author: DUNICLIN, J. DUNKLIN, J.

text:
    SOUTHWESTERN SURETY INS. CO. v. HICO OIL MILL.
    (No. 8766.)

      (Court of Civil Appeals of Texas. Ft. Worth.
    Feb. 16, 1918.
    On Rehearing, April 13, 1918.)
    1. Guaranty i&wkey;20 — Principal and Surety &wkey;j39 — Misrepresentation—Eeeeot.
    It is a general rule that if one is induced to become a surety or guarantor for another through material misrepresentations of fact, the contract is invalid, and obligor will be discharged, even though the representations are honestly made.
    2. Insurance <&wkey;134(2) — Application—Defenses.
    Failure to attach application and questions and answers as required by Vernon’s Sayles’ Ann. Civ. St. 1914, art. 4951, providing that every contract or policy of insurance issued or contracted for in this state shall be accompanied by a written, photographic, or printed copy of the application for such insurance policy or contract, as well as a copy of all questions asked and answers given thereto, deprives an insurer on fidelity bond of the defense that misrepresentations made without knowledge of their falsity, and with no intention to deceive, would vitiate the policy, although such misrepresentations would vitiate the policy' in the absence of such statute.
    3. Insurance <&wkey;134(2) — Fidelity Insurance-Representations.
    An “employer’s statement” consisting of questions and answers required by a fidelity insurance company in addition to an application by the employe, was one required by Vernon’s Sayles’ Ann. Oiv. St. 1914, art. 4951, to be attached to the policy or bond.
    Appeal from District Court, Tarrant County; J. W. Swayne, Judge.
    Action by C. H. Bencini, doing business under the trade name1 of the Hico Oil Company, against the Southwestern Surety Insurance Company. Judgment for plaintiff, and defendant appeals.
    Affirmed.
    Capps, Cantry, Hanger & Short and Wm. L. Evans, all of Ft. Worth, and John T. Suggs, of Denison, for appellant. McLean, Scott & McLean, of Ft. Worth, and C. L. McCartney, of Brownwood, for appellee.
   DUNICLIN, J.

From a judgment in favor of C. H. Bencini, doing business under the trade-name of the Hico Oil Company, against the Southwestern Surety Insurance Company upon its bond in which it agreed to reimburse plaintiff for any pecuniary loss lie might sustain through the fraud or dishonesty of Horace M. Scales, his employé and business manager, the defendant has ap-peáled.

■Scales made a written application to the defendant for the bond upon a printed form containing many questions propounded to him with blanks to be filled in with his answers thereto, and in which his answers were written. Upon receipt of the application and before issuing the bond, defendant mailed to plaintiff a printed statement in blank styled “employer’s statement,” to be filled out and returned to the company together with a letter reading as follows:

“Hico Oil Mill, Hico, Texas. An application has been made to this company to issue a bond of security for Mr. Horace M. Scales as manager in your service at Hico, to the amount of $5,000. The company desires to have answers to the following questions, and the answers will be taken as a part of the consideration for the bond if issued. Very respectfully yours, W. B. Munson, President.”

i Upon receipt of the letter and blank statement, plaintiff filled in the blanks with his answers to the numerous questions propounded to him and returned the same to the surety company. Upon receipt of that statement the defendant executed and delivered to plaintiff the bond sued on. The only provisions of the bond material to this controversy are as follows:

“Whereas, Horace ML Scales, Hico, Tex., hereinafter called the “employé,” has been appointed to the position of manager in the service of, Hico Oil Mill, Hico, Tex., hereinafter called the “employer” and has been required to furnish a bond for his honesty in the performance of his duties in the said position; and whereas, the employer has delivered to Southwestern Surety Insurance Company, with general offices at Durant, Old., a corporation organized under the laws of Oklahoma, hereinafter called the “company,” a statement in writing setting forth the nature and character of the office or position to which the employé has been elected or appointed, the nature and character of his duties and responsibilities and the safeguards and checks to be used upon the employé in the discharge of the duties of said office or position, and other matters, which statement is made a part hereof:
“Now, therefore, in consideration of the sum of twelve and 50/100 dollars, paid as a premium for the period from October 7, 1911, to October 7, 1912, at 12 o’clock noon, and upon the faith of the said statement as aforesaid by the employer which the employer hereby warrants to be true, it is hereby agreed and declared that subject to the provisions and conditions herein contained, which shall be conditions precedent to the right on the part of the employer to recover under this bond, the company shall within three months next after notice, accompanied by satisfactory proof of a loss as hereinafter mentioned, has been given to the company, make good and reimburse to the employer all and any pecuniary loss sustained by the employer of' money, securities, or other personal property in the possession of the employé, or for the possession of which he is responsible, by any act of fraud or dishonesty the part of said employé in the discharge of the duties of his office or "position as set forth in said statement referred to, amounting to larceny or embezzlement, and which shall have been committed during the continuance of this bond, or any renewal thereof, and discovered during said continuance, or within six months thereafter, or within six months from the death or dismissal or retirement of the employé from the service of the said employer.”

The bond was in the sum of $5,000 and was dated September 10, 1911, at which time Seales was, and had been for several years prior thereto, in the employment of plaintiff. Among other defenses the surety company pleaded that the execution and delivery of the bond was induced by belief in the truth of the representations of plaintiff contained in the “employer’s statement,” and further alleged the falsity of those representations which were to the effect that at the time the statement was made Scales was not indebted to plaintiff in any sum; that his accounts with plaintiff had been properly checked and showed that all funds and securities with which he was chargeable were on hand, and that none of same had been misappropriated nor converted to his own use by Scales. It was alleged that upon the date of the “employer’s statement” Scales was indebted to plaintiff in divers sums, and prior thereto had misappropriated and embezzled funds belonging to plaintiff, all of which facts were known to plaintiff, or by the exercise of due diligence should have been so known, and that his misrepresentations of the same constituted a fraud, which vitiated the bond issued in reliance thereon. Upon the trial, defendant offered in evidence the “employer’s statement” to support said defense of fraud, but the same was excluded by the trial court upon plaintiffs’ objection to the effect that it was rendered inadmissible by virtue of those provisions of article 4951, Vernon’s Sayles’ Tex. Oiv. Stats., which are as follows:

“Every contract or policy of insurance issued or contracted for in this state shah be accompanied by a written, photographic or printed copy of the application for such insurance policy or contract, as well as a copy of all questions asked and answers given thereto.”

The trial was upon an agreed statement of facts, and the only assignments of error presented are to the action of the court in excluding such evidence and refusing to render judgment in favor of the defendant based on that proof. The following appears in the statement of facts:

“It is further agreed that the fidelity bond sued on in this case was not accompanied by any written, photographic, or printed copy of the application for such fidelity bond, which said application as above referred to is hereto attached, nor of any written, photographic, or printed copy of the ‘employer’s statement,’ heretofore referred to and attached, accompanied the same, but the said fidelity bond was delivered just as it appears hereto attached, with no other documents of any kind accompanying or attached to the same.
“It is further agreed that during the period covered by the fidelity bond plaintiff sustained a pecuniary loss amounting to as much as the sum of $5,000 through dishonesty on the part of H. M. Scales while in the discharge of the duties of his position, amounting to larceny or embezzlement committed during the continuance of the bond, and that notice and proof of loss were furnished defendant company in the manner provided for by the terms of the bond.
“It is further agreed that sufficient facts exist, as alleged by defendant, to constitute a complete avoidance of liability on the fidelity bond; provided the ‘employer’s statement’ heretofore referred to is admitted in evidence and considered by the court, but not otherwise, but O. H. Boncini personally did not know the answers in said statement were untrue at the time he signed the same,, but was legally chargeable with such knowledge.
“It is further agreed that the plaintiff, waiving all other objections to its admissibility, objects to the admission and consideration by the court of the ‘employer’s statement’ upon the sole ground, to wit: First, that the fidelity bond hereto attached and sued on in this case, was not accompanied by said ‘employer’s statement,’ or any written, photographic, or printed copy thereof, nor was said fidelity bond accompanied by the application hereto attached, nor any written, photographic, or printed copy thereof; and, second,' that the fidelity bond was not accompanied by any statement of any kind or character but was delivered just as it appears hereto attached and made a part hereof.
“It is further agreed that the defendant offers in evidence in connection with other facts agreed to exist the said ‘employer’s statement,’ and urges its admission and- consideration by the court.
“It is further agreed that the ‘employer’s statement’ is material and admissible in evidence unless excluded on the grounds stated in paragraph six hereof. In the event it should be held that plaintiff’s objections to the introduction of the ‘employer’s statement’ are well taken, then plaintiff’s admissions as above recited are not to be considered for any purpose, but in the event plaintiff’s objections are not well taken then said agreements and admissions herein contained shall be considered for all purposes.
“It is further agreed that nothing herein shall be construed as a waiver of the right of appeal, and that both plaintiff and defendant reserve the right to object and except to the action and ruling of the court in the admission and consideration, or in the exclusion of the said ‘employer’s statement,’ as well as the right to object and except to and to appeal from any judgment rendered in this cause upon this agreement, or any judgment, decree, or order of the court of whatsoever nature that may be hereafter made.
“It is further agreed that the plaintiff, if entitled to recover at all under this agreement, is entitled to recover against defendant the sum of |5,000 with interest thereon from the 1st day of June, 1912, at the rale of 6 per cent, per annum, together with all costs of suit; and that defendant, if entitled to judgment in its favor upon this agreement, is entitled to judgment that plaintiff take nothing against defendant and that it go hence without day. and recover of plaintiff all costs of suit.”

