The J.O. Wright Tobacco Company was chartered under general law to do a wholesale tobacco business in Fort Worth. After a brief business career, it became insolvent, and, by the unanimous action of its shareholders, abandoned the undertaking and placed its entire assets (personalty only) in the hands of the president and other directors as trustees, for distribution ratably among its several creditors.
After it had thus ceased to do business, and after a partial distribution had been made by these trustees among the creditors, including Lichtenstein Bros. Co., the latter company, a foreign corporation, caused the rest of the goods to be seized by the sheriff under its attachment for the balance of its debt against the tobacco company, indemnifying the officer for making the levy. This suit was brought by the trustees for the benefit of the creditors against the sheriff and the surety indemnitors for the value of the goods so seized.
To their petition stating in detail the case above outlined, the court sustained a general demurrer, and to that action error is assigned.
It is no longer an open question in this State that the assets of a private trading corporation which has failed in business by reason of insolvency become a trust fund for the benefit of all its creditors alike. Lyons-Thomas Hardware Co. v. Perry Stove Mfg. Co., 86 Tex. 143. The decision construes our corporation statutes, and holds that, as to creditors, the consequences of insolvency and abandonment of the enterprise on the part of the corporation are the same as in case of technical dissolution. It seems that the decision rests rather upon this ground than upon the weight of authority, for but few cases elsewhere appear to have carried this trust fund doctrine of modern growth quite so far as this case has done. See note in 22 Law Rep. Ann., 802.
The statute so construed converts the president and directors or managers, upon dissolution, into trustees for the creditors, and empowers them to maintain and defend judicial proceedings. Rev. Stat., art. 605. *Page 138 In view of this construction, therefore, when the stockholders of the corporation in question found that it was hopelessly insolvent, as alleged, and could no further prosecute its business in good faith, it became their duty to the creditors, we think, to at once discontinue the business and place the assets in the hands of trustees for equitable distribution among all of them. This they did, and thereby divested themselves, and consequently the corporation, of all interest in the property.
The distinction in theory between a corporation and its shareholders is without force in such case. The one is equivalent to the other. The stockholders all participated in the meeting at which with unanimity the entire assets were thus turned over to trustees for the creditors. The transaction had all the essential features of a general assignment, and lacked only a formal conveyance. As the property was all personalty, a deed under seal was not required.
The attaching creditor, prior to suing out the attachment, accepted its pro rata part, so far as distribution had been made by these trustees to whom the assets had thus been assigned. The effect of taking under an assignment was thus stated in one of Judge Stayton's opinions, to support which numerous cases were cited: "It is very generally, if not uniformly, held that one who takes dividends under even an invalid assignment is precluded from controverting its validity in its entirety." Roberson v. Tonn, 76 Tex. 542.
We are of opinion, therefore, that as the corporation no longer had any interest in or possession of the property when it was levied on, the seizure was not authorized by our statute directing how and when levies may be made, and that the trustees were entitled to recover the full value of the property so converted.
The cases cited by appellees from the Court of Civil Appeals of the First and Third Districts, Florsheim Bros. Dry Goods Co. v. Wettermark, 30 S.W. Rep., 505, and Harrigan v. Quay, 27 S.W. Rep., 897, did not have all the features of this case, and we doubt if those cases can be reconciled with the opinion of the Supreme Court in Lyons-Thomas Hardware Co. v. Perry Stove Mfg. Co., supra. They proceed upon the maxim that both law and equity favor the diligent creditor. The wisdom of the maxim is not doubted, but it hardly seems equitable to reward diligence when it is employed by the hand of a greedy creditor to lay hold of and appropriate to his exclusive benefit a trust fund to the greater part of which other creditors are equitably entitled.
But, however that may be, our conclusion is that the petition in this case stated a cause of action, and that for the error in sustaining a general demurrer thereto the judgment should be reversed and the cause remanded for trail on the facts.
Reversed and remanded. *Page 139
ON MOTION FOR REHEARING.