Security Bank & Trust Co. v. Foster

• Decision Date: 25 January 1923
• Docket Number: (No. 1394.)<SMALL><SUP>*</SUP></SMALL&gt
• Citation: 249 S.W. 227
• Parties: SECURITY BANK & TRUST CO. v. FOSTER et al.
• Court: Texas Court of Appeals

Page 227

249 S.W. 227

SECURITY BANK & TRUST CO. v. FOSTER et al.

(No. 1394.)^*

Court of Civil Appeals of Texas. El Paso.

January 25, 1923.

Rehearing Denied March 8, 1923.

Appeal from District Court, El Paso County; Ballard Coldwell, Judge.

Suit by Samuel A. Foster and others against the Security Bank & Trust Company. From judgment for named plaintiff and certain other plaintiffs, defendant appeals. Reversed and rendered.

Winter, McBroom & Scott, of El Paso, for appellant.

Burges & Burges, of El Paso, and Stratton & Lynch, of Clifton, Ariz., for appellees.

Statement of Case.

HIGGINS, J.

This suit was brought in the district court of El Paso county by Samuel A. Foster, C. P. Austin, James Edgar, W. H. Graham, B. S. Jackson, and J. A. Leahy against the Security Bank & Trust Company, to cancel a note executed by plaintiffs and one D. L. Hill in the principal sum of $43,931.90, dated February 14, 1921, payable on demand to order of said bank, and to enjoin the sale of certain collateral held by the bank as security. Subsequently, and by agreement, the collateral was sold and its proceeds applied on the note. The bank set up several defenses to the suit, and by cross-action sought to recover of plaintiffs and Hill the amount of the note with interest and attorney's fees. Judgment was rendered in favor of the plaintiffs, Foster, Austin, Edgar, Jackson, and Graham canceling the note as to them and in favor of the bank against Hill and the plaintiff Leahy for $38,018.90, due as principal and interest upon the note, and the further sum of $4,781.89 as attorney's fees. The bank appeals, and complains of the judgment rendered in favor of Foster, Austin, Edgar, Jackson, and Graham. Hill and Leahy do not appeal. The facts out of which the litigation arose are as follows:

The Security Bank & Trust Company and the Lordsburg State Bank were banking corporations, the former engaged in business at El Paso Tex., the latter at Lordsburg, N. M. L. J. Gilchrist and C. L. Ezell were vice presidents and active managing officers of the Security Bank. The makers of the note in question were directors of the Lordsburg Bank. Hill was also cashier, and subsequently president, of the latter bank Leahy was vice president thereof. Hill was the active managing officer of the Lordsburg Bank, and the other officers and directors seem to have had implicit confidence in him, and, according to their testimony (except Leahy, who did not testify), they knew nothing about the details of the bank's business or its actual financial condition.

On December 23d, 1920, the Security Bank loaned to the Lordsburg Bank the sum of $50,000 taking its demand note therefor, and at the same time acquired certain rediscounts for the latter bank. When this was done the Security Bank was furnished with what purported to be a copy of a resolution adopted by the board of directors of the Lordsburg Bank on December 20, 1920, authorizing its president, vice president, and cashier, or either of them, on behalf of said bank, unlimited authority to borrow money from the Security Bank, and to execute the proper obligations therefor, and pledge bonds, stocks, bills receivable, or other securities or property securing the money so borrowed, and also authorizing them to rediscount any of its bills payable with the Security Bank. This copy was certified to be a true extract from the minutes of a meeting of the board of directors held on December 20, 1920, the certificate being signed by Leahy as vice president, and attested by Hill as cashier under the seal of the bank.

In the early part of February, 1921, the principal of the note had been reduced by payment to about $43,000, but in the meantime an indebtedness upon overdraft had been created in the sum of about $10,400. The Security Bank was demanding payment of the balance due upon the note and the overdraft, and the Lordsburg Bank had failed to make payment. To secure the payment of this indebtedness the Lordsburg Bank had pledged bills payable owned by it in the aggregate sum of about $71,000 or $72,000. Shortly prior to February 7, 1921, Gilchrist went to Lordsburg to look after the loan, and found that the Lordsburg Bank was needing money badly. While there he conferred with Hill and Leahy with reference to the indebtedness, and Leahy stated that he was willing to pledge his own credit in behalf of the Lordsburg Bank. Gilchrist did not confer with the other directors. Shortly thereafter, and evidently for the purpose of settling the indebtedness and securing additional credit for the Lordsburg Bank, Hill sent to the Security Bank seven notes aggregating $80,000, each note purporting to be signed by one director and indorsed by the other directors. Accompanying each note was a draft purporting to be signed by the maker of the note and for the amount of his note. These drafts were drawn upon the Security Bank in favor of the Lordsburg Bank, and in the accompanying letter of Hill he requested the Security Bank to accept the notes and drafts and credit the proceeds to the Lordsburg Bank. The Security Bank refused to do so, and returned the same. Thereupon Gilchrist wrote Hill the following letter:

