Court Opinion

ID: 3967565
Source: CourtListenerOpinion
Date Created: 2016-07-06 10:26:55.022961+00
Date Added: 2024-06-11T07:43:56.069674
License: Public Domain

I find myself unable to agree with either of my Associates in the disposition made of this appeal, and I cannot assent to all of the legal conclusions announced in both opinions, and I also think that the facts and the findings of the court require this court to reverse and render the judgment in favor of the appellant, Long. I cannot assent to the pronouncement of Judge RANDOLPH that the word "trustees" in the notes, in connection with the names of the payees, is to be considered descriptio personæ, and should be considered surplusage. Missouri seems to be the only jurisdiction which has adopted such an extreme view, and it appears that the courts of that state so hold because of the language of section 842, R.S. 1919, and it appears from the case of Farmers'  Merchants' Bank v. Siemers, 210 Mo. App. 247, 242 S.W. 417, that the St. Louis Court of Appeals readily seizes upon doubtful language in a note as grounds for holding contrary to the rule as announced in former decisions. I am also unable to agree with Judge RANDOLPH that the rule, as so broadly stated by him, is applied even in transfers of real estate in Texas. In the *Page 1014 
case of Crawford v. El Paso Land Improvement Co. (Tex.Civ.App.)201 S.W. 237, Judge Higgins recognizes the rule to be as follows:
"Trustees may not sell the trust estate without express or implied authority conferred upon them by the trust instrument;"
and holds that the trustee, as grantee in the deed under consideration, had such authority because the habendum clause recites that "Crawford, trustee," his successors or assigns," and grants other powers to the "trustee or his assigns" carries with it the implied power to assign. In Olcott v. Gabert, 86 Tex. 121, 23 S.W. 985, the Supreme Court held that the use of the word "assigns" in the deed then being construed impliedly authorized the trustee to sell. The case of Studebaker v. Hunt (Tex.Civ.App.) 38 S.W. 1134, without any discussion of the several clauses of the deed, holds that a deed to a grantee as trustee, without naming any beneficiary, is constructive notice to a purchaser under attachment proceedings against the grantee. A writ of error was refused. These cases may be reconciled upon the ground that, if the grant is made to a trustee "and his assigns" there is a clear implication that he has the power to sell. This nevertheless, in no way changes the well-settled rule as announced by Judge Higgins in the Crawford Case. If United States Fidelity  Guaranty Co. v. Adoue  Lobit, 104 Tex. 379,137 S.W. 648, 138 S.W. 383, 37 L.R.A. (N. S.) 409, Ann.Cas. 1914B, 667, holds anything, it is that a certificate of deposit, payable to a person in a fiduciary capacity, is notice that it is trust property; and further, that it puts any one receiving it upon inquiry. Beyond this that case is no authority in the instant case. Whatever may be the rule in Kansas or other jurisdictions, Hurst v. Marshall, 75 Tex. 452, 13 S.W. 33
and Bank v. McIntire (Tex.Civ.App.) 142 S.W. 613, clearly and pointedly announce the same rule. I am convinced that the great weight of authority, aside from the provisions of the Negotiable Instruments Law, is to the effect that the words "trustees," "guardian," "administrator," etc. following the name of the payee, in a negotiable instrument, do not destroy its negotiability. And I am also thoroughly convinced that, according to the weight of authority, such words, in connection with the named payee, cannot be considered surplusage. As stated by Judge Boyce:
"The weight of authority, however, we * * * think is that the use of such word [trustee] gives notice of the existence of a trust."
This writer has expressed his views upon this point in the case of Fidelity Trust Co. v. Fowler (Tex.Civ.App.) 217 S.W. 953 and deems it unnecessary to add anything further to what was there said; however, numerous additional authorities might be cited sustaining the rule there announced. In my opinion, under the law merchant, the word "trustees" is not notice "of any and all defenses that the maker of the note might have to it, thus rendering the note practically nonnegotiable," but, as said in each of the authorities cited by Judge Boyce, the indorsee is put upon inquiry as to the title of the trustees and his authority to indorse and transfer it. This writer inclines to the opinion that the Negotiable Instruments Law changes the rule of the law merchant to some extent in favor of the maker in reference to the question under consideration. Section 52 of the Negotiable Instruments Law (Acts 36th Legislature [1919] p. 196, c. 123; Vernon's Ann.Civ.St.Supp. 1922, art. 6001 — 52) provides:
"A holder in due course is a holder who has taken the instrument under the following conditions: * * * 3. That he took it in good faith and for value; 4. that at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it."
