Stafford Co. v. Leon H. Blum

Leon H. Blum brought this suit to the September Term, 1891, of the District Court of Colorado County, against Sarah E. Stafford and E.J. Sandmeyer, composing the firm of R.E. Stafford Co., and Wells Thompson, to recover of them the interest of one H.M. Ehrenwerth in a fund deposited with said Stafford Co. by the said Wells Thompson, as trustee in a certain deed of trust executed to him by one Harry S. Levy, conveying certain merchandise to secure an indebtedness in favor of said Stafford Co. as recited in the deed of trust. Three of the notes mentioned in the deed of trust were drawn by the said Levy in his own favor, and were by him indorsed in blank. These notes were the property of Ehrenwerth, and were received by Stafford Co. and included in the deed of trust to be collected for his use; but Thompson had no knowledge of the interest of Ehrenwerth. Plaintiffs sue as the assignees of Ehrenwerth of the notes above mentioned, and of his interest in the fund. They took the transfer, however, after the maturity of the notes and the collection and deposit of the fund by Thompson, and subject to any defenses in favor of the defendants against the said Ehrenwerth. This is not denied by the plaintiffs.

Thompson answered the petition of plaintiffs, that it was true, as stated therein, that on September 24, 1890, Harry S. Levy executed the deed of trust as alleged; that he had sold the property conveyed therein, and deposited the proceeds of said sale with R.E. Stafford Co., and he was directed to do so by said instrument. He showed the manner of sale, amount of receipts, etc., and that R.E. Stafford Co. had in their hands $12,763.59, the proceeds of said property, out of which he asked to be allowed his commissions.

Defendants, R.E. Stafford Co., answered to the said September Term of court, 1891, and admitted that they had in their hands the said sum of $12,763.59 deposited with them by the said Thompson, as trustee, etc., but they averred that the same belonged to them, and that plaintiffs had no right to any portion thereof, nor any interest therein. They averred the execution of the deed of trust by Harry S. Levy to Wells Thompson, and set out the indebtedness of Levy which it was to secure, their own as well as that of Ehrenwerth. They alleged, that at the time the said deed of trust was executed the said Ehrenwerth was also indebted to them as evidenced by his two promissory notes, (1) dated September 29, 1889, due January 1, 1890, for $1272.91, with 12 per cent interest; and (2) dated March 2, 1889, due July 1, 1889, for $786, with 12 per cent interest, both of said notes stipulating for 10 per cent attorney fees if collected by law. That the notes included in said deed of trust belonging to Ehrenwerth were transferred to defendant as collateral security for their said notes against Ehrenwerth, and with the further understanding, that the claims of defendants against Levy were to be first paid out of the proceeds of said property so conveyed in trust to Thompson.

That the said goods did not sell for enough at retail to pay the indebtedness mentioned in the deed of trust, and the trustee, acting under the provisions of said trust deed, sold the remainder of the stock in bulk at public auction, and defendants bid in the same for $8500; that they were induced to buy said goods at that price by the fraudulent representations and promises of the said Ehrenwerth that he would pay them between $1500 and $2000 in cash on Levy's indebtedness to them, and had a person whom he would put in charge of said goods, and would arrange for replenishing the stock; that defendants should keep the goods in their possession as a pledge to secure the payment of the balance of the indebtedness both against him, the said Ehrenwerth, and the said Levy; that the person so taking charge of the goods should be the agent of the defendants, and deposit the proceeds of sales in the bank of R.E. Stafford Co. until all of their indebtedness was paid, and the remainder of the goods unsold should be turned over to the said Ehrenwerth. Defendants alleged that they did not understand the mercantile business, and did not know the value of the goods; that the said Ehrenwerth had been a merchant for many years, and was perfectly familiar with said goods, having owned a portion of them at one time; that it was the intention of defendants to bid no more than $6000 for said stock of goods, a sum sufficient to cover their indebtedness, but they were induced to bid the sum of $8500 as aforesaid by the said Ehrenwerth, who would otherwise have lost his interest in the proceeds; that after the defendants bid said sum of $8500 for said goods and made themselves responsible for the payment thereof, the said Ehrenwerth entirely repudiated his said agreement; that said goods were not worth one-half of the amount of their bid, which the said Ehrenwerth well knew, but which was unknown to the defendants; that they were induced to make their said bid by the deceitful and fraudulent promises of said Ehrenwerth, who was intending to get payment of his said indebtedness against Levy; that by reason of the refusal of said Ehrenwerth to comply with his agreement, defendants were forced to take charge of said goods, etc.; that said Ehrenwerth would be entitled to the balance thereof after the payment of their demands against him and the said Levy, and that it would be to the interest of all parties a that a receiver should be appointed to take charge of said goods and sell the same, etc., for whose appointment they prayed.

