Durrell v. Farwell , 88 Tex. 98 ( 1895 )

Farwell and others sued the Presidio Live Stock Company for a balance of $87,665, claimed to be due upon 220 bonds of said company, and also made H.C. Durrell, Anna D. Gage, executrix of the last will of E.L. Gage, deceased, and C.R. Mower, trustee, parties defendant, for the purpose of foreclosing a mortgage lien upon certain lands described in the petition.

The only controversy in the case was between plaintiffs and defendant Durrell over the foreclosure of the mortgage. Durrell filed several pleas, none of which are necessary to mention except one in the nature of a cross-bill, in which he set up title in himself to the land, and claimed that it had been discharged from liability for the payment of the bonds, and prayed for judgment for possession of the land.

The case was tried by the judge, a jury not being demanded, and judgment was entered in favor of the plaintiffs against the Presidio Live Stock Company for the balance remaining unpaid on the bonds and against all the defendants, foreclosing the lien of the mortgage on the lands. Durrell appealed, and the Court of Civil Appeals affirmed the judgment of the District Court.

The facts necessary to an understanding of the questions to be decided by this court are as follows:

The Presidio Live Stock Company, a corporation duly incorporated under the general laws of this State, on the 13th day of September, 1883, issued 220 bonds, aggregating the sum of $100,000, payable to bearer twenty years from date, or at the pleasure of the company after five years, bearing 6 per cent interest per annum, payable annually on the 1st day of September in each year.

To secure the payment of the bonds, the said company on the same day executed a deed of trust, whereby it conveyed to C.R. Mower, trustee, for the purpose of securing said bonds, all of its property, consisting of cattle, horses, ranch outfit, ad leasehold interests in lands. This instrument contained the formal parts usual in such instruments, and the following paragraph:

"And it is provided further, that in the event default shall be made in the payment of the interest which shall become due or accrue upon said bonds, herein secured, or any of them, or any part thereof, or in the event default shall be made in the payment of the principal of said bonds, or any of them, or any part thereof, at the maturity of said bonds, then in either or every such case, default continuing for thirty days, it shall be the duty of said trustee, at the request of a majority of the bondholders, or a majority of the holders of the coupons due and unpaid, forthwith to make a demand in writing on the president or secretary of the company that payment of said interest so due and unpaid, or of said principal of said bonds, as the case may be, shall forthwith be made; and if said company shall continue to make default in the payment of such interest or principal so due after said demand has been made by said trustee, for the space of thirty days, the said trustee shall, and he is hereby fully authorized and empowered to, enter upon and take possession of all and singular the above described property, or so much thereof as may be necessary, either in person or by such agent or agents, attorney or attorneys, as may be by him duly authorized thereunto in writing, and thereupon proceed to sell said above described property, or so much thereof as may be necessary to raise sufficient money to pay off and fully satisfy the said bonds then outstanding and all arrears of interest thereon, together with all costs and expenses of said sale and executing the trust hereby created, and attending to the business thereof, after advertising the same for the space of thirty days prior to the day of sale in some newspaper published in Presidio County, State of Texas, if any there are in said county, and in one daily newspaper published in the city of New York, setting forth the time, place, and terms of sale, giving a general description of the property intended to be sold; or the trustee executing this trust may make sale of said property without taking possession thereof, the same to be made in all other respects as herein provided, said sale to be made at public auction for cash in hand, at the court house door in the county of Presidio, State of Texas, to the highest bidder, said property to be sold in parcels or all together, as the said trustee may decree best for the interest of the holders of said bonds, and upon making such sale the said trustee shall execute to the purchaser or purchasers absolute deed or deeds, transfer or transfers, bill of sale, or bills of sale," etc.

The time and manner of giving notice was prescribed, and that the sale should be at the court house door in the county of Presidio, which county at that time embraced the territory now composing Brewster and a number of other counties.

