Sherk v. First Nat. Bank of Hereford

HUFF, C. J.

The appellant, A. L. Sherk, brought suit against the First National Bank of Hereford and J. L. Fuqua. The petition of appellant in the first count is one of trespass to try title to lots 13, 14, and 15, block 10, of the town of Hereford. In the second count appellant alleges: That he and one James Stenek about September, 1908, entered into a partnership agreement under the firm name of Sherk & 'Stenek, in the town of Hereford, for the purpose of conducting a livery, feed, and sale stable. That it was mutually understood and agreed that each was to contribute one-half of all the money necessary. A. L. Sherk and James Stenek purchased from J. F. Easterwood the above lots on which was situated a barn, for the purpose of conducting said business. $6,000 was the agreed consideration for the lots. $1,500 cash was paid, which it is alleged plaintiff paid himself, and no part of which was paid by Stenek. For the remaining sum, $4,500, Sherk and Stenek executed their vendor’s lien note, dated September 9, 1908, due six months after date, bearing interest at the rate of 10 per cent, from date until paid, which note plaintiff alleges he thereafter paid in full. That at the time of entering into said partnership he and Stenek borrowed from the First State Bank & Trust Company of Hereford, $7,575.80, for which they executed their joint note with interest at 10 per cent, from maturity and which matured September 15,1909. That appellant paid on said note $2,500 and has agreed to pay the balance, and that Stenek paid no part of said note and is released therefrom. That plaintiff placed $1,000 worth of improvements on said lots out of his individual funds. Appellant further alleges, in consideration of said improvements, and on account of said payments for Stenek and the assumption of the partnership indebtedness, that Stenek executed his warranty deed to all of said premises and improvements above described, dated March 21, 1910, conveying all of the interest Stenek had in said premises. Appellant further alleges on or about the 19th day of February the appellees filed for record and had recorded with the county clerk of Deaf Smith county a certain deed of trust on said lots 13, 14, and 15, block 10, original town of Hereford, to secure the payment of certain indebtedness due by said James Stenek to the appel-lee First National Bank, with appellee J. L. Fuqua as trustee named in said deed of trust; that the deed of trust was given to secure indebtedness evidenced by notes executed by James Stenek and by James Stenek and one O. E. Rood; that no part of said indebtedness was due or owing by appellant or by the partnership of Sherk & Stenek; and that said firm at that time was insolvent. The appellant asked for title and possession of the lots, or, if that could not be decreed to him, that he have his judgment, fixing a partnership lien on Stenek’s interest in said property and decreeing Sherk’s said lien a prior lien to any lien of the appellees which they assert under said deed of trust. Appellant prayed that the partnership lien so found should be decreed to secure him in the payment of the sum of $7,287.90, together with all interest due thereon.

The appellees set up the deed of trust on said lots and other property to secure the indebtedness set out in appellant’s petition as owing by Stenek individually and by Stenek and O. E. Rood, praying that it be adjudged a prior lien over the asserted lien of appellant, etc.

The appellant introduced a warranty deed from J. F. Easterwood to A. L. Sherk and James Stenek, reciting a consideration of $6,000; $1,500 cash, and $4,500 evidenced by a promissory note conveying lots 13, 14, and 15,- block 10, original town of Hereford. This deed is dated September 9, 1908, and was filed for record March 11, 1910. Appellant also introduced a warranty deed from James Stenek to A. E. Sherk, to all of section No. 248, block M-6, Castro county, containing 661 acres of land, lots Nos. 13, 14, and 15, block 10, town of Hereford, and also said deed recited: “This deed conveys all of the stock of buggies, carriages and horses and stock of feed of every kind and character now owned by us and situated in the livery barn of Sherk & Stenek, in Hereford, Texas.” This instrument is dated the 21st day of March, 191Q, and filed for record the 22d day of March, 1910. The note for $4,500 by Sherk & Stenek to Easterwood was transferred by Easter-wood to the Western National Bank of Hereford, and by that bank turned over to appel-lee bank, and Sherk & Stenek executed their note to appellee bank for the sum of $4,615.-25, to pay off the original $4,500 note. Sherk testified he paid the note he and his partner executed to the appellee. He claims to have paid it out of proceeds derived from property he owned in Oklahoma. At the time that Stenek executed the deed of trust to secure appellee there was $3,686.55 due on the note executed to appellee for $4,615.25, which balance appellant testifies he paid out of his individual funds. The firm of Sherk & Stenek also borrowed $7,575.80 from the State Bank & Trust Company of Hereford, and before the execution of the deed of trust appellant testifies he paid on the $7,575.80 the sum of $2,000, and that he placed improvements on the lots to the value of $1,700. out of his own money, and that he paid the cash consideration of $1,500 out of his own money. By the deed from Stenek to Sherk, March 21, 1910, he got property of the partnership of the value, the lots, horses, buggies, etc., lowest estimate $6,220, and highest estimate $9,350. The section of land sold to appellant by Stenek named in the deed was estimated to be of value between $6,400 and $7,680. This land was the individual property .of Stenek, and, in addition to the property mentioned in the deed, Sherk got the notes belonging to the partnership of about $2,000. It is proper to state that the $2,000 claimed to have been paid by Sherk on the $7,575.80 note is not shown to have been paid out of appellant’s individual funds, but was paid in small amounts at various times, and it is not made certain that it was not paid out of the partnership fund before the deed of trust was executed. The appellant, in the trade between Stenek and himself, in the deed, agreed to assume all of the balance due on the partnership debt as well as the sum of §2,028, due on the section of land conveyed, and also the sum of $624, due the state of Texas, on said land. The deed of trust executed by Stenek to secure appellee bank is dated February 2, 1910, and was recorded February 18, 1910, and the amount so secured was about $4,000, which indebtedness due from Stenek to the bank individually is $231.82, and the balance due was owing by Stenek and O. E. Rood to the bank. The amount so secured was in no way a partnership indebtedness owing by the firm of Sherk & Stenek. The deed of trust conveys lots 13, 14, and 15, block 10, in the town of Hereford, and section 248, block M-6, Oastro county, the same property conveyed by Stenek to Sherk by deed, and also includes an additional lot, a quarter of block No. 3, Ma-bry’s addition' to the town of Hereford. It is admitted that the firm of Sherk & Stenek, on the date of the deed of trust, and on the date of the trial, was insolvent, and that Stenek was a fugitive from the country. There is some conflict of testimony as to the amount of money originally put into the partnership by Stenek and the amount paid on the notes, and the question is made by the testimony as to whether the sums paid by Sherk were not out of partnership funds but out of individual means. The testimony also raises the issue as to whether the lots in fact were included as partnership property or were only held jointly by Stenek and Sherk under the deed to them. The trial court peremptorily instructed the ^ury that appellant had not made out his case and instructed a verdict for the appellees, giving to the jury the form of their verdict, which they rendered and returned into court, and upon which judgment was entered.