                             "El Paso, Tex., Feb. 7, 1921
                

"Mr. D. L. Hill, Cashier, Lordsburg State Bank, Lordsburg, N. M.—Dear Lafe: Referring to our recent conversation regarding notes held by us from your bank, we have decided the best way of handling for yourselves and ourselves is as follows: We to take the personal note of your seven directors in amount of say $50,000, running for a period of ninety days or such a matter, during which time no doubt considerable of your paper could be liquidated. As security to their personal note, your bank to sell them as individuals, a like amount of paper which we are now carrying, they to select the paper they desire to use as collateral to their indebtedness, and by which they would be secured against loss personally. On the notes sold and attached to their note as collateral, the indorsement of the Lordsburg State Bank would be made without recourse and would not, therefore, be a liability on the part of the bank. This would enable you to reduce your liability as now shown. The paper held as collateral to this indebtedness would be liquidated by us as rapidly as possible for account of the owners. Payment as made on the collateral notes would be applied on the personal note of your directors. This, I believe is the best and proper method of handling and I trust will meet with your approval. I am inclosing a collateral form note filled in for $50,000, which if agreeable have signed by your seven directors including yourself returning it to me with list of notes you sell from the bank to them as security to the note, and we will immediately make transfer in this manner. In order to make this sale of notes legal, I suggest you have your board of directors authorize the sale by resolution, same to appear in your minute book that there may be no question hereafter regarding the owners of this paper. I advise that you do this as soon as possible. Under separate cover I am to-day forwarding you a bunch of notes for handling as collections our account, with advice concerning same. Awaiting your reply in the matter and with best wishes, I am,

                   "Very truly yours
                          "L. J. Gilchrist, Vice President."
                

Accompanying this letter was the note in controversy. The note was prepared by J. H. Henderson, cashier of the Security Bank, who prepared the list of the collateral security, such collateral being selected by the Security Bank from the collateral then held by it. The note, with appellees' signatures thereto, was thereafter returned to the Security Bank by Hill with certified copy of a purported resolution of the board of directors of the Lordsburg Bank as follows:

                       "Lordsburg, N. M., Feb. 14th, 1921
                

"At a special meeting of the board of directors held this date, a quorum being present, and J. A. Leahy, vice president, presiding. Upon motion duly made and seconded the cashier was authorized and instructed to sell bills receivable to B. S. Jackson, James Edgar, C. P Austin, W. H. Graham, Sam A. Foster, J. A. Leahy and D. L. Hill in the amount of forty three thousand nine hundred thirteen dollars and ninety cents ($43,913.90).

"There being no further business to come before the meeting, said meeting upon motion duly made and seconded was adjourned.

                               "J. A. Leahy, Vice President.
                

"Attest: D. L. Hill, Cashier.

"I, J. A. Leahy, vice president of the Lordsburg State Bank, Lordsburg, N. M., do hereby certify that the foregoing is a true and exact copy of the minutes of a meeting of the board of directors of the Lordsburg State Bank, Lordsburg, N. M. A quorum being present, held at Lordsburg, N. M., the 14th day of February, 1921. In witness whereof, I have hereunto set my hand and affixed the official seal of said bank this 14th day of February, 1921.

                                "J. A. Leahy, Vice President.
                  "Attest: D. L. Hill, Cashier.
                "[Seal of the Lordsburg State Bank, Lordsburg,
                    New Mexico.]"
                

Said note, with signatures thereto, reads:

                         "El Paso, Texas, Feb. 14, 1921
                

"For value received on demand after date I or we promise to pay to the order of Security Bank & Trust Company, at its office in El Paso, Texas, forty three thousand nine hundred thirty-one and 90/100 dollars with interest at the rate of 8 per centum per annum, from date until paid; interest payable annually, and defaulting interest to draw the same rate of interest as principal. Having deposited with the Security Bank & Trust Company as collateral security for the payment of this note or any renewal thereof and any other liability or liabilities of the undersigned to the said Security Bank & Trust Company, either as maker(s), or indorser(s), or guarantor(s), due or to become due, or which may hereafter be created, the securities or property below mentioned, the said Security Bank & Trust...