E.L. Gage was the president and manager of the Presidio Live Stock Company, and a stockholder therein, and on the 14th day of November, 1883, made a deed of trust to the same trustee, conveying to him certain lands to secure the payment of the bonds of said company, from which we make the following extracts.

After conveying the land to Mower, trustee, in the usual form, the mortgage continues as follows:

"This conveyance is in trust, however, upon the following conditions, to wit:

"Whereas, I, said E.L. Gage, heretofore, to wit, upon the 22nd day of May, A.D. 1883, did lease certain lands in said county and State to the Presidio Live Stock Company, a corporation duly incorporated under and by virtue of the laws of Texas, said lease contract being recorded in book number 2, pages 303 to 307, record of deeds, etc., of Presidio County, Texas; and whereas, I, said E.L. Gage, am a stockholder and officer of said company; and whereas, in prosecuting the business of said company, it was by said company deemed expedient to issue a series of bonds, to be secured by a mortgage on all its rights, franchises, and privileges, on all property of said company that has been or may be acquired, including lands and interest in lands, both that owned in fee simple and in less estate, and that held or that may be held by leasehold, on all live stock of every kind acquired or that may hereafter be acquired by said company, on all ranch outfits now owned or that may be hereafter acquired; and whereas, there were accordingly issued by said company sixty bonds for the sum of $1000 each, and sixty bonds for the sum of $500 each, and one hundred bonds for the sum of $100 each, amounting in all to the sum of $100,000 bonds; all of said bonds bearing date the first day of September, A.D. 1883, and payable to the bearer thereof, said bonds to be redeemable at any time after the expiration of five years from their date at the election and call of said company as thereinafter provided, and to be due and payable at all events twenty years after the date, etc.; * * * and whereas, the further securing by this instrument of the payment of said bonds will aid in the disposal thereof, and in securing a better price therefor, in consideration in part of which this conveyance in trust is made; now, therefore, the conditions of this trust are as follows, to wit:

"In the event said 220 bonds, amounting in all to $100,000, shall be fully paid, satisfied, and discharged, both principal and interest, according to their face, tenor, and effect, then this conveyance shall become void and of no further force and effect. But in the event the same or any part thereof shall not he fully paid, satisfied, and discharged, both principal and interest, according to their face, tenor, and effect, and in the event the securities provided in said mortgage shall have been duly and fully exhausted, in accordance with the terms and provisions thereof, and the entire net proceeds thereof shall have been realized and applied towards the payment of what may be due upon said bonds and interest thereon; and in the event there shall then remain unpaid and unsatisfied any portion of the principal or interest of said bonds, and default in the payment thereof continuing thereafter for thirty days, it shall be the duty of said trustee, at the request of a majority of the holders of the said bonds then unpaid, or of a majority of the holders of the coupons then due and unpaid, forthwith to enter upon and take possession of all and singular the above described lands, or so much thereof as may be necessary, and thereupon to proceed to sell said above described lands, or so much thereof as shall be necessary to pay off and fully satisfy the said bonds then outstanding, and all arrears of interest thereon, together with all costs, charges, and expenses of said sale and executing the trust hereby created, and attending to the business thereof, after advertising the same for the space of ninety days prior to the date of sale, in some newspaper published in the county of Presidio, if any there be in said county, and if there be none, then in the nearest county in which there is published a newspaper, setting forth the time, place, and terms of sale, giving a description of the property intended to be sold; or the trustee executing this trust may make sale of said property without taking possession thereof, the same to be made in all other respects as herein provided; said sale to be made at public auction for cash in hand, at the court house door in the county of Presidio, State of Texas, to the highest bidder, said property to be sold either in parcels or all together, as said trustee may deem best for the interests of the holders of said bonds, and upon making such sale the said trustee shall execute to the purchaser or purchasers absolute deed or deeds, with customary covenants and warranty to the property by said trustee sold, and shall apply the net proceeds of said sale or sales."

Afterwards, by agreement of all parties, a portion of the lands was released, and E.L. Gage made another deed of trust conveying other lands in trust under the conditions and stipulations of the first deed of trust.

