author: HALL, J. HENDRIOICS, J. HUFF, C. J.

text:
    COMMONWEALTH BONDING & CASUALTY INS. CO. v. HOLLIFIELD.
    (No. 904.)

    (Court of Civil Appeals of Texas. Amarillo.
    Jan. 19, 1916.
    Rehearing Denied March 15, 1916.)
    CORPORATIONS <§==>99(1) — CORPORATE STOCK— Purchase Price.
    Where plaintiff entered into an agreement to buy the stock of a corporation to be organized with a capital and surplus, and to pay the purchase price in money or in satisfactory securities, and plaintiff gave notes for the purchase money, which notes were renewed and the amounts varied, held that, the stock issued for the notes being void because being issued in violation of Const, art. 12, § 6, prohibiting the issuance of corporate stock for notes, the notes should be canceled.
    [Ed. Note. — For other cases, see Corporations, Cent. Dig. § 444; Dec. Dig. <§=>99(l).]
    Huff, C. J., dissenting.

      Appeal from District Court, Hall County; J. A. Nabers, Judge.
    Action by I. P. Hollifield against tbe Commonwealth Bonding & Casualty Insurance Company. From a judgment for plaintiff, defendant appeals.
    Affirmed.
    Speer & Brown, of Ft. Worth, and Presler, Tborne & Hamilton, of Memphis, for appellant. Moss & Leak, of Memphis, for appellee.

      Application for writ of error pending in Supreme Court.

   HALL, J.

This was an action by appel-lee, Hollifield, against the appellant company, to recover certain money paid and to cancel three promissory notes in the sum of §562.50 each, executed by Hollifield, in favor of the defendant company. Appellee also prayed for the cancellation of a certain deed of trust, given by him to secure the notes. He alleges that the payment of the money and the execution of the notes were induced by fraudulent representations, and that the only consideration moving to him therefor was the issuance of a certain stock certificate, in violation of article 12, § 6, of the' Constitution of the state. Briefly stated, this is the history of the transaction: September 29, 1910, appellee executed a subscription contract, which is as follows:

“Commonwealth Bonding & Accident Insurance Company. -
“Capital §10.00 Surplus §30.00.
“Subscription to Capital Stock.
“No. 9S3.
“Whereas, Stuart, Harkrider & Co. of Fort Worth, Texas, are promoting the organization of a casualty, bonding and accident insurance company, to be incorporated in pursuance of the laws of the state of Texas, under the name of Commonwealth Bonding & Accident Insurance Company, with an authorized capital stock of three hundred thousand dollars, and a paid up capital of at least two hundred thousand dollars, paid up and free from organization expenses, all in accordance with a printed prospectus issued by them and delivered to me.
“And, whereas, by their acceptance of this subscription said Stuart, Harkrider & Co. agree to endeavor with all reasonable diligence to accomplish on or before December 31, 1910, the organization of said corporation with capital stock fully paid as aforesaid, they to defray all expenses of organization and incorporation.
“Now, therefore, I do hereby subscribe for 62% one-tenth shares of the par value of ten dollars each, of the capital stock of said Commonwealth Bonding & Accident Insurance Company, and agree with said company and with the said Stuart, Harkrider & Co. to pay therefor the sum of §2,500.00 as follows: The sum of §2,187.50 I agree to pay in money or securities satisfactory to the Insurance Department, with six per cent, interest, to said Commonwealth Bonding & Accident Insurance Company, or its trustees (which goes to capita] stock and surplus), at any time after September 1, 1910, immediately upon receipt of notice from said Stuart, Harkrider & Co., that its capital stock has been subscribed in good faith in amounts and at rates netting the company at least two hundred thousand dollars of capital in the aggregate when paid. The remaining sum of §312.50 I agree to pay, and do pay concurrently with this subscription, to the said Stuart, Harkrider & Co., in consideration of their agreement here-inbefore recited, and in lieu of any further or other contribution to expenses of organization and incorporating said company.
“No conditions, representations or agreements other than those printed herein shall be binding on Stuart, Harkrider & Co., or the, Commonwealth Bonding & Accident Insurance Company.
“Witness my hand, this the 29th day of September, 1910.
“I. P. Hollifield (name of subscriber) “Memphis, Texas (Post office address)
“Merchant and Ranchman (Occupation).”
“Witness: R. E. Bristol.”

This subscription contract was at once delivered. to Stuart, Harkrider & Co., a partnership, which was afterwards incorporated and known as the Organization Company. Thereafter, on December 1, 1910, upon the promise that stock would be issued to him as soon as the defendant company was organized, appel-lee executed and delivered to the Organization Company four notes, payable to said company, and also a deed of trust conveying certain lands as security for said notes. The first of these notes was in the sum of §687.50; the other three were in the sum of §500 each. Prior to December 1, 1912, the first note was paid by appellee, and on that date he renewed the remaining three notes, including some unpaid interest which had accrued thereon in the face of the' renewals.- The new notes aggregated §562.50 each. On the same day he executed a second deed of trust to secure the payment of the renewal notes. Twenty days thereafter the deed of trust securing the original notes was released by appellant.

Appellee alleged that it was fraudulently represented to him by the promoters, as an inducement to secure his subscription to the stock, that appellant company, when organized, would lend him money; that the representations were relied on, were untrue, etc. Among other things, appellant company alleged that it was incorporated under the laws of Arizona, where there was neither statute, constitutional provision, nor rule of law prohibiting the execution and delivery of notes in payment for certificates of stock; that in such case the laws of Texas, forbidding the payment for stock with negotiable notes, is in violation of the Constitution of the United States.

The case was tried before the court without a jury and resulted in a judgment in favor of plaintiff, canceling the three notes and' deed of trust, but denying plaintiff a judgment for the money already paid. In the findings of fact and conclusions of law, the trial judge states that the defendant corporation was chartered under the laws of Arizona in March, 1911, and was granted a permit to do business in Texas, in June of the sarnie year; that upon solicitation of R. T. Stuart, and because of promises made by him that the company, when organized, would lend plaintiff money, plaintiff subscribed for 62% shares of its capital stock; that Stuart and one Harkrider composed a partnership known as the Organization Company, which promoted the defendant company; that, in accordance with the subscription contract, the .Organization Company took plaintiff’s notes for §2,187.50, in payment for the 62% shares of stock to be issued by the defendant ■company; that after the defendant company had obtained a permit to do business in Texas, and plaintiff had paid $687.50 on his subscription, the promoting company released the deed of trust and the defendant company took from plaintiff three notes for $562.50 each, the renewals of which are sought to be ■canceled, together with the deed of trust ■securing the same; and that said notes were taken in payment of the stock which was then issued to plaintiff at Et. Worth, Texas. The court concludes that no fraud was shown in the case; that the certificate of stock under the Constitution, as well as article 1146 of the Revised Statutes, was absolutely void and constituted no consideration for the notes and deed of trust; that plaintiff was not in pari delicto, but was not entitled to recover of the appellant company the money paid. Appellee filed no cross-assignments.

By the first assignment of error, this proposition is urged: After said defendant company had been organized and chartered and had its permit to do business in Texas, and plaintiff had paid $687.50 of its said subscription, said promoting company released the deed of trust securing said' subscription, and the defendant company took from plaintiff the three $562.50 notes, which, and the renewals of which, so sought to be canceled and the deed of trust herein sought to be canceled, in payment of the stock which they then issued to plaintiff; that is, the 62y2 one-tenth shares of stock in controversy.

