Hudnall v. Tyler Bank and Trust Company

• Decision Date: 15 July 1970
• Docket Number: No. B--1961,B--1961
• Citation: 458 S.W.2d 183
• Parties: J. S. HUDNALL, Petitioner, v. TYLER BANK AND TRUST COMPANY, Respondent.
• Court: Texas Supreme Court

Page 183

458 S.W.2d 183

J. S. HUDNALL, Petitioner, v. TYLER BANK AND TRUST COMPANY, Respondent.

No. B--1961.

Supreme Court of Texas.

July 15, 1970.

Rehearing Denied Oct. 7, 1970.

Locke, Purnell, Boren, Laney & Neely, Eugene M. Locke and Stephen H. Philbin, II, Dallas, for petitioner.

Lawrence & Lawrence, F. Lee Lawrence, Tyler, for respondent.

CALVERT, Chief Justice.

Tyler Bank and Trust Company obtained a summary judgment against J. S. Hudnall in this suit on Hudnall's promissory note executed in favor of the bank. Hudnall appealed, and the Tyler Court of Civil Appeals affirmed. 448 S.W.2d 503. We reverse and remand.

Hudnall responded to the bank's suit with a general denial, a plea of failure of consideration, and a cross-action. The predicate for the cross-action and the affirmative defense is the same, viz., that the bank allowed the misapplication of the proceeds of the note sued upon, in violation of an express oral agreement to hold the funds for the special purpose of completing construction of the Mother Frances Hospital.

Hudnall's theory of the transaction is that when he signed and delivered the note and obligated himself to pay it, the bank, in return, (1) furnished the funds representing the amount of the note, and (2) promised to control the use of those funds. In other words, there was only one contract, with two elements of consideration on the bank's side. In our view, there is in the record neither pleaded facts nor summary judgment evidence supporting Hudnall's claim of failure of consideration. The agreement upon which the defense is based and which the bank strongly contends never existed, is collateral to the note contract. Cf. E. E. Farrow Co. v. United States Nat. Bank of Omaha, 358 S.W.2d 934 (Tex.Civ.App.--Waco 1962, writ ref'd n.r.e.). And see Southern Pacific Co. v. Porter, 160 Tex. 329, 331 S.W.2d 42 (1960); Morris-Buick Co. v. Davis, 127 Tex. 41, 91 S.W.2d 313 (1936). But although collateral, its breach, if proved, would support a cross-action by Hudnall for damages and a set-off of such damages against any amount recovered on the note. See Hubacek v. Ennis State Bank, 159 Tex. 166, 317 S.W.2d 30 (1958). Hudnall does not by his cross-action seek a judgment for damages in an amount greater than the sum due on the note; he seeks recovery of only such an amount as will bar or reduce a recovery on the note.

The summary judgment rendered by the trial court did two things, viz.: (1) it awarded the bank a full recovery on the note, and (2) it directed that Hudnall take nothing by his cross-action. Hudnall has not expressly attacked the judgment in so far as it directs that he take nothing on his cross-action, either in the court of civil appeals or in this court; and yet, the only valid defense to the note he has pleaded and sought to prove is available to him solely by way of his cross-action. However, Hudnall has attacked the summary judgment in favor of the bank on the ground that there is summary judgment evidence to support his claim of breach of the collateral agreement, and we will treat his points of error and argument thereunder as an incidental attack on the summary judgment directing that he take nothing on his cross-action.

The court of civil appeals found from the summary judgment proof that even if there was an agreement as alleged by Hudnall, it was rescinded when Hudnall later allowed the funds to be deposited to a general account. Hudnall complains of each of the two aspects of this holding in appropriate points of error, ¹ asserting that affirmance of the summary judgment was error because the summary judgment evidence raised genuine issues of material fact both as to the existence of an agreement that the proceeds of the note would be limited and controlled by the bank for use in construction of the Mother Frances Hospital, and as to whether that agreement was ever rescinded.

The record shows that Hudnall is a partner in a petroleum engineering firm, but for over thirty years prior to this suit he had also been a director of the plaintiff Tyler Bank and Trust Company; for a time he was chairman of the bank's board of directors; and for many years he had served either as a member of or an advisor to the bank's Loan and Discount Committee. Hudnall pleaded that he was induced by J. Harold Stringer, president of the bank, to issue the original of the renewal note sued upon, in order to make $160,000.00 available to Clanahan Construction Company; that the plan was for Hudnall to execute and deliver his unsecured promissory note, bearing interest at 6 percent, to the bank, and at the same time Clanahan through its president, John W. Hardin, would execute and deliver its note for the same amount and at the same rate of interest to Hudnall, with Clanahan paying the interest on both notes; and that the purpose of the plan was to allow Clanahan to show the requisite financial strength to qualify it for a performance bond necessary for undertaking the Mother Frances Hospital project.