It is a géneral rule that, if one is induced to become a surety or guarantor for another through material misrepresentations of fact, such contract of the surety or guarantor will thereby be rendered invalid and the obligor will be discharged from liability thereon; and this is true even though such misrepresentations are honestly made with no intention to deceive or defraud. Culbertson v. Blanchard, 79 Tex. 491, 15 S. W. 700; Benton v. Kuykendall, 160 S. W. 443; Bank of Hardinsburg & Trust Co. v. American Bonding Co. of Baltimore, 153 Ky. 579, 156 S. W. 398, 12 R. C. L. p. 335 et seq. In support of its contention that in order to avoid the bond on its plea that the same was procured by misrepresentations of material facts which constituted a legal fraud, appellant has cited Johnson v. American National Life Ins. Co., 134 Ga. 800, 68 S. E. 731, Southern Life Ins. Co. v. Hill, 8 Ga. App. 857, 70 S. E. 186, and Southern Life Ins. Co. v. Logan, 9 Ga. App. 503, 71 S. E. 742, all by the Supreme Court of Georgia; Bowyer v. Continental Casualty Co., 72 W. Va. 333, 78 S. E. 1000, by the Supreme Court of West Virginia; Coleman v. Retail Lumbermen’s Ins. Association, 77 Minn. 31, 79 N. W. 588, by the Supreme Court of Minnesota; and Carrigan v. Mass. Benefit Ass’n (C. C.) 26 Fed. 230. We shall quote from Johnson v. Amer. Nat. Life Ins. Co., the case first cited, in order to show the statute, there construed and the reasoning advanced:

“The principal question involved is as to the effect of the act of August 17, 1906 (Acts 1906, p. 107). It declares that: ‘From and after the passage of this act all life and fire insurance policies issued upon the life or property of persons within this state, whether issued by companies organized under the laws of this state or by foreign companies doing business in this state, which contain any reference to the application for insurance, or the constitution, bylaws, or other rules of the company, either as forming part, of the policy or contract between the parties thereto, or having any bearing on said contract, shall contain or have attached to said policy a correct copy of said application, signed by the applicant, and of the by-laws referred to; and unless so attached and accompanying the policy, no such constitution or bylaws shall be received in evidence either as part of the policy or as an independent contract in any controversy between the parties to or interested in the said policy; nor shall such application or by-laws be considered a part of the policy or contract between such parties.’ This act provides that, where a reference is made in the policy of insurance to the application, a correct copy of the latter must be attached to the policy, and unless this is done, such application shall not ‘be considered a part of the policy or conti-act between such parties.’ But this does not exclude an insurance company from showing that the policy was. procured by fraud and misrepresentation.
“To consider the application as a part of the contract of insurance, and as forming a warranty or covenant, treats the policy as a valid contract and sets up one of its terms. To seek to set aside or repudiate the policy as having been obtained by fraud is to set up that there was no valid and binding contract of insurance. The two things are entirely different. The legislative enactment, which declares that, under certain circumstances, an application for insurance mentioned in the policy shall not be considered a part of the policy or contract between the parties, does not prohibit one of such parties from showing that, whatever the contract was, it was procured by the fraud of the other.”

That decision was cited with approval and followed in the two other cases decided by the Supreme Court of Georgia. Bowyer v. Continental Casualty Co., supra, was a suit against the casualty company upon a policy of insurance, and in which suit the company pleaded certain false statements made by the insured in his application for the policy, which induced its execution and delivery; said false statements being pleaded both as a breach of warranty and as a fráud which vitiated the policy. In that case, as in the present suit, an objection was sustained by the trial court to the introduction of the written application for the policy, because it was not attached to the policy and was therefore not admissible by virtue of a statute of the state reading as follows:

“In all policies of insurance issued against loss by fire, made by companies chartered by or doing busines in this state, no condition shall be valid unless stated in the body of the policy or attached thereto.”

In discussing the objection to such evidence, the court held that by virtue of that statute it was not admissible as forming a part of the contract of insurance, but_ said further:

“Though inadmissible to prove statements^ of the insured as a warranty or part of the policy, because not attached to it, the application was admissible, together with other evidence, to prove fraud in the procurement of the policy. A false statement made in the application for a policy is none tho less false because made therein; and, if it is an element or fact in a scheme of fraud to procure the issuance of a policy, under circumstances under which it would not be issued if the insurer had been advised of the true situation, it stands upon the same footing as if made in any other paper or way.”

The case of Coleman v. Retail Lumbermen’s Ins. Ass’n was to the same effect and involved a statute similar to that of this state referred to above. Carrigan v. Mass. Benefit Ass’n, supra, is to the same effect, and in that case the statute which was the basis of the objection urged to the introduction of the application for the policy, like our own statute, required that the application for the policy be attached thereto, and further provided that:

“Unless so attached and accompanying the policy no such application * * * shall bo received in evidence, in any controversy between the parties to, or interested in, the said policy, nor shall such application * * * be- considered a part of the policy or contract between such parties.”

Appellee has cited many decisions squarely in conflict with those relied on by appellant and which, we think are sustained by better reasoning. The case of New York Life Ins. v. Hamburger, reported in 174 Mich. 257, 140 N. W. 512, decided by the Supreme Court of Michigan, involved the construction of a statute reading:

“No policy of life insurance shall be issued in this state, unless the same shall contain the following provisions: * ‡ * Fourth, a provision that all statements made by the insured, shall, in the absence of fraud, be deemed representations and not warranties, and that no such statement shall avoid the policy unless it is contained in a written application and a copy of such application shall be indorsed upon or attached to the policy when issued.”

In discussing that statute the court said:

“A careful study of tho language of the section convinces us that innocent misstatements or omissions to answer on the part of the applicant' shall be held to be simply representations; but, in case that fraud can be show,p, they shall bo held to be warranties. In no case, however, shall the policy be subject to attack unless such statement claimed to be fraudulent is contained in the written application indorsed upon or attached to the policy when issued. It undoubtedly seemed fair to the Legislature that the policy holder should have in his possession, during his lifetime, such statements or representations which might be claimed, after his death, to have been fraudulent, so that he might know, or could be held to know, what the contract was which he had entered into. * * *
“Complainant’s solicitor urges that fraud vitiates all contracts, and that any contract which provides for removing the defense of fraud is void as against public policy; and numerous authorities are cited in support of this contention. In the instant case, it is not a question of the contract being against public policy, but rather what the Legislature of this state has declared its policy to be. What is public policy? The term has frequently been used in a loose, vague, and inaccurate sense. We may, however, safely say that, when we speak of the public policy of this state, we mean the law of the state, whether found in its Constitution, the statutes, or the judicial records. People v. Hawkins, 157 N. Y. 1, 51 N. E. 257, 42 L. R. A. 490, 68 Am. St. Rep. 736; 32 Cyc. 1251. A statute of the state must be respected unless it is in conflict with the Constitution of the state or the Constitution of the United States. Whitfield v. Ætna L. Ins. Co., 205 U. S. 489, 27 Sup. Ct. 578, 51 L. Ed. 895.
“The people having spoken through their representatives in the Legislature, and having prescribed what an insurance company must do in order to make a defense because of fraud, that requirement being a part of the law, it becomes the public policy of the state. The Legislature did not say that tho company should not defend for fraud perpetrated in obtaining insurance, but did say that, if the coihpany wishes to make this defense, it must attach the application containing the alleged fraudulent statement to the policy. If the company desires to do business in this state, it must do it subject to such valid and reasonable regulations as the state may determine to prescribe.”

To the same effect are the following cases, in which substantially the same reasoning was advanced: Considine v. Metropolitan Life Ins. Co., 165 Mass. 462, 43 N. E. 201; Corson v. Iowa Mut. Fire Ins. Ass’n, 115 Iowa, 485, 88 N. W. 1086; Wheelock v. Home Life Ins. Co., 115 Minn. 177, 131 N. W. 1081; Biermann v. Guaranty Mut. Life Ins. Co., 142 Iowa, 341, 120 N. W. 963; Coats v. Camden Fire Ins. Ass’n, 149 Wis. 129, 135 N. W. 524.

