author: JENKINS, J.

text:
    LINDSEY v. ROSE.
    (No. 5455.)

    (Court of Civil Appeals of Texas. Austin.
    March 26, 1915.
    Rehearing Denied April 21, 1915.)
    1. Wilis <&wkey;674^-Express Trust — “ Spendthrift Trust.”
    A will and codicil which gave the testator’s property to trustees to manage and collect the income, and to -pay a fixed sum monthly to the testator’s son, with power to make additional advancements if they should deem best, creates a “spendthrift trust,” the essential element of which is inalienability and nonliability for the debts of the beneficiary.
    [Ed. Note. — For other cases, see Wills, Cent. Dig. § 1585; Dec. Dig. &wkey;674.
    Eor other definitions, see Words and Phrases, First and Second Series, Spendthrift Trust.]
    2. Wills &wkey;»686 — Construction — Codicil-Trust.
    Where a will created a spendthrift trust in favor of testator’s son, to continue for 25 years, and the principal then to be paid to the son, if living, a codicil which created no trust, was expressly declared to be a part of the will, and which provided that the “trusts herein created” should be continued during the life of the son, applied to the spendthrift trust, and continued it during the son’s life after the expiration of the 25 years.
    [Ed. Note. — For other cases, see Wills, Cent. Dig. §§ 1031-1637; Dec. Dig. &wkey;686.]
    3. Wills <&wkey;470 — Construction—Intent op Testator — Surrounding Circumstances.
    In construing a will the intent of the testator, as expressed in the whole instrument when read in the light of the circumstances surrounding the testator when the will was written, must govern.
    [Ed. Note. — For other cases, see Wills, Cent. Dig. § 988; Dec. Dig. <5&wkey;470.]
    4. Wills <&wkey;687 — Construction — Remainder.
    Where a will created a spendthrift trust in favor of testator’s son for 25 years and provided that if the son should die during that period the property should go to testator’s heirs, otherwise to the son, and a codicil extended the trust for the life of the son, but made no provision as to the disposition of the principal thereafter, and it appeared that the son was weak intellectually, and had become estranged from testator, who was more anxious to prevent the squandering of his property than to care for the son, and that testator had an affection for his collateral relatives, the intention of the testator was to vest the property in the collateral kindred on the expiration of the trust.
    [Ed. Note. — For other cases, see Wills, Cent. Dig. §§ 1638-1643; Dec. Dig. &wkey;687.]
    5. Wills &wkey;>687 — Construction — Spendthrift Trust-Remainder.
    Even if it was the testator’s intent after the execution of the codicil that the property should go to the heirs of the son, on the termination of the trust, it was his intention that it should go to them undiminished by any act of the son, and creditors of the son cannot levy on and sell the son’s interest therein, and thereby acquire a right to the possession thereof at the termination of the trust on, the death of the son.
    [Ed. Note. — For other cases, see Wills, Cent. Dig. §§ 1638-1643; Dec. Dig. § 687.]
    Appeal from District Court, McLennan County; Tom L. McCullough, Judge.
    Suit for injunction by John K. Rose, trustee, against H. C. Lindsey. Judgment for the plaintiff, and defendant appeals.
    Affirmed.
    H. C. Lindsey, of Waco, for appellant. Downs & Webb, of Waco, for appellee.

       writ of error pending in Supreme Court..

   Findings of Fact.

JENKINS, J.

On October 22, 1881, Peter McClelland, Sr., made a will, and on August 17, 1886, executed a codicil thereto. About a month later he died, and said will and codicil were duly probated in McLennan county. The appellee is the duly qualified and acting trustee under said will. This is an agreed case under article 1949, R. S., the issue as agreed upon being:

“Whether or not any' of said real estate of the said Peter McClelland, Sr., or any of the funds arising therefrom or rent or profits in the hands of said defendant, John K. Rose, trustee, is subject, either in law or in equity, to the debts of Peter McClelland, Jr.”

The issue is raised by the fact that appellant being the owner of a valid judgment against Peter McClelland, Jr., caused an execution issued thereon to be levied upon a certain lot in Waco, Tex., which was the property of Peter McClelland, Sr., at the time of his death, and in the possession of appellee as such trustee at the time of the levy. Appellee obtained a temporary injunction against the sale of said property, alleging that Peter McClelland, Jr., had no interest therein. Said injunction having been made perpetual, appellant has brought the ease to this court for revision.

So far as the issues here involved are concerned, it is necessary to set out only the fourth, fifth, and eight items of the original will and a portion of the codicil, as follows:

