Maxey v. Citizens Nat. Bank of Lubbock

• Decision Date: 20 March 1974
• Docket Number: No. B--3865,B--3865
• Citation: 507 S.W.2d 722
• Parties: Homer G. MAXEY et al., Petitioners, v. CITIZENS NATIONAL BANK OF LUBBOCK, Texas, Respondent.
• Court: Texas Supreme Court

Page 722

507 S.W.2d 722

Homer G. MAXEY et al., Petitioners, v. CITIZENS NATIONAL BANK OF LUBBOCK, Texas, Respondent.

No. B--3865.

Supreme Court of Texas.

March 20, 1974.

Simon & Simon, Harold D. Hammett and Henry W. Simon, Jr., Fort Worth, Stayton, Maloney, Black, Hearne & Babb, John W. Stayton, Austin, for petitioners.

Shafter, Gilliland, Davis, Bunton & McCollum, W. O. Shafer, Odessa, Evans, Pharr, Trout & Jones, Charles B. Jones, Key, Carr, Evans & Fouts, Lubbock, James M. O'Leary, Odessa, for respondent.

DENTON, Justice.

This is a suit by a customer-borrower against a bank for fraud, conspiracy and conversion. In a prior trial plaintiffs were granted a judgment against the bank for actual and exemplary damages. That judgment was reversed and remanded because of the insufficiency of the evidence to support the jury verdict. Citizens National Bank of Lubbock v. Maxey, 461 S.W.2d 138 (Tex.Civ.App.1970, writ ref'd n.r.e.). Upon remand, the trial court granted the bank's motion for summary judgment on the grounds the plaintiffs' cause of action is barred by the doctrine of res judicata and estoppel by judgment. The court of civil appeals affirmed. 489 S.W.2d 697. We reverse.

Petitioners, Homer G. Maxey, Wm. Goodacre and wife, and Tommy Elliott and wife, went to trial in the prior case on their third amended original petition, naming as defendants in addition to the Citizens National Bank of Lubbock, two related corporations, five bank officers, three bank attorneys and two customers of the bank. The plaintiffs alleged that Maxey had previously done his banking business at the First National Bank of Lubbock when he was induced to bring his business to the defendant bank by offering him an open lien of credit of $1,000,000; that Maxey thereupon borrowed substantial sums of money from the bank; that the defendants interfered with Maxey's negotiations with a third party whereby Maxey was to obtain money to pay off the bank loans; that the defendants forced plaintiff under threat of foreclosure, to execute security agreements; after which they foreclosed, and sold the collateral to the bank's two related corporations and friends for substantially less than it was worth. In substance, the plaintiffs alleged a conspiracy by the defendants to wrongfully convert plaintiffs' property. At the close of the plaintiffs' evidence, all remaining defendants save and except the Citizens National Bank were granted instructed verdicts. Judgment was subsequently entered on the jury verdict that plaintiffs recover from the defendant bank $913,378.53 actual damages and $1,500,000.00 exemplary damages. There was no appeal from the judgments in favor of the individual defendants. On appeal, the judgment rendered against the bank was reversed and remanded because of the insufficiency of the evidence to support certain material jury findings.

Upon remand, the bank moved for a summary judgment on the ground that final judgments had been entered exonerating all of the individual defendants, except the bank and since the bank's liability as alleged, was derivative, i.e., based on the acts of its agents and employees, then it is entitled to judgment under the doctrine of res judicata and collateral estoppel. Subsequent to the filing of the bank's motion for summary judgment, the plaintiffs filed their fourth amended original petition wherein it named only the bank as defendant. The bank filed no additional pleadings in answer to the plaintiffs' fourth amended original petition.

The bank contends, and the court of civil appeals, held, that under the plaintiffs' allegations the bank's liability was derivative, and that the bank was exonerated by the final judgments entered in favor of all the individual defendants. The plaintiffs take the position their amended pleadings which alleged that the bank, under the security agreements which had been executed between the plaintiffs and the bank, had an independent contractual obligation to exercise good faith and fairness in the sale of the collateral. They argue that the instructed verdicts for the individual defendants were based on personal defenses which would not absolve the bank of liability.

The plaintiffs' fourth amended original petition, which named only the bank as defendant, alleges the same acts as had been set out in previous pleadings; however, the following additional allegations were included.

'By its conduct as described above in selling the common stock at such secret and private foreclosure sale, the defendant Bank breached its duty to plaintiffs upon and after its foreclosure by failing to exercise the standard of care required of the Bank as chattel mortgagee because the Bank became, by its act of foreclosure, a constructive Trustee for the benefit of its debtors, the plaintiffs herein. When the Bank sold plaintiffs' common stock to other corporations controlled by the Bank, the Bank did not follow the law in carrying out its duty as constructive Trustee, and thus became liable to plaintiffs for the reasonable fair market value of the property foreclosed on. Each Bank sale of the common stock owned by plaintiffs was fraud, actual or constructive, was an illegal conversion of plaintiffs' property by the defendant Bank, and was sold by the defendant Bank at an inadequate price. Since the Bank as constructive Trustee, and therefore as a fiduciary of plaintiffs, sold plaintiffs' stock to corporations owned or controlled by the Bank, the Bank has the duty to show that the sale was fair. The basic duty of the Bank at the time of foreclosure was to exercise good faith and fairness with respect to the conduct of the sale of the common stock pledged by plaintiffs. The Bank violated such duties and also violated its duty...