Shore v. Carl

HALL, ¡C. J. Sixty-two parties, including the plaintiff in this suit, C. H. Carl, D. F. Ashbrook, and O. M. Shore, signed the following subscription agreement: “Hereford, Tex., March, 1921. “We, the undersigned, hereby associate ourselves together for the purpose of establishing a sanitarium in the town of Hereford, to be known as the Hereford Sanitarium. “We hereby select and appoint George L. Muse as our trustee and agree to pay to the said Muse the several sums of money written opposite our names, upon demand; provided that as much as ($3,000.00) three thousand dollars is hereto subscribed. “It being our desire, however, to raise more [290] than $3,000.00 at this time. It is our purpose when as much as $3,000.00 is subscribed to meet and organize and make and adopt and enter into additional contracts, agreements, rules, and regulations pertaining to this movement, and the future management and conduct of same. “It is our further purpose as soon as said $3',000.00 is subscribed to purchase what is known as the Carl House, situated, on lots 13, 14, 15, 16, 17 and 18, in block No. 32 in the town of Hereford, and to improve, rearrange and prepare said lots and the buildings thereon to be used for a sanitarium. Said sanitarium to be controlled by us, and to be open to the use of all physicians and surgeons.” Each of the 62 signers subscribed $100. On March 7, 1921, C. EC. Carl, the plaintiff in this suit, and the defendant in error here, entered into a written contract of sale of the lots described in the subscription agreement, with “George L. Muse, trustee, acting for the Hereford Sanitarium,” by the terms of which Carl agreed to convey said lots by general warranty deed to Muse, “or some one to be named by the Hereford Sanitarium.” The consideration expressed in the contract of sale is $8,000, payable as follows: “$2,000.00 is to be paid in cash on the consummation of this contract, and 6 notes are to be executed for $1,000.00 each, payable in 1, 2, 3, 4, 5, and 6 years after date, bearing interest from date at the rate of 7 per cent, per annum. Said notes shall be executed either by the trustee or some other person to be designated by the Hereford Sanitarium, which shall create no personal liability on the part of the individuals signing them.” Then follows stipulations with reference to the furnishing’of an abstract and its examination, the correction of objections, if any, and the' consummation of the sale on ox-before April 4, 1921. These, with other provisions governing thei delivery of possession providing that the notes shall retain a vendor’s lien and be secured by a trust deed with power of sale, are not set out in full, as they have no bearing on the issues presented hei-e. Then follows this stipulation: “It is also understood and agreed that the first party for the consideration above mentioned shall also convey to the second party, or to the Hereford Sanitarium, the personal property described on the inventory attached hereto which includes the household and kitchen furniture, beds and bedding, sheets, pillowcases, blankets and quilts now on the premises, as well as all floor coverings.” On the 2d day of April, 1921, the plaintiff Carl and wife, by deed reciting the consideration as above agreed upon, conveyed the property to U. E. Ashbrook, “as trustee.” The conveyance is in .the usual form of a deed containing covenants of warranty and reserving the vendor’s lien, hut, in addition, contains these recitals: “It being understood that the trustee is not and shall not be personally liable for the payment of said notes or either of them or any interest thereon, but that the same shall be secured by the vendor’s lien on the hereinafter described lands as hereinafter provided and specified, have granted, sold and conveyed, and by these presents do grant, sell and convey unto the said D. E. Ashbrook, as trustee for the said Hereford Sanitarium, as beneficiary, for the use and benefit of the said Hereford Sanitarium, the following described lands.” The habendum and tenendum clause is to Ashbi-ook as ti-ustee foi- the use and benefit of the said Hereford Sanitarium, its successors, assigns, and legal repi-esentatives. Then follows this recital: “The said D. F. Ashbrook, as such trustee, is hereby given and granted the right, power and authority to at any time sell said premises or any part thereof at such price and on such terms as to him, the said D. F. Ashbrook, may seem best, and when said sale or sales are made, then the said D. F. Ashbrook is fully authorized and empowered to execute, acknowledge and deliver to the purchaser or purchasers thereof a deed of conveyance, with or without warranty, as he may deem best, and such sale or sales shall be valid, effective, conclusive and binding without the consent or joinder of the beneficiaries or either of them, and the purchaser or purchasers shall not be required to look to the application of the consideration or proceeds of the sale or sales to them. The power of sale contained herein is irrevocable and shall survive to the administrator or administrators, executor or executors of the said D. F. Ashbrook, trustee. “The said trustee, as above provided, not being personally liable for the payment of said notes or either of them, or any interest thereon.” The six notes as provided in the contract of sale were executed on Api-il 2, 1921, containing the usual acceleration clause, signed, “Hereford Sanitarium, by D. F. Ashbrook, trastee,” and l-ecite as follows: “The said D. F. Ashbrook, as trustee, is not and shall not be held personally liable to pay said notes or any part thereof, or any interest thereon, said notes having been executed by him as trustee for the benefit of the said Sanitarium.” To each of the 62 subscribers thei-e was afterwards issued a certificate of stock cex--tifying that the holder is the owner of one share of the capital stock of the Hereford Sanitarium, a joint-stock association, transferable only on the books of the association. In obedience to notices mailed to each of the subscribers, and which was also published in the local newspaper, 25 of the subscribers met at an appointed