delivered the opinion of the Court.
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
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 one 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.
Paragraph Sixth of his will appointed the five trustees named in the partnership instrument as co-executors without bond with his wife, Alice Smith, if in the discretion of said Trustees it should become necessary for them to qualify as such co-executors to preserve that part of his estate coming to or emanating from the co-partnership 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 co-executors of the estate of J. H. Smith.
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 were 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 creditor has an equitable lien on the assets of the trust estate, and that
In 1936, the receivers filed an application to sell all of the assets on hand to Century Investment Company, a corporation formed by certain creditors of the partnership who had presented their claims to the receivers and such claims had been allowed under proper orders of the court. The purchaser paid in cash a number of claims due by the receivers and the partnership estate in an amount in excess of $146,000.00. The court entered proper orders of sale and the receivers made necessary deeds of conveyance to such properties. The property involved in this suit was among that owned by the partnership and sold. Neither the surviving partner nor the heirs nor legal representatives of the deceased partner were made parties to the sale proceedings. In November 1942 the Century Investment Company conveyed the land involved by proper conveyance to one J. I. Curry who was taking title for himself, and defendants Wayman and Bromberg, 1/3 to each. Curry paid the company no consideration but the defendant Wayman testified the land involved herein was deeded to Curry under the following circumstances: In 1942 it was discovered that Wayman and Leon Bromberg had a 55 acre tract within the inclosure of Mustang Prairie Ranch to which they had no title. Century Investment Company was thought to own such 55 acres although it had no abstract of title to the 55 acres, and did not know whether or
The first question presented by petitioners is the validity of the trust agreement. The objection urged in this court to the agreement is that it is testamentary in character, under the rules stated in Brown v. Payne, 142 Texas 102, 176 S. W. (2d) 306, and, since it has not been admitted to probate, it has no legal effect. It is true that the agreement shows that it was intended that the trustees should take possession of the property only on the death of one of the partners, and that the property which the trustees should control would be the property owned by the partnership at the time of the partner’s death. However, the agreement shows that the partners further intended that the agreement would be a presently binding contract fixing a method for the settlement of partnership affairs upon the death of either partner. Such an agreement was evidently thought by the partners to be mutually beneficial. We see no reason why it should not be legally enforceable. Martin v. Dial, Tex. Com. App., 57 S. W. (2d) 75, 89 A. L. R 571; Crescent Ins. Co. v. Camp, 64 Texas 521; Altgelt v. Alamo Nat. Bank, 98 Texas 252, 83 S. W. 6; Murphy v. Murphy, 217 Mass 233, 104 N. E. 466, 1.c. 2nd col. 467 (1, 2) ; In re Eddy’s Estate (N. Y.) 26 N. Y. Sup. 2nd 115, 1.c. p.120 (2, 3) ; Normand v. Normand, 90 N. H. 548, 11 Atl. 2d 816, 1.c. bot. 2nd col. p. 817 (1) and top 1st col. p. 818 (2 & 3) ; Alexander v. Lewis, 47 Texas 481, 1.c. 485; 50 Yale Law Review (1940-41) p. 202 et seq.; 47 C. J., Partnership, secs. 689, 693, pp. 1085, 1087; 40 Am. Jur., Partnership, sec. 316, p. 351.
Petitioners further urge that even if the trust agreement was valid, the receivership proceedings are not binding on petitioners because only the trustees were made defendants to that suit and neither petitioners nor their predecessors in title were made parties. Respondents answer that the trust agreement conferred on the trustees the power to bring and defend suits, and therefore the trustees represented the estate of the deceased partner and the surviving partner in the receivership proceedings.
The instrument signed by the Smith Brothers is in the nature of an assignment for the benefit of the partnership creditors. The creditors of the partnership are the primary beneficiaries under the instrument and if there is anything left after debts of the firm have been paid such residue would go to the surviving partner and the heirs and legal representatives of the deceased partner. The estate of the deceased partner has no title to the specific property of the firm, but only in that which remains after the payment of the debts of the firm. Altgelt v. Alamo Nat. Bank, 98 Texas 252, 83 S. W. 6, 1.c. p. 11 near bottom of 1st col.; Donnell v. Talley, 104 S. W. (2d) 920, 1.c. (11, 12) 2nd col. p. 924; McLean v. Hargrove, 139 Texas 236, 162 S. W. (2d) 954, 1.c. (4) p. 957; 32 Tex. Jur. 529, Partnership, sec. 201, note 12.
Upon the death of one partner the surviving partner becomes vested with the right to absolute and complete possession of all of the firm’s assets, including real estate, together with
The agreement between the Smith Brothers as to the conduct of the partnership upon the death of one partner being a valid and binding agreement is binding upon the surviving partner and the heirs and legal representatives and the widow of the deceased partner. Alexander v. Lewis, supra, and the other authorities cited in our discussion of the validity of this agreement.
