Court Opinion

ID: 9863047
Source: CourtListenerOpinion
Date Created: 2023-09-25 02:58:21.133207+00
Date Added: 2024-06-11T11:46:41.545871
License: Public Domain

SPEARS, Justice,
dissenting.
I respectfully dissent.
The legislative intent contrived by the majority opinion of the court cannot survive even casual examination. In article 7.12 of the Texas Business Corporation Act the legislature set a limit of three years on suits against officers, directors and shareholders “for any right or claim existing, or any liability incurred prior to such dissolution.” If the legislature had intended that the limit of three years also would apply to rights or claims arising after the date of the dissolution, they could easily have said so but did not. If the legislature does not mean what it says, it must say so. See Brazos River Authority v. City of Graham, 163 Tex. 167, 354 S.W.2d 99, 109 (1961). Here, the court has invaded the legislative function by judicially amending the statute and adding words that are neither contained in the language nor implicit in the words used.1 In City of Nassau Bay v. Winograd, 582 S.W.2d 505, 508 (Tex.Civ.App.—Houston [1st Dist.] 1979, writ ref’d n. r. e.), the court correctly and succinctly stated the rule:
The intention of the legislature in enacting a statute must be determined from the language of the statute as therein set out. Courts must not look elsewhere than to the language of the statute to ascertain its intent.
In A. M. Servicing Corp. of Dallas v. State of Texas, 380 S.W.2d 747, 748 (Tex.Civ.App.—Dallas 1964, no writ), the court stated:
[C]ourts may not, under the guise of construction, amend a statute by adding provisions thereto, no matter how desirable such additions might seem to the judge.
In Gilmore v. Waples, 108 Tex. 167, 188 S.W. 1037, 1038 (1916), this court observed:
A statute so plain and unmistakable leaves nothing for interpretation or construction. All that courts may do with such a statute is to observe it and enforce it. There is an omission in the law, it is true. But it is not the business of courts to supply omissions in laws.
Accord: Rawls v. Terrell, 101 Tex. 157, 105 S.W. 488, 491 (1907).
An analysis of the repealed statutes and case authorities cited in the majority opinion reveals that they all involved only pre-dissolution claims. None of the authorities cited address the question of post-dissolution claims. Even assuming arguendo that article 7.12 was intended to supplant applicability of the trust fund theory as to pre-dissolution claims, none of the authorities even implicitly support the supplanting of post-dissolution claims.
It is important to note that the trust fund theory was available to the creditor under the rules of equity which pre-existed the statutes. See, e. g., Panhandle Nat’l Bank v. Emery, 78 Tex. 498,15 S.W. 23, 24 (1890). The egregious error of the court is focused in the erroneous conclusion that the repeal *554of the cited predecessor statutes to article 7.12 abolished the trust fund theory. The Texas cases do not support this. Rather, it is clear that the trust fund theory has been recognized as an equitable principal apart from statutes which embraced it, and coexists along with the statutes. Nardis Sportswear v. Simmons, 147 Tex. 608, 218 S.W.2d 461 (1949); Burkburnett Refining Co. v. Ilseng, 116 Tex. 366, 292 S.W. 179 (1927); Lyon-Gray Lumber Co. v. Gilbraltar Life Insurance Co., 269 S.W. 80 (Tex.Comm.App. 1925, judgmt. adopted). These cases, cited in the court’s opinion, expressly recognize that the trust fund theory is available to the creditors of a corporation under either the statutes or equity. In Nardis, this court quotes from our prior decision in Burkbur-nett :
In Texas, our courts have long adhered to the doctrine that the assets of a dissolved corporation will be protected in equity as a trust fund for creditors and stockholders. In 1907 our Legislature began the enactment of remedial statutes. In 1919 other articles were added. As we construe our statutes, the Legislature has given to creditors and stockholders of a dissolved corporation the same broad measure of relief which equity would have afforded in the absence of legislation. (emphasis added) 218 S.W.2d at 455.
We further said in Burkburnett:
[I]t is probable, at all events, if the statutory remedy is incomplete, or in any set of circumstances inadequate, that equity still has jurisdiction to assist by granting additional relief. 292 S.W. at 181.
In Lyon-Gray Lumber, the court said:
[Wjhatever may be contended as to equitable processes and remedies generally, it is quite plain that equitable rights and principles have been continually a part of the law of Texas, and that among these has always been the doctrine that the creditors of a corporation, upon its dissolution, have the right to be paid out of its assets with priority to its stockholders .... To enforce rights of this nature, statutes, sometimes in aid and sometimes to the exclusion of equitable remedies, were passed by various states of this Union, whereby the debts of corporations were declared to survive their dissolution and made collectible against trustees or through receiverships or by means of the extension of corporate existence, especially for winding up. And all of these resorts amounted in substance to the same thing. 269 S.W. at 81. (emphasis added)