The first assignment is that the court’s conclusions of fact are not supported by the evidence. We think, when appellee executed the notes and the deed of trust securing them, the subscription contract as an obligation became functus officio as to him; he had, by complying with its terms, merged tne obligation evidenced by it and resting upon him, in the notes themselves. His indebtedness, evidenced by the subscription contract, was satisfied and thereafter was evidenced by the notes which he had executed. The contract ¡bound the promoters to organize a company with reasonable diligence,, having its capital stock fully paid up and free of organization expenses. It bound appellee to pay in cash $312.50 to the promoters as compensation for their services. This has been done. It further bound him to pay to the company the balance of the $2,500 subscribed, viz., $2,187.50 “in money or securities satisfactory to the Insurance Department, with 6 per cent, interest, at any time after September 1, 1910, immediately upon receipt of notice from Stuart, Harkrider & Co.; that its capital stock had been subscribed in good faith in amounts and at rates netting the company at least $200,000.” The parenthetical clause provides that this amount shall go to capital stock and surplus. It must be borne in mind,-in the construction of this contract; that appellant .is a corporation, organized for bonding and casualty insurance purposes. This court said, in General Bonding & Casualty Insurance Co. v. Mosely, 174 S. W. 1034, quoting from Words & Phrases:

“ ‘Capital stock’ has been defined as follows: When applied to the amount subscribed towards the stock of a corporation, ‘capital stock of a corporation, in its primary sense, means the fund, property, or other means contributed or agreed to 'be contributed by the share ownei’s as the financial basis of the corporation’s business, either directly through stock subscriptions or indirectly through the declaration of stock dividends. The term signifies those resources the dedication of which to the uses of the corporation is made the foundation for the issuance of certificates of capital stock, and which, as the result of the dedication, becomes irrevocably devoted to the satisfaction of all obligations of the corporation. * * * ’ ‘Capital stock of a corporation consists of the property and money subscribed and paid in for the purpose of carrying on its 'business. * * * ’ ‘The term “capital stock” has a * * * definite meaning, and designates the amount of capital contributed by the stockholders for the use of the company. * * *

The par value of each one-tenth, share of stock is stated in the subscription contract to be $10. “Par value,” as there used, means simply the face value of the stock. 6 Words and Phrases, 5136; 3 Words and Phrases (2d Series) 866. The amount due, according to the recital of the contract, for the 62i/(¡ one-tenth shares, at $10 each, is $625, or one-fourth of the entire amount subscribed; yet no separate obligation was made as was done in providing for organization expenses for the price of the stock at the stated sum per share. After the payment of the $312.50, as organization expenses, a note was executed for $687.50, and the remaining amount of the total subscription, viz., $1,500, was .divided into three separate notes. After the payment of the first note, the shares of stock were issued. These facts show a practical construction of the contract, which to our minds is inconsistent with the idea that the price to be paid for the stock, and the sum to be paid in as surplus, were independent and distinct obligations. The subscription contract bound appellee to execute his obligations in the sum of $2,187.50, evidencing an agreement to pay for the stock in installments.

It has been frequently held that a subscription contract binding the subscriber to pay for his stock in installments is not inhibited by article 12, § 6, of the Constitution; but it has also ¡been uniformly held that, when the stock is issued before the installments are fully paid, the transaction is void. When the subscription contract was drawn it is apparent that this article of the Constitution, and the decisions which have construed it, were not in the mind of the party who wrote it. We further said, in General Bonding & Casualty Ins. Co. v. Mosely, supra:

“But the plaintiff in error company is engaged in a business requiring ready cash to meet demands arising at unexpected times in uncertain amounts. An insurance company, in the very nature of things, should have on hand, either in cash or in available securities, sufficient funds with which to meet extraordinary emergencies. This it could not do, at least for a time, if the subscribers paid for stock with labor or with property other than cash or securities easily convertible into cash.”

That provision in the contract with reference to the approval by the Insurance Department shows that it was drawn under the act of 1909, specially relating to insurance companies. We have given our views with reference to this law and its application in the Mosely Case, and they will not be repeated here. Suppose, in the instant case, appellee had agreed to pay only $1 each for his shares of stock, and the balance of the $2,187.50 should have been represented by his promissory notes, and'this course had been pursued with reference to all other subscribers: The result would have been the organization of a $300,000 bonding and insurance company, with less than 1/4 0 of that amount in its treasury to secure policy holders and creditors. Under the construction contended for by appellant, the entire subscription contract would he void. However, if we construe it to mean that the whole amount subscribed, less organization expenses, rather than $625 constitutes the consideration for the stock, the contract would be valid and enforceable. The vice in the transaction rests in the fact that the stock was issued and delivered to appellee, thus enabling him to enjoy all the privileges of a bona fide stockholder without having “fully paid up” the amount of his subscription. As has been frequently decided, both the stock and the notes were absolutely void. Irrigation Co. v. Deutschmann, 102 Tex. 201, 105 S. W. 486, 114 S. W. 1174; McCarthy v. Loan Co., 142 S. W. 96; Sturdevant v. Falvey, 176 S. W. 908; Bonding & Casualty Ins. Co. v. Mosely, supra.

Under the third assignment, it is insisted that because the appellant company was organized under the laws of Arizona, and the evidence shows that there is neither constitutional provision nor statute of Arizona prohibiting the payment of shares of stock with a promissory note, the transaction in question is valid. Article 1146 of the Revised Statutes 1911 provides that no foreign corporation, domestic or foreign, doing business in this state, shall issue any stock whatever except for money paid, etc.' The record shows that the home office of appellant company was at Ft. Worth; that the subscription contract was executed in Texas; and that the notes, together with the deed of trust, were executed and renewed in this state. The contract itself provides that the company “is to be incorporated in pursuance of the laws of the state of Texas.” Under the provisions of the above statute, these facts render the transaction subject to the laws of Texas. State Bank v. Falvey, 175 S. W. 833; Sturdevant v. Falvey, supra; 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. 056.

AVhat has been said disposes of the fourth assignment.

The fifth assignment insists that the court erred in holding that the notes were without consideration because the evidence shows that, relying upon plaintiff’s subscription contract and his promise to pay for his stock, defendant and the public generally dealt with plaintiff as a stockholder, and that the defendant company has incurred liabilities and created obligations on the strength of plaintiff’s subscription; find further, by reason of the fact that plaintiff had participated by proxy in the management and conduct of the-affairs of the company, he was estopped to-assert the invalidity of the transaction. This is not a suit by a creditor of the corporation, seeking to hold appellee upon his subscription, and it is not necessary to consider that question.

The stock being declared invalid by the constitutional and statutory provisions, ap-pellee is not estopped by participation as a stockholder in the meetings of the company from asserting the invalidity of the notes.

We think the record warranted the court in finding, in accordance with the testimony of appellee, that the whole amount of his subscription, as evidenced by his original notes, was the consideration for the stock issued to him; and the judgment is therefore affirmed.

HENDRIOICS, J.

(concurring).

I agree with Justice HALL in affirming this case, and relative thereto make the following observations:

I think the obligatory features of the contract of subscription as to the methods of payment for the stock, for which Hollifield subscribed, are unambiguous.

That portion of the contract is as follows:

“Now, therefore, I do hereby subscribe for 62% one-tenth shares of the par value of $10.-00 each, of the capital stock of said Commonwealth Bonding & Accident Insurance Company, and agree with said company to pay therefor the sum of $2,500.00,; as follows: The sum of $2,187.50 I agree to ‘pay in money, or securities satisfactory to the Insurance Department, with six per cent, interest, to said Commonwealth Bonding & Accident Insurance Company, or its trustees (which goes to capital stock and surplus). * * * ”

As I read it, the obligation on its face is to pay the sum of $2,500 for the stock, either in money or securities satisfactory to the Insurance Department.

According to my view, the question is: Is the liability on the subscription contract actually extinguished by the giving of securities, as shown by the acts of the parties in this record, as intended by their acts; and whether such securities are a payment for the stock as evidenced by their acts, as an alternative substitute for the actual cash? When the contract reads he may either pay in cash or approved securities, the alternative nature of the payment, that is, cash or securities, adds force to the meaning that they really intended under appropriate conditions that the securities should be considered in lieu of the cash. If such a condition is sufficiently shown in this record — ■ declaring the intention of the parties with reference to the alternative provision as controlling the method of payment — I am unable to say that the subscription contract continues to be one payable in installments, and that said securities, if shown in this record to be regarded as payment by the parties, would continue to be substituted obligations as merely continued installments of the subscription contract, instead of obligations in payment of the stock.

The question is not wholly one of renewals being a perpetuation of the same debt, but there is also involved the question, which of the alternative provisions of this contract is acted upon, as shown by the acts of the parties?

“ * s= * When the promoters of a corporation have made a contract in its behalf, to be performed after it is organized, it may be deemed a continuing offer on the part of the other party to the agreement, * * * and may be accepted and adopted by the corporation after such organization. * * * ” Railway Co. v. Granger, 86 Tex. 350, 24 S. W. 795, 40 Am. St. Rep. 837.

Hence, when the corporation, Commonwealth Bonding & Casualty Insurance Company, came into existence, by virtue of the issuance of its charter, and said contract was in its possession and presumptively adopted by the company, it was adopted as a whole.

The contract was executed by Hollifield the 29th day of September, 1910. About that time, according to the testimony of Mills, who was the secretary of this defendant company, an organization meeting was held, and some of the officers of said proposed corporation elected.

