Hudson v. C. Eisenmayer, Sr. Milling & Elevator Co.

STAYTON, Chief Justice. On November 5,1888, P. W. and W.V. Hunt, partners in a mercantile business, conveyed to A. J. Hudson all their stock of merchandise and claims due them, "to have and to hold the above described property to him, the said A. J. Hudson, his heirs and assigns forever; in trust, however, for the following purposes, viz: Whereas that we, the said P. W. Hunt and W. V. Hunt, are indebted to the following named persons in the sums stated herein, to-wit: "First. To C. R. Breedlove, of Brenham, Texas, in the sum of §460, secured and evidenced by our promissory note payable one day after date to the order of C. R. Breedlove, with 1 per cent per month interest from date until paid, and which -note has a credit endorsed of $153.08, April 20,1888, which note is signed by P. W. Hunt alone. " Second. To all of the hereinafter named parties in the sums set opposite their names, to-wit.” (Here follows a list of creditors numbered from 2 to 65, inclusive, including the several plaintiffs in this suit.) "Now for the purpose of paying the above described notes and evidences of indebtedness to the above named persons in the order named and described herein, the said A. J. Hudson is hereby authorized and fully empowered to fake immediate possession of all of the foregoing and above described property and to sell the same for cash, and out of the pro-deeds arising from the sale of said property to pay all of the above-named debts in the order herein named owing by us as aforesaid; and said debts shall be paid off in the order named as fast as sales can be made and funds [405] can be obtained from sales of said goods, wares, and merchandise; and said A. J. Hudson shall pay all necessary expenses that may be incurred by him in selling said property (said expenses not to exceed §250 per month); and in making sales of said property the said A. J. Hudson is hereby authorized to sell the same in bulk or in parcels, or partly both ways, as to him may seem best; provided, however, that the whole of said property shall not be sold at one time unless twenty days notice of the time and place of such sale shall be given by a notice printed in the Daily Banner, a newspaper printed at Brenham, Texas; and provided further, that said A. J. Hudson shall sell all of said goods, wares, and merchandise above described for the payment of the aforesaid debts within ninety days from the date hereof. “This conveyance and delivery of property as herein set forth and enumerated is intended as a mortgage to secure the payment of the claims and debts as herein named in the order as named and to indemnify our said creditors above named; and when a sufficient quantity of said goods, wares, and merchandise shall have been sold to pay off and fully discharge all of the above enumerated claims and in the order named, and all necessary expenses incident to the sale of the same, then the remainder of such goods, wares, and merchandise, or any proceeds of such sale remaining shall be returned to us. “In testimony of all which we hereto sign our names this 5th day of November, A. D. 1888. “P. W. Hunt, “■ W. Y. Hunt, “per P. W. Hunt, attorney in fact." None other than partnership property was embraced in the instrument, nor would the power of attorney executed by W. V. Hunt, under which P. W. Hunt acted in executing it, have authorized the latter in any manner to make an instrument affecting the individual property of the former. Appellees, who were some of the beneficiaries under the instrument, brought two suits against A. J. Hudson and W. P. and W. V. Hunt, the purpose of which was to have the instrument declared an assignment under the statute for the equal benefit of all creditors and,to have it so enforced. Why the two suits were brought does not appear, but they were consolidated before trial. The prayer for relief was “for themselves and for any other bona fide creditors of said Hunt & Oo. who may establish the justice of their claims.-" Plaintiffs were six of the creditors named in the instrument, but no others were made parties, although there were sixty-five creditors named, many of whom, under the terms of the instrument, would be entitled to payment prior to plaintiffs. ' . The petition alleged that the property in- the hands of Hudson was insufficient to pay the claims which the instrument was given to secure. [406] The defendants pleaded in abatement the nonjoinder of the other secured creditors, but the court on hearing overruled the plea. We are of opinion that this was error. If it could be claimed that this was a suit by some of the creditors of Hunt & Co. in behalf of all, the facts would not justify the maintenance of such a suit by plaintiffs alone, for their pleadings show that all creditors whose names precede theirs on the list are entitled to preference under the terms of the instrument, and the purpose of this suit is to destroy that preference. The interests of all creditors given right to-priority of payment over plaintiffs is adverse to theirs, and plaintiffs for this reason can not represent them in a suit the purpose of which is to divest their rights. Hall v. Harris, 11 Texas, 303; Perry on Trusts, 873-885. If there be exceptions to th^ general rules stated by this author, it is not now necessary to consider them; nor would the ruling require more than the reversal of the judgment. The court found that Hunt & Co. were insolvent at the time the conveyance to Hudson was made; that P. W. Hunt owned some property in his individual right other than that exenpot, but the intimation is that this was of small value, and expressly found that “ there was no evidence before the court as to the individual property owned by or the individual debts of W. V. Hunt.” The aggregate of claims named in the instrument was $14,137.03, and the court found that, the estimated value of the property embraced in it did not exceed $6400. In fact only $2525.05 seems to have been realized from the assets. On final hearing the instrument was held to be a general statutory assignment and it was ordered to be administered as such for the equal benefit of all the