Counsel for appellant stress the fact that by the statute of this, state noted above no penalty is provided for a failure to attach a copy of the application to the policy of insurance; in other words, the statute contains no provision to the effect that if the application is not attached it shall not be admissible in evidence in support of any defense predicated upon statements contained therein. In some of the decisions cited by appellant the statutes involved contained provisions to that effect, but in all of them the statements contained in the applications were held to be admissible on the broad ground that if untrue, and if they induced the issuance of the policy, then the policy was fraudulently procured and could for that reason have no legal effect whatever, upon the general theory that fraud vitiates all contracts because against public policy. In the following cases statements contained in the application for the policies sued on were' likewise held inadmissible in evidence to sustain pleas of fraud in the procurement of the policies under statutes very similar to our own statute, and in which no penalty was prescribed for failure to attach the application to the policy, as required by the statutes.

In the case of Schuler v. Metropolitan Life Ins. Co., 191 Mo. App. 527, 176 S. W. 274, in which the company sought to avoid the policy for fraudulent misrepresentations made in the application, the court, after referring to the statute which required the substance of the application, upon which a policy is issued and which is madé a part of the contract of insurance to be attached to or indorsed on the policy, used the following language:

“But it is argued that this section of our statute carries with it no specific penalty. The answer is, that the statute requires the thing to be done. One cannot, failing to obey the law, claim any right founded on that disobedience. By failing to attach the policy or its substance, defendant, under the law, lost whatever benefit it might seek under the application. * * * We are not holding that the failure to attach the application or its substance to the policy nullifies the policy. What we do hold is that this absence bars defendant from using it against plaintiff. It follows that when plaintiff introduced the policy, its execution admitted payment of premiums admitted, the death of the insured admitted, and plaintiff being the be,nefieiary, that defendant should not have been permitted to introduce the application and its certificates to sustain a defense of misrepresentations.”

In the case of Archer v. Equitable Life Assur. Soc. of United States, 218 N. Y. 25, 112 N. E. 434, the company pleaded that the policy was void because procured by fraudulent misrepresentations contained in the application. The statute invoked to sustain an objection made to the introduction of the application upon the defense of fraud required such an application to be attached to the policy, but prescribed no penalty for failure so to do. In discussing that statute the court said:

“In the requirements that the policy should contain the entire contract and that ‘all statements purporting to be" made by the insured shall in the absence of fraud be deemed representations and not warranties,’ the Legislature enacted, through implication, that all statements made by the assured shall be purported by, or made to appear upon, the face of the policy, * * * the defense designated ‘Third’ averred that the policy was issued by the defendant in reliance upon statements, representations, and answers of the insured pertaining to his previous medical history and family record and to his physical condition at and prior to the date of his application for the policy, which were fraudulently not full and fair, and effected concealments material to the risk, and the defendant relied upon them as made. The statements, representations, and answers were not incorporated in the policy. This defense could be established only by proof of them. Inasmuch as they could not be proven for the reasons already stated, the defense is not sufficient in law upon the face of it.”

See, also, Arnold v. New York Life Ins. Co. (Tenn.) 177 S. W. 78.

In the case of American Nat. Ins. Co. v. Briggs, 156 S. W. 909, and Southern Union Life Ins. Co. v. White, 188 S. W. 266, by Courts of Appeals of our own state, it was held that a life insurance policy containing a clause of incontestability after a period of two years, in compliance with the requirement of our statutes, could not be avoided by proof that it was procured by fraudulent misrepresentations of fact by the insured which induced its' execution.

It is quite clear that article 4951 of our Statutes requires all policies of the character now in suit to be accompanied by a copy of the application, therefor and of all questions asked and answers given thereto upon which the policy is issued. Failure to comply with that statutory requirement certainly deprives the insurance company of some rights it -Would otherwise have. That one of the rights so lost would be that of the insurer to say that statements so made by the insured constitute a part of the contract is not denied by appellant. We think the further inference obtains that the Legislature, in enacting the statute, intended that a failure of the insurer to comply with the mandate of the statute deprives it of the further defense as to such misrepresentations, inducing the issuance of a policy, as are made in good faith, and in ignorance of their falsity, and with no intention to deceive or defraud the insurer, although such misrepresentations so made would constitute what is sometimes inaptly designated as a “fraud in law,” or “legal fraud,” which, in the absence of the statute, would vitiate the policy. 1 Elliott on Contracts, § 375; 20 Cyc. 9.

If the insurer is permitted to take advantage of misrepresentations which are not-made a par' of the contract of insurance, but which constitute a mere legal fraud as distinguished from an intentional fraud, then such a defense would accomplish the same result as if such misrepresentations were legally made a part of the contract of insurance and a breach of the contract in that respect were urged as a defense, for the same evidence would support either of those defenses and with the same effectiveness. Whether or not a defense based upon misrepresentations made with intent to cheat and defraud is also precluded by the statute is a question not presented for our determination, and which we shall not attempt to decide, since it was agreed by the parties that the misrepresentations in question were not madé with such intent, but were honest mistakes on the part of the insured. ,

We are of the opinion further that although the “employer’s statement” was not, strictly speaking, the application for the policy, yet we think that the questions asked and answers thereto shown therein are such questions and answers a copy of which was required by the statute to accompany the policy, since the policy was issued for the benefit of the employer, and in reliance,upon his answers to questions propounded to him by the insurance company for the purpose of determining whether or not it would issue the policy. In fact, according to appellant’s contention the statements of the employer, rather than the statements contained in the application of Scales, were the inducing cause of the issuance of the policy.

For the reasons indicated all assignments of error are overruled, and the judgment of the trial court is affirmed.

Affirmed.

CONNER, C. J., not sitting.

On Rehearing.

DUNKLIN, J.

In the opinion rendered on original hearing, we inadvertently said that it was agreed by the parties that the misrepresentations of the insured which induced the issuance of the policy were honest mistakes on his part and with no intention to defraud. The agreement of counsel 'with respect to that issue is copied in our original opinion and is as follows:

“C. H. Bencini, personally, did not know the answers in said statement 'were untrue at the time he signed the same, but was legally chargeable with such knowledge.”

We construed the agreement as meaning that in making the statements in controversy O. H. Bencini had no intention to defraud the insurance company, and that if he had no such intention necessarily his motive in making them was honest, even though he was legally chargeable with knowledge of the fact that they were untrue. That, and no more, was what we meant hy our reference to the agreement criticized in the motion and above mentioned.

With this correction of our former opinion the motion for rehearing is overruled.

Motion overruled.
      ©=oEor other eases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes


source: Caselaw Access Project

author: BUCK, J.

license: Public Domain

text:
    HERRING v. BARBER et al.
    (No. 8803.)
    (Court of Civil Appeals of Texas. Ft. Worth.
    March 2, 1918.
    On Rehearing, April 6, 1918.)
    1. ’Mechanics’ Liens <&wkey;7’3(2) — Homestead-Agreement — Statute,.
    In the absence of express agreement, persons who furnish labor or material to the contractor to erect a building on a homestead have no lien of any character, and if there is' an express agreement that the contractor shall have a lien on the homestead, it will not create a .lien, unless the requirements of Vernon’s Sayles’ Ann. Civ. St. 1914, art. 5631, are complied with.
    2. Mechanics’ Liens <&wkey;73 (2) — Homestead— Deed of Trust.
    Where husband and wife give a deed of trust on their homestead, which does not show the contract for the erection of a building thereon, or the consideration, such deed of trust, • though duly executed by both husband and wife, does not create a lien on the homestead under Vernon’s Sayles’ Ann. Civ. St. 1914, art. 5631, or Const, art. 16, § 50.
    3. Homestead &wkey;>99 — Mortgage—Security for Note — Invalidity.
    A deed of trust on a homestead to secure payment of a note given by husband and wife to their contractor to erect a building is invalid where there is no contract in writing for the work and material, though the money secured on the note is afterwards used to improve the homestead.
    4. Mechanics’ Liens <&wkey;62 — Homestead — Materialman — Statute.
    There can be no lien upon a homestead acquired, under Vernon’s Sayles’ Ann. Civ. St. 1914, art. 5631, by a materialman who furnished material for a building erected thereon, not to the owners of the homestead, but to the builder who contracted with the owners, unless such ma-terialman has complied with the statute.
    5. Mechanics’ Liens <&wkey;86 — Notes to Ma-terialman — Right of Contractor.
    A contractor to erect a building is not entitled to a lien to secure notes given by the owners of the land, not to him, but to a material-man.
    6. Mechanics’ Liens <&wkey;62 — Lien of Ma-terialman-Homestead .
    A- mere reference to the contract between the contractor to erect a building on homestead land and the owners of the homestead, in the deed of trust given to a materialman, did not create a lien in favor of the materialman against the homestead.
    Appeal from District Court, Tarrant County ; Ben M. Terrell, Judge.
    Suit by W. E. Herring, as guardian, against A. C. Barber and others. From a judgment for defendants Barber, plaintiff appeals.
    Reversed and rendered.
    E. H. Ratcliff and A. W. Christian, both of Ft. Worth, for appellant. A. J. Clenden, of Ft. Worth, S. C. Padelford, of Cleburne, and Ike A. Wynn, of Ft. Worth, for appel-lees.
   BUCK, J.

