Steere v. Stockyards Nat. Bank

• Decision Date: 03 December 1921
• Docket Number: (No. 9686.)
• Citation: 266 S.W. 531
• Parties: STEERE et al. v. STOCKYARDS NAT. BANK.
• Court: Texas Court of Appeals

266 S.W. 531

STEERE et al. v. STOCKYARDS NAT. BANK.

(No. 9686.)

Court of Civil Appeals of Texas. Fort Worth.

December 3, 1921.

Rehearing Granted June 11, 1924.

Rehearing Denied November 1, 1924.

Appeal from District Court, Tarrant County; Bruce Young, Judge.

Action by Geo. W. Steere and others against the Stockyards National Bank. Judgment for defendant, and plaintiffs appeal. Reversed and rendered in part, and affirmed in part on rehearing.

See, also, 256 S. W. 586; 258 S. W. 1042.

Goree, Odell & Allen, Bryan, Stone & Wade, Moses & Rowe, Aubrey Alexander, H. C. Ray, and E. S. Allen, all of Fort Worth, C. M. Cureton and W W. Caves, both of Austin, and Thompson, Barwise, Wharton & Hiner, McLean, Scott & McLean, Capps, Cantey, Hanger & Short, Alexander & Baldwin, Phillips, Trammell & Caldwell, and Glover C. Johnson, all of Fort Worth, for appellants.

Wm. J. Berne, of Fort Worth, for appellee.

CONNER, C. J.

Stating this case briefly and in its chronological order, Herbert Graves was engaged in the live stock commission business on the Fort Worth Stockyards during the years 1915, 1916, 1917, and until October 5, 1918, when he failed. He did business under the trade-name of the Herbert Graves Commission Company. At the time of his failure he had outstanding checks covering the net proceeds of cattle consigned to and sold by him, aggregating some $92,000. On October 26, 1918, a petition in bankruptcy was filed against him, and he was adjudged a bankrupt on November 21, 1918. Geo. W. Steere was appointed trustee in bankruptcy on December 9, 1918, and on October 11, 1919, filed this suit in the district court of Tarrant county, Tex., to recover from the appellee Stockyards National Bank moneys which he alleged had been applied by the bank to the payment of an indebtedness, by overdraft of Herbert Graves on the bank; it being alleged that such payment constituted an unlawful preference under the bankrupt laws, and was also in fraud of the creditors.

E. A. Kelley and some 75 others intervened in the suit and severally sought to recover from the bank sums alleged by them to be due from Herbert Graves, as we shall hereinafter designate the Herbert Graves Live Stock Commission Company, as the net proceeds of cattle shipped to and sold by Herbert Graves and deposited in the appellee bank. These interveners, who will hereinafter be referred to collectively as shippers, alleged, in substance, that such proceeds constituted trust funds, and that the bank, with knowledge of the character of the funds and with knowledge of Herbert Graves' insolvency, had applied them to the payment of Herbert Graves' indebtedness or overdraft.

John Barton Payne, Director General of Railroads, and nine railroad companies, also intervened, claiming items of indebtedness aggregating $5,206.29, alleging that the items of indebtedness were due from Herbert Graves to the several railroad companies. These interveners will be hereinafter designated as carriers. The carriers alleged that the sums claimed were severally due as freight charges; that, by the custom of business upon the yards at the time, they were not collected from the shippers, but were to be paid by Herbert Graves out of the proceeds of the cattle sold; that such proceeds, including said sums for freight, had been deposited in the appellee bank and by the bank applied to the liquidation of Herbert Graves' overdraft, with knowledge of the trust character of the fund.

The appellee bank denied that it had exercised or obtained an undue preference under the bankruptcy laws, and also denied knowledge of Herbert Graves' insolvency, and denied that it had knowledge of the trust character of the funds claimed by the several interveners at the time it had applied the funds deposited by Herbert Graves to the payment of his indebtedness, alleging, in substance, that during the years specified that Herbert Graves did a large business, only a part of which consisted of selling cattle for others, and from time to time deposited large sums of money in the bank, and from time to time created overdrafts which were subsequently paid. And that, as already stated, at the time of Herbert Graves' failure and at the time of the application of the moneys deposited by Herbert Graves to the liquidation of his indebtedness, the bank was without knowledge of the trust character of the funds.

