Court Opinion

ID: 3948434
Source: CourtListenerOpinion
Date Created: 2016-07-06 10:10:51.189592+00
Date Added: 2024-06-11T15:47:07.563535
License: Public Domain

The Farmers State Bank in Merkel instituted this suit against Tom Largent and R. I. Grimes on two promissory notes. The first was executed by Largent only and was alleged to be a renewal of the second note. Judgment was sought on the second note in the event it was disclosed that Largent was not bound on the first.
Grimes defaulted, a judgment was taken against him, and he does not appeal.
Largent answered by general demurrer, special exceptions, and by special plea the substance of which will be hereafter set out. Plaintiff, by supplemental petition, excepted to the special defense. The exception was overruled and the facts involved in the execution of the original note and each of its renewals were fully developed.
In a trial before the court without a jury, judgment was rendered in favor of the plaintiff against R. I. Grimes, but recovery was denied as against Largent. To this portion of the judgment the plaintiff excepted and prosecutes appeal. Plaintiff requested findings of fact and conclusions of law, which are embraced in the transcript.
Largent's special defense is in substance that the notes sued on were given by him in renewal and extension of a note originally executed by Emmett Grimes, et al., to plaintiff's predecessor, Farmers State Bank of
Merkel, for money procured by said Emmett Grimes for his own benefit; that after Emmett Grimes executed the note originally to said Bank of
Merkel, the bank examiner disapproved the credit statement of E. T. Grimes, and demanded that his note be collected, secured by collateral or additional indorsements, or charged out of the assets of the bank. That the maker was not able to pay it and the bank was not able to charge it out. That for the purpose of enabling the bank to carry the note as an apparent real asset of the bank, thus satisfying the bank examiner, the president or executive officers of the old bank requested the defendant Largent to sign the note with the express understanding and agreement that he would not be called upon to pay the same and that it was merely for the benefit and accommodation of the old bank, Farmers State Bank of
Merkel; that at such time W. L. Diltz, the vice president of the old bank, also informed this defendant that the bank was not then in a position to charge off the note; that Emmett Grimes was not in a position to pay the same, but that as soon as the bank could make arrangements to eliminate the note from the assets of the bank, either by Emmett Grimes paying same or by the bank's charging it out of the assets of the bank, such would be done. That upon such understanding he signed the note as accommodation to the bank, without obtaining any of the money procured upon it originally by Emmett Grimes. That he received no benefits from either the bank or Emmett Grimes, and signed the note or the renewals thereof strictly as an accommodation to the bank and to give the asset the appearance of having a real value in view of an impending bank examination. That at no time did E. T. Grimes ever request the defendant to sign said note or any renewal thereof.
That subsequently and while the note was still held by the old bank, Emmett Grimes went into bankruptcy and thereafter failed to sign any renewal of the note, but that the defendant proceeded to renew the same from time to time over a considerable length of time, but always upon the same specific understanding and agreement with the bank as that above set out, and each time for the sole accommodation of the bank, and with the assurances that so soon as the bank was financially able to do so, the note would be charged out of the assets of the bank.
That in the meantime the old bank, Farmers State Bank of Merkel, became *Page 484 
insolvent, and its assets (among them the obligation in suit as then evidenced) passed into the hands of the state banking authorities, and James Shaw, the Banking Commissioner of Texas, sold the assets of the old bank (except stockholders' liability) to the plaintiff bank, Farmers State Bank in Merkel.
The trial court's findings of fact and conclusions of law, upon sufficient testimony, confirm in substance the alleged special defense above set out and attention will be directed to pertinent portions of such findings:
"6. The court finds that Mr. Diltz at the time he procured Largent's signature told Largent the bank was not in position to charge out the paper and that the banking department was demanding that the paper either be paid, secured or charged out of the assets of the bank.
"7. The court finds that from time to time thereafter the note was renewed; that at each and every time it was renewed the signature of Tom Largent was obtained by the bank at the request of the bank and for its benefit.