The surviving partner may make a valid assignment for the benefit of creditors, and such survivor is not a necessary party in a suit against the assignee. Levy’s Estate v. Archenhold et al., 44 S. W. 46, no writ action. 47 C. J. p. 1048, Partnership, sec. 618, note 21; Lyons-Thomas Hdw. Co. v. Perry Stove Mfg. Co., 88 Texas 468, 484, 27 S. W. 100, 1.c. 108 middle 1st col. The first case also holds that the surviving partner may assign his right to have firm’s assets subjected to firm’s debts to another and such other will possess all rights and prerogatives of the surviving partner. If the heirs or legal representatives are not satisfied with the way the surviving partner is administering his trust they may go into a court of equity for their relief. Martin v. Dial, 57 S. W. (2d) 75, 1.c. (9, 10) 1st col. p. 82, 89 A. L. R. 571.
The surviving partner having signed and acknowledged this instrument, and it not being changed or revoked at the time of the death of J. H. Smith, is bound by its terms. All the evidence points to the fact that the surviving partner after the death of J. H. Smith, turned over the firm’s assets to the trustees and acquiesced in their handling of the affairs of the firm.
In the suit for receivership the trustees were made parties defendant and participated in the case, and delivered the assets to the receivers and asked for an extension of time in which to file their claims against the receivership estate. We believe that the surviving partner and the heirs and legal representatives of the deceased partner were concluded by the judgment rendered. The written instrument appointing the trustees gave them power to sue and to defend suits.
J. H. Smith in his will reaffirms the rights of the trustees in the quoted part thereof above set out, and again sets forth that
This Court in the case of Slay v. Burnett Trust, 143 Texas 621, 630, 187 S. W. (2d) 377, 1.c. bot. 2nd col. p. 382, has held:
“It is further held that the beneficiary is not a necessary party when the intention to authorize the trustee to prosecute suits in his own name is reasonably manifested by the terms of the trust instrument. Anderson v. Stockdale, 62 Texas 54; Ebell v. Bursinger, 70 Texas 120, 8 S. W. 77; Bingham v. Graham, Tex. Civ. App., 220 S. W. 105, 110. It is said that ‘In such cases, the trustee is in court for and in behalf of the beneficiaries; and they, though not parties, are bound by the judgment, unless it is impeached for fraud or collusion between him and the adverse party.’ Kerrison v. Stewart, 93 U. S., 155, 160, 23 L. Ed. 843, 845.”
The trust instrument in the Slay case did not specifically grant power to the trustees to bring and defend suits, but it was held sufficient to give such power- to the trustees and • that the beneficiaries were not necessary parties. Since the present instrument specifically gives the trustees the right to sue and. defend we do not see how there can be any doubt as to the judgment appointing a receiver being binding upon the surviving partner and the heirs and legal representatives of the deceased partner. “To the general rule that in litigation -involving a trust estate both the trustee and the beneficiaries should be .made parties, there are a number of exceptions, as where, by the terms of the trust, the power to litigate concerning it is expressly conferred upon the trustee, and further where from the nature and extent of the authority given, that power will be presumed to have been intended.” (Emphasis ours.) Ogden v. Syphrett, 236 S. W. 143, 1.c. top 1st col. p. 145, writ dismissed W.O.J.
To the general rule that the beneficiaries must be made parties in suits concerning the trust property, there are a number of exceptions and one well-recognized exception is where there is an express provision authorizing and empowering the trustees to maintain and defend suits covering the trust property.
“By way of exception from the above stated general rulé that beneficiaries are necessary parties to actions relating to trust property, the following propositions appear to be established by the decisions:
Page 329“1. As already mentioned (sec. 97), a trustee under an express trust can maintain and defend suits affecting trust property, without joinder of the beneficiaries, where the trust instrument confers such power upon him or where such intent is reasonably manifested by the circumstances and terms of the trust.” 42 T. J. p. 779, Trusts, sec. 158. See also Lyons-Thomas Hdw. Co. v. Perry Stove Mfg. Co., 88 Texas 468, 27 S. W. 100 1.c. 108 1st col.; Ebell v. Bursinger, 70 Texas 120, 122, 8 S. W. 77 1.c. bot. 77, top 78; Cavers v. Sioux Oil Ref. Co., 39 S. W. (2d) 866(4).
Another exception set out in 42 Tex. Jur. p. 780, Trusts, sec. 158, is :
“2. Where the beneficiaries are so numerous that it is inconvenient to make them parties, an intent to confer on the trustee power to sue or defend without joinder of the beneficiaries will be presumed.”
