There are two lines of authorities applicable to the facts of this case. One was followed by Judge German, of the Commission of Appeals, in 89 S.W.2d 385, and the other by Associate Justice Critz, in the opinion now before me for consideration. As to which rule is the sound one, has provoked much discussion by writers, and given rise to differences of opinion between judges. Harvard Law Review, Vol. 40, p. 1077; Yale Law Review, Vol. 35, p. 854; Annotations 57 A. L. R., p. 925; See also authorities cited by Judge German, 89 S.W.2d 385. Personally, I am of the opinion that the rule followed by Judge German is the sound one. Indeed, I agree with the text of Michie on Banks and Banking, wherein the writer states:
"It is held that a bank must ascertain at its peril whether the president, district manager, secretary, treasurer or any other officer or agent of a corporation has authority to indorse a check drawn to the order of the corporation, and bysuch indorsement transfer the money to his personal account. If the officer or agent has no such authority the corporation's title to the proceeds of the check do (es) not pass to the bank when it collects the amount, but it becomes liable to account and make payment to the corporation, unless the latter is negligent or is otherwise precluded by its conduct from setting up such lack of authority." (Italics mine.) Vol. 5, Chap. 9, sec. 74b.
The text quoted is supported by many authorities, and if the question were one of first impression in this Court, I would be of the opinion that the petition before us states a cause of action. But, as I view the Texas cases, the question is in effect foreclosed by the opinions of this Court and those of the Courts of Civil Appeals following them. Interstate National Bank v. Claxton, 97 Tex. 569, 80 S.W. 604, 65 L. R. A., 820, 104 Am. St. Rep., 885; U.S. Fidelity Guaranty Co. v. Adoue Lobit, 104 Tex. 379; 137 S.W. 648; 138 S.W. 383, 37 L. R. A. (N. S.) 409; Coleman v. First National Bank, 94 Tex. 605,63 S.W. 867, 86 Am. St. Rep., 871; Silisbee State Bank v. French Market Grocery Co., 103 Tex. 629, 132 S.W. 465, 34 L. R. A. (N. S.) 1207; Wheeler Motor Sales Co. v. Guerguin,16 S.W.2d 309; Pierce Petroleum Corp. v. Guaranty Bond State Bank, 22 S.W.2d 521.
This is a concurring opinion only, and it seems unnecessary to discuss at length the authorities cited. In the case of *Page 425 Wheeler Motor Sales Co. v. Guerguin, 16 S.W.2d 309, the application for writ of error was made primarily on the ground of conflict with the opinions of this Court in Commonwealth Bank v. Jones, 18 Tex. 611, and U.S. Fidelity Guaranty Co. v. Adoue Lobit, 104 Tex. 379. The application was dismissed by this Court for want of jurisdiction. This was tantamount, under the facts of the case, to an adjudication that there was no conflict. In the Adoue Lobit case, this Court, in the opinion on the motion for rehearing by Associate Justice Ramsey, quoted with approval an extract from the opinion of Judge Williams in Interstate National Bank v. Claxton,97 Tex. 569, in which the English rule, followed by Associate Justice Critz in his opinion in the instant case, was approved. It is, I think, plain that, had we thought that Chief Justice Fly's opinion in the Wheeler Motor Sales Company case was in conflict, we would have granted the application for the writ, instead of dismissing it, as we were compelled to do under the law since there was no conflict.
3 I do not mean to say that the opinions of this Court cited above relate to cases precisely similar on their facts to the instant case. What I do mean to say is, that these opinions have approved the rule governing the relationship between banks and depositors, and trust fund or fiduciary deposits, followed by Associate Justice Critz in the instant case, under circumstances which do not permit us to ignore that approval on the ground of dicta. In other words, we are here called upon to either overrule, in part, these previous decisions, or adhere to their approval of the English rule. The statutes have been codified twice, and many sessions of the Legislature have been held since the adoption of the English rule in Bank v. Claxton. If the Legislature was not satisfied with the adoption of the rule in the Claxton and other cases, then, certainly, it could and would have modified it.
In referring to the English rule adopted by this Court in the Claxton Case, I am, of course, referring to the rule named in that case, and which I assume was then the prevailing rule in England, and not as modified by subsequent decisions. The rule as this Court then understood it has since been modified, until it is in harmony with the conclusion reached by Judge German in the instant case. Underwood, Limited, v. Bank of Liverpool, L. R. (1924), 1 K. B., p. 775. In this case, Underwood, an official of Underwood, Limited, took checks payable *Page 426 to the latter, a corporation; and, after properly endorsing them, had the bank place them to his private account, as in the case before us. The Court of King's Bench held the bank liable, saying in part:
"But in the present case A. L. Underwood in asking the bank to collect and pay the proceeds into his private account was not purporting in this transaction to act as agent for his company, or to create privity between them and the bank, he was acting and purporting to act for himself as principal. * * * It is not disputed that the defendant bank acted in good faith, but it is said, and the judge has found, that they acted negligently, because they received for collection on behalf of a servant of a company, for his personal account, cheques made payable to the company. The test of the standard of duty in such cases is stated by Lord Dunedin in Commissioners of Taxation v. English, etc., Bank (L. R. 1920, A. C. 683) to be 'the ordinary practice of bankers.' On this the learned judge had the evidence of Mr. Bromley Martin, who was the London manager of the defendant bank, and who appears to have given his evidence with great frankness and fairness. He admitted that in all ordinary cases where an official of a company was paying cheques made payable to the company in to his private account, the bank would make inquiries and consult the employer, but he said that where the official was a sole director of a one-man company, and himself the one man, it would not be necessary, partly, I think, because he treated such a director as the same as his company, partly because he thought that inquiry of such an employer would give no good result, for it would be answered by the official whose conduct was inquired into. I cannot take this view; the defendant bank did not know there were no independent shareholders, and there was in fact an independent debenture holder whose interests would be affected; and inquiries of Mr. Underwood himself, as to whether the company had its own banking account, might easily have had considerable effect. If banks for fear of offending their customers will not make inquiries into unusual circumstances, they must take with the benefit of not annoying their customer the risk of liability because they do not inquire. I agree with Roche J.'s view that the bank were guilty of negligence, and I refer to the similar view taken in similar circumstances by Kennedy J. in Hannan's Lake View Central, Ld., v. Armstrong Co. and by Bailhache J. in Ross v. London County Westminster and Parr's Bank" (L. R. 1919, 1 K. B., 678.) *Page 427
The Canadian courts have also apparently followed the rule adopted in Judge German's opinion. In the case of Toronto Club v. Dominion Bank, 25 Ontario Rpts., 330, the secretary of an incorporated club received from members of the club, in payment of their dues, certain checks, payable to the order of the club. Under the rules of the club, the secretary had general authority to receive the checks and endorse them in its name. As to a portion of the checks received by the secretary, he properly endorsed and cashed them. As to the cash thus received, the Court of Appeals of Ontario held that the bank was not liable to the club for the conversion of the checks. A large number of other checks were properly endorsed by the secretary, and deposited to his personal account by the bank. He afterwards drew private checks against this personal deposit. As to the latter, the court held that the bank was, under the circumstances, negligent in receiving these checks, which were plainly the property of the club, and placing the proceeds to the personal credit of the secretary, and that the bank was, therefore, a party or privy to the secretary's breach of the trust, and accountable to the club for the amount of the checks so received and deposited to the secretary's personal credit. Concerning this matter, the court in part said:
"It is one thing to cash a cheque over the counter to an official who has power to indorse and to receive the proceeds for his employer, and quite another to receive it and apply it not for the employer's but for the official's use. There might reasonably, in the former case, be a presumption that the official will deal honestly with the proceeds, but in the latter, where he in effect puts the money into his own pocket, the presumption would be all the other way.
"The result is, to make the defendant, the Imperial Trusts Company, a party or privy to Harbottle's breach of trust, and therefore accountable to the plaintiff in respect of the cheques so received by it."
It is obvious, I think, from the above cases from which I have quoted, that the English rule has not proven satisfactory under modern conditions, and that it has been modified by the English and Canadian courts. Nor has it proven satisfactory in all jurisdictions of the United States, as the authorities disclose; but there is no doubt it is supported by a majority of the American courts which have written on the subject.
On the whole, however, regardless of the weight of authority, I am of the opinion that this Court is committed to the rule as announced by Associate Justice Critz; and, although I *Page 428 think the rule followed by Judge German the better one, as applicable to modern conditions, I feel impelled to withhold my dissent, and, therefore, to concur with Associate Justice Critz under the rule of stare decisis. 11 Texas Jurisprudence, p. 838, secs. 96 and 97, and cases cited in the notes.
Opinion delivered April 8, 1936.
Rehearing overruled June 3, 1936.