Case ID: sw_136/html/1053-01.html
Source: Caselaw Access Project
Author: {"author": "BROWN, C. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

SOUTH TEXAS TELEPHONE CO. et al. v. HUNTINGTON et al.
    (Supreme Court of Texas.
    May 3, 1911.)
    1. Contracts (§ 226) — Condition Subsequent-Forfeiture.
    To constitute a condition subsequent on which a forfeiture may be declared because of a failure of its performance, the language must be clear and the condition must be created by express terms or by clear implication, and, where there is a doubt as to the meaning of the language of an instrument, it will be construed to be a covenant only.
    [Ed. Note. — For other cases, see Contracts, Cent. Dig. §§ 1033-1037; Dec. Dig. § -226.]
    2. Corporations (§ 673) — Reorganization Agreements — Construction.
    A holder of a judgment against a corporation for $35,000, constituting a lien on its property, agreed with trustees holding the property to reorganize the corporation, that he should receive the amount of his judgment in the bonds of the reorganized corporation, “it being understood as part of said agreement that the total issue of bonds * * * shall not exceed $150,-000 of which at least $50,000 in cash is to be put in extensions or additions to the property.” Held, that the provision for the investment of $50,000 was not a condition subsequent, but was a mere covenant, for the breach of which the only remedy was an action for damages.
    [Ed. Note. — For other cases, see Corporations, Dec. Dig. § 573.]
    3. Corporations (§ 573) — Reorganization Agreements — Actions for Breach — Damages.
    A holder of a judgment against a telephone corporation constituting a lien on its property agreed with trustees holding the property that the corporation should be reorganized, and that he should receive the amount of his judgment in bonds of the reorganized corporation, and that the bonds of the reorganized corporation should not exceed $150,000, of which at least $50,000 in cash should be put in extensions or additions to the property. The reorganized corporation could not comply with its promise to invest $50,-OOO without sacrificing the interest of the corporation in the sale of the bonds. The agreement to invest the $50,000 designated no extensions nor betterments. Held, that the reorganized corporation was not liable in damages for its failure to comply with its promise.
    [Ed. Note. — For other eases, see Corporations, Dec. Dig. § 573.]
    Error from Court of Civil Appeals of Third Supreme Judicial District.
    Action by H. F. Huntington and others against the South Texas Telephone Company and others. There was a judgment of the Court of Civil Appeals (121 S. W. 242) affirming a judgment for plaintiffs, and defendants bring error.
    Reversed and rendered.
    Sleeper, Boynton & Kendall, Cochran & White, and Fiset & McClendon, for plaintiffs in error. Allen & Hart, for defendants in error.
    
      
      For other oases see same topic and section NUMBER in Dec. Dig. & Am. Dig. Key No. Series & Rep’r Indexes
    
   BROWN, C. J.

In the year 1905 in the district court of Travis county, Tex., H. F. Huntington recovered a judgment against the Commercial Telephone Company, which established a lien in favor of Huntington upon all the property of the said Commercial Telephone Company to the amount of $35,-000; that on August 1, 1905, under the order of the said court, all of the said property was sold to J. H. Goeke and F. Bimel, as trustees, to hold for the benefit of a corporation thereafter to be organized, which sale was confirmed by the said district court on August 10, 1905, and the property duly conveyed to the trustees. Huntington and the said trustees made an agreement whereby the former agreed to accept $35,000 par value of the bonds of the company, which was to be organized, to take over the said property, said bonds to be secured by a first mortgage on the property and which was to be in full payment of the lien of said Huntington under the judgment against the Commercial Telephone Company. F. C. Smith was interested with Huntington in the $35,000 claim against the corporation.