Defendants pleaded also in setoff to the demand of plaintiffs:

1. An attorney's fee of $500 paid Messrs. Foard, Thompson Townsend in the matter of the Levy deed of trust.

2. The sum of $7848 in cash, which they alleged the said Ehrenwerth had received as the agent of defendants, and had refused to pay over.

They also averred, that plaintiffs acquired their rights long after said transactions; that said Ehrenwerth was insolvent, and prayed that he be made a party defendant in order that the equities between them might be settled.

At said September Term, 1891, the plaintiffs presented demurrers to said answer, which were overruled, and a receiver was appointed by the court, who took possession of said stock of goods and sold the same, and afterwards presented his report to the court and paid into the registry thereof the net proceeds of the sale of said goods. Said report was approved, and the receiver was discharged.

At the March Term, 1893, of the District Court of Colorado County, to which the cause had been continued, H.M. Ehrenwerth, who had been made a party at the prayer of defendants, R.E. Stafford Co., presented a motion to change the venue, which was granted, and the cause was removed to Fayette County. The plaintiffs, Leon H. Blum, did not join in this motion.

After the cause had been removed to Fayette County, the defendants, R.E. Stafford Co., on June 19, 1893, filed their second amended original answer, in which, as before, they admitted the deposit with them by Wells Thompson, as trustee of Harry S. Levy; pleaded more fully the facts of the execution of the deed of trust, and reiterated their allegations with respect to the indebtedness it was made to secure, and the agreement of Ehrenwerth with respect to the deed of trust and the purchase of the stock of goods by defendants at the trustee's sale; and alleged, that defendants were only liable and accountable for the said goods to the extent of the amount realized from the sales thereof; and that the net proceeds, including sales made before the appointment of the receiver and those made by him, did not amount to enough to pay off and discharge the balance of said Levy's indebtedness to them as it existed at the date of the trustee's sale, but left a large amount due defendants by Ehrenwerth on said notes.

Defendants also pleaded more fully the amount claimed by them in set-off, and in addition thereto another attorney's fee of $500 which defendants alleged they had paid for said Ehrenwerth in a transaction in the year 1889, in which said Ehrenwerth had conveyed in trust for defendants his stock of goods to secure certain of his indebtedness to them. They alleged, that the sum of $7840 pleaded in their former answer was the proceeds of certain refrigerator cars which belonged to the Columbus, Texas, Meat and Ice Company, and upon which, with other property of said corporation, R.E. Stafford Co. had a deed of trust, dated October 1, 1887, to secure an indebtedness in their favor of $132,000; that in March, 1891, after said indebtedness had been long due, and the defendants (with the consent of said meat and ice company, which had become insolvent), had taken possession of said cars, with the consent of the defendants and R.L. Foard, the trustee in said deed of trust, the said H.M. Ehrenwerth, as general manager of said Columbus, Texas, Meat and Ice Company, and as one of the directors thereof, by and with the consent and approval of the other directors, sold the said cars, with the understanding and agreement that the proceeds of said sale should be paid to defendants, to be credited on the indebtedness of said corporation secured by said deed of trust; that said Ehrenwerth in making said sale was also acting as the trusted agent of the defendants, etc.