“Item 4. — I give and bequeath to my beloved son, Peter McClelland, Junior, should he survive me, all the residue of my estate, real, personal and mixed, to be received, however, and enjoyed by him in futuro, upon the terms, conditions, incumbrances, trusts and stipulations herein provided for, which said estate shall be held by my executors, controlled and managed as herein provided, in. trust for my said son Peter, for twenty-five years from and after my death, before the same shall be turned over to my said son, except such provisions and legacies as are herein made for the support and maintenance of nay said son during the said period of twenty-five years, should he live so long.
“Item 5. — I also give and bequeath to my said son, Peter, one hundred dollars per month, to be paid to him from and after the date of my death, in cash, for his maintenance and support, in monthly installments, so long as he shall remain single, or until he shall come into possession of my estate as herein provided; but should my- son marry before or after my death, this special legacy shall be increased to one hundred and fifty dollars per month from and after the date of such marriage to be paid to him in cash in monthly installments for his maintenance and support after my death, by my executors as herein provided, which shall he a charge upon my estate until he comes into the possession of same as herein provided, or dies; and in case of such marriage my executors shall provide, by purchase or otherwise, for my said son Peter, out of my estate, a suitable house for him to live in, including lots, grounds and outbuildings, without charge to him, not to exceed in value the sum of five thousand dollars, if purchased by said executors for his use and enjoyment; but upon the death of my said wife Joanna, my said son Peter, first having so married, may, at his option, move into, live at and enjoy the homestead bequeathed to her during her life free of charge, in lieu of any other provisions for a home, until he shall come into the possession, of my estate according to the provisions of this will.
“Item 8. — Upon my death and after the probate of this will, as aforesaid, my executors accepting and qualified to act as aforesaid, are hereby authorized and empowered to take possession of my entire estate, whether in money, real estate, personal or mixed, and the same to keep and hold in their possession and care, upon the trusts, terms and conditions herein provided for, for the full period of twenty-five years after my death, should my son, Peter, live so long; and at the expiration of twenty-five years my said executors shall turn over to my said son, Peter, if living, the entire residue of my estate, whether money, real, personal or mixed, with the increase and accretions to the same as provided for herein, after paying the charges of every kind and legacies herein provided for out of the same; but should -my son, Peter, die before the expiration of said period of twenty-five years after my death, or before I do, then it is my desire that said trusts shall end, and that my heirs at law shall take my estate clear of the trusts, charges and incumbrances herein created, according to the laws of the state of Texas, and that my executors turn the same over to them, charged, however, with the bequests to my wife, if living.”
Codicil.
“ * * * I further desire to continue the trusts created herein in my executors for and during the natural life of my son, Peter, but if in their judgment he is provident and careful, they may make such advances out of the estate, as they may think right and proper, over and above the provisions made herein for him in said will.”

Items 9 and 10 provided that the trustees should collect rents and other sources of income, insure buildings, pay all necessary charges against the estate, including attorney’s fees,, make repairs, rebuild in case of loss by fire, and, after the payment of certain legacies, to invest ttye residue of accumulations in stock of the State Central Bank of Waco, or in government securities, or rent-paying real estate, as in their judgment might seem best for the interest of the estate.

The wife of Peter McClelland, Sr., declined to take under the will, the estate was partitioned, and her intenest therein was set apart to her. She was the stepmother of Peter, Jr.

Prom the agreed statement of facts herein, we quote as follows:

“That Peter McClelland, Jr., was a man of weak character and intellect, of no business capacity whatsoever, and with no capacity to take hold and retain property. That said Peter McClelland, Jr., was easily influenced by designing men, and could be easily wheedled out of his property, and that these facts were known to his father at the time of the making of the will, and at the time of the making of the codicil. That at the time of the making of the will Peter McClelland, Jr., had been married, but his first wife was dead; that at the time of the making of the codicil he was married to his second wife, who was Miss Sabens. That Peter McClelland, Sr., had a violent and persistent dislike for the Sabens, and particularly for Judge Sabens, father of Peter' McClelland Jr.’s wife. That Peter Mc-Clelland, Sr., had taken a prejudice against Judge Sabens, who was United States District Judge for the Eastern District of Texas, and was strongly of the opinion that Peter McClel-land, Jr., had been inveigled into the marriage with Miss Sabens for the purpose of her becoming possessed of Peter McClelland Sr.’s estate. That at the time of the making of the will, Peter McClelland, Jr., and his father were on good terms; but at the time of the making of the codicil there was a bitterness existing between Peter, Jr., and his father. That Peter, Jr., was regarded by his father as having no feeling for him; that Peter, Jr., left the state of Texas to visit Atlanta while his father was on his dying bed, and only went to see his father at the solicitation of others shortly before his death upon his return. That affectionate relations existed between Peter McClel-land, Si'., and his collateral kin interested in said will, especially as to Mrs. Grismer, his niece, I-Iugh McClelland, his nephew, and Mrs. Houston, his sister, who lived in Illinois. That shortly before his death he visited his sister, Mrs. Houston, in Illinois, and spent a number of weeks with her; and that he often visited his other collateral kin; and that he had given 200 acres of land to Mrs. Grismer, and her home, and assisted Hugh McClelland with various gifts of property, showing an affectionate regard for all of his collateral kin interested in said will. That he gave Mrs. Grismer and Hugh McClelland 220 acres of land each. That Peter McClelland, Jr., was weak intellectually and incapable of taking an education. That he had been sent home from school for the express reason that it was impossible to teach him anything. That at the time of the making of the codicil, Peter McClelland, Sr., and his wife, Joanna McClelland, had given Peter McClelland, Jr., property in the city of Waco to the value of at least $40,000, being the property he owned at the time of the making of the codicil, and which property he squandered directly after his father died. * * * That Peter McClelland Sr.’s controlling passion in life was the love of property and its accumulation, and that his son, Peter, was always secondary in his thoughts to his property, and that he was tormented at the time he made his codicil with the thought that Peter would in some manner get possession of his property and waste and squander it. That Peter, Jr., was 31 years old at the date of said codicil, being born in 1856.”

Opinion.

The will of Peter McClelland, Sr., created an active trust and vested the legal title of his entire estate (except certain specific bequests comparatively unimportant, and which need not be described) in his trustees, together with all accumulations thereof during the continuance of such trust. Dulin v. Moore, 96 Tex. 138, 70 S. W. 742; 1 Perry on Trusts, §§ 304, 305, 313; 3 Pomeroy’s Eq. Jur. § 991.

