McFarland v. Shaw

• Decision Date: 06 January 1932
• Docket Number: No. 1482-5740.,1482-5740.
• Citation: 45 S.W.2d 193
• Parties: McFARLAND v. SHAW, State Banking Com'r.
• Court: Texas Supreme Court

45 S.W.2d 193

McFARLAND v. SHAW, State Banking Com'r.

No. 1482-5740.

Commission of Appeals of Texas, Section A.

January 6, 1932.

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

Action by Ethel McFarland against James Shaw, State Banking Commissioner. Judgment for plaintiff was modified and affirmed by Court of Civil Appeals [28 S.W.(2d) 563], and plaintiff brings error.

Reversed and remanded for new trial.

Clark, Harrell & Clark, of Greenville, for plaintiff in error.

John W. Goodwin, of Austin, for defendant in error.

SHARP, J.

Ethel McFarland instituted this suit in the district court of Fannin county against James Shaw, banking commissioner of Texas, to require him to approve her claim for $1,330.39, being the amount of money on deposit in the Ladonia State Bank to her credit at the time the Ladonia State Bank went into the hands of James Shaw, liquidating agent. James Shaw, defendant in error, answered that Ethel McFarland, her mother, Susie L. McFarland and brother, W. S. McFarland, were indebted to the Ladonia State Bank in the sum of $3,330.92 represented by a note in favor of that bank, and that the estate of C. S. McFarland had on deposit the sum of $720.12; that Susie L. McFarland had on deposit the sum of $1,439.63; that W. S. McFarland had on deposit the sum of $253.94, and that Ethel McFarland had on deposit the sum of $1,330.39, and that the liquidating agent had set off against the indebtedness owing to the Ladonia State Bank the sum of $1,178.85 of the deposit of Mrs. Susie L. McFarland, and that he set off against the note $1,178.85 of the deposit of Ethel McFarland and $120.61 of the deposit of W. S. McFarland, and that he had approved the claim of Ethel McFarland for the difference in her deposit and the amount set off in the sum of $151.85. He attached to his answer as an exhibit a copy of the note referred to, which will be hereinafter set out.

Plaintiff in error, Ethel McFarland, replied that she was not indebted to the Ladonia State Bank at the time it was taken over by James Shaw in any sum whatever; that her father, C. S. McFarland, was indebted to the First State Bank of Ladonia at the time of his death in the sum of approximately $3,300; that he left no will, and there was no administration upon his estate, and that she, together with her mother and brother, were the only heirs at law, and that, after the death of C. S. McFarland, the First State Bank renewed the indebtedness of her father with the express agreement and understanding that it should not be the personal obligation of Ethel McFarland, Susie L. McFarland, or W. S. McFarland, but that it was to continue to be an obligation of her father's estate. The defendant in error had recognized the agreement between the bank and the signers of the note by applying said note as an offset of the deposit in the bank at the time of its failure in the name of the estate of C. S. McFarland. She further alleged that the note attempted to be offset by the defendant in error was executed purely as a matter of accommodation to the officers of the bank and to keep alive the indebtedness owing by her deceased father; that the original indebtedness owing by her father was not released, and that neither she nor her mother nor her brother received anything of value whatever by reason of the execution of the note attempted to be offset; that by reason of such facts, the consideration for the note had wholly failed.

The trial of the case was before the court without a jury, and judgment was rendered in favor of plaintiff in error establishing her claim as an unsecured claim for the full amount of the deposit in the Ladonia State Bank. The trial judge filed findings of fact and conclusions of law. He held that the note referred to was a charge against the estate of C. S. McFarland, deceased, and not the personal or individual debt of plaintiff in error, and that the defendant in error was not entitled to set off the deposit in favor of plaintiff in error against the indebtedness owing by the estate of C. S. McFarland, deceased. Upon appeal, the Court of Civil Appeals modified the judgment so as to allow plaintiff in error's claim in the sum of $151.85, and affirmed the case in all other respects. 28 S.W.(2d) 563.

The Supreme Court granted a writ of error to review the opinion of the Court of Civil Appeals.

Plaintiff in error contends that the Court of Civil Appeals erred in holding that she was personally bound on the note which the defendant in error attempted to offset against the deposit she had in the Ladonia State Bank. The note in controversy reads as follows:

"Ladonia State Bank

"Ladonia, Texas, January 1, 1928.

