Court Opinion

ID: 3964272
Source: CourtListenerOpinion
Date Created: 2016-07-06 10:24:08.02793+00
Date Added: 2024-06-11T13:53:14.306844
License: Public Domain

I have carefully reviewed the record in the light of appellant's motion for rehearing and persuasive written argument filed therewith, and I am now convinced that the judgment should be reversed and here rendered for the Slaton bank.
Upon further investigation, I find that Revised Statutes, art. 499, which relates to the matter of appointing certain officers of the bank to sell and hypothecate its paper, has been copied from the banking laws of the state of Missouri. Section 1112 of the Revised Statutes of 1909 of Missouri, of which Revised Statutes, art. 499, is a verbatim copy, was discussed and construed by the Supreme Court of Missouri in Union National Bank v. Lyons, 220 Mo. 538, 119 S.W. 540, and it was there held that a resolution by the board of directors of the bank, entered of record in accordance with that article of the statutes, was "notice to the world" of the limitation upon the cashier's authority to act for the bank in the particular transaction.
I insisted, in my original dissenting opinion in this case, that it was contemplated by the statutes that agents so appointed would be special, and not general, agents, and that the Amarillo bank was bound to take notice of the extent of Wood's authority, but was not able to cite any case directly in point, stating, however, that such an agency was analogous to that of a municipal officer whose authority was prescribed by statute or ordinance.
It is said in the Lyons Case:
"There is no pretense that such written authority was given to the cashier to borrow the $10,000 in suit, or to execute the note in question. While the prohibition enjoined against the cashier to do the things mentioned in the statute is not absolute, yet his power to do those things is conditioned upon the board's written authority first spread of record empowering him to do so; and as his power to do those things depends upon a condition precedent, which is prescribed by public statute, all the world must take notice of that limitation of his power and authority, and determine at their own peril whether or not the condition has been complied with and the authority granted. If not, then his acts are unauthorized, null, and void, and not binding upon the bank."
While the majority in the Lyons Case held the bank liable, by reason of the fact that it had received and appropriated to its own use and benefit the money borrowed, no such facts confront us in this case, and the language quoted above would preclude a recovery by the Amarillo bank, in this suit, based alone on the repurchasing agreement. The resolution by the board of directors in the instant case is a "blanket" resolution, and authorizes certain of its officials to rediscount and sell the bank's notes "without recourse." Even if the note had ever belonged to the Slaton bank, the agreement to repurchase the Wood note, if not paid at maturity, exceeds and violates the express terms of the authority given by the directors. This is not a borrowing transaction, but a rediscounting and sale of a note under a contract to repurchase it, if not paid at maturity. Under the rule in the Lyons Case the Amarillo bank is bound by the extent of the authority given to Wood, and had constructive notice of his want of authority to execute the repurchasing agreement sued upon.
Judge RANDOLPH seems to base his affirmance of the Judgment in part upon the fact that the Amarillo bank had no knowledge that any resolution by the board of directors of the Slaton bank had been made or entered upon the minutes of that bank. While as a general rule, when the Legislature brings over from a sister state and adopts in identical or similar terms a statute which has been construed in such state, the courts of Texas are not bound by such construction, still they customarily apply the same construction to it, unless some change is made indicating that the Legislature did not intend to adopt it as construed by the courts of the state from which it was copied. Koy v. Schneider,110 Tex. 369, 218 S.W. 479, 221 S.W. 880. The courts of Texas presume that the Legislature in adopting a statute from a foreign state intended to adopt it with the settled construction given to it prior to its adoption by the courts of the state from which it was borrowed. American Indemnity Co. v. Noble (Tex.Com.App.) 235 S.W. 867; Board of Water Engineers v. McKnight, 111 Tex. 82, 229 S.W. 301; McKnight v. Pecos Toyah Lake Irr. Co. (Tex.Civ.App.) 207 S.W. 599.