* * *
"9. The court finds as a fact that the original note and each and every renewal thereafter signed by Tom Largent was signed at the request of the plaintiff bank and its successor and as an accommodation to the bank.
"10. The court finds that the plaintiff bank, Farmers State Bank in Merkel took over the assets of Farmers State Bank of Merkel and proceeded to do business at the same place and with practically the same officers and directors and assumed all the obligations of Farmers State Bank of Merkel."
These findings and the undisputed testimony clearly demonstrate that the arrangements between the old bank and Largent whereby those banking officials first procured the signature of Tom Largent on said note, and each and all of the renewals thereof, contemplated that such note would appear as a valuable asset of the bank for the purpose of deceiving those whose duty it was to examine and appraise such assets in the interest of sound banking. Aside from such purpose the note or renewals so executed by Largent were but worthless scraps of paper. Stated differently, whenever said Largent executed said note, or any renewal thereof, the act was an accommodation solely to the payee upon its request and with an understanding which meant nothing more nor less than that the transaction was to give the assets of the bank a favorable appearance for the purposes of examination, but less favorable for the purpose of liability and enforcement. Notwithstanding the agreement and accommodation nature of the note, all parties connected therewith intended it to be carried as an asset of the bank. It was so carried and presumptively approved numerous times as such by the banking authorities. Undoubtedly the transaction in question originated with the officers of the bank but defendant became a willing party thereto. As said in Lyons v. Benney,230 Pa. 117, 79 A. 250, 251, 34 L.R.A., N.S., 105: "The only inference to be drawn from his affidavit of defense is that, in executing and delivering his note to the bank, he helped along a trick to make it appear to the bank examiner and, for that matter, to the creditors of the bank that it had a valuable note, when, in fact, it had not."
Such, we think, is the conclusive effect of the findings and undisputed facts detailed. As said in Brand v. Korth, 128 Tex. 488, 99 S.W.2d 285, 286: "We are unable to see why an agreement on the part of the maker of a note and the bank's officials to mislead or deceive the Banking Commissioner is at all necessary to create an estoppel, when the mere placing of the note with the bank and allowing it to remain there as an apparent asset necessarily has the same effect without an agreement as with one, so far as the bank examiner and creditors and depositors are concerned."
As a general rule, notes made payable to a bank for the sole purpose of concealing the true condition of the bank and of deceiving the bank examiner are without consideration and the bank, as a going concern, cannot recover thereon. 9 C.J.S. Banks and Banking, page 801, § 385; Central Nat. Bank of Waco v. Lawson, Tex. Civ. App. 7 S.W.2d 915, affirmed, Tex.Com.App., 27 S.W.2d 125.
The soundness of such a rule could not well be doubted where the original payee bank as a solvent going concern demands payment of the note, a situation where it is not conceivable that the rights of the depositors, creditors, etc., may have arisen. However, that is not the case before us. The record in the instant case conclusively shows from the written agreement of the parties themselves that the old *Page 485 
bank, the Farmers State Bank of Merkel, was, because of insolvency, officially closed by its board of directors on February 10, 1930, and that at that time they placed the entire assets, including the note or obligation in suit, and the affairs of the bank generally, in the hands of the banking commissioner of Texas for the purpose of liquidation and discharge as provided by law. Thereafter, on April 14, 1930, James Shaw, said Banking Commissioner, who had taken charge of the assets of the old bank and was in the process of liquidating same, sold and conveyed, for a valuable consideration, the assets of the old bank, including the obligation in suit, to the present plaintiff, the Farmers State Bank in
Merkel. According to the written agreement and transfer evidencing the sale of these assets, the commissioner sold and transferred all "such right and power [as] the commissioner has therein under the laws of Texas for the sale and disposition thereof." Full value was received and the rights and powers possessed by the commissioner were transferred to and became the property of the plaintiff bank. Hence, the undisputed facts and findings present quite a different case from that where the original payee bank is the complaining party and still a going concern. Here the resulting insolvency of the old bank definitely fixed the rights of depositors, creditors, etc., in the assets and the commissioner of banking became the trustee or representative of such rights charged with the duty of protecting and conserving same. Therefore, if the banking commissioner were the plaintiff in the instant suit, asserting such rights, his right to a judgment in their behalf could not be doubted under the authority of Brand v. Korth, 128 Tex. 488, 99 S.W.2d 285; Shaw v. Borchers, Tex.Com.App., 46 S.W.2d 967, and authorities cited in each case. See also Notes "II" Annotations under First Nat. Bank v. Boxley,129 Okla. 159, 264 P. 184, 64 A.L.R. 588, 601.