The court then held that the statute extending the remedy against the dissolved corporation did not operate to take away or confer any substantive right; it only supplied a form or procedure. The court then said:
Everything it [the statute] did could have been accomplished in the present case without it, though with less ease. 269 S.W. at 82.
Contrary to the view expressed in the court’s opinion, the case of State of Texas v. Liquidating Trustees of Republic Petroleum Co., 510 S.W.2d 311, 312 (Tex.1974), illustrates this court’s recognition of the trust fund theory apart from the statutes. We observed:
It is conceded by the parties that both Texas and New Mexico follow the general equitable rule that upon dissolution of a corporation, its assets constitute a trust fund for the benefit of its stockholders and creditors, with the surviving directors serving as liquidating trustees, (emphasis added)
While article 7.12 was not mentioned in the court’s opinion, it was discussed in the briefs of the parties. We ignored article 7.12, however, and found in the escheat statutes the authority to impose accountability on the trustees for funds held long after the three-year limitation of article 7.12.
That the legislative intent found by the majority is erroneous is further demonstrated by the fact that in enacting article 7.12 in 1955, the legislature did not bar or limit post-dissolution claims but allowed the language of Nardis and Burkburnett, recognizing the trust fund theory as a separate equitable remedy, to stand. This acquies*555cence by the legislature would constitute approval rather than disapproval of the continued existence of the equitable remedy. “All statutes are presumed to be enacted by the legislature with full knowledge of the existing condition of the law and with reference to it. They are therefore to be construed in connection and in harmony with the existing law.. . . ” McBride v. Clayton, 140 Tex. 71, 166 S.W.2d 125, 128 (1942).
There is still an additional reason why the legislature could not have intended the result reached by the court. Persons sustaining post-dissolution loss or injury resulting from the negligence, a defective product, or breach of warranty of the dissolved corporation are left completely without a remedy under the rule announced by the majority. Not even the legislature was so insensitive as to cut off pre-dissolution claims with no remedy at all. A cause of action for personal injury arises when the wrongful act effects an injury. Robinson v. Weaver, 550 S.W.2d 18, 19 (Tex.1977). In strict liability suits, a cause of action arises when actual physical harm to person or property occurs. Lubbock Manufacturing Co. v. Sames, 598 S.W.2d 234, 236 (Tex.1980). Under the court’s opinion here, persons injured or damaged by a defective product after the date of dissolution have no remedy at all, not even resort to the equitable trust fund theory. At the time of the enactment of article 7.12 in 1955, Texas had not yet recognized a cause of action for strict liability in products cases. It was not until McKisson v. Sales Affiliates, Inc., 416 S.W.2d 787 (Tex.1967), that this court imposed liability without fault upon manufacturers of defective products that are unreasonably dangerous under § 402A of the Restatement 2d of Torts. Even though the legislature evidenced its intent to allow injured parties a remedy to recover for pre-dissolution injuries in article 7.12 (and similarly in other statutes),2 this court, by judicially amending article 7.12 has eliminated the remedy for what the law clearly declares as actionable conduct before the injured party’s cause of action even arises.
A more classic instance of unjust enrichment is difficult to imagine, and unjust enrichment is said to be the very basis of the imposition of the trust fund theory. Norton, J.J., Relationship of Shareholders to Corporate Creditors Upon Dissolution: Nature and Implications of the “Trust Fund Doctrine of Corporate Assets,” 30 The Business Lawyer 1061, 1067 (1975). The shareholders of the Hunter-Hayes Corporation have received assets upon dissolution, in this instance, the stock of Dover Corporation, the successor corporation, and thus have sustained no financial loss. Under the court’s opinion, the burden of loss for defective products, negligence, and breached warranties has now been shifted to innocent parties. This decision is an atavistic return to jurisprudential dark ages when the imposition of a public responsibility on corporations was unheard of. See White, Edward G., The American Judicial Tradition, ch. 2, Oxford Univ. Press 1976.
