Abe Bloch & Co. v. Spruance

JAMES, Chief Justice.

L. J. Moreland and L. W. Thomas, composing the partnership of Moreland & Thomas, being insolvent, on March 23, 1894, conveyed to Thomas Spruance their entire stock of goods, fixtures and safe, in trust to pay, after paying the proper costs and expenses of executing the trust, first the creditors designated as “Class A,” ratably; and second, those in “Class B,” ratably, and to return the balance, if any, to the makers of the instruinent. The creditors in class B were all firm creditors; likewise all in class A, except the firm of Spruance & Bledsoe, of which the trustee Spruance was a member, the debt this firm held being the individual debt of Moreland, in the sum of $515. There was included in the property conveyed by the deed of trust, a lot which was the property of Moreland, of the value of ten dollars. The firm property was sold by the trustee for its value, amounting to $4560, and the lot for $10. The debts in class A *311 amounted to $4785.50, and those in class B to $3809.51. The trustee reduced the property to money, as before stated, and held the same for distribution under the deed of trust, and his expenses in the premises were shown to have been $232.30, and his commission at 5 per cent, $228.50. The above are the material facts of the case.

Appellant was a creditor in class B, and acting upon the theory that said deed of trust was a fraud upon the firm creditors by reason of the fact that the partners included among the creditors secured by the firm assets the debt to Spruance’s firm, which was an individual debt of one of the partners, caused the trustee Spruance to be garnisheed in reference to their claim (judgment) against Moreland & Thomas for something over $1387.70. The trial from which this appeal is taken was upon this garnishment.

Opinion.

—It has been held that the preference of the individual debt of one of the partners, through- a conveyance by both partners of the firm assets, it being insufficient to satisfy all the firm .creditors, was fraudulent as to the latter. The reason for this principle lies in the fact that the partner who does not owe the debt in question, when he conveys his interest in the firm assets to secure it, practically disposes of his interest that far without consideration, and it is denominated a voluntary conveyance. The following authorities illustrate the doctrine. Wilson v. Robertson, 21 N. Y., 587 ; 2 Bigelow on Fraud, 320, and note. In the ease of Wiggins v. Blackshear, 86 Texas, 670 , it is referred to. It is. to this rule that plaintiff must appeal in seeking to invalidate this transaction in whole or in part. But, as we understand the record, it is not necessary that we should discuss the merits of the rule in its application to this case.

Assuming that the preference of the trustee, the creditor of one partner, establishes an intent to defraud firm creditors, as to both the partners and the trustee, it does not follow by any reason that the deed of trust fails as an entirety. In New York the rule goes to that extent (Wilson v. Robertson, supra), but very few other courts have seen fit to go that far.

In instances of preference given to a fictitious debt — and nothing could be more fraudulent in its tendency — the law seems to be well settled that the mortgage or assignment will nevertheless be valid and entitled to be executed for the benefit of those provided for, who are creditors. See Burrill on Assignments, sec. 117, where cases to this effect are collected. See also, Rider v. Hunt, 25 S. W. Rep., 314 . This is, provided the creditors have not participated in the fraud complained of.

The New York cases seem to make the fraudulent intent of the grantor decisive of the invalidity of the instrument. This, according to Mr. Burrill, is against the great weight of authority, and it is not the rule in this State. Kraus v. Haas, 6 Texas Civ. App., 665; Id., 86 Texas, 687 .

*312 Delivered January 22, 1896.

It is not claimed that the creditors in class A, outside of Spruance, have been guilty of any fraudulent conduct or intent in reference to the transaction in question, and we are of opinion that an attempt of the partners and Spruance to give the latter firm a preference over certain firm creditors, if fraudulent, would have no further effect than to require" the trust to be administered as if the debt in which Spruance was interested had not been mentioned.

■Proceeding upon this basis, we find that the proceeds of the property were not sufficient, after deducting the reasonable expenses and commissions of the trustee, to pay off the other creditors in class A.

We are of opinion, also, that, the trust being valid to the extent mentioned, and the application of all the property being necessary to carry out the trust, the trustee is entitled to compensation and allowance of his expenses out of the fund. The attempted preference of his debt (conceding this to have been fraudulent) would not justify a forfeiture of his expenses and remuneration for properly performing a trust which he is, after all, authorized to execute.

If we eliminate his claim from class A altogether, a calculation shows that all of the fund would, after allowing the above charges, not be sufficient to pay the firm creditors in class A; hence, appellants were not entitled to any judgment against the garnishee.

Affirmed.