Case Name: San Antonio Irrigation Company v. Selig Deutschmann et al.
Court: Supreme Court of Texas
Jurisdiction: Texas
Decision Date: 1908-12-23
Citations: 102 Tex. 201
Docket Number: No. 1743
Parties: San Antonio Irrigation Company v. Selig Deutschmann et al.
Judges: 
Reporter: Texas Reports
Volume: 102
Pages: 201–209

Head Matter:
San Antonio Irrigation Company v. Selig Deutschmann et al.
No. 1743.
Decided December 23, 1908.
Corporation—Payment for Stock—Contract—Novation—Conversion—Unlawful Agreement.
B. & S. obtained from a city a contract for disposal of its sewage, in which D., as a promoter, was equitably entitled to a one third interest. They agreed to form a corporation to carry out the enterprise, to transfer the contract to it, and to take and pay for, each, one third of the stock; but D., whose means were limited, was to have time to pay for his shares. The stock, being issued, was offered to D. only on condition of cash payment therefor; and he refused to take it or join in transferring the contract, which B. & S., legal holders, thereupon transferred, the corporation taking it with notice of D’s rights and proceeding to carry out the undertaking. Held, that no action lay in favor of D. against the corporation for conversion of his interest in the contract; his rights therein he had surrendered in exchange for a right to take stock in that corporation and pay for it; so much of the agreement as provided that he was to receive it and have time to pay in the future was invalid, since the stock could be issued only for money or property received (Const., art. 12, sec. 6) ; so much of the agreement as was valid he had been offered the benefit of, and had refused. (Mr. Justice Williams dissenting.) (Pp. 205-208.)
Error to the Court of Civil Appeals for the Fourth District, in an appeal from Bexar County.
Deutschmann sued Bussell, Simmons, and the Irrigation Co., andr had judgment against the latter, which appealed, resulting in a modification and affirmance of the judgment. The Irrigation Co. thereupon obtained writ of error.
The judgment was ordered reversed and the cause remanded on November 27, 1907, in an opinion of the court pronounced by Mr. Chief Justice Gaines. Plaintiff in error moved to substitute a rendition of judgment in its favor; and defendant in error moved for a rehearing. The latter motion was granted, the judgment of reversal and remand set aside and the case set down for reargument, upon which, on December 23, 1908, on the opinion of a majority of the court, delivered by Mr. Justice Brown, the judgment appealed from was set aside and judgment rendered for plaintiff in error. From this ruling Mr. Justice Williams dissented, filing on the same day his dissenting opinion. The several opinions are all here published.
Ogden, Brooks & Napier, for plaintiff in error.
Where a party enters into a second agreement whereby he waives all his rights under former agreement, the first contract is thereby destroyed and a breach of the second contract by the other party, will not authorize him to revive the first contract and recover thereon.
When .a conveyance is made to named grantees “and associates” the grantees named take the absolute title and have power to convey the same. Olcott v. Gabert, 86 Texas, 121; Whatley v. Oglesby, 44 S. W., 44; Ennis v. Brown, 36 N. Y. Supp., 737; King v. Townsend, 36 N. E., 513; Greenwood v. Railway, 31 N. E., 874; Jones on Real Property and Conveyancing, sec. 223; 9 A. & E. Ency. of Law, pp. 132, 133, and notes.
Inasmuch as the defendant in error has never asserted any cause of action for being deprived of his right to take the stock in the corporation and has never tendered or offered to tender the money for the stock he agreed to take, and as nearly six years have elapsed, he could not now maintain á cause of action therefor, especially in view of his testimony, and therefore judgment should be here rendered in favor of the San Antonio Irrigation Company.
W. W. Walling, Cobbs & Hildebrand, and R. J. Boyle, for defendant in error.
It is not only necessary that the minds of the contracting parties should meet on the subject matter of the contract, but they must communicate that fact to each other, so that both know that their minds do meet, and it is only then that the mutual assent necessary to a valid contract exists, and not until then that the contract is concluded. Patton v. Rucker, 29 Texas, 402; O’Neal v. Knippa, 19 S. W., 1020; East S. F. Ins. Co. v. Perkly, 89 Texas, 604.
The promoters of a corporation can not bind the corporation by their contracts, and until such contract is approved by the corporation it is not a valid and subsisting contract, binding on the corporation. Weatherford, M. W. & N. Ry. Co. v. Ranger, 86 Texas, 350.
Purchaser from a trustee with actual or constructive notice of trust is bound by the trust, and the beneficiary has the election to proceed against the trustee for breach in selling trust property, or against purchaser with notice. Weatherford v. Boon, 17 Texas, 143; Love v. Keowne, 58 Texas, 191; Silliman v. Gano, 90 Texas, 637.
Taking the finding of the Court of Civil Appeals, this case may be reduced to the following facts, which, according to our theory of this case, must necessarily entitle the defendant in error to an affirmance of the judgment of the Court of Civil Appeals: (1) Defendant in error, Deutschmann, had a one-third interest in the franchise and the appurtenances appertaining thereto, the concession by the city being to “B. H. Bussell, J. A. Simmons & Associates,” Deutschmann being their associate. (2) The value of this interest is the amount found by the court below, to wit: $8,333.33. (3) He was deprived of his interest therein through a sale of the franchise by B. H. Bussell and J. A. Simmons to the San Antonio Irrigation Company. (4) The San Antonio Irrigation Company had notice, actual and constructive, of the interest owned by Deutschmann at the time it bought the same. (5) Deutschmann did not make any contract to convey the franchise to the San Antonio Irrigation Company. (6) Deutschmann did not sell the franchise for bonus stock. (7) There is no testimony upon which to base the proposition that Deutschmann waived his rights in the franchise by entering into a second agreement. (8) The San Antonio Irrigation Company, with full knowledge of the rights of the defendant in error, Deutschmann, encumbered the property with a debt of $145,000.