Judge Graves dissented in the Lyons Case from the majority opinion which permitted a recovery even upon the ground therein stated, holding that the bank was not entitled to recover, even though it had received and appropriated the money, and in discussing the statutes under consideration said:
"Prior to 1897 no prohibitions or restrictions were placed upon the cashier. He possessed all the powers ordinarily understood to belong to such officer. There was no restriction in either of the old sections. No records were required to be kept of loans, and other things as now required. Directors were not required to meet *Page 654 
and pass upon loans and to give their consent to the making of loans or borrowing of money, as now required. These statutes clearly imply that the consent of the board of directors must be spread upon the records of the bank. They are required to meet monthly and to keep records. But whether the consent should be made to appear in one way or the other is not material in this case, because consent to the execution of this note or the borrowing of this money was not shown in any manner. By these statutes the cashier of a bank is the bank's agent with limited powers. The limits are placed upon the powers of the agent by public statute, and all persons dealing with such agent, must deal with him at his peril, and, unless the express power be shown for the act, it is of no binding effect. One dealing with an agent of limited powers must affirmatively show that the act relied upon fell within his powers. This plaintiff failed to do. Need we cite cases to a proposition so well founded? These statutes were passed to prevent a cashier from looting banks by borrowing money. Under his general powers, such cashier by statute is given the right to buy and sell exchange. If these statutes are meaningless, as my Brothers seem to indicate, then all a cashier of a bank has to do to loot the bank is to borrow money otherwise than by note, put it with a correspondent bank and sell exchange to himself, and thus loot the bank. These laws were to prevent such conduct. The usual and customary method of procuring money by way of loan is by giving a bill payable. The giving of such a bill by the cashier without the consent of the directors is prohibited. To say that the cashier can borrow money without a note, but cannot borrow it with a note, is trifling with the statute law and its purpose. It would be the height of legislative foolishness to pass a law intended to prohibit a cashier from borrowing money on the bank's note and yet permit him without reserve to borrow without giving the note. The legislative meaning and intent of this law was to prohibit the borrowing of money by the cashier in the name of the bank except upon the consent of the board of directors. The law was not only intended to protect the bank itself, but likewise its depositors. Nor is there injustice in saying that an individual or bank loaning money on a note thus executed without authority should lose it. They know the law. They know the limits of the powers of the agent, the cashier. Dealing with such agent of limited powers, they must know his right to make and receive a loan at their peril. Many harsher statutes than this are unhesitatingly enforced by the courts. If, for increased interest rates by way of discounts, banks or individuals will chance the authority of the limited agent to make the loan, they must do so with the penalties affixed by law. The opinion of my Brother Woodson mops both of these statutes off the books with one fell swoop. Cases wherein there are no such statutes and cases in this state, and such there are, discussing the powers of a bank cashier prior to the act of 1897, can have no binding effect. The purpose of these statutes was to prevent the cashier `by virtue of his office' from borrowing money. It is a wise legislative act, remedial in character, and should be upheld. We are of opinion that, even on the theory that the plaintiff is suing for money loaned, it has failed to show that the agent of limited powers had the authority to make the loan, and therefore has failed to make its case. But going further, and even conceding, which we do not do, that the plaintiff could recover for money loaned, and that this is such an action, yet it devolves upon plaintiff to prove by competent evidence that the defunct bank actually received that money, and this in our judgment it has failed to do. There is no pretense that this money was sent direct to the defunct Middleton bank. There is no pretense that it was delivered to an authorized agent of such bank. It was, as the witness says, and who does not speak from personal knowledge, but from an alleged examination of books and the customs of the bank, that it was deposited in plaintiff bank to the credit of the Middleton bank, and afterwards paid out on drafts."
So it may be said in the instant case that article 499 is meaningless, unless such bank was required to take notice of the express authority given Wood by the resolution in question, and to so hold it, in my opinion, opened the door for fraud which the very purpose of the act was to close, ad would result in enabling such officers as Wood to loot any bank which they represented.
I again assert that the Slaton bank never received nor appropriated one penny of the proceeds derived from the forged note, and, if the Amarillo bank was required to take notice of the resolution, then it knew that Wood had no authority to execute a repurchasing agreement binding his bank after having sold the note with a qualified forged indorsement.
