author: PLEASANTS, G. J.

text:
    CAMERON et al. v. FIRST NAT. BANK OF GALVESTON et al.
    (No. 7180.)
    (Court of Civil Appeals of Texas. Galveston.
    March 16, 1917.
    Rehearing Denied April 5, 1917.)
    1. CORPORATIONS <@=>361 — ACTION AGAINST Directors — False Reports — Special Find.ings — -Evidence.
    In action against directors to recover amount of loan made to corporation upon misrepresentations in annual statements as to its financial condition, evidence held to sustain special findings for plaintiffs.
    . [Ed. Note. — For other cases, see Corporations, Cent. Dig. § 1506.]
    2. Corporations <@==>363 — Action against Directors — False Reports —Refusal to Direct Verdict — Evidence.
    In action against directors to recover amount of loan made to corporation upon misrepresentations in annual statements as to its financial condition, evidence held. sufficient to justify a refusal to direct verdict for defendants.
    [Ed. Note. — For other cases, see Corporations, Cent. Dig. §§ 1506½, 1507.]
    3. CORPORATIONS <§=>361 — ACTION AGAINST Directors — Knowledge of Falsity of Re- . pobts — Evidence.
    Evidence that directors had occupied position for years and knew of methods of bookkeeping' used by corporation, and that uncollectable accounts were included in annual financial statement with approval of board of directors, held sufficient to charge them with notice of falsity of statements, and that same were used to obtain credit.
    [Ed. Note. — For other cases, see Corporations, Cent. Dig. § 1506.]
    4. Cobpokations <®=o361 — Action against Dibectobs — Authorizing False Reports— Exebcise of Due Cabe — Evidence.
    Evidence held to show that directors, in authorizing corporation’s financial statements, used to Obtain credit, failed to exercise ordinary care, and that the exercise of such care would have shown them the falsity of such statements.
    [Ed. Note.' — For other cases, see Corporations, Cent. Dig. § 1506.]
    5. COBPOBATIONS <§=>335 — DlRECTOES’ LIABILITY for False Report Prepared by Employes.
    The fact that a corporation’s financial statement used to obtain credit was prepared by employes under directors’ control cannot relieve directors of liability for misrepresentations contained therein, in view of Rev. St. 1911, art. 1159, providing that “the director^ shall have general management of the affairs of the corporation,” and it was immaterial that they did not expressly authorize presentation of such statements for purpose of obtaining credit.
    [Ed. Note. — For other cases, see Corporations, Cent. Dig. § 1453.]
    6. Corporations ⅞=>413 — Duty of Dip.ec-tors — Statute—“Affairs of the Corporation.”
    The borrowing of money in conducting corporation’s business, and methods of obtaining loans, were “affairs of the corporation” within meaning of Rev. St. 1911, art. 1159, providing that “the directors shall have general management of the affairs of the corporation.”
    [Ed. Note. — For other cases, see Corporations, Cent. Dig. §§ 1647-1649.]
    7. Principal and Agent <®=>159(2) — Agent’s Liability foe Fraud.
    An agent is as much responsible as his principal for fraud perpetrated on another in which the agent participated.
    [Ed. Note. — For other cases, see Principal and Agent, Cent. Dig. §§ 606-612.]
    S. Corporations <®=>335 — Directors’ Liability for False Reports.
    Directors, although agents of the corporation, are responsible for the truth of corporation’s annual financial statements, sanctioned by them during a long-continued method of borrowing money on the faith of such statements.
    [E'd. Note. — For other cases, see Corporations, Cent. Dig. § 1453.]
    9. Corporations <§==>335 — Directors’ Liability for False Report — General Rule — Negligent Mismanagement.
    The general rule that mere negligent mismanagement of a corporate business will not render directors liable to creditors will not relieve directors from liability for false financial statements, sanctioned by them for the purpose of obtaining loans.
    [Ed. Note. — For other cases, see Corporations, Cent. Dig. § 1453.]
    10. Corporations <§=^354 — Nonresident Director-Liability for False Reports.
    The fact that a director resided out of the state did not make creditors negligent in relying on assumption that he sanctioned issue of corporation’s financial statements made under his name, where the director continued to exercise his duties, and knowingly allowed himself to be held out to the public as a governing officer.
    [Ed. Note. — For other cases, see Corporations, Cent. Dig. § 1496.]
    11. Appeal and Error <§=>1067 — Harmless Error — Refusal of Charge Not Affecting Result.
    Where jury might have found all facts stated in defendants’ requested charge to be true and still found against them, without making findings inconsistent, refusal of the charge was harmless.
    [Ed. Note. — For other cases, see Appeal and Error, Cent. Dig. § 4229; Trial, Cent. Dig. § 475.]
    12. Appeal and Error <®=>263(1) — Instructions — Damages—Failure to Except.
    Where defendants did not except to charge naming amount of damages recoverable, as required by article 1971, they cannot complain thereof on appeal.
    [Ed. Note. — For other cases, see Appeal and Error, Cent. Dig. § 1516.]
    13. Appeal and Error @=>216(1) — Instructions — Damages—Failure to Request.
    Where defendants failed to ask for the submission of issue as to amount of damages, on appeal they cannot complain of the given charge relating thereto.
    [Ed. Note. — For other cases, see Trial, Cent. Dig. §§ 627-641, 660, 662-676.]
    14. Fraud <§=>59(3) — Action — Measure of Damages.
    In fraud cases, in which by misrepresentation a person has been induced to purchase property, the measure of damages is generally the difference between the value of the property and amount paid therefor.
    [Ed. Note. — For other cases, see Fraud, Cent. Dig. § 62.]
    15. Corporations <©=>353 — Action against Director of Bankrupt Corporation — Amount of Recovery.
    Where all visible definite assets of bankrupt corporation had been sold, satisfying 40 per cent, of plaintiffs’ claim, in action against directors for false representation of corporation’s financial condition, plaintiffs were not required to accept speculative value of claims in trustee’s pending suits, or to await final result thereof.
    Appeal from District Court, Galveston County; Robt. G. Street, Judge.
    Suit by the First National Bank of Galveston and others against W. W. Cameron and others. Judgment for plaintiffs, and defendants- appeal.
    Affirmed.
    Sleeper, Boynton & Kendall, of Waco, and McDonald & Wayman, of Galveston, for appellants Cameron and Bolton. J. N. Gallagher and S. E. Stratton, both of Waco, for appellant Slay den. J. D. Williamson, of Waco, Thompson, Knight, Baker & Harris, of Dallas, and J. B. & C. J. Stubbs, and Williams & Neethe, all of Galveston, for appellee First Nat. Bank of Galveston.
   PLEASANTS, G. J.

This suit was brought by appellee First National Bank of Galveston against W. W. Cameron, E. R. Bolton, W. J. Slayden, Tom Padgitt, S. F. Kirksey, S. W. Slayden, and S. F. Kirksey, Jr., to recover the sum of $25,000, .with interest from October 7, 1911, at the rate of 6 per cent, per annum.

The following statement of the substance of the voluminous pleadings is believed to be sufficient for an understanding of the issues involved in the suit:

The petition alleges that the defendants above named composed the board of directors of the Slayden-Kirksey Woolen Mill of Waco, Tex., a manufacturing and trading corporation organized and chartered under the laws of this state, and that as such directors they made false and fraudulent representations of the financial condition of said corporation in financial statements issued by said corporation on Decembér 31, 1909, and December 31, 1910, and on other dates prior to those just mentioned, which said statements were issued as a basis for credit and were presented to plaintiff bank by the defendant S. F. Kirksey, Jr., the vice president and manager of said woolen mill, for the purpose of obtaining a loan for said woolen mill from plaintiff; that, relying upon the truth of said statements and upon oral statements made by said Kirksey, plaintiff extended a line of credit of $40,000 to said woolen mill, and said amount was in fact loaned to said mill, for which it executed its notes to plaintiff as the money was obtained; the woolen mill subsequently became insolvent, owing plaintiff the sum of $40,000; that 40 per” cent, of such indebtedness had been collected by plaintiff through proceedings in bankruptcy, and defendants, by reason of said false representations by which plaintiff was induced to extend said credit, became and are liable to plaintiff for the loss sustained by it in making said loans to the woolen mill.

