Slaton State Bank v. Amarillo Nat. Bank

This suit was filed in the district court of Potter county by the Amarillo National Bank against the Slaton State Bank. From a Judgment of that court adverse to it, the Slaton bank has appealed to this court. The parties herein will be styled as in the trial court. The plaintiff alleged in its petition, substantially, that on or about the 1st of September, 1925, J. K. Wood, who was on that date, prior thereto, and subsequent thereto, the duly authorized vice president of the defendant bank, came to Amarillo and to plaintiffs banking house, bringing with him two certain promissory notes with a view of selling them to the plaintiff, or making some arrangement with plaintiff by which the defendant bank might procure money on or for the notes, and, while in plaintiffs bank in Amarillo, the said J. K. Wood, active vice president of defendant bank as aforesaid and at the time acting for and on behalf of the defendant bank, as its duly authorized officer and agent in said transaction, proposed to sell the said two notes, which belonged to the defendant bank, to plaintiff under an agreement to repurchase same on stated dates, or to take said notes up, authorizing plaintiff to charge said notes to the account of the defendant on the repurchase dates mentioned, if the defendant should have funds on deposit with plaintiff bank on said repurchase dates, sufficient to take care of said two notes and, if not, the defendant agreed to take up said two notes upon request made by plaintiff; that said proposition so made by said J. K. Wood, as active vice president and duly authorized agent of the defendant bank, was in writing, and substantially as follows: "Sept. 1, 1925. "The Amarillo National Bank, Amarillo, Tex. — Gentlemen: Inclosed find two notes, one for $5,500, signed by W. A. Wood, in favor of himself, that matures Nov. 15, 1925; the other for *Page 640 $4,500; signed by J. F. Anton and R. G. Murray, due Oct. 27, 1925. "The first note is indorsed by W. A. Wood, J. K. Wood, and the Slaton State Bank, the latter indorsement being without recourse. "Please credit our account with the proceeds of these notes, and we hereby agree to repurchase the first mentioned note on Nov. 1, 1925, and the other on Oct. 27, 1925, at which date you are authorized, to charge same to the account of the Slaton State Bank, if we have sufficient funds with you to take care of same; if not, we agree to take notes upon request. "Yours very truly, "The Slaton State Bank, "By J. W. Wood, Vice President." Plaintiff further alleged that the written proposition so made by the defendant, through its active vice president and agent, J. K. Wood, as above set out, was duly considered by the plaintiff, and by it accepted, and thereupon the said two notes referred to and described in said written proposition of September 1, 1925, were delivered by said J. K. Wood to plaintiff; that is to say, one note in the principal sum of $5,500 dated at Slaton, Tex., August 15, 1925, signed by W. A. Wood, and indorsed in blank by W. A. Wood and J. K. Wood, and also indorsed without recourse by the Slaton State Bank, said indorsement of the Slaton State Bank being made by J. K. Wood, its vice president, payable 90 days after date, and payable to the order of W. A. Wood, the signer thereof, at the Slaton State Bank, in the town of Slaton, Lubbock county, Tex., with interest from maturity at the rate of 10 per cent. per annum, and providing, if said notes should not be paid at maturity, and should be placed in the hands of an attorney for collection, or if suit thereon should be had, or collected through a probate court, 10 per cent. additional on the amount due thereon should be paid as attorney's fees, the makers, signers, indorsers and guarantors of said note severally waiving presentment for payment, demand, notice, etc., and waiving diligence in bringing suit, and agreeing to all extensions, etc.; and one other note, whch is known as the Anton note, and which is not further described, because same was taken up in accordance with the provisions of the written repurchase agreement. The plaintiff further alleges that said written proposition was accepted by it, and the two notes were indorsed to it for a valuable consideration paid by plaintiff, to wit, the sum of $9,900.41, which said sum represented the full value of said two notes, less $99.50 interest, which was deducted from the face value thereof, and the defendant was given credit on the books of the plaintiff for said sum of $9,900.41, which defendant has by check and otherwise withdrawn from plaintiff bank. Plaintiff further alleges the payment of the Anton note, and eliminates it from the case; that the said Wood note was not paid, although demanded of defendant, to plaintiff's damage, $6,500; that defendant was bound and obligated by said repurchase agreement to pay plaintiff the full value of said Wood note; that defendant had no funds with plaintiff on November 1, 1925, nor at any time subsequent thereto, out of which said Wood note could be paid, or which said note could be charged against. Plaintiff's petition