McCord v. W.A. Nabours

For the purposes of this opinion the following statement of the case and of the facts will suffice.

Crawford Crawford and the Milam County Bank made a general assignment of their property for the benefit of their creditors, appointing. T.S. Henderson and A.P. McCord assignees, who qualified according to law and took charge of the property. After a partial administration of the estate, a committee of the creditors, acting with the assignees, made a schedule of all the property remaining undisposed of and placed upon each item of property a price at which the assignees were authorized to sell it. Negotiations were begun between Lawrence and the assignees for the purchase of the remainder of the property by Lawrence, who was one of the creditors and one of the committee. Lawrence did not wish to buy the property in controversy because he did not believe he could sell it for the price put upon it by the committee and at which he was to make the purchase. McCord, through Ralston, who was the attorney of Lawrence, made the proposition to Lawrence that, if he would buy the property and desired to sell it, McCord would guarantee that he would find a purchaser for it at the price, $10,500, and Lawrence be credited with that sum. Lawrence purchased and the property was conveyed to him by the assignees. T.S. Henderson did not know of the guaranty made by McCord to Lawrence at the time nor until after the institution of this suit. Soon after the transaction Lawrence called upon Ralston to produce the guaranteed purchaser, whereupon McCord purchased the property from Lawrence, taking a conveyance of it to himself. The sum paid by Lawrence for the property was distributed among the creditors of the assigned estate. It is alleged in the petition that the creditors did not know of the terms of the sale to Lawrence nor of McCord's guaranty to Lawrence upon which the sale was made. Lawrence would not have bought the property without the guaranty. Some years after the transaction occurred W.A. Nabours and a large number of the creditors of the assigned estate brought this action for the purpose of setting aside the transaction had with Lawrence and removing the assignees, Henderson and McCord, and appointing a receiver in order that the estate might be administered under the deed of assignment and the proceeds distributed. The suit was dismissed as to T.S. Henderson. The petition prayed for the recovery of the specific property or its value, except in one instance, in which it was alleged that the tract of land had been sold by Lawrence to an innocent purchaser, and in that instance it was prayed that they might recover the value of the land. There is a general prayer for such relief as the parties might be entitled to in law and in equity.

At the trial the jury found a verdict in favor of the defendants and judgment was entered accordingly. This is the third time the case has been before this court.

The plaintiffs in error assign that the Court of Civil Appeals erred in entering judgment in this case in favor of the plaintiffs below because there was no sufficient pleading to justify a judgment based upon the guaranty given by McCord to Lawrence. The petition of the plaintiffs contained the following allegations:

"Plaintiffs now represent and charge the fact to be that said defendant McCord, as assignee aforesaid, enabled so to do by the negligent co-operation, inattention and dereliction of his co-assignee Henderson, fraudulently and corruptly converted to his own use and benefit all of the aforesaid properties described in paragraph 9 hereof, in that: On heretofore, to wit, May 5, 1897, the said assignees, by the contrivance of defendant McCord, made a pretended sale of all of the assets of said assigned estate, purporting to include, among other things not necessary now to be specifically mentioned, the property described in paragraph 9 hereof, to one C.W. Lawrence, with a previous agreement and understanding, both covert, express, tacit and implied by and between the said McCord and the said Lawrence, that the said Lawrence was only to retain and pay for the assets not described in paragraph 9 hereof, it being understood and agreed as aforesaid that after such ostensible, pretended, colorable and fraudulent conveyance of all the properties to the said C.W. Lawrence, he, the said Lawrence, should convey to the said McCord said properties described in paragraph 9 hereof at prices and upon the terms previously agreed upon by and between the said McCord and the said Lawrence."

These allegations set up sufficiently a cause of action against McCord on account of his having fraudulently, as assignee of Crawford Crawford and the Milam County Bank, acquired the property described in the petition. The allegations being sufficient on general demurrer and the evidence not objected to, the judgment will be sustained. Pyron v. Butler, 27 Tex. 270. The sufficiency of the petition to admit the evidence, if objected to, is not before the court.