It is further alleged that the defendants herein, as directors and officers of the said Slayden-Kirksey Woolen Mill during the years and times hereinabove mentioned, knew, and it was their duty to know, the truth of the history of said corporation and its financial status, and that all of them, during the times they were directors of said corporation, held themselves out as such to the public at large, and especially to this plaintiff, and they,induced the public to rely on their connection with said alleged insolvent corporation, and caused the plaintiff, the First National Bank of Galveston, and others who dealt with said mill, to believe that the statements issued under their alleged direction were true statements, because of their names and standing in the financial and business world; and that they, and each of them, knew, and that it was their duty to know, and With the exercise of reasonable diligence could have known, that said capital stock of said corporation had not been fully paid; that its machinery and real estate accounts were inflated and padded, and that its bills receivable and outstanding accounts, as shown by its books and financial statements, included worthless accounts, which in their knowledge were wholly valueless, and charging that said directors had the benefit of an audit made under date of October 31, 1906, which they alleged reflected the condition complained of, charging that the directors, and each of them, knew of the alleged system of the said Slayden-Kirksey Woolen Mill of causing said financial statements to be issued at the close of business each year, and that they, and each of them, well knew said statements were false, and that they, and each of them, sanctioned and continued the use of said false statements in the obtainment of credit and dealings on behalf of said mill through its officers and agents and brokers ^and in its commercial transactions, charging that the directors, and each of them, acted willfully and fraudulently in permitting the issuance, circulation, and use on behalf of said corporation, its officers and agents, of said financial statements so issued annually, as above set out; that if it should be found that defendants had not willfully and wrongfully made such financial statements, knowing the same to be false and with the intent to defraud, by reason of the positions which they held as directors of said corporation they were chargeable with knowledge that said financial statements were false in the particulars alleged, as by the exercise of reasonable diligence they would have ascertained facts which would have made known to them the' falsity of the representations in said financial statements contained, as in plaintiff’s amended petition alleged; and that said defendants .wantonly, willfully, and recklessly sanctioned and permitted the issuance and use of false financial statements, and are therefore each liable to plaintiff.

That the woolen mill went out of business in 1912, bankruptcy proceedings being instituted, and plaintiff, as a creditor of said mill, proved up its notes and claim in bankruptcy against said mill, and had received 40 per cent, on its said notes and claim, and brings this suit, praying recovery against defendants personally for the difference between the original amount of its loan, or loans, made the Slayden-Kirksey Woolen Mill and the amount realized from the' bankruptcy proceedings, alleging damages in the sum of $25,000, with interest thereon from October 7, 1911.

Defendants W. W. Cameron and E. R. Bolton, in their second amended answer, after general and special exceptions, which were overruled by the court, answered by general denial, and further denied specifically each and every material allegation of fact in plaintiff’s amended petition alleged as against these defendants and seeking to hold them liable herein, and alleging, together with other facts in their amended answer, that W. W. Cameron, upon the death of his father, Wm. Cameron, in 1S9S, together with his mother and sisters, inherited certain stock in the Slayden-Kirksey Woolen Mill, and after his disabilities as a minor were removed he became a member of the board of directors of said woolen mill in 1899; that said woolen mill was organized and incorporated by W. J. Slayden, S. P. Kirksey, Sr., and S. W. Slayden in 1885, said defendant W. W. Cameron at that time being a small child about seven years of age; that with the exception of about eight months, from January to September, 1907, when defendant W. W. Cameron was temporarily president of said woolen mill corporation, S. E. Kirksey, Sr., was its president from 1898 until it went out of business by institution of bankruptcy proceedings in 1912, and that in 1907 S. E. Kirksey, jr., became vice president and general manager of said corporation* and that neither of said defendants W. W. Cameron or E. R. Bolton were at any time ever in active control and management of the affairs of said mill, but that same was under control of said S. P. Kirksey, Sr., S. P. Kirk-sey, Jr., and others as managing officers in active control of the books and business affairs of said corporation, and that these defendants, and what was known as the Cameron interest in said woolen mill, were at all times minority stockholders, the majority of the stock being owned and held by W. J. Slayden, S. W. Slayden, and S. P. Kirk-sey, Sr., and S. P. Kirksey, Jr., who by their said, stock controlled the business management and policies of said woolen mill; that E. R. Bolton married Margaret Cameron in 1902, and became a member of the board of directors of the mill in 1908. Said defendants deny knowledge or notice to them of the existence of any system, method, or policy of those in active control and management of the business affairs of said woolen mill, or of any one connected with said corporation, to issue, and the issuance of, financial statements by said corporation containing false representations as to its assets, or that any such system, method, or policy existed to issue false financial statements, or that any financial statements of said woolen mill were issued that to defendants’ knowledge, or to the knowledge of either of them, contained any false representations, or any notice to them, or either of them, that same contained false representations; and deny the issuance by said woolen mill, or those in connection with the management of its affairs, of financial statements containing false representations; and deny that any financial statements of said woolen mill were issued for the purpose or with the intention of defrauding plaintiff bank, or any person or institution; that neither of these defendants W. W. Cameron and E. R. Bolton prepared the financial statements of the mill for December 31, 1909, 'and 1910, or signed’ said statements, or prepared any other financial statement of the mill, but that said financial statements, and each and all of the financial statements that may have been issued by the mill, were prepared by the then bookkeepers and officials in active control and management of the business affairs of the mill; and such statements that may have come to the knowledge of these defendants, or' either of them, were believed to be true, and not known to these defendants, or either of them, to contain any misrepresentation or false statement, and that these defendants at all times believed said woolen mill was an entirely solvent institution and amply able to meet all its indebtedness and its stock of value; that neither of these defendants W. W. Cameron ¿nd E. R. Bolton made any financial statement or other representations to the plaintiff Pirst National Bank of Galveston, regarding the financial condition of the Slayden-Kirksey Woolen Mill, nor authorized said S. P. Kirksey, Jr., or any one else, to make any ‘statement, or statements, to said bank in connection with the application for a loan or otherwise, and that neither of these defendants knew that said S. P. Kirk-sey, Jr., or any one else acting for said woolen mill, had made any financial statement, or statements, or any representations to said bank, or applied to said bank for a loan, or line of credit, until long subsequent to the making by plaintiff of a loan or loans, and extending a line of credit to said woolen mill, and not until October, 1911; that W. W. Cameron is president of Wm. Cameron & Co., Incorporated, having been elected to such position in 1899, and E. R. Bolton is secretary of said corporation, being elected to such position in 1904, and that the time and personal attention of both of these defendants has been devoted to the conducting of the business of Wm. Cameron & Co., a corporation, engaged in the lumber business, since their connection with same, and W. W. Cameron since its organization in 1899; that neither of said defendants W. W. Cameron and E. R. Bolton conspired with either of the defendants to issue, or cause to be issued, or sanctioned the issuance of, any financial statement of the woolen mill containing false statements, knowing that same contained false statements, or willfully, wantonly, and recklessly issued, or permitted to be issued, false financial statements of said woolen mill by the bookkeepers and officials of said woolen mill in active control and management of its business affairs, and are therefore not liable to plaintiff, a creditor of said woolen mill, in damages as prayed.

The answer of defendant, W. J. Slayden, after denying generally and specifically all of the material allegations of the petition seeking to hold him liable herein, avers that he had, since the year 1885, been a nonresident of the state of Texas, and that he had not been an active director at any time after that date, and that after the annual meeting of stockholders in January, 1902, he had not been to Waco, and had not attended a directors’ or stockholders’ meeting, and that his services as such director were honorary and nominal only, and that it was well understood by all the officers, directors, and stockholders of said corporation, and by all persons doing business with said corpo-. ration, that his connection therewith, as such director, was purely honorary and nominal, and that he was not engaged in the active management of the mill, or in the control or direction of any of its affairs, and that he was not acquainted with the details of the business, and not in a position- to know or become acquainted with the same, and that any and all persons having any business connections with said mill corporation, and especially the plaintiff, knew or ought to have known, such facts. He expressly denied that he participated in any way in, the preparation of tany financial statement of the mill, or that he ever caused the same, or any of the same, to be prepared, and he further denied that he knew, or had opportunity of knowing, the details and particulars of the several accounts, as shown on the books from which said statement purported to have been taken, and he denied that any statement after the year 1902 was ever approved by him, and that he had ever directed any such statement to be used as a basis for the extension of credit by lenders or banks to said mill, and he further denied that he ever presented, or caused such statement to be presented, to any mercantile agency. He further denied any knowledge of the insolvency of said mill prior to December, 1911, and he denied any knowledge of any representations being made by those in active management and control of the mill to persons to whom they applied for loans, or from whom they secured loans, or money to be used in conducting the business of the mill, and he denied any knowledge of the details of the procuring of such loans, the parties from whom they were procured, or the amounts or maturities of the same, and he denied that prior to said last-named date he had any knowledge that plaintiff held any of the paper of said mill, or that said mill was in any way obligated to said'bank. He further set out that the plaintiff had presented its claim for the monies owed to it by the mill corporation at the time of the bankruptcy of such mill, to the bankrupt court, and had received dividends thereon, and expressly denied that such dividends so received were all that might reasonably be expected to be received thereon, and alleged, on the contrary, that certain suits were pending by the trustee in favor of the bankrupt estate of said mill, and that plaintiff was entitled to participate on its said proved claim in the distribution of any and all proceeds recovered by the trustee in such suits. He further pleaded that he had been charged on the books of-the mill with the balance due by him upon all' stock issued to him at the time of the respective increases of stock, as alleged by plaintiff, and that he had paid off and satisfied all said charges, and that the stock held by him was therefore paid in full. He further pleaded that he considered said corporation entirely solvent, and his stock therein valuable and worth dollar for dollar, and that during most or all of the time, even in recent years, he had used said corporation as a depository for his private funds, instead of depositing same in a bank. He further alleged that plaintiff bank knew, or could have discovered with the slightest diligence, that he was not engaged in the active management of said mill corporation, nor in participation in its management, or affairs, and had not been for many years, and that his connection therewith was purely nominal, and that if said bank in any way relied upon his personality in said transaction, which was not admitted, such reliance was through no fault of his, but the same resulted solely from negligence, unwarranted assumption, and lack of inquiry of said bank and its managing officers and agents.

