Opinion ID: 2380108
Heading Depth: 1
Heading Rank: 2

Heading: The Legal Duties of Huffman

Text: The Court of Civil Appeals held that, as a matter of law, Huffman was a trustee; and, as a matter of law, his conduct constituted a breach of trust. The Court of Civil Appeals based this conclusion on its analysis of art. 14.08 of the Texas Insurance Code. Under art. 14.08, Huffman was the one responsible in the handling of the funds of the corporation. To the Court of Civil Appeals, this meant he was responsible not only for receiving the money as it came into the company and for disbursing the funds by signing checks, but also was responsible for investment decisions and all other decisions as to what to spend company money for. The Court of Civil Appeals further concluded that Huffman had the responsibility to see that the money actually was spent for those things shown by company books. Chapter 14 of the Texas Insurance Code provides the law which governs a mutual assessment insurance company. A mutual assessment insurance company is expressly excepted from the Texas Business Corporations Act by art. 9.14 of the Corporation Act. Thus whatever duties the law requires of an officer of an insurance company is to be found in the Insurance Code. Chapter 14 of the Insurance Code provides in art. 14.04 that the company is to be governed according to a constitution and the by-laws adopted by the members of the association and approved by the State Insurance Commission. The constitution and by-laws of Southern Industrial Life Insurance Company specify the duties and desponsibilities of its officers: Section 1. President. The President shall preside at all meetings, supervise all business of the company, sign checks on the mortuary and general fund, sign all notes and agreements of the company on any loan or advance to the mortuary or general fund (any such loan or advance shall be binding upon the company until repaid in full out of account so designated in agreement made) and may furnish the required bond to the Board of Insurance Commissioners, and sign all policies of membership, keep a record of all records pertaining to the company's business, have full charge of all files and records, unless he so designates this responsibility to another officer of the company at a regular or special meeting of the Board of Directors and the Directors approve the officer of [sic] officers designated. Constitution and by-laws, Art. 8, Sec. 1, as amended in part, January 10, 1955. Section 3. Secretary-Treasurer. The Secretary-Treasurer shall sign all policies of membership and keep any and all other records pertaining to the Company, subject to the approval and to be kept as per instructions from the President. Constitution and by-laws, Art. 8, Sec. 3, as amended October 2, 1939. When the Board of Directors elected Huffman Secretary-Treasurer, they also passed the following resolution: Resolved: That R. D. Huffman, Secretary-Treasurer, be, and he hereby is, authorized and empowered to open one or more bank accounts in the name of the company in any bank or banks in Texas that are legal depositories for funds of such companies and to sign such signature cards, checks, resolutions or other instruments of writing as may be required for the normal conduct of business of the Company. Minutes of Special Meeting of the Board of Directors of Southern Industrial Life Insurance Company, February 13, 1959. Neither the statutes nor the constitution and by-laws of the company expressly establishes the Secretary-Treasurer as a trustee. If, therefore, the Court of Civil Appeals is correct in holding Huffman a trustee, it must be by implication. However, the issue before this Court is not whether a trust was created; rather, the question is whether Huffman's conduct was fraudulent and dishonest. If it was, then the surety is liable on the bond regardless of whether Huffman was a trustee; and if the conduct was not, there can be no recovery on the bond. On the issues submitted to it, the jury found: that Huffman did not commit an act of fraud or dishonesty upon Southern Industrial Life Insurance Company, either directly and alone, or in connivance with Bridges, in signing certain checks and making them available to Bridges; that Huffman was not guilty of reckless, willful and wanton disregard for the interests of Southern Industrial Life Insurance Company so that his acts were manifestly unfair to the company and clearly subjected it to the likelihood of loss; and that Huffman was not guilty of wrongful abstraction. The jury further found that Southern Industrial Life Insurance Company did not receive mortgage liens purchased with the above checks; that Huffman's failure to secure the mortgage liens for Southern Industrial Life Insurance Company did not constitute fraud and dishonesty on his part toward the company; that Huffman's failure to secure the mortgage liens was not such reckless, willful and wanton disregard for the company's interests so as to be manifestly unfair to the company. While in the Neiman and Shaw cases, [2] the bookkeepers did acts to conceal the missing funds, and with knowledge that funds were missing made false entries in the books, Huffman did not. There is no allegation that false book entries were made. There is