"The above entitled and numbered cause is now pending before us on motion for rehearing, and we deem it advisable to certify to your Honors for determination the questions arising therein, as hereinafter set forth.
"Stating the case briefly and in its chronological order, Herbert Graves was engaged in the livestock commission business on the Fort Worth stockyards during the years 1915, 1916, 1917, and until October 5, 1918, when he failed. He did business under the trade-name of the Herbert Graves Commission Company. At the time of his failure, he had outstanding checks covering the net proceeds of cattle consigned to and sold by him, aggregating some $92,000. On October 26, 1918, a petition in bankruptcy was filed against him, and he was adjudged a bankrupt on November 21, 1918. Geo. W. Steere was appointed trustee in bankruptcy on December 9, 1918, and on October 11, 1919, filed this suit in the district court of Tarrant county, Tex., to recover from the appellee Stockyards National Bank, moneys which he alleged had been applied by the bank to the payment of an indebtedness, by overdraft of Herbert Graves on the bank, it being alleged that such payment constituted an unlawful preference under the bankrupt laws, and was also in fraud of the creditors.
"E. A. Kelley and some 75 others intervened in the suit and severally sought to recover from the bank sums alleged by them to be due from Herbert Graves, as we shall hereinafter designate the Herbert Graves Livestock Commission Company, as the net proceeds of cattle shipped to and sold by Herbert Graves and deposited in the appellee bank. These interveners, who will hereinafter be referred to collectively as shippers, alleged, in substance, that such proceeds constituted trust funds, and that the bank, with knowledge of the character of the funds and with knowledge of Herbert Graves' insolvency, had applied them to the payment of Herbert Graves' indebtedness or overdraft.
"John Barton Payne, director general of railroads and nine railroad companies, also intervened, claiming items of indebtedness aggregating $5,206.29, alleging that the items of indebtedness were due from Herbert Graves to the several railroad companies. These interveners will be hereinafter designated as carriers. The carriers alleged that the sums claimed were severally due as freight charges; that, by the custom of business upon the yards at the time, they were not collected from the shippers, but were to be paid by Herbert Graves out of the proceeds of the cattle sold; that such proceeds, including said sums for freight, had been deposited in the appellee bank and by the bank applied to the liquidation of Herbert Graves' overdraft, with knowledge of the trust character of the fund.
"The appellee bank denied that it had exercised or obtained an undue preference under the bankruptcy laws, and also denied knowledge of Herbert Graves' insolvency, and denied that it had knowledge of the trust character of the funds claimed by the several interveners at the time it had applied the funds deposited by Herbert Graves to the payment of his indebtedness, alleging, in substance, that during the years specified, Herbert Graves did a large business, only a part of which consisted of selling cattle for others, and from time to time deposited large sums of money in the bank, and from time to time created overdrafts which were subsequently paid. And that, as already stated, at the time of Herbert Graves' failure, and at the time of the application of the moneys deposited by Herbert Graves to the liquidation of his indebtedness, the bank was without knowledge of the trust character of the funds.
"The trial was before the court without a jury, and resulted in a judgment in favor of the bank, except as to the sum of $317.85, which was awarded to the plaintiff trustee in bankruptcy. From this judgment the plaintiff trustee, the shippers, and the carriers have appealed, and the bank cross-assigns error to the judgment against it in favor of the trustee for the said sum of $317.85.
"The evidence is undisputed that Herbert Graves during the years 1915, 1916, 1917, and until October 5, 1918, did business on the Fort Worth stockyards as a livestock commission dealer, and that at least a part of such business was to receive consignments of cattle, sell the same, and remit the net proceeds to the shippers. He did business with the appellee bank only, and his custom during the years stated was to make deposits in his own name with the appellee bank and remit to the shippers the net proceeds of cattle sold by him for them by his personal check, except in instances, which apparently were few, where shippers demanded exchange. The deposits included his charge for commission, freights, yardage, feed charges, etc. There is no evidence tending to show that any of the shippers named in this controversy were without knowledge of such custom or made any objection thereto. In other words, we think it must be implied that the shippers consented to such method and manner of depositing and remitting of the proceeds.
"There was other evidence tending to show, and sufficient to support, the conclusion that Herbert Graves in the year 1915 had as much as $95,000, invested in the different branches of his commission business, and that later, through a government contract, he made a profit of $25,000 or $30,000. In 1915, as a basis of credit, Graves made to appellee bank a statement of the condition of his business, showing that he had $95,000 net, after payment of all debts, invested in it; the bank knew of aforesaid profit, and it heard of no losses thereafter. In the early summer of 1918, he submitted to the officers of the bank a financial statement which showed that he then had in the different branches of his commission business, other than that of selling cattle on commission for others, and after payment of all outstanding checks, between $35,000 and $50,000 in cash, and said officers, in fact, believed this statement to show the true condition of Herbert Graves' business at the time. That, from time to time, Graves created overdrafts in the bank in considerable amounts, which, previous to the closing of his business, he had promptly met; that, throughout the three years preceding his failure, the selling of cattle on commission for others was but one of several branches of his business, and of the proceeds of such business deposited by him, Mr. Sparks believed that only one-third was made up from the proceeds of cattle sold on commission for others; that the deposits were not so made in form or with
attendant circumstances as to enable the bank to distinguish between the proceeds of cattle sold for others and the proceeds arising from other branches of his business. The bank could not tell from Graves' checks to third parties for what those checks were given.
"The evidence further shows that the claims of the shippers cover the period from September 25, 1918, to October 5, 1918, and aggregate $92,889.63; that during this period, from day to day, Graves deposited the aggregate sum of $325,551.27. At the opening of business on September 30, 1918, Graves had no overdraft, but at the close of business that day the overdraft was $45,744.69. On October 1st the deposits were $43,534.98; on that day the bank paid out, on Graves' checks to third persons $22,421.95; and the overdraft at close of business was $24,631.66. On October 2d the deposits were $37,357.08, and the money paid out that day on Graves' checks to third persons amounted to $32,320.07; and the overdraft at close of business was $19,594.65. On October 3d the deposits were $41,611.91, and the money paid out that day on Graves' checks to third parties was $34,594.76; and the overdraft at close of business was $12,577.50. On October 4th the deposits were $41,957.83, and on that day the bank paid out on Graves' checks to third parties, $43,107.17; and the overdraft at close of business was $13,726.84. The deposits on October 5th reduced the overdraft to $5,478.58. The overdraft of Herbert Graves with the defendant bank was reduced from $45,744.69, the condition of the account on the afternoon of September 30th, to an overdraft of $5,478.58 on the afternoon of October 5, 1918, or in a space of six days. During the above period of time there was deposited to the credit of said account $179,132.70. During that period of time the proceeds of livestock sold on commission by Herbert Graves was deposited in said bank to the extent of $153,135.21, of which amount shippers were not paid for their cattle so sold, and the proceeds so deposited in said bank to the extent of $92889.63 being the claims represented by the defendants shippers in this case. During said period of time said banks paid checks drawn on said account to the extent of $138,886.55, therefore receiving $40,266.11 more on deposit than it paid out on...
