Court Opinion

ID: 5004935
Source: CourtListenerOpinion
Date Created: 2021-10-01 01:51:37.670612+00
Date Added: 2024-06-11T08:17:14.262012
License: Public Domain

BOND, Justice
(dissenting).
The petition on which the district court of Dallas county appointed a receiver to take charge - of and administer the properties of the Lubbock Hotel Company, a corporation, in the writer’s opinion, discloses a preconceived and prearranged plan of the hotel company and its board of directors, in using a friendly junior lien holder in derogation of the rights and privileges of creditors and prior lien holders, to circumvent the statutes fixing jurisdiction of suits for the appointment of receivers for corporations, and to i>rohibit corporations from applying for re-ceiverships.
Article 2318, R. O. S. 1025, provides that “No receiver of a joint stock or incorporated company, co-partnership or private person shall ever be appointed on the petition of such joint stock or incorporated company, partnership or person”; and article 2312 provides that, “If the property sought to be placed in the hands of a receiver is a corporation whose property lies within this State, or partly within this State, then the action to have a receiver appointed shall be brought in this State in the county where the principal [office] of said corporation is located.”
The appointment of a receiver to take charge of properties belonging, to another, or in which others have a fixed statutory or contractual right, in the absence of statute, is an equitable procedure, and the powers of equity are properly invoked where it appears that the law does not afford an adequate remedy. “Equity,” it is said, “looks through the superficial fictions and acts upon the facts, giving to the latter controlling effect * * * equity looks to the substance and not the shadow, to the spirit and not the letter. * * * It seeks justice rather than technicalities, truth rather than evasion.” 17 Tex. Jur. 43.
In , the case at bar, the petition discloses that the plaintiff in the court below resides in Lubbock county; that the defendant is a private hotel corporation, incorporated under the laws of Texas, with its principal office and place of business in Lubbock county; that the note sued upon is payable in Lubbock county, and the property on which the liens exist and for which the receiver was sought is located in Lubbock county. There is not one disclosed reason alleged, showing why the petition should have been filed in Dallas county, some 400 miles distant from the residence of all the parties and the location of the properties. Corporations may waive the privilege of having their properties placed in the hands of a receiver (Bonner v. Hearne, 75 Tex. 242, 12 S. W. 38; Ripy v. Redwater Lbr. Co., 48 Tex. Civ. App. 311, 106 S. W. 474, 475; Wills Point Merc. Co. v. Southern R. I. Plow Co., 31 Tex. Civ. App. 94, 71 S. W. 292, 294); yet the purpose and effect of such waiver, where it invades the rights of prior lien creditors, becomes a material inquiry.
The Legislature requiring such proceedings to be brought in the county where the principal office of the corporation is located was not an enactment for the purpose and benefit of the corporation alone. The creditors, as well as the corporation, are interested in the question, whether the properties of the corporation shall be placed under a receivership in a distant court. The creditors have a right to appear and oppose the granting of the receivership, which right may, as was done in this case, be practically denied to them by the ex parte proceeding of filing the suit in a distant court and having the corporation to immediately enter its appearance, waive the venue of the suit, and thus secure the appointment of a receiver. The disclosed acts of the plaintiff, coupled with those of the corporation, are fairly inferable that this suit, instituted in Dallas instead of Lubbock county, was done to serve some purpose of the corporation, and not for the benefit of its creditors, who have a right in the procedure, and where the properties may be administered. Under all of the circumstances, the attempted waiver by the hotel company enters into the prearranged and preagreed plan of the directors and the-plaintiff;, who was also a director, and is ineffective to vest jurisdiction in the Dallas county court; thus appellant’s attack on the jurisdiction of the court, appointing the receiver, should be sustained.
The record reveals that, on May 25, 1932, one W. L. Ellwood, payee and assignor of the-note sued on, W. A. Myrick, Sr., and W. A. Myrick, Jr., as directors of the hotel company, passed the resolution declaring the corporation solvent, that on account of its financial difficulties it is for the best interest of the corporation that its affairs be placed in the hands of a receiver, until it can have-*281an opportunity to readjust its finances, and that, in the event suit is brought in Dallas county to place the corporation in the hands of a receiver, the corporation enter its appearance and agree to the appointment. The resolution was signed by W. A. Myrick, Jr., vice president of the corporation and plaintiff in this suit. On May 30, 1932, five days after the passage of the said resolution, W. A. Myrick, Jr., instituted this suit, and immediately the defendant hotel company, by W. A. Myrick, Sr., waived for the corporation its privilege to be sued in the district court of Lubbock county, confessed judgment, and consented to the appointment, in pursuance of the resolution of the board of directors; thereupon the court immediately •appointed C. C. Triplett, son-in-law of Myrick, Sr., and brother-in-law of Myrick, Jr., receiver, to take charge of the corporation’s properties.