The trial was before the court without a jury, and resulted in a judgment in favor of the bank, except as to the sum of $317.85, which was awarded to the plaintiff trustee in bankruptcy. From this judgment the plaintiff trustee, the shippers, and the carriers have appealed, and the bank cross-assigns error to the judgment against it in favor of the trustee for the said sum of $317.85.

The labor involved in the consideration of this case has been considerable, inasmuch as we have before us some 800 pages of transcript and statement of facts, four briefs aggregating nearly 500 pages, with citation of numerous authorities. We have endeavored to consider the whole as carefully as our ability and time would permit, but by no means feel certain that we can, within reasonable limits, satisfactorily dispose of the whole. We, however, have been greatly aided by the briefs severally presented by the able counsel who are representing the various litigants. With the aid thus presented, we entertain the view that the case, after all, is comparatively a simple one. We think the vital issue, around which, except as hereinafter noted, all other questions revolve, is whether, at the time of the bank's application of the proceeds deposited therein by Herbert Graves, it had knowledge or notice of facts from which such knowledge must be imputed that Herbert Graves was insolvent and that the funds deposited by him with the appellee bank and by the bank applied in liquidation of Herbert Graves' overdraft were trust funds, or, in other words, funds that rightfully belonged to the shippers and other claimants in this suit.

In the beginning, it may be stated that the evidence is undisputed that Herbert Graves during the years 1915, 1916, 1917, and until October 5, 1918, did business on the Fort Worth Stockyards as a live stock commission dealer, and that at least a part of such business was to receive consignments of cattle, sell the same, and remit the net proceeds to the shippers. He did business with the appellee bank only, and his custom during the years stated was to make deposits in his own name with the appellee bank and remit to the shippers the net proceeds of cattle sold by him for them by his personal check, except in instances, which apparently were few, where shippers demanded exchange. The deposits included his charges for commission, freights, yardage, feed charges, etc. There is no evidence tending to show that any of the shippers named in this controversy were without knowledge of such custom or made any objection thereto. In other words, we think it must be implied that the shippers consented to such method and manner of depositing and remitting of the proceeds.

As between the shippers and Herbert Graves, therefore, the latter undoubtedly occupied the relation of a broker or factor. Hence it will be helpful in the beginning to briefly view the duties and liabilities of the parties as determined by the law.

The authorities cited and discussed in the briefs of counsel are numerous, but we cannot hope within reasonable limits to do more than refer to those that we deem controlling. In one of our own cases, which seems to be in accord with the great weight of authority, to wit, the case of Interstate National Bank v. Claxton, 97 Tex. 569, 80 S. W. 604, 65 L. R. A. 820, 104 Am. St. Rep. 885, our Supreme Court held that where, as here, general authority was given factors selling cattle to make deposits in a bank for their principals, such deposits were rightfully made and received and created the relation of banker and depositor, and that therefore the bank was bound to recognize and pay the factor's checks on the fund, even though at the time of making them the commission merchant, within the knowledge of the bank, was insolvent and had committed an act of bankruptcy, or an act for which he was subsequently adjudged bankrupt. There is no contention in this case that the appellee bank is liable for any amount paid out by it on checks drawn by Graves. But it was further held in that case that the bank, having knowledge that the funds so deposited belonged to another, could not lawfully apply the funds so owned by the other in extinguishment of an overdraft or indebtedness of the insolvent factor, and it is under the rule thus announced that appellants claim.

The editor of the annotation to be found in volume 13 of the American Law Reports, Annotated, page 325, says this:

"It is universally conceded that knowledge upon the part of a bank that deposits made by a debtor in his own name belong to a third person absolutely precludes the bank from applying such funds to the individual indebtedness of the depositor to it."

In support of the quotation made, cases are cited from courts of the United States, Alabama, Arkansas, California, Indiana, Delaware, Georgia, Illinois, Kentucky, Louisiana, Maine, Michigan, Mississippi, Missouri, Nebraska, Nevada, New York, North Carolina, Pennsylvania, Oklahoma, Tennessee, Texas (including the case of Bank v. Claxton, supra), Virginia, England, and Scotland. But the same authority further says on this subject in the same note that —

"The decided weight of authority is to the effect that where the bank in which funds in which third persons have an interest are deposited in the individual name of the depositor has neither actual knowledge, nor notice of facts sufficient to put it upon inquiry, as to the true character of the deposit, it may apply the deposit to the individual debt of the depositor" — citing and reviewing numerous cases from the courts of the United States and other...