The plaintiffs in error urge with much zeal and ability that this court committed error in its former decision upon certified question, 100 Tex. 456, wherein it was held, substantially, that the fact that McCord gave a guaranty to furnish a purchaser for the property from Lawrence placed McCord in antagonism to the estate which he represented and to the creditors of the estate, which rendered the transaction voidable at the instance of the creditors. We have examined the matter again, with care, and we see no cause to change our opinion. A more thorough knowledge of the facts of this case assures us of the necessity for and wisdom of the rule which the courts have established that the good faith and honest purposes of the assignee or trustee who, without the consent of the beneficiaries, becomes the purchaser of property confided to his care, constitutes no defense to an assertion by the beneficiary of the voidability of the title thus acquired. The difficulty of ascertaining the real truth as to the intention of the trustee who thus possesses himself of the property committed to his care is so manifest that we think the rule established by the courts to exclude all inquiry into that matter is plainly necessary to guard against the abuse of such authority. No doubt there are hardships as the decided cases show, but the interest of the public is of greater importance than the hardship which may fall upon the few who may in good faith unlawfully acquire property committed to them as trustees. There is absolute security to the agent or trustee in total abstinence from any acts by which his interest might become adverse to that of his principal. There is no such security to the beneficiary in any other rule for the government of trustees.

The plaintiffs in error assign that the Court of Civil Appeals erred in its judgment that the defendants in error recover the property specified in their petition because they say that the right to recover the note due from the Oil Mill Company to the Milam County Bank, which it is alleged that McCord misappropriated to his own use, was not embraced in the first petition and that more than two years elapsed before the filing of the amended petition in which this note was first set up. The disposition made of that note was shown in the report of the assignees and if the claim for the misappropriation of it was not embraced in the original petition, the action to recover that sum was barred within one year from July 3, 1900. (Art. 86, Rev. Stats.)

The plaintiffs in error contend that the Court of Civil Appeals prescribed an improper rule for the measure of damages to be applied by the District Court in the trial of this case. It is claimed on the part of the plaintiffs in error that the value of the property at the time McCord misappropriated it, with interest until the judgment shall be rendered, is the measure by which the damages should be assessed. We think that this question is clearly settled by the following decisions of this court: Boothe v. Fiest, 80 Tex. 141; Mixon v. Miles, 92 Tex. 318 [92 Tex. 318]. In the case first cited this court held, "that where the beneficiary sues for compensation and not for the proceeds of the sale with interest, the measure of his recovery would be the value of the land at the time of the trial and we think such a proper rule in this case." The instruction of the Court of Civil Appeals to the District Court conforms to that decision. It is objected to the instruction given in connection with the measure of damages that the Court of Civil Appeals directs the trial court to assess the value of the land at the time of the trial and to give interest on the sum so assessed from the date when the property was misappropriated by McCord. If this were a proper construction of the opinion, we would hold it to be erroneous, but we are of opinion that the language of the court means nothing more than that when the judgment is entered for the value at the time of the trial that judgment shall bear interest which would be just the effect the law would give it if the court had not mentioned the question of interest.

It is likewise contended with much earnestness that the plaintiffs in this case can recover only the amount of their debts and that the recovery of the whole amount by the plaintiff would be unauthorized, as their debts are less than the value of the property. Where the creditors of an assigned estate, as in this case, stand upon an equal footing and a portion of them sue to recover the assets which have been misappropriated by the assignees and to enforce the deed of assignment, then the rule is that such plaintiffs thus named in the petition who sue for their own benefit and for the benefit of those who may join them are entitled to recover the whole estate, in order that it may be taken in charge by the court and administered and distributed among all of the creditors according to their several rights. In this case the petition expressly seeks to have the court appoint other assignees or a receiver and that the court administer the property when recovered and make proper distribution of it. The following authorities sustain the conclusion that we have reached: 5 Ency. Pl. Pr., 535; Pomeroy's Eq. Jurisprudence, sec. 894; Iauch v. de Socarras, 56 N.J. Eq. 527; Barton v. Bryant, 2 Ind. (Carter), 194; Egberts v. Wood, 3 Page's Chancery, 521; Petree v. Lansing, 66 Barb., 357.

