McBride v. American Ry. & Lighting Co.

• Decision Date: 02 April 1910
• Citation: 127 S.W. 229
• Parties: McBRIDE v. AMERICAN RY. & LIGHTING CO. et al.
• Court: Texas Court of Appeals

127 S.W. 229

McBRIDE v. AMERICAN RY. & LIGHTING CO. et al.

Court of Civil Appeals of Texas.

April 2, 1910.

Appeal from District Court, Dallas County; E. B. Muse, Judge.

Action by L. C. McBride, receiver, against the American Railway & Lighting Company and others. From the judgment, plaintiff appeals. Affirmed.

Cockrell, Gray & Thomas, for appellant. M. B. Templeton, Hogg, Gill & Jones, W. H. Flippen, and T. B. McCormick, for appellees.

CLARK, Special Judge.

The Texas Traction Company was organized and incorporated for the purpose of constructing, owning, and operating the line of interurban railway now extending from Sherman to Dallas. To secure the necessary funds to construct and equip the proposed railway, it was necessary to issue bonds secured by first mortgage thereon, and to negotiate these together with a part of its capital stock. Before the company was organized, certain capitalists in Boston, Mass., had proposed to purchase these securities, and, as the work of construction progressed, to advance in installments, based upon certain conditions, the money to pay for the labor performed and material used in the construction work. The American Railway & Lighting Company, a corporation, entered into a contract with the said traction company to construct and equip the proposed railway according to plans and specifications in consideration of the sale and transfer to it of the bonds and stock referred to, and arranged with the Boston capitalists to take over these securities and advance the money as it had proposed. The last-named corporation sublet the contract of constructing the road to the Fred A. Jones Company, another corporation. Under this contract to secure the last-named company, a lien was given upon the securities aforesaid, and it was subrogated to all rights of the general contractor therein. The funds to arise from the sale of said securities to the Boston capitalists were to be for the sole purpose of constructing and equipping the railway, and there were no other funds for that purpose.

In order to carry on the work of construction, is was necessary that the subcontractor and those furnishing material and labor should be paid as the work progressed; and, in order to be able to do this, it was arranged that, at stated periods, estimates should be made of the work done and material furnished up to that time by engineers selected by the parties interested. When these estimates were made and certified, money with which to pay for the work and material entering into such estimates would be advanced by the Boston capitalists in part payment for the securities mentioned. The Old Colony Trust Company is a Boston banking corporation. It seems to have been the banking house of these capitalists, and was made the trustee in the deed of trust to secure the bonds. The Western Bank & Trust Company was a Texas corporation engaged in the banking business in Dallas, Tex. For a time, whenever informed of the amount of an estimate so made by the engineers, the Boston capitalists would by direction of the parties cause the money to pay the amount of any such estimate to be deposited in a New York bank to the credit of the Western Bank & Trust Company, and, when this was done, this Bank & Trust Company would pay the material and labor claims included in such estimate at its banking house in Dallas. On account of the delay necessarily incident to making payments in this way, it was arranged, by consent of all the interested parties, that, whenever an estimate was made, the American Railway & Lighting Company would issue its draft on the Western Bank & Trust Company in favor of each party having a claim for material or labor entering into such estimate for the amount of such claim, and take a receipt showing payment thereof. Upon this being done, the amount of the estimate would be wired to the Boston capitalists, and they would cause the amount of money necessary to pay such estimate to be placed on deposit with the Old Colony Trust Company in Boston to the credit of the Western Bank & Trust Company at Dallas, and the firstnamed company would immediately wire the latter company of the fact. When any such material or labor draft was presented to it, the Western Bank & Trust Company would issue exchange on the Old Colony Trust Company for the amount thereof, and present the same to the holder of such draft in payment. This amount would be carried on the books of the Western Bank & Trust Company as an overdraft until the exchange issued by it could be sent to Boston by mail, where it would be paid by the Old Colony Trust Company, and until notified of this fact by the company last named. In some instances the Western Bank & Trust Company would advance the money on such a draft drawn upon it, and carry the item as a charge against the Old Colony Trust Company, until by due course of business proper credit could be allowed at Boston out of said funds. The Old Colony Trust Company and the Western Bank & Trust Company never at any time had any business transaction between themselves, except the transactions here mentioned. Neither had authority to draw drafts on the other for any purpose, and neither had any fund on deposit with the other except in relation to the matters under discussion. The Western Bank & Trust Company did not select the Old Colony Trust Company as the custodian of these construction funds, and really had no voice in its selection for that purpose. It was understood by all of the parties that the deposits placed in the Old Colony Trust Company to the credit of said Bank & Trust Company were for the sole purpose of paying for the construction of said railway, and it was expressly agreed between the said Bank & Trust Company and the American Railway & Lighting Company that "said funds when deposited in the Old Colony Trust Company at Boston should be used only to pay items of construction in connection with the interurban railway, except that, should the Western Bank & Trust Company pay for any such item in Dallas, then it would be entitled to reimburse itself for a like amount out of said funds and also exchange charges."

