Court Opinion

ID: 3943394
Source: CourtListenerOpinion
Date Created: 2016-07-06 10:06:43.76103+00
Date Added: 2024-06-11T14:17:02.915547
License: Public Domain

The statute under consideration makes illegal the purchase of the property of one corporation by another only when the acquisition is "for the purpose of preventing or lessening or where the effect of such acquisition tends to affect or lessen competition." The first question, then *Page 374 
is whether the allegations of plaintiff's petition show that such was the purpose or effect of the transaction set out therein. The presumption of innocence would apply, and, unless the facts stated clearly show that the transaction was unlawful, it will be presumed that the contract did not violate the law. Williams v. Talbot, 27 Tex. 159; Tucker v. Streetman,38 Tex. 71; Yates v. Houston, 3 Tex. 433. The extent to which the allegations of this petition go, in addition to the allegation of the fact of the sale, is that, at the time of the purchase of the assets of the Amarillo Company by the California Company, the Amarillo Company "had full charter powers of conducting the business of a life insurance company, in soliciting insurance," etc., and that the California Company was at that time engaged in such business in Texas. The petition alleged that, at the time of the execution of the note in 1912, the Amarillo Company was engaged in the life insurance business in Texas, and the sale of the note was made in March, 1916, so that there is no direct allegation that the Amarillo Company was actually engaged in business in 1916. The presumption of a continuation of a status is weaker than the presumption of innocence. Authorities above cited. Even if the petition sufficiently shows that the Amarillo Company was engaged in business at the time of the sale, there is no showing that but for the sale it would have continued in business and been a competitor with the California Company. It is possible that the Amarillo Company was already in process of liquidation, or that its stockholders had already, and independent of any sale to the California Company, decided to discontinue business. The company did not have to remain in business during the full term of its charter; in fact, its permit to continue in business only extends and is granted from year to year upon a satisfactory showing of its business to the commissioner of insurance. Rev.St. art. 4730. The Amarillo Company, with the consent of the insurance commissioner, might reinsure all its risks. Rev.St. art. 4737. And so far as we are informed by the petition, the stockholders of the Amarillo Company may have, prior to the sale to the California Company, decided to do this and retire from further business. The approval by the commissioner of insurance of this contract of sale suggests the probability of this condition. If this was the case, the purpose and effect of the sale was not to prevent or lessen competition. Other circumstances might possibly be stated from which the same conclusion might be drawn. It was not necessary that the pleader state in detail the circumstances of the transfer of the note, though it was not indorsed. Rev.St. art. 582; Lewis v. Bank, 204 S.W. 889; O'Connell v. Rugely, 48 Tex. Civ. App. 456, 107 S.W. 152; Word v. Elwood, 90 Tex. 130, 37 S.W. 414; Ford v. Johnston, 184 S.W. 303. Since some of the details were stated, I take it that, if they show that the plaintiff had no title to the note, the demurrer was properly sustained. However, all the facts stated may be true, and yet, under certain supposable circumstances just referred to, the contract would not have been unlawful. I think the presumption in favor of the legality of the contract should prevail.
But I am of the opinion that the demurrer was improperly sustained, even if the allegations of the petition had brought the contract of sale within the terms of Rev.St. art. 7797. Of course, under such circumstances, if the suit were brought to enforce the contract of sale, its invalidity would be a sufficient defense; but the contract itself has been consummated and furnishes only the basis of plaintiff's title to the note. Let us first consider this phase of the question, independent of any effect that the provision of the statute, which makes contracts in violation of the act "absolutely void and not enforceable," might have on it. The authorities, I think, amply sustain the proposition that where a contract, in violation of law or against public policy, has been fully executed, the courts will recognize and protect the rights and titles resulting from the execution of the contract. As between the parties themselves, when an illegal contract has been executed in whole or in part, the maxim, "Exturpi causa non oritur actio, in parl delicto melior est conditio possidentis" (Pomeroy, Equity Jurisprudence [2d Ed.] § 939), applies. The condition of the possessor referred to in the maxim "is clearly the condition of the parties with respect to their property rights created by or resulting from the contract. If the contract is still executory, the promisor is left undisturbed in possession of the money or other property which he agreed to pay or transfer. If the contract has been executed, the promisee is left undisturbed in the possession of the money or other property which has been conveyed to him." Pomeroy, § 939. If in such executed contracts the other party to the unlawful contract cannot question the title to property conveyed in execution thereof, why should some third person who has no title to the property himself, and whose only interest in the matter is in the question of title, be permitted to do so? The following Texas authorities support the proposition first above announced:
In Wegner v. Biering, 65 Tex. 511, the court says:
"When the contract has been executed without the aid of the courts by the voluntary acts of the parties, the profit of estate realized is not contaminated."