This case cries out for the application of the equitable trust fund theory under which shareholders of the dissolved corporation are accountable to the creditors of the corporation to the extent of assets received upon the dissolution. If a limitation for bringing suit for post-dissolution claims is to be imposed, it should be done by the legislature as in other suits.
Further mischief is done by the court’s opinion in this case. The owners of the building have thus far been held liable for Moeller’s injuries under the rule of Bond v. Otis Elevator Co., 388 S.W.2d 681 (Tex.1965), under which the negligence of Hunter-Hayes was imputed to the building owner.*5563 Normally, the building owner may obtain indemnity from the negligent party; however, the negligent party, Hunter-Hayes, now no longer exists. The court’s holding here requires, because indemnification was not sought prior to the time the right of indemnity even arose, that indemnity is barred. Again, the established right is worthless because of the lack of a remedy-
The net effect of the court’s holding is to permit, and even encourage, the evasion of historic common law principles and sound public policy that wrongdoers respond in damages to a person injured as a proximate cause of that wrong. As some writers have openly observed, a corporation seeking to acquire another corporation should purchase only its assets in exchange for stock in the purchasing corporation. See Wallach, George I., Products Liability: A Remedy in Search of a Defendant — The Effect of a Sale of Assets and Subsequent Dissolution on Product Dissatisfaction Claims, 41 Mo.L. Rev. 321, 335 (1976). The selling corporation, left with no assets except the stock it received for the sale, distributes that stock to its own shareholders, then dissolves. By this procedure, the acquiring corporation obtains all of the benefits and assets of the dissolved corporation but none of its liabilities. The shareholders of the dissolved corporation have received value for their stock, yet are shielded from contributing to the compensation of the victims of the wrongs perpetrated by the dissolved corporation to the extent of assets received by them upon dissolution. The acquiring corporation gets only the best of its bargain, and the new shareholders lose nothing but their obligation to redress their old corporation’s wrongs. The only losers are the victims of the wrongs that were set in motion during the dissolved corporation’s existence. Such a public policy should not be countenanced by any court.
In view of the fact that the court’s opinion is now the law, it should be observed that several viable methods of permitting creditors’ recovery for post-dissolution claims are suggested by Professor Wallach in his article, supra, at pp. 335-344. One theory is the “continuation or successor” theory, under which liability is imposed on the acquiring corporation as a mere continuation of the former. Cyr v. B. Often & Co., Inc., 501 F.2d 1145, 1152 (1st Cir. 1974). A second theory is the “de facto merger” theory. Under this theory, a continuity in operations, combined with a partial continuation of ownership led the court in Shannon v. Samuel Langston Co., 379 F.Supp. 797 (W.D.Mich.1974), to find that a de facto merger had occurred. And, under facts almost identical to those in the instant case, the court in Knapp v. North American Rockwell Corp., 506 F.2d 361, 368 (3rd Cir. 1974) cert, denied 421 U.S. 965, 95 S.Ct. 1955, 44 L.Ed.2d 452 (1975), imposed liability on the former shareholders of a dissolved corporation, refusing to “allow a formality to defeat Knapp’s recovery.” Professor Wallach points out that the decision did not adhere to the traditional distinction between acquisition based on a purchase of assets and acquisition by purchase of shares, merger, or consolidation, but he applauds the decision “for refusing to exalt form over substance.”
The summary judgment in this case was granted on the sole ground that the legislature intended that article 7.12 supplant the trust fund theory as the exclusive remedy for creditors of a dissolved corporation as to post-dissolution claims. As demonstrated, that judgment is erroneous. The judgment of the court of civil appeals correctly reversed and remanded this cause for trial, and that judgment should be affirmed.
RAY, J., joins in this dissenting opinion.

. This writer previously has protested this same vice in the dissenting opinion in Ex parte John Abell, 613 S.W.2d 255, at 263 (Tex. 1981).

. An illustration of a legislative enactment designed to cut off late suits but nevertheless provide a remedy is article 5536a, limiting suits arising out of construction projects on real property to ten years.
In the 1981 Regular Session of the 67th Texas Legislature, consideration was given to several bills that would impose a time limit on suits for injuries caused by defective products. Proposals ranged from a period of years to the expiration of the product’s “useful safe life.” See, e. g., House Bill 2310.

. That phase of the case was severed, and is presently on appeal.