closes with the following prayer for relief: "Wherefore, premises considered, plaintiff prays for citation and service thereof on the defendant in terms of law, and that, upon final hearing hereof, plaintiff have and recover judgment against the defendant for a sum of money equal to the amount due upon said $5,500 note, including principal, interest and attorney's fees, in accordance with the terms and provisions thereof, for costs of suit, and for general and special, legal and equitable, relief." Defendant filed its plea of privilege to be sued in the county of its legal residence, Lubbock county, Tex. Plaintiff filed its controverting affidavit, and defendant filed answer thereto. Defendant's answer to the merits contains general and special exceptions, general denial, and plea of non est factum. No question arises on the sufficiency of the plea of privilege. We are confronted with 32 propositions, based upon 19 assignments of error, which are presented in the appellant's brief. We cannot possibly spare the time or space considering each in the order in which they come, but we will discuss such questions only as we think are material to the disposition of the appeal in this case. As stated, in reply to defendant's plea of privilege, the plaintiff has filed its controverting affidavit, in which it contends, the defendant being a corporation, that this suit was based upon a written contract, as alleged in plaintiff's petition, by the terms of which the defendant agreed to repurchase the notes therein mentioned, referred to and made a part of the controverting affidavit; that by virtue of and under article 1995, subd. 23, of the Revised Civil Statutes 1925, it is provided that "suits against a private corporation, association or joint stock company may be brought in any county in which the cause of action, or a part thereof, arose," and that the contract alleged in plaintiff's petition, executed by the defendant, was made by the defendant in Potter county, Tex., and that by reason thereof the venue of the cause is properly laid in Potter county; that the allegation in defendant's plea of privilege that none of the exceptions to the exclusive venue in the county of one's residence, mentioned in the statutes, is untrue. Upon the trial of the issues involved and presented under the plea of privilege and the controverting affidavit, the following facts were established by the evidence, and such evidence, by agreement of counsel, was also *Page 641 considered by the trial judge in his hearing on the merits of the case: The Slaton bank is a banking corporation, organized under the laws of the state of Texas, with its principal office for the transaction of its business at Slaton, Lubbock county, Tex.; that J. K. Wood was, at the time of the transaction which resulted in the making of the contract sued on, said bank's active vice president, managing its business; that said J. K. Wood owned 175 of the 250 shares of the capital stock of defendant bank; that said Wood went to Amarillo, Tex., and presented to the Amarillo bank the two notes described above, and attempted to sell and discount them to said Amarillo bank; that the Amarillo bank agreed to take the notes on the condition that the Slaton bank would execute and deliver to it the repurchase agreement set out above; that J. K. Wood agreed to this, and did then and there make and deliver to the Amarillo bank the repurchasing agreement sued on in the beginning, in which that bank transacted its business in the city of Amarillo, Potter county, Tex., and turned over to said bank the two notes and repurchase agreement above described. While the plea of privilege presents a prima facie right of defendant to have the case transferred to Lubbock county, yet, under the allegations of the controverting affidavit, and the proof submitted, the trial court correctly overruled it, for the reason that the evidence clearly and beyond controversy shows that the cause of action arose in Potter county. The proposition was made by Wood and accepted by the bank upon the condition it interposed, and the transaction was fully closed in Potter county. Lakeside Irrigation Co. v. W. C. Hedrick Constr. Co. (Tex.Civ.App.) 230 S.W. 1057; Early-Foster Co. v. A. P. Moore's Sons (Tex.Civ.App.) 230 S.W. 787; Lummus Cotton Gin Sales Co. v. Mills (Tex.Civ.App.) 233 S.W. 126; Sealy Oil Co. v. Barronlan (Tex.Civ.App.)282 S.W. 315; Owens Refining Co. v. Schweitzer (Tex.Civ.App.) 275 S.W. 232; White Point Dev. Co. v. Seagraves (Tex.Civ.App.) 278 S.W. 855. The case having been tried upon its merits, was the judgment of the trial court warranted by the law and the evidence introduced? J. K. Wood was the active vice president of the defendant, managing its business. The plaintiff bank had received from the defendant bank a signature certificate, giving the names and official signatures of its officers, among which was that of J. K. Wood, its vice president. There was also in evidence a copy of a resolution passed by the board of directors of defendant bank, and duly entered on the minutes of said bank, of April 29, 1925, in words as follows: "By