Section 55, Id., is as follows:
"The title of a person who negotiates an instrument is defective within the meaning of this act when he obtained the instrument, or any signature thereto, by fraud, duress, or force and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith, or under such circumstances as amount to a fraud."
Section 59, Id., provides:
"Every holder is deemed prima facie to be a holder in due course; but when it is shown that the title of any person who has negotiated the instrument was defective, the burden is on the holder to prove that he or some person under whom he claims acquired the title as holder in due course."
It follows from these provisions that if the appellant, Long, executed the notes in question through the fraudulent representations of the promoters, or if he was induced to execute them by false statement of facts or representations by the promoters as to their future conduct or by reason of their promise not to negotiate his notes, and it further appears from any evidence that there is a breach of faith or any circumstance connected with the transaction which amounts to fraud, either actual or constructive, then the title of the trustee is defective. According to section 59, under such circumstances the burden is upon the appellee bank to prove that it acquired the notes as a holder in due course. According to section 52 the appellee is not a holder in due course if it had notice at the time it acquired the notes of any infirmity in the notes themselves or of any defect in the title of the trustees. A multitude of cases are to be *Page 1015 
found in the books bearing upon the effect of the word "trustee" as notice, but one of the clearest presentations of the law which the writer has found, is here quoted from the opinion of Judge Sanborn, in Geyser-Marion G. M. Co. v. Stark, 106 F. 558, 45 Cow. C. A. 467, 53 L.R.A. 684. That was a case in which certain certificates of stock had been issued to "Felix J. Stark, Trustee," and in transferring them he had indorsed them as follows: "Felix J. Stark, Trustee." Judge Sanborn said:
"But the word `trustee' means something. It is a warning and declaration to every one who reads it (1) that the person so named is not the owner of the property to which it relates; (2) that he holds it for the use and benefit of another; (3) that he has no right or power to sell or dispose of it without the assent of his cestui que trust. It denies the equitable ownership and beneficial interest of the party to whom it is applied, and asserts that he holds it in a representative capacity. It signifies the opposite of the word `owner,' and means that, while the party called `trustee' has the naked legal title, he has no beneficial right, title, or interest in the property. No one who should read in stock certificates or in corporate records that one share was owned by Felix J. Stark, while another was owned by Felix J. Stark, trustee, would fail to understand that he held the former for himself, and the latter for another. Not only this, but the term `trustee' is a term of administration, and not of sale. A trustee ordinarily holds the property intrusted to his charge to collect the rents, issues, dividends, or profits thereof, and to apply them to some specified use. Brokers, administrators, and executors frequently have the power to dispose of the property intrusted to their charge. Trustees commonly have no such power. Hence the legal presumption is that a trustee has no power to sell or convey the property which he holds in his fiduciary capacity, and the fact that he holds it as trustee is a warning and a declaration to all the world that he is without the power of disposition, unless that power is specifically given by the instrument creating the trust, or by the assent of those whom he represents. The legal presumption is that a trustee has no power of sale. Jaudon v. National City Bank, 8 Blatchf. 430, Fed.Cas. No. 7,230; * * * Duncan v. Jaudon, 15 Wall. 165, 175, 21 L. Ed. 142, 145; * * * Allen v. St. Louis Nat. Bank, 120 U.S. 20, 32, 30 L. Ed. 573, 575, 7 S. Ct. 460. * * * It is said, however, that the term `trustee' gave no indication of the name of the equitable owner, and that this fact relieved the corporation from the discharge of its duty. This corporation was bound to exercise reasonable diligence to ascertain whether or not the equitable owner of this stock had authorized its transfer, and to prevent its cancellation and its loss by him if he had given no such authority. The warning and declaration which the word `trustee' bore to this corporation that Felix J. Stark was not the owner, that he held it for another, that he had no power to assign it, were certainly sufficient to put the company upon inquiry for the cestui que trust, and for his assent to the surrender and destruction of the certificates. No reasonable man, in the presence of such a warning, and in the honest discharge of such a duty, would fail to investigate; and notice sufficient to put a man of reasonable prudence and intelligence upon inquiry is notice of all the facts which a diligent investigation would develop, or is evidence from which knowledge of those facts may be inferred and found."