Subsequent to the date of the contract, December 1, 1910, this defendant executed the first series of notes, with an accompanying deed of trust on 1,400 acres of land, to secure .said paper. Evidently the above contract, with the paper, was’in the hands of the officers of the proposed corporation prior to the date of its charter in March, 1911, for on February 6, 1911, Mills, who had been elected secretary of the contemplated corporation, wrote Hollifield that they had been advised that the State Commissioner of Insurance required a statement from two disinterested parties, placing an estimate of value on the property used in securing the balance due for Hollifield’s stock subscription, Mills, the secretary, inclosed forms, for the purpose of obtaining a valuation, as indicated, and two ■certificates, made by two different citizens of that community, of date February 16, 1911, were sent to the preliminary organization, placing a valuation of $17 per acre upon the 1,400 acres of land embraced in the first deed ■of trust. After the charter was obtained, Mills continued to be the secretary of said corporation until some date in July, 1911. It is very inferable from the fact that Mills, who had nothing to do with Stuart, Hark-rider & Co., was assuming duties and making requests of this particular subscriber, with reference to said securities. The date of the contract, with the subsequent date of these securities, with said contract and said securities in the possession of the corporation when chartered in March, 1911, and after the officers and directors had been elected, at least suggested to the corporation that securities had been executed which bore different dates of maturity of rather extended time, and that said subscriber was not intending at least during the life of the securities, to pay in cash for the stock. These facts apparent to the company, when obtaining the documents, were consistent with the intention of the parties in compliance with the alternative provision in the contract to pay in securities, and not in cash, at least during that period; whether you reject or admit the testimony as to what Mills did prior to the charter, as bearing upon intention.

I infer from Mills’ testimony that a much larger per cent, of the stockholders gave notes in closing up their subscriptions than cash payment of stock. In testifying in regard to the mooted questions of loans (which at one time had very much bothered the company, on account of promises as to loans as well as on account of one of their own statements about loans, which they had presented to the stockholders), he said:

“The purpose was to take the stockholders’ notes which were amply secured, and convert them into money from any source we could, in order to meet the stockholders’ requirements.. Where we could, we would negotiate the notes .given for stock in the company and that would put cash into the treasury of the company.”

Mills testified they did no business prior to the organization of the company and hence what notes were negotiated, given by subscribers for stock, were sold after incorporation.

These particular notes, under the first deed of trust, according to the valuation of the property, were amply secured. The second deed of trust, executed in December, 1912, was made subject to a mortgage in favor of one Darlington, for the sum of $10,000, placed upon property intervening the first and second mortgage.

Before this was done, and during the pend-ency of the previous notes, it is inferred that some effort was made to merge this particular company, in some manner, into another corporation called the Bankers’ Guaranty Company. The record shows that an instrument of some character, with Hollifield’s signature attached, providing for the sale of his stock, and authorizing B. F. Allen, Jr., to transfer the same and obtain other stock in lieu thereof in the guaranty company was .testified about. Hollifield said:

“That is my signature there to the instrument, reciting that there was a sale made of 62% shares of the capital stock of the Commonwealth Bonding & Casualty Insurance Company, represented by certificate No. 102, to the Bankers’ Guaranty Company, and authorizing B. F. Allen, Jr., to transfer that stock.”

He further said: “I returned the first stock I got to the Commonwealth, and they sent me this stock afterwards,” meaning the stock evidenced by the transfer signed by him. This instrument was referred to Hollifield by defendant company’s attorneys, on cross-examination, producing the above testimony. Hollifield testified that the certificate with the instrument, was returned, and that aft-erwards they sent the particular certificate in this record in place of the former stock. Further, on cross-examination, it is true, that he said “it seems like” that he got a certificate from the Bankers’ Guaranty Company. However, his remembrance as to what he got being in apparent conflict with the instrument presented to him, which Hollifield was apparently summarizing, would not destroy the right of the trial court to conclude that the Commonwealth Bonding & Casualty Company actually sent Hollifield and issued certificate of stock in the Commonwealth Company. It is to be presumed that this act was after incorporation; otherwise, you would be required to infer that an attempt was made to transfer certificates in a corporation which had never been organized.

After the execution of the second series of notes, and the cancellation of the old paper, another and different certificate of stock, signed by Mills, was actually issued and delivered to Hollifield, the subscriber, and accepted by him.

It is not shown by any fact in this record, unless you were to infer from the delivery of the stock and the fact of valuation that the Insurance Department in reality approved any securities. The Insurance Department held up the permit to this corporation to do business • in this state from some time in March, 1911, when the charter was issued, to the-day of June, of that year.

For appellant’s benefit, I think it is true that when this subscription contract was executed it was contemplated that the proposed corporation' would be organized under section 62 of the Insurance Code of 1909, now constituting article 4956 of the Revised Statutes of 1911.

Such state companies were permitted, under section 10 of the same act, now constituting article 4734 of the Revised Statutes, to invest their funds in “first liens upon real estate, the title to which is valid, and the value of which is double the amount loaned thereon,” etc. And that article 4711, of the Revised Statutes, applicable to such companies, and relating particularly to the investment of capital stock, provided by the third clause that such capital stock may consist in mortgages upon unincumbered real estate in this state, the title to which is valid, of a market value double the amount loaned thereon,” etc. It is troublesome, it is true, in analyzing the statutes with reference to foreign corporations in part doing an insurance business, just what jurisdiction the Commissioner of Banking and Insurance had and to what extent securities are embraced within his jurisdiction, under the law.

If the company switched its purpose to incorporate under the Texas laws (which would have required the approval of these securities), and then incorporated under the laws of a foreign state or territory, which might not require such approval, the inference, however, is deducible that some one approved these securities, and, if the company did so, the alternative provision of the contract in its spirit was followed. It attempted first, according to this record, to issue and actually deliver a certificate of stock, as an evidence of Hollifield’s right in this incorporation, though for the purpose of transfer for other stock in another corporation. Thereafter it actually issued and delivered another certificate of stock to the subscriber, which was received by him and held until the institution of this suit.

With which of these two provisions, framed in the alternative, were these two parties intending to comply? One of them expressed an obligation by payment in money; the other by payment in approved securities.

“We recognize the rule that, in a case of doubt, courts should favor a construction which upholds the validity of the contract, but such a rule cannot apply to a case where the intent of the parties is obvious. A court cannot do violence to the plain meaning of words and the clear intent by making a contract for the parties, under the fiction of a construction.” Scripps v. Sweeney, 160 Mich. 148, 125 N. W. 72.

The rule of preferred legality, as an arbitrary rule, I take it, is referable more to contracts ambiguous and susceptible to two constructions on their face.

The condition here is: The parties have a contract, one provision of which is valid, and the other void if paid by the securities signed by Hollifield. Thereafter they deal with reference to the contract, and as to its consummation. To which provision are their acts to be referred? To say that a court or a jury could not pass upon a question of this character as a question of fact, the same as any other issue, I am unable to concede.

“The terms ‘money paid’ are very definite and plain and do not mean that stock can be sold for money to be paid, but must be sold for cash.” Irrigation Co. v. Deutschmann, 102 Tex. 207, 114 S. W. 1176.
“The terms in which this section of the Constitution is expressed indicates the purpose that the assets of the corporation should be something substantial and of such a 'character that they could.be subjected to the payment of claims against the corporation as well as to secure the shareholders in their rights in the capital stock.” Glass Co. v. Antiexplo Co., 101 Tex. 434, 108 S. W. 968, 16. L. R. A. (N. S.') 520, 130 Am. St. Rep., 865.. .

Here the corporation evident^ intended to invest this subscriber with the rights of a full-fledged stockholder, in the first attempt to deliver, as well as in the last delivery of the stock. The Constitution, and the statutes thereunder, with reference to railroad securities, are complete, in preventing such stock and such securities from going into the hands of innocent purchasers upon insufficient security. Among the purposes evidently contemplated by the particular provision of the Constitution was to prevent the same thing as well as a protection to the creditors and the original stockholders, though incomplete. Where it is intended, as I believe the trial court had the right to infer from this record, viewing it as a whole, that the securities paid for the issuance and delivery of the stock, if the corporation is not insolvent and the rights of creditors have not intervened, such stock and such securities should be canceled.

This holding I do not consider in conflict with the Medlin Case, 180 S. W. 901, the Barrington Case, 180 S. W. 936, the Hill Case, 181 S. W. 219, lately decided, or any other case decided by this court. When the real basis of each of the different cases is analyzed, X can see no real contrariety.

Hence, “treating the * * * company as a foreign corporation, within the meaning of the article (1146, R. C. S. 1911), and it having been shown that the corporation was doing business in this state (when this stock was issued and delivered), the statute applied to it 'with full force, and prohibited the issuance of stock by it for' the promissory note of the purchaser.” Bank v. Ealvey, 175 iS. W. 836.