unanimous vote the vice president and cashier was authorized to rediscount, sell without recourse, and to borrow money and to pledge therein any of the bills receivable that may now or hereafter belong to the said bank that may seem necessary to them for the best interests of said bank." At the time of the occurrence of the transaction sued on herein, the Amarillo bank did not know that this resolution was in existence, but, regardless of this want of knowledge of the officers of the plaintiff bank, this resolution having been duly passed by the directors, and having been entered on their minutes, the question is brought before us: Did such resolution authorize J. K. Wood, as such vice president, to execute such repurchase agreement for the defendant bank? The writer is of the opinion that it did. The Amarillo bank did not accept the notes on the status of their indorsement "without recourse," but demanded an independent agreement from defendant bank that it would permit it to be charged against funds to defendant bank's credit in plaintiff bank, or that defendant bank would, on named dates, take up such notes. The fact that the notes were indorsed without recourse does not preclude the making of this independent agreement. Central State Bank v. First State Bank (Tex.Civ.App.) 276 S.W. 941, writ denied. It appears from the evidence that the W. A. Wood note had never been in the Slaton bank, and that it was apparently a forgery. The father of J. K. Wood testified that he did not execute it, or authorize its execution, and this is not controverted. But that fact did not militate against the legality of the instrument upon which the Amarillo bank relied, the repurchase agreement. The transfer of the two notes to the Amarillo bank operated merely as constituting them collateral security. Washington County State Bank v. Central Bank Trust Co. (Tex.Civ.App.)168 S.W. 456; Central State Bank v. First State Bank, supra. But, should it be conceded that the resolution of the board of directors did not authorize its vice president to conclude the repurchasing agreement with the Amarillo bank, there is another and conclusive reason why the trial court's judgment should be affirmed, which we will now discuss. As stated, when the Amarillo bank concluded its deal with J. K. Wood by accepting the two notes and the repurchase agreement, it immediately credited the Slaton bank with the amount of the face value of the notes, less a small interest charge, and mailed to the defendant bank a credit slip showing such amount deposited. This slip the cashier of defendant bank denies receiving, but the transaction was noted in the records of the Slaton bank. On September 2, 1925, a debit slip was made by the Slaton bank, debiting the Amarillo bank with $9,900.41, being the exact amount of the credit given to defendant bank on September 1, 1925, on the books of *Page 642 Amarillo bank. The cashier of the defendant bank testified: "When banks correspond in the manner interrogated about, they have a way of reconciliating their various statements. It is done just like personal statements. In other words, if the Amarillo National Bank credits the Slaton bank with $9,900.41, if we get notice of it, we debit the Amarillo National Bank with that amount on our general ledger. Then in due course of time we pass statements between each other so as to show how our accounts stand, and, if there is any error made in the credit between the Amarillo bank and the Slaton bank, we rectify the error. The credit that was given by the Amarillo National Bank to the Slaton State Bank, and the debit given by the Slaton State Bank to the Amarillo National Bank was rectified by reconciliation statement. * * * When we learned that the Amarillo National Bank had credited us with $9,900.41, we had to make a credit slip to Amarillo's account for that amount of money to offset the credit they had given. It went on our general ledger, showing their account between the Amarillo National Bank and the Slaton State Bank as shown by our debit slip." Carl George, assistant cashier of defendant bank, on September 3, 1925, received a telegram from J. K. Wood, dated at Corsicana, Tex., in words as follows: "Arrived eleven Wire Amarillo National Bank credit my account fifty-seven hundred dollars Charge my account J. K. Wood." Acting upon this telegram from Wood, the Slaton bank sent the Amarillo National Bank, on September 3, 1925, the following telegram: "Charge our account and credit J. K. Wood fifty-seven hundred dollars. "Slaton State Bank." On receipt of this telegram, the Amarillo National Bank credited J. K. Wood's account with the $5,700, and charged that amount to the Slaton State Bank, as requested, and such amount so credited to Wood was by him checked out of the Amarillo bank. When the telegram to the Amarillo bank was sent, the Slaton bank credited the Amarillo National Bank with the sum of $5,700 on its books. Under these facts we hold that the Slaton State Bank accepted and disposed of the proceeds of the repurchase agreement, and is estopped to deny liability thereon. First Guaranty State Bank v. Liberty