and agreed between the agents of Columbian Refining Company and said Rosebud purchasers of stock that their money would all be used in the erection of said filling station, and that none of said money would leave said town, but would be deposited in the Planters’ Na *300 tional Bank and kept there until paid out for the construction of said filling station; that said agreement and arrangement was communicated to said bank, and something over $4,-000 was deposited in said bank in pursuance of said agreement. The bank issued its time certificate of deposit to Columbian Refining .Company, and on representations of the latter’s agent that the money would remain there some time before used in the construction of said filling station, the bank agreed to pay three per cent, interest on said deposit. Said certificate contained the statement: “This certificate is not subject to check and is not negotiable.” Thereafter, and before maturity, and before maturity of said certificate of deposit, the Houston National Exchange Bank became the owner of said certificate of -deposit by purchase of same for value from the Columbian Refining Company, said Houston Bank having no notice of any infirmity or interest in said fund in any third, party except in so far as charged with notice by reason of the provision in said certificate above quoted. When said certificate became due, demand was made on the Planters’ National Bank by Houston National Exchange Bank for payment of same, and payment was refused on account of the special agreement as to the purpose and disposition of s^id fund as above set forth. At this time the filling station had not been constructed. Thereafter, the Columbian Refining Company having purchased and shipped material to Rosebud for the construction of said station, a part of said fund was paid out and a new certificate for the balance of $8,000 issued in the name of the Columbian Refining Company, and forwarded to the Houston National Exchange Bank. Columbian Refining Company then entered into a contract with plaintiff, T. M. Sapp, for the construction of the said filling station, representing to him that the money was in the bank and he could get it; the money referred to being the balance on deposit in the Planters’ National Bank. Plaintiff was told by Columbian Refining Company’s agent that said money was in said bank and was put in there for the purpose of paying said contract price. Based upon said representations, plaintiff agreed to construct said filling station for the sum of $2,000, and did so in full compliance with his contract. Planters’ National Bank understood that said fund when deposited was to be used for purchasing material and for the erectión of said filling station. Upon completion of said station, plaintiff drew upon the Columbian Refining Company through the Planters’ National Bank for the amount agreed to be paid him, and after Columbian Refining Company had failed to' pay said draft, plaintiff entered suit and had the writ of garnishment served on said Planters’ National Bank. The foregoing findings of fact by the trial court are sustained by the evidence, and are adopted by us with this addition: At the time the contract was entered into between the Columbian Refining .Company and Sapp for the erection of the filling station, and the agent of the refining company represented to Sapp that the money to pay for erecting the station was in the bank and he could get it, the cashier and agent-of the ■bank was present and assented to such statement. The agent of the refining company referred to the $2,000 balance paid by citizens of Rosebud to be held in trust by the bank for the purpose of paying for the erection of the filling station, and the cashier of the bank so understood. The contract with Sapp for the erection of the filling station was made a few days prior to the issuance of the $2,000 certificate. The Houston Bank, at the time the $2,000 certificate was issued, knew of the agreement of the refining company to leave the money paid by the citizens of Rosebud for stock in said company, in the Rosebud Bank, and to use the same in payment for the construction of the filling station and for no other purpose. Sapp had no knowledge of any claim of the Houston Bank on the money in the Rosebud Bank when he made the contract to erect the filling station. The certificate for $2,000, involved in this appeal, read as follows: “$2,000.00. July 8th, 1920. The Planters’ National Bank, Rosebud, Texas. No. 511. This certifies that Columbian Refining Company has deposited in this bank 'two thousand dollars payable to the order of themselves in current funds on the return of this certificate properly indorsed, three months after date with interest at 3 per cent, per annum, for the time specified. This certificate is not' subject to check and is not negotiable. [Signed] E. A. Donaldson, Cashier. No interest after maturity.” The original certificate for $4,100 was the same in all respects as the above certificate, except as to date, number, and amount. E. A. Donaldson, cashier of the Rosebud National Bank, was one of the ’ citizens of Rosebud who subscribed for stock in the Co-lumbian Refining Company, under the agreement that the same should be deposited in said bank and expendéd in the construction of the filling station. The court filed the following conclusions of law: “Conclusions of Law. “By virtue of the representations and agreement between the Columbian Refining Company and the persons from whom said fund was raised, the deposit of $2,000 in the Planters’ National Bank became a trust fund, which was received by said bank as such and intended and agreed to be expended for the construction of the filling station, and the parties to said agreement had a right to demand that said fund be so applied, and the Houston National Exchange *301 Bank acquired said certificate of deposit subject to the carrying out of the said agreement. That the transaction between Columbian Refining Company and the plaintiff Sapp with reference to said fund amounted to an assignment of same to said plaintiff. I therefore conclude that tl>e plaintiff is entitled to recover said $2,-000 fund and ‘to recover of defendant Houston National Bank all costs herein.” Judgment was rendered in accordance with said conclusions of law. Opinion. Appellee Sapp filed suit agáinst the Colum-|bian Kefining Company for $2,000, the price agreed to be