The Barrington Case cited, and the case of Cattlemen’s Trust Co. v. Turner, 182 S. W. 438, lately decided by the Second Court of Appeals, and the Ealvey Case, supra, are in accord upon the question of issuance and delivery; but the facts in each case insisted upon as showing delivery for the stock are clearly distinguishable from this case. I am not deciding this question upon conclusions of witnesses, but upon the acts of the parties, as evidencing which provision the parties were acting under.

Appellant contends that the securities canceled represent the surplus, and that the stock, on account of previous payments, has been actually paid for in cash. I think this position is wholly untenable. I am unable to see how logically and legally it can be said that because this defendant agreed to pay $2,500 for the stock (whatever its face value), and further agreed that a certain proportion paid, or agreed to be paid, would go to capital, and another proportion to surplus, that the whole amount the subscriber agreed to pay di'd not represent the consideration for the stock. Whatever the division of the proceeds realized upon the subscription, said proceeds were in consideration of the stock Hollifield agreed to buy. As a last analysis, he promised to Pay said consideration for the stock ; he did not purchase any certificates in a surplus fund; nor did he own any interest in that fund except through the medium of his stock, whatever its par value; nor did the corporation own that fund, except as a result of the purchase of the stock, which was the consideration the subscriber agreed to pay for said stock. If the $2,500 is the agreed consideration for the stock, and such stock should be void, it is wholly immaterial what agreement the parties may have made as to the disposition of the fund. Ordinarily, of course, the more surplus a corporation possesses, whether the i'esult of subscriptions originally paid in, or thereafter earned, the stock is the representative of that surplus and is more or less valuable, in proportion to the amount of the surplus. The promise to pay $2,500 for the stock, though a part may go to surplus, X do not think divisible in a legal sense. Further, X understand it to be the invariable rule that:

“Where the -agreement consists of one promise made upon several considerations (though I do not concede the consideration is even divisible in this promise) some of which are bad and some good, here, also, the promise is wholly void, for it is impossible to say whether the legal, or the illegal portion of the consideration, most affected the mind of the promisor, and induced his promise.” Clark on Contracts, p. 473, and numerous cases cited.

I am unable to differentiate it in the contract as a legal proposition. I think the judgment should be affirmed.

HUFF, C. J.

(dissenting).

I am unable to assent to the affirmance of this ease and respectfully dissent from the action of the majority of this court in doing so. My learned Brethren are very much at variance in giving the grounds for affirmance. One holds when the notes .were executed the subscription contract or agreement was merged in the notes and that the evidence shows that they were executed upon an agreement to issue stock therefor. The other holds the subscription contract was accepted by the corporation when organized, and in effect that appellee had elected the alternative provision in his proposition to pay for the stock in securities satisfactory to the insurance department, and hence a payment in securities was made and therefore void. I cannot concur with either opinion filed. The subscription was made and delivered to the agents of ap-pellee before the company was organized, and he executed the four notes, one for $687.50 and the three for $500 each, payable to his agents, the Organization Company, and secured these notes by a deed of trust on 2% sections of land. All these instruments were in the hands of his agents before the incorporation of the company. The company was incorporated March 23, 1911, and granted a permit to do business in Texas in June, 1911. The Organization Company, the appellee’s agent, indorsed the notes to appellant and turned over to it the subscription contract. After the company was incorporated and before the renewal of the three $500 notes, with the interest added in, the appellee paid off to appellant the $687.50 note before he received the certificate of stock. Thereafter he renewed the three $500 notes and executed a “deed of trust on the same land to secure them. These last notes and the deed of trust are the instruments sought to be canceled. These last notes are dated December 1, 1912, while the original notes are dated December 1, 1910, and the original deed of trust is dated January 13, 1911.

The appellee testified that the old notes were given “for stock in the Commonwealth Company.” “These new notes which I executed are for the same consideration.” “These three notes for the sum of $562.50 each, executed on December 1, 1912, were renewal notes of old ones.” I find no evidence that there was a promise that the stock would be issued to him when the company organized. True, while testifying, he stated that he paid $2,500 for the certificate which he then held in his hand, and that he got nothing else for his money except the certificate; that he paid $1,000 in money and the three notes sought to be canceled, but he did not testify, as I construe the testimony, that the corporation promised to issue stock in payment or in consideration of those notes. The stock introduced in evidence was dated July 10, 1912, but in fact was not delivered to him until after he had paid the first note falling due and the renewal of the old notes in December, 1912. I am unable to find from this testimony anything .warranting the inference that there was stock delivered to him prior to the one shown in evidence. There is some testimony that an agreement was prepared for him to sign, agreeing to transfer his stock in this company to another corporation, which was delivered to him, and which he refused to sign and return to the company. I do not interpret it as testimony showing that any stock was issued to him and delivered to him. The appellee’s testimony on that point shows that he does not know what it really was, except that they sought to get a transfer of his stock in appellant to some other company.

I believe that the original contract of subscription, the original notes, and the deed of trust given to secure those notes, must be read together as part of his proposition to the proposed corporation to take stock in the company, when organized. When so read, his proposition to the corporation is, if it accepted his proposition to pay for 62% shares of stock at $10 per share, $30 per share to the surplus, that he would pay this sum of money at a time certain; in other words, he agreed to pay his subscription by installments. This was not a promise to pay upon the issue of stock to him, but a promise to pay for the stock, and clearly implied that he would pay before issuance under the contract. Even without any statutory or constitutional inhibition, he could not have compelled the issuance of the stock before he paid for it. California Hotel Co. v. Callen-der, 94 Cal. 120, 29 Pac. 859, 28 Am. St. Rep. 99. The contract being valid furnished a sufficient consideration for the new notes, and they were not therefore void. I quote from Ruling Case Law, vol. 7, “Corporations,” § 193:

“A subscription by a number of persons to the stock of a corporation to be thereafter formed by them has in law a double character: First, it is a contract between the subscribers themselves to become stockholders without further act on their part, immediately upon the formation of a corporation. As such, the contract is binding and irrevocable from the date of the subscription, at least in the absence of fraud or mistake, unless canceled by consent of all the subscribers before acceptance by the corporation. Second, it is also in the nature of a continuing offer, to the proposed corporation, which upon acceptance by it, after its formation, becomes as to each subscriber a contract between him and the corporation. The uniform postulate ofl all the adjudicated cases is that any subscription to stock in a corporation to be thereafter formed is not and cannot be from the very nature of the transaction, a complete- contract — it is an open proposition — until the actual formation of the corporation; it is merely a continuing offer to take stock upon the condition that the corporation be called into existence and a fulfillment of which condition works at once without further act on the part of the subscriber an implied acceptance and concludes a binding contract. It is not essential to constitute one a subscriber to the capital stock of a corporation that he should have subscribed to the stock books after articles of incorporation have been perfected and filed. If there is a preliminary subscription and the corporation is thereafter formed as contemplated within a reasonable time, the subscribers become stockholders without any further act. Again, notice of acceptance by a corporation of a subscription for its benefit made before it was organized is not necessary. Such acceptance may be inferred from the conduct of the corporation retaining the subscription paper in its possession and expending large' sums of money on the faith of it. * * * A promoter of a proposed corporation, who solicits and procures stock subscriptions, is the agent of the body of the subscribers to hold the subscriptions until the corporation is formed and then turn them over to it without any further act of delivery on the part of the subscribers. Hence a delivery of a subscription to such promoter is a complete delivery so that it becomes eo instante a binding contract as between the subscribers.”

This, I believe to be the rule established in Texas. Belton Compress Co. v. Saunders, 70 Tex. 699, 6 S. W. 134; Steely v. Texas Improvement Co., 55 Tex. Civ. App. 463, 119 S. W. 319, 322, 323; Mathis v. Pridham, 1 Tex. Civ. App. 58, 20 S. W. 1015; Bivins v. Panhandle Packing Co., 140 S. W. 523.

The clause “pay in money or securities satisfactory to the insurance department” does not, in my judgment, render the proposition void; but if it, standing alone, did so, then before appellant accepted the proposition ap-pellee had changed that part of it by his note to pay in cash upon a day certain and at all events. It was not a promise to pay if the stock was issued, and no such inference is legally inferable. The company could not issue the stock, and, if it afterwards did so, it was an ultra vires act,, and the certificate of stock was void and not an obligation upon the company for its par value. This stock could have been called in and canceled at any time by the company, or the Attorney General of the state could have instituted proceedings to that end. Articles 1147, 1148. I cannot see how this would render a valid note invalid. The purpose of the Constitution and law was to prevent the issuance of watered stock, not to declare Illegal a contract to pay for stock. The contract did not require its issuance before paid for, and the subscription was not therefore illegal. Because the corporation, after accepting the note, did an illegal thing, this would not render the notes illegal when the illegal thing was not the consideration for the note. Contracts of this kind, as well as this very contract, have been upheld as legal by the courts, and I see no reason for holding differently in this case.

