Linz v. Eastland County

• Decision Date: 10 June 1931
• Docket Number: No. 1119-5381.,1119-5381.
• Citation: 39 S.W.2d 599
• Parties: LINZ et al. v. EASTLAND COUNTY.
• Court: Texas Supreme Court

39 S.W.2d 599

LINZ et al. v. EASTLAND COUNTY.

No. 1119-5381.

Commission of Appeals of Texas, Section B.

June 10, 1931.

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

Suit by Eastland County against the City National Bank, Clarence E. Linz, and others. Judgment of the district court was affirmed in part and in part reversed and rendered [12 S.W.(2d) 662], and Clarence E. Linz and others bring error.

Affirmed in part, in part reversed and rendered, and otherwise reversed and remanded for new trial.

W. H. Flippen, Seay, Seay, Malone & Lipscomb, and Thompson, Knight, Baker & Harris, all of Dallas, Turner, Seaberry & Springer and Allen D. Dabney, all of Eastland, and Gib Callaway, of Brownwood, for plaintiffs in error.

J. R. Stubblefield, Chas. C. Robey, Frank Sparks, and Joe H. Jones, Co. Atty., and B. W. Patterson, all of Eastland, Beall, Worsham, Rollins, Burford & Ryburn and Albert B. Hall, all of Dallas, and John T. Suggs, of Denison, for defendant in error.

RYAN, J.

This is the second suit growing out of the attempt of Eastland county to recover certain funds on deposit in the Security State Bank & Trust Company, at the time the bank closed its doors and its affairs were taken over by the commissioner of insurance and banking.

Eastland county first filed its action in the district court of Eastland county against the Security State Bank & Trust Company, the commissioner of insurance and banking, and J. R. Burnett, special agent of the commissioner, to establish as a general deposit certain of its funds, and have them classified as claims entitled to be paid out of the depositors' guaranty fund. In substance, the petition alleged that on August 3, 1921, the defendant bank had complied with the provisions of the bank deposit guaranty statute, in that its unsecured noninterest-bearing deposits were protected by the depositors' guaranty fund; that on that date (when the commissioner closed the bank for liquidation) the county had on deposit in said bank $629,847.42, which was protected by said fund, for which it filed its claim, which the commissioner rejected.

The facts in that case were: On February 14, 1921, the commissioners' court of Eastland county designated the Security State Bank & Trust Company as the county depository, and said bank entered into bond as required by law; on April 14, 1921, one of the sureties on said bond requested to be released, and the commissioners' court made an order requiring the bank to furnish a new bond, which was tendered and accepted on the same day. Subsequent to the approval of said bond, several of the sureties thereon suffered heavy financial losses, as a result of which, the county judge, on July 12, 1921, by letter advised the bank that the commissioners' court "finds that the bond is insufficient, and you are notified to tender said court a good and sufficient bond, and that the funds belonging to the county will be immediately withdrawn, unless the same is placed in noninterest bearing account protected by the State Guaranty Fund."

The bank immediately replied, addressed to the commissioners' court: "This is to advise you that we will secure just such a bond as your body will deem adequate, and in the meantime we have placed the funds of this county on a noninterest bearing basis, which deposit, under the terms of the banking laws, is protected by the Depositors' Guaranty Fund of the State of Texas."

The county subsequently thereto deposited $85,557.83 in the bank, some of it on the day before the bank closed. When the bank closed, on August 2, 1921, the county had on deposit in said bank two items, one of $556,535.15, and the other $73,312.27, making a total of $629,847.42 as sued for.

The district court rendered judgment in favor of the county establishing and classifying its claims, as unsecured, noninterest-bearing deposits, secured by the guaranty fund, and directed payment accordingly.

On appeal by the commissioner of insurance and banking, the Court of Civil Appeals at El Paso held that the attempt of the commissioners' court in agreement with the bank's officers to transfer the funds to a noninterest-bearing account within the guaranty fund statute was futile, and the deposits still remained secured and interest bearing, and therefore not chargeable against the guaranty fund. In that respect the trial court's judgment was reversed and rendered by the Court of Civil Appeals in favor of the commissioner of insurance and banking. Chapman v. Eastland County, 260 S. W. 889.

