Court Opinion

ID: 3973474
Source: CourtListenerOpinion
Date Created: 2016-07-06 10:31:45.301831+00
Date Added: 2024-06-11T07:44:03.825489
License: Public Domain

I agree with Justice HALL in affirming this case, and relative thereto make the following observations:
I think the obligatory features of the contract of subscription as to the methods of payment for the stock, for which Hollifield subscribed, are unambiguous.
That portion of the contract is as follows:
"Now, therefore, I do hereby subscribe for 62 1/2 one-tenth shares of the par value of $10.00 each, of the capital stock of said Commonwealth Bonding  Accident Insurance Company, and agree with said company to pay therefor the sum of $2,500.00, as follows: The sum of $2,187.50 I agree to pay in money, or securities satisfactory to the Insurance Department, with six per cent. interest, to said Commonwealth Bonding Accident Insurance Company, or its trustees (which goes to capital stock and surplus). * * * "
As I read it, the obligation on its face is to pay the sum of $2,500 for the stock, either in money or securities satisfactory to the Insurance Department.
According to my view, the question is: Is the liability on the subscription contract actually extinguished by the giving of securities, as shown by the acts of the parties in this record, as intended by their acts; and whether such securities are a payment for the stock as evidenced by their acts, as an alternative substitute for the actual cash? When the contract reads he may either pay in cash or approved securities, the *Page 780 
alternative nature of the payment, that is, cash or securities, adds force to the meaning that they really intended under appropriate conditions that the securities should be considered in lieu of the cash. If such a condition is sufficiently shown in this record — declaring the intention of the parties with reference to the alternative provision as controlling the method of payment — I am unable to say that the subscription contract continues to be one payable in installments, and that said securities, if shown in this record to be regarded as payment by the parties, would continue to be substituted obligations as merely continued installments of the subscription contract, instead of obligations in payment of the stock.
The question is not wholly one of renewals being a perpetuation of the same debt, but there is also involved the question, which of the alternative provisions of this contract is acted upon, as shown by the acts of the parties?
" * * * When the promoters of a corporation have made a contract in its behalf, to be performed after it is organized, it may be deemed a continuing offer on the part of the other party to the agreement, * * * and may be accepted and adopted by the corporation after such organization. * * *" Railway Co. v. Granger, 86 Tex. 355, 24 S.W. 795, 40 Am. St. Rep. 837.
Hence, when the corporation, Commonwealth Bonding  Casualty Insurance Company, came into existence, by virtue of the issuance of its charter, and said contract was in its possession and presumptively adopted by the company, it was adopted as a whole.
The contract was executed by Hollifield the 29th day of September, 1910. About that time, according to the testimony of Mills, who was the secretary of this defendant company, an organization meeting was held, and some of the officers of said proposed corporation elected.
Subsequent to the date of the contract, December 1, 1910, this defendant executed the first series of notes, with an accompanying deed of trust on 1,400 acres of land, to secure said paper. Evidently the above contract, with the paper, was in the hands of the officers of the proposed corporation prior to the date of its charter in March, 1911, for on February 6, 1911, Mills, who had been elected secretary of the contemplated corporation, wrote Hollifield that they had been advised that the State Commissioner of Insurance required a statement from two disinterested parties, placing an estimate of value on the property used in securing the balance due for Hollifield's stock subscription, Mills, the secretary, inclosed forms, for the purpose of obtaining a valuation, as indicated, and two certificates, made by two different citizens of that community, of date February 16, 1911, were sent to the preliminary organization, placing a valuation of $17 per acre upon the 1,400 acres of land embraced in the first deed of trust. After the charter was obtained, Mills continued to be the secretary of said corporation until some date in July, 1911. It is very inferable from the fact that Mills, who had nothing to do with Stuart, Harkrider  Co., was assuming duties and making requests of this particular subscriber, with reference to said securities. The date of the contract, with the subsequent date of these securities, with said contract and said securities in the possession of the corporation when chartered in March, 1911, and after the officers and directors had been elected, at least suggested to the corporation that securities had been executed which bore different dates of maturity of rather extended time, and that said subscriber was not intending at least during the life of the securities, to pay in cash for the stock. These facts apparent to the company, when obtaining the documents, were consistent with the intention of the parties in compliance with the alternative provision in the contract to pay in securities, and not in cash, at least during that period; whether you reject or admit the testimony as to what Mills did prior to the charter, as bearing upon intention.