Considering the proposition, notes, and deed of trust as one instrument, it was unambiguous in that it was a promise to pay cash for the stock. The rule is so well recognized by all the courts that an agreement to pay for stock by subscribers may be enforced after organization of the proposed corporation, that I deem it unnecessary to cite further authorities. The appellee’s interpretation that the certificate was to be issued to him in consideration of his note and subscription in my judgment is not warranted by his written contract and proposition.

I am also unable to agree on the proposition that the facts in this case do not show a payment for the stock before its issuance. I believe the facts show that it was paid for before there was any stock delivered to Hol-lifield. The subscription contract divides the amount subscribed into stock, the shares of which were to be of the par value of $10; the surplus should be $30. The expenses of organization were deducted from the $2,500 paid by appellee to his agent at the time of subscribing. He expressly stipulates in his contract that the amounts subscribed should go to capital stock and surplus. He, himself, made the division. He stated that his shares should be $10 each, and that his surplus should be $30 each, and, having made the division himself, he should not now be heard to say that he paid $2,500 for the shares. The contract was that he agreed to pay when the capital stock had been subscribed in good faith to the amount of $200,000 of capital in the aggregate when paid. It makes no difference whether the value was placed on them at $1 or $10 per share; the capital stock was $200,000. And the surplus was to be $30 per share, which would have been $600,000 in addition to the capital stock. This, I believe, to be the interpretation of this contract. The charter of the corporation pro^ vides that its shares shall be divided into 30,000 shares at $10 each, and the stock issued in this case shows that it was issued at $10 per share — 62% shares at $10 per share. It occurs to me that there must be some confusion with reference to what constitutes capital stock, or the shares of stock owned by the individual. Cook on Corporations, vol. 1, § 8, defines “capital stock” as:

“The sum fixed by corporate charter as the amount paid or to be paid in by the stockholders for the prosecution of the business of the corporation and for the benefit of corporate creditors. The capital stock is to be clearly distinguished from the amount of property possessed by the corporation.”

Again, he says in the same section:

“The capital stock of a corporation remains fixed, although the actual property of the corporation may fluctuate widely in value and may be diminished by losses or increased by gains. The term ‘stock’ has been used at times to indicate the same as capital stock. Generally, however, it means shares of stock and in this sense it is used in this treatise.”

The United States Supreme Court and the federal courts, in cases arising on the question of taxation with reference to stock and surplus as to whether or not surplus fell under the term stock, have drawn the distinction between “stock” and “surplus,” and hold that the surplus is subject to the taxation. In Heather Manufacturers’ Bank v. Treat, 128 Fed. page 262, 62 C. O. A. 644, in discussing this question it is said:

“It is quite usual, upon the organization of financial corporations, for the stockholders to contribute, besides the share of capital, a fund which is known as ‘surplus.’ It is also quite usual for the directors or managers of these institutions to set apart and to add to this fund from time to time some part of the accumulated profits of the business in excess of dividend requirements. The fund produced in either of these ways is what is known as ‘surplus.’ ” Central Trust Company of New York v. Treat (C. C.) 171 Fed. 301.

The ownership of this large surplus by the corporation, available to make good losses in any of its enterprises, would naturally increase its credit generally.

The Supreme Court of the United States, in Bank of Commerce v. State of Tennessee, 161 U. S. 134, 16 Sup. Ct. 456, 40 L. Ed. page 645, in discussing the taxes which may be collected against a banking corporation, uses this language:

“The surplus belonging to this bank is ‘corporate property,’ and is distinct from the capital stock in the hands of the corporation. The exemption, in terms, is upon the payment of an annual tax of one-half of one per cent, upon each share of the capital stock, which shall be in lieu of all other taxes. * * * Recognizing, as we do, that there is a different property in that which is described as capital stock from that which is described as corporate property other than capital stock, and remembering the necessity there is for a clear expression of the intention to exempt before the exemption will be granted, we must hold that the surplus has not been granted exemption by the clause contained in the charter under discussion. The very name of surplus implies a difference. There is capital stock and there is a surplus over, above, and beyond the capital stock, which surplus is the property of the bank until it is divided among • stockholders.”

Ruling Case Law, vol. 7, in section 165, defines “capital stock,” and in section 160 says:

“The tangible property of a corporation and the shares of stock therein are separate and distinct kinds of property and belong to different owners. The first being the property of the artificial person, the corporation; the latter the property of the individual owner.”

The Constitution in this state forbids the issuance of “stock” without money paid. Until issued, the capital stock is in the corporation. After issued, when delivered, it becomes the property of the individual, and not before. It is not an obligation on the part of the corporation to pay to the individual the amount represented by the shares. Stock issued and delivered as fully paid up, if in the hands of an innocent third party, could be enforced against the corporation. Hence the evident purpose of the framers of the Constitution and of the law was to prohibit the issuance and delivery of stock as fully paid up. The capital stock in appellant company could be issued to the amount of $300,000 of the par value of $10. It will not De contended, we apprehend, that- it could have issued stock for $300,000 plus the surplus. The obligation on the part of the corporation was only for $10 per share, and there was no other outstanding obligation against it represented by that certificate, and this was the obligation which is prohibited from being issued by the Constitution. There is no provision in the law or Constitution that prohibits an individual stockholder from contributing to the corporation a sum of money independent of the shares of stock for the purpose of making the assets of the corporation more valuable. Such an obligation or such a note could not violate the law or Constitution, for the reason that the public, in dealing with it, had the assurance, not only that the stock is paid, but that, in addition thereto, there is $30 per share over and above the stock, and public policy would not prohibit, it occurs to me, a corporation from making its stock more valuable and its customers better secured by this addition than it otherwise would be by the mere payment of the par value of the stock. We apprehend that it will not be contended that under articles 1198, 1208, and 1210, the shareholder, in case a creditor should desire to collect a debt against the corporation, .could collect from the shareholder more than the face value or par value of his stock; or, in case of insolvency, that he would be assessed for more than his pro rata part as shown by the face or par value of his stock. I believe that when this note was paid, and it having been paid before the issuance or delivery of the stock to the appellee, that the par value of the stock was paid for, and that the Constitution and law of Texas were satisfied, and that he was entitled to his certificate of stock. By that certificate the company did not represent to the world that it was fully paid up when it was not, for in fact it received the par value of the stock and had the money on hand. The other notes for $1,500, with the accrued interest, was not for stock, but it was for something over and above the stock which he had agreed to pay as surplus, as was shown by his written proposition, and it was not in violation of the Constitution and laws for him to so execute such notes. It made the corpus of the corporation more valuable and should be commended, rather than condemned. I therefore am of the opinion that this case should have been reversed.
      @^>For other cases see same topic and ItEY-NUMBER in all Key-Numbered Digests and Indexes


source: Caselaw Access Project

author: JENKINS, J.

license: Public Domain

text:
    MICHAELIS v. NANCE et al.
    (No. 5590.)

    (Court of Civil Appeals of Texas. Austin.
    March 2, 1916.
    On Motion for Rehearing April 12, 1916.)
    1. Wills ©=>423 — Probate—Effect.
    Under Rev. St. 1911, § 3248, limiting the time for probating wills, the probate of a will at the instance of one not in default under that statute inures to the benefit of all of the heirs.
    [Ed. Note. — Eor other cases, see Wills, Cent, Dig. §§ 911-913; Dec. Dig. ©=423.]
    2. Wills ©=>324(1) — Limitations—Ignorance —Computation of Period — In Default.
    Under Rev. St. 1911, § 3248, limiting the time for probating wills, evidence that delay in discovering and offering for probate a holographic will was due to intrusting possession of testator’s papers to another of his children held, not insufficient as a matter of law to prove that the proponent was not in default.
    TEd. Note. — For other cases, see Wills, Cent. Dig. § 767; Dec. Dig. ©=>324(1).]
    3. Principal and Agent ©=>178(1) — Notice to Agent — Scope of Agency.
    The knowledge of one performing a mere ministerial duty is not imputed to his principal.
    [Ed. Note. — For other cases, see Principal and Agent, Cent. Dig. §§ 680, 683, 683% 1 Dee. Dig. ©=>178(1).]
    4. Notice ©=>5 — To Agent — Scope of Agency.
    The knowledge of the contents of papers by one given physical custody thereof does not affect the person depositing the papers.
    [Ed. Note. — For other cases, see Notice, Cent. Dig. §§ 3, 8-12; Dee. Dig. ©=>5.]
    Appeal from District Court, Hays County Frank S. Roberts, Judge.
    Proceeding by Mrs. Bassie Nance and others to probate a will. From judgment probating the will, defendant M. G. Michaelis. appeals.
    Affirmed.
    R. E. McKie, of San Marcos, and Henne- & Fuchs, of New Braunfels, for appellant. O. T. Brown and Barber & Johnson, all of' San Marcos, for appellees.