The cause was submitted to a jury in the court below upon special issues, and upon the verdict returned judgment was rendered in favor of 'plaintiff against all the defendants jointly and severally, except the defendant Padgitt, for the sum of $29,022.57. This appeal is prosecuted only by the defendants W. W. Cameron, E. R. Bolton, and W. J. Slayden, none of the other defendants having appealed. Slayden has filed a separate brief from the other appellants, who join in the same brief but present separate assignments.

The evidence shows that the Slayden-Kirksey Woolen Mill, which was originally a partnership, was incorporated in 1885. Appellant W. J. Slayden was one of its founders and was a stockholder and director in the corporation from its organization until its failure in the fall of 1911. Appellant yv. W. Cameron inherited stock in said corporation from his father, who died in 1S9.9, and shortly thereafter said appellant became a director in the corporation and continued as such until its failure. From January to October, 1907, he was president of the company, and in December, 1907, after he had resigned from the office of president, he was elected treasurer and retained that position until the failure of the company. Appellant Bolton was elected director in January, 1908, and in February of that year was made assistant treasurer and held both positions until the company failed in 1911.

In the 3'early conduct of its business, which was the manufacture and sale of woolen goods and also the buying and selling of clothing, the company required large sums of money and at times borrowed as much as several hundred thousand dollars. Its loans were sometimes obtained from banks and-sometimes by employing commercial brokers to sell its notes. Eor a number of years pri- or to and including the year 1910 the company had issued yearly a financial statement showing its assets and liabilities. These statements were made out by employés of the company on December 31st of each year and were furnished to Dun’s and Bradstreet’s agencies and to banks and commercial brokers patronized by the company.

On November 22, 1910, S. P. Kirksey, Jr., vice president of the woolen mill, wrote plaintiff bank, calling plaintiff’s attention to the fact that it had previously purchased notes of the woolen mill, and asking plaintiff to advise him whether it was in the market at that time for “any outside paper.” This letter, which was written upon letter heads of the woolen mill company, upon which appears the names of thé officers and directors of the company, all of the defendants being named as directors, and which was signed “Rlayden-Kirksey Woolen Hill, per S. F. Kirksey, Jr., V. P.,” closes with the statement:

“We inclose you herewith a financial statement showing the condition of the Slayden-Kirk-sey Woolen Mill at the close of business December 31, 1909, for your information.”

The plaintiff bank, by its cashier, Mr. F. W. Catterall, replied to this letter on November 23d, stating that it was not buying commercial paper at that time, but would be glad to enter into business relations with the woolen mill, and that it might be advantageous for the mill to open an account with plaintiff bank and by so doing secure a line of credit at reasonable rate that the mill could rely on when needed. As a result of this correspondence Mr. Kirksey went to Galveston and made arrangements with plaintiff for a line of credit of $40,000. In extending this credit plaintiff bank relied upon the financial condition of the woolen mill being truthfully shown in the financial statement sent it by Kirksey in the letter before mentioned, and which was discussed by Mr: Cat-terall and Kirksey before the agreement to extend the credit was made. Plaintiff also took into consideration, in agreeing to extend said credit, the statements of Kirksey to the effect that the woolen mills were in really a better financial condition than was shown by the statement and was also influenced by the business standing and reputation of the defendant directors. The assets of the woolen mill shown in this statement were as follows:

Wool and manufacturing goods ... $211,264 25
Accounts and bills receivable. 255,975 54
Buildings, real estate, and machinery . 289,583 27
Stock and bonds. 60 09
Furniture and fixtures. 1,712 11
Cash on hand. 10,755 24
$768,350 41

At the top of this statement and of all yearly statements issued by the company the names of the board of directors appear. Valuation of the goods shown in said statement was made without allowance for having been shelfworn and out of style and largely exceeded their actual value. The amount of accounts and bills receivable shown in the statement included accounts against deceased persons, persons who had become bankrupt, and persons who had ceased to do business. Many of the accounts were barred by limitation, and some had been put into judgments and the judgments had become dormant. More than $100,000 of accounts shown on said statement as assets were worthless. The valuation placed upon the mill and machinery was made without any allowance for depreciation, and greatly exceeded the actual value of said assets. If plaintiff bank had known the truth as to the value of the assets shown in said statement, it would not have-extended the credit.

The evidence further shows that the financial statements issued by the woolen mill as far back at least as 1906, and one issued in December, 1910, contained similar false valuation of the assets of the company. These financial statements were prepared from the books of the company by employes of the company, but were submitted to and approved by the board of directors. The false valuation in such statements was due to a wrong method of bookkeeping, which had been followed habitually by the company for many years, the vice in the bookkeeping being that, instead of charging bad accounts which had proved uncollectable to profit and loss, such accounts were, from year to year, placed upon what was called the “suspended ledger account,” and were included in the financial statements as assets of the company. The system followed in valuing the goods and the building and machinery made no allowance for depreciation caused by age and use. This method of keeping books and preparing financial statements is contrary to commercial custom and usage. With such a system of bookkeeping it necessarily followed that a financial statement copied from the books would be false and misleading. Appellants Cameron and Slayden both knew accounts upon the “suspended ledger” were included in the financial statements issued by the company from time to time; and, if they did not know that a large portion of such accounts were worthless, they had been so told. Cameron had an audit of the books made in 1907 which showed that $110,000 of these accounts were worthless, and he endeavored to discontinue the “suspended ledger account,” and succeeded in having $30,000 of said accounts charged off, but the next year $22,000 of those worthless accounts were put back on the ledger by S. F. Kirksey at the instance of W. J. and S. W. Slayden, but without any formal action of the board of directors. All of the appellants knew that a yearly financial statement was issued by the company and that one, if not the main, purpose of preparing and issuing these financial statements was to enable the company to readily dispose o£ its notes and to obtain loans. The yearly financial statements issued by the company were presented to and passed upon by the board of directors at the yearly meetings. Appellant Slayden was not present at any meeting of the directors after 1902, when he moved to New York, but was present at meetings of the stockholders and was frequently consulted in regard to the company’s business and loans by the officers and other directors in person and by letter. The appellants Cameron and Bolton were present at the directors’ meetings when the financial statement of December 31, 1909, was presented for approval. S. F. Kirksey, Jr., who was authorized by a resolution of the board of directors of the company “to make and execute notes of the mill” and given “full power and authority to do and perform all and every act or thing that may be considered necessary to be done in and about the premises,” having established the $40,000 line of credit with plaintiff, as portions of said sum was needed in the business of the company, executed notes of the company therefor. Some of the notes were paid as they matured, and the amounts thereof subsequently reborrowed. In this way, the entire credit was consumed so that at the time of its failure the mill owed the bank the full sum of $40,000 evidenced by notes.

In the summer of 1911 a note of the mill, due in St. Louis, was protested, and- the mill was found to be in financial difficulty. This was met temporarily, but in the fall of that year embarrassments were such that creditors’ meetings were called and held, discussions were had as to methods of satisfying creditors and continuing the business, which came to naught, and the mill went into bankruptcy. At that time the indebtedness, according to Mr. Cameron’s own statement, amounted, to $372,000. All the assets, including bills and accounts receivable after some collections had been made, were sold by the trustee and bought by a committee acting for the creditors, bringing $155,000. This, with the collection, amounted to about $170,000. Forty per cent, of the indebtedness was thus paid, which left the mill company owing the bank a balance, which, with interest, amounted at the time of the trial to $29,022.-59. After the purchase of the assets by the i creditors, they placed the goods for sale with Sanger Bros., experienced merchants having exceptional facilities for disposing of them. They placed some of the accounts, etc., with R. G. Dun & Co. for collection. They still hold the machinery, mill, and real estate,

' and after every effort to sell it advantageously, the best offer they have been able to get was a request for 60 days’ option at $75,-000 on a credit of five years. They realized for the wool and manufactured goods of every description $55,000. They collected on accounts and bills receivable $18,694, realizing $16,927 after paying cost of collection. Stating the mill machinery at $75,000, the. total realized by the creditors’ committee would be $146,000, $8,000 less than their bid at bankrupt sale. It was shown that several suits by the trustee to recover amounts claimed by the company were pending, and if the trustee should be successful in such suits and the judgments therein collected, a further dividend would be obtained by the creditors of the company.

The questions submitted to the jury and answers returned in the verdict were as follows :

“(1) Did the statement of December 31, 1909, contain material misrepresentations of the assets of the mill as charged by plaintiff? Yes.
“(2) Name the defendants, if any, who had notice of the material misrepresentations, if any, in the statement. S. F. Kirksey, Sr., S. F. Kirksey, Jr., W. J. Slayden, S. W. Slayden, W. W. Cameron.
“(3) Did the defendants, or any of them, in-authorizing said statement and its use fail to ex-ex'cise such care as men of ordinary prudence would have done under the circumstances? Answer, Yes or No. Yes.
“(3½) If you have answered ‘Yes’ to the preceding question, then name the defendants who failed to exercise ordinary care. S. F. Kirksey, Sr., S. F. Kirksey, Jr., W. J. Slayden, S. W. Slayden, W. W. Cameron, B. R. Bolton.
“(4) Did the plaintiff rely upon such misrepresentations, if any? Answer Yes or No. Yes.
“(4½) Was the plaintiff misled by such misrepresentations, if any? Answer Yes or No. Yes.
“(5) Would a person of ordinary prudence have been so misled ? Answer Yes or No. Yes.
I “(6) If so misled to its injury, write out the amount of the damages, being $29,022.57. $29,-022.57. A. E. Burgess, Foreman.”

We think each and all of these findings of the jury are sustained by the evidence.

The first assignment of error presented by appellant Cameron complains of the refusal of the court to instruct a verdict in his favor upon the following grounds:

“(a) Because plaintiff failed to make out a case against said defendant, and the evidence is wholly insufficient to show and sustain the cause of action of plaintiff as set out in its petition as against said defendant, and on which to warrant a recovery against said defendant.
“(b) Because there is no legal evidence establishing or tending to show that said defendant, W. W. Cameron, had any knowledge or notice that any method or system was being pursued by the officials of said woolen mill, or those in charge of the active management of the finances and business affairs of said corporation to issue financial statements containing material misrepresentations! as to value of certain assets of said woolen mill, as in plaintiff’s petition alleged, and the use of such statements for obtaining' credit.
“(c) Because there is no legal evidence establishing or tending to show the existence of any method or system pursued by defendants, or either of them, that the officials of said woolen mill, or those engaged in the active management of the business affairs of said corporation, to issue false financial statements as a basis for credit, as in -plaintiff’s petition alleged.
“(d) Because there is no evidence to show that the defendant W. W. Cameron had knowledge of the issuance of the financial statement in question of December 81, 1909, and approved and sanctioned the use of same for the obtaining of a loan or credit ,from the First National Bank of Galveston for said woolen mill, or from any other institution or any person.
“(e) Because the evidence fails to show that the defendant W. W. Cameron authorized, approved, or sanctioned the use of a false statement to obtain credit from plaintiff, or any other person, for said woolen mill corporation.
“(f) Because, even if it should appear from the evidence, which is not admitted, but denied, that said W. W. Cameron did have notice that financial statements were being used by said mill corporation, or those in control of the active management of same, as a basis for credit, which contained material misrepresentations as to the assets of said mill, there is no evidence to show that he authorized, sanctioned or approved such use of said statements, or that he could, by the use of ordinary care, have prevented such use.
“(g) Because the evidence fails to show what damage, if any, plaintiff has sustained on account of the use of said statement of December 31, 1909, or the statement on which plaintiff relied as a basis for the credit, alleged as containing misrepresentations as to the value of the assets of said mill.
“(h) Because there is no evidence showing the facts necessary to establish proper measure of damages on which to base recovery by plaintiff herein.”

Appellant Bolton, by his first assignment, makes a similar complaint on the same grounds.

The evidence in support of the findings that the statement of December 31, 1909, which was presented to appellee for the purpose of inducing it to grant the line of credit to the woolen mill, contained ’material misrepresentations of the assets of the mill and that appellee relied upon such misrepresentations and was misled thereby to its damage as alleged in its petition, and that appellee was not negligent in relying upon the truth of said misrepresentations and being misled thereby, and if not uncontradicted, is so overwhelming that no serious question can be raised as to the correctness of such findings.

We also think the evidence is sufficient to charge appellants Cameron and Slayden with notice of the fact .that the statement did contain false representations of the assets of the company and that such statement was prepared and issued for the purpose of obtaining credit for the mill. Both of said appellants had been for many years directors of the mill company and knew that yearly financial statements were issued by the mill, with the approval of the board of directors, and were used for the purpose of obtaining credit. They also knew the method by which the accounts of the mill were kept, and, that it had been the uniform custom in preparing financial statements to include in such statements as assets accounts which had proven uncollectable and which by general commercial custom and usage should not be included in a financial statement as assets. If Cameron did not know that the statement of December 31, 1909, had been presented to and at least tacitly sanctioned by the board of directors, he saw and read the statement, and did nothing to prevent its use for the purpose for which it was issued. This latter statement in regard to Cameron is equally true in regard to the appellant Bolton. Appellant Slayden not only knew that the company, in making up its financial statements, included therein the accounts shown in the “suspended ledger” as assets of the company, but encouraged and assisted such method of preparing the financial statements by opposing the striking from the assets of the company the “suspended ledger” accounts.

If there can be doubt as to the sufficiency of the evidence to charge all of the appellants with notice of the false representations contained in the statement presented to appellee, the evidence sustains the third finding of the jury that all of them failed to exercise such care as men of ordinary care would have done under the circumstances. The evidence, as before stated, shows that the books of the company were erroneously kept, and, in regard to the “suspended ledger” accounts entries on the books showed that many of the accounts were “outlawed,” many against bankrupts and persons out of business, and many against deceased persons, and that all of said accounts were long past due. These books were open at all times for inspection by .the directors. The financial statements, copies of which were furnished to the directors and which were discussed at directors’ meetings held in January of each year, were made from the books of the company, and the directors knew they were so made. From these facts it appears to us that exercise of ordinary care on the part of appellants would have conclusively shown them that the financial statement falsely represented the assets of the company. The evidence that all the appellants knew that financial statements were regularly issued-by the company and were used for the purpose of obtaining credit is undisputed.

The fact that preparation of the financial statement was intrusted by the directors to subordinate employes of the company under the control of the directors cannot relieve them of responsibility for the misrepresentations contained in such statements, nor is their liability in any way affected by the fact that they did not expressly authorize the presentation of such statement to appellee for the purpose of obtaining credit. Tlie statute provides that “the directors shall have general management of the affairs of the corporation.” R. S. art. 1159. The borrowing of money in conducting the business of the company and the means and methods by which the necessary loans could be obtained were certainly affairs of the corporation committed by the statute to the management of the directors, and the evidence in this case shows that the appellants so considered them as they yearly discussed and passed upon the financial statements issued for the purpose of obtaining credit. It goes without saying that the issuance of. such statements under the names of the directors of the company would not he regarded by those to whom they were habitually sent as statements sanctioned and approved only by the subordinate employés who prepared them, and appellants must have known that it could not be so regarded.