Arrangement to make payments in the manner stated was made merely for convenience as exchange drawn by the Western Bank & Trust Company on the Old Colony Trust Company was practically the same as money in Dallas. There were no other means or resources to pay for the construction work, except the money arising from the sale of the stock and bonds above mentioned, and the arrangement outlined above was made in order that this money, or its equivalent, could be made available in Dallas on short notice to be applied solely to construction claims. These facts and all the details of these arrangements were known and assented to by all of the interested parties, including the Old Colony Trust Company. Drafts issued by the American Railway & Lighting Company on the Western Bank & Trust Company for these construction claims were in the ordinary form of a bill of exchange with a combination voucher and receipt on the reverse side thereof, the voucher, audited and approved for payment, showing in detail the items entering into the amount of the draft, and stating that it was "incurred in connection with the construction of the Sherman-Dallas Interurban Railway by the Texas Traction Company," and the receipt stating that it was given "in full settlement of the above account," and must be signed before presenting for payment.

The exchange issued by the Western Bank & Trust Company on the Old Colony Trust Company in payment of these drafts was in the form of an ordinary commercial bill of exchange. On its face neither the purpose for which or the funds against which it was drawn in any way appeared. Estimates in the usual way were made by the engineers on the 11th and 13th days of January, 1908, covering the construction claims in controversy aggregating $26,108.44 made up of the various items for work done and material furnished by various parties to this suit. Drafts in the usual form were issued by the American Railway & Lighting Company on the Western Bank & Trust Company, for each of these items, in favor of the party to whom it was due. Many of these drafts were presented to the Western Bank & Trust Company prior to January 15, 1908, and exchange on Boston was issued in the usual manner in payment for the same. Some were presented and paid in cash, while others were never presented to said bank. One of these drafts was in favor of the Fred A. Jones Company, the subcontractor, and amounted to $2,584.96. This draft was not presented to the Western Bank & Trust Company with request for the usual Boston exchange, but was presented for the purpose of having the amount of same entered as a deposit in favor of said Fred A. Jones Company with said Bank & Trust Company. When this draft was presented at the window of the Western Bank & Trust Company for deposit, the same was received by the teller, but no money was paid thereon, and it was not passed to the credit of the Fred A. Jones Company. The amount of the same, however, was duly entered on the passbook of the latter company by said teller, and said draft was placed to one side by him along with other deposits received that day. The officials of this bank had determined on the morning of the 15th of January, in view of general financial conditions, to hold the business of the day in abeyance, and, should not the expected relief to the bank be realized, that then the business of that day, January 15th, including checks deposited, would be returned to the respective parties entitled thereto. The bank having suspended on the night of January 15, 1908, accordingly, this check with all other checks and moneys received on that day was returned; and the Fred A. Jones Company, on the morning of the 16th, immediately tendered said check back to the American Railway & Lighting Company, claiming that it had not been paid, and claiming...