Section 1112 of Revised Statutes of Missouri 1909 was again considered in the case of Long v. Long, 167 Mo. App. 79, 150 S.W. 1135, where the Missouri Court of Appeals held that the plaintiff acquired no right or title to the note sued upon under his pretended purchase from the bank, because, as the cashier and managing officer of the bank, he had no power to sell the note to himself in the absence of a grant of authority from the board of directors expressed in a formal manner at a regular meeting, as required by said section 1112. The court said:
"In Vansandt v. Hobbs, 84 Mo. App. 628, we construed the statute to denounce as void and not merely voidable any act of a bank cashier in violation of its provisions. The St. Louis Court of Appeals in Hume v. Egan [Eagon] 73 Mo. App. 271, held that the true intent of the statute was to make voidable an act in contravention to its provisions and that an unlawful act of the cashier could be vitalized by a subsequent formal ratification by the board of directors. We think this view of the statute, if countenanced, would have the effect of setting at naught its controlling purpose, and would open the door to the very evils the Legislature intended to suppress. The temptations of the managing officers of banking institutions to speculate with and manipulate to their own advantage the assets intrusted to their care and preservation should be removed or reduced to a minimum, and that was the very object the Legislature had in mind when it provided that they could not sell or pledge any of the property of *Page 655 
the bank without first obtaining authority from the board of directors at a regular meeting, expressed in the most formal way. To say that the board may do afterwards the very thing the statute says in the strongest language must be done before would be to disregard the plain letter and manifest spirit of the law, and to restore in full vigor the abuses the statute was designed to suppress."
This act of the statute was again considered in Musgrove v. Macon County Bank, 187 Mo. App. 483, 174 S.W. 171, in which the court, basing its holding upon the effect of said section 1112, said:
"The attempted sale of the notes was void, and, being void, the check given in payment of the purchase price also was void, since it was not only unsupported by any consideration, but was given in violation of a law of which both parties to the transaction are presumed to have had knowledge. Plaintiffs had no right to give the check and the bank had no right to accept it. We think the bank is in no position to claim that it took the check innocently, not knowing of the fraudulent purpose and ultra vires character of the conduct of the cashier. The check was made payable to the bank, showed on its face that it was for notes purchased from the bank, was accepted by the cashier, entered upon the individual deposit ledger, and kept in the bank by its official custodian of such papers. The funds represented by the check, therefore, came into the bank through the regular and authorized channel, and the fact that afterwards, by fraudulent omissions and manipulations, the cashier concealed the true nature of the transaction from the other officers does not alter the master fact that the bank received an invalid check in pretended payment of property it did not, and could not, sell in the manner pursued."
It is true that in that case the bank was held liable because it received and appropriated the benefits, which, of course, is not the fact in this case. As was said of the check in that case may also be said of the repurchasing agreement in the instant case. It was not supported by any consideration, and was given in violation of a law of which both parties to the transaction are presumed to have had knowledge.
That portion of Judge RANDOLPH'S opinion, in which Judge JACKSON seems to concur, which holds the Slaton bank liable because of the sending of the telegrams by George upon the orders of the fraudulent officer, Wood, upon the theory of ratification or estoppel, is, in my opinion, unsupported either by the facts or the law. As I have previously said, estoppel was not pleaded by the Amarillo bank, and even the most liberal construction of its petition shows that it did not rely upon estoppel, and under the law, as I understand it, estoppel cannot be shown because the fraudulent officer, Wood, is the only party connected with the bank who had any knowledge of the transaction, and all of the bookkeeping entries were made by his employee, George, in accordance with his directions for the purpose of concealing his crime.
Good faith is a necessary element of estoppel in behalf of one who relies upon it as a defense. The good faith in this case is dispelled by the fact that the resolution of the board of directors gave Wood no authority to execute a repurchasing agreement, and the issue of ratification is, therefore, not in the case, because, as held in Cole v. Bammel, 62 Tex. 108, Citizens' National Bank v. Good Roads Gravel Co. (Tex.Civ.App.) 236 S.W. 153, an agent cannot ratify his own illegal act so as to bind his principal. The Missouri Court of Appeals, in Taylor v. Fuqua, 203 Mo. App. 581, 219 S.W. 971, in discussing article 1112 as subsequently amended (Laws 1915, p. 146, § 90), says:
"It is true, as appellant contends, that it is well settled that an act of a cashier of a state bank done in violation of this statute is absolutely void and can confer upon no one any right or title to any note, bond, or other obligation attempted to be disposed of in contravention of its terms; and that where a cashier attempts to perform an act in contravention of the statute, no subsequent action on the part of the board of directors, by way of ratification, can give any validity thereto,"
— citing nine Missouri cases in support of the holding.
As I have endeavored to show in my original dissenting opinion, the weight of authority is to the effect that an act, illegal because in violation of an express statute or rule of public policy performed by an agent, cannot be ratified by the principal, although some cases, even in this state, hold that the principal may be held liable upon the ground of estoppel.
