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possession of said stock of goods and fix 1913, at 6 per cent. It was further adjudgtures, which inventoried $3,695, and solded that the defendant Fricke have and rethe same to its codefendant, Adolph Fricke, cover of and from his codefendant the Rotan at 90 cents on the dollar of invoice value, Grocery Company judgment for said sum of aggregating $3,325, which was the reason- $3,325, from which judgment both the Rotan able market value thereof, and which sum Grocery Company and Fricke have appealed said Rotan Grocery Company received in to this court. cash and now has on hand. That on the Eth It was shown that there had been duly of January next thereafter, appe'l e was du- presented to the administratrix, allowed, aply appointed administratrix of said estate proved, and established by the probate court, by the county court of McLennan county, as claims against the estate of the deceased, and qualified as such, and subsequently, aft- the following: First-class claims, amounting er demand on appellants for and refusal on to $531, third-class claims, $1,250, which was their part to deliver said property, brought a vendor's lien note on 100 acres of land bethis suit against them to recover possession longing to the estate, and $2,700, which was thereof, alleging that said property was nec- a vendor's lien on the homestead, the reaessary for the purposes of administration, sonable value of said homestead in excess and that said probate court had ordered her of said indebtedness being $1,800, also fourthto demand possession thereof, and, in the class claims, amounting to $600. It was furevent of refusal to bring suit therefor. That ther shown that no allowance had been fixed her homestead was incumbered. That there by the probate court for expenses of adminwas not on hand at the time of the death of istration. None of said approved claims had her husband all the property exempt by law been paid. The surviving widow was shown to families of deceased persons. That it will to have property in her own right, and was be necessary to make an allowance out of the not entitled to an allowance for a year's supestate of the deceased in lieu of such exempt port, but that the minor children had no articles, and that it will be necessary for the property in their own right, and there were probate court to set aside an allowance for several items of exempt property allowed to the support and maintenance of said surviv- families of deceased persons not found on ing wife and minor children. The Rotan hand in kind among the property of the esGrocery Company, after special exception tate. and general denial, sought to defeat recovery By the first assignment it is insisted that by reason of said conveyance of said proper- the court erred in its judgment because unty to it by Mrs. Pate; and Fricke, after der the laws of this state the survivor of the adopting the answer of the Rotan Grocery community can transfer or sell community Company, further pleaded that in the pur- property to pay community debts, and the chase of said stock of goods, wares, and probate court cannot acquire jurisdiction merchandise by him from that company be over or right to administer such property so had consulted with Mrs. Pate, had conferred sold and conveyed by thereafter granting with her about the rental value of the store administration on the community estate of in which the goods were situated, and she such decedent. And by the second assignconcurred in and agreed to such sale to him, ment it is insisted that said judgment is erand before his purchase agreed to rent him roneous because the granting of letters of adthe storehouse in which the goods were sit- ministration did not set aside the voluntary uated, and thereafter did so, and that by rea- conveyance by Mrs. Pate of a part of the son thereof she was estopped from alleging community estate to the Rotan Grocery Coma conversion of said stock of goods by him; pany for the purpose of paying community that in the event he should be held liable for debts prior to the application for such adsuch conversion, then he prayed judgment ministration, and the granting of such ad. over against his codefendant, the Rotan Gro- ministration did not entitle the said Mrs. cery Company in like amount. Appellee fil. Pate, as administratrix, or the probate court, ed a general demurrer, which was overruled, to the possession of said property against and a number of special exceptions to de- the defendant Fricke, a purchaser thereof fendants' answers, all based upon the theory for full value before the granting of such that the conveyance made by her to the Ro- letters. tan Grocery Company on October 22, 1912, The facts showed a necessity for the adfor the benefit of the creditors of her de- ministration, and the court appointed appelceased husband, was rendered void by her lee as administratrix, which fact, we think, appointment and qualification as administra- authorized her to demand and take possestrix of said estate, and that in any event sion of the property of said estate. By arshe was entitled to possession of said prop- ticle 3235 of the Revised Statutes of 1911, it erty for administration under the orders of is provided, among other things, that upon the probate court of McLennan county, which issuance of letters testamentary or of adexceptions were sustained. A jury being ministration upon any estate, the executor waived, judgment was rendered in favor of or administrator shall have the right to the appellee against the Rotan Grocery Compa- possession of the estate as it existed at the ny and Adolph Fricke in the sum of $3,325, death of the testator or intestate, with cerwith interest thereon from February 10, tain exceptions; and it shall be the duty of such executor or administrator to recover to delegate this power to a trustee, as here possession of and hold such estate in trust attempted. Her right, we think, in this reto be disposed of in accordance with law. spect is personal, and the law will not perSee, also, Latham v. Dawson, 40 Tex. Civ. mit her to thus surrender to another her App. 219, 89 S. W. 315; Blinn v. McDonald, privileges, duties, and responsibilities. 92 Tex. 604, 46 S. W. 787, 48 S. W. 571, 50 In Latham v. Dawson, supra, where the S. W. 931; Laas v. Seidel, 28 Tex. Civ. App. survivor of the community had sold certain 140, 66 S. W. 871; Fisk v. Norvel, 9 Tex. 13, community property to pay community debts, 58 Am. Dec. 128; Mitchell v. De Witt, 20 and she was afterwards appointed adminisTex. 291.