State Bank (Tex.Civ.App.) 260 S.W. 660; Farmers' State Bank v. First State Bank (Tex.Civ.App.) 260 S.W. 664; Goldstein v. Union National Bank,109 Tex. 555, 213 S.W. 584; Kendrick State Bank v. First National Bank (D.C.) 206 F. 940. It is true that the Slaton State Bank has shown that the money so received by it was obtained by it for the individual account of J. K. Wood, and this is set up as establishing the fact that it did not receive any profit from the transaction. If the vice president of the Slaton State Bank obtained the money by fraud, or illegally, he obtained it after it had been placed to the credit of defendant bank, and when it was the property of said bank, and he secured the money through the direction of the Slaton bank given to the Amarillo bank to pay it to him. The Slaton bank had elected J. K. Wood as its vice president; had directed him to manage its business; and then tinally secured the money from the Amarillo bank for him. We think this is essentially a case wherein, leaving out the legal phrases, we should apply the equitable maxim "that he who trusts most must suffer most." Since the preparation by me of the foregoing opinion Judge HALL has filed his dissenting opinion, which, I believe, is based upon a misapprehension of the record, and that his findings upon the vital issues discussed by him are not supported by the record. In the first place, I did not discuss the question of the invalidity of the transaction here in controversy on the ground of public policy, for the reason that I do not believe that such question has any place in the discussion of this record, and will give my reasons for this statement. The Amarillo National Bank was doing business in the city of Amarillo, and had, as one of its correspondents, the Slaton State Bank. That bank had supplied the Amarillo bank with the genuine signatures of its officers, including that of the managing vice president, J. K. Wood. Some time after this Wood appeared in the Amarillo bank, and wanted to negotiate the sale of the two notes in controversy. These notes were indorsed by the Slaton State Bank "without recourse." As to what transpired on that occasion we have the testimony of two of the Amarillo bank's officers, Mr. Charles Ware, vice president, and Mr. S.D. Vaughn, cashier. On the question of "effort" to deceive the banking department by the indorsement of the note "without recourse," Mr. Vaughn, after testifying that he was acquainted with J. K. Wood, and that he had been informed by the Slaton State Bank of the signature of Mr. Wood, and was familiar with it at that time, that he was dealing with Mr. Wood as the vice president of the Slaton State Bank, under and by virtue of the signature identification, says: "He (J. K. Wood) applied to the Amarillo National Bank for a loan for the Slaton State Bank, and offered to put up these two notes mentioned — the Anton note for $4,500, and the W. A. Wood note for $5,500. He wanted us to rediscount them, and we told him we would rediscount them with the understanding that he would give us an agreement to repurchase, and so he agreed to do, and he signed the agreement of repurchase that is submitted here in the case. * * * After that instrument was executed by Mr. J. K. Wood, as vice president of the Slaton bank, the Amarillo National Bank credited the account of the Slaton State Bank with the two *Page 643 notes mentioned, less discount. One of the notes I refer to is the J. F. Anton note of $4,500, and the other is the W. A. Wood note of $5,500. We gave Mr. J. K. Wood a duplicate of the deposit slip. J. K. Wood, the vice president of the Slaton State Bank, delivered to us this W. A. Wood note with the Anton note and the repurchase agreement. * * * To give the defendant the Slaton State Bank credit for the proceeds of those notes and repurchase agreement, we credited their account on the general ledger. In other words, the Slaton State Bank, on September 1, 1925, received credit for $9,900.41, which was the proceeds of the Anton note and the W. A. Wood note, less the discount. This fund was placed to the credit of the Slaton State Bank, subject to their check. I have a statement here from our general ledger concerning that matter. This is a statement of the whole account. The defendant, Slaton State Bank, received credit for the proceeds of the two notes mentioned in the repurchasing agreement in the Amarillo National Bank on the date September 1, 1925, in the amount of $9,900.41. As shown by the general ledger of our bank, the defendant Slaton State Bank withdrew those funds. * * * In other words, to make a long matter short, the Slaton State Bank received credit on the books of the Amarillo National Bank for the proceeds of the Anton note and the W. A. Wood note, and we held that fund in the Amarillo National Bank to the credit of the defendant, the Slaton State Bank, until they had withdrawn all those funds. * * * The repurchase agreement sued on was executed in Amarillo, signed by the Slaton State Bank by J. K. Wood, vice president, and was accepted by the Amarillo National Bank in Amarillo. * * * I have been in the banking