The case of Washington County State Bank v. Central Bank  Trust Co. (Tex.Civ.App.) 168 S.W. 456, cited by Judge RANDOLPH in support of his holding, was an action for money had and received, and the recovery was predicated upon the fact that the defendant bank "had accepted the benefit of a transaction procured by the fraud of its officer," holding that "it will not be permitted to retain the benefit of a transaction and disclaim responsibility because its officer and agent had not been formally authorized to sell and negotiate the paper." Moreover, the Washington County Bank's "entire action in this matter was in good faith, and without a suspicion of culpability in any respect," and "there was nothing to indicate to Harrison that it (Washington County State Bank) was not its owner." So that case is clearly distinguishable from the instant case. No writ of error was sued out, and the case never reached the Supreme Court. Because the opinion holding the defendant bank liable is based upon the facts above stated which are not present in this case, I do not take issue with the general result reached, but I cannot agree with the holding of the El Paso Court *Page 656 
of Civil Appeals that the statute would not apply, since it was a rediscounting transaction, and I further am of the opinion that the sale was void for the want of authority from the board of directors to the president to make the sale of the notes in question. That part of the holding is in conflict with the decision of the Texarkana Court of Appeals in Hull v. Guaranty State Bank, 270 S.W. 191, and also with Rodgers v. Central State Bank  Trust Co. (Tex.Civ.App.) 184 S.W. 620. Moreover, it directly conflicts with what this court said in Lott v. Farmers' State Bank, 254 S.W. 1027, as to the presumption to be indulged in regard to the authority of the bank's president in view of the banking laws of this state which limited his authority.
If, as held in the Missouri cases, supra, the statute makes the resolution to be passed and recorded by the board of directors "notice to the world of the agent's authority," then the issues of apparent authority and implied authority of Wood are not in this case, and both majority opinions rest in part upon such grounds. Neither can the telegrams sent by Carl George upon the order of Wood to the Amarillo bank be held a ratification of Wood's illegal act in executing the agreement to repurchase. The Slaton bank itself could not ratify an act done by its agent in violation of positive statute forbidding such transaction, and declaring it null and void.
In his concurring opinion, Judge JACKSON relies upon that line of authorities which holds that mere knowledge on the part of the plaintiff that money loaned was to be used by the borrower for an illegal purpose, without further act in furtherance thereof, would not defeat the lender's right of recovery, citing Futch v. Sanger (Tex.Civ.App.) 163 S.W. 597. That was a case in which Futch conveyed certain real estate to Sanger, with the knowledge that the latter was engaged in dealing in cotton futures. The deed recited a consideration of $1,500, which, it is alleged, was never paid. The suit was to cancel the deed. A general demurrer was sustained to the petition, and Futch appealed from a judgment entered against him from the demurrer. Judge Rice said:
"If the transaction set out was void on the ground that it was in violation of law or public policy, then the ruling is correct; otherwise it is not."
The transfer of real estate is not ordinarily a violation of law or any rule of public policy. The only illegality alleged in the petition was the fact that Sanger was a gambler in cotton futures, and intended to use the real estate transferred to him as a basis for credit to pursue his illegal occupation. This purpose was collateral to the transfer of the land, and for that reason is clearly distinguishable from the case under consideration. Here the illegal act is the repurchasing agreement. Its execution was in violation of both positive rule of law and public policy. Instead of being merely collateral, it is the very instrument which the appellee has made the basis of its action for damages. Therefore, in my opinion, none of the authorities cited by Judge JACKSON are applicable to this case.
Since neither the issues of ratification nor estoppel are shown by any of the uncontradicted evidence, and since under the rules of law which govern the controversy there can be neither ratification nor estoppel, I think the judgment should be reversed and here rendered for the appellant.
It seems that the state of Louisiana has a banking law which provides, in effect, that the authority of its officers to sell and rediscount its paper and deal with its assets is in all things similar to article 499 of the Texas statutes and article 1112 of the Missouri statutes. And the Supreme Court of Louisiana held, in Sims v. Athens Bank, 139 La. 324,71 So. 525, that a pledge of the assets of a bank by the cashier, without authority of a resolution of the board of directors, being in violation of this statute, is invalid, and this view of the effect of the statute governed the opinions of the court in Thomas et al. v. Marine Bank 
Trust Co., 157 La. 459, 102 So. 524, and in 156 La. 941, 101 So. 315. Thus it appears that, in both states, where a similar statute has been enacted, the courts have held contrary to the decision of the majority of this court in the instant case.
I therefore respectfully dissent from the action of the majority in affirming the judgment and in overruling the motion for rehearing.