paid to him for erecting a filling station at Rosebud, Tex., and, at the same time, he sued out a writ of garnishment against the Rosebud Bank. He afterwards obtained judgment against the refining company for the amount sued for. The Rosebud Bank answered, among other things, that it held $2,000 on deposit in the name of the refining company. Had it not further answered, of course, Sapp would have been entitled to judgment against the bank for that amount. However, the Rosebud Bank, in its answer, stated that the appellant was claiming the $2,000 by virtue of a certificate of deposit issued for the same; which certificate was No. 511, dated July 8, 1920, and reciting that said amount was due and payable three months after date, and that said instrument was nonnegotiable, and that the bank was indebted to whoever might be entitled to the $2,000, and was ready to pay tlie §ame when that issue was determined. It prayed that the appellant be made a party, and that the right to said $2,000 might be adjudicated, to the end that the garnishee should be fully protected by the judgment of the court. The appellant filed an answer, in which it alleged that it was the owner of the certificate referred to; that it had purchased a like certificate for $4,100, issued to the refining company, paying therefor a valuable consideration, without notice other than was indicated by the certificate itself, and that subsequently $2,100 was paid on the certificate last mentioned, and a new certificate for the balance of $2,000 was issued, of which it was •the owner; and prayed judgment against the Rosebud Bank for that amount. Appellee answered the petition of the Houston Bank, alleging that the $2,000 was held in trust by the Rosebud Bank, by reason of the agreement referred to in the findings of fact and his contract with the refining company. Thus it will be seen that while the suit against the Rosebud Bank was originally that as garnishee, under the pleadings upon which the parties went to trial, the suit became one in equity to determine the rights of Sapp and the Houston Bank to the $2,000 referred to. The statement contained in the certificate of deposit that the same was nonnegotiable rendered it subject to all defenses against the Houston Bank that were available against the refining company. Subject to such defenses, the Houston Bank became the owner of the certificate of deposit. Articles 583 and 584, Revised Statutes, read as follows: “Art. 583. The obligee, or assignee, of any written instrument not negotiable by the law merchant may transfer to another, by assignment. all the interest he may have in the same. “Art. 584. The assignee of any instrument mentioned in the preceding article may maintain an action thereon in his own name, but he shall allow every discount and defense against the same which it would have been subject to in the hands of any previous owner before notice of the assignment was given to the defendant; and in order to hold the assignor as surety * * * of the instrument the assignee shall use due diligence to collect the ‘ same.” See 2 R. C. L. 629, 630. Such being the law, the inquiry is: What defenses could have beenunade by the maker of the certificate against the refining company, had the refining company drawn on the Rosebud Bank for this amount before erecting the filling station? We think it clear that the bank could have refused payment, upon the ground of its duty as trustees for those who had provided the fund. This is what the Rosebud Bank did when the Exchange Bank demanded payment of the $4,100 deposit. The filling station had not been begun at that time. Soon thereafter the refining company purchased, paid for, and delivered at Rosebud a lot of material to be used in the erection of the filling station. Thereupon the Rosebud Bank agreed to pay out of the fund on deposit with it the price of such material, the same being $2,100, and to issue another certificate to the refining company for the sum of $2,000, conditioned the same as the certificate for $4,100. In this transaction, the Rosebud Bank informed the Houstbn Bank that it did not consider it as having any interest in the certificate, and that its dealings were with the refining company only; and the certificate for $2,000 was issued to the refining company. For the reasons stated, we hold that the appellant had no right to demand payment of the .$4,100 certificate at the time the same matured. But the question here presented is: What were the rights of the Houston Bank to the $2,000, evidenced by the last certificate? The conditions at the time this suit was brought had changed to this extent, the filling station had been completed, and it is the contention of appellant that thereupon the trust relation of the bank as to the $2,000 ceased. We do not think so. It was, of course, the purpose of the subscribers to the refining company’s stock to secure thereby the erec *302 tion of the filling station in Rosebud, for the benefit that they as citizens of that town would derive from the erection and operation of such station. But, in order to secure the erection of the station, their agreement with the refining company was that this money should not only be deposited in the Rosebud Bank until the filling station was erected, but also that it should be used for that purpose only. The benefit derived by the subscribers to the stock from this agreement was that a contract for the erection of the station could be more readily secured, by reason of the fact that the money was on deposit in the bank to pay for the same. It is contended that the appellee Sapp, not' being a subscriber to the fund, was not in privity with the subscribers, and had no right to demand that the.money be used in payment for the erection of the station. The agreement between the contributors to the fund, citizens of Rosebud, and the refining company, was for the benefit of the contractor for the erection of the filling station, whosoever he might be and when ascertained. When Sapp entered into his contract for the erection of the station, with the agreement between him, the refining company, and the bank, that he should be paid this $2,000 on deposit for erecting the station, he became the party contemplated by the original agreement, and was in privity with them, to the extent that he had 'the right to demand that the bank should comply with its duty as trustee, and pay this money