business something like 15 or 18 years, and have had occasion to study up and become informed as to the law applying to the loan merchant and the law applying to negotiable instruments. It might be that a restricted indorsement or the use of the words `without recourse' in connection with an indorsement on a note means that the indorser is not agreeing to pay the note, and is merely transferring it. That is often done. I don't know that such an indorsement `without recourse' necessarily implies that the indorser is not agreeing to pay the note. I know that usually an indorser who indorses `without recourse' is not liable. You ask what my idea is of my liability to Mr. Lumpkin if I transfer a note with the indorsement, `S. D. Vaughn. Without recourse.' That kind of an indorsement might be made many times for a certain purpose. If it is desired that it shall not show as a liability on the bank's books, they show it without recourse, but at the same time the bank might be held liable by a repurchase agreement or some other kind of an agreement. I did not know then that, when defendant indorsed the note `without recourse,' and at the same instant signed a repurchase agreement, one simply annulled the other. I understood it this way: That he wanted to indorse that `without recourse,' so it would not show in the liabilities of the bank, but we wanted protection, and, if he wanted to handle it that way, it was satisfactory with us. I don't know whether they carried their records in such a way as that the transaction would still show in the liabilities of the bank when they indorsed the note `without recourse,' and at the same time executed a repurchase agreement. It did not change the liability of the bank to handle the transaction that way. I understand as a banker that there is nothing about that note to show the liability of the Slaton State Bank for the payment of it; and, if there is any liability on the note, it must exist by virtue of some instrument not connected with, or attached to, the note, and that I claim is the repurchase agreement he executed at that time." Mr. R. C. Ware, vice president of the Amarillo National Bank, nowhere testified to any knowledge that the notes taken by the Amarillo bank were indorsed "without recourse" for the purpose of deceiving the banking department. It will be borne in mind also that the record nowhere discloses that the officers of the Amarillo National Bank had any notice that the W. A. Wood note was a forgery, and in making the loan to J. K. Wood for the Slaton State Bank they required and relied upon the repurchasing agreement. Mr. Ware, the vice president of that bank, testified: "Under the agreement we reached, we were to let the Slaton State Bank have the money on these notes. The agreement was made in the Amarillo National Bank in Amarillo, Potter county, Tex. The Amarillo National Bank accepted the agreement from the Slaton State Bank in Amarillo, Potter county, Tex., and by virtue of that agreement received the two notes mentioned in the agreement, and gave the defendant, Slaton State Bank, the proceeds of the two notes, less the accumulated interest or discount, and upon our books defendant received such credit. The Slaton State Bank checked those funds from the Amarillo National Bank, and closed out the account within about six weeks or two months, or eight or ten weeks after that. As a matter of fact, the account was closed out some time after the maturity of this last note." I think it is clear from the foregoing testimony that the Amarillo National Bank had no purpose of assisting in deceiving the banking department; that the purpose solely and only was to make a loan to the Slaton State Bank, having confidence in that bank repaying the money under the repurchase agreement; and that the transaction, so far as the Amarillo National Bank is concerned, was not criminal. I cannot take the space to attempt to fully reply to Judge HALL'S somewhat lengthy opinion in detail, but, in addition to quoting the testimony of the bank's officers, I also wish to call attention to a few other matters in which I think Judge HALL'S opinion is wrong. He says that the Slaton State Bank never received any of the proceeds of the forged note. I again reiterate that the money was deposited by the Amarillo National Bank to the credit of the Slaton State Bank, and was paid out by the Amarillo bank upon a telegram from the Slaton bank. This was an appropriation of the money by the Slaton bank, and it matters not *Page 644 that J. K. Wood ultimately received the proceeds of the money. He received it by the order of the Slaton bank, and hence the Slaton bank appropriated every penny of it. The plaintiff's petition alleges the transaction, alleges that the money was deposited by it to the credit of the Slaton State Bank, and was by that bank checked out. While this pleading was not labeled "estoppel," the facts pleaded are tantamount to the pleading of estoppel. While we have not discussed every question raised by the appellant's propositions, we have given them due consideration, and hereby affirm the judgment of the trial court.