If it is the law, even under the law merchant, aside from the provisions of the Negotiable Instruments Law, that the word "trustees," used in connection with the names of the payees, was sufficient to put appellee bank upon inquiry as to the title, and the right of the payees to dispose of the note, the further question arises, Of whom was the bank required to make inquiry? This writer is of the opinion that it was the duty of the appellee bank to make inquiry of Long himself. This point is not discussed in the opinion of either of my Associates, but I think it is the crux of the case. Clearly an inquiry limited to the trustees themselves would not meet the requirements of justice, nor evidence good faith on the part of the bank, for if the trustees had wrongfully determined to dispose of the note they would not hesitate to claim that they had full authority to do so. Ordinary prudence and good faith required the bank to make inquiry of Long himself. This is the effect of the decision of Judge Taft in Jonathan Mills Mfg. Co. v. Whitehurst, 72 F. 496, 19 Cow. C. A. 130, in which he says:
"It is well established that one who has reason to believe that another is offering property for sale, which he holds either as trustee or agent for a third person, cannot become a bona fide purchaser of the property for value by reliance on the statements of the suspected trustee or agent, either as to his authority, or as to his beneficial ownership of the thing sold. In such a case, inquiry must be made of some one other than the agent or trustee — of some one who will have a motive to tell the truth, in the interest of the cestui que trust or principal. Trust Co. v. Boynton, 71 F. 797."
The case of Shaw v. Spencer, 100 Mass. 382, 97 Am.Dec. 107, 1 Am.Rep. 115, cited by Judge Boyce, holds that an inquiry should be prosecuted beyond the trustee. To the same effect is Golson v. Fielder,2 Tex. Civ. App. 400, 21 S.W. 173. See, also, Bogert on Trusts, 519; 2 Perry on Trusts (6th Ed.) § 800, and notes; In re Stanford Clothing Co. (D.C.) 187 F. 172; Ward v. City Trust Co., 192 N.Y. 61, 84 N.E. 585; Merchants, etc., Bank v. Ohio Valley Furniture Co., 57 W. Va. 625,50 S.E. 880, 70 L.R.A. 312.
Section 56 of the Negotiable Instruments Law (Vernon's Ann. Civil Statutes Supp. 1922, art. 6001 — 56) provides:
"To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is *Page 1016 
negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith."
The notes were payable to "McCoy, Bonner  Nixon, Trustees," and were indorsed "McCoy, Bonner  Nixon, Trustees, by R.S. Nixon." Under the same circumstances the Supreme Court of Tennessee held, in Ford v. Brown, 114 Tenn. 467, 88 S.W. 1036, 1 L.R.A. (N. S.) 188, that the indorsement by the payee as trustee presumptively fixed the indorsee with actual knowledge of the want of authority in the indorser to dispose of the paper for his own benefit. To the same effect is the holding in the Missouri case (Farmers'  Merchants' Bank v. Siemers, supra) where numerous cases are cited sustaining the rule. It is said in 8 C.J. 504:
"This provision as to bad faith means that the suspicions or facts putting a prudent person on inquiry are not sufficient to preclude one from being a holder in due course, and merely reiterates the common-law rule as laid down in nearly all of the states. However, thereunder as at common law, a purchaser cannot shut his eyes to the surrounding circumstances."
Id. 505:
"The rules just stated are subject to the important qualifications that, where the circumstances are such as to justify the conclusion that the failure to make inquiry arose from the suspicion that inquiry would disclose a vice or defect in the instrument or transaction, such indorsee is charged with knowledge. The rule is well stated in the leading case in this country as follows: `Every one must conduct himself honestly in respect to the antecedent parties when he takes negotiable paper, in order to acquire a title which will shield him against prior equities. While he is not obliged to make inquiries, he must not willfully shut his eyes to the means of knowledge which he knows are at hand, * * * for the reason that such conduct whether equivalent to notice or not would be plenary evidence of bad faith.'"
