Red Ball Motor Freight, Inc. v. Bailey

• Decision Date: 07 December 1959
• Docket Number: No. 6928,6928
• Citation: 332 S.W.2d 411
• Parties: RED BALL MOTOR FREIGHT, INC., Appellant, v. Ann Bernard BAILEY et al., Appellees.
• Court: Texas Court of Appeals

Page 411

332 S.W.2d 411

RED BALL MOTOR FREIGHT, INC., Appellant, v. Ann Bernard BAILEY et al., Appellees.

No. 6928.

Court of Civil Appeals of Texas, Amarillo.

Dec. 7, 1959.

Rehearing Denied Jan 4, 1960.

Curtis White and John Fox Holt, Dallas, for appellant.

Leachman, Gardere, Akin & Porter, Dallas, John Stigall Jr., and John F. Maxfield Dallas, Carrington, Johnson & Stephens, Brundidge, Fountain, Elliott & Bateman, and Goldberg, Fonville, Gump & Strauss, Dallas, for appellees.

CHAPMAN, Justice.

Appellant, Red Ball Motor Freight, Inc., instituted this suit against Ann Bernard Bailey (formerly Ann Bernard Myers) and her husband, D. W. Bailey, First National Bank of Dallas, Republic National Bank of Dallas, Texas, Bank and Trust Company of Dallas Mercantile National Bank of Dallas, and Titche-Goettinger Company to recover the sum of $51,116.97 representing the total amount of 161 negotiable instruments made out by Ann Bernard Myers to fictitious persons while an employee of appellant, the endorsements to which she forged and the funds from which she collected and converted to her own use without the knowledge or consent of appellant.

For convenience and brevity and to conform to the briefs Red Ball Motor Freight, Inc., will be hereinafter referred to either as Red Ball or appellant, Ann Bernard Myers Bailey will be referred to as Mrs. Bailey, First National Bank of Dallas will be referred to as First National; Republic National Bank of Dallas will be referred to as Republic, Texas Bank and Trust Company of Dallas will be referred to as Texas Bank, Mercantile National Bank of Dallas will be referred to as Mercantile and Titche-Goettinger Company will be referred to as Titche except where the banks are referred to as collecting banks, endorsing banks or depository banks.

Texas Bank and Mercantile was sought to be held as drawees and First National, Republic and Titche were sought to be held liable on their respective endorsements of the 161 claim drafts. Upon trial to the court judgment was rendered for Red Ball against Mrs. Bailey for $51,116.97 and the recovery denied Red Ball against all other defendants. From the trial court's judgment for the four banks and Titche appellant perfected its appeal to the Court of Civil Appeals of the Fifth Supreme Judicial District at Dallas and the case was transferred to us by the Supreme Court of Texas for determination. In its first point appellant asserts error of the trial court in refusing to permit it to recover from Texas Bank the amount of money represented by those instruments drawn on it bearing forged endorsements, and collected by said 'drawee bank.' In its second point appellant asserts the same dalleged error as to Mercantile. Its points 3 through 8 seek to invoke the no evidence, insufficient evidence and great weight and preponderance of the evidence rules which it says the trial court violated in refusing to give judgment in favor of Red Ball against the two depository banks on the 161 instruments because any agreement between it and such banks as to liability concerning such instruments was not any different than would the liability of such banks be on checks drawn on its account.

The facts are relatively simple. Mrs. Bailey, then Ann Bernard Myers, became an employee of Red Ball initially in 1936, filling different positions through the years with them until she was finally placed in charge of the Loss and Damage Claim Department sometime prior to September, 1953. The record indicates it was her duty to inspect and verify claims made for freight loss and damage and present the instruments to Mr. O. B. English, or others of Red Ball having authority to execute and sign the claim drafts to pay their losses. After obtaining the signature or signatures of proper officers or forging Mr. English's signature on the drafts and then endorsing the names of fictitious persons Mrs. Bailey negotiated them at First National, Republic and Titche. Seventy-eight of the instruments were made payable to E. D. Stevens, Bowie, Texas, and endorsed by the names E. D. Stevens and Mrs. E. D. Stevens. Sixty-seven instruments were made payable to A. L. Allen, Jasper, Texas, and endorsed by the names A. L. Allen and Mrs. A. L. Allen. Sixteen such instruments were made payable to L. S. Hardin, Longview, Texas, and endorsed by the names L. S. Hardin and the name Mrs. A. L. Allen. The period of time covered by this fraudulent conduct on the part of Mrs. Bailey was from September 3, 1953 through November 15, 1957. Mrs. Bailey wrongfully obtained $51,116.97.