tratrix of the estate and brought suit for But it is insisted on the part of appellants such property, her right to do so was susthat appellee in the instant case is estopped tained, and a plea setting up such sale as a from asserting this right by reason of said defense was stricken out upon demurrer, the conveyance, because the survivor of the com- court saying: munity estate has the right to sell community “The right of the survivor to sell community property for the purpose of paying communi- property for the purpose of paying community ty debts (citing Carter v. Conner, 60 Tex. 59; rights of other parties interested in said com
debts cannot be exercised in disregard of the Dever v. Selz, 39 Tex. Civ. App. 558, 87 S. W.
munity estate. While such a conveyance would 891; 'Dashiell v. Moody, 44 Tex. Civ. App. 87, pass the title as against the adult heirs of the 97 S. W. 813; Brown v. Elmendorf, 87 Tex. deceased husband, it could not affect the rialt 57, 26 S. W. 1013; Corzine v. Williams, 85 erty to the payment of their claims, nor the
of creditors of the estate to subject the propTex. 499, 22 S. W. 399; Wenar v. Stenzel, right of the minor children of the deceased to 48 Tex. 484, 489; Johnson v. Harrison, 48 subject it to their claim for allowance. It Tex. 257; Orr v. O'Brien, 55 Tex. 149). would be contrary to the express provision of
our probate laws to hold otherwise, and thus While this is true, yet the conveyance relied permit the survivor, if she saw fit to approupon was not a sale of such property by Mrs. priate all of the property of the estate to the Pate, but, on the contrary, was an assignment payment of one creditor, and leave nothing for to the Rotan Grocery Company for the bene. the satisfaction of others who were equally en
titled to have the property of the estate subfit of creditors, expressly authorizing said jected to the payment of their claims” (citing company to convert the property therein con- many cases in support thereof). veyed (which constituted the bulk of said We think the above case is authority for estate) into cash for the pro rata benefit of holding that, even if there had been a comall creditors, share and share alike, without plete sale on the part of Mrs. Pate for the any preference whatever. To uphold this purpose of paying community debts, which conveyance would be to set at naught the pro- is not the case, yet such sale would be nulli. bate laws of this state, which vest in the pro- fied by the appointment of an administratrix, bate court the right to pass upon, not only who would eo instanti become entitled to the amount, but the validity, of all claims possession of such property for the purposes against the estate, and to classify same in ac- of administration. cordance therewith. See articles
As held in the case of Blinn v. McDonald, R. S. 1911. Besides this our law gives to supra, the purchaser must be charged with certain creditors of an estate preferences and notice of the fact that such administratris determines the priority of such preferences. may, within the statutory period, be appointSee Articles 3458, 3459, 3460, etc., R. S. 1911. ed, and of her powers and duties, and hence And, in addition thereto, authorizes the court could not, during such period, become a bona to make allowances and grant exemptions to fide purchaser, or acquire any rights which the family of the deceased, all of which are would prevent the execution of such trust. preferred claims, and must be paid in their
In the case of Matula v. Freytag, 101 Ter. due order, as required by article 3160, supra. 357, 107 S. W. 536, there was a contention The conveyance under consideration express- as to whether the property was sold by the ly disregards the rights of such creditors and surviving widow before or after the grant the heirs to allowances and exemptions, for of administration, and our Supreme Court, which reason alone we think it might be through Mr. Justice Williams, held that held inoperative. As well said by counsel while the sale was after such grant, yet es. for appellee in their brief:
pressly stated that it was not to be under"To allow the surviving wife, immediately on stood that the fact that the sale was after the death of the intestate, to make a final and conclusive disposition of all or any of the as- administration had any determinative effect. sets of the estate for the payment of com- Granting, for argument's sake that there munity debts, and thereby place such assets be- had been a complete sale by Mrs. Pate to yond the reach of the administrator, would lead to complications and collusion, and would prob- appellant company, still we think that the ably result in defrauding creditors and minor granting of the administration by the prochildren of their statutory rights."