In 1910 Geo. M. Herring and wife contracted with J. Thomas Franklin to construct for them a house on a certain lot owned by them. On June 29, 1910, they entered into a written contract, duly acknowledged, with Franklin, from which contract the following quotations are taken:

“Said improvements and all labor and material therefor shall be constructed, . erected, built and finished in accordance with the plans and specifications made for same in writing by the parties hereto, duplicate copies of which are in the possession of each of the parties, and to which reference is now here made, and said improvements and the material and labor for same are to be furnished and delivered and constructed at the sole cost and expense of said contractor, J. Thomas, Franklin. And the said improvements shall be delivered as aforesaid by said contractor on or before said date, free and clear of any and all liens and incum-brances for or on account of any labor or material furnished for same, except as hereinafter provided, to wit: Two promissory notes for the sum of $600 each, with interest at "10 per cent, per annum of even date herewith and due three years after date, which said notes shall be a first lien on said property; and 25 notes due in monthly installments of $40 each, beginning August 1, 1910, and one note for $49, payable one month after the last of the above 25 notes, all bearing interest from maturity at the rate of 10 per cent, interest per annum, and providing that the failure to pay any one of such installments shall mature each and all of said notes. And in consideration of the undertaking and faithful performance by the said contractor of his part of this contract, the said George M. Herring and wife hereby agree and bind themselves, their heirs and assigns, to pay to the said contractor, his heirs and assigns, the full sum of two thousand two hundred and forty-nine dollars ($2,249), to be paid as follows, to wit: $1,200 cash, the balance in 26 monthly installments, beginning August 1, 1910, 25 of said installments being evidenced by promissory notes for the sum of $40 each, and one for the sum of $49, executed by the said George M. Herring, payable to the said J. Thpmas Franklin, with interest from maturity at the rate of 10 per cent, per annum, and it is agreed that said notes shall be a second lien on said property, subject to a lien of $1,200 in favor of Barber Humber & Mill Company.”

The contract further provided that should the Herrings fail to pay the $1,049, or any part thereof, when due, the same should bear interest at 10 per cent, per annum, and provided for attorney’s fees and the reservation of a “statutory lien” on the real estate and improvements to secure the debt. It was further provided that should the Herrings fail to pay the $1,049 to said contract; or, “and any corporation or other person should' pay same, or any part thereof,- at the request of said Géo. M. Herring and wife, all the rights, liens and remedies under this contract shall inure to the benefit of such corporation or other persons so paying said sum, or any part thereof.” On same date, by written transfer, duly acknowledged, Franklin assigned to the Barber Humber & Mill Company in consideration of $1,049 paid the 26 promissory notes heretofore mentioned, “.together with mechanic’s, contractor's, and materialmen’s lien upon the real estate and improvements thereon, hereinbefore described.” Ón same date Herring and wife executed and acknowledged a deed of trust to I. W. Jarrell, trustee, on the described real estate, in trust, to secure the payment of two notes, of even date, executed by Geo. M. Herring, payable to Barber Lumber & Mill ■Company, each in the principal sum of $600, due three years after date. It was provided in this instrument that:

“Said two notes to be a prior and superior lien upon said property, and the following described notes to be second and subsequent thereto; 25 notes for the sum of $40 each, and one note for the sum of $49, all dated June 29, 1910, * * * each of said notes executed by Geo. M. Herring and payable to J. Thomas Franklin.”

Among the covenants on the part of the Herrings in this instrument contained were that they had a good perfect title in fee simple to the'land conveyed, and the right to execute the instrument, and that they had done no act or thing to incumber said property, and that there were no incumbrances thereon.

Franklin completed the house and the same was accepted by Herring on September 15, 1910. It was admitted as part of the., agreed facts that at the time of the execution by the Herrings of the various instruments herein-above described that the lot or tract of land mentioned was the homestead of Herring and his family; that both Geo. M. Herring and wife died prior to the institution of this suit; that W. E. Herring, appellant, had been duly appointed as guardian of the estate of the minor children of said Geo. M. Herring and wife, and had duly qualified as such; that the 26 promissory notes, aggregating $1,049, executed by Herring to Franklin, and all interest thereon, had been duly paid and satisfied.

This suit was instituted by W. E. Herring, as .guardian, ¿gainst Jarrell, as trustee, and individually against A. C. Barber and R. S. 'Barber, who constituted the Barber Lumber & Mill Company, to cancel the deed of trust aforementioned, and to remove cloud from title. Defendants answered by general demurrer, general denial, and pleaded in recon-vention and as a cross-action against the plaintiff, as guardian, for recovery on the two notes of $600 each, given by Herring to the Barber Lumber & Mill Company, and for foreclosure of a mechanic’s lien and deed of trust lien alleged to be held against the property in controversy. By supplemental petition plaintiff pleaded that the property involved was the homestead of Geo. M. Herring and family at the time of the execution of the alleged deed of trust, and denied that any mechanic’s or builder’s lien was held by the Barber Lumber & Mill Company, and denied that Franklin had transferred and assigned to said Lumber & Mill Company any mechanic’s or builder’s lien, and alleged that the contract between Franklin and Herring provided that Franklin could not assign any lien reserved without the consent of Herring and wife, and alleged that no such consent had been given. It was further pleaded that said assignment in no event operated as a transfer of any lien held by Frafiklin, except to secure the 26 notes aggregating $1,049, all of which had been fully paid and satisfied.

It was further pleaded that at no time did Herring and wife enter into any contract with the Barber Lumber & Mill Company for the furnishing of material or the performance of labor on their homestead. Wherefore they prayed as in their original petition. The cause was submitted to the court, without the aid of a jury, and from a judgment in favor of the Barbers for the amount of the two $600 notes, with accrued interest, amounting to $1,387.05, plaintiff has appealed. A. 0. Barber was the only living witness who testified in the trial court, the other evidence consisting of the admitted facts heretofore recited, and the introduction of the several 'instruments in writing heretofore mentioned. Barber, after identifying the various instruments introduced, testified that Franklin built the house, and that prior to the execution of the instruments mentioned he had an agreement with Franklin with reference to the matter, and all of the terms of the contract were agreed upon between him and Franklin, how the notes should be handled, and how the material should be furnished and paid for; that Franklin was not able to buy the lumber and material to build the house; that Herring furnished the lot, and the Barber Lumber & Mill Company furnished all the material and paid the contractor; that the contractor’s pay roll was paid each week; that the contractor did the work on the building for a specified amount, and when his work was finished the Barber Lumber & Mill Company paid him the balance, after having paid all his labor while the work progressed; that no lumber or material was furnished before the papers were executed, and no money was furnished before the material and lumber were furnished. ■ i i ■ . , . i . ■ 1

If the appellees are entitled to judgment of foreclosure of their alleged lien it must be on the theory that they complied with the terms of article 5631, Vernon’s Sayles’ Tex. Civ. Stats., which provides in part;

“When material is furnished, labor performed, erections or repairs made upon a homestead, if the owner thereof is a married man, then to fix and secure the lien upon the same, it shall be necessary for the person or persons who furnished the material or performed the labor, before such material is furnished or labor is performed, to make and enter into a contract in writing, setting forth the terms thereof, which shall be signed by the owner and his wife, and privily acknowledged by her, as is required in making sale of a homestead.”

The Constitution of the state of Texas (article 16, § 50) provides in part:

“No mortgage, trust deed, or other lien on the homestead shall ever be vaiid, except for the purchase money therefor, or improvements made thereon, as hereinbefore provided, whether such mortgage, or trust deed, or other lien, shall have been created by the husband alone, or together with his wife.”

It will be noted that in the contract between the Herrings and Franklin, the Herrings bound themselves to pay the contractor “$1,200 in cash, and the balance in twenty-six monthly installments,” etc. Whether this $1,200 was the estimated profit of Franklin-under the contract, and the $1,049 evidenced by the 26 installment notes was intended to cover the material and labor items, we are left in doubt, except so far as light may be shed through the testimony of Barber, but the two $600 notes were not executed to Franklin, neither did he have a lien to secure the payment of the same. According to Barber’s 'testimony, Franklin did not furnish the material or pay for the labor expended on the erection of the building. It might be a question whether under article 5631 a lien could be fixed on a homestead to secure the payment of a contractor’s profit on the contract (see Summerville v. King, 98 Tex. 332-341, 83 S. W. 680; B. & L. Ass’n v. Griffin, 90 Tex. 480, 39 S. W. 656; Walters v. Texas B. & L. Ass’n, 8 Tex. Civ. App. 500, 29 S. W. 51, writ denied as to attorney’s fees); but it is not necessary for us to decide that question, and we do not express any opinion with reference thereto. But so far as the indebtedness to Franklin is concerned, evidenced by the 26 notes, no valid lien exists against the property, since that debt has been paid in full. In Colleps v. Lumber Co., 185 S. W. 1043, it is said;

“There is only one way known to the law by which one_ who furnishes material or labor for the erection of, or labor made upon, the homestead, to fix and secure a lien upon the same,” that is, by complying with article 5631, supra.