The plaintiffs renewed their demurrers to the answer before the District Court of Fayette County, which had been presented in their first amended original answer before the District Court of Colorado County, and overruled, and they were sustained as to all allegations setting up an agreement between Ehrenwerth and defendants in relation to the purchase of the goods at the trustee's sale, and for the appointment of a receiver, which were struck out; also to those seeking to make Ehrenwerth a party, and he was dismissed. The court adjudged there had never been any legal cause for the appointment of a receiver, and ordered that the acts, doings, and report of the receiver should be no further considered, and adjudged the costs of the receivership, and of making Ehrenwerth a party, against the defendants, Stafford Co.

The cause was then submitted to the court without a jury, and judgment was rendered against Stafford Co. and Wells Thompson in favor of the plaintiffs for the proportionate share of the claims of Ehrenwerth in the net proceeds of the goods in the hands of Stafford Co.

R.E. Stafford Co. alone have excepted to the judgment and given notice of appeal, and brought the case up. Wells Thompson has assigned errors, and seeks a reversal of the judgment as to himself.

Motions have been filed by the appellees, Leon H. Blum, to strike out the assignment of errors made by the trustee, Wells Thompson, and to dismiss the appeal. The ground urged for the dismissal of the appeal is, that this court has never acquired jurisdiction thereof, because the appeal bond is insufficient, since it is made payable not only to Leon H. Blum, the only appellees in the case, but also to H.M. Ehrenwerth, who was dismissed from the suit as an improper party, and to Wells Thompson, against whom judgment was also rendered, and who has not appealed.

The judgment of the court dismissing Ehrenwerth was clearly such a one as the appellants have the right to have reviewed, and as the judgment is of such a nature that a reversal as to the appellants would cause a reversal as to Thompson, and he was abiding by the judgment, it was correct practice for R.E. Stafford Co., who alone desired to appeal, to make their bond payable to all of the other parties to the judgment. As Wells Thompson did got give notice of appeal, and had not filed an appeal bond, his assignment of error will be disregarded.

Appellants have assigned as error the retaining of jurisdiction of this suit by the court below after it had sustained the exceptions of plaintiffs and dismissed therefrom H.M. Ehrenwerth, who had been made a party by them, because the venue had been changed from Colorado to Fayette County on the application of Ehrenwerth alone. Having once acquired jurisdiction by proper proceedings for change of venue, to which no exception was taken and which are not now sought to be reviewed, the District Court of Fayette County was not ousted thereof by the dismissal of Ehrenwerth from the suit.

We are of the opinion, however, that Ehrenwerth was improperly dismissed. It is true that the interest of H.M. Ehrenwerth in the deposit with R.E. Stafford Co. made by the trustee, Wells Thompson, of the proceeds of the Levy stock of goods and the notes belonging to him and secured by the deed of trust from Levy to Thompson, having been assigned after the maturity of the notes, the plaintiffs took the same subject to all defenses in favor of R.E. Stafford Co. against Ehrenwerth. But the answer of R.E. Stafford Co. set up matters of defense to which Ehrenwerth was a proper party. To this defense, exceptions made by plaintiffs were sustained, and upon the action of the court both in dismissing Ehrenwerth and in striking out the defense set up, the appellants have assigned error. As will appear from the pleading, the defendants did not attempt, as contended by appellees, to set off unliquidated damages for a breach of the agreement of Ehrenwerth with them against the plaintiffs, but as a defense to the entire cause of action, that according to an agreement with Ehrenwerth they were not to be charged with the amount of their bid for the goods, and that their claims were to be paid off and discharged, and the remaining goods were to be delivered over to Ehrenwerth; so it will not be necessary to inquire whether unliquidated damages might be set off as growing out of the transaction. It was competent for defendants to make such an agreement with Ehrenwerth as they set up in the pleadings stricken out, and if true, it would be a complete defense to the suit; and while it was not necessary that Ehrenwerth should be a party in order to enable the defendants to avail themselves of the defense, he was at least a proper party. But if the allegations of the pleadings showed a proper case for the appointment of a receiver, which is not decided, because Ehrenwerth had been dismissed when the case was tried on the merits, and the goods were placed in the custody of an officer of the court, upon the allegations of the defendants that they were the property of H.M. Ehrenwerth, pledged to them for the payment of the debts of himself and H.S. Levy, and it was sought to have them sold for that purpose, then Ehrenwerth would have become a necessary party to the suit.

