Rushton v. First Nat. Bank of Magnolia

• Decision Date: 01 April 1968
• Docket Number: No. 5--4417,5--4417
• Citation: 244 Ark. 503,426 S.W.2d 378
• Parties: Joe F. RUSHTON, M.D., Appellant, v. FIRST NATIONAL BANK OF MAGNOLIA, Appellee.
• Court: Arkansas Supreme Court

Page 378

426 S.W.2d 378

244 Ark. 503

Joe F. RUSHTON, M.D., Appellant, v. FIRST NATIONAL BANK OF MAGNOLIA, Appellee.

No. 5--4417.

Supreme Court of Arkansas.

April 1, 1968.

Rehearing Denied May 6, 1968.

Harry B. Colay, and Chambers & Chambers, Magnolia, and Warren & Bullion, Little Rock, for appellant.

Keith, Clegg & Eckert, Magnolia, and Gaughan & Laney, Camden, for appellee.

BYRD, Justice.

This appeal by Joe F. Rushton, M.D., is one of a number of lawsuits arising from the dismissal of W. C. Blewster as president of appellee First National Bank of Magnolia. Dr. Rushton contends that in endorsing certain notes for Numark Kanufacturing Company he was acting as trustee for the benefit of the bank. The trial court found against Dr. Rushton because (1) the acts, if they had occurred, would be ultra vires and not binding on the bank; (2) Dr. Rushton failed to prove the facts alleged; (3) Dr. Rushton was barred by the 'clean hands' doctrine; (4) Dr. Rushton, having recognized his liability as personal, was estopped to assert the trusteeship or guaranty of the bank; and (5) Dr. Rushton's claim was barred by the statute of frauds. In addition to denying relief, the trial court entered judgment against Dr. Rushton upon the bank's counterclaim for $158,230.47, which included a note for $97,787.77, dated April 3, 1963, and signed by Dr. Rushton as trustee.

For reversal Dr. Rushton relies upon several points, but since there was error that calls for a complete new trial, we deal only with the alleged error of the trial court in permitting William A. Eckert, Jr., an attorney of record, to testify over Dr. Rushton's objection that the rule had been invoked and that Mr. Eckert had remained in the courtroom throughout the trial.

UNCONTROVERTED FACTS

The record fairly establishes the following facts:

1. W. C. Blewster was president of the First National Bank of Magnolia from July 1942 until his termination on November 1, 1964. During his tenure the bank had suffered no large losses and had foreclosed only twice prior to the foreclosure of the Magnolia Wood Products property. The bank had grown from $856,000 when he became active manager to $22,550,000 at the time of his termination. Mr. Blewster spent much of his time as bank president in trying to secure industries for Magnolia. In the words of Mr. T. A. Monroe, who succeeded Mr. Blewster as bank president, 'Mr. Blewster ran the First National Bank of Magnolia. It was substantially a one-man banking operation.'

2. Appellant Dr. Joe F. Rushton was a physician and surgeon in Magnolia, Arkansas. He had been a stockholder in the First National Bank of Magnolia since 1936 and a director since 1937 or 1938. He engaged in a number of enterprises--some with W. C. Blewster and some with Congressman Oren Harris, now U.S. District Judge for the Eastern District of Arkansas. His financial statement, as prepared by the First National Bank of Magnolia, on October 1, 1963, showed a net worth of $1,701,493.00.

3. T. A. Monroe, an insurance man, had been a director of the bank since 1951 and vice president from 1956 to 1964. Upon Mr. Blewster's termination, Mr. Monroe became president and served until September 1965. As president, he was a member of the bank's Executive Committee along with Mr. Eckert.

4. William A. Eckert, Jr., of Magnolia, Arkansas, had been attorney for the bank some fourteen years and a director since 1957. He served on the bank's Executive Committee along with Mr. Monroe, after Mr. Blewster's termination. He signed some of the pleadings herein as attorney for the bank, but most of the subsequent pleadings were signed by Gaughan & Laney. He did not examine any witnesses during the trial, but is shown here as counsel for appellee bank.

5. Odyssey Trailer Company was a corporation which Mr. Blewster was instrumental in organizing to build trailers. At one time Mr. Blewster prevailed upon Dr. Rushton to take $2,500 in stock and later asked him to please take another $2,500, as that was all the city of Magnolia lacked to get the company started. After Odyssey was organized, Mr. Blewster and others prevailed upon the Columbia County Industrial Commission to erect a building for it through a bond issue. Odyssey was financed through the First National Bank of Magnolia. After some forty trailers had been built, it became apparent that their cost was too high and the company was a sick industry. Dr. Rushton and Mr. Blewster were on Odyssey' board of directors and had personally endorsed a note for $35,000 to the Republic National Bank of Dallas which was renewed several times.