Henderson was sued originally with McCord but was subsequently dismissed from the case. It is claimed by the plaintiffs in error that the court's instruction to remove the assignees, Henderson and McCord, can not be executed for the reason that Henderson is not a party to the suit. It distinctly appears from the record that Henderson and McCord made their final report and it was recorded in the office of the county clerk of Milam County on July 3, 1900, in compliance with this article of the Revised Statutes:

"Art. 86. Whenever any assignee shall have fully performed the duties of his trust and desires to be finally discharged therefrom, he may make a report of his proceedings under the assignment, showing the moneys and assets that have come into his hands, and how the same have been disbursed and disposed of, the truth of which shall be verified by his affidavit, and such report shall thereupon be filed and recorded in the office of the county clerk of the county in which the assignment is recorded, and no action shall be brought against such assignee by reason of anything done by him under the assignment as shown by his report, unless the same be brought within twelve months from the time of the filing thereof, as aforesaid; and any moneys or funds on hand shall be deposited in the District Court, subject to be paid out upon the decree of said court."

There were no funds in their hands to be deposited with the clerk of the District Court, therefore, Henderson and McCord ceased to be assignees on the 3d day of July, 1900. The statute provides: "Whenever any assignee shall have fully performed the duties of his trust and desires to be finally discharged therefrom," etc., and having done what the statute prescribes, the discharge followed without other action, therefore, there are no assignees to be removed. The District Court has authority to appoint a receiver or assignee and continue the administration of the assignment until the property shall be sold and the proceeds distributed according to the rights of the creditors. The District Court will have full power to take any steps necessary without particular instructions in that respect.

For the property sued for Lawrence paid $10,500 which went into the hands of the assignees and was by them paid upon all of the debts of the assigned estate. This suit is brought for the benefit of all the creditors of the estate and the recovery which may be had will be a fund under the control of the court for the benefit of all the creditors, therefore, McCord will be entitled to a credit for the full amount, $10,500, paid for this property and distributed to the creditors.

It is claimed that there are no allegations which would charge McCord with dividends paid after filing of the amended petition. We do not so understand the allegations, they seem to us to be amply sufficient to embrace all the dividends paid either before or after the filing of the amendment which made the Milam County Oil Company a party to the suit. The prayer for general relief would embrace all that the facts showed plaintiffs to be entitled to recover. It is also claimed that the oil company should not be held liable for the payment of dividends after it was made a party to the suit, but counsel have furnished no authority for such a proposition and give only the reason that it was not wrong for the Oil Mill Company to so pay out the dividends. The law is that one who holds property as a bailee upon receiving notice that the title to the property is in dispute may for his security interplead the parties and have their rights determined and if he fails to do so he will act at his peril. In this case the plaintiffs made the Oil Mill Company a party to the suit in which the stock was in litigation and this was a demand and notice that the dividends were claimed by the plaintiffs, besides, the petition sought to have the Mill Company enjoined from paying over the dividends, but it does not appear that any injunction was issued and served. We think that there can be no doubt that the Oil Mill Company was properly chargeable with the dividends which it paid out after it was made a party to the suit. (Van Allen v. American Natl. Bank, 52 N.Y. 1.)

By the transaction with Lawrence, McCord did not forfeit his right to compensation for services rendered as assignee. If the plaintiffs in the case had shown what proportion of the charge was for the sale made to Lawrence by which McCord acquired the title to the property, then we are of the opinion that he could not receive compensation for making that transaction, but there is no pleading which undertakes to specify any particular amount as being compensation for that transaction. Under the pleadings and evidence the plaintiffs are not entitled to recover the $3,000 compensation retained by Lawrence.

If prior to the commencement of this suit McCord made valuable and permanent improvements upon the land sued for which enhanced its value, then he is entitled to have the enhanced value, caused by such improvements, offset against the claim of the plaintiffs for rent of the land.