It is said, in Id. 515, 516:
"The expression of a holder or a transferor's fiduciary character upon the face of a negotiable instrument is notice to the purchaser of a probable limited or restricted authority to negotiate the same. This is so where paper is signed or indorsed by an agent as such, especially where the paper is made payable to him as agent, or where it appears on the face of the paper by the indorsement to the holder, * * * that the transferor has the instrument as trustee or guardian or in some other official capacity. If a note is made payable to and indorsed by a certain person with the word `trustee' added, the use of such word is notice to prospective purchasers of the note requiring them to inquire as to the powers of the payee to dispose of the instrument and the rule is not changed by the provisions of the Negotiable Instruments Law requiring actual knowledge or knowledge amounting to bad faith, to constitute notice, since such an indorsement presumptively fixes the purchaser with actual knowledge of want of authority in the trustee to dispose of the paper for his own benefit."
The notes in question were not only payable to the payees as trustees, but they were indorsed "McCoy, Bonner  Nixon, Trustees, by R.S. Nixon." Under the well-established rule that plural trustees of a private trust must all act jointly and as a unit (Bogert on Trustees, 320) an indorsement by only one of them for his cotrustees is insufficient, even if it appeared from the indorsement that R.S. Nixon was in fact one of the trustees named as payees. When a note which is payable to several payees, not partners, is transferred, all of them must indorse it, otherwise the transfer is insufficient and irregular. Pease v. Dwight, 6 How. 190, 12 L. Ed. 401. For a stronger reason all payees who are fiduciaries with no implied power to transfer should indorse the note. In the instant case there is nothing appearing from the face of the notes themselves to identify R.S. Nixon as one of the trustees and payees; therefore, without extrinsic evidence relating to that matter, the appellee bank has taken notes (1) from one who has apparently no title at all, and (2), putting it most favorably for the bank, from only one of three cotrustees. Moreover the bank has taken the notes made payable to three fiduciaries, who, presumptively, have no title they can convey. From these circumstances I am driven to the conclusion that the bank had actual knowledge of the defects in the title of the transferor R.S. Nixon, and certainly it had knowledge of such facts which amounted to bad faith under Vernon's Ann.Civ.St.Supp. 1922, art. 6001 — 56, supra, where it appears that no inquiry was made even of the trustees or either of them. See, also, 3 R.C.L. 1082-1088; Id. 1033, §§ 239, 240, and authorities cited; Mansfield v. Wardlow (Tex.Civ.App.) 91 S.W. 859; 1 Perry on Trusts (6th Ed.) §§ 224, 225, and notes, 217, 219, 239; Id. vol. 2, § 800, and note, 828, 834. The position of the bank as a holder in due course is in no degree strengthened by its acquisition of the notes through other banks and consolidation therewith. Farmers' Merchants' State Bank  Trust Co. v. Cole (Tex.Civ.App.)220 S.W. 354. From a review of all the cases I have found, I believe, that the word "trustees" in the face of the notes was actual notice to the bank of the defect in their title, and certainly put the appellee upon inquiry as to the power of the trustees to transfer, that the bank should have inquired beyond the trustees, and that its failure to do so constitutes the bank a taker in bad faith. It is true that the trial court found as a fact that the appellee "bank had no notice of any infirmity or defect of title," but this *Page 1017 
finding, in view of the uncontradicted facts appearing from the face of the notes and from the further circumstance that they were indorsed by the payees as trustees "by R.S. Nixon" is rather a conclusion of law, and that such finding is subject to review here. Even if it could be held to be a finding of fact, nevertheless, since the court filed his findings and conclusions after the adjournment of the time, under district court rule 101, providing that assignments of error relating to any ruling or action of the trial court which occurs subsequently to the rendition of a final judgment may be incorporated in the brief filed in the Court of Civil Appeals, the appellant is entitled to have such action reviewed by this court. Goodman v. W. S. Peck Co. (Tex.Civ.App.) 192 S.W. 785. It is further held that where there is a statement of facts accompanying the record it is not necessary for the appellant to except to the trial court's findings in order to have them reviewed by the appellate tribunal. Hahl v. Kellogg, 42 Tex. Civ. App. 636, 94 S.W. 389. And where exception is taken to the judgment overruling the motion for new trial it is not necessary for the appellant or plaintiff in error to except specially to the trial judge's findings and conclusions. Hess 
Skinner Engineering Co. v. Turney, 109 Tex. 208, 203 S.W. 593; Temple Hill Development Co. v. Lindholm (Tex.Com.App.) 231 S.W. 321. Now suppose appellee had inquired of Long or of Frank, the cashier of the American National Bank, or in fact of any of the subscribers to the enterprise, what facts would it have learned? Frank is the man to whom the promoters assigned the duty of collecting the cash payments due upon the subscription agreement and taking and holding the notes for the deferred amounts. It would have learned that the entire scheme was based upon a subscription agreement, which provided for the organization of a corporation syndicate or stock association to be thereafter agreed upon, with a total capital stock of $550,000, which organization should acquire and own a one-half interest in what is known as the Commerce Building in Wichita Falls. The subscription agreement expressly stipulates:
"One-fourth of said amount is paid herewith in cash and the remainder will be paid in three equal installments due three, six, and nine months from date."
