Dunn v. Second Nat. Bank of Houston

• Court: Texas Supreme Court
• Writing for the Court: Smedley
• Citation: Dunn v. Second Nat. Bank of Houston, 113 S.W.2d 165, 131 Tex. 198 (Tex. 1938)
• Decision Date: 09 February 1938
• Docket Number: No. 1716-6989.,1716-6989.
• Parties: DUNN et al. v. SECOND NAT. BANK OF HOUSTON et al.

113 S.W.2d 165

DUNN et al. v. SECOND NAT. BANK OF HOUSTON et al.

No. 1716-6989.

Commission of Appeals of Texas, Section B.

February 9, 1938.

COPYRIGHT MATERIAL OMITTED

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

Suit for the recovery of principal interest and attorney's fees on promissory notes by the Second National Bank of Houston and another, as independent executor and trustee of the estate of S. F. Carter, Sr., deceased, and others against T. C. Dunn, Jr., and another, wherein defendants filed a cross-action. To review a judgment of the Court of Civil Appeals, 84 S.W.2d 766, which reversed and rendered a judgment, T. C. Dunn, Jr., and another bring error.

Judgment of the Court of Civil Appeals reversed and judgment of the trial court affirmed.

Fulbright, Crooker & Freeman, Vinson, Elkins, Sweeton & Weems, C. A. Sweeton, C. A. Leddy, Leon Jaworski, David T. Searls, and John H. Crooker, all of Houston, for plaintiffs in error.

Baker, Botts, Andrews & Wharton, Palmer Hutcheson, and John T. Maginnis, all of Houston, for defendants in error.

SMEDLEY, Commissioner.

Defendants in error, Second National Bank of Houston, Tex., and Mrs. Carrie B. Carter, as independent executors and trustees of the estate of S. F. Carter, Sr., deceased, sued plaintiffs in error T. C. Dunn, Jr., and L. J. Walling, and also Second National Bank of Houston, Tex., as independent executor and trustee of the estate of S. F. Carter, Jr., deceased, for the recovery of the principal, interest, and attorney's fees on three promissory notes executed by Houston Development Company and indorsed by Dunn, Walling, and S. F. Carter, Jr. One note in the principal sum of $98,513.50 is payable to Second National Bank of Houston, Tex., another in the principal sum of $35,000 is payable to South Texas Commercial National Bank of Houston, Tex., and the third note in the principal sum of $30,000 is payable to First National Bank of Houston, Tex. S. F. Carter, Sr., father of S. F. Carter, Jr., had executed to the three banks written guaranties of the payment of these notes, and after his death the notes were paid by his executors and transferred to his estate. The trial court's judgment was that defendants in error recover of the estate of S. F. Carter, Jr., $253,042.48, but that they take nothing against plaintiffs in error Dunn and Walling. On appeal by defendants in error the Court of Civil Appeals reversed the trial court's judgment as to Dunn and Walling and rendered judgment in favor of defendants in error against Dunn and Walling for the amount of the principal, interest, and attorney's fees of said notes. Associate Justice Lane dissented. 84 S.W.2d 766.

The controversy is with respect to the proceeds of two policies, issued by Ætna Life Insurance Company, insuring the life of S. F. Carter, Jr. (known as Fain Carter), for $200,000 collected by defendants in error, which plaintiffs in error contend should have been applied to the payment of the three notes upon which the suit is brought. Fain Carter for a number of years prior to his death was engaged in the business of developing and improving real estate under the trade-name of Fain Carter Home Building Company. He organized a corporation, Houston Development Company, with a capital stock of $10,000, to engage in the same or similar business and acted as president, general manager, and director of the corporation until his death, owning 50 per cent. of the stock. Plaintiffs in error Dunn and Walling owned the other half of the stock and were directors of the corporation. They were for many years intimate friends of Fain Carter. The three notes of the Houston Development Company upon which this suit was brought, aggregating approximately $164,000 principal and representing renewals of prior notes, were guaranteed to the three banks by S. F. Carter, Sr., and indorsed by Fain Carter, Dunn, and Walling. Houston Development Company was directly indebted to S. F. Carter, Sr., on account of its three notes payable to him in the total principal sum of $23,500. These three notes were indorsed by Fain Carter, but not by Dunn and Walling. On January 12, 1928, Fain Carter, Dunn, and Walling executed a written instrument by which they guaranteed to S. F. Carter, Sr., the payment by Houston Development Company of any indebtedness which it might then or thereafter owe to S. F. Carter, Sr., up to the sum of $100,000. S. F. Carter, Sr., died March 1, 1928, leaving a will in which he appointed defendants in error independent executors and trustees of his estate. With Mrs. Carter's written consent, Second National Bank exercised full control and management of the estate.

Fain Carter procured the issuance by Ætna Life Insurance Company on May 8, 1928, of two policies insuring his life, one for $170,000 and one for $30,000, designating as beneficiary in his written application "The estate of S. F. Carter, Sr., The Second National Bank of Houston, Texas., and Carrie B. Carter (mother) co-executor and co-executrix and co-trustees." The policies when issued promised to pay the amounts stipulated "to the beneficiary, the executors and administrators or assigns of Samuel F. Carter, Sr., father of the insured." Each policy gave to the insured the right to change the beneficiary as often as desired, such change to take effect on receipt at the home office of the company of a written request accompanied by the policy for indorsement. The first premium on the larger policy, amounting to $1,608.20, was paid by two checks, one for $808.20, the check of Fain Carter Home Building Company (Fain Carter's trade-name), and the other for $800, the check of Houston Development Company. The first premium on the other policy was paid by the check of Houston Development Company for $654. George M. Irving, assistant trust officer of Second National Bank, testified that Fain Carter brought the policies into the bank, left them with him and expressed gratification that he had been able to get the insurance as additional protection to his father's estate, and testified further that after Fain Carter's death he took the policies out of the safety deposit box of the S. F. Carter, Sr., estate. A memorandum made by Mr. Ellis, the trust officer of Second National Bank, who was dead when the case was tried, stated that these policies and other policies on Fain Carter's life were left by Fain Carter in the trust department of the bank for safe-keeping.

S. F. Carter, Sr., was interested in Fain Carter's business affairs, supplying him with money and credit, indorsing for him and helping him to procure loans, and the friendly and close relation between the father and son continued until the father's death. It is shown that Fain Carter at his father's death was liable to the estate in the total amount of approximately $700,000, including the notes of Houston Development Company herein sued upon, on obligations signed by Fain Carter as maker or indorser in favor of S. F. Carter, Sr., and on obligations in favor of third parties to whom S. F. Carter, Sr., was liable by guaranty or indorsement.

In addition to the $200,000 of life insurance in the Ætna Life Insurance Company, Fain Carter at the time of his death on October 18, 1928, had policies of life insurance for $110,000 payable to the estate of his father, a policy for $57,500 payable to his own estate, and a policy for $5,000 payable to his mother. Second National Bank, as executor of the estate of S. F. Carter, Sr., collected as insurance on the life of Fain Carter the total sum of $310,000, being the proceeds of the two policies issued by the Ætna Life Insurance Company and of the additional policies for $110,000. It applied the money so collected to the payment of various debts owed by Fain Carter to S. F. Carter, Sr., or to the estate of S. F. Carter, Sr., and to other obligations of Fain Carter that the estate of S. F. Carter, Sr., had been required to pay by reason of indorsement or guaranty of such obligations by S. F. Carter, Sr. No part of the proceeds of the insurance on the life of Fain Carter was applied on the three notes of the Houston Development Company indorsed by Fain Carter, Dunn, and Walling, but three and a half years after the collection of the life insurance Second National Bank and Mrs. Carter, as executors and trustees of the estate of S. F. Carter, Sr., filed this suit on the three notes against plaintiffs in error Dunn and Walling, and against Second National Bank as executor and trustee of the estate of Fain Carter. It was alleged and proven that both Houston Development Company and the estate of Fain Carter were insolvent.

Plaintiffs in error Dunn and Walling in their answers pleaded in detail the facts as to the organization of Houston Development Company, the ownership of its stock the management and operation of the company by Fain Carter, the execution of the three notes herein sued upon, and the indorsements and guaranties of them, and pleaded particularly that pursuant to a resolution of the board of directors of Houston Development Company and according to the intention of Fain Carter, the two policies of life insurance in the Ætna Life Insurance Company were procured and caused by Fain Carter to be issued for the purpose of protecting and securing Houston Development Company's indebtedness evidenced by the said three notes, as well as Dunn and Walling, from loss or liability by reason of their indorsements of the notes, and that the premiums on the policies or the greater part thereof were paid by Houston Development Company; and they pleaded that the collection of the proceeds of the policies by Second National Bank as executor of the estate of S. F. Carter, Sr., had the effect of satisfying and paying the said notes, then owned by the bank as such executor. They pleaded further that by reason of the same facts the beneficiaries named in the two policies became trustees to collect and apply the proceeds in accordance...