It has been held that an express agreement in a mechanic’s contract that he shall have a lien upon the homestead as provided by law will not create a lien until the requirements of the statute have been complied with. Cameron v. Marshall, 65 Tex. 7; B. & L. Ass’n v. Logan, 33 S. W. 1088. In the absence of such contract, those who furnish labor or material to the contractor have no lien of any character. Colleps v. Lumber Co., supra, and cases there cited. See, also, Ellerman v. Wurz, 14 S. W. 333, in which the Supreme Court says:

“To obtain and fix the material or mechanic’s lien authorized by these provisions, the prescribed requirements must be strictly followed and complied with.”

A deed of trust on the homestead, which does not show the contract, or the consideration, although duly executed by both husband and wife, does not create a lien on the homestead under the statute or under the Constitution. Walker v. Woody, 40 Tex. Civ. App. 346, 89 S. W. 789, writ of error denied.“No lien can be fixed, and no foreclosure had, upon the homestead by an implied written contract or by an express oral contract.” West End Town Co. v. Griggs et ux., 54 S. W. 904. While the decision of the Court of Civil Appeals in this case was reversed by the Supreme Court in 93 Tex. 451, 56 S. W. 49, yet the reversal did not affect the soundness of the announcement by the Court of Civil Appeals quoted above. A deed of trust on a homestead to secure the payment of a note is invalid, there being no contract in writing for work and material, even though the money secured on the note was afterwards used for the purpose of improving the homestead. Girardeau v. Perkins et al., 59 Tex. Civ. App. 552, 126 S. W. 633, writ denied. There can be no lien acquired under this statute upon a homestead by a materialman who furnished the material, not to- the owners of the property, but to the builder who has contracted with the owners, unless such materialman has complied with the provisions of the article. Gilmer v. Wells, 17 Tex. Civ. App. 436, 43 S. W. 1058, 1060, writ denied. Appellees cannot claim a lien by Virtue of a contract between the Herrings and Franklin, for under this contract Franklin was to receive $1,200 cash, to secure which no lien was retained by him, and $1,-049 in notes, all of which has been paid. The reference in this contract to the two $600 notes does not disclose that said notes were given for material or labor to be expended, nor does the evidence show how much, if any, of the $1,200 was so expended on the homestead. Moreover, the notes were not given to Franklin, and therefore Franklin would not be entitled to a lien to secure the same. Under the deed of trust given for the benefit of the lumber company no contract is set out by the terms of which it is shown that the debt therein attempted to be secured is for improvements on the homestead. It cannot be held that a mere reference to the contract between Franklin and the Herrings in the deed of trust given by the Barber Lumber & Mill Company created a lien in favor of the company against the homestead.

We are of the opinion that the court erred in adjudging that the appellee herein had a valid lien upon the premises involved, and in granting the foreclosure. The judgment of the trial court is reversed, and the judgment here rendered for appellant.

Reversed and rendered.

On Rehearing.

It is urged that the case of Lippencott v. York, 86 Tex. 276, 24 S. W. 275, is an authority for the proposition that a husband and wife may by contract fix a lien on the homestead for labor performed thereon and material furnished, independently of any statutory provision. We do not so understand such decision. By reference to the questions certified, especially to questions 2, 3, 4, and 5, it will be noted that the Supreme Court made a distinction between liens created by law under article 16, § 37, of the state Constitution, such as mechanic’s liens, materialman’s liens, etc., and liens created by contract. After quoting article 16, § 50, of the Constitution, the court said:

“This section of the Constitution,- while it operates as a restriction on the power of a husband and wife to impose charges upon the homestead, recognizes their power to do this by mortgage, trust deed, or other lien to secure payment for work or labor used in constructing improvements upon it; and in the absence of legislation declaring the' only mode in which this may be done, no good reason is perceived why it may not be mortgaged to secure a debt contracted as a debt must he to bind the homestead for labor or material used in improving it.”

After quoting article 16, § 37, of the Constitution, and discussing the same, the court further said:

“Liens by contract take effect from time of execution, and have no retroactive effect as to third persons. Mechanics’ and like liens, when' fixed and secured, as to the improvements made, will be given priority over a mortgage or like lien existing on the land at the time the facts occur which give right to such lien; while a lien created by contract solely will attach to improvements subsequently made on the land covered by the lien, and will not give way to a junior lien of the same character coming into existence after the improvements were made. * * * The power of a husband and wife, in the manner prescribed by the Constitution, to give lien on homestead, by express contract, to secure payment of indebtedness incurred for work or material used in constructing improvements- on the homestead, is made clear by the Constitution, which speaks of mortgages and trust deeds, which can exist only through contract. * * * The contract husband and wife must make before lien for work or material used in improving their homestead can exist undei-the statute need not state that it is the intent to give lien to the contractor, and such a statement might not defeat the right of a contractor to fix and secure the statutory lien; but when the agreement or contract made By the parties evidences intention thereby to give lien, then lien exists by force of the contract, and may be enforced under the rules applicable to such liens. * * * A contract made under such circumstances ought to be sustained, unless in violation of express law or contrary to public policy. There was no law in force expressly prohibiting such a contract.”

By reference to the first question contained in the certificate, it will be seen that the contractor who erected the improvements complied with the requirements of the law as to the fixing of the mechanic’s lien, and that said contractor, while said mechanic’s lien was in force, assigned the debt, together with the lien, to a third person, to whom the husband and wife executed a deed of trust upon the homestead, which was privily acknowledged by the wife, and that the husband and wife executed to the assignee certain notes, and that such assignee agreed with the husband and wife to extend the original debt and lien for a period of years. The question propounded was, Did such deed of trust constitute a valid lien upon the homestead? In this case the mechanic’s lien was fixed on the homestead, and the only question involved was as to whether under the contract described between the husband and wife and the as-signee the extension of the debt and lien would invalidate the lien against the homestead. To the question propounded the Supreme Court answered in the affirmative. Under the statute as it then existed the mechanic’s lien given the contractor by law would have ceased to be operative if suit had not been brought to enforce it within 12 months after it was fixed, although the debt secured by it was still valid and might be enforced through a personal judgment. See Acts of 20th Legislature, p. 114,- § 17, of said act. In regard to the liens created by law, irrespective of contract, it was held that it was necessary to enforce them in the time and in the manner required by the statute; while, on the other hand, it was héld that the husband and wife might, by an express contract complying with the requirements of the Constitution, extend the lien so fixed by the contractor, and that it might be enforced in the time and manner specified by the contract. We think this is the full extent of the holding in the cited case. The statute, as it was then and as it is now, and the Constitution require that in order to fix a lien upon tile homestead for work and material used thereon the contract shall be in writing, and executed by the wife in the.manner and form required in making a sale and conveyance of a homestead. The statute then required, as it does now, that such' writing executed by the wife must contain the terms of the contract.

The appellees’ counsel urges that it would be unjust, even unconscionable, to deny appel-lees a recovery in this case, since it is insisted the facts show that appellees furnished all the material, paid for all the labor going into the improvements, and that it is admitted that the Herrings only paid $1,049, with interest th'ereon, leaving unpaid on the contract price the amount of $1,200, represented by these two $600 notes. But the Constitution and the statute require certain things to be done and certain steps to be taken before a lien can be fixed on a homestead owned by a married man. The directions are plainly given so that he who advances his money, furnishes his material, or expends his labor may be protected. If he fails to follow the directions, he must bear the consequences. The courts are powerless to help him. It is not a question of equity so much as it is a question of compliance vel non with the constitutional and statutory requirements.

Motion for rehearing is overruled.
      i^uoFor other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes


text:
    SCOTT et al. v. ALL SAINTS HOSPITAL.
    (No. 8829.)
    (Court of Civil Appeals of Texas. Ft. Worth.
    March 30, 1918.
    Rehearing Denied April 27, 1918.)
    1. Taxation &wkey;241(2) — Exemptions — Statute — “Pueelt Public Charity.”
    A hospital organized by some members of a church parish, having the general purpose to provide for and nurse sick and destitute persons, to which all persons in need of treatment were freely admitted whether they could pay or not, though such as were able to pay were expected to do so, as the hospital had no source of revenue other than such fees and donations to it, was a “purely public charity” whose land and buildings were exempt from taxation under Vernon’s Sayles’ Ann. Civ. 'St. 1914, art. 7507. § 6, and Const, art. 8, § 2.
    [Ed. Note. — For other definitions, see Words and Phrases, First and Second Series, Purely Public Charity.]
    2. Taxation &wkey;>251 — Charities—Purpose ox Ciiarge — Sufficiency ox Evidence.
    In suit by a charitable hospital against the tax collector and other officers of the county to restrain them from enforcing the collection of taxes, evidence held not to show 'that the charge ma'de by the hospital against patients financially able to pay was made with a view to profit, but rather that it was made to carry out the dominant purpose and general beneficent design of the founders of the hospital.
    Appeal from District Court, Tarrant County; Bruce Young, Judge.
    Action by the All Saints Hospital against Marvin Scott and others, officers of Tarrant County. ■ Prom judgment for plaintiff, • defendants appeal.
    Affirmed.
    McLean, Scott & McLean and W. P. Walker, all of Ft. Worth, for appellants. Capps, Cantey, Hanger & Short, of Ft. Worth, for appellee.
   BUCK, J.

