Galveston, Harrisburg & San Antonio R. R. Co. v. Butler

• Citation: 56 Tex. 506
• Decision Date: 21 March 1882
• Docket Number: Case No. 1336.
• Court: Supreme Court of Texas
• Parties: GALVESTON, HARRISBURG & SAN ANTONIO R. R. CO. v. EMELINE L. BUTLER.

56 Tex. 506

GALVESTON, HARRISBURG & SAN ANTONIO R. R. CO.

v.EMELINE L. BUTLER.

Case No. 1336.

Supreme Court of Texas.

Mar. 21, 1882.

APPEAL from Harris. Tried below before the Hon. James Masterson.

The Buffalo Bayou, Brazos & Colorado Railway Company being indebted to George Butler, the husband of appellee, prior to the 11th of June, 1868, the said Butler recovered a judgment against said company on the 18th of June, 1868. Seven days previous--on the 11th of June, 1868--the company executed an assignment of their railway, etc., to E. P. Hill, trustee, as a preliminary step and as one of the means of accomplishing a full and complete sale and transfer of said railway, etc., to a new company then contemplated and provided for in said assignment. The consideration for which was the payment of the debts of the old company and the annual payment of $4,000 until such annual payment should cease by the payment of $200,000 in bonds of the new company or in money, etc.

The new company was organized under the name of the old company, and by act of the legislature the name of the company was changed to “The Galveston, Harrisburg & San Antonio Railway Company.”

As contemplated in the assignment, the new company purchased at sheriff's and trustees' sales said railway, and on or about the 1st of May, 1874, received and accepted from said Hill a full and complete transfer of said railway, etc., as was vested in said Hill by said assignment.

Afterwards George Butler transferred said judgment to his wife, the said Emiline L. Butler, as her own separate property.

Afterwards said Emiline, joined by her husband, in an action of debt on said judgment against James Sorley and others, surviving directors and trustees of said old company, recovered judgment against them on the 6th day of February, 1880. Executions issued on said judgment and were returned “no property.” Afterwards, on the 12th of April, 1880, this suit was filed against the surviving trustees and the new company, to subject the indebtedness of said new company to said trustees to the payment of said judgment. The trustees failing to answer, judgment was rendered against them by default.

The new company filed a demurrer, and pleaded the statute of limitations against the $4,000 annual rental of the Columbus Tap, etc., and also pleaded that the debts due and owing to the creditors of the old company, of the same class and standing in law as plaintiff's claim, far exceeded its assets, and that plaintiff was not in any event entitled to have more than a pro rata of such assets upon the distribution thereof among the creditors, which last plea, on exception, was stricken out and the demurrer overruled and judgment rendered for plaintiffs, providing protection for the new company against future liability pro tanto.

From that judgment the new company prosecuted this appeal.

E. P. Hill, for appellant.

I. The court erred in overruling the demurrer of defendant to the petition of plaintiff.

1. So long as the trustees do not refuse to discharge the trusts reposed in them, so long as there is no violation of duty or conduct on their part prejudicial or inimical to the rights of the cestui que trust, the latter cannot institute or prosecute any proceedings which it is the right and duty of the trustees under the statute to institute and prosecute, and can exercise no control over them in the discharge of their duties. 11 Wall., 177; Field on Corporations, sec. 406, and cases cited in note 2, p. 432.

II. The court erred in sustaining the exceptions of plaintiff to the answer of defendant.

1. The effect of the statute (R. S., art. 4264) is to make the assets of the sold-old corporation, which is utterly extinguished, a trust fund to be administered by the trustees appointed by the statute (unless other persons shall be appointed by the court or legislature). It follows that such fund is to be administered for the common benefit of all the cestui que trusts, and no one of them has a right to payment in full of his debt, when the fund is insufficient to pay all the debts in full. There must be a pro rata distribution in such case. Pollard v. Bailey, 20 Wall., 527;Terry v. Tubman, 2 Otto, 161;Terry v. Little, 11 Otto, 216.

It must be supposed that the legislature had a purpose in view in enacting the law (art. 4264, R. S.), and the court will give effect to that purpose. The effect and intention of the law is plainly to create an express trust for the benefit of creditors. In other words, the effect of the act is to assign the assets of a sold-out railroad corporation to trustees for the benefit of creditors. Bliss on Code Pl., sec. 81, note 4, last sentence; Hallett v. Hallett, 2 Paige, 18;Egbert v. Woods, 3 Paige, 520; 1 Daniel's Ch. Pl. & Prac., p. 285, note 2; pp. 287-9; p. 293, note 2; Perry on Trusts, secs. 594, 602; 2 Story's Eq., sec. 1037; Story's Eq. Pl., sec. 157; R. R. Co. v. Le Gierse, 51 Tex., 189;Thomas v. Walsh, 44 Tex., 160;Caton v. Jones, 21 Tex., 788. If the theory of plaintiff's counsel be correct, then the demurrer should have been sustained, because the remedy simply of a writ of garnishment should have been pursued.

John T. Brady and Jas. G. Walker, for appellee.

GOULD, CHIEF JUSTICE.

In its leading features and in the questions involved this case does not materially differ from the case of the same company against McDonald, 53 Tex., 510. In that case the judgment was affirmed, and in this case, after a very careful reconsideration of the questions presented, our conclusion is the same,--that this judgment also should be affirmed. It is deemed proper, however, to state our views sufficiently to prevent any possible mistake or misconception as to the grounds on which our conclusion is reached. In the first place, we do not regard this as a bill in equity by one creditor to enforce his right to payment out of a trust fund created for the common benefit of himself and other creditors, wherein he seeks to proceed regardless of the rights of other creditors, and to appropriate to himself a fund insufficient to meet the demands of all entitled to it.

The authorities are clear that a creditor seeking to enforce the trusts under an assignment cannot sue alone, but must either make the other creditors parties, or must bring his suit in behalf of himself and all the other creditors who may choose to come in and take the benefits of the decree. Story's Eq. Pl., secs. 8, 157 and 219 a; Perry on Trusts, sec. 594; 1 Dan. Ch. Pr., 1st Am. ed., p. 285; Bispham's Eq., 469, 470; Pomeroy on Remedies, sec. 358. Where there is an insufficient trust fund, it would be clearly inequitable to aid one of the beneficiaries, having no rights superior to the others, to appropriate more than his pro rata share of the fund, and that too without giving the other beneficiaries an opportunity to contest his proceeding. If the petition of Mrs. Butler stated such a case, or if in the progress of the case it appeared that such was the character of the case, the plainest principles of equity would be violated by granting the aid of the court to the consummation of such a wrong.

The authorities relied on by the appellees to show that other creditors were not necessary parties will be found insufficient to support this case, if indeed it had been one of the character just described. McDermutt v. Strong was a case in which a creditor had acquired a lien superior to that of...