The trust created by said will is what is known as a spendthrift trust, which has been called the American doctrine. “This doctrine is that it is lawful for a testator or grantor to create a trust estate for the life of the cestui que trust, with the provision that the latter shall receive and enjoy the avails at times and in amounts either fixed by the instrument or left to the discretion of the trustee, and that such avails shall not be subject to alienation by the beneficiary nor liable for his debts.” 26 Am. & Eng. Ency. .Law, 139. Inalienability by the cestui que trust, and nonliability for his debts, is a necessary incident to a spendthrift trust, whether the instrument creating the same does or does not so expressly declare. The provisions of the will here under consideration meet all of the necessary requirements of a spendthrift trust. McClelland v. McClelland, 37 S. W. 357; Wood v. McClelland, 53 S. W. 382; McClelland v. McClelland, 46 Tex. Civ. App. 26, 101 S. W. 1176; Sanger v. Rovello, 137 Fed. 1022, 97 C. C. A. 669; Patten v. Herring, 9 Tex. Civ. App. 640, 29 S. W. 388; Herring v. Patten, 18 Tex. Civ. App. 147, 44 S. W. 50; Gamble v. Dabney, 20 Tex. 77; Wallace v. Campbell, 53 Tex. 234; Day v. Slaughter, 87 Va. 758, 13 S. E. 478, 13 L. R. A. 212, 24 Am. St Rep. 682; Mason v. Trust Co., 78 Conn. 81, 61 Atl. 57, 3 Ann. Cas. 586; Seymour v. McAvoy, 121 Cal. 438, 53 Pac. 946, 41 L. R. A. 547; Lampert v. Hayde, 96 Mo. 439, 9 S. W. 780, 2 L. R. A. 116, 9 Am. St. Rep. 358; Nichols v. Eaton, 1 Otto (91 U. S.) 716, 23 L. Ed. 256; 1 Perry on Trusts, § 393; 3 Pomeroy’s Eq. Jur. notes pp. 1843-1847.

The trust in the instant case is during the life of Peter McClelland, Jr. The appellant does not deny the existence of such trust prior to the expiration of 25 years after the death of Peter McClelland, Sr., but his contention is that Peter, Jr., having survived that period, the absolute title became vested in him by virtue of item 4 of the will; that the codicil did not revoke this item, for the reason that the expression “trusts created herein” refers only to trusts created by the codicil. We do not think that there is any merit in this contention. The codicil creates no trust, unless it be the right of Peter, Jr., to occupy the homestead of the testator after the death of his wife, on condition that Peter, Jr., convey to the estate the homestead theretofore given him. The codicil expressly declares • that:

“It is now here made a part of said will as fully as if it had been originally incorporated therein.”

Such would have been its legal effect without such declaration, but such declaration clearly shows that the testator understood that the original will would be modified by the statements in the codicil contrary thereto, and that he so intended. The trust referred to in the codicil referred to the spendthrift trust created by the will, and extended the same during the life of Peter McClelland, Jr; If we incorporate the change thus made by the codicil in the fourth item of the will, and read the same as though it had been a part of the original will, said item 4 will read:

“ * * * Which said estate shall be held by my executors controlled and managed as herein provided in trust for my said son Peter during his natural life.”

Such being our construction of the will as modified by the codicil, we hold that Peter, Jr., took no interest thereunder that is subject to his debts.

But the appellant argues, with much plausibility, that the only contingency upon which the estate was to go to the collateral kin was that Peter, Jr., should die before the. expiration of 25 years after the death of the testator, and as that period has elapsed, if Peter, Jr., does not take under the will, the testator died intestate as to the remainder of his estate after the expiration of the trust, and that Peter, Jr., took the same as the only heir of his father. Such is the construction placed upon the will by the Circuit Court of Appeals, 208 Fed. 503. In that case the liability of the estate for the debts of Peter, Jr., was not involved. In the instant case, we are not concerned with who shall take the estate upon the termination of the trust, except in so far as that issue involves the liability of the estate for Peter Jr.’s debts.

The intention of the testator is said to be the polar star of guidance in attempting to arrive at a proper construction of a will, and to this intent, when ascertained by legal means, all other rules for the construction of written instruments must yield. Some of the recognized rules for the construction of wills may be stated as follows:

“It is always a safe * * * in approaching the interpretation of a word or phrase to start with a clear view of the testator’s general intent, or, as it is frequently called, the scheme of his will.” Baeder’s Estate, 190 Pa. 610, 42 Atl. 1102.
“In construing a will all its provisions should be looked to for the purpose of ascertaining what the real intention of the testatrix was; and, if this can be ascertained from the language of the instrument, * * * any particular paragraph of the will, which, considered alone, would indicate a contrary intent must yield to the intention manifested by the whole instrument. McMurry v. Stanley, 69 Tex. 230, 6 S. W. 412; Dulin v. Moore, 96 Tex. 135, 70 S. W. 742.
“The law will not suffer the intention to be defeated, merely because the testator has not ■clothed his ideas in technical language.” Bell County v. Alexander, 22 Tex. 358, 73 Am. Dec. 268.

When one makes a will it is to be presumed that he intended to dispose of his whole estate, and intestacy is never permitted if by any fair construction or interpretation it can be avoided. Phillips’ Estate, 205 Pa. 504, 55 Atl. 210, 97 Am. St. Rep. 746; Willard v. Darrah, 168 Mo. 660, 68 S. W. 1025, 90 Am. St. Rep. 468; Watson v. Watson, 110 Mo. 164, 19 S. W. 545.