"December 31, 1928, after date, without grace, I, we or either of us, for value received promise to pay to the order of the Ladonia State Bank, Ladonia, Texas, Thirty-three Hundred Thirty and 92/100 Dollars, with interest thereon at the rate of 8 per cent. per annum from maturity until paid. Ten per cent. upon the principal and interest thereon due shall be added as attorney's fees if placed in the hands of an attorney for collection or collected by suit. All signers and endorsers of this note waive demand, protest and non-payment, and we consent that the time of payment of this note may be extended without notice hereof.

"Payable at Ladonia State Bank, Ladonia, Texas, or at Greenville, Texas.

                   "[Signed]  Susie L. McFarland
                                   "Surviving widow of C
                                     S. McFarland
                             "W. S. McFarland
                             "Ethel McFarland
                                  "Sole heirs of C. S. McFarland
                                   deceased."
                

The trial judge, among other things, found as follows:

(a) "That at the time the note mentioned above was signed by the parties it was agreed by and between them and the First State Bank, Ladonia, that the signers were not to be personally liable but that said note would continue to be only an obligation of the estate of C. S. McFarland."

(b) "That the note which is attempted to be offset by defendant was executed under the same circumstances and with the same agreement between W. S. McFarland, Ethel McFarland and Susie L. McFarland and the Ladonia State Bank as the first note signed by W. S., Ethel and Susie L. McFarland to the First State Bank of Ladonia."

Based upon these findings of fact, the trial court held that the note signed by Susie L., W. S., and Ethel McFarland is a charge only against the estate of C. S. McFarland, deceased, and not the personal obligation of the parties executing the note.

Defendant in error contends that there is no ambiguity in the note; that on its face it is the joint and several obligation of the makers thereof; hence oral testimony contradicting or varying the same is not admissible.

The rule is ancient and well settled that parol testimony cannot be received to contradict, vary, add to, or subtract from the terms of a valid written instrument. Jones on Evidence, § 434, p. 543. This same rule applies to contracts in the form of negotiable paper. "Negotiable notes are written instruments, and as such they can not be contradicted nor can their terms be varied by parol evidence; and that proposition is universally true where the promissory note is in the hands of an innocent holder." Jones on Evidence, § 494, p. 624. However, the rule has its exceptions. It is well recognized or established that there are exceptions to the general rule which exclude parol evidence to explain written instruments, and they apply to negotiable paper as well as to other contracts. When the issue of fraud, surety, ambiguity, or want of consideration is raised, as between the original parties and those standing in the shoes of such parties or against those taking with notice, parol testimony is admissible to show the true facts. When properly presented by the pleadings and the evidence, the rule respecting the admissibility of extrinsic evidence is stated in 3 R. C. L. pp. 869 and 870, in the following language:

"Many of the exceptions to the parol evidence rule are quite as well settled as the general rule and require only a mere statement. It may not be contended for example, that, as between the parties to an instrument parol evidence is incompetent to show fraud, mistake, illegality, want or failure of consideration, to explain an ambiguity when such explanation is not inconsistent with the written terms, or to show that the writing is only a part of an entire oral contract between the parties, or that its obligation has been fully discharged by an oral collateral agreement. So in a controversy between the parties or others charged with notice proof may be made of a collateral agreement, which was the consideration for the instrument, or which postpones the legal operation of the writing until the happening of a contingency. And again, an instrument is to be construed, as in any other case, in the light of its subject matter, and the circumstances in which and the purposes for which it was executed, which evidence is always admissible in the construction of written contracts, in order to put the court in the position of the parties."

The question of innocent purchaser for value is not involved here. It was alleged, and the proof tended to show, that the note was signed by the parties at the request of the bank for the accommodation of the bank; that it was understood that the persons signing the note would not be personally liable thereon, but only the estate of C. S. McFarland, deceased, would be liable for the payment of same; that the bank kept in its possession the original note signed by C. S. McFarland, deceased; that the officers of the bank stated that they did not want the signers of the renewal note to be personally bound, but only wanted a new note in order that the debt might continue to be an obligation of the estate of C. S. McFarland, deceased, and suggested the wording on the renewal note. The trial court further found:

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