I infer from Mills' testimony that a much larger per cent. of the stockholders gave notes in closing up their subscriptions than cash payment of stock. In testifying in regard to the mooted questions of loans (which at one time had very much bothered the company, on account of promises as to loans as well as on account of one of their own statements about loans, which they had presented to the stockholders), he said:
"The purpose was to take the stockholders' notes which were amply secured, and convert them into money from any source we could, in order to meet the stockholders' requirements. Where we could, we would negotiate the notes given for stock in the company and that would put cash into the treasury of the company."
Mills testified they did no business prior to the organization of the company and hence what notes were negotiated, given by subscribers for stock, were sold after incorporation.
These particular notes, under the first deed of trust, according to the valuation of the property, were amply secured. The second deed of trust, executed in December, 1912, was made subject to a mortgage in favor of one Darlington, for the sum of $10,000, placed upon property intervening the first and second mortgage.
Before this was done, and during the pendency of the previous notes, it is inferred that some effort was made to merge this particular company, in some manner, into another corporation called the Bankers' Guaranty Company. The record shows that an instrument of some character, with Hollifield's signature attached, providing for the sale of his stock, and authorizing B. F. Allen, Jr., to transfer the same and obtain other stock in lieu thereof in the guaranty company was testified about. Hollifield said: *Page 781 
"That is my signature there to the instrument, reciting that there was a sale made of 62 1/2 shares of the capital stock of the Commonwealth Bonding  Casualty Insurance Company, represented by certificate No. 102, to the Bankers' Guaranty Company, and authorizing B. F. Allen, Jr., to transfer that stock."
He further said: "I returned the first stock I got to the Commonwealth, and they sent me this stock afterwards," meaning the stock evidenced by the transfer signed by him. This instrument was referred to Hollifield by defendant company's attorneys, on crossexamination, producing the above testimony. Hollifield testified that the certificate with the instrument, was returned, and that afterwards they sent the particular certificate in this record in place of the former stock. Further, on cross-examination, it is true, that he said "it seems like" that he got a certificate from the Bankers' Guaranty Company. However, his remembrance as to what he got being in apparent conflict with the instrument presented to him, which Hollifield was apparently summarizing, would not destroy the right of the trial court to conclude that the Commonwealth Bonding  Casualty Company actually sent Hollifield and issued certificate of stock in the Commonwealth Company. It is to be presumed that this act was after incorporation; otherwise, you would be required to infer that an attempt was made to transfer certificates in a corporation which had never been organized.
After the execution of the second series of notes, and the cancellation of the old paper, another and different certificate of stock, signed by Mills, was actually issued and delivered to Hollifield, the subscriber, and accepted by him.
It is not shown by any fact in this record, unless you were to infer from the delivery of the stock and the fact of valuation that the Insurance Department in reality approved any securities. The Insurance Department held up the permit to this corporation to do business in this state from some time in March, 1911, when the charter was issued, to the — day of June, of that year.
For appellant's benefit, I think it is true that when this subscription contract was executed it was contemplated that the proposed corporation would be organized under section 62 of the Insurance Code of 1909, now constituting article 4956 of the Revised Statutes of 1911.
Such state companies were permitted, under section 10 of the same act, now constituting article 4734 of the Revised Statutes, to invest their funds in "first liens upon real estate, the title to which is valid, and the value of which is double the amount loaned thereon," etc. And that article 4711, of the Revised Statutes, applicable to such companies, and relating particularly to the investment of capital stock, provided by the third clause that such capital stock may consist in mortgages upon unincumbered real estate in this state, the title to which is valid, of a market value double the amount loaned thereon," etc. It is troublesome, it is true, in analyzing the statutes with reference to foreign corporations in part doing an insurance business, just what jurisdiction the Commissioner of Banking and Insurance had and to what extent securities are embraced within his jurisdiction, under the law.
If the company switched its purpose to incorporate under the Texas laws (which would have required the approval of these securities), and then incorporated under the laws of a foreign state or territory, which might not require such approval, the inference, however, is deducible that some one approved these securities, and, if the company did so, the alternative provision of the contract in its spirit was followed. It attempted first, according to this record, to issue and actually deliver a certificate of stock, as an evidence of Hollifield's right in this incorporation, though for the purpose of transfer for other stock in another corporation. Thereafter it actually issued and delivered another certificate of stock to the subscriber, which was received by him and held until the institution of this suit.
With which of these two provisions, framed in the alternative, were these two parties intending to comply? One of them expressed an obligation by payment in money; the, other by payment in approved securities.
"We recognize the rule that, in a case of doubt, courts should favor a construction which upholds the validity of the contract, but such a rule cannot apply to a case where the intent of the parties is obvious. A court cannot do violence to the plain meaning of words and the clear intent by making a contract for the parties, under the fiction of a construction." Scripps v. Sweeney, 160 Mich. 148, 125 N.W. 72.
