Mercantile Nat. Bank at Dallas v. McCullough Tool Co.
| Decision Date | 01 April 1953 |
| Docket Number | No. A-3833,A-3833 |
| Parties | MERCANTILE NAT. BANK AT DALLAS v. McCULLOUGH TOOL CO. |
| Court | Texas Supreme Court |
Carrington, Gowan, Johnson & Walker, Paul Carrington and Hubert D. Johnson, Dallas, for petitioner.
Fleming A. Waters, Cisco, R. R. Holloway, Brownwood, for respondent.
This controversy determines which of two creditors shall bear a portion of the loss caused by the failure of an oil company. The determining question: May a third party action be brought upon a contract under which a bank agrees to lend money to an oil company to be disbursed to its creditors from a deposit account? The answer is 'No' where (as here) the oil company has not authorized the bank to pay the specific account in a manner meeting the bank's requirements for withdrawing money from the deposit account.
The Court of Civil Appeals, 250 S.W.2d 870, allowed the tool company a recovery against the bank.
The oil company, needing money to pay its creditors, gave the bank a note dated December 27, 1949 in the face amount of $278,000 secured by an oil and gas lease then owned and operated by the oil company and having at that time four producing wells and a fifth being drilled. This note required monthly installments of a minimum of $5,000 each with each installment to contain at least three-fourths of the monthly oil runs from the lease. The money borrowed in consideration of this note was to be deposited to the account of the oil company and then disbursed by the bank directly to creditors. On January 13, 1950 the bank disbursed up to $211,360. Thereafter the oil company failed to meet its first $5,000 a month minimum payment. There is in excess of $67,000 of the face value of the note undisbursed which the bank refuses to pay out.
The tool company contends that the balance of the note must be distributed to the creditors, even though the note be in default, because, it says, the bank's contract to land the money was for the benefit of creditors who can demand that the entire loan be completed and disbursed. The trial court and a majority of the Court of Civil Appeals agreed.
This controversy arises from a cover letter from the oil company to the bank (delivered simultaneously with the execution of the note and deed of trust-December 27, 1949) containing the following paragraph:
Since the account at bar was not specifically mentioned, the last sentence quoted above is crucial. This sentence did not direct the bank to disburse the money to all creditors on Will No. 5. It said that 'subsequent * * * disbursements are to be made on account of * * *' bills for Well No. 5 and '* * * official instructions * * * will be furnished.' We hold that if there be any ambiguity in this sentence the parties have themselves construed the contract as requiring that disbursements from the deposit account be upon a specific authorization for each item. We base this upon the following evidence.
The account sued upon at bar was for supplies furnished for Well No. 5. Two days (December 29, 1949) after the delivery of the note, the oil company sent to the bank a list of creditors and amounts due for wells Nos. 3, 4, and 5. The next day the oil company delivered to the bank the following letter:
'Dallas, Texas
'December 30, 1949
'Mercentile National Bank at Dallas
'Mercantile Bank Building
'Dallas 1, Texas
'Re: Disbursements from Loan Account of Mystic Oil Corporation
'Gentlemen:
'You are hereby authorized to disburse out of the above account payments for our No. 4 well in an amount not exceeding Sixty-Two Thousand One Hundred Seventeen and 74/100 ($62,117.74) Dollars.
'These disbursements to creditors are to be made in the amounts heretofore listed and submitted to you, and in accordance with our conversation of December 29th current.
'Very truly yours,
'Mystic Oil Corporation
'John J. Shanahan, President
'By John G. Connally
'Attest:
'W. J. Gerron
'Secretary-Treasurer
'Seal'
Subsequently (January 12, 1950) the bank wired John J. Shanahan as follows:
Shanahan as President of the oil company replied (January 13, 1950) to this by wire and letter. Te wire being:
'Brighton, Mass.
'January, 13, 1950
'Mercantile Natl. Bank
'Dallas, Texas
'Reference your telegram you are authorized to disburse from Mystic loan account all well number four creditors listed with you December 29th and to pay Ray Harris Company on invoices for $1547.67 and $9087.20.
Letter follows.
The letter being:
'17 Electric Avenue
'Boston 35, Mass.
'January 13, 1950
'Merchantile National Bank at Dallas
'Merchantile Bank Building
'Dallas 1, Texas
'Re: Disbursements from Loan Account, Mystic Oil Corporation, Well #4
'Gentlemen:
'You are hereby authorized to disburse out of the above account payments for our well #4 in an amount not exceeding sixty-two thousand one hundred seventeen and 74/100ths ($62,117.74) dollars.
'These disbursements are to be made in the amounts heretofore listed and submitted to you and in accordance with our conversating of December 29th, our letter of December 30th and our telegram of even date, of which latter this letter is a confirmation.
'We request, at your early convenience, that you furnish us with an itemized statement, listing creditors and amounts paid out, of the loan account through and including these authorized disbursements.
'Very truly yours,
'Mystic Oil Corporation
'By John J. Shanahan
'John J. Shanahan, Pres.'
Therefore this much is clear. The advances obtained upon the note were to be deposited to the credit of the oil company and disbursed according to further instructions.
Since before default the power to grant an authorization to pay a particular account or withhold it lay with the oil company, the tool company could not possibly have had a direct action against the bank before authorization of its account for payment. McCown v. Schrimpf, 21 Tex. 22. The trial court's findings that the only limitation upon the bank in paying creditors was the condition that Well No. 5 be a commercial producer is contrary to the terms of the contract as construed by the parties. Each separate withdrawal had to be authorized.
Was the bank ever authorized to pay this account? Certainly not before February 2, 1950. On that date Mr. Fred A. Bryant, an auditor for the oil company, forwarded to the bank a statement including this account.
What do the words official instructions in the cover letter mean? The bank introduced a corporate resolution dated December 24, 1949 (same date as cover letter) designating the bank as a depository and authorizing withdrawals in the name of the corporation from the deposit account by 'any two (2)...
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