Interstate Nat. Bank v. Claxton

• Decision Date: 16 May 1904
• Citation: 80 S.W. 604
• Parties: INTERSTATE NAT. BANK v. CLAXTON.
• Court: Texas Supreme Court

80 S.W. 604

INTERSTATE NAT. BANK v. CLAXTON.

Supreme Court of Texas.

May 16, 1904.

Error from Court of Civil Appeals of Second Supreme Judicial District.

Action by the Interstate National Bank against W. N. Claxton. There was a judgment of the Court of Civil Appeals affirming a judgment for defendant (77 S. W. 44), and plaintiff brings error. Reversed.

Browning, Madden & Truelove, for plaintiff in error. Turner & Boyce, for defendant in error.

WILLIAMS, J.

Plaintiff in error brought this suit to recover of defendant in error upon his note executed to Tamblin & Tamblin, and assigned by them to plaintiff. The defendant's liability upon the note is not disputed, but he claims that plaintiff is liable to him for certain moneys of his which were deposited with it by Tamblin & Tamblin, and partly applied by plaintiff to their indebtedness to it, and partly drawn out by them and appropriated to their own purposes. This contention is based on the following facts: Tamblin & Tamblin were live-stock commission merchants in Kansas City, and plaintiff was engaged in the banking business in the same place. The business of Tamblin & Tamblin consisted chiefly in selling live stock consigned to them as factors, the amount done by them on their own account being inconsiderable. They kept an account with plaintiff, their deposits consisting almost wholly of the proceeds of property thus sold for others, including their charges, which were deposited and checked out in their own name. As factors, they were so employed by defendant, who resides in Texas, in selling his stock shipped to them from time to time, the proceeds of which, as of sales for others, were deposited and drawn out as stated, and this course of business had been followed for a long time before the transaction out of which the present controversy arose. Plaintiff also allowed Tamblin & Tamblin to overdraw their account, taking security for their indebtedness, and large balances stood against them from time to time. On the 28th of October, 1901, plaintiff learned that Tamblin & Tamblin had sold and not accounted to it for a large number of cattle covered by one of its mortgages, so impairing its security that it demanded and received a note for $30,000 with a mortgage on other property to secure it. The evidence warrants the conclusion that at that time Tamblin & Tamblin were, to plaintiff's knowledge, insolvent, all of their property being incumbered to secure amounts due to plaintiff, and the giving of this mortgage was an act of bankruptcy on account of which, at the suit of the creditors, Tamblin & Tamblin were on the 29th of November, 1901, adjudged bankrupts. On said 28th of October, 1901, they had for sale some cattle belonging to defendant and other people, which they sold for $4,525.65, of which $1,604.40 were the gross proceeds of defendant's property. Payment was made by the check of the purchaser for the whole amount, payable to Tamblin & Tamblin, which check had on its face the notice, "Good only in payment for live stock and when drawn in favor of a Kansas City live stock commission office." This check and others were deposited with plaintiff by Tamblin & Tamblin, and were credited to them upon their account, late in the day, after the transaction of the mortgage before stated had taken place. Defendant was present when his cattle were sold, received $50 from his factors, and instructed them, out of the net proceeds, to pay off the note here sued on, of the assignment of which to the bank he was ignorant, and to remit the balance to him. Instead of doing this, Tamblin & Tamblin, on the 28th, 29th, and 30th of October, drew checks as they had been accustomed to do in favor of third parties against this deposit, by which the larger part of it was exhausted. The bank, on the 30th, applied $160.94 to the payment of an indebtedness of Tamblin & Tamblin's to it, and subsequently paid over the remainder of the fund to the referee in bankruptcy. On the 30th day of October, 1901, the plaintiff refused to receive and credit further deposits to Tamblin & Tamblin individually, but formed what is termed a "trust fund," to which moneys tendered by them were credited, and thereafter a number of deposits were made by them into that fund for defendant, which were paid to him and are not in question. By the judgments of the district court and the Court of Civil Appeals the bank was held liable to defendant, not only for the amount applied to the indebtedness of Tamblin & Tamblin to it, but also on account of the payment of their checks in favor of persons other than defendant. For reasons appearing in the course of this opinion, we think the judgment is correct as to the first item, but not as to the second. The reasons urged for the last-named liability may be stated thus: Tamblin & Tamblin were insolvent at the time of the deposit, and this was or ought to have been known to the bank. They had committed an act of bankruptcy, of which the bank had knowledge, and upon which their bankruptcy was afterwards adjudicated. This revoked any authority they previously had as factors to deposit in their own names money of their customers. The bank had the means of knowing, when it received the deposit, that the moneys so deposited belonged to others than the depositors, and, when it paid their checks, that they were misapplying the funds, and could have learned by proper care who were the owners of such funds. From these facts the conclusion was deduced that the bank became liable (1) by permitting Tamblin & Tamblin to deposit in their own names, without authority of its owner, the money of another, and (2) in paying their checks in favor of others than such owner when it had the means of knowing that by such checks they were applying the funds to their own use. If it were true that the deposit was made by the factors in their own names without authority, and that the bank knew that the money belonged to others, and that such a deposit was wrongful, a different question would arise from that upon which we think the decision depends.

The opinion of Judge Wheeler in the case of Bank v. Jones, 18 Tex. 811, is relied on to support the position that such a transaction would amount to a conversion participated in by the bank. But in that case the money, with the knowledge of the bank, was placed in the hands of an agent for the sole purpose of being deposited to the credit of the principal. Upon this point the opinion says: "It cannot be doubted that Dye had authority to deposit this money in bank on account of the plaintiffs—if not conferred in express terms, at least impliedly from the nature of the transaction. It was intended that it should be so deposited. That was the purpose for which it was consigned to Dye. He was but the instrument of the plaintiffs, used by them for the purpose of employing in their behalf the agency of the bank. There was a privity between the bank and the plaintiffs, and the bank became directly and immediately responsible to the plaintiffs, and not merely to the agent employed by the plaintiffs in making the deposit. Being so responsible, there can be no clearer proposition than that they had no right to pass the deposit to the private account of Dye. Whenever they did so they were guilty of a fraudulent conversion," etc. In that case the bank applied the money to its claim against Dye, and it was upon that ground that the liability was at last rested, for, on page 824, the opinion further says: "If not before, there clearly was such a conversion when the defendant permitted him to appropriate it to the payment of his indebtedness, and the balance of his account with the bank." We make these quotations, not for the purpose of questioning the soundness of anything that was said in the case referred to, but only to show that the views there expressed do not conflict with other...