The intention and meaning can best be ascertained by the court putting itself, as far as may be, in the place of the testator and reading the will in the light of his environments at the time the will was made. Ro Bards v. Brown, 167 Mo. 447, 67 S. W. 247.

Laying aside technical rules, and using only common sense, no one can, for a moment, suppose that it was the intention of Peter McClelland, Sr., to fail to dispose of his entire estate. He did so in his original will, directing that upon , a certain contingency the remainder should go to Peter, Jr.,. and upon another contingency that it should go to his collateral kindred. There is nothing to indicate that he had changed his intention as to disposing of his whole estate when the codicil was executed. Reading the whole will, including the codicil, in the light of his surrounding circumstances, we think that it must be held that the testator intended to vest the remainder of his estate either in Peter, Jr., or in his collateral kin. The original intention to vest such estate in Peter, Jr., if he should live 25 years after the death of the testator, is inconsistent with the continuation of the trust for the life of Peter, Jr., the fee, management, and control being vested in the executors for that length of time, rendering it impossible that Peter, Jr., should take the absolute fee during his lifetime, as he might have done under the original will. Of course, he could not take such estate after his death. Neither could the collateral kindred take until the trust should cease by the death of Peter, Jr. Did the testator by the codicil, which entirely eliminated the 25-year period as to the duration of the trust, intend to say that his collateral kindred should never take the remainder in any event, or was it his intention only to change the contingency upon which they should take? In each case the contingency was the termination of the trust, but the condition upon which the trust was to terminate was changed. No change is made in the general scheme of the will by the codicil. The estate is still to be managed by trustees, though their personnel is changed to some extent. The spendthrift trust is retained, ; but continued for the life of Peter, Jr. No additional mention is made as to whom the trustees are to turn over the estate when the trust ceases. The fact that the testator made a will shows that it was his intention that whoever took the remainder should take as legatee and not as heir. Peter, Jr., being excluded by the codicil from ever taking, ought it not be held that it was the intention of the testator that his collateral kindred should take upon the termination of the trust? We think so. tie so provided in the original will upon a contingency that might have happened. Upon the failure of that contingency Peter, Jr., was to take the estate free from the trust. What change had occurred in the environments of the testator when the codicil was executed? The agreed statement of facts shows a change in his relation to Peter, Jr., sufficient to account for the provision that he should never have any beneficial interest in his estate beyond the allowance made for his support. But there appears to have been no change in his feeling towards his collateral kin, his sister, niece, and nephew, for whom he had an affectionate regard. For these reasons we conclude that the testator did not intend to leave the residue of his estate after the termination of the trust undisposed - of, but that he intended to will the same to his collateral kindred.

But if we should be mistaken in our interpretation of the will of Peter McClelland, Sr., as stated in the foregoing portion of this opinion, we think that it is manifest from the language of both the will and the codicil, read in the light of the surrounding circumstances, that it was his intention that all of the residue of his estate, after the legacies were provided for, together with all revenues arising therefrom and all increase thereof, should remain intact in the hands of his trustees until the death of Peter, Jr., and whether it shall then go to the heirs of Peter, Jr., or to the collateral kin, they are to receive the same undiminished by any act of Peter, Jr., or of his creditors, or of any one else. The' agreed statement of facts herein shows:

“That Peter McClelland Sr.’s controlling passion in life was the love of property and its accumulation, and his son, Peter, was always secondary in his thoughts to his property, and that he was tormented at the time he made his codicil with the thought that Peter would in some manner get possession of his property and waste and squander it.”

It was the purpose of the codicil to forever preclude the possibility of his doing so. This purpose would be thwarted if Peter’s creditors were entitled to sell the property under execution, and the purchasers obtain title thereto, even though their right of possession should be delayed until the death of Peter, Jr.

For the reasons stated, the judgment of the trial court is affirmed.

Affirmed.
      <gc5»For other eases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes


source: Caselaw Access Project

author: McMEANS, J.