The trustees proceeded to organize the South Texas Telephone Company and procured a charter therefor. It had been agreed and made a part of the decree rendered that the new company should issue bonds when organized not to exceed $150,000, $35,000 of the bonds to be delivered to Huntington as before stated, and that $50,000 out of the proceeds of the remaining $115,000 should be converted into cash and put into extensions or additions to the property. The $50,000 in cash was not invested as agreed upon, but the remaining $115,000 of bonds were unsold. Huntington charged that the investment of $50,000 in cash in the betterment of said property was a condition upon which he made the claim to accept the $35,000 of bonds in settlement of his claim, and that the company had failed to make said investment, whereby the value of the bonds that he held had been greatly reduced, to his damage. It was alleged that he feared that the officers of said telephone company would dispose of the bonds in such way as t'o prevent the indorsement of his rights, and prayed for an injunction to restrain the president of the corporation and other officers from making any sale thereof. In- so far as it may be material, the terms of these agreements and orders will be referred to in the discussion of the question presented herein. Upon the trial the court submitted to the jury the following special issues:

“(1) Based upon all the facts and circumstances in evidence in this case, has the defendant, the South Texas Telephone Company, had a reasonable time from the 9th of September, A. D. 1905, to have issued and disposed of the $115,000 of its bonds for a reasonable amount?
“(2) Did the defendant South Texas Telephone Company, through its duly authorized officers, make a reasonable and proper effort to dispose of the $115,000 of its bonds for a reasonable amount?
“(3) If you find from a preponderance of tbe evidence in tbis case that tbé defendant the South Texas Telephone Company did not dispose of said $115,000 of bonds within a reasonable time, and has made no reasonable or proper effort to dispose of the bonds for a reasonable amount, then state what would have been the value of the $35,000 of bonds belonging to the plaintiffs, had the said defendants’ duly authorized officers disposed of said bonds and used $50,000 of the proceeds of the sale, of said bonds in extensions and additions to the property of the defendant the South Texas Telephone Company?
“(4) Since the organization of the South Texas Telephone Company do you find from the evidence that there has been a time when said $115,000 in bonds of said company could not have been sold at par?
“(5) As shown hy the facts, do you find that there had been an opportunity since the organization of the defendant company and the authorization of the bond issue when said bonds could bate been sold for a price sufficient to net the company $50,000 over and above the amount of the advancement made by and the amount due the bondholders’ committee and assumed by the company?
“(6) Since the organization of the defendant South Texas Telephone Company has there been a time when said $115,000 in bonds in said company could have been sold at a reasonable price? To which issues the jury returned the following answers, to wit: To question No. 1: ‘Yes.’ To question No. 2: ‘No.’ To question No. 3: ‘$46,666.66.’ To question No. 4: ‘No.’ To question No. 5: ‘No.’ To question No. 6: ‘No.’ ”

The defendants moved the court to enter judgment in their favor upon the verdict, which the court refused to do, and entered judgment for the plaintiff against the telephone company for $46,666.66, also rescinding the contract, damages for the breach of which were sued for, canceling the bonds of Huntington and decreeing a lien in favor of the plaintiffs to secure the amount of said judgment upon the property known as the Lone Star property, and declaring said lien to be superior to all rights, claims, and liens of any parties to said suit, and further providing that no execution issue on said judgment until the Huntington bonds be deposited in court to the order of the defendant company. The remittitur for $3,500 was entered and judgment was entered for the balance.

By the majority of the court the judgment of the district court' was affirmed (121 S. W. 242), but Chief Justice Key dissented from that decision and filed an opinion in opposition thereto, in which he takes issue with the majority in holding that' Huntington was entitled to a rescission of his contract and agreements by which he accepted the $35,-000 in bonds, holding that the agreement vvas not entered into upon the condition that the-$50,000 in cash should be invested in improvements of the property of said company..