      Application for writ of error pending in Supreme Court.

   Findings of Fact.

JENKINS, J.

W. W. Haupt died at his residence in Hays county, Tex., on the 27th day of August, 1907, leaving surviving him his wife, Sarah A. Haupt, and six children, to wit: Mrs. A. B. Landers, wife of A.P. Land--ers; Mrs..Relia'Cooper, a widow; Mrs. Bassie Nance, wife of J. M. Nance; G. B. Haupt; L. M. Haupt; and Mrs. Touay Barbee, wife of W. H. Barbee. He left an instrument in bis own bandwriting claimed to be bis last will and testament. His wife died September 1, 1912. Upon tbe death of W. W. Haupt bis son, Uouis Haupt, wbo bad been attending to bis business for some years, took charge, with the consent of all of the heirs, of all of bis property, including bis private papers. His property consisted of pasture lands which Louis Haupt leased and applied tbe proceeds to the support of tbe wife of W. W. Haupt during her lifetime, and it is to be inferred from tbe record that thereafter be divided such proceeds among tbe surviving children, except Mrs. Landers. Mrs. Landers at the time of the death of W. W. Haupt, and for some years prior thereto, bad been insane, and bad made her home with her father, though she bad a husband and two sons living at Sulphur Springs, in Hopkins county, Tex. Prior to bis death W. W. Haupt divided bis farm lands, except 125 acres, equally among bis five children, not including Mrs. Landers. There were 125 acres of this land which the evidence shows that W. W. Haupt had expressed an intention of dividing prior to his death in like manner as he had divided his other lands, but this was not done. • The instrument purporting to be the will of W. W. Haupt was signed by him, but not witnessed by any one. Louis Haupt supposed that the same was invalid as a will for the reason that it was not witnessed. The other four children, and also the son of Mrs. Landers, knew of the existence of this writing, but none of them ever saw it until about March 20, 1914, when it was seen by J. M. Nance, the husband of Mrs. Nance, who took it to San Marcos, submitted it to a lawyer, and was informed that it was a valid will. On the following day it was offered for probate. The will provided that the lands referred to should become the property of the five children, excluding Mrs. Landers. All of the children of W. W. Haupt, except Mrs. Land-ers, resided in Hays county. Shortly after the death of W. W. Haupt it was thought advisable to send Mrs. Landers to a sanitarium at San Antonio. The remaining children, supposing that their father had died intestate, and that Mrs. Landers had an interest in the estate, sold the 125 acres above referred to for $1,000, and appropriated that money to the use and benefit of Mrs. Landers. Appellant had bargained with Mrs. A. P. Landers, the husband and guardian of Mrs. Landers, for the purchase of her one-sixth interest in the land. He afterwards completed his purchase from Landers, who executed to him a deed for such interest by order of the probate court of Hopkins county. Appellant resisted the probate of the alleged will in the county court, and upon the same being thdre probated he appealed to the district court, where- a like judgment was rendered, from which judgment this appeal is prosecuted.

Opinion.

It will be seen from the foregoing findings of fact that the will of W. W. Haupt was not offered for probate until about seven years after his death, for which reason, appellant contends, that the probate of said will was barred by the statute of limitation under article 3248 of the Revised Statutes, which prescribes that wills shall not be admitted to probate after a lapse of four years after the death of the testator, except where the party offering the same is not in default. Appellee contends that article 3248, supra, is essentially a statute of limitation, and therefore, by virtue of article 5708, does not apply to married women. Mrs. Nance and Mrs. Barbee were married at the date of their father’s death, and continued so to be up to the time of the trial hereof. We deem it unnecessary to pass upon this issue, inasmuch as this judgment, we think, ought to be affirmed upon the ground that Mrs. Bar-bee, at least, was not in default in not sooner offering the will for probate; and, if not, the probate of the will at her instance inures to the benefit of all of the heirs of W. W. Haupt. Masterson v. Harris (Sup.) 174 S. W. 570. The case was submitted in the district court upon special issues as follows:

“Special Issue No. 1. If instrument offered for probate was, in fact, written and signed by William W. Haupt, did he intend it for and as his will, that is, did he intend thereby to express and direct the disposition to be made of all or any of his property after his death? You will answer this question ‘Yes,’ or ‘No,’ on the following- form of verdict. Ans. Yes.
“Section No. 1. Eor your guidance in making your findings upon issues Nos. 2, 3, 4, 5, and t> you are instructed by the court that the laws of Texas provide that: ‘No will shall be admitted to probate after the lapse of four years from the death of the testator, unless it be shown by proof that the party applying for such probate was not in default in failing to present the same for probate within the four years.’ The undisputed evidence in this case shows that each of the parties offering the alleged will for probate knew, within less than four years next after the death of William W. Haupt, that he had either written or started to write some character of instrument with reference to his estate and the disposition to be made thereof after his death. Now, you are directed by the court that it was the duty of each of the interested parties who now offer said instrument for probate to exercise due care to know the nature and effect of such paper; and, if by the exercise of such, care he or she would have ascertained the true.character of the paper in question in time to have offered same for probate within four years after the death of William W. Haupt, then, under such circumstances, he or she would be in default in not offering same for probate within that time, (a) The expression ‘due care,’ as used herein, means that degree of care which a person of ordinary prudence would have exercised under the same or similar circumstances.
“Section No. 2. If under all the facts and circumstances in evidence you find that any party or parties now offering the said instrument for probate did exercise due care and did not, in fact, ascertain or know the true condition of the paper in question at any time within four years next succeeding the death of William W. Haupt, then you will be authorized to find that such party or parties was not in default. Bearing in mind the foregoing instructions, you will answer each of the following questions or issues Nos. 2, 3, 4, 5, and 6:
“Special Issue No. 2. Was W. H. Barbee in default in not offering the instrument in question for probate within four years next after the death of W. W. Haupt? Ans. No.
“Special Issue No. 3. Was Mrs. Touay Barbee in default in not offering the instrument in question for probate within four years after the death of W. W. Haupt? Ans. No.
“Special Issue No. 4. Was G. B. Haupt in default in not offering the instrument in question for probate within four years next after the death of W. W. Haupt? Ans. No.
“Special Issue No. 5. Was J. M. Nance in default in not offering the instrument in question for probate within four years next after the death of W. W. Haupt? Ans. No.
“Special Issue No. 6. Was Mrs. Bassie Nance in default in not offering the instrument in question for probate within four years next after the death of W. W. Haupt? Ans. No.”

We need consider only special issues Nos. 2 and 3, relating to Mrs. Barbee and her husband. The testimony which we think is sufficient to sustain the judgment of the court as to Mrs. Barbee and her husband is as follows:

W. H. Barbee testified:

“After the death of Mr. Haupt I understood that he had started a will. My wife told me that he had left a paper or will, something of the kind. She did not know exactly what it was. This was soon after Mr. Haupt’s death. I did not know but what it was a will. I asked Louis [L. M. Haupt], and he told me that he had started a will, but had never completed it, and that it was not signed. He told me about what he had in it. It was some time within a year after Mr. Haupt died. Prom what Louis told me I just supposed he had started a writing, but had never completed it, and had never signed it at all, and I didn’t give it any more thought. I thought it was worthless. If Louis had told me that Mr. Haupt had written out and signed a paper, I would have insisted on having it probated, because I understood that was legal. When Louis Haupt told me that, I did not have any reason to question his statement. I took his word for it. I did not ascertain anything to the contrary until the Sunday before it was brought down here, which was in February or March. * * * My understanding was that Louis was taking charge of the property, and everything in the house was left, and nobody lived in the house. Between the death of Mr. Haupt and that of Mrs. Haupt the only income they had was from the rent of the pastures. Mr. Haupt had kept them rented out. Several years before he died he had sold all his stock. Louis attended to this, and after Mr. Haupt’s death he would collect the earnings and place that money in the bank to Mrs. Haupt’s credit, and she would cheek it out at her will. * * * Subsequent to the death of Mr. Haupt the children executed a deed by which they conveyed part of the land that had belonged to the estate, which deed recited that he died without any will. * * * I think it was 125 acres. Before Mr. Haupt’s death there had never been any division as between the children of that 125 acres of land.”