bate court had the effect to vitiate the same, Notwithstanding appellee had the power, and entitled the administratrix to the possesunder the doctrine of the cases above alluded sion of said property. Nor did such convey. to, to sell community property and apply the ance estop her, as administratrix, from instiproceeds to the payment of community debts tuting this suit, because it was made in her of the estate, yet this did not authorize her individual capacity, while the suit is by her
in her representative capacity as adminis- , posed of T. H. Kessler, Troutschold, tratrix.
A. J. Droke, and R. G. Ard, owned and operBelieving that the court below did not err ated a planing mill. in the judgment rendered, the same is in all (2) It was agreed by the members of the things affirmed.'
firm and Oscar Myre, an employé of the firm, Affirmed.
that they would incorporate, and that Myre would buy Troutschold's interest.
(3) On August 25, 1902, a charter was obWITT v. NELSON et al. (No. 3378) tained in the name of T. H. Kessler & Co., (Court of Civil Appeals of Texas. Austin.
with an authorized capital of $30,000. May 26, 1914. Additional Findings
(4) On September 2, 1902, a proposition was of Facts, July 1, 1914.)
submitted to the directors of the corporation 1. CORPORATIONS (88 244 544*)-RIGHTS OF by T. H. Kessler for the partnership, to sell CREDITORS-TRUST FUND THEORY.
to the corporation all of the property of the The capital stock of a corporation is a trust fund for the benefit of creditors, who firm for $15,000, which proposition was acmay enforce the payment therefor in full, as cepted by the corporation. against subscribers for such stock and transfer (5) On September 2, 1902, the partnership ees with knowledge of nonpayment.
T. H. Kessler & Co. conveyed to the corpora[Ed. Note. For other cases, see Corporations, tion T. H. Kessler & Co. all of its assets for Cent. Dig. $$ 960–977, 2162-2169; Dec. Dig. 88 the recited consideration of $30,000. 244, 544*] 2. CORPORATIONS ($ 232*) — STOCKHOLDERS
(6) On the same day the corporation issued LIABILITY OF.
to the members of the firm of T. H. Kessler Where half of the capital stock of a cor & Co., including Myre, who agreed to take poration was paid in upon organization in ac- Troutschold's interest, 150 shares of stock of cordance with the law at the time of organization, and the corporation later became in need the par value of $100 each in proportion to of funds to carry on its business, the sale of their interest in said firm, as follows: T. H. treasury stock at the fair market price, though Kessler, 51 shares; Oscar Myre, 48 shares; for less than par, in accordance with Rev. St. A. J. Droke, 36 shares; R. G. Ard, 15 shares. 1895, art. 661, authorizing the sale of such stock, would not render the purchaser liable (7) After issuing the 150 shares, as above for any sum in addition to the price paid. stated, there remained unissued 150 shares of (Ed. Note.-For other cases, see Corporations, the par value of $100 each. Cent. Dig. $$ 879, 880, 883, 884, 987; Dec.
(8) On October 9, 1902, by order of the diDig. $ 232.*] 3. CORPORATIONS ($249*)-STOCKHOLDERS- sold to J. M. Nelson for $2,000, and a certifi
rectors, 40 shares of the capital stock were TRUST FUND THEORY.
Where the principal stockholder and man-cate for that number of shares was issued to ager of a corporation advanced money to the him. corporation with knowledge of the stockholders
(9) T. H. Kessler remained a director of and other directors, he may, upon being held liable for an unpaid amount on his stock, set the corporation until January, 1903, at which off his claim against that of the corporation's time he died, and his wife, Mrs. T. H. Kesscreditors; the money advanced having become ler, became the owner of his shares and was part of the corporate assets.
elected a director. (Ed. Note-For other cases, see Corporations, Cent. Dig. 88 1002–1010, 1012, 2273; Dec. Dig.
