Ætna Casualty & Surety Co. v. Austin

• Decision Date: 20 May 1926
• Docket Number: (No. 1888.)<SMALL><SUP>*</SUP></SMALL&gt
• Citation: 285 S.W. 951
• Parties: ÆTNA CASUALTY & SURETY CO. v. AUSTIN, State Banking Com'r.
• Court: Texas Court of Appeals

Page 951

285 S.W. 951

ÆTNA CASUALTY & SURETY CO. v. AUSTIN, State Banking Com'r.

(No. 1888.)^*

Court of Civil Appeals of Texas. El Paso.

May 20, 1926.

Rehearing Denied June 10, 1926.

Appeal from District Court, Eastland County; Elzo Been, Judge.

Suit by Chas. O. Austin, State Banking Commissioner, against the Ætna Casualty & Surety Company and another. Judgment for plaintiff, and defendant named appeals, and plaintiff cross-appeals. Affirmed in part, and in part reversed and remanded.

Lawther, Pope, Leachman & Lawther, of Dallas, and Conner & McRae, of Eastland, for appellant.

Spencer & Rogers, of San Antonio, for appellee.

HIGGINS, J.

This is a suit by the commissioner of banking against O. H. Taylor, and the Ætna Casualty & Surety Company. Upon trial without a jury, the plaintiff recovered judgment against Tayler for $7,776.74, the amount of the principal, interest, and attorney's fees due upon his note for $4,914.31, hereinafter mentioned, and against the Ætna Company for $1,500. The Ætna Company appeals. The commissioner presents cross-assignments. The court below did not file separate findings and conclusions. As to the material facts there is no dispute. They are as follows:

The Guaranty State Bank and the First State Bank, both of Eastland, Tex., were incorporated under the banking law of this state. On or about April 20, 1921, the first-named bank became insolvent. It was having heavy withdrawal of its deposits. The closing of its doors and liquidation by the banking commissioner was imminent and inevitable. The condition of the First State Bank was not sound, but it was in better condition than the Guaranty Bank. The State Bank feared the effect of the failure of the other bank. To prevent its failure and the liquidation of its business by the banking commissioner, the State Bank took over all of the assets of the Guaranty Bank except its banking house, furniture, and fixtures, in consideration of which the State Bank assumed the payment of all debts of the Guaranty Bank except some purchase-money notes against the house and lot where its business was conducted. This transfer occurred on or about April 20, 1921, whereupon the Guaranty Bank closed its doors and ceased to do business. The evidence discloses that the State Bank was to liquidate the assets of the Guaranty Bank and account to the stockholders thereof for any surplus, if any, above its liabilities.

Prior to the transaction stated, the appellant company issued to the Guaranty Bank a bond whereby it agreed to indemnify the bank against the direct loss, sustained while the bond was in force and discovered as thereinafter provided, of any money or securities, through any dishonest act, if any, of its employees as defined in the bond, whether acting alone or in collusion with others. The premium upon this bond had not been paid on April 20, 1921. On May 4, 1921, the State Bank paid the premium earned to that date and returned the bond to the county for cancellation, which was done. On January 19, 1924, the State Bank passed into the hands of the banking commissioner for liquidation of its affairs. This suit is by the commissioner in that capacity.

Upon April 20, 1921, and for some time prior thereto, P. S. Wolfe was a director, president, and salaried employee of the Guaranty Bank. Defendant Taylor and Wolfe were brothers-in-law. Prior to February 14, 1921, Taylor was indebted to the Guaranty Bank as evidenced by his note for some amount in excess of $3,000. Taylor owned some real estate in Eastland; the title thereto being held in his mother's name. This property was subject to a vendor's lien securing two notes of Taylor for $1,500 each, one of which matured about the date last stated. At that time Wolfe was already indebted to his bank in the amount allowed by law, and could not legally borrow further from it. Wolfe agreed to buy from Taylor the real estate mentioned and assume the payment of Taylor's indebtedness to the bank and the two notes for $1,500. Taylor, at Wolfe's direction, conveyed the property to Wolfe's mother. One of the $1,500 notes was then in the bank for collection. Wolfe did not have the money to meet the same or to pay the note of Taylor held by the bank. The $1,500 note was paid by the bank, and the amount paid charged to Taylor's account. Thereupon Taylor, at the request of Wolfe, executed to the bank the note for $4,914.31 herein sued upon, of date February 14, 1921, payable 6 months after date. This note covered the previous indebtedness of Taylor and the amount paid upon the $1,500 note. Wolfe did not sign the note. At the time it was agreed between Wolfe and Taylor that the former would pay the same in a few days, but in fact it was never paid, and both became unable to pay same. The note passed to the State Bank in the manner shown above.

In effect, the contention of the commissioner is that the transaction between Wolfe and Taylor was a dishonest act upon the part of Wolfe towards the bank acting in collusion with Taylor, because Wolfe was already indebted to the bank in the amount allowed by law, and by the transaction he thereby acquired and used additional funds of the bank and acquired property which rendered Taylor unable to pay the note. On the other hand, the casualty company contends that the transaction was not a dishonest act within the meaning of the bond.

It is evident from the judgment rendered that the trial court regarded the transaction as dishonest with respect only to the item of $1,500; that being the amount for which judgment was rendered against the company.

The term "dishonest act" is very broad and comprehensive. Upon the evidence disclosed by this record, the trial court correctly held that, as to the item of $1,500, there was a wrongful withdrawal and misapplication of the money of the bank by Wolfe for his own purposes, and that this was a dishonest act within the meaning of the bond. Maryland Casualty Co. v. Farmers' State Bank & Trust Co. (Tex. Civ. App.) 258 S. W. 584; U. S. v. Breese (C. C.) 173 F. 402; U. S. v. Northway, 120 U. S. 327, 7 S. Ct. 580, 30 L. Ed. 664; Ferguson v. State, 80 Tex. Cr. R. 383, 189 S. W. 271.

We do not desire to be understood as holding that in all instances such a conclusion would follow upon a mere showing that an officer of the bank, already indebted to the bank in the amount allowed by law, had procured some one to obtain a loan from the bank and placed the money thus obtained at the disposal of such officer upon the latter's agreement with such person that he would pay the note. It is the business of banks to loan their money, and the borrower can do as he pleases with the money borrowed. If he sees fit to borrow and place it at the disposal of such officer, this of itself is not a fraud upon the bank. The transaction in effect is a loan by the bank direct to such person, who is bound to repay the same. If the bank is willing to extend such credit to one it considers responsible, it has the right to do so. On the other hand, the officers of a bank can loot it under the guise of loans made to third persons.

In order to have relieved the transaction between Wolfe and Taylor as to the item of $1,500 from the taint of dishonesty upon the part of Wolfe towards the bank, it must have appeared that it was done with the knowledge and approval in good faith of the board of directors, acting with full knowledge of all the facts. If it had been shown that Taylor was regarded by the board as responsible and himself entitled to a loan to pay the $1,500, and a full disclosure made to the board of the entire transaction and they in good faith, in the exercise of the authority vested in them, had approved and authorized such loan to Taylor, then we think the transaction could not be regarded as a dishonest act on the part of Wolfe. Citizens', etc., v. National Surety Co. (Tex. Com. App.) 258 S. W. 468. But the evidence in the case fails to meet this test. The evidence disclosed the transaction between Wolfe and Taylor as detailed above, also loans made to other persons who placed the money thus obtained at the disposal of and which was used by Wolfe. Among the loans was one to Wolfe's mother of $15,000. It is shown that the directors were not advised of the agreement between Wolfe and Taylor. This established a wrongful abstraction and misapplication by Wolfe of the bank's money. We are therefore of the opinion, as to the item of $1,500, Wolfe was shown to have committed a dishonest act against the bank.

But, as respects the balance of the money sued for, the court below properly refused recovery. That money was loaned to Taylor long before the transaction in question. Wolfe's agreement to pay the same could not in any wise operate to the prejudice of the bank. Taylor's obligation to pay the same remained unimpaired. Nor can it be said that the agreement resulted in any loss to the bank. It would be going entirely too far to say that Wolfe's agreement with Taylor to pay Taylor's pre-existing debt to the bank was a dishonest act within the meaning of the bond, or that any loss resulted to the bank by reason thereof.

This disposes of the company's contention that no dishonest act was shown, and the commission's cross-assignment complaining of the refusal to render judgment against the company for the full amount sued for.

The commissioner also assigns error to the action of the court in setting aside a judgment by default previously rendered against the company for the full amount sued for. This is a matter which rested in the sound discretion of the trial court. No abuse of that discretion is shown, for which reason the matter presents no error. Belknap v. Groover (Tex. Civ. App.) 56 S. W. 249. The remaining assignments are presented by the company. Under various assignments and in...