Smith v. Wayman

• Decision Date: 02 November 1949
• Docket Number: No. A-2103.,A-2103.
• Citation: 224 S.W.2d 211
• Parties: SMITH et al. v. WAYMAN et al.
• Court: Texas Supreme Court

224 S.W.2d 211

SMITH et al. v. WAYMAN et al.

No. A-2103.

Supreme Court of Texas.

November 2, 1949.

Rehearing Denied November 30, 1949.

Walter B. Morgan, Crockett, Adams & Morgan, Crockett, for petitioners.

J. G. Beasley, Jr., Crockett, Vinson, Elkins, Weems & Francis, Houston, Wayman, Dibrell & Greer, Galveston, James W. Wayman, Galveston, Critz, Kuykendall, Bauknight & Stevenson, Austin, Richard Critz, Austin, for respondents.

GRIFFIN, Justice.

This case involves the validity and effectiveness of receivership proceedings in connection with the winding up of the affairs of Smith Brothers, a partnership, which was dissolved by the death of one of the two partners. The present controversy is between the devisees of the deceased partner and of his wife and the assignee of the surviving partner, as plaintiffs, and parties claiming title to two tracts of land, part of the firm assets, through a receivers' sale, as defendants. The opinion of the Court of Civil Appeals is reported in 216 S.W.2d 837.

On October 25, 1930, J. H. (Jim) Smith and F. A. (Albert) Smith were partners in an extensive business enterprise operating farms, ranches, city properties, city development projects, hotels, office buildings, and many other lines of economic activities. On such date they entered into a written agreement providing for the "management, disposition, control and settlement of all of the affairs of said partnership in case of the death of either of said partners, and in order to relieve the surviving partner of the responsibility and more or less burden of the management of all of the property belonging to said partnership at the time of the death of either of said partners," and making settlement of the outstanding and existing obligations of said partnership. By such instrument the partners did "grant, sell & convey" unto Reagan Houston of Bexar County, Texas, and four others "all of the property of whatsoever kind, including real, personal and mixed, wheresoever situated, which may be owned, held and controlled by the said partnership of Smith Brothers, at the time of the death of either of said partners." The conveyance was made to Reagan Houston and the four others "as Trustees, for the uses, purposes and with the authority herein stated, with full power and authority to possess, manage, preserve, sell, mortgage and lease any or all of said property, with as little delay as possible after the death of either of said partners, having due regard to the best interests of said Trust Estate, for and upon the following conditions, viz:", and here is set out, first to pay all debts and legal obligations due by the partnership "at the time of the death of either of said partners" and second: After the payment of all debts and obligations to deliver "one-half of the then remaining trust estate" to the surviving partner and one-half to the heirs or legal representatives of the deceased partners." Also "in order to the more rapidly, expeditiously and with as little sacrifice of said Trust Estate as may be possible, to make full, complete and satisfactory settlement of all of the debts and obligations of said partnership, full power and authority is hereby given to said Trustees to institute and defend all actions which may be necessary or required for the benefit of the Trust Estate vesting in said Trustees full and complete discretionary power to the end that the trust may be administered to the most beneficial interest of the Trust Estate; with full power and authority to employ all necessary Agent and Attorneys in the execution of said trust; to collect in the property and assets belonging to the Trust Estate hereby created, and in the collection of the assets and obligations which may be due said Trust Estate, said Trustees are given full power and authority to use and exercise their discretion in the settlement and compromise of any claims which may be due with full power, authority and discretion to so manage, hold, possess and dispose of said Trust Estate as to prevent any undue sacrifice of the trust property, unless, in the discretion of said Trustees same should be necessary in order to make required payments of any outstanding obligations which might be due or owing by said partnership at the time of the death of either of said partners." (Italics ours.) Provision was made for successor trustee to be appointed by the remaining trustees (and such appointee "who might be satisfactory to the surviving partner.") with same power and authority as original trustees. Further, the instrument provided, "In the administration and execution of the trust herein given and granted it is the intention, purpose and desire of the said F. A. Smith and J. H. Smith that the outstanding and existing legal obligations of the co-partnership of Smith Brothers shall be paid out of the assets of the Trust Estate with as little delay as may be required in the discretion of said Trustees, but, in the event undue demands should be made by any creditor, which, in the judgment of said Trustees, would result in sacrifice of the assets of the Trust Estate, we hereby give and grant to said Trustees five years from the date of coming into possession of said Trust Estate within which to execute said Trust, and to that end said Trustees may accept said trust under proper orders of the Court having jurisdiction and shall execute and administer said trust in accordance with the orders of said Court, and in conformity with the Will of the deceased partner. In no event, however, shall any bond or bonds be required of said Trustees." This instrument was duly signed, acknowledged by F. A. & J. H. Smith on the day of its execution and filed for record February 5, 1931, in Houston County, Texas (the place of residence of the partners) after the death of J. H. Smith, Dec. 20, 1930.