He then states that this 125 acres was sold to secure funds for the support of Mrs. Lan-ders, and also that the deed to this 125 acres was drawn by Mr. Barber, attorney’for ap-pellee in this case, and that at the time the deed was drawn Mr. Barber asked if Mr. Haupt had left a will, and that Louis Haupt then made the statement to him substantially as he had previously made it to the witness, namely, that Mr. Haupt had begun a writing With reference to his property, but had not finished it, and that it was not signed. The witness stated that he had no other information in regard to this instrument until the Sunday before it was offered for probate on Monday (March 21, 1914), at which time he and his wife were at the house of Mr. Nance; that he was discussing with Mr. Nance the offer of appellant to purchase the undivided interest of Mrs. Landers, and that he stated that he wished Mr. Haupt had signed the instrument that he had written, so that the members of the family could control the land, and not let an outside party in. Mr. Nance then stated to him that the instrument was signed, but was of no value as a will because it was not witnessed. The witness then said that, if Mr. Haupt wrote the instrument and signed it, it could be probated as a will. Thereupon they went to church, where Louis Haupt was, and took him aside, and the witness asked Louis if the instrument referred to had been signed by Mr. Haupt, and Louis answered that it had, but was not witnessed. He then stated that it was his understanding in such cases witnesses were not required. On the next day Mr. Nance went to the house of Louis Haupt, got the instrument, took it to Ban Marcos, and submitted it to Mr. Brown, a lawyer there, who advised that it be offered for probate, which was accordingly done. On cross-examination the witness said:

“I knew all the time from a short time after Col. Haupt’s death that he had left an instrument of some kind in the form of a will or something that purported to be,a portion of a will or something of that soi-t. I never did request to see the paper. Louis told me that it was not signed, and I did not think it was necessary. * * * I did not think that Louis Haupt intentionally made a false statement to me about it. As well as I recollect, he did not tell me that the will was not signed up properly, but he said the will w.as not signed; that is what he told me as well as I recollect. I am certain that that is what he told me at the time.”

Referring to the sale of the 125 acres, the proceeds of which were used for Mrs. Land-ers’ benefit, the witness said:

“I guess I did recognize the fact that Mrs. Landers was entitled to a share in the property that was being divided. We did not think there was any will, and, of course, we thought she was entitled to it. * * * At that time we were raising money to send her to San Antonio for treatment.”

Referring to the conversation in the office of Mr. Barber at the time the deed to the 125 acres of land was made, witness said:

“I never requested Mr. Barber to look at it [the will] and tell me what it was. I did not consider it worth looking at, if it was not completed. I never requested any lawyer at any time to 'examine it until it was brought down here to Mr. Brown about a year ago. I considered that if it had no signature that it was worthless; that it was just as if it was not made. I am not a lawyer.”

On redirect examination the witness said:

“There was nothing at all to cause me to suspect or surmise that Louis was incorrectly stating the situation to me when he told me the pa^ per was not signed. I had absolute confidence in him. * * * I do not know that I ever talked with Mr. Nance about it before until after I heard that Michaelis had contracted to buy Mrs. Landers’ interest. I just in talking in a general conversation said that I was sorry that Mr. Haupt had not completed the will and signed it up, so we could protect Mrs. Landers, and also ourselves, and keep out undesirable persons. * * * I don’t think X ever mentioned it to any of the other heirs.”

Mrs. Touay Barbee testified as follows:

“Before my father’s death my mother told me he had started a writing. She said it was for us children to go by after their death. I never saw any paper that my father had prepared. After he died Louis said that it was a paper, but that it was of no value, because it was not signed. This must have been some months after my father died; I don’t remember exactly. I probably may have told my husband that some time there was a writing, but that was all. We did' not discuss it. After Louis told me that I never had any information subsequent to that until the matter came up recently advising me that the paper, whatever it was, was actually signed by my father. If at any time after my father’s death Louis had told me that there was a paper written out and signed by my father, I would have consulted my husband, and gone by his wishes; he is the business member of the firm. * * * Up until that Sunday night when we were at Mrs. Nance’s house I had no information that caused me to think or surmise that this paper was actually written out, completed, and signed by my father. All of that time I had believed that it was not, in fact, signed by my father. * * * Erom the first I didn’t think the will was finished. The idea I conceived was that it was not a finished will. My mother first told me about this paper being in existence. Louis was the first one told me about it not being signed up properly.
* * * My mother did not tell me the paper was not signed. Louis told me shortly after Papa’s death that it was not signed. That was seven years ago. I may not repeat his exact words, but he said that Papa left a writing, but it was not signed, and it was of no value.
* * * I knew there was a writing started for us to go by, but I never knew that it was finished or signed. * * * Louis Haupt is my brother. I knew him to be an honest man, and I knew that he would not make away with anything. He would not do anything wrong intentionally. If he misled us, it was by ignorance or mistake.”

The witness stated that she knew her father’s wishes with reference to his property by talking with him about it, and that she supposed his wishes were being carried out. “He frequently expressed his wishes in regard to the Landers people.” The will of Mr. Haupt states that he does not wish Land-ers or his sons to have any of his land, but undertakes to make an equal division of, it among the other children after the death of his wife.

Appellant cites in support of his contention that the testimony shows, as matter of law, that Mrs. Barbee, as well as the others, was in default within the meaning of the statute. Boren v. Boren, 38 Tex. Oiv. App. 139, 85 S. W. 48; Stanford v. Pinks, 45 Tex. Civ. App. 30, 99 S. W. 449; Kuhlman v. Baker, 50 Tex. 631; Connoly v. Hammond, 58 Tex. 16; Calhoun v. Burton, 64 Tex. 518; Bass v. James, 83 Tex. 110, 18 S. W. 336; Smith v. Ply, 24 Tex. 345, 76 Am. Dec. 109; Hudson v. Wheeler, 34 Tex. 366; and several other cases not stronger than the ones stated. In Boren v. Boren and Stanford v. Pinks, supra, in which cases it was held that negligence was shown as matter of law, the facts in the eases were shown by public records. In the first case a will had been made devising the life estate in land to the mother of appellant, who was then 15 years old, with remainder to him. The will was duly probated. He alleged that his elder brother procured him to sign a deed to the land with his mother, upon the representation that he had no interest in the land, but that his signature was necessary in order to obtain a loan. Eleven years afterwards he brought suit to set aside the probate of the will. A demurrer to his petition was sustained. The court said that it was not shown that appellant was not of average intelligence, although it was alleged that he could not read or write; that every boy of average intelligence 15 years of age ought to be presumed to know that he had some interest in land belonging to his deceased father, unless his father had disposed of it by will. If he had gone to the records, he could have ascertained that there was a will, and that he was the legatee thereunder. This he did not do until after he was 23 years of age.

In the case of Stanford v. Pinks, supra, there was a judgment against the party of which he had knowledge, and it was held that he should be required to take notice as to how he was affected by the judgment.

In Bass v. James and Smith v. Ply, supra, suit was brought to recover for a deficiency in acreage, not upon a warranty, but upon the ground of misrepresentation. In the first case the suit was brought within three years after the purchase of the land. In the second ease the deed was made December 29, 1853, and the suit was filed April 1, 1859. In these cases it was held negligence, as matter of law, for a man to fail for the length of time shown to ascertain the quantity of land in a tract owned by him, as he could easily have done by having a survey made.

In Kuhlman v. Baker, supra, the allegation was that Baker had represented to Kuhlman that he had a good title to a tract of land, and was making him a warranty deed. The deed was made in 1856. Kuhlman alleged that suit had been brought, and that he had been evicted from the land, and that he did not discover that Baker did not have a good title, nor that his deed was not a warranty until such suit was filed 17 years after the deed was executed. In addition to what was said as to the duty of a party to know under what kind of a deed he holds title to land, the court said that it did not appear that confidential relations continued to exist between the parties after the execution of the deed.

In Hudson v. Wheeler, supra, an attempt was made to set aside two deeds, duly recorded, and under which the land had been held, one for the period of 17 years, and the other for 25 years. On the other hand, it was held in Pitman v. Holmes, 34 Tex. Oiv. App. 485, 78 S. W. 961, that the fact that land that was purchased with the separate money of plaintiff’s father was misrepresented to plaintiff and concealed from her by her mother was sufficient to suspend the running of the statute of limitation until her discovery of such fraud, 17 years thereafter.

