Quanah, Acme & Pacific Ry. Co. v. Wichita State B. & T. Co.

• Decision Date: 19 April 1933
• Docket Number: No. 4007.,4007.
• Citation: 61 S.W.2d 170
• Parties: QUANAH, ACME & PACIFIC RY. CO. v. WICHITA STATE BANK & TRUST CO.
• Court: Texas Court of Appeals

61 S.W.2d 170

QUANAH, ACME & PACIFIC RY. CO. v. WICHITA STATE BANK & TRUST CO.

No. 4007.

Court of Civil Appeals of Texas, Amarillo.

April 19, 1933.

Rehearing Denied June 14, 1933.

Appeal from District Court, Hardeman County; W. N. Stokes, Judge.

Suit by the Quanah, Acme & Pacific Railway Company against the Wichita State Bank & Trust Company. From an adverse judgment, plaintiff appeals.

Affirmed.

C. Y. Welch, of Quanah, G. E. Hamilton, of Matador, and Goree, Odell & Allen, of Fort Worth, for appellant.

Marshall & Perkins, of Quanah, and Bullington, Humphrey & King, of Wichita Falls, for appellee.

MARTIN, Justice.

The action of the trial court in sustaining appellee's general demurrer is the only question presented for review.

Appellant's petition is lengthy. To conserve space we reproduce literally only so much of it as we deem necessary. Appellant is a railroad corporation, operating out of the city of Quanah, and has been since about the year 1909. From 1909 until about September, 1931, it had in its employment one T. K. Hawkins as its treasurer and auditor "whose duty was to collect and deposit all moneys and revenues arising from such business to plaintiff's credit in its depository bank at Quanah, which for many years had been and was still such depository on the last mentioned date, to-wit: the Security National Bank of Quanah." It was alleged, in substance: That much of the outbound freight moved on other roads and that the delivering carrier collected the revenues and distributed same among the carriers participating in the haul in accordance with the proportion earned by each. That the said T. K. Hawkins would draw a draft against the collecting carriers for the proportional amount of freight coming to appellant and deposit same in the said Security National Bank of Quanah. That about March, 1925, "the said T. K. Hawkins began the practice of withholding from deposit one or more of the drafts above described, for which he would request the Security National Bank to issue to him bills of exchange payable to him as treasurer * * * for varying amounts * * * and at his request said depository bank issued to said T. K. Hawkins many bills of exchange drawn against other banks * * * and which practice occurred practically every month from March, 1925, to August, 1931. That up to about the month of April, 1931, such bills of exchange were payable to T. K. Hawkins, Treas. * * * But after said date said bills of exchange were made payable to T. K. Hawkins, Treas., Q. A. & P. Ry. Co." That an example of the wording of one of such bills of exchange is the following:

"The Security National Bank of Quanah, Texas, Quanah, Texas, Jan. 31, 1930.

"Pay to the order of T. K. Hawkins, Treas. $417.65. Exactly Four Hundred Seventeen Dollars 65 cents. Exactly.

"To The Continental National Bank, Ft. Worth, Texas.

                                                  "H. M. Bumpass, Cashier."
                

It is further averred that such bills of exchange were indorsed "T. K. Hawkins, Treas."; that all of these bills of exchange were paid for by drafts drawn by T. K. Hawkins for freight as aforesaid and were each and all the property of appellant; that T. K. Hawkins embezzled, with the aid of appellee, Wichita Bank & Trust Company, the proceeds of bills of exchange between March, 1925, to September, 1931, in amounts which aggregated the sum of $63,054.65; that the scheme used by Hawkins was to indorse and deliver such bills of exchange to appellee, some of them personally and some of them by mail, each of them to be credited and were credited to his personal account and that all of the funds so deposited were withdrawn on the individual check of Hawkins; that the bank knew, by virtue of the form and contents of said bills of exchange and that T. K. Hawkins had indorsed same, that such bills of exchange were the property of appellant; that Hawkins was at the beginning of said transactions a stranger to the officers and employees of same and remained a comparative stranger to appellee throughout the period of time already mentioned; that during all of such time appellee knew that there were adequate banking facilities at Quanah and that Quanah was situated approximately eighty miles from Wichita Falls, which was the banking home of appellee; and that appellee at no time made any inquiry as to the cause or occasion of said unusual deposit or the use of the bills of exchange by the said Hawkins "but received and accepted same and received the proceeds thereof from the drawee banks in each instance with but the slightest investigation." The petition further avers a lack of authority and right in Hawkins to convert to his own use the said bills of exchange or to indorse or negotiate same for his own personal use and benefit; that he was attempting in so doing to act both for himself and for said corporation; that by reason of these facts and circumstances, the said bank was charged with "actual knowledge that said Hawkins was so misappropriating and converting, with the aid and assistance of said defendant Bank, the funds, moneys and credit of plaintiff and by proper inquiry the said Bank could and would have prevented loss to itself and to this plaintiff."