On October 5, 1953, Mrs. Bailey opened a savings account in Republic with a cash deposit in the name of Mrs. E. D. Stevens, General Delivery, Dallas, and on November 21, 1953, opened a checking account in the same bank by the same name. On May 15, 1954, she opened a savings account in First National by a $20 cash deposit in the name of Mrs. A. L. Allen, Jasper, Texas, and on December 4, 1954, she opened a checking account with the same bank in the same name by transferring $250 from her savings account. Six of the instruments made payable to L. S. Hardin were presented to Titche, for which Mrs. Bailey received full value. Titche endorsed its six. All the 161 instruments were presented to the collecting banks, First National and Republic, and endorsed by them as follows;

'Pay to the order of any bank or trust company. Prior endorsements guaranteed.'

Typical of the 161 instruments is that shown in the footnote. ¹

Upon receipt of such items they were taken back to the office of appellant and passed out to employees responsible for the particular type draft. The claim drafts here involved were passed to Mrs. Bailey, who, during all the period here involved, had charge of appellant's claim department with power and authority to approve the payments of claim drafts.

The question to be here determined in the first eight points of appellant is whether a banker-depositor relationship existed whereby Texas Bank and Mercantile were simply cashing checks for their customer-depositor or whether the banks were merely receiving the drafts for Red Ball, who 'bought' the claim drafts each day. If the instruments are checks and the depository banks are drawees unquestionably the case of Liberty Mut. Ins. Co. v. First Nat. Bank in Dallas, 151 Tex. 12, 245 S.W.2d 237, is applicable and the depository banks are liable to Red Ball on the 161 instruments involved.

Mr. Cole, Vice-President and Cashier of Mercantile, in testifying as to how the draft plan works said: 'It is initiated by the customer apparently as a matter of convenience, * * * and involves items * * * which the customer wishes to have in his possession as rapidly as possible after issuance * * * as such items appear in the course of business they would be accumulated in the Collection Department * * *; the customer notified daily of the totals and the customers * * * would come to the bank * * * and give the bank a check for the accoumulated drafts.' Mr. Cole further testified:

'Q. And in all draft arrangements, the parties that comes and picks them up can determine whether or not he wants to pay them on account of the signature, can be not? A. Yes.

* * *

* * *

'Q. Yes, sir, if you will; what is your practice in that regard? A. I will put it this way: That we regard ourselves not responsible for signatures, endorsements, dates and so forth, on the drafts which Red Ball picks up and pays for.

'Q. Is it customary for Red Ball to return any items that they should not have paid? A. They have the right to do so.

'Q. They have that right, do they not? A. If they don't want to pay them.

* * *

* * *

'Q. You stated they couldn't know whether the signature of the payees were genuine or not; I believe you made that statement, didn't you? A. No, I said--I said that Red Ball, in taking those items up, as far as we are concerned, they accept the responsibility for all features, which would include the signature, dates, any irregularity.'

Under the arrangement described appellant insists the instruments here involved are checks and Red Ball is entitled to recover under the authority of the Liberty Mut. Ins. Co. case above cited. We do not believe the record in this case brings it within the application of the Liberty Mut. Ins. Co. case [151 Tex. 12, 245 S.W.2d 243] in view of the fact that case, among other pronouncements, held, 'Depositor's loss occurred only when Bank charged the checks against depositor's account without legal right to do so and in breach of its contract.' Clearly, in our case the claim drafts were not charged against the depositor's account except in those rare instances where mistakes were made, and those drafts were 'bought' back by Red Ball the next day. The only instruments charged to Red Ball's account were the checks that paid for the claim drafts each day. (Emphasis added.) Thus, we believe Red Ball by its special arrangement with the depository banks was both a drawer and drawee of the instruments here involved, such instruments were 'through' items, and Texas Bank and Mercantile were simply agents for Red Ball. Tyler Bank & Trust Co. v. Saunders, Tex., 317 S.W.2d 37.

Also in Fidelity & Deposit Co. of Maryland v. Union Trust Co. of Rochester, New York, 129 F.2d 1006, 1008, a Second Circuit case with facts substantially the same as ours that court said:

'The reasonable inference from the practice of Chemical (Texas Bank and Mercantile in our case) to pay drafts only when approved by London and when reimbursed is that it acted only as a disbursing agent whose rights as drawee passed to London when the latter paid for the draft. London acquired no claim against Chemical and was in effect the drawee or payor of the draft in spite of the fact that the instrument was addressed to Chemical.'

Cases from other jurisdictions which we believe support the proposition that there was not a banker-depositor relationship in our case and that so far as the...