Harwood v. Ft. Worth Nat. Bank

• Decision Date: 18 May 1918
• Docket Number: (No. 8852.)
• Citation: 205 S.W. 484
• Parties: HARWOOD v. FT. WORTH NAT. BANK.
• Court: Texas Court of Appeals

205 S.W. 484

HARWOOD v. FT. WORTH NAT. BANK.

(No. 8852.)

Court of Civil Appeals of Texas. Ft. Worth.

May 18, 1918.

Rehearing Denied June 22, 1918.

Appeal from District Court, Tarrant County; Ben M. Terrell, Judge.

Action by Brown Harwood, as receiver of the Ft. Worth Savings Bank & Trust Company of Ft. Worth, against the Ft. Worth National Bank. Judgment on peremptory instruction for defendant, and plaintiff appeals. Reversed and remanded.

Flournoy, Smith & Storer, of Ft. Worth, for appellant. Ross, Ross & Alexander and Slay, Simon & Smith, all of Ft. Worth, for appellee.

BUCK, J.

The receiver of the Ft. Worth Savings Bank & Trust Company of Ft. Worth, hereinafter called Savings Bank, filed this suit to recover of the Ft. Worth National Bank $50,000, with interest, the proceeds of two certain drafts of date April 10, 1914, drawn in the name of the Savings Bank on funds of said last-named bank in the hands of correspondent banks named as drawees in said drafts, and made payable to the Ft. Worth National Bank, which drafts and the proceeds thereof were by defendant received and applied on a claim of liability of E. E. Baldridge, president of the Savings Bank, individually, to the Ft. Worth National Bank. The petition alleged that the drawing of the drafts and the use of the proceeds thereof constituted a fraudulent appropriation of the funds of the Savings Bank for the use of Baldridge, that there was no consideration to the Savings Bank for said use, and that the Ft. Worth National Bank had both actual and constructive notice that the payments so made out of the funds of the Savings Bank were without authority and not binding on the Savings Bank, and said $50,000, under the circumstances, represented money had and received by the Ft. Worth National Bank for the use and benefit of the Savings Bank. Defendant pleaded a general denial, estoppel, stale demand, ratification, laches, and that it was and became, upon the receipt of said drafts, a holder in good faith and for a valuable consideration without notice of any infirmity in same. From a judgment, upon peremptory instruction, in favor of defendant, the plaintiff has appealed.

The facts are largely undisputed. About January 1, 1912, Baldridge became president of the Waggoner Bank & Trust Company, whose name was by charter amendment subsequently changed to the Ft. Worth Savings Bank & Trust Company. It was engaged in the business of inviting and receiving savings deposits, lending money on notes and securities, rediscounting its paper through banking correspondents, borrowing money, and, in a limited degree, carrying on a general banking business. The Savings Bank had and kept a regular set of books, such as banks usually keep. There were other stockholders in the bank, but just exactly who they were or how much stock they owned at the time of this transaction is not made very clear in the statement of facts. However, it is agreed that at this time, and for some time prior to April 10, 1914, and up to the closing of the bank, July 3, 1915, Baldridge owned practically all the stock, and was the actual manager of and controlling authority in the bank's affairs. Some time before this T. M. Presley had been made vice president, and A. C. Alexander cashier, by Baldridge's direction, but these two in fact did not exercise and did not attempt to exercise any controlling authority. Their services were largely of a clerical nature, and they were under the direction of Baldridge in the exercise of their official functions, he being the dominating influence in the management of the affairs of the bank.