The bank would have further learned that some of the subscriptions were fictitious, viz. that of Griffin and Nixon (37 Cyc. 493); that several subscribers had made no cash payment at all and were wholly insolvent; that many of them had not executed any notes; that the notes of all subscribers were to be held in escrow and by express agreement with the promoters were not to be negotiated by Frank or the American National Bank of which he was cashier; that they were executed upon conditions which had not been performed and could not be; that no such corporation with the amount of capital stock stipulated in the subscription agreement had ever been organized or could be organized; that the notes were to be held in escrow and after enough cash had been collected to pay for one-half of the said interest in the building a loan was to be secured by the promoters to cover the amount represented by the notes of subscribers; and that said notes were to be paid by rents from the building, and the promoters expressly represented to the appellant that rents then accruing were amply sufficient to pay off the loan and interest. The bank would have further learned that the building had been conveyed to McCoy, Bonner, and Nixon as individuals; that Nixon's subscription was fictitious, and that McCoy and Bonner were not even subscribers to the enterprise; that the attempt to organize a corporation with a capital stock of about $375,000 had been a failure; and that no certificates of stock had ever been issued and delivered to any subscriber. The court finds that the American National Bank would pay the difference between the sum of the amounts actually subscribed and the amount necessary to purchase the one-half interest in the building, but it does not appear that the appellant, Long, so understood it, and that such purpose was a secret one existing only in the minds of Griffin, Nixon, and McCoy. It further appears that said bank and its principal stockholders were insolvent. The appellee would have further ascertained that, after McCoy, Bonner, and Nixon had purchased in their own names the very property which the appellant had agreed to participate in buying, they executed a deed of trust upon the same to secure their individual notes for the purchase price made to the appellant bank, and that all of its transactions was a gross violation of the subscription agreement.
I do not believe the record sustains the conclusion reached by Judge BOYCE that the acquisition of the property and their subsequent disposition of the same was for the benefit of the subscribers. Several of the subscribers besides the appellant and Hines had executed and delivered their notes to the trustees, but none of these notes, except those executed by appellant, Long, and Hines were deposited as collateral to the individual notes executed by McCoy, Bonner, and Nixon, as part payment for the building. In my opinion there is nothing connected with the transaction that tends to show that the relation of partners existed between the subscribers. The subscription list recites that the purpose of the subscription was to organize a corporation or some other similar entity to take over the building. The partnership relation can exist between the parties only by agreement, express or necessarily *Page 1018 
implied. There is nothing in the record which to my mind would justify the conclusion that the bank is in a position to insist that a partnership existed at any time. 20 R.C.L. § 12; Gilmore on Partnership, pp. 6, 7; Fink v. Brown (Tex.Com.App.) 215 S.W. 846.