The rule of preferred legality, as an arbitrary rule, I take it, is referable more to contracts ambiguous and susceptible to two constructions on their face.
The condition here is: The parties have a contract, one provision of which is valid, and the other void if paid by the securities signed by Hollifield. Thereafter they deal with reference to the contract, and as to its consummation. To which provision are their acts to be referred? To say that a court or a jury could not pass upon a question of this character as a question of fact, the same as any other issue, I am unable to concede.
"The terms `money paid' are very definite and plain and do not mean that stock can be sold for money to be paid, but must be sold for cash." Irrigation Co. v. Deutschmann, 102 Tex. 207, 114 S.W. 1176.
"The terms in which this section of the Constitution is expressed indicates the purpose that the assets of the corporation should be something substantial and of such a character that they could be subjected to the payment of claims against the corporation as well as to secure the shareholders in their rights in the capital stock." Glass Co. v. Antiexplo Co., 101 Tex. 434, 108 S.W. 968, 16 L.R.A. (N, S.) 520, 130 Am, St. Rep. 865. *Page 782 
Here the corporation evidently intended to, invest this subscriber with the rights of a full-fledged stockholder, in the first attempt to deliver, as well as in the last delivery of the stock. The Constitution, and the statutes thereunder, with reference to railroad securities, are complete, in preventing such stock and such securities from going into the hands of innocent purchasers upon insufficient security. Among the purposes evidently contemplated by the particular provision of the Constitution was to prevent the same thing as well as a protection to the creditors and the original stockholders, though incomplete. Where it is intended, as I believe the trial court had the right to infer from this record, viewing it as a whole, that the securities paid for the issuance and delivery of the stock, if the corporation is not insolvent and the rights of creditors have not intervened, such stock and such securities should be canceled.
This holding I do not consider in conflict with the Medlin Case, 180 S.W. 901, the Barrington Case, 180 S.W. 936, the Hill Case, 181 S.W. 219, lately decided, or any other case decided by this court. When the real basis of each of the different cases is analyzed, I can see no real contrariety.
Hence, "treating the * * * company as a foreign corporation, within the meaning of the article (1146, R.C.S. 1911), and it having been shown that the corporation was doing business in this state (when this stock was issued and delivered), the statute applied to it with full force, and prohibited the issuance of stock by it for the promissory note of the purchaser." Bank v. Falvey, 175 S.W. 836.
The Barrington Case cited, and the case of Cattlemen's Trust Co. v. Turner, 182 S.W. 438, lately decided by the Second Court of Appeals, and the Falvey Case, supra, are in accord upon the question of issuance and delivery; but the facts in each case insisted upon as showing delivery for the stock are clearly distinguishable from this case. I am not deciding this question upon conclusions of witnesses, but upon the acts of the parties, as evidencing which provision the parties were acting under.
Appellant contends that the securities canceled represent the surplus, and that the stock, on account of previous payments, has been actually paid for in cash. I think this position is wholly untenable. I am unable to see how logically and legally it can be said that because this defendant agreed to pay $2,500 for the stock (whatever its face value), and further agreed that a certain proportion paid, or agreed to be paid, would go to capital, and another proportion to surplus, that the whole amount the subscriber agreed to pay did not represent the consideration for the stock. Whatever the division of the proceeds realized upon the subscription, said proceeds were in consideration of the stock Hollifield agreed to buy. As a last analysis, he promised to pay said consideration for the stock; he did not purchase any certificates in a surplus fund; nor did he own any interest in that fund except through the medium of his stock, whatever its par value; nor did the corporation own that fund, except as a result of the purchase of the stock, which was the consideration the subscriber agreed to pay for said stock. If the $2,500 is the agreed consideration for the stock, and such stock should be void, it is wholly immaterial what agreement the parties may have made as to the disposition of the fund. Ordinarily, of course, the more surplus a corporation possesses, whether the result of subscriptions originally paid in, or thereafter earned, the stock is the representative of that surplus and is more or less valuable, in proportion to the amount of the surplus. The promise to pay $2,500 for the stock, though a part may go to surplus, I do not think divisible in a legal sense. Further, I understand it to be the invariable rule that:
"Where the agreement consists of one promise made upon several considerations (though I do not concede the consideration is even divisible in this promise) some of which are bad and some good, here, also, the promise is wholly void, for it is impossible to say whether the legal, or the illegal portion of the consideration, most affected the mind of the promisor, and induced his promise." Clark on Contracts, p. 473, and numerous cases cited.
I am unable to differentiate it in the contract as a legal proposition. I think the judgment should be affirmed.