This is an injunction suit against the tax collector and other named officers of Tarrant county to restrain them from enforcing the collection of the taxes assessed against the real estate and personal property of All Saints Hospital, alleged to be an institution of “purely public charity,” and therefore exempt from taxation under the statutes and the Constitution of the state. Plaintiff having abandoned its prayer for injunctive r.elief as against the collection of the taxes on its personal property, and having offered to pay the same, and the court having entered judgment against it as to the taxes on its personal property for the years 1915 and 1916, and having granted the injunction only as to the taxes on the real estate and the improvements thereon for said years, the one question presented by this appeal is: Do the facts show this ap-pellee to be such an institution as under section 6, art. 7507, Vernon’s Sayles’ Tex. Civ. Stats., is exempt from taxation, and as further authorized under section 2, art. 8, of the Constitution of Texas? Article 7507, § 6, reads as follows:

“All buildings belonging to institutions of purely public charity, together with the lands belonging to and occupied by such institutions not leased or otherwise used with a view to profits, unless such rents and profits and all moneys and credits are appropriated by such institutions solely to sustain such institutions and for the benefit of the sick and disabled members and their families and the burial of the same, or for the maintenance of persons when unable to provide for themselves, whether such persons arc members of such institutions or not. An institution of purely public charity under this act is one which dispenses its aid to its members and others in- sickness or distress, or at death, without regard to poverty or riches of the recipient, also when the funds, property and assets of such institutions are placed and bound by its laws to relieve, aid and administer in any way to the relief of its members when in want, sickness and distress, and provides homes for its helpless and dependent members and to educate and maintain the orphans of its deceased members or other persons.”

Without undertaking to set out any considerable portion of the testimony in the exact words of the witnesses, we think the evidence adduced establishes the following state of facts: The institution had its origin in the minds and hearts of some 15 charitably inclined ladies, members of Trinity parish, Ft. Worth, Tex. They felt the need in the city of a hospital where the sick among the poor could receive careful nursing and skilled medical treatment, such as would not be available to such indigent persons in an institution run for profit. These ladies assessed themselves 50 cents a month, and augmented this sum by going among the citizenship of the city and receiving small contributions. Finally they bought a piece of property, 100x100, on Magnolia avenue, for $400, to pay which purchase price took several years. In 1900 a charter was secured, and the first building was started.' The brick masons working on it donated a part of their time, and from the Thurber Brick Company the ladies secured a donation of brick; the hauling and the freight thereon being paid for by the recipients. The outside walls were finally erected, and thus the building stood for years, awaiting the response to the charitably inclined for funds necessary to complete the building. Then the first floor was finished, and the first inmate, a charity patient, was installed. Subscriptions and donations came, not only from the citizenship of Ft. Worth, but from other portions of the state, and the buildings were completed and equipped. One wealthy and charitable donor fitted up an operating room. No one connected with the management receives any revenue or profit from the 'conduct of the institution, except the matron, nurses, and other paid employés. The charter states the purposes for which the corporation was organized in the following language:

“The purpose for which this corporation is the erection and maintenance of a charity hospital for the care of the poor and destitute, sick, and afflicted. Its general purpose shall be to provide for and nurse sick and destitute persons, and such patients as may choose' to apply for admission under the rules and bylaws to be adopted by the trustees. Its plan of organization shall be to organize a hospital for the purposes aforesaid, as the best interests of society may require, and to provide therefor such management as may be necessary to carry out its general purposes as a church charity, provided always that such religious instruction and public worship as the trustees may prescribe therefor shall conform to the doctrine of the Protestant Episcopal Church in the United States.”

The by-laws provide that the attending physician and surgeon on duty shall have charge of the charity patients, and shall visit the hospital daily, and oftener if necessary. As to admission of patients it further provides that:

“Pay patients, or boarders, shall be admitted to the hospital on rates to be established by the officers and upon agreement with them, upon the application of any medical practitioner of any school of medicine and of reputable character, upon the approval of such application by any members of the medical board ,or any of their appointees, or by a majority of the board of trustees, subject always to the capacity of the hospital and to the provisions of the by-laws.
“Charity patients shall be admitted to the hospital only to the capacity of .the hospital and association to care for same. Furthermore, provided that charity patients shall be admitted without reference to' the religious sect or denomination to which they may belong.”

Therein it further provides:

“The board of pay patients per week shall be fixed by the officers, and it shall be the duty of the superintendent to collect from patients one week’s board each week in advance, and pay the same to the treasurer, excepting only in cases of charity patients.”

Mrs. Bevans, president of the board of trustees, testified in part as follows:

“The money which was required to complete the building was raised through subscriptions and by having teas and giving balls and tag days and by taxing ourselves so much, probably $25 a year. We were all poor, and did not have much goods. * * * Not a nickel that was put into this proposition was expended with the idea of receiving any return on it. There has never been any stock issued, and such a thing as stock certificates has never entered our minds. * * * The hospital is equipped for all character of surgical work, and it has rooms for the patients and operating rooms; there is an operating room donated by Oapt. Burnett, which is said to be as fine as there is in the Southwest. There are 31 rooms in the hospital. There are a corps of nurses connected with the hospital; we have nurses in training, who also have to be paid. The hospital also provides medicine and other things necessary for the treatment of the sick, for which the hospital has to pay. The only way the hospital has of securing any revenue to enable it to do any charity work at all is by fees paid by persons who are able to pay for services which they receive there. The hospital has not a cent of permanent endowment, depending entirely upon fees, charges, or voluntary contributions which it may get.
“In the operation of the hospital we take all poor, indigent, and helpless patients that we possibly can, and give them every attention,'just the same attention as if they paid $45 a week for a room, which is our best room; there is no distinction whatever. If a person is injured or sick in such way as that he could be admitted to any hospital, such a person is not rejected under any circumstances; he is always accepted; we make room for him some way. If it is a real case that has to come, our superintendent has been wonderful in making room for such cases; we have always taken nearly every one that has tried to get in. If a person is brought to the hospital who is able to pav for the services rendered to him, the pay will be accepted; if they do not pay, we just have to do without it; we do not force any one. There is no distinction made in the manner of treatment between those who pay and those who do not pay.
“With the exception of the people who work in the hospital, there is no one’ who draws any money from the institution, except this last month our secretary has had a great deal of expense; we gave her $20, to buy stamps and such things, and that is the first she has ever received. There is not a cent in any shape or form that goes to the trustees or any one like that in the way of remuneration.
“Of course, the hospital really does not pay its expenses, but if it did, and there was anything left, it would be used to pay off the mortgage. After the mortgage is paid up, anything that is taken in by the hospital over and above ’ts expenses will be used to enable us to do more charity; we would enlarge the place so as to be able to do more of that kind of work; that is our intention and our ambition ; I don’t know that it will be fulfilled, but that is what we are looking forward to. * * *
“We have rooms in the hospital at different prices, ranging from $15 to $45 per week, and wards ranging from $6 to 10 per week. These prices are paid by patients in the hospital who are able to pay them. We have one room and three beds that are set aside and devoted exclusively to charity patients, but we also devote other rooms to charity patients, when there is occasion to do so. All of the other rooms in the hospital except this one room I speak of are subject to be rented to pay patients when they are not already occupied.
“If a patient comes to the hospital and wants to be treated and is received into the hospital, he is expected to pay, if he can. We sometimes make inquiry beforehand as to their ability to pay, hut when a man is very sick, you cannot make an inquiry. The patients are usually brought there by some doctor, but others make application in person. * * •
“It is not a fact that every patient is expected to pay who does not come as charity patient and represent that he is not able to pay. If you come out there to the hospital and we know your circumstances and know that you are able to pay, we would expect you to pay. Not all the time would we expect a person to pay who just came there and got a room, without stating at the time that they were unable to pay and would be a charity patient; in most cases such patient would be expected to pay; otherwise we could not run the hospital at ail; we could not run the hospital a day or an hour, if it was just purely a charity hospital.”

Mrs. D. I. Brown, superintendent, testified in part as follows:

“All Saints Hospital is a public charity in this way, that regardless of who it is, or what their, condition 'is, except, of course, we do not take contagious diseases, such as smallpox or scarlet fever, they would be admitted. We have no contagious ward, and a patient with a contagious disease would not be admitted; otherwise there is no patient turned away; they are all admitted, and they are cared for in the same way as pay patients. Many times patients come in and do not specify their circumstances as they really should, either through pride or whatever it is; they state that they are expecting to get the money from home or from somewhere else, or they are going to sell some property or in some other manner secure the money to pay, but when they leave they may have quite a bill which they are not able to pay, and we have that obligation to carry. Sometimes a patient comes in and cannot pay the full amount that he would ordinarily pay or that would ordinarily be charged for the services he receives, and in that case he pays what he can and we accept that amount. At other times a patient will come in purely on the foundation of charity and such patients make no payments whatever. We take all the patients who are pay patients that apply for admission to the hospital, regardless of what doctor sends them there; and the same is true of patients who cannot pay; we take all of them, regardless of what doctor sends them there, and sometimes, you know, they just come there sick and want admission. I have never known a patient being refused admission who was indigent and helpless; there has never been one refused admission since I have been there, and when they are admitted, they get the same treatment as the other patients on that floor. They are attended to by a nurse just the same as any other patient on the floor. If they are in condition so that they can be left alone, they simply ring the bell if they want anything, and a nurse goes to them; if they are not in condition to be left alone, a nurse is furnished to stay right there with them.”