no evidence showing that Huffman actually knew money was missing. The evidence is in dispute as to whether he knew what Bridges was doing, and whether he knew there were no mortgages to support the book entries. Since such evidence was in dispute, we think the questions were correctly given to the jury to decide. We therefore hold that the Court of Civil Appeals was in error in holding that as a matter of law the surety company was liable on the bond. We must now turn to procedural matters in order to determine what disposition of the case this Court must make. After oral argument in this Court, the Receiver filed an amended application for writ of error raising for the first time in this Court cross-points which, if sustained, would require a reversal of judgment of the trial court and a remand for new trial. These points were raised by the Receiver as appellant in the Court of Civil Appeals, but that court did not pass upon them. They were not contained in a motion for rehearing in that court because the Receiver was the prevailing party there. The surety company objected to the late amendment of the application under the authority of City of Deer Park v. State, 154 Tex. 174, 275 S.W.2d 77 (1955). A majority of this Court is of the opinion that the amendment should be allowed under Rule 481, Texas Rules of Civil Procedure. The distinction seen by the majority is that in Deer Park the amendment was attempted after a judgment had been announced by this Court in that case. We could return this case to the Court of Civil Appeals for it to pass upon these points, and let the points be brought back to us by writ of error. But since they raise only questions of law, we will pass upon them now in the interest of expediting the determination of the case. Most of the Receiver's cross-points deal with the trial court's charge to the jury. The substance of the first two of his points is that the court erred in using the word guilty in several of the issues. He argues that the use of the word placed upon him an undue burden of proof, and that it was prejudicial because the word carried a criminal connotation. Thus, the Receiver argues, the use of the word guilty erroneously led the jury to believe he had to meet the standard of proof required in a criminal case, and that the conduct in question had to be of a criminal nature for the surety company to be liable on the bond. He further argues that the use of the word guilty was unfair because it was calculated to confuse and mislead the jury; that it is a word subject to several meanings, one of which, the criminal connotation, is unfair to his case. The bond in question which was before the jury did cover several acts, the violation of which would ordinarily result in a person being accused or convicted of a crime. For example, it covered acts of larceny, theft, embezzlement, forgery    wrongful abstraction    or any other act of fraud or dishonesty. The Receiver limited his accusations against Huffman to wrongful abstraction, fraud and dishonesty. But he alleged that Huffman willfully exercised no control, was motivated by fraudulent and dishonest intent, and purposely acted in the role of a dummy or tool of Bridges. We have held above that for the surety to be liable on this bond, some intent to commit the wrongful act is necessary; and that it does not cover mere neglect, carelessness, or incompetence. The issues as submitted did not place upon the Receiver a greater burden of proof than is proper for this type case. The proper standard of proof is preponderance of the evidence. Each issue submitted to the jury in this case stated this standard of proof. Nowhere was there mentioned any other standard which might have led the jury astray. Thus, on the face of the record, the burden of proof was proper. The Receiver argues that a stricter standard is contained in the word guilty. If the charge had asked no more than whether Huffman was guilty, there might be merit in his argument; but the charge does ask more. As already stated, the standard of proof is explicitly set forth as preponderance of the evidence. The word guilty is defined in Webster's New International Dictionary (Merriam-Webster, 2d ed. unabridged 1960) as follows: Having committed a breach or breaches of conduct; justly chargeable with, or responsible for, a delinquency, crime, or sin; as, a guilty man; also, chargeable with, or culpably responsible for, the fault or crime (of); as, guilty of bad taste; guilty of larceny. The word, as used in the Bankruptcy Act, is defined by the court in In re Goldberg, 53 F.2d 454, 80 A.L.R. 399 (6th Cir. 1931), as denoting intentional wrongdoing. It was there held applicable to fraudulent misconduct, not criminal in nature (taking or attempting to take a second discharge in bankruptcy within a six-year period). Similarly, Hilkert v. Canning, 58 Ariz. 290, 119 P.2d 233 (Ariz.Sup.1941), the court had before it a statute authorizing the revocation of an accountant's license if he should be found to be guilty of any act or default discreditable to the profession  . The court construed this to mean the commission of acts of unprofessional conduct, and it held that the statute was sufficiently definite to support a revocation of a license. The court relied upon that portion