In Floore v. Morgan (Tex. Civ. App.) 175 S. W. 737, it is held that the prohibition of the statute against a corporation applying for a 'receivership applies to the directors acting in its behalf. It is apparent that the plaintiff, a director of the corporation, in instituting suit, acted for the benefit of the corporation and at the instance of its board of directors. The petition discloses that the suit has for its purpose to circumvent the statutes which prohibit corporations from applying for receiverships. It is evident from the resolution quoted that the matter of filing a suit had been discussed by the board of directors, and that the suit would be filed 'in Dallas county, that it was for the best interest of the - corporation that its affairs be placed in the hands of a receiver, and to that end the plaintiff instituted suit. It is a suit 'for the corporation in furtherance of the subjects of its resolution, whatever be the name of the moving party.
Courts of chancery do not countenance shadows of the true and active movants.
Irrespective of the patent circumvention of the statutes, as the writer interprets the record, the petition on which the receivership was granted is wholly insufficient to warrant or authorize, the appointment of a receiver for the hotel company and its properties and assets, and is subject to appellant’s general demurrer. The petition does not allegó that the corporation is insolvent, or is in imminent danger of insolvency, but, on the contrary, alleges that “it has assets far in excess of its liabilities.” It affirmatively shows that the purpose of the suit is to hinder and delay its lien creditors in the enforcement of their debts, and to secure for the corporation, through the receivership, a judicial moratorium until the depression is over. It alleges that, “Although defendant’s assets are worth far in excess of its liabilities, the Hotel Company will be unable to make payment of interest and sinking fund on the bonds it owes, and that, unless a court of equity intervenes and appoints a receiver for the properties and assets of the defendant, the said bondholders, or their trustees, will foreclose on said properties of the defendant, and on account of the inability of the defendant at this time to protect the properties at the sale, such properties will be sacrificed and sold at and fo’r an inadequate sum, which will cause great and irreparable loss to the plaintiff, the defendant, the bondholders and the creditors of defendant. * * * The Hotel properties and good will are of the reasonable and fair value of $900,000, and the said properties, if conservatively operated, will be able in partly normal times to pay the outstanding indebtedness that said defendant owes * ⅜ ⅜ and in order to prevent a sacrifice of such properties, and to prevent a tremendous loss to many persons, firms and corporations during these distressful times, a receiver should be appointed to take charge of, control and possession of, all of the properties, assets, affairs and business of the Hotel Company, and that same be administered under the care and guidance of the court.”
It is well-settled law in this state that a corporation is not insolvent when its assets exceed its liabilities, or where the liabilities exceed its assets, so long as it is a going concern, conducting its business in the ordinary way, unless it is guilty of committing some positive act of insolvency. San Antonio Hardware Co. v. Sanger (Tex. Civ. App.) 151 S. W. 1104; Lyons-Thomas Hdwe. Co. v. Perry Stove Mfg. Co., 86 Tex. 143, 24 S. W. 16, 22 L. R. A. 802; State v. Trinity Life, etc., 60 Tex. Civ. App. 161, 127 S. W. 1174; College Park Elec. Belt Line v. Ide, 15 Tex. Civ. App. 273, 40 S. W. 64.
Te'sted’by the rule announced in-the cases cited, the petition 'does not show a condition of the corporation’s insolvency, or imminent danger'of insolvency; assuming the petition may show that, on account of' thé depressive condition of the times, the cor--poration is insolvent, or in imminent danger .of insolvency, and thus unable to -pay its debts from the proceeds of its operation, such is not sufficient to authorize its properties to be placed in the hands of a.receiver. There must be some allegation showing mismanagement or waste on the part of the officers of the corporation, or that the af, fail's of the corporation could be more efficiently or economically conducted by a receiver than by the officers of the corporation. Sunshine Consolidated Oil Co. v. Prechel (Tex. Civ. App.) 268 S. W. 1051, 1053; Wichita Royalty Co. v. City National Bank (Tex. Civ. App.) 36 S.W. (2d) 1057; Grand Falls Mut. Irr. Co. v. White, 62 Tex. Civ. App. 182, 131 S. W. 233; Galvin v. McConnell, 53 Tex. Civ. App. 486, 117 S. W. 211; Espuela Land & Cattle Co. v. Bindle, *2825 Tex. Civ. App. 18, 23 S. W. 819; Continental Trust, Co. v. Brown (Tex. Civ. App.) 179 S. W. 939; Ray-Featherstone Oil Co. v. Phoenix Oil Co. (Tex. Civ. App.) 268 S. W. 1032; White Star, Inc., v. English (Tex. Civ. App.) 286 S. W. 255; Floore et al. v. Morgan et al. (Tex. Civ. App.) 175 S. W. 737.
In the case of Sunshine Consolidated Oil Co. V. Prochel, supra, the petition alleged that the corporation was insolvent, hut failed to contain any allegation that there was any mismanagement, or that the receiver could manage and operate the property more successfully than the corporation. The court said: “However, it has been well settled by the decisions of this state that insolvency alone is not a sufficient ground for the appointment of a receiver. [Citing authorities.} In other words, in order to justify the appointment of a receiver a showing must be made that, in the absence of such an appointment, some serious injury will result in consequence of the handling of the property by the corporation through its duly constituted agents and representatives. The petition contains no allegation of mismanagement or waste. The mere fact that the business is being run at a loss does not necessarily imply mismanagement. It is a matter of common knowledge that in the vicissitudes of the transaction of a large business it often happens that the operation at a loss, temporarily, under some circumstances, is necessary in order to keep the business going, and to achieve successful results in the end; and the allegation that the business is being- run at a loss is a mere conclusion of the pleader, with no allegation of fact to support it. The petition contains no allegation which even suggests that a receiver, appointed by the court and acting under its orders, can manage and opei-ate the property more successfully than can the corporation itself. * * * We have considex-ed both appeals taken in this cause and have reached the conclusion that, as against a general demurrer, the petition failed to present a sufficient showing for the appointment of a receiver.”
The decisions of this state settled adversely the question as to the sufficiency of the petition to justify the appointment of a receiver under subdivision 3, art. 2293, providing that a receiver may be appointed “in cases where a corporation is insolvent or in imminent danger of insolvency.”
The only other provisions of our statutes which authorize the appointment of a receiver are the further subdivisions of article 2293, px-oviding that a receiver may be appointed “when it appears that the mortgaged prop-ei'ty is in danger of being lost, removed or materially injui-ed; or that the condition of the mox-tgage has not been performed and the property is probably insufficient to discharge the moi-tgage debt,” and “in all other cases whei-e receivers have hei-etofore been appointed by the usages of the court of equity.”
In Kottwitz v. Jehn (Tex. Civ. App.) 6 S.W. (2d) 209, it is alleged that the taxes on the property had become delinquent and suit had been filed for taxes, and averred that by foreclosure of the tax liens the property would be lost. The court held that such was not sufficient allegation to imply that the property was in danger of being lost; thus indicating that the term “lost” is not construed to relate to the taking of property under px-ior liens. In the instant case, it may be conceded that the condition of plaintiff’s mortgage has not been performed, however that does not authorize the appointment of a i-eeeiver in the absence of allegations of insolvency of the corpox-ation, or the eorpo-i-ate property being insufficient to discharge the mortgage debt. A second lien holder is entitled to a receiver to -prevent loss or waste of his security by a mortgagor, but he is not entitled to a receiver merely to delay the prior lien holders in the enforcemeixt of their rights, in the hope or with the expectation that by such delay the security will enhance in value sufficient to enable him to realize on his debt. The Legislature has enacted the method, the time, and the place for municipal corporations, such as the complainant here, to eixforce the collection of its taxes, and the hotel company, with the prior contractual lien holders, stated, in wx-iting, their solemn terms of covenant. Thus it is not within the power of courts to stay the legal provisions of legislative enactments, or abridge the right of contx-act by preventing the enforcement of the statutory and contractual methods of enforcement of their liens. The action of the court, in appointing the receiver at the instance of a second lien holder, with plenary power to administer the property in which the prior creditors have a vested statutory and contractual right to an immediate enfox-cement of the liens in the manner provided by statute and contract invades the provisions of the Legislature and the conti-acting pai-ties.