license: Public Domain

text:
    FARMERS’ & MERCHANTS’ STATE BANK v. FALVEY et al.
    (No. 6779.)
    (Court of Civil Appeals of Texas. Galveston.
    March 17, 1915.
    Rehearing Denied April 8, 1915.)
    1. Evidence <§=80 — Presumption—Law oe Other State.
    In the absence of proof of the laws of another state, it will be presumed they are. the same as those of Texas, and so prohibit issuance of stock, except for money paid, labor done, or property actually received.
    [Ed. Note. — For other cases, see Evidence, Cent. Dig. § 101; Dec. Dig. <§=80.]
    2. Corporations <§=99 — Foreign Corporations — Issuing Stock.
    Rev. St. 1911, art. 1146, prohibiting, any corporation, domestic or foreign, doing business in the state, from issuing stock, except for money paid, labor done, or property actually received, applies to a foreign corporation actually doing business in Texas, though having no permit to do so.
    [Ed. Note. — For other cases, see Corporations, Cent. Dig. §§ 444-446; Dec. Dig. <§=99.]
    3. Bills and Notes <§=369 — Corporations <@=99 — Stock—Issue of -or Subscription for — Notes.
    There is not an issue of stock, which, being for the purchaser’s note, in contravention of Rev. St. 1911, art. 1146, renders the note void, even in the hands of an innocent purchaser, hut nothing more than a subscription for the stock, it being agreed the maker of the note was not to get the stock unless he paid the note, and the payment of it, by secret agreement, being made optional, so that the note in the hands of a purchaser, without knowledge of the secret agreement, is enforceable against the maker; and all this though the collateral clause of the note and the certificate of stock attached to the note by the corporation as security recite that the stock is that of the maker of the note.
    [Ed. Note. — For other cases, see Bills and Notes, Cent. Dig. § 951; Dec. Dig. <@=369; Corporations, Gent.Dig. §§ 444-446; Dec.Dig. <@=99.]
    4. Bills and Notes <@=226 — Indorsement— Consideration.
    It is sufficient consideration for a stranger’s indorsement of a note, without which the purchaser would not take it, that from the proceeds of the sale he was to be and was paid what the payee of the note owed him.
    [Ed. Note. — -For other cases, see Bills and Notes, Cent.Dig. §§ 534-541; Dec. Dig. <@==>226.]
    5. Bills and Notes <@=238 — Indorsement-Warranty of Genuineness.
    The indorsement of a note by a stranger for a consideration, on the sale thereof, carries with it his warranty of its genuineness, making him liable to the purchaser, even if the note is void as to the maker.
    [Ed. Note. — For other cases, see Bills and Notes, Cent. Dig. §§ 565, 566; Dec. Dig. <§= 238.]
    Appeal from District Court, Nacogdoches County; L. D. Guinn, Judge.
    Action by the Farmers’ & Merchants’ State Bank against Thomas S. Falvey and others. From the judgment, so far as in favor of defendants Falvey and Cavia, plaintiff appeals.
    Reversed and rendered.
    Ingraham & Hodges, of Nacogdoehes, for appellant. John W. Lewis, of Houston, and. King & Seale, of Nacogdoches, for appellees.
   McMEANS, J.

The Farmers’ & Merchants’ State Bank brought this suit against Thomas S. Falvey, as maker, and the Tri-State Construction Company and George W. Cavin, as indorsers, of a promissory note, which will be copied further on in this opinion, and for interest due thereon, and for attorney’s fees stipulated for therein, and for $4.50 protest fees.

Plaintiff alleged that on April 10, 1912, defendant Falvey for a valuable consideration made, executed, and delivered to the defendant Tri-State Construction Company, a corporation duly incorporated under the laws of West Virginia, his promissory note for $2,500, due one year after date, hearing 8 per cent, per annum interest from date, and providing for the payment of 10 per cent, attorney’s fees in case suit should he brought thereon after maturity; that the defendant Tri-State Construction Company indorsed the note by writing its name across the hack of same, thereby making it negotiable; and that thereafter, before the maturity of said note and for a “valuable consideration, and by a special contract made and entered into, the defendant Geo. W. Gavin indorsed said note by writing his name across the back of same, and verbally and in writing personally bound himself and promised to pay said note according to its reading and effect, with all interest and attorney’s fees as therein expressed.” Plaintiff further alleged that it purchased said note before its maturity, and after it bad been indorsed as above stated, for a valuable consideration, without notice of any infirmity in tbe note or defense thereto by its maker and the indorsers, the failure of the maker and indorsers to pay the same at maturity, the presentment of same for payment and protest, and the payment by it of the protest fees, and the necessary facts to entitle it to a recovery of attorney’s fees.

It does not appear that the defendant TriState Construction Company filed an answer. The defendant Falvey answered by general denial, and specially pleaded that on April 10, 1913, he entered into a contract with the defendant Tri-State Construction Company, a corporation doing business in Texas, with its office in the city of Houston, by which said corporation sold to him 125 shares of its capital stock for the sum of $2,500, the stock being of the par value of $20 per share, and in consideration therefor he executed and delivered to said corporation the note sued on, which is set out in hasc verba in the answer. He further pleaded that, at the time he purchased said stock, it was agreed by and between himself and the corporation that said 125 shares of stock was to he issued by tbe corporation and attached to said note as collateral security for the payment thereof, and that thereafter said stock was so issued and attached to the note; that said note was executed for the stock, and that no other thing of value was paid therefor, all of which plaintiff knew when it purchased said note, wherefore said transaction was, under the Constitution and laws of Texas, unenforceable and the note void. He further alleged that his codefendant Cavin was familiar with all the facts and circumstances of the transaction, and knew, at the time he indorsed the note, that the note was executed in payment for the stock, and that nothing had been paid therefor.

Defendant Cavin denied all the allegations of plaintiff’s petition which sought to hold him liable, other than the fact that he indorsed the note, and denied that, at the time he indorsed tlje note, he knew of any fact that rendered it invalid. He specially pleaded that he had no interest in or connection with the note further than he was trying to collect from the defendant Tri-State Construction Company a debt that said company owed him, and was informed by said company that it owned the note herein sued on, and that, if same could be negotiated or sold, it would pay him $1,250 on its indebtedness to him out of the proceeds; that said construction company had placed said note with a bank at Alvin, Tex.; that said construction company instructed the Alvin bank to forward said note to plaintiff bank, and that the latter was instructed to pay to him $1,-250 from the proceeds of the note, remitting the balance to the Alvin bank; that in pursuance of such instruction the plaintiff bank did pay to him $1,250, and remitted the balance to the bank at Alvin. .He further alleged that the plaintiff knew, at the time it purchased the note, that it was invalid, because it carried notice upon its face that the same had been executed by defendant Fal-vey in payment of stock, and that plaintiff had full notice of the illegality of the consideration for the execution of said note. He further alleged that his- indorsement of the note was -without consideration. He prayed that in the event the note should be held to be a valid obligation, and that judgment should be rendered thereon in favor of plaintiff, he have judgment over against defendant Falvey.

