Brand v. Korth

• Decision Date: 09 December 1936
• Docket Number: No. 2028-6773.,2028-6773.
• Citation: 99 S.W.2d 285
• Parties: BRAND, Banking Com'r, v. KORTH.
• Court: Texas Supreme Court

99 S.W.2d 285

BRAND, Banking Com'r, v. KORTH.

No. 2028-6773.

Commission of Appeals of Texas, Section A.

December 9, 1936.

Error to Court of Civil Appeals of First Supreme Judicial District.

Action by James Shaw, Banking Commissioner of the State of Texas, as statutory liquidating agent of the Yoakum State Bank, against Robert P. Korth, in which E. C. Brand, plaintiff's successor as Bank Commissioner, was substituted as party plaintiff. A judgment for defendant was affirmed by the Court of Civil Appeals [71 S.W.(2d) 332], and substituted plaintiff brings error.

Reversed and rendered.

John M. Green, of Cuero, A. J. Lewis and R. F. Spencer, both of San Antonio, and Ocie Speer, of Austin, for plaintiff in error.

Crain & Hartman and H. W. Wallace, all of Cuero, for defendant in error.

GERMAN, Commissioner.

This suit was instituted by James Shaw, Banking Commissioner of the State of Texas, in his capacity as statutory liquidating agent of the Yoakum State Bank, for the use and benefit of the depositors and creditors of said bank. E. C. Brand later succeeded Shaw as Banking Commissioner and is substituted plaintiff. The suit was against Robert P. Korth to recover upon a note for $5,000, executed by Korth July 7, 1927, payable to himself and indorsed by him. The note in question was in renewal of one originally executed April 18, 1922, there having been in all some ten renewals. The parties will be designated as in the trial court. Judgment of the district court in favor of defendant was affirmed by the Court of Civil Appeals. 71 S.W.(2d) 332.

Although the note in question was found among the assets of the insolvent bank at the time it was taken over by the Banking Commissioner for liquidation, and on its face was apparently a legal obligation of the maker, nevertheless defendant sought to defeat a recovery on the ground that it was purely an accommodation note, executed by him without consideration, and was solely for the purpose of lending his credit to the bank while in a condition of financial distress. The trial court filed the following finding or conclusion: "I conclude that the defendant is an accommodation party who signed his name to the note in suit as maker thereof and as indorser thereof without receiving value therefor and for the purpose of lending his name to Yoakum State Bank for its accommodation and that the note in suit is the accommodation note so issued by the defendant."

Without going into a discussion of the question of defendant having executed the note in consideration of becoming a stockholder in the "Bankers Finance Corporation of South Texas," as appears to have been held by the Court of Civil Appeals on a former appeal (26 S.W.(2d) 351), we shall dispose of the case upon the theory that the note was an accommodation note, as found by the trial court.

According to defendant's own allegations and testimony, as well as the findings of the trial court, at the time defendant executed the original note in 1922, the Yoakum State Bank held a large amount of promissory notes executed by cattlemen, and on account of the general slump in prices and the depression in the cattle market, the financial condition of the makers of said notes was very "serious and depressing." This resulted in a condition of financial stringency on the part of the bank itself, which led its officers to seek aid from defendant and others, and the note in question was executed by defendant "with the purpose and intention of aiding and accommodating said Yoakum State Bank"; and with the understanding that "such note should be placed in said bank for its temporary accommodation." It is undisputed that the note passed into the bank and became a part of its apparent assets about April, 1922. It was renewed several times, the last renewal being on July 7, 1927. During this period of more than five years it remained with the bank as an apparent asset. It is admitted by defendant that one of the surrendered notes bore indorsements showing that it had been assigned to the Hanover National Bank of the City of New York. This was the renewed note of date January 15, 1925, which note was offered in evidence.

The Yoakum State Bank went into liquidation September 5, 1928. The plaintiff pleaded estoppel on the ground that defendant had allowed said note to remain in the hands of the bank over a period of more than five years as an apparent asset, being included in the financial statements of said bank, and having been acted upon by depositors and creditors. Even conceding that the note was purely an accommodation note, without consideration to defendant, we are of the opinion that defendant, as against the Banking Commissioner in his capacity as representative of the depositors and creditors of the insolvent bank, was estopped to deny the legal obligation thereof. This question was in principle decided by the Commission of Appeals in the case of Shaw v. Borchers, 46 S.W.(2d) 967, 969. In that case Borchers had executed a note to the Yoakum State Bank under exactly the same conditions as the note here in question was executed. The only difference between that case and the present case that can be suggested is that Borchers renewed his note after being advised that the bank examiner would require its withdrawal if he understood that it was not a real asset of the bank, and therefore Borchers had "acquiesced in the bank officials' scheme to carry his note as an apparent enforceable asset of said bank," while in the present case it is claimed that there was no agreement on the part of defendant with the bank officials which was calculated to mislead or deceive the examiner. We are unable to see why an agreement on the part of the maker of a note and the...