The appellant, by various assignments, complains of the action of the court In instructing a verdict for appellees, on the ground that when the deed of trust was executed by Stenek to appellees the partnership of Sherk & Stenek was insolvent; that said firm owed appellant large sums of money, and he was entitled to a partner’s lien on said lots before outside debts were paid; and that, if appellees were entitled to recover anything, it was no more than the interest of James Stenek in the property after all the firm debts of Sherk. & Stenek were paid, and, as the debts were in excess of the property, the appellant took nothing by its deed of trust.

, [1] A lien given by one partner on hjs interest in the partnership property to secure individual indebtedness is not' invalid for that reason, even if the partnership is insolvent at the time. Wiggins v. Blackshear, 86 Tex. 665, 26 S. W. 939.

[2-5] It may be said generally the right of the partner is in effect a' right to share in the surplus left after discharging all the firm debts, including the reimbursement to the partner for advancements made by him in excess of his proportional share. Each partner has the right to require all the firm assets to be applied to the payment of the firm debts. But this right of a partner is property and can be sold and transferred. It is effectually sold and transferred by the sale and transfer of all the interest in the firm property whether to his partner or to a stranger. Such a sale and transfer dissolves the partnership and extinguishes -the right the partners have in the property as partnership assets. The property is converted into the individual property of the purchaser, free from all the equities of the seller, even if the purchaser has, as a consideration for such purchase, agreed to pay the firm debts. Case v. Beauregard, 99 U. S. 119, 25 L. Ed. 370; Huiskamp v. Moline Wagon Co., 121 U. S. 310, 7 Sup. Ct. 899, 30 L. Ed. 971; Willis v. Heath (Sup.) 18 S. W. 801; Willis v. Thompson, 85 Tex. 301, 20 S. W. 155; Hawkins v. Western National Bank of Hereford, 146 S. W. 1191, and authorities therein cited. Appellant urges upon our consideration the case of Rogers v. Nichols, 20 Tex. 719. Upon an examination of that case it will be found the general proposition as above stated is sustained. It is said therein: “By the agreement of the 11th of July, 1856, the plaintiffs contracted to convey to Davis their interest in the partnership property, and he contracted to secure them against liabilities of the firm, and for the performance of this and other stipulations they expressly retain the lien upon the property. This agreement, if consummated, operated as a dissolution of the partnership. It completely severed the interests of the partners and gave them distinct rights and remedies. If plaintiff had not retained a lien upon the property, it would undoubtedly have been liable to be taken in execution in satisfaction of the individual debts of Davis, free from any claim of theirs or their joint creditors.” In that case the retiring partners reserved an express lien upon the property turned over to Davis, and it was so expressed in the contract between the parties. Nothing of that kind was reserved by Stenek in his sale to Sherk. Stenek sold to his partner all his interest in the firm property, thereby dissolving the partnership and extinguishing any lien which Sherk may have had by virtue of the partnership. Sherk assumed to pay the debts of the firm for which he was personally liable without such assumption, and, in consideration for the title to the property, waived his partnership lien on it. It may be noted, also, that he received, in consideration a section of land, the individual property of Stenek, for such assumption. It will be found that the total value of the property which Stenek conveyed to Sherk, individual and partnership, was about $19,035, and that the total indebtedness assumed by Sherk individual of Stenek, and of the partnership, was about $14,138.55, according to Sherk’s own estimate.

[6] The deed of trust to the appellee by Stenek had been on record since February 18, 1910, up to the 21st day of March, 1910, when Sherk took conveyance of the property to himself. He cannot be heard to say he had no notice thereof; the law charges him with notice. If he desired to enforce a partnership lien of which the law and the rules of equity afforded him the remedy, if he would pursue them, he should have retained his relation to the partnership property as a partner. Appellant having elected to dissolve the partnership and take over all the property of the partnership in his individual right and in addition secured the title to the individual property of Stenek, it occurs) to us that he ought not at this time be heard to urge that the quasi lien which he had on the date of the deed of trust, but which he has since waived, should be given preference over the express lien of the appellee, of which appellant was charged with notice, when' he took over the property.

We conclude the court properly, under the undisputed- facts of this) case, instructed a verdict for the appellee, and that the case should be affirmed, and it is so ordered.