place on the 7th day of March, 1921, for the purpose, as disclosed by the minutes of the meeting, to perfect the organization of the association and the election of a board of directors. At this meeting D. F. Ashbrook, Homer Wilkinson, and H. F. Oberthier were elected directors, and D. F. Ashbrook was elected, trus [291] tee. A committee of three was appointed at that meeting to prepare by-laws and to report its action to an adjourned meeting to be held on the 21st day of March thereafter. Said by-laws, amongst other provisions, to provide for an advisory board of five to be composed of two men and three^ women, and that the annual meeting of the association for the election of other directors to succeed the board then acting should thei-eafter be held on the second Monday of January of each year. The adjourned meeting to receive the report of the committee on by-laws met on March 21st with nine of the subscribers present, at which meeting the committee on by-laws reported and its report was adopted. Such articles of the by-laws as are material to the issues here discussed will be hereinafter referred to. Upon default in the payment of any of the notes above referred to, or any installment of interest, the plaintiff Carl declared the entire seines of notes due, and this suit was filed against all of the stockholders, alleging that they were partners composing a nontrading firm under the style of the Hei’eford Sanitarium. The prayer is for foreclosure of the vendor’s lien against all of the. defendants for an accounting and settlement of the affairs of the association, for judgment against defendants for the amounts sued for, and for costs. Other parties claiming liens for labor and material were made parties to the suit. The defendants answered by general demurrer, special exceptions, general denial, a verified, plea denying partnership, and alleging that the Hereford Sanitarium was a joint-stock company in which the plaintiff was a stockholder. They set out the proceedings of the first meeting on March 7, 1921, and of the adjourned meeting on March 21, 1921. Declaration is made of the above-quoted recitals from the subscription contract, contract of sale, deed, and notes, with reference to the trusteeship of Ash-brook, and charge that the deed and recitations therein relieve Ashbrook and all other defendants from personal liability on said notes; that it was understood and agreed between plaintiff and the defendant Ash-brook, who was acting as trustee for his co-defendant, that in case the said land was purchased from plaintiff that he would not hold any of the members of said .Hereford Sanitarium personally liable on said notes or either of them, but that he would look solely to the land described in the deed for security and for the payment of said notes. By supplemental petition, the plaintiff, Carl, alleged that prior to and at the time of the organization of the association, it was the desire of all parties to raise more than $3,000; that 03 names subscribing in the aggregate $6,300 were signed to the subscription agreement before the meeting of March 7th, which meeting was attended by only 26 subscribers, and that plaintiff attended only that meeting; that the. only authority ever attempted to be conferred upon the trustees was specified in the by-laws which were adopted by only nine stockholders, including the three .members constituting the board of directors and said trustee; that .no further organization was ever effected, and nothing further done except the issuance of the certificates of stock; the entire affairs being handled in such way as to constitute the stockholders partners. It is further alleged that the deed and notes were prepared by Ashbrook or his attorney; that it was never intended that the recitals therein should relieve him from liability except as trustee, and that nothing was ever said or intended as to Ashbrook being placed in a better position than other members of the association; that such wording was a mutual mistake and. was accomplished by the fraud and deceit of Ashbrook, and was in no sense binding on the plaintiff. He further alleges that the defendants had been receiving and appropriating the rents and income from the property without accounting to plaintiff therefor or for any part thereof, and that any alleged agreement'that the property should furnish plaintiff’s only security would have included the rents and incomes which amounted to $1,800 for the first year, none of which was ever turned over to him. The case was submitted to a jury upon the following three special issues, all of which were answered in the negative: (1) Did plaintiff, at tlie time of or prior to the execution of the deed and the notes, agree that the party signing the notes would not be held personally liable on same? (2) Did the plaintiff, at the time of or prior to the execution of deed and notes, agree that plaintiffs in error should not be held personally liable on said notes, but that he would look solely to the property for payment of same? (3) Did plaintiff agree to relieve the members of the Hereford Sanitarium from personal liability on the notes sued on? Based upon this verdict, the court rendered judgment in favor of plaintiff, against all of the defendants for the full amount of the notes and foreclosing the vendor’s lien. The first proposition complains of the failure of the court in refusing to direct the jury that none of the defendants were personally liable to plaintiff on the notes sued on; and under the second proposition, it is insisted that where a number of defendants are «sued as partners, and the allegation of partnership is denied under oath, it is error for the court to render judgment against the defendants where the evidence showed that they were not partners but stockholders in a, joint-stock association. These contentions will be considered together. It will not be necessary to determine whether [292] under the record before us the association is a joint-stock company or a joint adventure, because in either event the defendants would be liable as partners to third parties who sued each of the creditors of the association. There