Plaintiff, by a supplemental petition in reply to the allegations of defendant Falvey’s answer, denied that the note in question was given in payment for the stock, and alleged, in effect, that defendant Falvey had subscribed for the stock, and that his subscription was evidenced by the note sued upon, and that the stock had never been delivered to him but was attached to the note as collateral security. It denied any knowledge of the invalidity of the note, or that the note on its face disclosed that it was unenforceable. It alleged in the alternative that the Tri-State Construction Company was chartered under the laws of West Virginia; that it never secured a permit to do business in Texas; and that, under the Constitution and laws of West Virginia, it had the right to accept notes in payment for its stock, and that for this reason, if the transaction here-inbefore detailed should be held to be a sale of stock for a note, the note herein sued on is a valid and binding obligation upon the maker and indorser.

By its supplemental petition in reply to the answer of the defendant Cavin, the plaintiff pleaded that said defendant was interested in the sale of the note, in that he was to receive $1,250 out of the proceeds of sale in payment of a debt owing to him by the construction company, which was then insolvent, and, to induce plaintiff to purchase the note, represented to plaintiff that the note was good, and that he would promptly pay it at maturity, and that he verbally contacted and promised to pay said note to plaintiff at maturity, and, independently of his written indorsement, guaranteed plaintiff against any loss in any event, upon which guaranty, as well as his written indorsement, plaintiff relied and was induced thereby to purchase the note, and that the defendant Cavin received a part of the proceeds of the purchase.

The pleadings are quite voluminous, and many allegations contained in them are omitted; but we have stated the substance of such allegations as we think present the issues that will control in the disposition of the case under the law applicable to the material facts proved.

The case was tried before a jury; but, when the introduction of the testimony was concluded, the court peremptorily instructed the jury to return a verdict in favor of the defendants Falvey and Cavin, and in favor of plaintiff against the Tri-State Construct tion Company, for the amount of the note, interest, attorney’s fees, and protest fees, and, this having been done, a judgment was accordingly entered, From the judgment against it in favor of Falvey and Cavin, the plaintiff has appealed.

Appellant by its -first and second assignments of error assails the action of the trial court in instructing a verdict in favor of the defendants Falvey and Cavin." Under these assignments, it presents several propositions which we shall not discuss in detail, but shall now, as briefly as we may, detail the undisputed material facts proved on the trial upon which we think the court should not only have not given the charge complained of, but should have instructed a verdict for the plaintiff.

The Tri-State Construction Company was incorporated under the laws of the state of West Virginia, with a capital stock of $450,-000, of which only $080 had been paid in. On April 10, 1912, it was, and it is now, and since then has been, wholly insolvent. It never acquired a permit to do business in Texas. Prior to said time it had acquired the right of way upon which to construct an interurban railway in Texas, and had purchased, cross-ties from appellee Cavin on credit, and owed him therefor a sum of money in excess,of $1,250. .On the date stated, it contracted with appellee F'alvey for the sale to him of $5,000 of its capital stock; the agreement of Falvey to buy it partaking of the nature of a subscription for that much stock, and in legal effect was a subscription. At the time Falvey contracted for the stock, he executed and delivered to the construction company his note for $5,000, and it was agreed that the construction company should hold the stock and attach it to the note as collateral security. When F'alvey executed and delivered this note to the construction company, he wrote upon it the words “not transferrable”; his purpose being to render it nonnegotiable. The construction company, adopting the view that the note was nonnegotiable, requested Falvey to execute two negotiable notes in lieu thereof, each for $2,500, bearing 8 per cent, per annum interest, and containing the usual stipulation for the payment of 10 per. cent, as attorney’s fees, and Falvey complied with this request. The note in suit was one of these and is as follows:

“Fostoria, Texas, 4/10/1912.
“On April 10, 1913, without grace, after date, for value received, I, we, or either of us, promise to pay to the order of the Tri-State Construction Company twenty-five hundred dollars at the office of said company in Houston, Texas, with interest at the rate of eight per cent, per annum from date until paid, and in the event default is made in the payment of this note at maturity and it is placed in the hands of an attorney for collection, or suit is brought on same, then an additional amount of ten per cent, on principal and interest of this note shall be added to the same for collection fees. The drawers and indorsers severally waive presentment for payment, protest and nonpayment of this note.
“Thomas S. Falvey.
“As collateral security for the foregoing note and other notes, if any, this day given for the stock hereinafter named, I have delivered to the Tri-State Construction Company the following securities: 125 shares Tri-State Construction Co.
“In case of default in payment of any of the foregoing and above-described note at maturity, I, we, or either of us, authorize the holder applying the proceeds to the payment of the above note, including interest and attorney’s fees, and the surplus, if .any remaining thereafter, to be paid to the maker hereof on demand. Thomas S. Falvey.”