It is true that the directors were agents of the corporation, but an agent .is as much responsible as his principal for fraud perpetrated on another in which he participated. We think it clear, upon both principle and authority, that having accepted the position and exercised the duties of directors, and having sanctioned the long-continued method of borrowing money for the company on the faith of yearly financial statements, appellants must be held responsible for the truth of the statements so sanctioned by them. Whatever may be the rule in other jurisdictions, we think it is settled by the decisions of our Supreme Court that directors of a corporation are liable for false statements of the solvency of the corporation negligently made or sanctioned by them for the purpose of inducing others to extend credit to the corporation. Seale v. Baker, 70 Tex. 283, 7 S. W. 742, 8 Am. St. Rep. 592; Giddings v. Baker, 80 Tex. 308, 16 S. W. 33; Baker v. Ashe, 80 Tex. 359, 16 S. W. 36; Kinkier v. Junica, 84 Tex. 116, 19 S. W. 359. In the case first cited the court says:

“The directors of a banking- corporation are personally liable at the suit of an individual depositor for damages sustained by reason of the insolvency of the corporation, when the depositor is induced to place money in the hands of the corporation solely by representations of solvency made to the general public by the directors, who ought to have known, and by the use of ordinary care such as it was-their duty to have exercised might have known, that such representations were false.”

The general rule that mere negligent mismanagement of the business of a corporation by which the corporation and its creditors suffer loss will not render the directors liable to creditors cannot be extended to relieve directors of liability from representations sanctioned by them for the purpose of inducing, and by which another is induced, to loan mpney to the corporation. It seems to us that the distinction between the two cases is obvious.

The first assignment presented in the brief of the appellant Slayden is as follows:

“The court erred in failing and refusing to give in charge to the jury this defendant’s special reguested charge, which reads as follows, to wit: ‘If you believe from the evidence that the stockholders of the Slayden-Kirksey Woolen Mill knew at the time of the election of W. J. Slay-den as a director thereof from year to year from 1902 to 1911, inclusive, that said W. J. Slay-den did not reside at Waco, but at a point, or points, remote from Waco, and that said W. J. Slayden was so situated that he could not personally discharge the duties of a director, and that he would not do so, and you further believe from the evidence that said W. J. Slayden did not attend directors’ or stockholders’ meetings after the year 1902, and that he did not participate, or profess to participate, in the management of said mill by the active directors thereof; and if you further believe that he did not participate in the preparation of the financial statement of said mill for the year 1909, and that he did' not personally authorize the presentation of the same, as a basis for credit, and if you further find that he did not know of the presentation of the same to this plaintiff by S. F. Kirksey, Jr., or authorize or participate in the same, and if you further believe from the evidence that the plaintiff, through its managing-officers, had notice that said Slayden did not live at Waco, and that the same or any other facts known to them, if any, was sufficient to put them, as reasonably prudent men, on inquiry as to the residence of said Slayden, and his non-participation in the active management of said mill—then you will find for the defendant W. J. Slayden on all the issues presented to you for determination by the court in the charge submitted to you herein.’ ”

From what we bave before said it follows that, in our opinion, it is wholly immaterial where appellant Slayden resided. He accepted and continued to exercise the duties and responsibilities of director of the corporation, and knowingly allowed himself to be held out to the public, including appel-lee, as one of the governing officers of the corporation, and the mere fact that appellee knew that he resided in New York would not authorize a finding that it was negligent in relying upon the assumption that he sanctioned the issuance of the financial statement made under his name and with the apparent approval of all of the directors. It is apparent, as contended by appellee, that the jury might have found every fact stated in the charge to be true, and yet said appellant would be liable upon the facts found by the jury, as there would have been no inconsistency in the two findings, and the refusal of the charge could not therefore be held prejudicial to the appellant.

The contention that the court should have instructed a verdict for the appellants because the evidence fails to show what damage was suffered by the appellee cannot be sustained. The appellants did not except, as required by article 1971, to the charge of the court instructing the jury in event they found for the plaintiff to assess the damages in the sum named in the charge, nor did they ask for the submission of any issue as to the amount; of damages, and for these reasons they cannot be heard to complain of the charge given by the court. Moore v. Pierson, 100 Tex. 113, 94 S. W. 1132.

But in no event should the peremptory instruction have been given upon the ground that the proper measure of damages had not been shown. In fraud cases in which by misrepresentation one person has been induced to purchase property from another the general rule for the measure of damage is the difference between the value of the property and the amount paid therefor, and in the case of Baker v. Ashe, 80 Tex. 359, 16 S. W. 36, our Supreme Court applied this rule in a suit brought by a defrauded creditor against the directors of a bankrupt bank to recover damages for the fraud. The facts in that case, however, were entirely different from those in the instant case. In ■ the case cited, the evidence shows that large bodies of unsold land were in. the possession of the receiver of value sufficient to pay a dividend of 26 per cent, in addition to the dividend already received by the creditor, and the court held that in fixing the amount which the creditor was entitled to recover against the directors the amount of the further dividend that would be received from the receiver should be considered. In the present case all' the visible definite assets of the corporation had been sold, and further dividends would be wholly dependent upon the contingent result of litigation and in event the litigation should terminate in favor of the trustee upon the collection of the judgment obtained, and the value of such assets are incapable of definite ascertainment. It would utterly fail to give appellee a just and fair. compensation for the loss sustained by it by reason of the wrong of appellants to require it to accept in part satisfaction of such loss the uncertain and speculative value of the claims asserted by the trustee in suits pending, brought for the bankrupt company, or to require appellee to await the final result of such suits before it can call upon appellants to reimburse it for its loss. We ai'e unwilling to establish such rule as a proper measure of damage in cases of this kind. .

We have carefully considered all of the numerous assignments of error presented in appellants’ briefs, and what we have said, in our opinion, disposes of all of the material questions presented. It would greatly add to the length of this opinion, and would serve no useful purpose to set out and discuss the assignments in detail. If our conclusions before expressed are sound, no harmful error was committed on the trial, and all of the assignments must be overruled.

In reaching the conclusion that the judgment of the court below should be affirmed upon the grounds stated, we do not mean to hold that either of the appellants intentionally defrauded the appellee. Each of them, no doubt, honestly believed that the Woolen Mill Company was solvent, and no one would lose by extending it credit, but this honest belief cannot shield them from liability for sanctioning the issuance of financial statements issued for the purpose of obtaining credit for the company, and which contained misrepresentations whereby appellee was induced to extend the credit and suffer the loss claimed by it. That such result was not intended in the issuaixce of the financial statements is no defense to appellee’s suit. We are of opinion that the judgment should be affirmed; and it. has been so ordered.

Affirmed.
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source: Caselaw Access Project

author: RASBURY, J.

license: Public Domain

text:
    RICHARDS et al. v. HARTLEY et al.
    (No. 7768.)
    (Court of Civil Appeals of Texas. Dallas.
    April 7, 1917.)
    1. Witnesses &wkey;>163 — Statements oe Decedent-Title to Land.
    Testimony of a deceased’s daughter, in a partition suit in which she was a defendant, that deceased stated no one could take away from his wife certain land he had deeded to her, is inadmissible under Vernon’s Sayles’ Ann. Civ. St. 1914, art. 3690, providing that in actions by or against decedent’s heirs neither party may testify regarding decedent’s statements, since such testimony was intended to establish tho land had become the wife’s separate property.
    [Ed. Note. — ’For other eases, see Witnesses, Cent. Dig. § 670.]
    2. Witnesses &wkey;>140(19) — Statements oe Decedent — Disclaimer—Effect.
    Testimony of a deceased’s daughter, in a partition suit in which she was a defendant, which was originally inadmissible under Vernon’s .Sayles’ Ann. Civ. St. 1914, art. 3690', pi’oviding that in actions by or against a decedent’s heirs neither party may testify regarding decedent’s statements, is rendered admissible where she disclaims interest in the property although still entitled to recover costs.
    [Ed. Note. — For other cases, see Witnesses, Cent. Dig. § 618.]
    3. Husband and Wife &wkey;262(l) — Community Property — Presumption.
    Where a husband buys land with community funds and conveys it to his wife, it presumably remains community property as to subsequent purchasers.
    [Ed. Note. — For other cases, see Husband and Wife, Cent. Dig. § 913.]
    4. Husband and Wife <©=^264 — Community Property — Sufficiency -of Evidence.
    Where a husband buys land with community funds, a deed of such land to his wife may be sufficient to indicate his intention to make it his wife’s separate property as between the husband and wife and their heirs.
    [Ed. Note. — For other cases, see Husband and Wife, Cent. Dig. § 916.]
    5. Appeal and Error &wkey;>837(12) — Findings —Evidence Considered.
    In determining whether a finding of fact is supported by the evidence, testimony erroneously excluded cannot be considered, since the trial court might have reached the same conclusion with the evidence admitted.
    [Ed. Note. — For other cases, see Appeal and Error, Cent. Dig. § 3276.] •

      6. Appeal and Error <&wkey;>907(3) — Presumptions — Evidence to Support Findings.
    In absence of a statement of facts, every fact necessary to support a judgment will be presumed, unless the facts found and recited by the judge indicate his judgment is erroneous.
    [Ed. Note. — For other cases, see Appeal and Error, Cent. D;g. § 3673.]
    Appeal from District Court, Freestone County; A. M. Blackman, Judge.
    Partition suit by J. Hartley and others against W. H. Richards and others. From a decree declaring the various interests and appointing commissioners, etc.; the defendants appeal.
    Reversed and remanded.
    Boyd & Bell, of Teague, Wm. Watson, of Centerville, and Jno. A. Newsom, of Buffalo, for appellants.
   RASBURY, J.