I think the record unquestionably sustains the appellant's contention that he was induced to execute the notes and the subscription contract through fraud and misrepresentation, that there has been a total failure of consideration, and that, because of the fictitious subscription and the fraud of the promoters in obtaining it, he is released from any obligation whatever. Since the subscription contract recites one-fourth of the amount subscribed is paid in cash, and that the remainder will be paid in three equal installments, Long had the right to rely upon such recitals as a condition precedent to his becoming liable thereon. Long testified that when he signed the subscription contract, R.S. Nixon, H. S. Griffin, Sam Krueger, and Harry Jaffre had already signed it, showing that Nixon had subscribed $50,000 and a like sum for Griffin and Krueger; that Nixon told him that they were in sufficient shape to take care of the deal — that his notes would never have to be paid, that the rentals were sufficient to take care of the balance due on subscribers' notes, and that everybody was going to pay in their money in the same way; that Frank, the cashier of the American National Bank, told him that the notes would be held in that bank and never transferred to anybody; that the stock of the American National Bank was owned almost entirely by Nixon and McCoy.
Frank himself testified that he was present when appellant, Long, executed the notes, and that he accepted them; that he had been requested by McCoy and Nixon to get the notes, and that Long signed his notes in the bank at Frank's desk. He further testified that he told all of the subscribers just what he told Long at McCoy's instructions; that is, that the notes were to be taken to get the papers completed for a stock company, for which an attorney was then drawing the necessary papers, and that the notes were going to be held to clear up the affair and to enable them to get the company organized; that they did not expect to use the notes, inasmuch as they were figuring on a loan and thought they had a loan placed at that time. Frank further testified that he told Long that the notes were to be given just to complete the organization of the company and to be held until the papers could be drawn, and that the notes themselves were not to be used except as a basis for the organization of the company, and that the promoters had no intention of trading the notes to the bank. He further testified that he heard Griffin or Nixon say that they had no intention of making good their subscriptions, and that their agreement to subscribe was not in good faith. It appears that Nixon, Bonner, and McCoy made application for a charter for a company named the "American Investment Company," with a capital stock of $275,000 paid in; that McCoy had subscribed $200,000, R.S. Nixon $200,000, and Bonner $150,000. There further appears in the record a deed from these parties to the American Investment Company, conveying a half interest in the building, which had never been recorded. I understand the rule to be that the alteration of the terms of a stock subscription contract without the consent of the subscribers is a fraud and releases a subscriber to the organization. Bohn v. Burton-Lingo Co. (Tex.Civ.App.) 175 S.W. 173.
It is said in 2 Fletcher's Cyclopedia, "Corporations," § 615:
"False representations that the capital stock of a proposed corporation is to be a certain sum (citing LeMaster v. Hailey [Tex. Civ. App.]176 S.W. 818), or that all or a certain amount of the capital stock of a corporation has been subscribed for may constitute actionable fraud, and the same is generally held to be true for false representations that certain named persons have subscribed for stock. Representations that the subscriptions upon a list shown to the subscribers are all bona fide subscriptions when some of them are not, have been held to constitute fraud, as have representations that certain persons have subscribed for a certain amount of stock where there is a secret agreement that they shall not be required to pay for the same. Representations that a certain amount of the capital stock has been actually paid in (citing Commonwealth B.  C. Insurance Co. v. Meeks [Tex. Civ. App.]187 S.W. 681; Id. v. Cator [Tex.Cr.R.] 175 S.W. 1074; Id. v. Bomar [Tex. Civ. App.] 169 S.W. 1060) or that subscribers who have not yet signed notes for the amount of their subscriptions are ready and willing to do so or to pay the same in cash, have been held to be actionable."
The same author says, in section 524:
"Since there must be mutual assent to constitute a binding contract of subscription, an offer to one person or corporation cannot be accepted by another, and it necessarily follows that a person who subscribes for stock in a corporation to be formed and who does not consent to any change in the subscription, is not liable if the corporation which is afterwards formed and which seeks to enforce a subscription is a different corporation from that contemplated by the subscription. In such a case no contract at all is formed (citing Baker v. Fort Worth Board of Trade, 8 Tex. Civ. App. 560, 28 S.W. 403). The subscriber is entitled to stand upon the contract he has made and cannot be compelled to accept a different one, regardless of whether it is more or less favorable to him."