(10) On January 26, 1903, a resolution was 249.*]
entered upon the minutes allowing Mrs. 4. CORPORATIONS (8 232*)-STOCKHOLDERS- Kessler to draw $10 per week to be charged LIABILITY OF.
to her account, and, when net earnings had Where, upon organization of a corporation, been declared, her part of same to be credited half of its capital was paid in and stock is
on her account, and, if her account was then sued therefor, and thereafter stockholders became indebted to the corporation, which took found to be overdrawn, she to pay the balover their shares, a subsequent purchaser of ance or sa me to be charged against her stock such shares, who bought for a sum less than at her option. par, is not liable to the creditors of the corporation, under the trust fund theory.
(11) On October 5, 1905, a motion was pass(Ed. Note. For other cases, see Corporations, ed to sell A. L. Elliott $5,000 of "treasury Cent. Dig. $$ 879, 880, 883, 884, 987; Dec. stock” at 75 cents on the dollar per share. Dig. $ 232.*]
Mrs. L. E. Elliott, wife of A. L. Elliott, paid Appeal from District Court, McLennan for $2,000 of this stock at 75 cents on the
dollar. County; Tom L. McCullough, Judge.
A. L. Elliott gave his note for 30 Action by Edgar E. Witt, trustee, against shares, with his stock as collateral. He paid E. Nelson and another. From a judgment for interest on his note to July 21, 1908, but defendants, plaintiff appeals. Affirmed.
none of the principal. On July 21, 1908, by
order of the directors, Elliott returned the Davis & Cocke, of Waco, for appellant. 30 shares of stock, and his note was surrenSleeper, Boynton & Kendall and Gallagher dered to him. & Stratton, all of Waco, for appellees.
(12) On July 16, 1906, the certificate for 40
shares issued to J. M. Nelson was by him Findings of Fact.
transferred on the back thereof to E. Nelson, JENKINS, J. (1) In 1902 and prior there and the same was delivered to E. Nelson. to, T. H. Kessler & Co., a copartnership com (13) On May 29, 1907, Mrs. Kessler was
*For other cases see same toric and section NUMBER in Dec. Dig. & Am. Dig. Key-No. Series & Rep'r Indexes
† Application for writ of error pending in Supreme Court.
indebted to the corporation in the sum of to operate its business and to pay debts in. $3,164.73, which, by order of the directors, curred in such operation, and was unable to she was permitted to and did pay by surren- continue its business without such money, dering her certificate for the 51 shares issued and had no means of obtaining such money, to T. H. Kessler, and receiving a certificate except by the sale of its stock, or by mortfor 19 shares.
gaging its property. Each of said sales was (14) On May 29, 1907, by order of the board, made for the full market price of such stock, $5,000 of stock was sold to J. S. Harrington and for the highest price that could be obat 75 cents on the dollar.
tained for such stock, and no stock was at (15) On May 29, 1907, it was ordered by the any time sold in excess of the then needs of directors that $1,000 of stock be sold to E. the corporation to enable it to carry on its Nelson at 75 cents on the dollar, but this business. Each of said sales was beneficial stock was never issued.
to the corporation, its stockholders, and to (16) On May 29, 1907, E. Nelson was elect- Lits then creditors. All of the money obtained ed a member of the board of directors, vice from such sales was used in the prosecution J. M. Nelson, who had sold his 40 shares of of the business of the corporation, and for stock to E. Nelson.
no other purpose, and none of the money (17) On May 29, 1907, two additional shares realized from such sales of stock was used were sold to Oscar Myre, at 75 cents on the for additional investments by the corporation. dollar.