The appellees, Jestina, Leroy, and Dalton Hartley, by next friend, J. W. Hartley, sued appellants, Maggie Baker and her husband, John Baker, Mrs. Willie Downs, W. H. Richards, and G. T. Davis, to compel, among other things, a partition of certain lands in Freestone county, alleged to be owned jointly by appellees and appellants. Mrs. Willie Downs adopted the pleading of appel-lees. The appellants Richards and Davis, in substance, answered that they purchased the land sought to be partitioned for a valuable consideration from Mrs. M. L. Dare, grandmother of appellees and mother of Mrs. Baker and Mrs. Downs, who at the time of the conveyance claimed same as her separate estate, and without notice of appellees’ claim thereto. Mrs. Baker, in effect, adopted the pleading of Richards and Davis, but, during a suspension of the trial, disclaimed all interest in the land, and her pleading so stood when judgment was rendered. There was trial before the court, resulting in a decree declaring that the appellees owned jointly an undivided one-sixth interest therein, Mrs. Willie Downs a similar one-sixth interest, and Richards and' Davis jointly a similar four-sixths interest. Obmmissioners were appointed and directed to partition the land under the statutory rule.

. The record does not contain a statement of facts, but the trial judge did file conclusions of fact; those facts found by the court and bearing upon the issues presented in the briefs being these: G. J. Dare and Mrs. M. L. Dare were husband and wife. During the life of both, G. J. Dare purchased, with community funds, thd land sought to be partitioned, taking the title thereto in his wife’s name. G. J. Dare died January 25, 1910. After the death of G. J. Dare, this suit was commenced. Mrs. Dare died during pendency on May 1, 1914. Subsequent to the death of her husband, however, and on January 23, 1913, Mrs. Dare conveyed the land to appellants Richards and Davis for a cash consideration, but not for the purpose of paying community debts. The appellees Jestina, Leroy, and Dalton Hartley are the only children of Lucy Hartley, formerly Dare, daughter of G. J. and M. L. Dare. Willie Downs and Maggie Baker are also daughters of G. J. and M. L. Dare, who with the Hartley children constituted all the heirs when Mrs. Dare died.

The first complaint is directed to the action of the court in excluding certain testimony tendered by appellants. The parties occupying the respective attitudes, and the issues being as ,we have stated, the trial was begun. During its progress, appellants, defendants below, tendered their codefendant, Maggie Baker, as a witness. She testified that she was the daughter of G. J. and M. L. Dare, and that after G. J. Dare purchased the land sought .to be partitioned she had a conversation with him concerning same. The substance of the conversation was that Mrs. Baker suggested to her father that she was convinced that Jim Hartley, his son-in-law, was not his friend, and that in ease Dare died before his wife Hartley would attempt to “beat” her out of all she had. To the suggestion her father replied:

“One thing certain, Jim Hartley, or anybody else, would not be able to beat her out of the land he had deeded to her.”

Upon objection, the testimony was excluded because of the provisions of article 3690, Vernon’s Sayles’ Civ. Stats., familiar to bench and bar, which, among other things, declares in substance that in actions by or against the heirs of a decedent, in which judgment may be rendered for or against them as such, neither party shall be allowed to testify against the others as to any transaction with or statement by such decedent, etc. The testimony was obviously offered for the purpose of showing that G. J. Dare intended the property for the separate use and benefit of his wife, and was as obviously within the inhibition of the statute. Mrs. Baker was a defendant, had adopted the answer of Richards and Davis, which asserted that the land was the separate property of Mrs. Dare, and that they were innocent purchasers for value without notice, and yet had not been called to testify by the appel-lees.

The foregoing proceedings were had April 4, 1916, at .which time the hearing was postponed until April 17, 1916, to enable one of the parties (the record does not disclose which) tp secure testimony not then available. After the postponement and on April 11, 1916, Mrs. Baker, the witness, filed a disclaimer in the case in the manner and form required of any interest in the land. When the hearing was resumed on April 17, 1916, the testimony of the witness, amplified and extended, was again tendered and again excluded for the same reason; the court stating that she remained a party to the suit in which judgment might be rendered against her. While Mrs. Baker, as we have said, was such a party to the suit as prevented her from testifying to any statement by her father concerning his purpose in taking title in his wife to the land sought to be partitioned, yet when she filed her disclaimer the bar of the statute was removed. Markham v. Carothers, 47 Tex. 25; Gilder v. Brenham, 67 Tex. 345, 3 S. W. 309; Oury v. Saunders, 77 Tex. 278, 13 S. W. 1030; Britton v. Tisch-macher, 31 S. W. 241; Mayfield v. Robinson, 22 Tex. Cfiv. App. 385, 55 S. W. 399; Barrett v. Eastham, 28 Tex. Civ. App. 189, 67 S. W. 200. While the learned trial'judge correctly observed that Mrs. Baker, even after disclaiming, remained a party to the suit against whom judgment might be rendered, it was also true that she had voluntarily abandoned all claim to the land in controversy, and, .while by law entitled to recover her costs, she had no actual interest in the result of the suit, which, if anything, would have induced her to seek the advantage that might be presented as the result of the death- of her father. Her disclaimer was an admission of appellees’ right to the land as against her and a denial of any title on her part. Herring v. Swain, 84 Tex. 523, 19 S. W. 774. While judgment would be necessarily rendered- against her for one or the other -of the contestants, she had no such interest in the result as is contemplated by the statutes. Such is the substance of the rule announced in the cases cited. Eor that reason, we conclude the evidence should have been formally admitted and considered by the court.

By appropriate assignment, it is also contended that the judgment is contrary to law and the evidence, since it appears from the evidence that the land was in fact the separate estate of Mrs. M. L. Dare. This contention is sought to be supported first by the court’s finding that the land was bought by Dare with community funds and conveyed to his wife; and, second, by the evidence of Mrs. Baker, which the court excluded. As we have said, there is no statement of facts in the record, and ,we do not know whether the court based his conclusions alone on the recitations in the deed, which is not before us, but on other facts developed at trial in connection with the deed. Even if his action was based alone on the bare facts stated by the court, they are nevertheless sufficient to sustain the judgment, since it is elementary that when land is bought by the husband with community funds, and at his instance the land is conveyed to the wife, the presumption, as to subsequent purchasers, is that it is community property, while as between the husband and wife and their heirs such a deed may, in the absence of other rebutting circumstances and facts, be sufficient to show that it was intended by the husband to thereby make it the separate property of the wife. As relates to the facts which Mrs. Baker .would have testified to, it is certain that we may not consider them in support of the assignment. Those facts are before us only for the purpose of determining their admissibility under the terms of article 3690, supra. Even if the testimony had been admitted, the court may, so far as we may know, have concluded as he did that the property was community, basing his conclusion on other testimony of a conflicting nature; for, in the absence of a statement of facts, every fact necessary to the correctness of the judgment will be presumed, unless it appears that on the facts found and recited by the judge his judgment is erroneous. Kimball et al. v. Houston Oil Co. et al., 100 Tex. 336, 99 S. W. 852. On the facts found by the court and appearing in the record, it cannot be said that his judgment is erroneous.

Because we are of opinion that the testimony of Mrs. Baker was material and admissible, it becomes our duty to reverse the judgment and remand the cause for another trial not inconsistent with the views herein expressed.

Reversed and remanded.
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author: BROOKE, J.

text:
    AMES PORTABLE SILO & LUMBER CO. v. WORRALL et al.
    (No. 131.)
    (Court of Civil Appeals of Texas. Beaumont.
    Oct. 14, 1916.)
    1. Conteacts &wkey;>163 — Construction—Written and Printed Terms.
    Where the printed terms of sale of a contract were left blank, the terms written in ink are conclusive.
    [Ed. Note. — Eor other cases, see Contracts, Cent. Dig. § 745.]
    2. Venue <&wkey;22(l) — Residence oe Defendant — Action Against Several Defendants.
    Where contract for sale of silo provided for payment on completion or that on breach by the purchaser the seller could declare the price due in another county, and the purchaser deposited money in the bank to pay, but the bank assumed no liability as to the forfeiture, the seller on making the buyer, and the bank parties defendant could not against their objection sue in the county provided for in the forfeiture clause, which was not the county of bank’s place of business.
    [Ed. Note. — For other cases, see Venue, Cent. Dig. § 35.]
    Appeal from Jefferson County Court, at Law; D. P. Wheat, Judge.
    Action by the Ames Portable Silo & Lumber Company against E. C. Worrall and another. From an order transferring the cause, plaintiff appeals.
    Affirmed.
    V. A. Collins, of Beaumont, for appellant. George D. Anderson and R. E. Masterson, both of Beaumont, for appellees.
   BROOKE, J.