On the 4th day of August, 1891, Durrell purchased at sheriff's sale, under executions issued against E.L. Gage, all the lands embraced in both the first and second deeds of trust made by him. The sale was regularly made, and conveyed to Durrell all the title that Gage had at the date of the sale.

The uncontradicted evidence shows, that the bondholders removed E.L. Gage from the management of the property of the company, assumed sole and exclusive control of it by their representatives, sold it, and applied the proceeds to the payment of expenses, contrary to the provisions of the mortgage; the members of the committee representing the bondholders were then elected directors and officers of the company, and, acting as such in the interest of the bondholders, they sold the property, applying the proceeds to expenses and interest on the bonds, and finally, by concert of the officers of the company, who were bondholders themselves and representing the other bondholders, the property was sold contrary to the provisions of the mortgage, and purchased for the bondholders, being by them sold and converted to their own use.

The bondholders and E.L. Gage constituted the stockholders of the corporation.

The company having failed to pay interest for the years 1889, 1890, and 1891 to the amount of $9000, on December 6, 1892, the trustee, Mower, after having advertised the same according to the requirements of trust deed, sold the property of the Presidio Live Stock Company, at the court house door of Brewster County, instead of at the court house door of Presidio County, at which sale A.S. Gage, Tuttle, and Farwell bought the same for all the bondholders, giving credit on the bonds for the sum of $21,500. The property was taken possession of by the representatives of the bondholders, who were, however, the same parties that had it in charge before, and sold much of it, and appropriated it all to the use of the bondholders.

The land sought to be foreclosed upon in this suit was leased to the Presidio Live Stock Company, and the bondholders took possession and now hold it, the lease having expired before the sale of the company's property.

The controlling question in this case is, was the land embraced in the mortgage made by Gage discharged from liability for the payment of the bonds by the acts of the bondholders and the Presidio Live Stock Company?

Gage was not personally liable for the payment of the bonds, but by making the mortgage or deed of trust he made the land surety for the debt, and it would be discharged from such liability by the same acts as would discharge an individual surety therefor. 24 Am. and Eng. Encyc. of Law, p. 722, sec. 6; Rowan v. Sharp's Rifle Mfg. Co., 33 Conn. 1; Price v. Dime Savings Bank, 124 Ill. 317; Walker v. Goldsmith, 7 Ore., 161.

"A surety is bound by the terms of his contract, and his liability can not be extended beyond it. If the contract be altered without his consent, whether he sustain injury or the contract be to his advantage, it ceases to be his contract, and with that ceases his obligation." Ryan v. Morton, 65 Tex. 260 [65 Tex. 260]; Lane Saylor v. Scott Culver, 57 Tex. 370 [57 Tex. 370]; Brandt on Surety., sec. 345; Robeson v. Roberts, 20 Ind. 155; Mayhew v. Boyd, 5 Md. 102; Watriss v. Pierce, 32 N.H. 560; Cunningham v. Wrenn, 23 Ill. 64; Smith v. Montgomery, 3 Tex. 209.

By the terms of the deed of trust, Gage made the land liable for the payment of the bonds upon the express condition that the property embraced in the deed of trust made by the Presidio Live Stock Company should first be exhausted under the terms of that instrument, which provided the manner in which that property might and in fact should be sold and the proceeds applied to the payment of the bonds. The land could not be rendered subject to the payment of the bonds until this condition be fulfilled, and it does not matter what circumstances may have transpired to cause a different method to be pursued by the bondholders, if they chose to adopt other methods, without the consent of Gage, while he owned the land, or defendant Durrell after his purchase, they could not hold the land liable. The language of the deed of trust executed by Gage, as quoted, does prescribe a condition precedent to the power of the trustee to sell, but the same language expresses the terms upon which alone the land could be made liable. It is true, that if these terms had been complied with the bondholders, upon showing that fact, might have resorted to a court to foreclose the deed of trust given by Gage; but a court could not have enforced it unless the trustee could have sold the land under the terms of liability fixed by the trust deed itself.