See, also, quotations to same effect from the Planters' Bank Case (16 Wall. 483, 21 L.Ed. 473), and Sharpe v. Taylor, quoted with *Page 375 
approval in De Leon v. Trevino, 49 Tex. 93, 94, 30 Am.Rep. 101.
In Patty-Joiner Co. v. City Bank, 15 Tex. Civ. App. 475. 41 S.W. 177, writ of error denied, the court approves the following proposition of law:
"The distinction between enforcing illegal contracts or contracts void as against public policy, and asserting title to property or money which has arisen from them, is clearly and distinctly drawn."
In the Northern Securities Cases (Harriman v. Northern Securities Co.)197 U.S. 297, 25 Sup.Ct. 493, 49 L.Ed. 763, and (Northern Securities Co. v. United States) 193 U.S. 197, 24 Sup.Ct. 436, 48 L.Ed. 679, where stocks in the competing lines of railway referred to in the opinion had been conveyed to said Northern Securities corporation, and the transaction was held illegal because a trust was thereby created in violation of the federal Anti-Trust Act, which declared every contract and combination falling within its provisions to be illegal, it was recognized on this principle that the title to the stocks conveyed was vested in the Securities Company, and the parties conveying the stock would not be permitted to recover it. The transaction was held illegal, but the assets of the corporation were ordered distributed in the same manner as if the acquisition of the stocks had been legal. In short, the title acquired in the illegal transaction was recognized. The conclusion of the court is summed up in this language:
"In fine, the title to these stocks having intentionally been passed, the former owners or part of them cannot reclaim the specific shares and must be content with their ratable proportion of the corporate assets."
The cause of action in this case is on the note, which has no connection with the illegal contract. The title to this note is either in the Amarillo Company or the California Company. If, as between these two, it is in the California Company, the defendant cannot question such result unless this conclusion is affected by the terms of the statute which expressly make such contracts "absolutely void and not enforceable."
I do not deny that in one sense, and perhaps in the strictest and most accurate conception thereof, the word "void" involves the idea of utter ineffectiveness in all situations and for all purposes, leaving the effect of the void transaction the same as if it had not taken place. Nor that the use of the word "absolutely" in connection does not lend strength to the contention that it was in this sense that the word was used in this statute. But the word "void" is very frequently used in legal phraseology to describe the effect of a stated set of circumstances in a sense that does not comprehend this utter nullity. In fact, the authorities assert that it is "seldom, unless in a very clear case, to be regarded as implying a complete nullity; but it is, in a legal sense, subject to large qualifications, in view of all the circumstances calling for its application and the rights and interests to be affected in a given case." Wiener v. Zweib, 105 Tex. 262, 141 S.W. 777, 147 S.W. 867; Bouvier's Law Dictionary; Words and Phrases, First and Second Series. It has been held in a number of cases that the term "utterly void," as used in legislative enactments under consideration, did not imply utter futility as between all parties under all circumstances. Burgett v. Burgett, 1 Ohio, 469, 13 Am.Dec. 634; Anderson v. Roberts, 18 Johns. (N.Y.) 526, 9 Am.Dec. 235; Fox v. Willis, 1 Mich. 325. Contracts in violation of law and those against public policy are universally described by legal authorities as being "void," "wholly void," etc., and this is true whether the statute prohibiting an act expressly so declares or not. 13 C.J. 351; 9 Cyc. p. 465. Such contracts are more than voidable; they cannot be ratified, for the contract of ratification would be subject to the same vice; and whenever they are attempted to be enforced the court will refuse its aid to that purpose; but as we have already seen, when such contracts have been executed, the titles resulting will not be disturbed, though the contracts have been denominated as being void. So that, even if the word "void," be not strictly accurate as describing the effect of such contracts, it has by long usage come to be recognized as proper in this connection, and its meaning in such connection is well understood. When therefore the Legislature declared that contracts under consideration in violation of the terms of the statutes were "absolutely void and unenforceable," I think it is a fair conclusion to say that the expression was simply used in the sense that it was customary for legal authorities to use such terms in connection with the description of the effect of an unlawful contract. If we were to apply the strictest sense of the term here, no rights or titles to real or personal property, even of innocent third persons, could come through such an executed contract and be upheld by the courts. There could be no security in property rights or titles where the chain of title may have passed from one corporation to another. I cannot believe that the Legislature intended that the enactment should have such a far-reaching and disturbing effect.
While the suit here is by one of the parties to the alleged illegal contract, the suit is not to enforce that, contract; it has been executed by the parties themselves. The title to the note alone is involved, and that has been by the acts of the parties vested in the California Company. *Page 376