Hudnall then pleaded that after he had proceeded with the plan upon an express oral agreement with Stringer that the bank would hold the proceeds of the note for the sole purpose of 'guaranteeing' the completion of the hospital job, the bank not only failed to control the proceeds' disbursement, but also collusively acted with Hardin to effect the immediate and unauthorized use of the funds.

Depositions are in the record containing the testimony of Hudnall, Hardin, Stringer, and Pounds (Chairman of the Board of the bank). The testimony of Hudnall, sharply conflicts with that of the others. If upon a conventional trial of the case the same testimony should be offered, the credibility of all of these persons as witnesses would be in issue. In our review of the summary judgment proofs, however, we must accept the testimony of Hudnall as true, and indulge every reasonable inference in favor of his position. Gulbenkian v. Penn, 151 Tex. 412, 252 S.W.2d 929 (1952). We must apply yet another summary-judgment rule of review owing to Hudnall's assertion of his cross-action as an affirmative defense. Because the bank showed as a matter of law that it was entitled to recover on the note, Hudnall, in order to avoid a summary judgment, had the burden of showing that issues of fact existed as to his cross-action. The rule, as stated in Gulf, Colorado & Santa Fe Railway Co. v. McBride, 159 Tex. 442, 322 S.W.2d 492, 500 (1959), is that--

'Where the plaintiff moves for summary judgment in an action in which the defendant has pleaded an affirmative defense, he is entitled to have his summary judgment if he demonstrates by evidence that there is no material factual issue upon the elements of his claim, unless his opponent comes forward with a showing that there is such a disputed fact issue upon the affirmative defense.'

Hudnall testified that he told Stringer of the use to be made of the proceeds of the note and that the funds put up would be limited to the guaranteeing of the completion of the hospital. According to Hudnall, Stringer assented to the restrictions placed upon the funds. The bank contends that this testimony shows nothing more than that Hudnall related to Stringer the details of Hudnall's arrangement with Hardin. Undeniably, a jury might ultimately agree with the bank's contention, or it might decide that the testimony showed only Hudnall's 'understanding' rather than an agreement. We think, nevertheless, that this testimony just as reasonably infers the existence of an agreement. Thus, to this point, the summary judgment proof raises the necessary issue of fact.

The court of civil appeals was of the opinion that the testimony discussed above is not dispositive of the matter, but that the crucial point of inquiry is whether the funds actually were placed at Hudnall's direction into Clanahan's general account rather than into a special account. In this regard, we think that the court of civil appeals has taken a proper approach based upon a correct view of the law, although we differ with that court's ultimate conclusion that only one reasonable inference can be drawn from the evidence.

Neither the Texas Banking Code of 1943, ² the Uniform Commercial Code, ³ nor other Texas statute appears to treat the subject of general and special deposits in banks. Certain rules of law however, have long been established:

'When money or its equivalent is deposited in a bank without any special agreement, the law implies that it is to be mingled with the other funds of the bank, the relation of debtor and creditor is created between the bank and the depositor, and the deposit is general. In such a transaction the bank becomes the owner of the fund. When, on the other hand, money or its equivalent is so deposited with an accompanying agreement that the identical thing deposited shall be returned, or that the same shall be paid out for a specific purpose, the relation thus created is not that of debtor and creditor. Such a transaction is a special deposit, and the bank is liable only as bailee. In such a case the fund is a trust fund, the bank acquires no title thereto, and is a mere trustee for the safe-keeping, return, or disbursement of the fund, according to the special contract by which the deposit is made.' McBride v. American Ry. & Lighting Co., 60 Tex.Civ.App. 226, 127 S.W. 229 (1910, no writ).

We also approve the principle stated in the court of civil appeals' opinion that where a depositor gives the bank the right to commingle his deposit with other funds owned by the bank, he creates only a general deposit whose funds the bank is authorized to use and disburse as it sees fit. Security Nat. Bank Savings & Trust Co. v. Moberly, 540 Mo. 95, 101 S.W.2d 33 (1936). Hudnall himself, in his pleadings, recognized that showing a special deposit of the funds was essential to his defense, although on appeal to this court he has taken another position. He pleaded that the deposit as accepted by...