The terms of the deed of trust are unambiguous, the character of the agreement is legal, and it is not the province of the court to inquire into the motives which operated upon the parties in specifying the particular things to be done, nor whether or not the failure to do the very thing required was injurious to the surety; it must be enforced as the parties made it. In order for the bondholders to avail themselves of the additional security afforded by the Gage deed of trust, they must have strictly followed its provisions and complied with its terms. Mayhew v. Boyd, 5 Md. 102.

By the deed of trust made by the company the bondholders had the right, upon default in payment of interest upon their bonds, to have the property sold by the trustee in accordance with the requirements of that instrument, and this became a duty as to the land embraced in. the Gage deed of trust, simply because it was so expressly stipulated as a condition of liability. Walker v. Goldsmith, 7 Ore., 161. Instead of pursuing the remedy prescribed, the bondholders removed Gage from the control of the property, assumed the sole and exclusive management of it by an executive committee of their own selection, and sold the property at private sale, shipping some out of the State; and in defiance of the express directions of the instrument, applied some of the proceeds to the payment of the expenses of the company. This was done after Durrell bought the land; at least the property was sold and proceeds used afterwards. It is said that Gage consented, but that does not affect Durrell, even if it were a matter of consent, and would bind Gage, although it rather seems to have been submission on the part of Gage rather than consent.

The bondholders' committee were then elected directors, president, and other officers of the company, and as such, acting for the bondholders, held the property and sold it at private sale contrary to the terms of the deed of trust, and finally, under a void sale, the property was taken possession of and converted by the bondholders to their own use, thereby making it impossible to comply with the conditions upon which the land was to become liable for the debt. It can not be said that this was not done with the consent of the company, for the bondholders were the stockholders of the company, and the same men that represented one, likewise represented and controlled the other.

This was a change in the contract in its most essential elements, the manner of disposing of the property itself. As between the company and the bondholders, the court might adjust the equities between the parties by charging the bondholders with the full value of the property thus sold and converted, because the company was liable for the debt, independent of the deed of trust; but as to the sureties, as before said, it is not a question of injury or benefit, but one purely of contract and legal liability.

The land described in the deed of trust from Gage to the trustee, Mower, was discharged from liability by these acts, and the trial court and Court of Civil Appeals erred in foreclosing the mortgage upon it.

The plaintiffs in the court below took possession of the land described in the deed of trust from Gage, and held it up to the trial, whether as mortgagees or under the lease from Gage to the Presidio Live Stock Company does not appear very distinctly, but they in this suit seek to foreclose upon the land under the deed of trust executed by Gage, and thereby assert that Gage had title in the land; hence, if Durrell has a right superior to theirs, he should have recovered the possession of the land. It is admitted that Durrell acquired the title of Gage, and we have seen that the deed of trust under which plaintiffs seek a foreclosure was discharged by their acts, and is no longer in force. It follows, that Durrell should have recovered possession of the lands from the plaintiffs, and the court erred in not so adjudging. It is ordered, that the judgments of the District Court and the Court of Civil Appeals be affirmed as to the Presidio Live Stock Company.

For the errors indicated, the judgments of the District Court and Court of Civil Appeals are reversed, and judgment will be here rendered in favor of the defendants, A.D. Gage, executrix, and in her own right, C.R. Mower, trustee, and H.C. Durrell, against plaintiffs; that the plaintiffs take nothing by their suit; that the said defendants go hence without day, discharged, and recover of the plaintiffs all the costs in this case. And it is further ordered, that judgment be entered in favor of defendant H.C. Durrell; that he recover of plaintiffs all the lands described in the judgment of the District Court, and that the clerk of the District Court issue a writ of possession in his favor.

Reversed and rendered.

Delivered March 11, 1895.

DENMAN, Associate Justice, did not sit in this case.

ON MOTION FOR REHEARING.