We think enough evidence has been quoted to sustain the conclusion reached by the trial court that All Saints Hospital comes within the provision of the exemption statute cited. A charity is defined in Paschal v. Acklin, 27 Tex. 174, 199, to be:

“ ‘A gift to a general public use,’ which extends, or doubtless may do so, either to the rich or the poor.”

5 R. C. L. p. 293, says:

“A gift is a ‘public’ charity when there is a benefit to be conferred on the public at large, or some portion thereof, as upon an indefinite class of persons. Even if its benefits are confined to specific classes, as decrepit seamen, laborers, farmers, etc., of a particular town, it is well settled that it is a public charity. The essential elements of a public charity are that it is not confined to privileged individuals, but is open to the indefinite public. Without undertaking to be technically accurate, a ‘purely public’ charity may be defined as one which discharges, in whole or in part, a duty which the commonwealth owes to its indigent and helpless citizens. Undoubtedly it is the duty of the state to educate its children, and thus fit them for discharging the duties of citizenship, to care for the indigent insane, its helpless orphans, and its poor who are sick and afflicted; and therefore any institution which, serving no selfish intent, discharges, in whole or in part, any such duty, is a purely public charity.”

See 11 O. J. § 1, p. 299; 5 Am. & Eng. Enc. of Raw (2d Ed.) p. 895; Gerke v. Purcell, 25 Ohio St. 229, 243; Dayton v. Speers Hospital, 165 Ky. 56, 176 S. W. 361, L. R. A. 1917B, 779, Ann. Cas. 1917B, 275.

A “purely public charity” is a charity “free from mixture of combination; * * * the charity must be unalloyed with other purposes and objects.” Watterson v. Halliday, 77 Ohio St. 150, 82 N. E. 962, 968, 11 Ann. Cas. 1096.

In Widows’ & Orphans’ Home v. Commonwealth, 126 Ky. 386, 103 S. W. 354, 31 Ky. Law Rep. 775, 16 L. R. A. (N. S.) 829, cited with approval in Green’s Adm’rs v. Trust Co., 134 Ky. 311, 120 S. W. 283, 20 Ann. Cas. 861, it is said:

“The [constitutional] convention meant by the word ‘purely’ to describe the quality of the charity, rather than the means by which it is administered, that it should be wholly altruistic in the end to be attained, and that no private or selfish interest should be fostered under the guise of charity, but it was never meant that,because a charity was limited by its terms to objects belonging to a certain sect, or fraternal order, or color, or class, it was a private, and not a public, charity.”

Other decisions interpret the word “purely” as intensifying or limiting the word “public” rather than the word “charity.” Philadelphia v. Masonic Home, 160 Pa. 572, 28 Atl. 954, 23 L. R. A. 545, 40 Am. St. Rep. 736; Newport v. Masonic Temple, 108 Ky. 333, 56 S. W. 405, 49 L. R. A. 252. But, take either construction or interpretation, we think this institution as operated is a “purely public charity.” It is open to the public, to the limit of its capacity, without reference to creed, occupation, or denominational affiliation. In the Ohio case of Gerke v. Purcell, supra, it is said:

“When the charity is public, the exclusion of all idea of private gain or profit is equivalent, in effect, to the force of [the word] ‘purely’ as applied to public charity in the Constitution.”

Since the Texas Legislature adopted our statute from the law of Ohio, it must be presumed to have adopted the construction theretofore placed upon such law by the courts of last resort of that state. Morris v. Royal Arch Masons, 68 Tex. 698-704, 5 S. W. 519; Tyler v. St. L. S. W. Ry. Co., 99 Tex. 491, 91 S. W. 1, 13 Ann. Cas. 911; Collier v. Smith, 169 S. W. 1108. While in the case of Gerke v. Purcell the Ohio Supreme Court held that a parsonage did not come within the exemption -because used as a private residence, and not as a place of public worship, yet it did hold the school buildings were exempt, although it was shown that contributions were expected from parents of the children who were able to contribute; the court finding that the schools were not established or carried on with a view to profit. To a like effect are the cases of Fordham v. Thompson, 144 Ill. App. 342, 347; Hospital v. Cook County, 233 Ill. 246, 84 N. E. 215, 216; Cook County v. Chicago Policlinic, 233 Ill. 268, 84 N. E. 220; Sisters of St. Francis v. Peoria County, 231 Ill. 317, S3 N. E. 272; Thornton v. Franklin Square House, 200 Mass. 465, 86 N. E. 909, 22 L. R. A. (N. S.) 486; and many other cases which might be cited. Our Supreme Court, in Red v. Morris, 72 Tex. 554, 10 S. W. 681, cited by both parties, held that school property was exempt from taxation when the owners use it solely for the purpose of keeping a school in it, and receive no profit from it. In this case it was shown that three of the owners lived in the building during term time, and two of them during vacation, but that their presence was necessary in the conduct of the school and to take care of the property. In the earlier case of Red v. Johnson, 53 Tex. 284, the court held that the s.ame property was not exempt, because it was then shown that the owner lived on the premises occupying a part of the building as a residence, and held that the property was not shown to be used “exclusively for school purposes,” as provided by the statute. In the case of Morris v. Royal Arch Masons, 68 Tex. 698, 5 S. W. 519, the Supreme Court held that the use for rental purposes of two floors of a three-story lodge building remove the entire property from the protecting segis of the exemption statute, even though the proceeds from the rent of the two floors were used for charitable purposes.. In the Morris Case the court cited with approval the Ohio case of Cincinnati College v. State, 19 Ohio, 110, in which it was held that a store, and the house in which it was kept, operated for profit by the college, was not exempt on the ground of use for school purposes exclusively. The Ohio court says:

“But when any society, no matter of what kind, * * * enters the common business of life, and uses of property for the purpose of accumulating money, the government should, and we think the statute does, treat it in the same way persons are dealt with, who are using property in a similar manner and engaged in the same business. Government cannot discrim-, inate between the uses which different societies or individuals will, -make of the proceeds of theiV business, and determine that this society or individual will make a more worthy disposition of the proceeds of his business than that, and therefore the one shall be taxed and the other not.”

But the Morris Case was decided before the amendment of the section of the statute under consideration, by which the Legislature attempted to define what was an institution of “purely public charity.” It is possible that legislative action was induced by reason of the holding in this case. By the announced purpose contained in the charter of All Saints Hospital “its general purpose shall be to provide for and nurse sick and destitute persons,” etc. We think that purpose is included in the definition found in section 6 of article 7507, namely, that:

“Its funds, property and assets * * . * are placed and bound by its laws to relieve, .aid and administer in any way to the relief of its members when'in want, sickness and distress.”

Further, we are of the opinion that the charge made to patients who are financially able to pay the same is shown not to be made “with a view .to profit,” in the words of our statute, but for the purpose of carrying out the dominant purpose and general beneficent design of the founders of the institution. Such funds as are collected from patients do not go to any stockholders, for there are none, nor to accumulate in the coffers of the institution, but are used for the maintenance of the hospital and the furtherance of the announced purpose of its foundation. Hence we conclude that the judgment of the trial court should be affirmed; and it is so ordered.

Affirmed.
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author: ■ DUNKLIN, J.

text:
    ROBBINS v. WINTERS et al.
    (No. 8799.)
    (Court of Civil Appeals of Texas. Ft. Worth.
    Feb. 23, 1918.
    Rehearing Denied April 13, 1918.)
    1. Courts <&wkey;>170 — Jurisdiction as to Amount — Petition.
    Where, in one count of petition, plaintiff sued for $150 as the value of a house, and in another count alleged house to be worth $250, and sued for that amount in conversion, the petition, on its face, did not show that less than $200 was involved, and was sufficient to give jurisdiction to county court.
    2. Limitation of Actions <&wkey;180(2) — Facts as Snows by Petition.
    A cause of action is not shown by the petition to have been barred by limitation, so as to be subject to special exception, where petition alleges, as the date of conversion, a date less than two years prior to the bringing of the action.
    3. Frauds, Statute of <&wkey;63(l) — Parol Reservation of House — Interest in Land.
    Where land is conveyed by a warranty deed containing no reservations, a parol agreement reserving title to a house on such land is in effect a parol sale of an interest in land, and within the statute of frauds (Vernon’s Sayles’ Ann. Civ. St. 1914, art. 3965).