This petition, in fact, specifically alleges knowledge on the part of appellee of said misappropriations and embezzlements but it seems to have been agreed in the trial court and acquiesced in by all parties in oral argument before this court, that it had only such knowledge as might be visited upon it by all the facts and circumstances connected with and surrounding the transactions leading to the acquisition of the funds aforesaid. The order sustaining the demurrer contains the following language: "It being understood that the court construes said petition of plaintiff to charge that Wichita State Bank & Trust Company, one of the defendants herein, was charged with notice that T. K. Hawkins was embezzling the funds of plaintiff, only by the facts and circumstances alleged in said petition, and does not charge that said Bank & Trust Company had any actual knowledge at any time prior to the time of the discovery of such embezzlements by plaintiff itself, and the giving of notice thereof to said Bank & Trust Company, that such funds were being embezzled by said Hawkins, except such notice as was visited upon said Bank & Trust Company by all the facts and circumstances connected with and surrounding the transactions leading to the acquisition of plaintiff's funds by said Hawkins as are alleged in said amended petition. In which interpretation of the pleadings by the court the attorneys for the plaintiff agreed."

We will, therefore, ignore every allegation in the petition other than facts and circumstances set out therein which were intended to bring notice and knowledge home to the bank of Hawkins' misappropriation of the funds in question.

We are inclined to agree with appellant's contention that the bills of exchange upon their face, with the indorsement thereon, sufficiently disclosed to appellee bank that they were trust funds not belonging to Hawkins. See Long v. City National Bank (Tex. Civ. App.) 256 S. W. 1006, 1008, and authorities there cited. Also article 5934, § 42, R. S. 1925. This will be assumed, as under our view of the law it is not necessary to discuss or decide this.

The real question here is whether or not allegations of the deposit of the proceeds of these by Hawkins to his personal account and their subsequent withdrawal by him, along with the other circumstances mentioned, sufficiently aver notice to the bank of an intended embezzlement of such funds by him. Or, stated otherwise, do all the facts and circumstances alleged show that the bank acted in bad faith or knowingly aided Hawkins in the misapplication of the funds described in the petition. If yes, a cause of action was alleged. If no, the court's action in sustaining the general demurrer was correct. The solution of this question turns, in our opinion, upon the effect to be given to the act of appellee in crediting the personal account of Hawkins with the proceeds of the aforesaid bills of exchange, which it knew was not his property, and thereafter honoring his personal checks for the proceeds of same. By the overwhelming weight of authority it is established that such facts, standing alone, neither constitute the bank a participant in the wrongful conversion by the depositor of such funds nor notice of an intended misappropriation thereof by him. See extensive notes to Empire Trust Co. v. Cahan, 57 A. L. R. page 925 and 64 A. L. R. page 1406.

The general principles of law which, in our opinion, control the disposition of the question under discussion have been so clearly stated in the case of Bischoff v. Yorkville Bank, 218 N. Y. 106, 112 N. E. 759, 760, L. R. A. 1916F, 1059, that we here copiously quote from it:

"The transfer of the funds of the estate to and the crediting of them by the defendant to Poggenburg, in his individual account, did not overpass the legal right of the executor or the defendant. The method was unwise and hazardous; it did not, however, in and of itself, constitute a conversion. * * *

"A fiduciary may legally deposit the trust funds in a bank to his individual account and credit. Knowledge on the part of the bank of the nature of the funds received and credited does not affect the character of the act. The bank has the right to presume that the fiduciary will apply the funds to their proper purposes under the trust. There are judicial decisions, in cases in which the fiduciary has converted the funds, which hold the contrary. United States Fidelity & Guaranty Co. v. People's Bank, 127 Tenn. 720, 157 S. W. 414; Bank of Hickory v. McPherson, 102 Miss. 852, 59 So. 934. The rule stated by us is, however, established in this and other jurisdictions, as the decisions hereinafter cited will disclose, and accords with reason.

"The acts of the executor and the defendant in depositing and...