As said in the second opinion, the Shaw v. Borchers case [46 S.W.2d 969], the banking commissioner being plaintiff: "Now, when insolvency has supervened, if defendant in error is permitted to show that his note was not what it purported to be, but was mere accommodation paper, the creditors of this bank will receive $5,000 less than they would have received if his paper had been what he, by his conduct, represented it to be. Under such circumstances, fairness and justice demand that defendant in error should be estopped from availing himself of the defense that the renewal note, which he led the banking department to believe to be a real asset of the bank, is but a mere scrap of paper."
In the instant case, the plaintiff (new bank) having purchased from the commissioner of banking the assets of the old bank, including the obligation in suit, and having paid value therefor, thereby contributing to pay the debts of the old bank, its equitable position is the same as was that of Shaw, the banking commissioner. As said in 10 R.C.L., p. 809: "But an estoppel once having arisen inures to the benefit of those who afterwards purchase the instrument even with knowledge of the defenses." See Horn v. Nicholas, 139 Tenn. 453, 201 S.W. 756, L.R.A. 1918E, 157, 160.
It follows that the appellant having acquired the right of the banking commissioner (representing depositors, creditors, etc.) for a valuable consideration, it is in position to enforce the obligation to the same extent that the banking commissioner, a statutory receiver, could have enforced it. Under the facts or grounds of estoppel detailed, the defendant cannot be heard to say the note was without consideration; and the plaintiff is entitled to a judgment. In its pleadings it raised the issue of estoppel in various ways, but the "defendant * * * in his answer in this case set forth all the facts essential to estop him from relying upon the defense urged * * *." Shaw v. Borchers, supra. See Stuart v. Mitchell, Tex. Civ. App. 241 S.W. 713, writ refused.
Not only under the above authority was plaintiff entitled under the facts to judgment, by reason of the rights derived from the banking commissioner, but there is another ground presented — by the pleadings and conclusively established by the testimony which warrant the judgment for plaintiff. As noted, the plaintiff paid a valuable consideration for the assets of the old bank. That alone, as we interpret the opinion in Murchison v. Saxon et al., 128 Tex. 420, 99 S.W.2d 288, 289, entitled it to a judgment under the other facts found and undisputed. Having thus paid value the plaintiff was in position to urge estoppel based upon the facts hereinbefore detailed. Under such circumstances it was held in the last named case, as follows:
"We are of the opinion that plaintiff Murchison is unquestionably in position to *Page 486 
urge this estoppel. Section 29 of article 5933, Revised Statutes 1925, which is a part of the Negotiable Instrument Act, is as follows:
" `An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew him to be only an accommodation party.' "
That part of the last sentence beginning with the word "notwithstanding" is italicized in the original opinion.
We believe that the statute quoted and the rule announced are applicable to the undoubted facts of the instant case.
The obligation in suit evidenced by various renewal notes was an asset of the new bank and the rights of the stockholders fully attached. If under any circumstances the new bank acted at times apparently under a misapprehension of its rights to enforce the note, certainly there was no consideration paid to the plaintiff upon which a contention could be based that it in any measure at any time relinquished its full and complete right and interest in the note upon which it predicates this suit.
The facts of the case have been fully developed. For the reasons assigned and upon the authorities cited, we are of the opinion that the judgment of the trial court as to R. I. Grimes should be affirmed and as to Largent should be reversed and judgment be here rendered in favor of the plaintiff against the defendant Largent; i. e., the judgment of the trial court is affirmed in part and reversed and rendered in part. It is so ordered.