of the dictionary definition of guilty which gave its meaning as responsible for a delinquency, crime, or sin. As a matter of fact, the Texas Insurance Code in its general provisions, Article 21.47, says in effect that any person who shall, with regard to a material fact, knowingly and willingly falsify, conceal or cover up any scheme, or make any false, fictitious or fraudulent statement or representation, shall be fined $5,000, or be imprisoned not more than 5 years, or both. The accusations made by the Receiver of Huffman came very close to stating the substance of this crime. The Court here was careful to point out what Huffman was accused by the Receiver of doing or failing to do. The word guilty does have a recognized meaning which correctly fits the allegations made, and no suggestion was made that the Receiver had to prove his point beyond a reasonable doubt as is required for a criminal conviction. In this context, we cannot say that the use of the word was erroneous. The jury was asked in separate issues whether Huffman did or did not do the acts relied upon by the Receiver as being fraudulent and dishonest, without reference to guilt. In other issues the jury was asked whether he was guilty of having committed the acts. The jury could have answered that from a preponderance of the evidence, he did do some or all of the acts, without regard to guilt. It did not do so. It is therefore clear that no prejudice or harm resulted from asking whether, by a preponderance of the evidence, Huffman was guilty of committing the acts alleged against him. The Receiver next argues that Issue No. 1 and similar issues were improperly worded because they did not contain words which would also inquire as to whether Huffman failed to exercise control over funds. The issue as submitted is copied below, with the words desired by the Receiver but omitted by the trial court being italicized: Do you find    that, in signing the checks    and making them available to W. L. Bridges, Jr., and in failing thereafter to exercise control over such funds disbursed or property received therefor, R. D. Huffman committed an act of fraud or dishonesty upon Southern Industrial Life Insurance Co., acting either directly and alone, or in connivance with said Bridges? The signing of the checks in blank and making them available to Bridges is one thing, and the failure to exercise proper control over the funds and affairs of the company is another. Thus the included words would have made the issue duplicitous. The jury charge in later issues inquired whether the company received liens purchased with the checks and whether Huffman's failure to secure liens was wrongful. The refusal of the trial court to include the omitted words was not error for the additional reason that it assumes that it was Huffman's duty to exercise control over the funds and the property of the company. Control is a very broad word. As we have discussed above, the law does not impose upon a person in Huffman's position the duty to control the investment of the company's funds. He was not given veto power over acts of the company or its president. Consequently, any fact finding on whether he exercised control or not would not be pertinent to the controlling issues in this cause. In this connection the trial court instructed the jury as follows: You are instructed further that, at all times involved herein, R. D. Huffman was responsible in the handling of the funds of Southern Industrial Life Insurance Company. The Receiver next contends that it was error not to instruct the jury that the policyholders are the owners of a mutual insurance company, and that it is to them, the policyholders, that Huffman was responsible. He argues that the failure to submit these instructions misled the jury into believing that Bridges had control over the investment of the company's funds. As above stated, the court did instruct the jury that at all times, Huffman was responsible in the handling of the funds of the company. Whether the company was owned by policyholders or stockholders would not appear to make Huffman's acts right or wrong. The question of whether or not the duties which Huffman owed to the policyholders were breached is pertinent to this lawsuit only insofar as it aids in determining violations of the fidelity bond. The court did include instructions that Huffman was the man legally responsible in the handling of the company's funds. The instructions requested by the Receiver would be proper only if his analysis of the law on the theory of control were correct. The refusal of these instructions was proper. The Receiver next contends that the court erred in its definition of connivance. The word connivance is one of ordinary meaning. It has no peculiar or particular connotation here. Webster's dictionary, supra, defines connivance as: Corrupt or guilty assent to wrongdoing, not involving actual participation in it, but knowledge of, and failure to prevent or oppose it. The court's definition of the word in the charge was obviously patterned after the dictionary definition. It was, A corrupt or guilty agreement or assent to wrongdoing. Such agreement or consent may be active or passive, but the agreement or consent must be with knowledge of the wrongdoing. The Receiver's