J. H. Smith made his will on the day the trust agreement was executed, and paragraph 4 thereof is as follows: "Fourth: In view of the fact that the greater portion of my estate or the property now owned by me consists of my one-half interest in the partnership property of the firm of Smith Brothers, and that all of said partnership property has been conveyed in Trust to five Trustees, designated in a certain written instrument this day executed by F. A. Smith and me as composing said partnership, it is contemplated that my Executrix, hereinafter named will not come into possession of my share of the property of said partnership until after the execution and administration of said Trust, and I direct that paragraph `Third' above shall not apply and become operative until such time as such Trustees shall deliver said property to my said Executrix."

The paragraph Third above referred to gave his Executrix power to sell his property.

Pararaph Sixth of his will appointed the five trustees named in the partnership instrument as coexecutors without bond with his wife, Alice Smith, if in the discretion of said Trustees it should become necessary for them to qualify as such coexecutors to preserve that part of his estate coming to or emanating from the copartnership of Smith Brothers in order to prevent any undue sacrifice of his estate by the demands of his creditors. The trustees never did qualify or act as coexecutors of the estate of J. H. Smith.

After the death of J. H. Smith the five trustees named in the instrument took charge of the partnership estate with the acquiescence and consent of the surviving partner, the widow of the deceased partner and his heirs and legal representatives. No complaint has ever been made to such action on the part of the five trustees.

May 6, 1932 W. L. Moody Cotton Company of Galveston, Texas, filed suit No. 6741 in the District Court of Houston County, Texas, against Reagan Houston and the four other trustees only (not making the surviving partner F. A. Smith nor the widow and the heirs, legatees or legal representatives of the deceased partner J. H. Smith parties to the suit). In this suit the plaintiff cotton company alleged the existence of the partnership of Smith Brothers and the execution of the trust instrument which was set out in the petition in full; it alleged the death of J. H. Smith and that the trustees named went into possession of the property immediately thereafter and that the trustees were still in possession of all of the partnership property and described the property. The property was farms, ranches, city lots, business buildings in cities and towns, 500 head of cattle, horses and mules, and sheep, notes, bonds, bank stocks, stocks in business corporations, hotels, bridge companies, coal companies, insurance companies, grocery company, cement manufacturing company, a prominent drygoods house, and other odds and ends. The detailed description of the property in the petition takes up 19 pages in the Statement of Facts filed in this Court. The petition alleges that as of Dec. 31, 1931 the obligations of the partnership amounted to $2,150,611.08 of which $1,192,494.97 was overdue or would mature within 60 days. Also the petition alleged various deeds of trust and mortgages against various properties, delinquent taxes, and further endorsements and guarantees of J. H. Smith & F. A. Smith on various stocks and bonds totaling the sum of $1,980,000.00, and that such obligation is a primary charge against the trust estate. The petition further alleges that secured and unsecured creditors are threatening to sue and to foreclose and that as a result the assets and properties of the trust estate will be sold for inadequate prices and thus dissipated, and that the defendant trustees are unable to arrange the necessary funds to pay taxes, interest, and current expenses. Plaintiff then alleges it is a lien holder to the extent of holding 1661 bales of cotton as security for its debt of $233,889.49 and that when the cotton is sold and proceeds applied it will still be a creditor to the amount of more than $186,000.00 and as such...