This action was brought in the county court at law of Jefferson county by the Ames Portable Silo & Lumber Company against E. O. Worrall and the First State Bank of Alta Loma, Tex.; the said bank being in Galveston county, Tex., and the said Worrall residing in Galveston county, Tex. The action was on a contract made between appellant and appellee only on July 15, 1915. The appellee Eirst State Bank oí Alta Loma was not a party to the contract. The contract, by its terms, provided for the sale and construction of a silo by appellant for the appellee Worrall, in Alta Loma, Galveston county, Tex., for which Worrall was to pay to appellant the sum of $380. The contract reads that the “money to be placed in the Eirst State Bank at Alta Loma, Texas,” and, further, “bill of lading to be sent to the First State Bank at Alta Loma, Texas, where settlement shall be made according to the above terms of sale.” Appellant says that Worrall declined to allow appellant to complete the contract by erecting the silo, and refused to allow appellee Eirst State Bank of Alta Loma, Tex., to pay over to defendant the money deposited with said bank. The contract has a provision to the effect that failure of Wor-rall to do certain things within 10 days after the arrival of the shipment of the silo at Alta Loma, that then the whole amount of the purchase price shall, at the option of appellant, become due and payable at Beaumont. Both Worrall and the Eirst State Bank of Alta Loma, Tex., filed their pleas of privilege to be sued in Galveston county, Tex., the county of their residence and domicile. When presented to the court, the pleas were sustained, the cause ordered transferred to Galveston county, to which order appellant excepted, and has perfected its appeal to'this court.

By the provisions of the contract, it will be seen that the part of the same relied upon by appellant to give Jurisdiction in Jefferson county has two conditions: Failure of the purchaser to (1) take up bill of lading, and (2) make settlement as above terms of sale within ten days after arrival of shipment.

As to first condition, the court found as follows:

“I further find that E. O. Worrall, as provided in said contract, placed the money, the sum of $380, in the Eirst State Bank at Alta Loma, Tex., and took Up the bill of lading within 10 days after the arrival of the shipment at Alta Loma, Tex., in accordance with the provisions of said contract.”

The second condition was failure to make •settlement as per above terms of sale within 10 days after arrival of shipment.

By referring to the contract, it will be seen that the provisions therein as to terms of sale were left in blank:

“On the following terms of sale: Cash on arrival of shipment, $-. - note due -, 191 — , with interest at - per cent per annum from-, 191-, for $-.- note due -, 191 — , with interest at - per cent, per annum from -, 191 — , for $-. -note due-, 191 — , with interest at-per eent. per annum from-, 191 — , for $-.”

So, the terms of sale in the printed part of said contract are left blank, and therefore the reasonáble conclusion is that the said blank terms have ño application to the contract in question. The terms of sale that were written in the contract by the parties are as follows: First, money to be placed in the Eirst State Bank at Alta Loma, Tex.; and, second, bill of lading to be sent to the Eirst State Bank at Alta Loma, Tex., where settlement shall be made according to the above terms of sale, and, third, money to be paid when silo is erected complete.

It is conclusive that the terms of sale, as intended by the parties, were written out therein, as above, stated. The question only, then, is to determine whether or not venue as to appellee Worrall may be had in Jefferson county; that is, whether the defendant Worrall failed to comply with the terms of sale provided for in the contract under consideration: If Worrall placed the money in the First State Bank at Alta Loma, Tex., and if he took up the bill of lading within 10 days after the arrival of the shipment, as the court in its finding sets out. If these things be true, then W.orrall complied with the terms of sale provided for in the contract, and the appellant could not, at its option, declare the contract price due and payable at Beaumont, Tex., and such a possibility could only arise if Worrall had not complied with the terms of sale. The appellant, in his brief, on page 2, says:

“Appellee State Bank agreed to do nothing in writing, and appellant is not certain of its right to hold it in Jefferson county over its plea of privilege.”

And, on page 6 of appellant’s brief, he says:

“Appellant’s counsel will not contend for something that he himself does not believe, and therefore waives the second assignment. We do not believe that the court in Jefferson county could try the case against the appellee bank over its plea of privilege.”

The appellee bank is still- a party to the action. There is no dismissal apparent of record as to the said bank. The stipulations in the contract to the effect that the foundation material “all teams, one man, etc., to be furnished by appellee Worrall,”' without question relate to matters of construction of the silo, and has no application to the terms of sale, Appellant has only one assignment of error, which is as follows:

“Where plaintiff’s suit was upon a contract in writing stipulating as follows: ‘Bill of lading to be sent to the Eirst State Bank of Alta Loma, where settlement shall be made according to above terms- of sale. Upon the failure of the undersigned purchaser to take up the bill of lading and make settlement as above terms of sale, within ten days after the arrival of shipment, the whole amount of the purchase price, as above stated, shah at the option of the Ames Portable Silo & Lumber Company, become due and payable at Beaumont, Texas’— and as a part of the above terms of sale, was that defendant was to furnish foundation material for the silo, and to furnish one laborer and to board all laborers, and the undisputed evidence showed that plaintiff had several times tried to construct and complete the said silo, but was prevented from doing so by defendant, plaintiff had the right under the contract to declare the purchase price of the silo due and payable at Beaumont, Tex., to enforce the payment of the purchase price of the silo, and the court committed error in sustaining the plea of privilege of the defendant who signed such contract and in entering its order and judgment, transferring said cause from the county court of Jefferson county, at law, where same had been instituted.”

We deem it unnecessary, in view of what has been said above, that we should further discuss the matter, and will say that in our opinion the assignment has no merit, and is therefore in all things, overruled; and the judgment of the lower court, being correct, is in all things affirmed.
      <S=^For other oases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes


author: . RASBURY, J.

text:
    UNITED STATES FIDELITY & GUARANTY CO. et al. v. TAGGART.
    (No. 7752.)
    (Court of Civil Appeals of Texas. Dallas.
    April 7, 1917.
    Rehearing Denied April 28, 1917.)
    1. Guardian and Ward <&wkey;55 — Custody or Estate — Bank Deposit.
    The rule that a guardian temporarily depositing a ward’s funds in a bank is not liable for loss occasioned by the bank’s failure unless he agreed to leave them there a fixed period is inapplicable, where he intended to leave them there until the ward’s majority, instead of investing them in bonds and mortgages, as required by Vernon’s Sayles’ Ann. Civ. St. 1914, arts. 4140, 4141.
    [Ed. Note. — For other cases, see Guardian and Ward, Cent. Dig. § 254.]
    2. Guardian and Ward <&wkey;175 — Liability on Bond.
    Under Vernon’s Sayles’ Ann. Civ. St. 1914, art. 4099, requiring a guardian’s bond in double the estimated value of the personalty, and article 4150, making guardians liable for principal and interest on funds they negligently fail to invest, the guardian and his surety are liable for funds lost through failure to invest them.
    [Ed. Note. — For other cases, see Guardian and Ward, Cent. Dig. §§ 600-606.]
    Appeal from District Court, Collin County; M. H. Garnett, Judge.
    Action by J. S. Taggart against the United States Fidelity & Guaranty Company and another. Judgment for plaintiff, and defendants appeal.
    Affirmed.
    Hunt, Myer & Teagle, of Houston, and Seay & Seay, of Dallas, for appellants. Wallace Hughstoh, of McKinney, for appellee.
   . RASBURY, J.