To constitute a condition subsequent' upon which a forfeiture may be declared’ because of a failure of its performance, the language must be clear, and the condition, must' be created by express terms, or- by clear implication, and it must be strictly construed. Southard v. New Jersey C. R. Co., 26 N. J. Law, 13-20. If there be doubt as= to. the meaning of the language used in this instrument, then it must be construed to be a covenant, for the law will not permit a liberal construction to be placed upon its terms in order to cause the forfeiture of a right secured by the instrument. Woodtuff v. Woodruff, 44 N. J. Eq. 349, 16 Atl. 4, 1 L. R. A. 380; Railway Co. v. Titterington, 84 Tex. 222, 19 S. W. 472, 31 Am. St. Rep. 39;

The language upon which the claim, of forfeiture is based in this case reads: “It being understood as part of said agreement that the total issue of bonds of the reorganized company shall not exceed $150,000.00;. of which at least $50,000.00 in cash is to be‘ put into extensions or additions to the property.” It will be difficult t'o deduce from this-language by the most liberal construction a conclusion that there was in the minds of the-parties at the time the intention that a failure to make the investment of $50,000, as provided for, should work a forfeiture of all the terms of that agreement or contract. But', when we apply to it the well-established1 and just rules of construction that such condition must be either expressed or clearly implied, we see no ground whatever for the conclusion that this provision ojf investment for the $50,000 was t'o serve as a condition subsequent to the executed contract made byITuntington, and therefore we must reach the conclusion that the trustees, as a consideration for Huntington’s acceptance of the $35.-000, entered into a covenant with him that the telephone company should in the future sell the $115,000 in bonds and should invest $50,000 of the proceeds thereof in extensions’ and additions to the property. The breach of the covenant did not give a right to an action for rescission of the executed contract, but the remedy which the law gives to. the parties under such circumstances is an action for damages. 6 Pomeroy’s Equity-Jurisprudence, § 686; Railway Co. v. Titterington, 84 Tex. 222, 19 S. W. 472, 31 Am. StRep. 39; Moore v. Cross, 87 Tex. 557, 29 SW. 1051. In different language we express the views of Chief Justice Key of the Court of Civil Appeals, in which we concur. It follows that the judgments of the District Court and of the Court of Civil Appeals, by which the transaction between Huntington and the trustees for the new corporation was rescinded, must be reversed, and the question arises, Shall we remand the case to the District Court for another trial, or shall we render Judgment here in favor of the plaintiffs in error?

The trial court submitted to the jury special issues upon which they returned their answers, and judgment was entered for the plaintiffs. Among other questions were the following:

“(4) Since the organization of the South Texas Telephone Company do you find from the evidence that there has been a time when the said $115,000 in bonds of said company could have been sold at par?” To which the jury answered, “No.”
“(5) As shown by the facts, do you find that there has been an opportunity since the organization of the defendant company and the authorization of the bond issue when said bonds could have been sold for a price sufficient to net the company $50,000 over and above the amount of the advancements made by and the amount due the bondholder’s committee and assumed by the company?” To which the jury answered, “No.”
“(6) Since the organization of the defendant South Texqs Telephone Company has there been a time when said $115,000 in bonds of said company could have been sold at a reasonable price?” To which the jury answered, “No.”

These findings of the jury show very clearly that under the evidence submitted to them their findings indicate that the company had not in any way made a willful default, and, in fact, it' shows that the company could not have complied with its promise to make the investment of $50,000 without a sacrifice of the interest of the company in the sale of the bonds, and, indeed, a sacrifice of the property. Besides, the whole subject of damages which might arise out of this transaction with Huntington is so vague and indefinite that we are of opinion that the district court' should have entered judgment for the defendants upon the verdict returned. The covenant to invest' the $50,000 designates no extensions nor betterment to be made, and there is nothing in the contract by which it could be determined, hence no estimate of damages could be based upon a failure to do a thing that could not be ascertained. The finding of the jury of $46,666.66 damages for the failure to make the investment is palpably without any evidence to support it or any fact's upon which to base a reasonable conclusion as to the effect of said failure upon the right of Huntington.

Under these conditions, we see no sound reason for returning this case to the trial court for further trial. It is therefore ordered that the judgments of the District Court and Court of Civil Appeals be reversed, and that judgment be here entered in favor of the defendants, the plaintiffs in error.