requested definition was longer and, in effect, contained examples. It included voluntary oversight; voluntary blindness; secret co-operation to aid and abet; to feign ignorance of; to wink at, or pretend not to know, et cetera. It is our opinion that the substance of the court's definition was correct and that no harm resulted from failure to enlarge the definition. The Receiver has other counterpoints which raise shades and variations of the points heretofore discussed. We have carefully examined them. In view of the length of this opinion, we shall not write further on them. They are overruled. The Receiver next contends that the argument of counsel for the surety company was so unfair and inflammatory that a new trial should be ordered. The entire argument of both parties was transcribed and is before us and has been carefully read. Counsel for the Receiver made no objection to any of the argument complained of, and answered it in the closing argument. Counsel for the Receiver opened the jury argument by telling the jury that Huffman was responsible to the policyholders and not to Bridges; that Huffman was wholly responsible for the funds; that Huffman's conduct was voluntary blindness. He accused Huffman of leading a double life; that he reminded counsel of The Great Pretender and that was just what Huffman was; that all he did was write blank checks. He told the jury that there is no question    but that the company was looted; and how it was looted because Mr. Huffman went along with his blind, willful, utter disregard for the interests of everybody but Mr. Bridges. We say there was wrongful abstraction because Huffman knew what he was doing; he knew these monies were being diverted over into Mr. Bridges' private companies. The looting charge was repeated. In its argument, the first counsel for the surety answered the looting charge. He argued that there was nothing to convict this man of fraud and dishonesty. Most of the opening argument for the surety was directed toward stating that there were no acts of fraud and dishonesty on the part of Huffman; that Huffman never got anything out of the company himself; that the Receiver's case was built on circumstantial evidence; and that the wrongs were based upon what Huffman should have known, rather than what he actually knew. Counsel then stated, Where are the fingerprints of Huffman as a thief? The second attorney to argue for the surety company made the statements of which the Receiver complains most strongly. After referring to the looting charge, counsel said, In all of this investigation, what have they got to show to connect this young man with being a crook, a thief, or an embezzler? He then discussed the evidence; and concluded, apparently in sarcasm, That [evidence] makes him a crook and an embezzler and knowing all about this crooked looting of these insurance companies. This counsel finished by saying, The burden of proof is on them to show that this man had a willful disregard of the law and was dishonest; and that the Receiver did not sustain the burden of proof to show that this man is a thief, an abstractor of funds, and that he willfully and intentionally failed to do these things that the Court asks you about. As stated above, there were no objections to any of this argument. The closing argument for the Receiver stated that the bond in question was not just a Justice of the Peace bond; that it was not a bond in which the jury would have to find that Huffman was a thief or an embezzler. You are shown in your charges what to find. And if from the evidence you think that what has been presented meets that standard, all three of them, or anyone of the three, we think it should be entered in the affirmative. We cannot say that considering the argument as a whole, read in the light of the record in the case, it was such as to cause a rendition of an improper verdict. The Receiver relies on this Court's opinion in Southwestern Greyhound Lines v. Dickson, 149 Tex. 599, 236 S.W.2d 115 (1951). In the Dickson case there were two separate elements of improper jury argument. In the first, counsel for the plaintiff in answering the defendant's opening argument, asked if his client (the plaintiff) was a liar, a cheat, or a fraud; that he did not think she was any of those, or a faker, or an impostor. The argument was objected to on the ground that the defendant had not called her any of those things. The objection was overruled. This Court said the objection should have been sustained. The second part of the argument was more inflammatory. It accused the defendant's doctor of being a cutting doctor who was influenced by a desire for whittling flesh; that he socked the plaintiff $350 for just taking some stitches in her knee. Plaintiff's counsel stated that the defendant's doctor ought to be getting a part of the defendant's attorneys' fees because he was such an advocate; and that the doctor reminded counsel of the story about the fisherman who said to the fish, Lay still! I ain't going to do nothin' to you except cut your guts out. Counsel for the plaintiff further referred to the defendant and its lawyers as a bunch of cattle. This Court said the arguments were improper, and taken together, they probably did cause the rendition of an improper