Appellee, J. S. Taggart, sued appellants, W. B. Taggart, his former guardian, and the United States Fidelity & Guaranty Company, surety on his bond, to recover a sum of money for which W. B. Taggart was alleged to be liable in his representative capacity. There was trial before the court, resulting in judgment for appellee, from which this appeal is taken. The facts adduced at trial are without dispute, the substance of those essential to a consideration of the issues presented being these: W. B. ■ Taggart was appointed and thereafter qualified as guardian for appellee, the United States Fidelity & Guaranty Company, being surety on his statutory bond. The ward’s estate consisted of policies of insurance upon the life of his father, aggregating $1,000. The insurance policies were deposited by the guardian with the banking firm of R. L. Brown & Co. of Lavon, and, when collected, the proceeds deposited to the credit of W. B. Taggart, guardian, but by agreement of all parties, the guardian, his surety and the bank, checks against the fund issued by the guardian would only be honored when countersigned by his surety. A considerable portion of the fund was paid out in that fashion. After the money had been collected appellant conceived it to be his duty to place it at interest, and planned to get a return oil the money that would be great enough to make up the sums expended in attorney’s fees, court costs, and advances to his ward, so that when the ward attained his majority he would have the original amount of $1,000. So planning, he inquired of R. L. Brown & Co. what interest they would pay on the money if left with them. They declined to pay anything, and the guardian indicated his purpose to withdraw the fund, whereupon R. L. Brown, for the bank, agreed in writing on February 22, 1913, that:

“This confirms our agreement as to the money left on deposit by you as guardian for Sam Taggart and we are to allow 4% on this account from date, payable annually.”

The agreement signed by Brown was the entire arrangement between the guardian and the bank. It was, however, the purpose and intention of the guardian, as he frankly states, to leave the money on deposit until his ward, who was then about 18 years of age, should reach his majority, and for that reason he made no other or further effort to loan the fund. In making the deposit the guardian reserved the right to check from the fund any sum that was necessary and .could be legally expended for the ward. Certain amounts for that purpose were checked out after the agreement with Brown upon the joint check of the guardian and his sure-' ty. R. L. Brown & Co., at the time the guardian made the arrangement for interest and deposited his ward’s funds with them,were generally regarded in the community as solvent and financially responsible. The guardian so regarded them, and was without information to the contrary. Thereafter, on April 14, 1914, the bank failed, and after liquidation was due the guardian the sum sued for, which amount, plus the interest, represents the court's judgment. The guardian could have loaned the money in Lavon, where the bank was situated and appellant, resided, at 8 per cent, per annum interest, secured by mortgage, with power of sale on unincumbered real estate worth double the amount of the loan interest, for the-period of his ward’s minority.

The facts being as stated,' appellants contend that the judgment is erroneous, because the loss of the money was due alone to the failure' of the bank. This contention has its basis in the rule that where a guardian in the exercise of due care, pending investment under direction of court, deposits temporarily the funds of the ward in a bank regarded as solvent, he is not liable for loss of the funds through failure of the bank. But he can only be held liable for a deposit so made when, without an order of the probate court, it appears that the guardian has agreed that the funds shall remain for a fixed period of time, and thereby surrenders the right to withdraw said fund during that time. Murph et al. v. McCullough, 40 Tex. Civ. App. 403, 90 S. W. 69. Appellants argue that the rule last stated has no application, for the reason that there was no agreement with the bank that the money should remain on deposit for a fixed period of time. Such we believe is fairly and legitimately deducible from the evidence, notwithstanding it was clearly the intention and. purpose of the guardian to leave the money on deposit until his ward reached his majority, and he did in fact leave the fund on deposit from February 22, 1913, until April 14, 1914. However, the fact that the bank had no agreement with the guardian that the money should remain on deposit for a fixed period, which the bank could enforce, does not, it seems to us, entitle the guardian to the protection of the first rule, since it is .not only not disputed but affirmed by the guardian that the money was not deposited in the bank temporarily or pending order of court authorizing its investment, but deposited pending the time his ward should arrive at majority.

The facts really disclose a well-meant, but misguided and wholly unauthorized, use of the ward’s funds, such as warranted the judgment rendered. By article 4140, Vernon’s Sayles’ Civ. Stats., it is made the duty of the guardian, under direction of the court, to invest all money, beyond what may be necessary for the education and maintenance of the ward, in bonds of the United States, the state of Texas, or any county of any district, or subdivision of any county, of any incorporated city or town, or loan the same for the highest rate of interest that can be obtained therefor. By article 4141, Vernon’s Sayles’ Civ. Stats., when the ward’s money is loaned as directed in article 4140, the guardian is required to take the note of the borrower, secured by mortgage with power of sale on unincumbered real estate, situated in the state, worth at least twice the amount of such note, etc. The guardian in this case did none of the things required of him by the statutes, though it is shown by the evidence that he could have loaned the money in the manner required at Lavon, where he deposited same with the bank.

By article 4099, Vernon’s Sayles’ Civ. Stats., the guardian’s bond is required to be fixed in amount equal to double the estimated value of the personal property belonging to the estate, plus a reasonable amount to cover rents, revenues, and income from the real estate, conditioned that the guardian will .faithfully discharge the duties of guardian of the estate of such ward according to law. The bond given by appellant in this proceeding was in compliance with the statutory provisions. Such bond, of course, comprehends the safeguarding of the corpus of the estate, and upon a failure of the.guardian to do as much, he and his surety will be liable therefor as in devastavit by neglect, while by article 4150, he is liable for interest when the' corpus is money. It was, we apprehend, to avoid and protect against such misfortunes as appellant fell into in the use of his ward’s estate that the statutory provisions directing the precise manner in which the ward’s funds should be invested and the security therefor taken were enacted; and, while it clearly appears that appellant acted in utmost good faith, he is nevertheless bound, as the trial court found on the grounds we have stated..

While we prefer to place appellant’s liability on the grounds we have, it nevertheless seems, as argued by appellee’s counsel, that appellant and his surety are unconditionally liable for the loss to the estate due to the failure of the bank, because of the act of the ghardian in placing joint control of the ward’s money with his surety, since fiduciaries who enter into an arrangement by which they surrender or limit their control of the trust fund become guarantors thereof, irrespective of their motives or whether their action was the cause of the loss. The doctrine is announced by the text-writers and .supported by many cases. 1 Lewin on Trust, 417; Perry on Trusts (5th Ed.) § 443; Fidelity & Deposit Co. v. Butler, 130 Ga. 225, 60 S. E. 851, 16 L. R. A. (N. S.) 994; Barney v. Saunders, 16 How. 535, 14 L. Ed. 1047; Me-Collister v. Bishop, 78 Minn. 228, 80 N. W. 1188; Wood's Estate, etc., v. Surety Co., 159 Cal. 466, 114 Pac. 992, 36 D. R. A. 252; Ann. Cas. 1915C, 50. ’

The judgment is affirmed.
      ,g3S>For other-cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes


author: RAINER, C. J.

text:
    SHEPPARD et al. v. EVANS.
    (No. 7793.)
    (Court of Civil Appeals of Texas. Dallas.
    April 7, 1917.)
    Appeal and Error <&wkey;773(2) — Briefs—Failure to Comply with Rules.
    Where plaintiffs in error presented no excuse for not filing briefs within time required by statute, not giving defendant in error time to file briefs, under Rule 39 Court of Civil Appeals (142 S. W. xiii), providing for dismissal for failure to comply with rules relating to fifing of briefs, cause will be dismissed.
    [Ed. Note. — For other cases, see Appeal and Error, Cent. Dig. §§ 3104, 3108.]

      Error from District Court, Kaufman County; E. L. Hawkins, Judge.
    Action by W. D. Evans against Mary Sheppard and others. Judgment 'for plaintiff, and defendants' bring error.
    Cause dismissed.

      Boss Huffmaster, of Kaufman, for plain-’ tiffs in error. Wynne & Wynne, of Kaufman, for defendant in error.
   RAINER, C. J.

This is a writ of error from a judgment. rendered by the district court of Kaufman county at the March term, 1916. A petition for writ of error was filed June 6, 1916. A transcript-of the record was filed in this court September 20, 1916, .but no briefs were filed by plaintiffs in error until March 27, 1917. The defendant in error, on March 29, 1917, filed a motion to strike out said brief of plaintiffs in error. The cause was set down for submission and duly submitted on March 31, 1917, and with it a motion of 'defendant in error to strike out briefs of plaintiffs in error, and that the cause be dismissed. The motion to strike out shows that no agreement was made as to time for filing briefs; that no copy of briefs was served on defendant in error or his attorney, but a copy was mailed in Kaufman on the 28th of March, 1917, and received by the said attorney on the 29th of March, 1917; and that time for reply thereto was not sufficient.

There is no excuse presented by plaintiffs in error for not filing briefs earlier, as required by the statutes. There was not sufficient time for' defendant in error to prepare and file briefs, and under rule 39 (142 S. W. xiii) Court of Civil Appeals, we are of the opinion the cause must be dismissed for want of prosecution, and it is so ordered. Alderete v. Mosley, 189 S. W. 1083; Hensley v. Pena, 190 S. W. 247.
      tg^pFor other cases see same to'pie ana KEY-NUMBER in all Key-Numbered Digests and Indexes