Quanah, A. & P. Ry. Co. v. Wichita State Bank & Trust Co.

• Decision Date: 08 April 1936
• Docket Number: Motion No. 12261; No. 6744.
• Citation: 93 S.W.2d 701
• Parties: QUANAH, A. & P. RY. CO. v. WICHITA STATE BANK & TRUST CO.
• Court: Texas Supreme Court

Page 701

93 S.W.2d 701

QUANAH, A. & P. RY. CO. v. WICHITA STATE BANK & TRUST CO.

Motion No. 12261; No. 6744.

Supreme Court of Texas.

April 8, 1936.

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

Suit by the Quanah, Acme & Pacific Railway Company against the Wichita State Bank & Trust Company. To review a judgment of the Court of Civil Appeals which affirmed a judgment sustaining a general demurrer, plaintiff brings error. On motion for rehearing.

Affirmed.

Superseding opinion in 89 S.W.(2d) 385 G. E. Hamilton, of Matador, C. Y. Welch, of Quanah, and Allen & Gambill, of Fort Worth, for plaintiff in error.

M. M. Hankins, of Quanah, and Bullington, Humphrey & King, of Wichita Falls, for defendant in error.

CRITZ, Justice.

This suit was filed in the district court of Hardeman county, Tex., by Quanah, Acme & Pacific Railway Company, which will hereafter be called the "railroad," against Wichita State Bank & Trust Company, which will hereafter be called the "bank," and another with whom we are no longer concerned. The railroad sought to recover from the bank the sum of $63,054.65, with legal interest, on the theory of conversion, or upon the theory that the bank had aided and assisted one T. K. Hawkins, the railroad's treasurer and auditor, in misappropriations of various sums of money amounting to the total above indicated.

When the case was presented to the trial court, the bank's general demurrer to the railroad's petition was sustained. On appeal by the railroad, the judgment of the trial court was affirmed by the Amarillo Court of Civil Appeals in an opinion by Justice Martin, 61 S.W.(2d) 170, 171. Of course, the effect of the judgments of the district court and of the Court of Civil Appeals was to hold that the railroad's petition failed to plead a cause of action against the bank. On original hearing we reversed such holdings. 89 S.W.(2d) 385.

The Court of Civil Appeals has made a very fair and comprehensive statement of the issues in this case. Since we cannot improve upon such statement, we adopt it. It is as follows:

"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.'"

As shown by the above statement, when the bank's general demurrer to the railroad's petition was presented to the trial court, the railroad in effect abandoned the general allegations of notice on the part of the bank contained in such petition, and, in effect, agreed that the bank only had such notice as the facts and circumstances incident to the transactions themselves visited upon it. It was further agreed that the bank had no actual knowledge that Hawkins was embezzling the funds of the railroad at any time prior to the time same was discovered by the railroad and the giving of notice thereof by the railroad to the bank.

At this point we deem it expedient to quote certain portions of our negotiable instrument statutes, which we think bear directly and indirectly on the issues of this case. These statutes are sections 52, 53, 55, and 56 of article 5935, R.C.S. of Texas 1925. Such statutes read as follows:

"Sec. 52. A holder in due course is a holder who has taken the instrument under the following conditions:

"1. That it is complete and regular upon its face;

"2. That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact;

"3. That he took it in good faith and for value;

"4. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it."

"Sec. 53. Where an instrument payable on demand is negotiated an unreasonable length of time after its issue, the holder is not deemed a holder in due course."

"Sec. 55. The title of a person who negotiates an instrument is defective within the meaning of this Act when he obtained the instrument, or any signature thereto, by fraud, duress, or force and fear, or other unlawful means, or for an illegal consideration or when he negotiates it in breach of faith, or under such circumstances as amount to a fraud.

"Sec. 56. To constitute notice of an infirmity in the instrument or...