The pleadings in the receivership show that the partnership owed more than $2,000,000.00 of which the greater part was past due or would mature within 60 days. Also, the record shows that there were more than 1500 papers and instruments filed in the Receivership Cause, so we feel that with an enterprise of the vastness and extent the record shows Smith Brothers to have been, there must have been a large number of creditors of the firm. In addition, each and every one of the holders of the stocks and bonds which the Smith Brothers had endorsed and guaranteed payment were also beneficiaries under the trust instrument. If the surviving partner and the widow, the heirs and legal representatives of the deceased partner were necessary parties to the receivership, so would be each and every creditor. In fact, the creditors were the primary beneficiaries. The whole language and import of the instrument shows that the creditors must first be paid before the partners or their representatives have any rights at all in the property. The law governing partnership property has been settled so long no citation of authority is necessary to sustain the proposition that firm creditors have first claim to partnership assets and that partners or their representatives have no rights until firm debts are paid. Such a proposition is fundamental and elemental.
The suit of W. L. Moody & Company recited the existence of the trust and that Wirt Davis et al were acting as trustees under the written trust instrument. The petition further alleged the insolvency of the trust, the partnership, and of the surviving partner and the estate of the deceased partner; that the
This Court judicially knows that the period of time from 1932 to 1936 was one of the worst depressions the State of Texas ever experienced, and that property values — particularly real estate — reached a very low ebb and that owning real estate was more of a liability than an asset during this period. These plaintiffs— and those under whom they claim — sat idly by and permitted the receivers to handle the property during four years of the worst depression known to Texas — and never made a com
While we have found no case in Texas exactly in point on both the facts and the law we find an excellent discussion of the legal principles controlling the necessity of making beneficiaries under trust agreements parties in the case of Bingham v. Graham, (TCA) 220 S. W. 105, 1.c. & headnotes (4 thru 10) pp. 109- 113, no writ action shown, and quoted by this Court in the Slay case above. See also Davis v. Hudgins (TCA) 225 S. W. 73, 1.c. pp. 76-77, no writ action shown. See also Schuster v. Crawford (TCA), 199 S. W. 327, 1.c. 328(1), writ dismissed.
We think the reasoning of the Supreme Court of Arkansas in the case of Sutton v. McClain, 193 Ark. 49, 99 S. W. (2d) 236, that the widow and heirs of a deceased partner were not necessary parties in suit to appoint a receiver to take partnership assets from the surviving partner, is in point and applicable to our case. On rehearing the claimed defect of parties is discussed and it is held the widow and heirs were not necessary parties in such proceeding.
On submission our attention was called to that part of the record showing that at a date subsequent to the receivers’ sale, firm creditors of Smith Brothers have recovered judgments against F. A. Smith individually for firm debts. It has long been recognized that in Texas the liability of partners for firm obligations was both joint and several. Burton v. Roff, 292 S. W. 159, opinion by Judge Speer of the Commission of Appeals. Therefore the firm creditors were well within their rights in securing such judgments. If this evidence goes to show anything of value to us in this cause, it would show that the partnership was insolvent and therefore there was never any property in which the plaintiffs herein and their predecessors in title could take an interest.
We hold that the appointment of the receivers was valid and therefore a good title passed to the purchasers of this property by the receivership sale under proper orders of the court which appointed the receiver.
The petitioners assign as error and as additional reason why the judgment of the two lower courts should be reversed
Complaint is also made of the sale of the trust property by the receivers under orders of the court, because it is claimed a sufficient consideration was not paid therefor. It is claimed that the court should have required something to be applied first to the debts in receivership, so balances might be acertained, and surplus, if any, to be delivered to the receivership debtors. Since we held that the appointment of the receivers was a valid and binding judgment, it follows that this suit is a collateral attack, not only on such appointment, but also on the proceedings taken in such suit and leading to the sale of the assets by the receivers. Smith v. Olson, 23 Texas Civ. App. 458, 56 S. W. 568, writ denied. Unless same were void, this suit cannot prevail. These orders were made by a court having jurisdiction of the cause, and with plenary powers to appoint the receivers and to order and confirm sale by such receivers. This was all done in the case at bar, and same cannot be attacked on the grounds urged. 45 Am. Jur. p. 306 sec. 391; 36 Tex. Jur. p. 126 sec. 58, sec. 59 p. 128 et seq., sec. 110 p. 221; Love v. Allard (TCA) 286 S. W. 581, writ refused; Texas Steel Co. v. Huey-Philip Hdw. Co. (TCA) 110 S. W. (2d) 964.
“It is well settled that inadequacy of price in an execution or receiver’s sale is not, in the absence of facts or circumstances showing fraud or irregularity, sufficient ground for setting aside the sale.” Morrow v. DeVitt (TCA) 160 S. W. (2d) 977, writ ref. W. of M.
In this case are cited many cases by the Texas Supreme Court sustaining the rule.
The judgment of the Court of Civil Appeals is affirmed.