Case Name: Compton, Ault & Co. v. John T. Marshall
Court: Supreme Court of Texas
Jurisdiction: Texas
Decision Date: 1894-06-21
Citations: 88 Tex. 50
Docket Number: No. 185
Parties: Compton, Ault & Co. v. John T. Marshall.
Judges: 
Reporter: Texas Reports
Volume: 88
Pages: 50–59

Head Matter:
Compton, Ault & Co. v. John T. Marshall.
No. 185.
1. Case Adhered to.
Bank of California v. Marshall, 1 Texas Civil Appeals, 704, and approval by this court on refusing application for writ of error in unpublished opinion, adhered to. (The entire opinion on refusal of the writ is reproduced in the opinion)....................................................... 52
2. Mortgage of Goods by a Debtor.
A deed of trust in the nature of a mortgage, transferring goods, executed by an insolvent debtor to a trustee for the benefit of preferred creditors—the trustee to carry on the business, but the stock to he cashed and trust executed within three months—the goods so transferred being less in value than the amount of preferred creditors, held valid against attack of other attaching creditors.....................'.............................. 53
3. Fraudulent Conveyance—Burden of Proof.
A creditor attacking a chattel mortgage preferring other creditors, alleging fraud in the mortgage, either that the claims secured were fictitious, or the ' property transferred was in value in excess of the claims secured, must prove such allegations. The burden of proof is upon the creditor alleging fraud..................................;.......................... 53
4. Surrender or Exchange of Sureties by Creditor.
That a creditor preferred in a deed of trust surrendered to the mortgagor overdue claims held as security did not invalidate the transfer. The claims being overdue, were not withdrawn beyond the reach of other creditors by garnishment........................................................ 54
ON REHEARING.
5. Mortgage by Insolvent Debtor.
A debtor, though insolvent, has the right under our law to execute in good faith a mortgage to secure one or more of his creditors, and thereby to give a preference. Such an instrument, therefore, which does not by its terms disclose a fraudulent intent, is legal upon its face, and should be held, in the absence of proof to the contrary, to confer the right it purports to confer............................................................. 57
6. Burden of Proof of Fraud.
An attaching creditor levying upon property transferred to a trustee for benefit of named creditors, in a contest as to the ownership of the property, can not, by alleging fraud, cast the burden of disproving the charge upon the trustee from whose possession the attached goods were taken under the writ of attachment............................................... 59
Error to Court of Civil Appeals for Third District, in an appeal from McLennan County.
H. C. Lindsay, for plaintiffs in error.
—Appellants having shown an antecedent debt against Eaton, Guinan & Co., and having alleged that the deed of trust was made with intent to hinder and delay the creditors of said Eaton, Guinan & Co., and especially appellants, it was incumbent on defendant to show the genuineness and validity of the debts secured by said deed of trust. The genuineness of the debt to the Waco State Bank, if the said bank at the time surrendered a large lot of collaterals to Eaton, Guinan & Co., knowing at the time of their embarrassed condition or insolvency, would not make the trust deed valid. Tillman v. Heller, 78 Texas, 597; Elser v. Graber, 69 Texas, 222; Wallis v. Adoue, 76 Texas, 118; Wait. on Fraud. Con., secs. 201, 271; Bump on Fraud. Con., 415.
Clark, Dyer & Bolinger and W. W. Evans, for defendant in error.
1. The court did not err in rendering judgment for the defendant in this cause, because it was competent for Eaton, Guinan & Co., if they, were indebted to the persons named in the deed of trust in this cause, to make a chattel mortgage or deed of trust securing such creditors, provided said chattel mortgage was Intended as a security securing said creditors; and providing further, that the trustee take the immediate, sole, and exclusive possession of the property conveyed to him under said deed of trust to secure said creditors; and provided further, that said deed of trust was acknowledged and recorded as required by law; and it was competent for said Baton, Guinan & Go. to make said deed of trust securing their said creditors, irrespective of whether they were solvent or insolvent at the time of executing the same. Hudson v. Milling Co., 79 Texas, 401; Hardware Co. v. Kaufman & Runge, 77 Texas, 131; Styles v. Hill, 62 Texas, 430; Jackson v. Harby, 65 Texas, 710; Waterman v. Silberberg, 67 Texas, 100; Dupuy v. Burkitt, 78 Texas, 338; Reagan v. Aiken, 138 U. S., 109; Bump on Fraud. Con., 59; Baldwin v. Peet, 22 Texas, 718.