In Id. section 621, it is said:
"As a general rule, to constitute fraud for the purpose of avoiding a subscription to stock as for the purpose of avoiding any other *Page 1019 
contract, there must be a false representation and not a mere failure to disclose facts without more. A representation, however, which is true as far as it goes, may be rendered false by reason of a failure, to disclose facts, or in other words, may be half truth only, and in such a case it will amount to fraud (citing Peerless Fire Ins. Co. v. Reveire [Tex. Civ. App.] 188 S.W. 254). This is true where a prospectus or other statement purports to be a full and fair statement of facts but conveys a false impression by reason of the suppression of material facts. This principle applies to oral representations. So one who is induced to subscribe by representations that a certain other person has subscribed may rescind, where the latter's subscription is made under the latter's secret agreement that he will not be required to pay for his shares or will not be required to pay for them in full, and the same has been held to be true where the agent represents that the subscription is to the stock of a corporation to be formed in the future by certain persons known to the subscriber to be men of repute and standing in the community and of good business and financial ability. * * * A disclosure or concealment of material facts will constitute fraud where there is a duty to disclose them. If the subscriber has no other information on the subject than that which the promoter or agent chose to convey, the statements of the latter must be characterized by the utmost fairness and honesty. So concealment by a promoter of the fact that other subscriptions are not bona fide, or that he has agreed to release all subscribers who desire to be released from their subscriptions (citing Hall v. Grayson County National Bank (36 Tex. Civ. App. 317] 81 S.W. 762) may constitute fraud. * * * So it has been held that he may rescind where the promoter falsely represents that he and the subscriber are on an equality with reference to property purchased by the promoter for the corporation."
With reference to the creation and organization of the corporation, it is said, in 14 C.J. 530, § 796:
"Of course, payment of subscriptions to stock need not be made until after the charter has been issued or final certificate of incorporation filed, for until then there is no contract, and there is no legal entity to receive payment. Furthermore, when a subscription is made to the capital stock of a corporation to be subsequently formed, there is often an expressed condition precedent to liability on the subscription that the corporation contemplated by the subscription shall be legally created, and even when not so expressed such a condition is implied, so that, until a de jure corporation is formed, the subscriber is not liable unless he waives defects in the formation of the corporation or so conducts himself as to be estopped to deny its corporate existence; and to render the subscriber liable it is necessary, in the absence of estoppel, that the corporation formed shall be with respect to its character, powers, and otherwise the identical corporation contemplated by the subscription, and that it shall be formed within the time, if any, specified, in the subscription, or within a reasonable time, when no time is specified. * * * Where a corporation as proposed is to have a specified capital, the subscriber is released where the corporation as organized has a different capitalization, unless the change has been waived or the subscriber is estopped to raise the objection. So the subscriber may be released by an organization with less amount of paid-up capital stock than originally contemplated."
The appellee does not plead waiver or estoppel as against the appellant in relation to any matters connected with the organization or attempted organization of the company. Long testified that he personally knew a great many of the subscribers, and would not have signed the subscription contract and notes if he had known that the names of certain subscribers would be erased and that other subscribers did not sign in good faith and did not intend to make their payments and execute notes in accordance with the provisions of the subscription contract. This court held, in Wrather v. Parks (Tex.Civ.App.) 227 S.W. 513, that an issuance to plaintiff of stock in a corporation, formed to take over a mine, which corporation had no money paid in and no assets, the mine never having been transferred to the corporation, that a note given for such stock was without consideration, and that a subscriber for stock who does not consent to a change in the subscription is released, if the corporation which is afterwards formed for a greater or less amount of capital stock than was agreed upon seeks to enforce the subscription. See, also, Collinson v. Jefferies, 21 Tex. Civ. App. 653, 54 S.W. 28; Henderson v. Ry. Co., 17 Tex. 560, 67 Am.Dec. 675; New Nueces Oil Co. v. Weil Bros. (Tex.Civ.App.) 243 S.W. 731; Cator v. Commonwealth B.  C. Co. (Tex.Com.App.) 216 S.W. 140; Byers Bros. v. Maxwell (Tex.Civ.App.)73 S.W. 439.
For the reasons hereinabove given, I think the judgment should be affirmed as to all defendants except the appellant, Long, and that it should be reversed as to him, and here rendered in his favor.