      4. Frauds; Statute of .<&wkey;144r—Estoppel-Promise of Grantee.
    Where land is conveyed by a warranty deed containing no reservations, but grantor by parol reserves the right to remove a house sold to another prior to the conveyance, grantee is not estopped to assert the statute of frauds, where his promise to permit removal of house was not made with fraudulent intent.
    5. REFORMATION OF INSTRUMENTS &wkey;>31—JU-RISDICTION.
    Where title to a house on land conveyed by warranty deed is reserved by parol, a court having jurisdiction will reform deed to include reservation, but such jurisdiction is in the district court, and not in the county court.
    6. Frauds, Statute of &wkey;>125(2) — Parol Sale of Interest in Land — Action Thereon.
    Where land is conveyed by warranty deed, but by parol agreement grantor reserves right to remove house sold to another prior to the conveyance, such agreement being within the statute of frauds, grantor cannot recover damages for breach thereof.
    Error from Brath County Court; A. P. Young, Judge.
    ' Action by E. B. Winters and another against B. B. Robbins. Judgment for plaintiffs, and defendant brings error.
    Reversed and remanded.
    Hickman & Bateman, of Dublin, for plaintiff in error. Chandler & Pannill, of Stephenville, for defendants in error.
   ■ DUNKLIN, J.

F. B. Winters and his wife, Mrs. Donnie Winters, sold a tract of land to B. E. Robbins, upon which was situated two houses, and the deed of conveyance contained the usual covenants of general warranty of title. Prior to the execution of that deed the grantors sold to J. W. Winters one of the houses situated on the property. That sale was in parol, and not by any instrument of writing. When the land was sold to B. E. Robbins he was informed by the- grantors of the prior sale of the house to J. W. Winters, and he agreed with the grantors at the -time of the conveyance that J. W. Winters might remove the house from the land whenever he so desired, but there was no reservation in the deed to that effect; the deed being in terms unconditional and sufficient to convey full title to the land and all improvements thereon. After Robbins took possession of the land under and by virtue of the conveyance to him he refused to permit J. W. Winters to remove the house theretofore purchased by him. J. W. Winters then reconveyed the title to the house to F. B. Winters and wife, Donnie Winters. Robbins also refused to permit F. B. Winters and wife to remove the house from the land, and this suit was instituted by them to recover its value, upon allegations that the defendant, Robbins, had converted the same to his own use. Plaintiffs recovered a judgment, and the defendant has prosecuted this writ of error.

It was alleged in plaintiffs’ petition that they had sold the house to J. W. Winters for the price of $150 and the land to Robbins without the house for $1,850; that they would not have sold to Robbins both the house and land for less than $2,000, and so informed Robbins at the time of the sale to him. In one count of the petition plaintiff sued for $Í50 as the value of the house, together with legal interest thereon, but it was further alleged in other counts of the petition that the house was worth $250, and judgment was sought against Robbins lor that sum. In view of the allegations last mentioned, we overrule appellant’s first assignment of error to the effect that the petition shows upon its face that the damages sought were less than $200, and that the allegation of damages in the sum of $250 -was made for the fraudulent purpose of conferring jurisdiction upon the county court in which the suit was instituted, rather than in the justice court, which had exclusive jurisdiction of the amount really in controversy.

The date of the conversion of the house by Robbins as alleged in the petition was less than two years prior to the institution of the suit, and the petition contains no allegations of any character tending to show that the cause of action arose more than two years prior to the date of the institution of the suit. Hence there is no merit in the second assignment in which complaiut is made of the action of the court in overruling a special exception addressed to the petition upon the ground that it showed upon its face that the cause of action alleged was barred by the statute of limitation of two years.

By another special exception to plaintiff’s petition the defendant invoked the statute of frauds as barring a recovery in view of the fact that according to the allegations in the petition the sale of the land to Robbins without any reservation of title to the house conveyed title to the house as well as to the land, since the same constituted a part of the realty, and a parol reservation of title thereto would be in effect a sale of an interest in realty by a parol agreement, contrary to the provisions of the statute of frauds, article 3965, 3 Vernon’s Sayles’ Tex. Civ. Stats.

We are of the opinion that that exception should have been sustained. Plaintiffs sought to avoid the operation of the statute by invoking, against the defendant the equitable rule of estoppel by reason of the defendant’s express agreement made prior to and at the time the deed was executed that the house might be removed from the land, and the further fact that it was the intention and understanding of all parties to the deed that the same should not operate as a conveyance of the title to the house. But the plea of estoppel contained no allegations of misrepresentation of facts inducing the execution of the deed; the only basis for es-toppel being the parol agreement of the de-' fendant to permit the removal of the house after the execution and delivery to him of the deed to the land and the parol understanding and agreement between the parties that such right would be reserved to the grantors in favor of J. W. Winters, to whom they had already orally contracted to sell the house.

The case of Brown v. Roland, reported in 92 Tex. 54, 45 S. W. 795, was a suit which involved transactions very similar to the present suit. In that suit, as in the present, the vendor of land sold by parol agreement, a certain fixture upon the land which constituted a part of the realty. Thereafter the land was sold to another without any reservation of title to the fixture, and the suit was between the first purchaser of the fixture under the parol sale and a subsequent purchaser of the land with notice of said sale. Our Supreme Court held that the subsequent purchaser, of the land acquired title to the fixture, notwithstanding such notice of the claim of the prior purchaser of the fixture by reason of the fact that such parol sale was in contravention of our statute of frauds. However, in that suit no plea of es-toppel was urged to avoid the defense based upon the statute of frauds. To the same effect is Lancaster v. Richardson, 13 Tex. Civ. App. 682, 35 S. W. 749. In 10 R. C. L. pp. 833, 834, it is stated in effect that according to some authorities it is not permissible for an estoppel in pais to work a transfer of legal title to land in violation of the statute of frauds requiring such transfer to be evidenced by an instrument in writing. But it is further stated that the weight of authority supports the view that the statute of frauds may become inoperative by an es-toppel in pais, but to accomplish that result the acts constituting such estoppel must amount to a clear and palpable fraud. See, also, 16 Cyc. 725, and 20 Cyc. 213.

In 16 Cyc. 752, it is said:

“The doctrine of estoppel by representation is ordinarily applicable only to representations as to facts either past or present, and not to promises concerning the future which, if binding at all, must be binding as contracts. The only case in which a representation as to the future can be held to operate as an estoppel is where it relates to an intended abandonment of an existing right, and is made to influence others, and by which they have been induced to act.”

See, also, 16 Cyc. 726; Union Mutual Life Ins. Co. v. Mowry, 96 U. S. 544, 24 L. Ed. 674; Equitable Mortgage Co. v. Norton, 71 Tex. 683, 10 S. W. 301.

It seems clear to us that if it be a correct doctrine that a party may be estopped to rely upon the statute of frauds to avoid the enforcement of a parol contract, the claim for such estoppel must rest upon conduct or representations of fact, or else upon an agreement made with the fraudulent intent to deceive, and thereby to acquire a financial advantage which would not be acquired in the absence of such agreement. In the present suit, as noted already, the estoppel invoked is founded not upon any acts of the defendant or any representation of fact by him which misled the plaintiffs to convey the land to him, but merely upon defendant’s parol agreement that title to the house should not pass by the deed, and might be removed in the future by J. W. Winters, in consideration ■ of which agreement the land was sold to the defendant for the price of $1,850; while but for such agreement plaintiffs would not have made the sale for less than $2,000. If, under such circumstances, the force and effect of the statute of frauds could be avoided, then it seems to us that the statute could never be enforced if a plea of estoppel should be urged; and the result would be that the statute would practically be a dead letter. It is to be noted further that in the present suit the plea of estoppel contained no allegation that such parol agreement by the defendant was made for the purpose of defrauding the plaintiffs and with no intention of complying therewith. Nor was there any proof of such fraudulent intent at the time the sale of the land was consummated; on the contrary, plaintiffs have cited evidence to support the contention advanced in their brief that after the conveyance of the land to defendant he recognized J. W. Winters’ title to the house and his right to remove it from the land. Furthermore, there is no suggestion in the record that when plaintiffs erected the house upon the land they had no intention that the same should not become a part of the land; but, on the contrary, the evidence all shows conclusively that when erected the house did become a part of the realty.

While the statute of frauds does not operate to prevent the reformation of an instrument, the execution of which was the result of fraud, accident, or mistake (20 Oyc. 279), and, while in one count of the petition, mutual mistake of the parties to the deed in failing to include in its terms the reservation of title to the house was pleaded, together with further allegations that defendant fraudulently procured the drafting of the deed in such manner as to omit therefrom such reservation of title to the house, yet it is clear that the trial court was without jurisdiction either to reform or cancel the deed. Jurisdiction to grant that relief was exclusively- in the district court.

As noted above, plaintiffs’ suit was for damages for conversion of the house, the title to which it was claimed never passed to the defendant, but was reserved from the operation of the deed. There are other allegations in the petition which may in general. terms present a claim for damages for breach of the oral contract to permit the removal of the house from the land. That theory of recovery is untenable, since the primary object of the statute of frauds is to prevent any action founded on a contract which is not in compliance therewith. 20 Cyc. 284.

For the reasons indicated, the judgment is reversed, and the cause is remanded.

Reversed and remanded.
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