(24) None of the certificates purchased by (18) Prior to March 24, 1908, A. J. Droke E. Nelson were ever transferred to him on had died, and his widow had become the own- the books of the corporation by surrendering er of his stock. On that date, Mrs. Droke the said certificates and obtaining new cerhaving become indebted to the corporation in tificates in lieu thereof, but the said purthe sum of $500, and Mrs. Kessler baving be- chases were known to the corporation, and come indebted to the corporation in the fur- he was elected a member of its board of directher sum of $900, by order of the directors tors, and on June 19, 1911, he was elected they paid these debts by Mrs. Droke's sur- president and general manager of the corporendering the certificate for 36 shares is ration, and continued as such until the corsued to A. J. Droke, and a new certificate for poration went into bankruptcy October 15, 31 shares was issued to her, and by Mrs. 1912. Kessler's surrendering her certificate for 19 (25) The salary of E. Nelson, as president shares, and a new certificate for ten shares and general manager of the corporation, was was issued to her.
never fixed by the board of directors, but he (19) On July 21, 1908, the corporation, caused to be credited to himself, on the books through its board of directors, sold to J. S. of the corporation, for such services, the sun Harrison, E. Nelson, and J. L. Enright each of $200 per month from July 1, 1911, to June $1,000 of stock at 75 cents on the dollar, 1, 1912, and from June 1, 1912, to October 15,
(20) The minutes of the corporation show 1912, the sum of $150 per month, aggregating that at a meeting held June 3, 1911, there for such salary $2,875, and his services were were present, representing stock in said cor reasonably worth that amount. He received poration, as follows: Oscar Myre, 50 shares; during said time in cash and merchandise, E. Nelson, 50 shares; Mrs. A. L. Elliott, 20 and caused to be charged against himself on shares; R. G. Ard, 15 shares; Mrs. Droke, the books, $2,972.88. He was not otherwise 21 shares; and J. S. Harrison, 80 shares— paid anything for such services. total 236 shares. Mrs. Droke's shares had (26) From and after the 1st day of Janu. been further reduced from 31 to 21 shares by ary, 1912, said corporation was heavily inher surrendering 10 shares in payment of a volved, and its creditors were insistent and debt she owed to the corporation. At this pressing, and there was constant demand for meeting the ten shares owned by Mrs. Kess- money for the purpose of liquidating indebt. ler were surrendered and canceled in payment edness, and for the purpose of paying for of a debt for $1,000, due by her to the corpo-material ordered by said company for the ration.
purpose of carrying on its work, which said (21) On January 10, 1911, J. L. Enright material was required to be paid for in cash, sold his certificate for 10 shares to J. S. Har- and for the purpose of paying the laborers rison.
for carrying on the work of said corporation, (22) July 9, 1911, J. S. Harrison, for the which was required to be paid for in cash consideration of $5,000, sold to E. Nelson his weekly, and the corporation, from time to certificate for 50 shares of stock, dated May time, being without sufficient money to meet 29, 1907; his certificate for 10 shares of stock said obligations, the said E. Nelson rolundated July 22, 1908, purchased by him from tarily paid into and for said corporation for J. L. Enright, and 10 additional shares. said purposes the sum of $3,857.49 in cash.
(23) At each of the times of the respective (27) Said payments made by said E. Nelsales of stock of the corporation, after the son in said sum as aforesaid, into and for issuance of the first 150 shares of stock to said corporation, were made by him without the members of the firm of T. H. Kessler & any contract for the repayment of the same, Co., the corporation was a going concern and and were made by him on his own responsiwas perhaps solvent; but it needed money | bility and in recognition of the needs of said corporation, and at the time of the pay- j is a trust fund for the benefit of creditors, and ment of the same and all the same, except creditors may enforce the payment thereof in the sum of $252.92 paid the Owens Lumber full as against the subscribers for such stock, Company on the 15th day of October, 1912, and against their transferees with knowlsaid corporation was a going concern, active edge that such stock has not been fully ly engaged in operation and the carrying out paid for. Mathis v. Pridham, 1 Tex. Civ. of the purposes for which it was chartered App. 58, 20 S. W. 1023; Nenney v. Waddill, and organized, and said Nelson at the time be- 1 6 Tex. Civ. App. 244, 25 S. W. 308; Sawyer lieved the same to be solvent, and made said | v. Hoag, 84 U. S. (17 Wall.) 610, 21 L. Ed. payments and advancements to said corpora- 731; Sanger v. Upton, 91 U. S. 56, 23 L. Ed. tion in good faith, believing that the same 221; Scovill v. Thayer, 105 U. S. 143, 26 would enable said corporation to tide over L. Ed. 968; Chubby. Upton, 95 U. S. 665, temporary embarrassments, and continue in- 24 L. Ed. 523; Hawley v. Upton, 102 U. S. definitely a solvent and going concern. 314, 26 L. Ed. 179; Upton v. Tribilcock, 91
(28) That said sum of $252.92 paid to said U. S. 45, 23 L. Ed. 203; Webster v. Upton, Owens Lumber Company on said 15th of 91 U. S. 65, 23 L. Ed. 384; Land Co. v. October, 1912, was made by him because he Raymond, 158 N. Y. 576, 53 N. E. 507, 47 L. had long prior thereto personally obligated R. A. 246. Nothing said in this opinion is himself to pay the same, or to see the same intended to impinge upon this doctrine when paid, and at the time he so obligated him- applied to a proper state of facts. It has self he did so in good faith, believing said been said that this doctrine was invented by corporation was solvent.