is. nothing in any of the instruments referred to above which tends in any way to show that the Hereford Sanitarium was not, in legal effect, a partnership under the rule announced by the Supreme Court in the following cases: Thompson v. Schmitt, 274 S. W. 554; Victor Refining Co. v. City National Bank of Commerce, 274 S. W. 561; Hollister v. McCamey, 274 S. W. 562; Howe v. Keystone Pipe & Supply Co., 274 S. W. 563. In entering the judgment the court took into consideration the fact that plaintiff, Carl, owned a %3 interest in the property and rendered judgment against the defendants for an amount equal to 6%3 of the indebtedness sued for. Under the doctrine announced in the above-cited cases, we think it is clear that the defendants, except Ashbrook, were liable as partners, unless they were relieved from liability by their alleged agreement with Carl that he should look alone to the property in question for his security and for the payment of his indebtedness, and this issue has been decided against them by the finding of the jury. The jury having also found that Carl did not agree that Ashbrook would not be held personally liable upon the notes, the judgment was properly entered against him as one of the partners upon the presumed finding by the court that the recitals in the deed and note, purporting to relieve him from personal liability, were inserted by him through mistake' or in fraud of plaintiff. This issue was not submitted to the jury. The power of attorney was incorporated in the deed for the purpose of enabling Ashbrook or his legal representatives therein designated to execute a valid conveyance of the property if it should ever be sold voluntarily, and, manifestly, is of no importance and has no controlling influence where the sale is to be made under judicial decree. Since by the terms of the articles of association the active management of the sanitarium was to be in the hands of its board of trustees, acting with the advisory council composed of two men and three women, the trust is as to Ashbrook merely a passive, dry, or simple trust, as it is variously termed, without any power of control upon his part. Southern Pine Lumber Co. v. Arnold (Tex. Civ. App.) 139 S. W. 917; 39 Cyc. 30; 26 R. C. L. 1173; 3 Bouvier’s Law Dictionary, 3329. In other words, he is donee of the particular power limited by the express terms of the deed itself. 21 R. C. L. 771-773. What has been said disposes of all the appellants’ propositions; nevertheless, the judgment must be reversed for fundamental error on the part of the plaintiff in failing to make the Hereford Sanitarium a party to the suit. The conveyance is to Ashbrook as “trustee for the Hereford Sanitarium,” the beneficiary. The general rule is that in suits involving the title to trust property, the beneficiary, as well as the trustee, is a necessary party. Milmo National Bank v. Cobbs, 53 Tex. Civ. App. 1, 115 S. W. 345; Cotton v. Coit, 88 Tex. 414, 31 S. W. 1061; Ebell v. Bursinger, 70 Tex. 120, 8 S. W. 77. There are numerous exceptions to this rule, but, this case does not fall within any of them. The doctrine of virtual representation has no application, for the reason that Carl occupies a dual relationship to the association, the one independent of the other, viz., first as a stockholder, and second as creditor. It is in the latter capacity that he brings this suit; and the case is, therefore, distinguishable from Bingham v. Graham (Tex. Civ. App.) 220 S. W. 105, and the cases therein cited. It is true that so far as the record discloses, all the stockholders' have been made parties, and while they have such interest in the property in suit as may be represented by their certificates of stock, the Hereford Sanitarium, as a joint-stock association, is the named beneficiary in the deed. The statutes of Texas clearly, contemplate that joint-stock associations as such, rather than the individual stockholders, shall be made parties. It is provided by art. 2029, Rev. St. 1925, that in suits against joint-stock associations the citation shall be served on either of certain officials or agents of the association. Article 6133 provides that a joint-stock association may sue or be sued in its distinguishing name, and that it shall not be necessary to make the individual stockholders parties to the suit. Article 6134 names the officers upon whom citation may be served. Article 6135 provides" that judgments rendered in suits against the association shall be as conclusive upon the stockholders as if they had been individually made parties to the suit; and artiéle 6136 provides that where the association alone is made a party by service upon its named officials or agents, the judgment shall be binding on the joint property, but not upon the property of the individual stockholders, and- that such judgment will not authorize execution against them; and it is especially provided by article 6137 that even though the association and the individual stockholders have all been made parties, no execution shall issue against the individual property of the stockholders until execution has first been issued against the joint property and returned unsatisfied. The only reasonable inference from these statutes is that a joint-stock association, as such, is, within the intent of the • Legislature, a legal entity, at least, for the purpose of suing or being sued; and it follows that it must have been made a party before execution can be issued against the property held by the association. Bingham [293] v. Graham, supra; Graham v. Omar Gasoline Co, (Tex. Civ. App.) 253 S. W. 896; Wichita Lumber Co. v. Maer (Tex. Civ. App.) 235 S. W. 990; Crow v. Cattlemen’s Trust Co. (Tex. Civ. App.) 198 S. W. 1047. The general rule being that a cestui que trust is a necessary party to a suit of this character, it follows that the judgment rendered in this case would not be a bar to a suit by the sanitarium instituted as a legal entity, under the authority of the above-mentioned statutes, to redeem the property from a purchaser at a sale made under an execution based upon the judgment. For the reasons stated, the judgment is reversed, and the cause is remanded.