In Isaacks v. Wright, 50 Tex. Civ. App. 312,'110 Si W. 970, it was held that failure to discover that the wrong lots were pointed out to the purchaser suspended the statute of limitation for a period of more than 4 years. In Shuttleworth v. McGee, 47 Tex. Civ. App. 604, 105 S. W. 823, an attorney employed to collect a note reported to his client, a nonresident, that he had obtained judgment thereon, and subsequently by letter confirmed this statement. This was in 1902. In. 1906 the owner of said note heard of the death of his said attorney, and employed another attorney to attend to the collection of said judgment. The latter attorney informed the plaintiff that no judgment had been obtained, and thereupon he instituted suit upon said note. The court, among other things, said:

“Under the facts as set up in the petition, which the demurrers admit to be true, the trial court erred in holding that the plaintiff’s cause of action was barred by the four-year statute of limitation; and, if the two-year statute applied to plaintiff’s cause of action, still we think the statute was suspended by the misrepresentation of Pope [the deceased attorney] to his client.”

In Cooper v. Lee, 1 Tex. Civ. App. 9, 21 S. W. 998, Lee brought suit to set aside a deed which he alleged he had been induced to execute upon the fraudulent representation of the defendant, who was his son-in-law and legal adviser. It was held that this was sufficient to raise the issue as to reasonable diligence in bringing the suit. See, also, Ryan v. Railway Co., 64 Tex. 239; Ochoa v. Miller, 59 Tex. 462; Elwell v. Convention, 76 Tex. 519, 13 S. W. 552; St. Mary’s Asylum v. Masterson, 57 Tex. Civ. App. 646, 122 S. W. 587; Pena v. Bruni, 156 S. W. 315; Brown v. Brown, 61 Tex. 56. In St. Mary’s Asylum v. Masterson, supra, the will was not offered for probate until 21 years after the death of the testator, but it was held under the facts of that case that proponent was not in default within the meaning of the statute.

The issue in the instant case, as it is in cases where fraud or concealment of material facts is alleged, is as to, whether the party deceived or misled has used reasonable diligence to discover the fraud or mistake. The court submitted this issue upon a correct definition as to diligence, and the jury found in favor of appellee on the issue submitted. As above stated, we think the evidence was sufficient to raise the issue, and that the court did not err in refusing to peremptorily instruct the jury to find for appellant, and did not err in refusing to grant appellant a new trial on the ground that the verdict of the jury was unsupported by the evidence.

Appellant assigns error upon the action of the court in overruling the special exception to the petition; his proposition being that the general allegations contained in the pleading of proponents that they acted with proper diligence, and that through no fault of theirs was the will not sooner propounded for probate, are conclusions, and are wholly insufficient to excuse such default. The petition not only stated the legal conclusion from the facts relied upon, but also stated such facts. Hence we hold that the court did not err in overruling the special exception referred to.

Appellant assigns error as to the judgment rendered, for the reason that it does not appear from the record that the witnesses by whom the will was proven up subscribed to their testimony in either the county court or in the district court. As to the proceedings in the county court, it is immaterial whether or not the witnesses subscribed to their testimony, inasmuch as the trial in the district court is de novo. As to the proceedings in the district court, it does not appear from the record whether or not the witnesses subscribed to their testimony, but we think that is immaterial. The issue presented on this appeal is as to whether or not the testimony of such witnesses is sufficient to sustain the verdict of the jury. This testimony is before us upon an. agreed statement of facts, and to that alone we look in determining the issue here presented.

Appellant assigns error upon the action of the court in refusing to submit to the jury special issue No. 6 requested by contestant. Said issue was as to whether or not Louis M. Haupt was the agent of the respective proponents for' the purpose of caring for and having custody of the papers left by W. W. Haupt at the time of his death. The court refused to submit this issue. The testimony in support of this issue, as stated in appellant’s brief, is as follows:

The witness Mrs. Bassie Nance testified that Louis Haupt took charge of his father’s affairs after his death; that she did not know whether Louis was acting for all of the proponents in taking charge of her father’s papers or not.

J. M. Nance testified:

“Mr. Haupt had Louis Haupt looking after his business affairs for several years before his death. He was getting tolerably old. Louis lived there with him until he married, and .then he moved to Kyle, but attended to his father’s business at the time he was living there with him. Louis toot charge of the old man’s affairs after his death, or it seems it turned out that way. I did not ask him, but I supposed he was looking after the property in the interest of all the heirs. I offered no objection to it.”

W. H. Barbee testified:

“My understanding was that Louis Haupt was taking ehai'ge of the property, and everything in the house was left, and nobody lived in the house. I supposed Louis Haupt had the papers, as he attended to all his father’s business for him, and in the discussion in Mr. Barber’s office I think I knew that Louis had possession of it. In fact, I think that Louis took charge of all the papers of Mr. I-Iaupt’s estate after Mrs. Haupt broke up housekeeping. I think he took all the papers down to Kyle, and probably put them in the bank, but I am not sure. That, however, is my understanding. I never objected at all to Louis having possession of these papers.”

Mrs. Touay Barbee testified:

“Louis did not take charge of the management of the papers and other property of my father’s estate for my mother and the other children, only in this way: He said to me, and probably to my husband: ‘Some one has got to take the lead and settle off the funeral expenses of our mother and the estate, and will it be all right for me to give out the cheeks?’ I told him so far as I was concerned it was all right. There was no other lead to take. I knew that Louis had all the papers of my father’s estate, and I didn’t make any objection to his retaining possession of them. I thought, as he had been with father and attended to his things, he was the proper one.”

G. B. Haupt testified:

“I told him [Louis] at the time: ‘Xou had better get all of his papers and put them somewhere where they are not liable to get burned up.’ I might have said: ‘We had better get them papers.’ I left it to him, as he knew where they were, which part of the desk they were in. He had been attending to that, and I knew he would get them all.”

Louis Haupt testified:

“I took all of his papers. I knew where he kept his deeds and private papers. It is not a fact that shortly after my father’s death I took ehai'ge of all my father’s papers with the consent of my brothers and sisters. I supposed they all knew I had these papers. There was no objection raised to my taking them. None of them ever came to me and demanded any of these papers. If they had demanded it, I would have let them look at the papers. I did not feel that I had any more right than they did, only they were in my possession.”

In addition to the above, W. H. Barbee testified:

“I did not understand that Louis was caring for the papers for the benefit of all the heirs, but for Mrs. Haupt.”

This testimony, at most, shows that Louis M. Haupt took the physical custody of the papers belonging to his father’s estate, including the will, with the knowledge of the other heirs, and without objection on their part. The contention of appellant is that Louis Haupt was the agent of the other heirs, and that his knowledge that the will was written and signed by the deceased is to be imputed to the other heirs. It is true that, under proper restrictions, knowledge acquired by an agent will be imputed to the principal, but this is true only where the agent acquires such knowledge while in performance of the principal’s business, and while acting with reference to the matter for which his agency was created. Where one in performing a mere ministerial duty learns facts material if known to his principal, there is no imputation of such knowledge as to the principal. Labbe v. Corbett, 69 Tex. 503, 6 S. W. 808; Storms v. Mundy, 46 Tex. Civ. App. 88, 101 S. W. 258; Pennoyer v. Willis, 26 Or. 1, 36 Pac. 568, 46 Am. St. Rep. 595; Mechem on Agency (2d Ed.) §§ 1831-1834 ; 39 Cyc. pp. 1587, 1595.

In Labbe v. Corbett, supra, the issue was as to whether Labbe knew of the diseased condition of certain sheep. In receiving the sheep he had with him persons to assist in taking charge and driving the sheep, and these parties observed at the time that the sheep were diseased. Under this state of facts the court said:

“If it had been shown that appellant had an agent or agents to whom he had intrusted the duty of ascertaining the condition of the sheep, then such a charge as was given would have been correct; for in such ease the making of inquiry would have been within the scope of the agent’s power, and it would have been his duty to communicate to his principal the knowledge possessed by himself. The facts, however, do not show any such agency, but do show that the appellant was present to examine the sheep for himself, and that he had persons with him whose sole duty it was to assist him in driving and caring for the sheep. Some of these persons stated that they saw some diseased sheep at the time they were delivered. “The knowledge of persons so situated could not be deemed to affect the appellant with knowledge of the facts known to them.”

There is no testimony-in this case tending to show that Louis Haupt'was the agent of the other heirs for the purpose of ascertaining the contents of the will, or as to whether or not it was signed or properly signed. The mere fact that, with the consent of the other heirs, or even at their request, he took charge of the- papers, including this will, for safe-keeping, would not affect the others with knowledge which he may have acquired from an examination of this paper.

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

Affirmed.

On Motion for Rehearing.

Appellant in his motion for rehearing complains that we in our opinion herein construed the will of W. W. Haupt as providing that “the lands referred to should become the property of the five children, excluding Mrs. Landers.” We had no intention of construing the will, as that was not an issue before us, and what we said in reference thereto is, of course, dicta.

All the grounds set out in the motion for rehearing have been carefully examined, and we overrule the same.

Motion overruled.
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