Mr. Justice Storey, and is slowly becoming (29) On or about the 17th day of October, obsolete. 10 Cyc. 461. It is not obsolete in 1912, the corporation of T. H. Kessler & Co. Texas, and will not become obsolete anywent into voluntary bankruptcy, and the where until honesty shall become obsolete. proceeds of the sale of its properties has It may be true in these days of frenzied proved insufficient to discharge its indebted finance and watered stock that professional ness, and there remains undischarged ap-dealers base their estimates as to the value proximately $10,000 of indebtedness owed by of stocks upon the assets and liabilities of said corporation.
the corporations, when they find out what (30) The referee in bankruptcy, by order they are, but the investing public is daily duly made, directed the trustee to bring robbed through the medium of watered stock, these suits for the several amounts claimed which is the life blood of gambling on exherein.
changes. The Constitutions of many of the (31) The defendant E. Nelson proved up states, including our own, have provisions a claim in the bankruptcy proceedings against that are designed to prevent the issuance of the estate of T. H. Kessler & Co., bankrupt, watered stock, and this is effectually acfor the sum of $3,672.65, based on such mon- complished by our present corporation laws. eys so advanced by him to and for said cor- But, at the time the corporation in the inporation. Such proof was made upon the stant case was chartered, our statute only advice of counsel, in view of the situation required that 50 per cent. of the capital stock as it then existed, and was not in contempla- be subscribed, and that 10 per cent. be paid tion at the time such advancements were up. R. S. 1895, art. 654. This amount was made, and nothing whatever has been paid subscribed and fully paid up, whether the on said claim, and nothing will or can be paid property conveyed to the corporation was thereon, unless a recovery be had in these worth $30,000, as found by the trial court, causes, and such payment would have to be or $15,000, as contended by appellant. made out of such recovery.
In considering the cases wherein it has Appellant, as trustee for the bankrupt cor- been held that unpaid subscriptions to capital poration of T. H, Kessler & Co., brought two stock is a trust fund for the benefit of credisuits to recover an alleged balance due for tors, it must be kept in mind that there is a stock in said corporation, one against J. M. distinction between stock subscribed for the Nelson et al. and one against J. S. Harrison purpose of organizing the corporation and et al. The suits were consolidated. Upon stock sold by an organized corporation for trial before the court without a jury, judg- the purpose of enabling it to pay its debts or ment was rendered for the defendants. The to carry on its business. In the former case above findings of fact are substantially those it is held upon equitable grounds that the found by the trial court. The appellant subscription is a contract to pay the full par prosecutes his appeal on 62 assignments of value of the stock, if it becomes necessary to error.
In view of the disposition that we do so in order to protect creditors; in the latma ke of the case, we do not deem it necessary ter case the purchase is a contract to pay to discuss seriatum all of the matters pre only the price agreed upon, if the same be the sented in the findings of fact and in appel- fair market price of the stock purchased. lant's assignments of error.
Handley v. Stuz, 139 U. S. 417, 11 Sup. Ct.
530, 35 L. Ed. 227; Clark v. Bever, 139 U. S. Opinion.
96, 11 Sup. Ct. 468, 35 L. Ed. 88; Fogg V. [1, 2] It is well settled, as a general prop- Blair, 139 U. S. 118, 11 Sup. Ct. 476, 35 L. Ed. osition, that the capital stock of a corporation 104; Christenson v. Eno, 106 N. Y. 97, 12 N.