creditors without preferences. While the court found that “Hunt & Co.” were insolvent, under the other findings it must be held that this did not amount to a finding that the persons who composed the firm were insolvent, for the court expressly found that there was no evidence showing what property W. V. Hunt owned. So long as the persons composing a copartnership are solvent the firm of which they are members can not be said, within the meaning of the statute regulating assignments, to be insolvent, for every member of a firm is bound for-the payment of all its debts. Assignments made by solvent persons are not within the reach of the statute, for that applies only to assignments made “by an insolvent debtor or in contemplation of insolvency.” Sayles’ Civ. Stats., 65a; Johnson v. Robinson, 68 Texas, 399. The burden of proving all the facts necessary to show that the instrument in question should be construed to be an assignment under the stat [407] ute rested on plaintiffs, and as the instrument does not on its face show such an assignment, it was necessary, in order to establish this to be its character, to prove that its makers were insolvent or in contemplation of insolvency at the time it was executed; for otherwise, even if the instrument could be deemed an assignment either partial or general, it would, not be under the control of the statute. Johnson v. Robinson, 68 Texas, 399; Blum v. Welborne, 58 Texas, 161. This is not a case in which plaintiffs are seeking to set aside a conveyance, but one in which they seek to have it stand and to enforce it as construed by the court, and it is therefore unnecessary to enter into any question as to its validity. The difference between an assignment for the benefit of creditors and a mortgage is clearly stated in Johnson v. Robinson, and in Watterman v. Silberberg, 67 Texas, 106. The one passes the title to the assignee, but the other only creates a lien to secure a debt, which may be enforced through foreclosure proceedings or by sale under a power conferred by the instrument. If property be conveyed in mortgage any creditor of its maker may cause it to be seized in such manner as the law prescribes and sold under execution in satisfaction of his demand, but if it'has been assigned for the benefit of creditors it has ceased to be subject to such seizure and sale, simply because it has ceased to be the property of the assignor, and creditors must then enforce such rights as they may have through the assignment or in the manner prescribed by the statute. The instrument before us is in form strictly a mortgage, and had it been shown that its makers were insolvent we would not be authorized to hold that it was an assignment. The purpose of the instrument ivas to secure as far as the mortgaged property would the payment of the debts enumerated in it, and it contains a reservation of right to any surplus. ' The payment of the enumerated debts would have canceled it or deprived it of any effect, and the property would have stood as though it had never been executed. Such instruments have steadily been held to be mortgages. Stiles v. Hill, 62 Texas, 430; Jackson v. Harby, 65 Texas, 710; Baldwin v. Peet, 22 Texas, 718; Watterman v. Silberberg, 67 Texas, 100. To hold otherwise would be to do violence to the settled principles of the law, as well as to the intent of the parties. The object in this case is to have that which is clearly a mortgage and nothing else declared a general assignment for the benefit of creditors. This can not be claimed from the language used in the instrument, nor from the evident purpose for which it was executed. That purpose was to secure as far as the property would the payment of enumerated debts, and to give some of them priority of others. [408] Delivered January 30, 1891. ■ The real ground on which this claim is made doubtless is that such conveyances to secure debts are illegal, because in contravention of the statute regulating general assignments. It must be presumed that the Legislature understood the difference be-. tween assignments for the benefit of creditors and mortgages to secure creditors, and it can not be held that the Legislature intended the declaration that “ any attempted preference of one creditor or creditors of such assignor shall be deemed fraudulent and without effect” should operate a denial, even to an insolvent, of the right to make a mortgage whereby some creditors would obtain over others preference; This case, as well as others that have been before this court, however, have proceeded upon the theory that such was the effect of the language above quoted, which is found in the law regulating general assignments. The contrary has been steadily held. La Belle v. Tidball, 59 Texas, 291; Stiles v. Hill, 62 Texas, 430; Watterman v. Silberberg, 67 Texas, 100, and cases cited. Any other ruling would involve judicial legislation. If the Legislature deems it proper to prohibit any person, solvent or insolvent, from giving preferences through mortgages as well as through assignments, a law to that effect can be passed, but in the absence of such a law this court can* not hold that a debtor may not give preferences through mortgages to secure just debts if the same be done in good faith, although he be insolvent, simply because the Legislature has declared that such a debtor assigning all his property for the benefit of all his creditors shall not give preferences. We think the court below erred in holding that the instrument in question operated as a general assignment; and that if it had not erred in this respect, there was error in holding that it would have been governed by the law governing general assignments by insolvents, for there was no proof of insolvency of the makers of the instrument; and further in not holding that at least some of the creditors not before the court were necessary parties. We have not deemed it necessary to consider the fact that the instrument did not purport to convey any but partnership property. For the errors noticed the judgment of the court below will be reversed and here rendered for appellants. Reversed and rendered. Justice Gaines did not sit in this case.