While Falvey testified upon direct examination that he bought the stock with his note, his testimony upon the. whole shows that this was only a conclusion, and his testimony upon cross-examination shows that the note was not given by him or accepted by the construction company as a payment for the stock, but at most only evidenced his suscription therefor. He testified:

“I don’t know, as a matter of fact, that I intended to pay this note, if this concern turned out all right. * * * -It was like this: I gave these notes with the understanding they would keep them 12 months, and then, if I didn’t want the stock; they would give me the notes back and 20 per cent., but if I wanted the stock I could get the stock; that is -the way the proposition was. It wasnlt the understanding that' I gave the two $2,500 notes with the understanding that the company retain the notes 12 months, and then return me the notes or my money back and 20 per cent. It wasn’t that at all. I was to get 20 per cent, in money or get the stock. That was the understanding and the intention I had in my mind when I gave the notes. * * * It was the understanding merely that I was to get 20 per cent, on the investment. It wasn’t that I was to get 20 per cent, of'$5,000 or $5,000 worth of stock. I was to get 20 per cent, or that much stock. * * * I didn’t have a written contract with them to that effect, but that is the understanding' and was the understanding they had with everybody. * * * If I wanted to pay the $5,000, of course I got the stock; and if I didn’t want to pay it, and didn’t want the stock, I didn’t pay it, and they were to allow me and give me 20 per cent, on the $5,000. If I would pay I would get the stock, plus the 20 per cent. If I didn’t take the stock, I would get 20 percent, on $5,000.”

It seems that, prior to the transaction above detailed, Falvey had bought and paid for $1,000 worth of the stock of the construction company. On April 10, 1912, the date he contracted for the $5,000 worth of stock, he wrote a letter to J. A. Host, in which he said:

“I have just subscribed for six thousand dollars of the Tri-State Construction Company stock believing it to be one of the best propositions offered to the public to-day,” etc.

In reference to this letter he testified:

“I have used the word ‘subscribed’ in this letter all right, but you will remember I have just testified that I bought $1,000 worth of this stock and paid the money for it. * * * I don’t know that I used the word ‘subscribed’ for the purpose of inducing the public into buying the stock or subscribing for it. It is not my understanding that I merely subscribed for all of this stock, for I know I bought $1,000 worth of it for I have already paid for it.”

He further testified:

“I guess if I had paid this note for $2,500 when it was-due that I would have gotten the $2,500 worth of this stock. * * * I am sure I would have, then. That is what I bought with this note, and that is what I executed this note for; and if I had paid the note when it matured I would have .gotten this stock, but it was my understanding that I bought the stock, and the stock wás attached, to the note as collateral. As to whether or not I thought I would get the stock before I paid the note, will say I never expected to pay the note when it was executed. I never intended to pay for this stock at all. * * * I never intended to pay the $5,000 note, and then I changed the $5,000 note to two $2,500 notes, but when I executed both of them I never meant or intended to pay either one of them.”

Several days after Falvey had executed the two $2,500 notes in lieu of the one for $5,000, the construction company made out and signed two stock certificates, each for $2,500 worth of stock, each containing a recital that Falvey was the .owner of the amount of stock named in the certificate, and one of these certificates was attached to the note in suit and placed by the construction company in the bank at Alvin. Afterwards Oavin began to press the construction company for payment of the debt due him by that company, and was told by the construction company that, if he would negotiate the sale of the note in suit, it would pay him on his account $1,250 out of the proceeds, whereupon Cavin called upon the officials of the plaintiff bank and asked them to purchase the note, representing that it was good and would be paid at maturity, and reguested the bank to investigate Fal-vey’s pecuniary responsibility; and in due course the bank officials reported to him that they had made the investigation, and that the report upon Ealvey’s financial standing was favorable. Cavin then again requested the bank to buy the note, but the latter, for reasons not necessary to be given, at first demurred, but afterwards agreed to buy it on the condition that Cavin would guarantee its payment by his indorsement. jx short time thereafter the plaintiff bank received the note, with the stock attached, through the mail from the Alvin bank, with a letter from the latter directing plaintiff to pay to Cavin $1,250 out of the purchase money and to remit the balance to it. Just who directed the Alvin bank to send the note to plaintiff the evidence does not disclose, but it was not sent at the plaintiff’s instance. After plaintiff received the note, it notified Cavin of this fact, and Cavin, after some hesitation, indorsed his name thereon, but not until he was assured by the plaintiff that it would not buy the note unless and until he indorsed it. Plaintiff then paid Cavin $1,250, as instructed by the Alvin bank, and sent the balance to the latter.

Appellant insists that if it should be held that the facts proved on the trial establish that the stock in question was issued for the note, and that the same was not paid for .in money, property, or labor, and that the sale of the stock and the note given therefor would be void as to a corporation organized and chartered under the laws of Texas, or as to one chartered under the laws of another state, and which had secured a permit to do business in Texas, still the issuance of the stock and the payment therefor by the execution of the note to the purchaser were not, under the facts of this case, invalid, for the reason that under the Constitution and laws of West Virginia, in which state the construction company was incorporated, it was not prohibited from issuing its stock for a promissory note, and that the laws of that state should determine the legality of the transaction at issue. This contention may be overruled upon two grounds: (1) While appellant alleged that the. transaction’was not inhibited by the Constitution and laws of West Virginia, it signally failed to make the proof. True, it introduced in evidence certain articles of the Constitution of that state relating to corporations, none of which contained language similar to the language of section 6 of article 12 of the Constitution of this state, or article 1146, Revised Statutes, which provide that no corporation shall issue stock or bonds, except for money paid, labor done, or property actually received; but it was not shown that the articles introduced were all that were contained in the Constitution having reference to corporations. Assuming, however, that‘there were no articles relating to corporations, except those put in evidence, and that' therefore there was no constitutional inhibition against the issuance and sale of stock upon credit, there was no proof that there was no legislative enactment of that state which contained such an inhibition. True, appellant undertook to prove there was not, and to that end introduced, over the objection of appellees, a decision of the Supreme Court of West Virginia, which, if it had any probative force, did not establish the fact sought to be proved. See Railroad v. Applegate & Son, 21 W. Va. 172. In the absence of proof of the laws of West Virginia, it will be presumed that they are the same as the laws of Texas, and, indulging this presumption, it will be presumed that the laws of that state prohibit the issuance of stock, except for money paid, labor done, or property actually received. (2) Article 1146, Revised Statutes 1911, which was in force at the time of the transaction under discussion, provides that no corporation, domestic or foreign, doing business in this state, shall issue any stock whatever, except for money paid, labor done, or property actually received. Treating the construction company as a foreign corporation, within the meaning of the article, and it having been shown that the corporation was doing business in this state, the statute applied to it with full force, and prohibited the issuance of stock by it for the promissory note of the purchaser. Fowler v. Bell, 90 Tex. 150, 37 S. W. 1058, 39 L. R. A. 254, 59 Am. St. Rep. 788; Loan Ass’n v. Griffin, 90 Tex. 487, 39 S. W. 656.