The appellee had been for some time before, and was at the time of and subsequent to the transaction in question, the clearing agency of the Savings Bank, which latter was not a member of the Clearing House. All checks on the Savings Bank were charged by the Clearing House to appellee, and the latter later presented them to the Savings Bank for payment. In January, 1914, representatives of the appellee, acting for it, entered into an arrangement with Baldridge, then president of the State National Bank, a banking corporation of Ft. Worth, by which it was agreed that the appellee should take over the liquidation of the State National Bank, on terms specified, for the protection of the shareholders and depositors of the latter bank, and as a consideration for such undertaking Baldridge agreed to transfer to persons identified with the ownership and management of the appellee bank all the capital stock of the Savings Bank, under a plan by which enough of the assets of the Savings Bank to protect the depositors, the deposits being estimated at about $800,000, would be transferred to the new control, and out of the remainder Baldridge was to compensate himself for his stock so to be transferred. The appellee was to declare a dividend, out of its undistributed surplus earnings, to its stockholders, and invite its stockholders to invest this dividend in Savings Bank stock. Steps were taken by appellee's director to put this plan into effect, and at the request of Baldridge the directors of appellee agreed to increase its capital stock by an addition of 1,000 shares, at par value of $100, and this new stock should be sold to Baldridge and his associates in the State National Bank at $320 a share. Under this agreement Baldridge paid for 425 shares of appellee's new stock at $320 a share, and the liquidation of the State National Bank was in progress on April 10, 1914. In January, 1914, Baldridge was elected a vice president of the appellee bank, and held this position on the date when the drafts in controversy were drawn, he resigning therefrom April 22, 1914. One of the leading inducements to the appellee to undertake the liquidating agency was the transfer of the Savings Bank stock, charter and assets. Appellee desired to have a savings department in connection with its regular banking business, and the patronage gained from the purchase of a savings bank already established was deemed of considerable value. The appellee agreed to advance money at once to pay the depositors of the State National Bank, to pay the expenses of the liquidation, etc. After appellee's directors had accepted the liquidation of the State National Bank, Baldridge concluded he did not want to transfer the Savings Bank stock, charter, etc., and asked to be relieved of that part of the contract. After some delay, and with some reluctance on the part of some of appellee's officers and directors, an agreement was finally reached by which Baldridge was permitted to keep the stock, charter, etc., of the Savings Bank, and to pay appellee in consideration thereof the sum of $50,000. The deal, under the changed contract, was consummated on April 10, 1914. At this time certain of the officers of appellee bank went to the building where the Savings Bank operated, and there agreed to accept Baldridge's last proposition, and to accept the $50,000 in lieu of the surrender of the Savings Bank's stock. The meeting was held in a room or balcony overlooking the counting house or offices where the business of the Savings Bank was conducted. Upon the consummation of the agreement, Baldridge called T. M. Presley from his duties below, and instructed him to draw two drafts, of $25,000 each, upon two corresponding banks, one on a New York bank, and the other on a St. Louis bank, and also to draw on the Savings Bank a draft in favor of the State National Bank of Ft. Worth for some $299,000. These drafts were prepared by Presley, who signed them as vice president of the Savings Bank. The $299,000 was a payment by the Savings Bank for the new building erected by the State National Bank, for which bank the appellee had agreed to undertake liquidation. The two $25,000 drafts were in payment of the $50,000 which the Ft. Worth National Bank had agreed to accept in lieu of the transfer of the Savings Bank stock, charter, etc. These drafts were handed by Presley to the cashier of appellee, who was one of the several officers of appellee present at the conference. These three drafts were drawn upon the funds of the Savings Bank by an officer acting for that bank. No instructions were given by Baldridge at the time as to what entries should be made on the books of the Savings Bank with reference to these drafts, and the two $25,000 drafts were carried on the books as cash items until some time in June, when under Baldridge's direction, they were charged to the charter account of the Savings Bank. This charter account was one kept by the Savings Bank, on which the value of the charter was entered in the sum of $10,500. With this additional entry of the $50,000 item on this account, the value of the charter was made to appear to be $60,500. No entry was ever made on Baldridge's personal account as the result of this transaction, and the entries stood as so entered on the charter account when the Savings Bank closed its doors, and when Baldridge committed suicide, the day after, on, to wit, July 4, 1915, and when the receiver was appointed. The two $25,000 drafts were deposited with appellee bank and collected in due course. At the time of the transaction detailed above Baldridge was regarded by all the officers and directors of appellee, and by the other officers of the Savings Bank and by the public generally, as being a man of wealth, probably worth some $800,000 above his liabilities, with holdings of a diversified nature, bank stock, ranches, cattle, etc. His business integrity was regarded as of the best. No one connected with the transaction, save perhaps Baldridge himself, had actual knowledge of any intent on Baldridge's part to misappropriate any of the funds belonging to the Savings Bank, or that he was insolvent, or that he would not adjust matters by paying for the two $25,000 drafts. Presley did not know at the time for what purpose these drafts had been drawn, nor that they were drawn in payment of Baldridge's...