Iron City Nat. Bank v. Fifth Nat. Bank

• Decision Date: 15 June 1898
• Court: Texas Court of Appeals
• Parties: IRON CITY NAT. BANK OF LLANO v. FIFTH NAT. BANK OF SAN ANTONIO.<SMALL><SUP>1</SUP></SMALL>

47 S.W. 533

IRON CITY NAT. BANK OF LLANO v. FIFTH NAT. BANK OF SAN ANTONIO.¹

Court of Civil Appeals of Texas.

June 15, 1898.

Appeal from district court, Bexar county; J. L. Camp, Judge.

Action by the Iron City National Bank of Llano against the Fifth National Bank of San Antonio. Judgment for defendant, and plaintiff appeals. Reversed.

Lauderdale & Linden and W. A. H. Miller, for appellant. Shook & Vander Hoeven and Upson, Bergstrom & Newton, for appellee.

JAMES, C. J.

Appellant sued the Fifth National Bank of San Antonio to recover $5,018.95 and interest, which sum was a credit upon defendant's books in favor of appellant, and was, by direction of appellant's cashier, Richardson, applied to the payment of an individual debt of said Richardson to appellee. The district court charged the jury that such use of appellant's funds was wrongful, and that plaintiff should recover unless they believed from the evidence that defendant immediately notified plaintiff of such application, and plaintiff did not, within a reasonable time after receiving notice of the fact, repudiate the action of Richardson in so applying said money, and notify the defendant thereof. In the same connection the jury was charged that notice to Richardson was not notice to plaintiff, and that it was necessary for full knowledge of the facts to have come to plaintiff through its authorized agents, other than Richardson. The jury found for the defendant, and judgment was so entered.

The testimony discloses the following state of facts: Appellant bank began, about May 4, 1894, making deposits with the Fifth National Bank and transacting business with it. A short time before this relation between the banks commenced, W. O. Richardson began negotiations to borrow $10,000 from appellee, and it was loaned to him, he giving it one note for $7,000 and another for $3,000. This money was used by him to purchase 310 shares (a majority of the shares) of the capital stock of appellant's bank, whereupon he became its cashier. Seventy of these shares he deposited with appellee as collateral for said two notes. Shortly afterwards, on May 11th, Richardson wrote the following letter: "Mr. H. O. Engelke, Cashier, San Antonio, Texas— Dear Sir: Please charge the account of the Iron City National Bank note of W. O. Richardson, $3,000.00, also note of W. O. Richardson, $7,000.00, when due, and oblige, yours truly, W. O. Richardson, Cashier." Engelke was appellee's cashier, and it appears that he did not so pay off these notes upon receipt of the letter, because the amount the Llano bank then had to its credit was not sufficient to pay both the notes. Soon afterwards, however, Richardson procured to be sent appellee from the Hanover National Bank of New York the sum of $5,000, which was credited on the larger note; and appellee then applied the Llano bank's deposit, to the extent of $5,018.65, to satisfy the balance due on Richardson's said notes, stamped them "Paid," and returned them, with the collateral then on hand (30 shares, the other 40 having been sent to the Hanover National Bank by Richardson's direction), to Richardson. There were some other deposits made by appellant, after this, with appellee, but they were all soon checked out. It appears that, at the time the notes and stock were returned to Richardson, Engelke wrote a letter to W. O. Richardson, cashier, giving notice that appellee had so charged the bank's account, and at the end of the month sent plaintiff a monthly statement showing all the transactions during the month, which included the following charges:

                May 25. Note ....................  $3,000 00
                May 25. Credit on note ..........   2,000 00
                        Interest ................      18 65
                                                  __________
                                                   $5,018 65
                

It appears that Richardson, in connection with the entry of these items in plaintiff's books, caused plaintiff's books to be falsified, by making it appear therein that the Fifth National Bank had remitted to the Missouri National Bank of Kansas City in favor of appellant the sum of $5,000. Defendant rendered another statement in June, for the month of June, showing the balance in plaintiff's favor on May 31st, which was afterwards checked out. The said two statements were found in the vault of the bank in the proper place for their keeping, and had written in pencil upon them, in the handwriting of appellant's bookkeeper, "O. K.," and some figuring in which the balances were figured up. The duty of the bookkeeper was shown to have been to look over such statements to see if they corresponded with plaintiff's books, and it was not his duty to examine the items. This was the duty of Richardson, the cashier. Richardson was shown to have been invested with the powers ordinarily incident to such office, had charge of plaintiff's business and correspondence, and got and opened plaintiff's mail. He, by a resolution of the directors, had no power to loan or use the bank's money in any way, unless authorized to do so by the finance committee, composed of certain directors. The evidence shows that Richardson did not have authority to use the credit in question to pay the debt in question; it also fails to show that the directors of plaintiff's bank, or any of its agents or officers outside of Richardson, had actual knowledge of the act in question until about seven months afterwards, when a bank examiner investigated the affairs of the bank, and discovered it. (There was, however, ample evidence to justify a finding that, by the exercise of proper care on the part of the directors the fact would have become known to them soon after its occurrence, and that they were negligent in not knowing of it soon after its occurrence.) Richardson was insolvent at the time he obtained the loan, and so remained. His shares of stock during April, May, and June, according to one witness, and presumably all the time from the other testimony, were in the hands of his creditors as collateral. He had no other property. The bank stock had no real value, from the fact that from May, 1894, on, its assets were at no time as much as its liabilities. (It seems, however, that the reports of the bank's business and condition, drawn with reference to the books and bank values, indicated a surplus, and, by aid of these, the stock was considered to have a value, and to some extent was at times available.) Richardson resigned his position in the bank in December, 1894, and...