2. The appellants, as plaintiffs in the court below, having alleged that the indebtedness of Eaton, Guinan & Co., secured by the deed of trust made by them to the defendant, was fictitious and fraudulent, it devolved on them to prove said fact, and not upon the defendant, a mere trustee, to disprove it. The acknowledgment of said Eaton, Guinan & Co. of such indebtedness in said deed of trust, in the absence of any showing that the same was fraudulent and fictitious, established the genuineness of such indebtedness prima facie, and the burden of proof was on plaintiffs to show that said debt was not bona fide and was fictitious under his pleading. The acknowledgment of the same in said deed of trust as made by Baton, Guinan & Co. to the defendant, at least prima facie established the genuineness of said indebtedness.

Opinion:
GAINES, Associate Justice.
—This was a proceeding for the trial of the right of property in certain goods which were levied upon by virtue of a writ of attachment in favor of plaintiffs in error against Eaton, Guinan & Co., as the property of the latter, and which were claimed by the defendant in error. The goods at the time of the seizure were in the possession of the claimant. He asserted title to the property under a deed in trust executed by Eaton, Guinan & Co., the defendants in the attachment, to him as trustee, for the purpose of securing certain creditors therein named.
In the case of the Bank of California v. Marshall, 1 Texas Civil Appeals, 704, the validity of this identical instrument was called in question, and it was held not void upon its face; and the judgment in favor of the trustee was affirmed. From that judgment of affirmance the appellant made an application to this court for a writ of error, which was refused. A motion for a rehearing of the application was filed, which was also overruled. It thus appears that the ruling that the deed of trust in question was not void upon its face was affirmed by this court, and we now adhere to that ruling. The Court of Civil Appeals having rested their opinion upon the ground that the unsecured creditors were not delayed, because the goods were clearly insufficient to pay those who were preferred, it was insisted, in the motion for a rehearing, that the facts as agreed upon did not justify the court's conclusion as to the relative value of the goods and the amount of the-seeured debts. In disposing of that motion, this court in a writ ten opinion by the chief justice say: "The trust deed was not void upon its face, and if it does not appear from the agreed case that the property conveyed was worth much less than the debts intended to be secured by it, the burden of proof was on the plaintiff, who is now the applicant; and the same result in the absence of proof would follow, as though the fact assumed by the Court of Civil Appeals was shown to have existed." (This opinion was filed April 17,1893, and seems not to have been officially published.)
The plaintiffs in error in their tender of issues in the trial court averred, among other things, that the deed of trust was fraudulent, and that the trustee had notice of the fact; and that the debts secured by it were fictitious. As one of the grounds of the application for the writ of error, it is insisted, that there being, with the exception of one claim, no evidence as to the existence of the debts secured by the trust deed save the recitals in the instrument itself, as found by the Court of Civil Appeals, that court erred in finding that the debts existed. It is also insisted, that the Court of Civil Appeals erred in holding that the burden was upon the plaintiffs to show the nonexistence of the debts. The court was clearly correct in the latter ruling. The deed of trust not being void upon its face, it was incumbent upon the parties who alleged that it was fraudulent, to prove the fraud. If the debts intended to be secured by it were fictitious, the burden was upon the plaintiffs in error to show the fact. If the goods were worth more than the preferred debts, and by the terms of the deed other creditors were delayed in subjecting the surplus to the payment of their demands, the plaintiffs in error should have alleged and proved these facts. In the absence of extrinsic testimony sufficient to show the trust deed fraudulent in fact, the trustee had the right to hold possession of the property, and was therefore entitled to a judgment in his favor in this proceeding.
It appears that at the time the deed of trust was executed, the Waco State Bank, one of the preferred creditors, held notes, accounts, and acceptances belonging to Eaton, Guinan & Co., as collaterals to secure the debt due them by that firm; and that, as a part of the agreement between the bank and the mortgagors, these collaterals were to be returned to the latter, and that this was accordingly done. It was not shown that any of the collaterals were unmatured negotiable paper. The Waco State Bank had the right, with the assent of the mortgagors, to hold the collaterals and to accept a mortgage as additional security. They had the right to accept one security in consideration of the release of another, provided other creditors were not delayed by the transaction. The attaching creditors not having shown in this case that any of the collaterals were negotiable, and therefore not subject to garnishment, they can not justly complain of their surrender. The collaterals not appearing to have been such as were beyond the reach, of the creditors of Eaton, Guinan & Co. while in the hands of the lat ter, we can not see that their restoration to the pledgors upon the execution of the deed of trust rendered that instrument fraudulent in law.
Delivered June 21, 1894.
The judgment of the Court of Civil Appeals and that of the District Court are affirmed.
Affirmed.