Under the pleadings, the defendant had a clear right to have the proceeds of the cars sold by Ehrenwerth set off against the demand asserted by plaintiff. The evidence shows clearly that there was no release of the mortgage upon the cars by R.E. Stafford Co. except for the purpose of effecting the sale thereof, and that there was no intention to release the proceeds, and that Ehrenwerth received the proceeds of the sale for the benefit of the mortgagees. He does not testify that there was a release of the proceeds, and the court found that he went to St. Louis and sold the cars by the authority of the representatives and survivors of R.E. Stafford Co., as the firm was constituted when the mortgage upon the cars was made. The Columbus, Texas, Meat and Ice Company was no doubt indebted to Ehrenwerth in a large amount for his salary as its secretary and general manager, but the money received by him was for the benefit of the defendants as much as if it had been the proceeds of the sale of the property under foreclosure. The debts of the corporation for the salaries of its officers are not entitled to priority of payment out of the proceeds of mortgaged property over the lien of the mortgagees. Plaintiffs seek to defeat the set-off in favor of defendants, R.E. Stafford Co., by showing that the Columbus, Texas, Meat and Ice Company had been insolvent almost from the time of its organization; that it had been kept in operation for the benefit of R.E. Stafford Co., who were large creditors; that R.E. Stafford Co. were equitably bound for the salary of Ehrenwerth. It is sufficient to say, that there was no pleading authorizing such proof, which is of matter in confession and avoidance, and the objection of defendants to all such evidence should have been sustained. As above indicated, we do not think that the proceeds of the sale of the cars were money belonging to the Columbus, Texas, Meat and Ice Company, so that Ehrenwerth might appropriate it to the debt of that company to him by retaining and charging himself therewith on the books of the company. Whatever right he had to appropriate the money for the debt due him for services as secretary and general manager must grow out of his right to look to Stafford Co. for payment. We do not think that the testimony is sufficient to show that Stafford Co. became liable to Ehrenwerth for his salary, as found by the court below.

Appellants had the legal right under the statute (Revised Statutes, article 645) to set off their notes upon H.M. Ehrenwerth against the demand of plaintiffs, notwithstanding the fact that such notes were secured by a deed of trust upon property. If there were any equitable reasons why the property should be sold first and the proceeds applied to the debt of Ehrenwerth in favor of defendants, they were on account of the insolvency of Ehrenwerth, and related only to himself and the plaintiffs; and if Ehrenwerth were a party to the suit, such relief might have been had on a proper pleading and showing on behalf of plaintiffs. But without this, we think the plaintiff would have been amply protected by a subrogation to the security of the defendants, as they would not be allowed to avail themselves of the set-off and to hold on to the security.

Defendants did not show themselves entitled to have the two attorneys' fees of $500 each, paid by them to Foard, Thompson Townsend on account of the Levy deed of trust and the Ehrenwerth deed of trust, set off against the plaintiffs; because it did not appear that Ehrenwerth was liable for the fee in the matter of the deed of trust executed by him to Sandmeyer; and in the matter of the Levy deed of trust, he would not be liable for more than a proportionate part of a reasonable fee.

In view of another trial, we will state that the trustee, Wells Thompson, discharged the duties imposed upon him by the deed of trust when he sold the goods and deposited the proceeds thereof with R.E. Stafford Co., and there should be no judgment against him.

Although the proceeds of the goods may stand credited to his name on the bank books of R.E. Stafford Co., still a judgment in the case in favor of or against the plaintiffs would adjudicate the disposition of the fund, and be binding on Thompson.

We do not think it necessary to notice any of the remaining assignments of error. For the errors above indicated, the judgment of the court below will be reversed and the cause remanded.

Reversed and remanded.