In Houston Ice & Bi-ew. Co. v. Clint (Tex. Oiv. App.) 159 S. W. 409; the court held that an action by a junior mortgagee for a receivership, as against a prior mortgagee, was not authoi-ized by any subdivision of article 2293, except subdivision 4, and that under such subdivision there must be allegations that the first moi*tgagee is doing something to impair the value of the security, and is conspiring with the mortgagor to defeat subsequent creditors. The right of the second lien holder for such appointment is based on some overt injurious act of the px-ior lien holder or the moi*tgagor, in refei’ence to the secui-ity. Thei-e is no such contention here.
In the absence of statutes, courts of equity have no jurisdiction to take the management of affairs of a corporation from its officers and commit it to the receivei-. “This remedy *283is regarded as one oí last resort * * * and a receiver will not be appointed to take possession of property and charge of business in the hands of a defendant, unless the plaintiffs right is sufficiently probable, or when it is not probable, that such property will be lost, or will sustain injury during this suit, if the same is left in defendant’s hands, or that the business will be mismanaged. * * * In order to justify the appointment of a receiver for the corporation on the application of a creditor, it should appear at least that he has a valid claim against the corporation; that there are assets applicable to its payment, and that he has exhausted his legal remedies.” 23 R. O. L. 20. It is a rule in this state that a receiver of a corporation should not be appointed, except on a clear showing that the applicant’s rights imperatively demand that there is a grave necessity for the appointment, and that the applicant has no other adequate remedy. People’s Investment Co. v. Crawford (Tex. Civ. App.) 45 S. W. 738; Bounds v. Stephenson (Tex. Civ. App.) 187 S. W. 1031.
The petition under consideration declares that the notes sued upon were originally made payable to W. L. Ellwood, and transferred by him" to the plaintiff. There is no allegation that Ellwood is insolvent and that he did not indorse the notes, or that the indorsement, if made, was valueless, and it fails to negative that plaintiff is financially able to take up and pay off all prior liens; thus failing to aver facts that his remedy on the indorsement was unavailable, or that he would be injured by loss of the security of the hotel company. Appellee does not bring himself within the equitable provisions of the statute justifying the appointment of a receiver.
Taking the whole situation as it appears in the record, especially when considered in the light of the resolution of the board of directors of the hotel company, the corporation is attempting to accomplish indirectly that which is thus beyond its jurisdiction — to stay the hand of lien holders by a court thus without jurisdiction perforce of the statute, and through a friendly second lien holder to ward off the prior lien creditor’s rights to a foreclosure and sale of the mortgaged property in the manner provided by law. In its final analysis, the petition merely shows that the hotel company is in default in the payment of taxes and in the payment of bonds, both of which are prior liens to that of plaintiff, and that he is apprehensive that the prior lien holders will foreclose their liens; that at the pi’esent time the market is unpropitious, and, if the property is sold under a foreclosure of the prior liens, it will not bring enough to satisfy such liens and pay the plaintiff his debt. They therefore ask the aid of a court of equity to interpose by a receivership and delay the prior lien holders in the enforcement of their liens until times got better, in the hope that the property may be refinanced and sold for enough to satisfy all lien holders, thus declaring a judicial moratorium against the statutory and contract lienhold-ers for the benefit of the corporation, the junior lien holder and unsecured creditors. This, in the opinion of the writer, cannot be done. As said in Continental Trust Co. v. Brown (Tex. Civ. App.) 179 S. W. 939, 944: “Hard times is not recognized in law as a ground for a receiver, nor had we ever supposed that a receiver was a panacea for the ills of a time of financial stringency. Indeed, if we were so to treat the matter, it would be equivalent to declaring a moratorium by judicial decision — a thing the Legislature of this state expressly declined to do.” So also is the holding in Kokernot v. Roos (Tex. Civ. App.) 189 S. W. 505; Commonwealth Bank & Trust Co. v. MacDonell (Tex. Civ. App.) 49 S.W. (2d) 525, and authorities therein cited.
Reviewing the record and the opinion of this court, the writer is convinced that the action of the trial court, in appointing the receiver, was unauthorized and improvidently made, and that appellant’s plea of venue of the suit and general demurrer should have been sustained; that the appeal should be reversed and the receivership vacated. So declaring, I register my dissent to the opinion of this court and the majority in overruling appellant’s motion for rehearing and its motion to certify to the Supreme Court, for an ultimate decision, the question as to whether the judgment rendered is correct