to him. Of course, if the refining company had paid Sapp out of any other funds, his acceptance of the- same would have put an end to his right to demand the $2,000, and any pro rata payment to him would, to that extent, have had the same effect, for he could not have demanded that he be paid twice for the same work. So far, we have treated the relative rights of the parties to the $2,000 as if it stood on the same footing as the $4,100. • Such, however, in our opinion, is not the case. When the appellant purchased the $4,100, it had no actual notice of the trust agreement hereinbe-fore referred to; but, by reason of the certificate being nonnegotiable, it took it. subject to such trust. When the $4,100 certificate matured, it presented the same to the Rosebud Bank for payment. The Rosebud Bank refused to pay the same, and by telephone conversation and by correspondence, the appellant was informed as to the conditions upon which the $4,100 was deposited with the Rosebud Bank. Thereafter, with knowledge of such agreement, the $4,100 certificate was surrendered to the Rosebud Bank, and, in -lieu thereof, it issued the $2,000 certificate, not to appellant which i£ refused to recognize as haying any interest in the transaction, but to the refining company, and the same was made nonnegotiable. This $2,000 certificate was assigned by the refining company to the Houston Bank, in consideration of the payment made to it for the $4,100 certificate. The appellant being thus apprised of the conditions upon which the $2,000 certificate was issued, must be held to have accepted the same subject to such condition. That is to say it knew that this fund would be held" by the Rosebud Bank until the filling station was erected, and that, if not otherwise paid for, the Rosebud Bank would pay the same to the contractor. By accepting the $2,000 certificate under these conditions, it became a party to the contract as‘ to the conditions upon which the $2,000 was held by the Rosebud Bank; these conditions being that this $2,000 should be paid to Sapp, he having previously contracted to erect the station for that sum. The record does not show that appellant knew, at the time this certificate was issued, that the contract had been let to Sapp to build the station for the sum of $2,000, but knowing that this sum was held for that purpose, we think it is chargeable with notice of the fact that the contract had been made with Sapp, by virtue of which he was entitled to (he $2,000, unless he was otherwise paid for his work by the refining company. Appellant having accepted the $2,000 certificate under these conditions ought not now be heard to say that the bank should not be permitted to pay the sum represented by that certificate to the contractor. It is the duty of a trustee to discharge the thust imposed upon him. The trust, in the instant case, so imposed, was as between him and the contributors to the original fund, that it would hold such money in the bank and pay the same to whosoever might erect the filling station, and would not pay it to any one else. Its duty to Sapp, after the contract was made, by virtue of which the refining company agreed to pay him this $2,-000, was to hold this money subject to the payment of the contract price to Sapp, and not to pay it out to any other person. The trust issue raised by the pleadings and evidence in this case was properly determinable, although the suit began against the bank as garnishee. Ry. Co. v. McDonald, 53 Tex. 517; Ry. Co. v. Hume, 59 Tex. 47; Carter v. Bush, 79 Tex. 29, 15 S. W. 167. It was the duty of the trustee (the Rosebud Bank) to set up its trust relation, and at least to have notified the appellant, as it did, so thal the whole matter might be determined. The cases relied upon by appellant, to the effect that a third party cannot set up equities as against a garnishee, are not applicable. Such cases refer only to where the party attempting to set up his equities has no connection with the transaction being litigated. For instance, in the instant case, when Sapp sued the refining company and garnisheed the Rosebud Bank, it would not have been permissible for some party not connected with the transaction to have intervened' and alleged that Sapp was indebted *303 to him, and have asked that the garnishee be required to pay over to him whatever amount it might have owed to Sapp. Noyes v. Brown, 75 Tex. 458, 13 S. W. 36. On the other hand, had appellant sued the Rosebud Bank to recover the $2,000 on deposit as evidenced by the certificate, Sapp would have had the right to intervene, on the ground that he was entitled to the specific money sought to be recovered by the plaintiff therein. Appellant assigns error as to so much of the judgment of the court as required it to pay all costs in the suit, including attorney’s fee for the garnishee of $25. We do not •think that any costs, except that incurred by reason of -the contest filed by appellant, should be chargeable against it. A portion of the cost in this case was incurred before the appellant was made a party hereto, and would have been required to have been paid if the appellant had not filed any contest as against Sapp’s claim against the garnishee. The appellant has not set out, in its brief, the particular items of costs wrongfully adjudged against it, except as to an attorney’s fee of $25. However, we have examined the bill of costs, and find that the following items therein should not have been charged against appellant, namely: District Clerk’s Fees. Filing and docketing. $ 35 Appearances . 30 Filing and approving bond for garnishment .1 65 Writ of garnishment and copy. 1 50 Entering judgment. 1 00 Citation and copy. 1 25 Copy of petitions. 2 40 Taxing costs . 25 Total . $ S 70 Sheriff’s Fees. Serving -writ and mileage. $ 80 Jury fee . 50 Serving citation on appellant. 1 00 Total . Í 2 30 Stenographer’s fee. 3 00 Attorney’s fee . 25 00 Total .’.. ?39 00 If there are any other items not properly chargeable to appellant, it has failed to point out the same, as was its duty to do. As to the items of cost above referred to, the judgment herein will be reformed so as to charge the same against appellees ; otherwise the judgment of the trial court is affirmed. This reformation of the judgment requires the appellees to pay the cost of this appeal, and it is so ordered. Judgment reformed, and as reformed affirmed. Reformed and affirmed.