But do the facts of this case show that the construction company issued its stock to F'alvey upon his promise in writing to pay the same, or, in other words, for his promissory note? If we had no evidence before us other than the note and the certificate of stock, we might be constrained to hold that it did, for the collateral clause of the note recites that:

“As collateral security for the foregoing note * * * this day given for the stock hereinafter named, I have delivered to the Tri-State Construction Company the following securities: 125 shares Tri-State Construction Co.”

And the stock itself certifies that Falvey is the owner of 125 shares of such stock, fully paid up, and nonassessable. But the evidence clearly shows, we think, that the collateral clause of the note and the stock certificate do not recite the true facts, and that the facts therein recited would not be true and were not intended to reflect the facts, until the transaction was fully completed by Ealvey paying the contract price for the stock. What the facts really were is shown by Ealvey’s testimony. His contract to give his note for the par value of the stock, and that the construction company would hold both the note and the stock for one year, and that he could have gotten the stock only by paying the amount of his note, is clearly inconsistent with the claim that he became the owner of the stock when he executed his note. Again he says, and his testimony is undisputed, that he had the option to decline the payment of the note at maturity, and that in that event the constructiQn company would surrender the note to him and pay him 20 per cent, of the par value of the stock. Clearly, we think, this refutes the contention of an executed sale. We think that ■ the facts, broadly viewed, establish nothing more than that Ealvey subscribed for the stock. A subscription for stock, however it may be evidenced, is nothing more than an agreement in writing to take and pay for the stock subscribed for, and it has been too often held to require citation of authorities that a subscription for stock may be enforced against the subscriber either by the corporation itself or by a creditor. It is true that Ealvey did not sign any express agreement to take the stock and pay for it, but his testimony clearly shows that he did subscribe for stock, and the note evidenced his agreement to pay for it It may be that, had this suit been brought by the corporation against Falvey to enforce the payment of the note given under the circumstances detailed by him in his testimony, he could have defended, in the absence of intervening rights of creditors, on the ground that his contract to take the stock was optional, and that he had exercised the option to refuse to take it, and to have his note canceled and surrendered to him. However, this question is not beu fore us, and we make no decision upon it. But it is clearly the law that the agreement made by Ealvey with the corporation, whereby he might escape the payment of the note, in the circumstances detailed by him, could not be urged as a defense to the suit of the appellant bank, which purchased the note for value, without notice of the secret agreement between Falvey and the corporation. Of course, if the transaction between Eal-vey and the corporation relating to the sale of the stock had been such as is inhibited by the Constitution and statutes of this state, the note would have been void even in the hands of an innocent purchaser for value. Mason v. Bank, 156 S. W. 366, and authorities cited. But, as we have undertaken to show, the real transaction was not one prohibited by law, and, as between the plaintiff bank and Ealvey, was enforceable. We think, therefore, that the court erred in instructing a verdict for the defendant Ealvey. and in not instructing a verdict in favor of the bank against him.

But what of Gavin’s liability? The note in question was payable to the order of the Tri-State Construction Company, was negotiable, and was put in circulation by the construction company, by indorsing its name thereon. Cavin was interested in the sale of the note, for by its sale he could collect $1,250 of a debt owing him by the construction company, which was then insolvent. It was he who induced the plaintiff bank to purchase the note by representing that it was good, and by agreeing to indorse it, and thereby become liable for its payment, and by afterwards indorsing it, when he knew that without his indorsement the' plaintiff would not purchase it. The collecting of the $1,250 out of the proceeds was a sufficient consideration for taking upon himself this liability. If we are correct in holding that Falvey, as the maker, was liable because the transaction in which the note was executed was not one prohibited by law, we think it necessarily follows that Cavin rendered himself liable by indorsing it for a sufficient consideration. It follows from this that the bank was entitled to a judgment against him also, and that the court should have so instructed the jury.

But had the transaction between the corporation and Falvey been one that was prohibited by law, and had the note been therefore void as to Falvey, the maker, we still think that, under the circumstances of this case, Cavin was liable to the plaintiff by reason of his indorsement, for his indorsement for a consideration carried with it his warranty of its genuineness. Gardner v. Hawes, 149 S. W. 273; McFarling v. Carey, 149 S. W. 766; Tiedeman on Commercial Paper, § 259; De Leon v. Trevino, 49 Tex. 88, 30 Am. Rep. 101.

Under the facts of this case, the plaintiff was entitled to a judgment against both Fal-vey and Cavin, and Cavin was entitled to a judgment over against Falvey, and the judgment of the court below will therefore be reversed, and judgment here rendered accordingly.

Reversed and rendered.
      <@=For other oases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes