Connally v. W. H. Lyons & Co. , 82 Tex. 664 ( 1891 )

Appellant's first, second, and eighth assignments of error raise the question of parties as presented by his exceptions to the petition, but only on the ground that the persons who were claimed to be necessary parties were such as beneficiaries in a trust, and not as partners. If Connally Co. were a partnership, all of the partners would be necessary parties to an action of debt for the price of the goods. "It is not necessary to consider whether they would be in a suit for the value of the goods, if the possession thereof was obtained by the fraudulent representations of the defendant, because the court arrived at no conclusion that the goods were fraudulently obtained. But if Connally Co. was a trust estate managed by the defendant as trustee, it is clear that the beneficiaries of the trust would not be necessary parties to a suit for a debt incurred in the management of the trust, if the trustee should be personally liable therefor; and this question will be considered under another assignment raising that question.

Mere participation in profits does not constitute partnership, although there should be a contract from which they were derived. Buzard v. Bank, 67 Tex. 89. There was no contract of partnership in this case. The defendant Nathan Connally acted as trustee under an appointment from the court, and had the entire control and sole management of the business. There was no right of control whatever reserved in the instrument executed by M.A.T. Connally to her father C.P. Connally, as trustee, either for herself or for the beneficiaries as such. A test of partnership is the right of control over the property or profits, or to make disposition thereof. 1 Bates on Part., sec. 37. There was no right whatever in the brothers of the grantor, who were beneficiaries therein, either to control or withdraw their several interests. From the terms of the instrument the business was to be conducted until the youngest was 25 years or age, or, if he died before that time, to such a time as he would have been 25 if he had lived. We must also infer that at least some of the beneficiaries were minors, and it will not be contended that they could be partners, although the instrument might indicate a partnership. The finding of the court is further strengthened by the fact that there is no statement of facts brought up with the record, and there may have been proof of other facts to sustain his conclusion that Nathan Connally was the trustee of a trust estate. We think, however, that a proper construction of the instrument alone would lead to the same conclusion. There was no evidence to make the beneficiaries partners by holding out, but such a partner would not be a necessary party.

Appellant's ninth and tenth assignments of error are as follows:

"The court erred in its conclusions of fact and law in finding that the estate of Connally Co. was a trust estate and Nathan Connally was trustee of same, and finding further that goods, wares, and merchandise mentioned in plaintiff's petition were sold and delivered to Connally Co. by plaintiffs, and then rendering judgment against defendant Nathan Connally for the debt here sued on.

"The court erred in its finding of law that defendant Nathan Connally would be liable for said debt personally, because he failed to make a contract with plaintiff exempting him from said liabilities."

As we are of the opinion that a trust estate was created by the instrument of conveyance from M.A.T. Connally to her father C.P. Connally, it remains only to consider under the above assignments whether or not the trustee (the defendant) was personally liable for the goods purchased by him for the trust estate from plaintiffs.

Trustees of a corporate body with defined powers are not personally liable, and such has been the recognized rule in this State from the early decisions. Traynham v. Jackson,15 Tex. 170; Dyer v. Sullivan, 18 Tex. 771 [18 Tex. 771]; Gonzales College v. McHugh, 39 Tex. 348 [39 Tex. 348]; Snyder v. Wiley Porter, 59 Tex. 449 [59 Tex. 449]. But whether or not the trustee of a voluntary association, or a trust estate, is personally liable has not been before our Supreme Court in any case that we can find. That such trustees should be held personally liable is reasonable, because they have in their own hands the means wherewith to reimburse themselves, and should not assume a debt for the benefit of an estate of which they have the sole management and control without prospect of funds for payment thereof. If this principle needed to be enforced by way of illustration, it may be done by the fact that the defendant a few days before the attachment withdrew from the bank the deposit of Connally Co., amounting to over $4000 in cash. In Hill on Trustees, *533, the doctrine is broadly stated, that "a trustee who carries on any trade with the trust assets for the benefit of the cestui que trusts will be responsible to the creditors, not only to the extent of the trust assets, but also with the whole of his own property, and he may be made bankrupt and proceeded against in the same manner as any other trader. And it is immaterial that the trade is carried on by him in consequence of an express direction in the trust instrument; although the trust property will doubtless be primarily liable to the creditors, and will be first applied so far as it will go in discharge of the liabilities." Purchases by trustees when made in obedience to the trust impose upon them a personal liability; the seller must look to them for payment, and they must look to the trust estate for reimbursement. Taylor v. Mayo, 110 U.S. 330; Hewitt v. Phelps,105 U.S. 400; Sanford v. Howard, 29 Ala. 684; New v. Nicoll,73 N.Y. 127. This doctrine is also recognized in Mason v. Pomeroy (Mass.), 24 Northeastern Reporter, 202, and Odd Fellows Hall Association v. McAllister (Mass.), 26 Northeastern Reporter, 862. The Alabama case was where a guardian was held liable. It is also reported in 68 American Decisions, 101, which see for note as to executors and administrators. Our statute of frauds (Rev. Stats., art. 2484) has no application to the facts, of this case, and does not attract the rule that would hold the trustee personally liable. Although the plaintiffs knew that the defendant was conducting the mercantile business of which he had the control and management as trustee for the benefit of the persons mentioned in the conveyance from M.A.T. Connally to her father C.P. Connally, and charged the goods, when sold, to Connally Co., the defendant was nevertheless personally liable to the plaintiffs for the price of the goods, and it was not necessary first to establish the account as a debt against the trust estate. This rule is not only in accordance with the authorities, but is a salutary rule in the interest of common justice. Since the trustee was personally liable, it was not necessary that the beneficiaries should be made parties to the suit.

The account sued on was not barred by limitation when plaintiffs' first ended original petition was filed, so it is unnecessary to inquire whether or not the amended petition set up a new cause of action. It appears from the petition that the account was not due for a time after the date of the items, from which two years would extend past the filing of the amended petition; so the demurrer setting up limitation was properly overruled by the court.

We conclude that there was no error in the judgment of the court below, and that the same should be affirmed.

Affirmed.

Adopted December 22, 1891.

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