The amended petition alleges that McCord collected dividends on the Milam County Oil Company's stock before the institution of the suit and after its institution and before the filing of the amendment. If the plaintiffs did not claim in their original petition to recover the dividends paid to McCord before the institution of that suit, the claim for all such dividends as were paid more than four years prior to the filing of the amended petition would be barred by the statute of limitations. The cause of action in this case is the fraudulent and unlawful acquisition of the oil mill stock by McCord, and the right to recover the dividends depends upon the recovery of the mill stock itself. The action brought was to set aside the transaction by which McCord acquired the stock and to restore it to the estate for which he was assignee. If the jurisdiction of law and equity were separate in this State, this action would be properly cognizable in a court of equity and not in a court of law, therefore, the action to recover the dividends would be necessarily prosecuted in the same court and would not be included in the terms of article 3354, which prescribes two years limitation for the actions therein named. (Smith v. Fly, 24 Tex. 345.) The period of limitation applicable to this class of cases is prescribed by the following article of the Revised Statutes: "Art. 3358. Every action other than for the recovery of real estate, for which no limitation is otherwise prescribed, shall be brought within four years, next after the right to bring the same shall have accrued, and not afterward." So far as it relates to the recovery of the mill stock in this case and the dividends, this is not an action for real estate, and, being an equitable action, no other period of limitation is applicable to it, therefore, the four years period must be applied.

When the Milam County Mill Company was made a party to this suit it thereby had notice that the dividends and stock were claimed by the plaintiffs. The petition alleged the facts necessary to give the mill company notice and prayed for an injunction to restrain it from paying dividends to McCord upon the stock, but it does not appear that any such injunction was served. If the mill company after being made a party to the suit unlawfully paid dividends to McCord, both McCord and the mill company would be liable for such dividends.

Counsel for the plaintiffs in error insist that this cause should be remanded without instruction so as to permit McCord to show that his act had been ratified by the plaintiffs in the suit. No plea of estoppel has been filed nor do the facts stated show that an estoppel could be established, neither is the evidence which is relied upon by plaintiffs in error sufficiently pointed out to justify this court in opening the case for the introduction of that issue.

It is ordered that the judgment of the Court of Civil Appeals reversing and remanding this case be affirmed, and that this case be remanded to the District Court of Milam County to be tried in accordance with the opinion of the Court of Civil Appeals as modified by this opinion. It is further ordered that the defendants in error recover of the plaintiffs in error the costs of the Court of Civil Appeals and that the plaintiffs in error recover of the defendants in error the costs of this court.

ON MOTION FOR REHEARING. In the motion for rehearing it is stated that Henderson owned one-half of eight notes for $1,148.75 each and that the assigned estate of the Crawfords and the bank owned the other half of said notes which notes held a vendor's lien on 510 acres of land known as the Preston Steel land. The lien of the eight notes was subordinate to a prior lien which, in the motion, is said to have been large but the amount of it is not named. By the transaction with Lawrence, McCord acquired the half interest in the eight notes which belonged to the assigned estate. McCord and Henderson took a conveyance of the land to themselves in settlement of the eight notes before described subject to the prior lien. Under this state of facts we are of opinion that the adjustment of the equities between the parties is rendered so uncertain that as to that tract of land Nabours and others should recover from McCord for the estate the one-half of the amount of the eight notes with interest thereon at the rate expressed in the notes to the time of the trial.

We see no reason to change our conclusions as to other issues in the case. We are not able to see any sound reason why the issue of the good or bad purposes of McCord in securing the property of the estate which he represented should be excluded from consideration on the issue of liability to account for the property unlawfully acquired by him but should be considered upon the measure of recovery against him. It would be as difficult to ascertain the truth of his real motives and purposes on the latter issue as upon the former.

If we grant that the facts sustain the appeal of able counsel in behalf of their client this court would have no authority to change the settled rules of law which govern such transactions. The opinion will be modified as stated in the first paragraph hereof, otherwise the motion for rehearing will be overruled.

Judgment of Court of Civil Appeals affirmed and case remandedwith instructions.