6. Magnolia Wood Products Company was another idustry that Mr. Blewster secured for Magnolia and that was financed by the First National Bank of Magnolia. This industry became sick, too; a friendly foreclosure was had; and on January 11, 1963, the foreclosure sale to First National Bank of Magnolia for the amount of its judgment debt of $52,705.45 plus interest and attorney's fee was confirmed.

7. Numark Manufacturing Company was the name given to the new venture resulting from a merger between Odyssey and Magnolia Wood Products Company. The Numark stockholders were the same as the stockholders of Odyssey and Magnolia. Dr. Rushton was elected president in his absence and urged to serve in that capacity by Mr. Blewster. Mr. Blewster was also on its board of directors. Numark obtained government contracts and operated until after Blewster's dismissal as president of the bank. It went into bankruptcy some time before trial of this case.

8. The minutes of the January 16, 1963, meeting of the Numark board of directors, with reference to the issues here involved, showed the following:

'W. C. Blewster stated that the First National Bank of Magnolia, Magnolia, Arkansas, had, by foreclosure proceedings, acquired title to all of the assets of Magnolia Wood Products Company, and that the bank is leasing the property to the corporation for a rental of $250 per month. He further stated that he and Mr. Drew had high hopes of arranging for the company to obtain an ARA loan so as to enable the corporation to purchase all of the assets of the old Magnolia Wood Products Company from the bank.'

The minutes of the special meeting of the Numark board of directors on March 6, 1963, reflected the following:

'Mr. Blewster stated that the First National Bank of Magnolia had conveyed all assets of the old Magnolia Wood Products Company to Joe F. Rushton, Trustee, that Numark Manufacturing Company was in possession of the old Magnolia Wood Products properties under a lease agreement entered into by and between Joe F. Rushton, Trustee, as lessor, and Numark Manufacturing Company, as lessee. It was explained that it was anticipated that Numark should attempt to obtain from the Area Redevelopment Administration a loan in the amount of $200,000, so that the corporation might purchase from the Trustee all assets of the Old Wood Products Company. After a full and complete discussion of the matter, a motion was made by Charles Viering and seconded by Felton Roberson that the corporation should attempt to borrow $200,000 from ARA, with which to purchase all of the assets of Magnolia Wood Products Company and other property related thereto, title to which is now in Joe F. Rushton, Trustee.'

9. On March 1, 1963, the First National Bank of Magnolia conveyed to Dr. Joe F. Rushton, Trustee, the property acquired in the Magnolia Wood Products Company foreclosure.

10. On April 3, 1963, Dr. Joe F. Rushton, Trustee, executed a deed of trust to Carl Black, Trustee for First National Bank of Magnolia, covering the property acquired from Magnolia Wood Products Company. This deed of trust was given to secure a note due 120 days from date, in the amount of $97,787.77, and signed by Joe F. Rushton, Trustee.

11. On April 3, 1963, Numark Manufacturing Company executed a note to the Texarkana National Bank for $35,000. This note was endorsed by Dr. Rushton and Mr. Blewster.

12. From April 3, 1963, to September 26, 1964, Numark was financed by First National Bank of Magnolia through overdrafts which had accrued in the amount of $225,000 as of September 26, 1964. On that date Numark executed a note for $225,000 to the First National Bank of Magnolia. Texarkana National Bank participated in the $225,000 note to the extent of $125,000 upon a personal guaranty of Dr. Rushton and Mr. Blewster. In addition Dr. Rushton pledged as collateral 24,675 shares of Berry Asphalt Company.

13. On October 26, 1964, Numark executed a note for $35,000 to Texarkana National Bank. This note was endorsed by Dr. Rushton and Mr. Blewster.

14. On November 1, 1964, Mr. Blewster was dismissed as president of the bank.

15. On November 23, 1964, Numark executed to Republic National Bank of Dallas, Texas, a note for $35,000, endorsed by Dr. Rushton and Mr. Blewster.

16. After Mr. Blewster's dismissal, Mr. T. A. Monroe found in Blewster's desk drawer an unexecuted instrument wherein Numark was mortgaging the Magnolia Wood Products to First National Bank as security for the $225,000 note. Realizing that the bank had no security for its part of the $225,000 note and that title to the property was in Joe F. Rushton, Trustee, the bank, at Mr. Eckert's suggestion, joined with Joe F. Rushton, Trustee, in conveying by deed on December 20, 1964, the Magnolia Wood Products Company property to Numark Manufacturing Company, and simultaneously caused the unexecuted deed of trust from Numark in favor of the bank to be executed. This removed this security from the $97,787.77 note signed by Dr. Rushton as Trustee and placed it on the $225,000 note of Numark.

17. On December 28, 1964, Numark executed to Republic National Bank of Dallas its note for $37,390.69, endorsed by Dr. Rushton and Mr. Blewster.

18. On January 25, 1965, Numark executed to Republic National Bank of Dallas its note for.$19,000, also endorsed by Dr. Rushton and Mr. Blewster.

19. On February 25, 1965...