From the foregoing facts, which are conclusive upon this court, the following propositions of law are clearly established: (1) Bussell and Simmons held the legal title to said franchise and appurtenances thereto as trustees for the benefit of Deutschmann to the extent oi his one-third interest. Neil v. Keese, 13 Texas, 188; Barnett v. Vincent, 69 Texas, 687; Gardner v. Rundell 70 Texas, 456; Baylor v. Hopf, 81 Texas, 642; Odell v. Gulf, etc., Ry. Co., 22 S. W., 821; Roach v. Crume, 41 S. W., 86 (2) These three were partners, and the act of incorporation did not, of itself, convey the franchise and appurtenances belonging to the individuals to the company. McLeary v. Dawson, 87 Texas, 524; Carothers & Searight, v. Alexander, 74 Texas, 327. (3) The conveyance to the San Antonio Irrigation Company by Russell and Simmons passed the legal title subject to the equities of Deutschmann, of which the said company had full knowledge. (4) The San Antonio Irrigation Company, having notice of Deutschmann’s equity, took the property subject to the same, and became liable to him for his specific interest, or the value of same if the specific property could not be restored to him.
The corporation, having acquired the property of Russell and Simmons, who were trustees for Deutschmann, with full knowledge of the character* of the property and of the interest of Deutschmann in the same, became liable to Deutschmann for the full value of his interest. See case of Anderson v. Walker, 93 Texas, 119; Love v. Keowne, 58 Texas, 200; Bank v. Investment Co., 74 Texas, 421; Skipwith v. Hurt, 94 Texas, 331; McRae v. Smart, 114 S. W., 729.

Opinion:
Mr. Chief Justice Gaines
delivered the opinion of the court.
Selig Deutschmann brought this suit against R. H. Russell, J. A. Simmons, and the San Antonio Irrigation Company, to-recover for the appropriation and conversion of his interest in a certain franchise granted by the city of San' Antonio, which he claimed to be one-third. He recovered a judgment against the Irrigation Company for the value of his interest in the franchise, which judgment was by the Court of Civil Appeals affirmed in so far as it gave a judgment against the Irrigation Company, but reversed in so far as it gave a lien upon the company's property for the payment of the judgment.
The facts as found by the Court of Civil Appeals are that Russell and Simmons and defendant in error entered into a contract to acquire from the city of San Antonio a franchise for the disposition of the sewerage of the city, and that for his labor, assistance, and legal services in the enterprise, defendant in error was to have one-third interest in the franchise when acquired. The franchise was procured and defendant in error's interest attached. But having failed to procure the money to operate the proposed plant in exercise of the franchise, it was agreed between the promoters that they would organize a corporation to which the franchise should be transferred and that they would procure money for the prosecution of the business by the sale of stock in the corporation. The capital stock of the corporation was to be $25,000. There Avas $5,000 of stock agreed to be set apart to the promoters as a bonus, but as this was never done it is fact of no importance in the case. The defendant in error agreed to take one-fourth of the stock. He claimed that he was to have time to pay for it, Avhich Avas denied on the other side, but the Court of Civil Appeals resolved the conflict in his favor. The franchise was granted to "Russell & Simmons and their associates" and was transferred by Russell & Simmons to the corporation. But it seems that before this Avas done Russell °& Simmons Avent to defendant in error and demanded that he should subscribe for the stock he was to take and should pay fifty percent thereof on the next day. The defendant in error, claiming that he had the right under their agreement to take the stock on a credit and to pay for it. in future, declined to -accede to their request and the negotiations were broken <o£E. The Court of Civil Appeals held, it would seem upon sufficient evidence, that the purpose of Russell & Simmons Av-as to force him out of the corporation by demanding terms with aaTúcIi they kneAV he was unable to comply.
Hoav it is contended on behalf of plaintiff in error, that, the franchise having been granted to Russell & Simmons "and their associates," they held the legal title and had the poAver to convey it. Defendant in error seems not to dispute the proposition, but claims that the Irrigation Company had notice of defendant in error's rights, and therefore took the property subject to them. There is some authority Avhich seems to support the proposition. (Ennis v. Brown, 36 N. Y. Supp., 737.) It occurs to us that an affirmance of the proposition is necessary to a support of the judgment in this case; for, if Russell & Simmons were without power to convey defendant in error's interest, his title was left unimpaired by the conveyance; and Ave are unable to see how it can be claimed that it has been converted in such a way as to entitle defendant in error to recover its value. He would be left Avith title as a tenant in common to a one-third interest in the franchise Avith the rights incident to that relation.
But conceding that the legal title to his interest passed by Russell & Simmons' conveyance, and that he may elect to treat it as the extinguishment of his right and the conversion of his interest, the question is, has he been injured by such action'? When the parties found that they would- be unable with the means at hand to comply with the conditions of the concessions by the city and formed a corporation with the understanding that the' franchise should be conveyed to it, and the -charter of the corporation Avas procured and the franchise transferred in accordance with the agreement, what right had any one to complain?
It is clear to us that the • Avrong which has been inflicted upon the defendant in error was in his being deprived of his right to take stock in the corporation with the privilege of paying for it in a reasonable time.
There being no conversion of his interest in the franchise by the Irrigation Company the judgment can not stand.
We think the Court of Civil' Appeals was correct in holding that the Carter mortgage contained no power of .sale and deem it unnecessary to add to their remarks on that subject.
For the error in rendering judgment against the Irrigation C-om- ; pany for the conversion of the franchise, the judgment is reversed and the cause remanded.
Opinion filed November 37, 1907.