verdict. We regard the Dickson case as being clearly distinguishable. Finally, there is a procedural problem. The Court of Civil Appeals, in holding as a matter of law for the Receiver, has in effect held there is no evidence to support the fact findings of the jury. In this, we have held it erred. A decision by a Court of Civil Appeals that there is no evidence to support fact findings includes, by necessary implication, a holding that the evidence is insufficient to support such fact findings, or that the findings of the jury are against the great weight and preponderance of the evidence. Barker v. Coastal Builders, 153 Tex. 540, 271 S.W.2d 798, 807 (1954); Calvert, Some Problems of Supreme Court Review, 21 Texas Bar Journal 75 (1958). Under these circumstances, instead of sending the case back to the Court of Civil Appeals for it to pass upon questions of the sufficiency or the weight and preponderance of the evidence we remand the case directly to the trial court for a new trial. Barker v. Coastal Builders, supra. But, for this Court to so remand, there must be proper points presented in the briefs in the Court of Civil Appeals raising the questions of insufficiency and weight and preponderance. There were no such proper points in this case, and the rule above referred to is not applicable here. The only point in the Receiver's brief in the Court of Civil Appeals attacking the weight and preponderance of the evidence or the sufficiency of the evidence was his Point 13. That point reads: The [trial] court erred in refusing to set aside the verdict of the jury because the verdict on the special issues was so contrary to the overwhelming weight of all the evidence as to be clearly wrong and unjust. This point did not attack the sufficiency of the evidence to support a particular issue or the weight and preponderance of the evidence as to any issue. It was, rather, an attack at the entire jury verdict. This Court has held that such a general assignment will not support a reversal. Texas Employers Ins. Ass'n v. Hawkins, 369 S.W.2d 305 (Tex.1963). A basis of the ruling is that the Court of Civil Appeals itself must decide that a specific issue or issues are not supported by sufficient evidence or that they are against the great weight and preponderance of the evidence. Parrish v. Hunt, 160 Tex. 378, 331 S.W.2d 304 (1960). The Receiver attempted unsuccessfully to supply specific points by amendment. Rule 431, Texas Rules of Civil Procedure, dealing with the Courts of Civil Appeals, says: Briefs may be amended or supplemented at any time when justice requires upon such reasonable terms as the court may prescribe    The Receiver presented to the clerk of that court a motion for leave to amend his brief and to add therein the proper points on insufficiency and weight and preponderance. The motion for leave to amend and the amendment (the points themselves) are all under the same cover. This combined document bears the file mark of the clerk of that court. If that were all, it might be presumed (though it is unnecessary to decide) that the court had granted leave to file and that it had considered the new points. But that court has written an opinion which affirmatively shows that it did not act on the motion. The unpublished opinion reads: Appellants have filed a motion in this Court requesting that our records be corrected to show that their motion filed herein on June 17, 1963, to amend their brief was granted. Writ of error has been granted in this cause and it is now pending in our Supreme Court. We have jurisdiction and authority, and it is our duty, to correct or amend our records at any time in order that they may speak the truth. The truth here, however, is that appellants' motion to amend their brief was never overtly acted on by this Court. We will say that had such motion been formally determined, we would have granted it. We would do so now had we the authority. Whether or not our silence regarding this motion, under the circumstances related by appellant, is the equivalent of granting it is, we believe, now a question for decision by the Supreme Court. The motion is overruled. This must mean that the Court of Civil Appeals did not act upon, and hence did not grant, the leave to amend. In the trial court, the surety company contended that Huffman was a necessary party and that it was error to proceed to trial without his being made a party. In this Court, the Receiver has submitted a conditional application contending that the Court of Civil Appeals erred in sustaining the surety company's point that Huffman must be joined as a party. The surety company's argument in this Court is that the Court of Civil Appeals erred in not dismissing the suit for failure to join Huffman as a party. Since this Court is reversing the Court of Civil Appeals and affirming the judgment of the trial court in favor of the surety company on other grounds, it is not necessary to resolve this point. The outcome of the present case does not affect the rights of Huffman, and it does not prejudice the right of the Receiver to file a separate lawsuit against Huffman, personally, if he so desires. The judgment of the Court of Civil Appeals is reversed and that of the trial court is affirmed. GRIFFIN and SMITH, JJ., dissenting.