Writ of error was granted by the Supreme Court and referred to this section of the Commission of Appeals. We held, speaking through Judge Speer, that on July 12, 1921, when said letters were written and the bank attempted to place the funds in a noninterest-bearing account protected by the guaranty fund, the bank was hopelessly insolvent. "Under these facts," said Judge Speer, "the questions arise, first, was Eastland County a depositor in the Security State Bank & Trust Company, within the protection of the depositors' guaranty fund, as to the total of $629,847.42; and, if not, second, was Eastland County entitled as such depositor to protection for payment out of that fund as to the $85,557.83 deposited after the agreement referred to? We are of the opinion that the first question should be answered, `No,' and the second one, `Yes.'"

The contention there was that although Eastland county was not under the statute entitled to protection under the original arrangement with the Security State Bank & Trust Company as its depositary, the county's status was changed, after the agreement of July 12, 1921, from that of a secured interest-bearing depositor to that of an unsecured non-interest-bearing depositor, within the contemplation of the statute.

It was held by Judge Speer that the attempted change by a depositor from an interest-bearing deposit to a noninterest-bearing one, at a time when the bank was insolvent, would not create the status of "depositor" so as to entitle such depositor to the benefits of the guaranty fund—such attempted change, if given effect, would operate as a fraud. Attention was also called to the Act of February 28, 1923 (38th Leg. c. 45), amending article 486 of the Revised Statutes, so as to provide that any deposit of public funds, whether interest bearing or not, deposited in a state bank, shall not be insured.

The Commission of Appeals held that as to the item of $85,557.83 deposited after the agreement of July 12, 1921, the county came within contemplation of the statute and entitled, to that extent, to payment out of the guaranty fund, but not as to deposits previously made.

Accordingly, the judgments of the district court and Court of Civil Appeals were reversed, and judgment was rendered by the Supreme Court for the county, establishing the total amount of its claim as such was established by the trial court, but ordering that no part of the same be paid out of the guaranty fund save the sum of $85,557.83 so deposited after July 12, 1921. 276 S. W. 654, 655; 277 S. W. 629.

The judgment entry was afterwards modified so as to allow a recovery by the county from the defendants in error of the costs of the district court, but denying recovery of interest upon the $85,577.83 established as a claim to be paid out of the guaranty fund. 278 S. W. 425.

This judgment for $85,577.83, after it became final, was paid by the commissioner of insurance and banking to Eastland county; in the liquidation of the bank, further sums amounting to $133,250.94 were paid the county out of the bank's general assets.

After the decision by the Court of Civil Appeals, but before any action was had in the Supreme Court (writ of error having been granted), Eastland county, on July 3, 1925, filed the present suit against the City National Bank, the Security State Bank & Trust Company, Charles O. Austin, the then commissioner of banking of the state of Texas, and the several sureties on bonds Nos. 1, 2, and 3 named below, to recover from said banks and said sureties the amount remaining uncollected on the county's judgment against the Security Bank & Trust Company, obtained in the former suit.

It appears from this record that in February, 1919, the American National Bank of Eastland was designated as the county's depositary for the statutory two years' term. In June, 1920, the county had a large sum of money derived from the sale of an issue of road bonds, as a special fund. The American National Bank refused to act as depositary for that special fund, whereupon the City National Bank was elected such special depositary, and it agreed to pay the county 4.52 per cent. interest on daily balances, and executed to the county five surety bonds aggregating $330,000 in amount; such surety bonds and the respective amounts signed by each were: Southern Surety Company, $30,000; National Surety Company, $100,000; Fidelity & Deposit Company of Maryland, $40,000 and $100,000, respectively, on the two bonds executed by it; and the United States Fidelity & Guaranty Company, $60,000. These sureties are herein referred to as corporate sureties and the bonds executed by them, collectively, as bond No. 1.

In November, 1920, the assets of the City National Bank were taken over and all its liabilities assumed by the Security Bank & Trust Company. At that time the county had on deposit with the City National Bank, according to its books, the sum of $662,436.55, which credit was carried forward in the books of the Security Bank & Trust Company. Although no official recognition of this change of special depositary was made by the county, its authorities proceeded to deal with the Security Bank, as they had dealt with the City Bank, depositing therein proceeds from the sale of road bonds, and receiving monthly statements of the condition of the county's account, and accepting credits each month for the amount of interest due on daily balances, in accordance with the ...