Arlington Hotel Co. v. Rector , 124 Ark. 90 ( 1916 )

Wood, J.,

(after stating the facts). (1) In Wood v. Kelsey, 90 Ark. 272-277, we said: “Courts may acquaint themselves with the persons and circumstances that are the subject of the statements in the written agreement, and are entitled to place themselves in the same situation as the parties who made the contract so as to view the circumstances as they viewed them, and so as to judge of the meaning of the words and of the correct application of the language to the things described.” See also, Fort Smith Light & Trac. Co. v. Kelley, 94 Ark. 461-471; Ford Hardwood Lumber Co. v. Clement, 97 Ark. 522-532; Keopple v. National Wagon Stock Co., 104 Ark. 466; Alf Bennett Lumber Co. v. Walnut Lake Cypress Co., 105 Ark. 421.

It is an old and familiar rule that “every legal contract is to be interpreted in accordance with the intention of the parties making-it.” Paepcke-Leicht Lbr. Co. v. Talley, 106 Ark. 400-411.

In arriving .at the intention of the parties to a contract it must be considered as a whole, all of its parts being considered in order to determine the meaning of any particular part. No word should be treated as surplus-age if any meaning can be given to it that is reasonable and consistent with the other words of the contract. Railway v. Williams, 53 Ark. 58-66; Earl v. Harris, 99 Ark. 112; Phoenix Cement Sidewalk Co. v. Russellville Water & Light Co., 101 Ark. 22-27; Yellow Jacket Mining Co. v. Tegarden, 104 Ark. 573; Pittsburg Steel Company v. Wood, 109 Ark. 537.

I. Keeping in mind these elementary rules, did the parties to the contract evidenced by the consent judgment intend that the old company should pay the $600 per annum beginning with the first of January, 1907, only until the expiration of its charter, or during the term of the lease under which it held, or was it their intention that the old company should be liable for these payments as long as it or anyone deriving auv interest in any way under it occupied the Arlington Hotel site even after its charter expired?

It was but little more than five years from January 1, 1907, the date when the first payment was to be made under the contract, until the charter of the old company wóuld expire. The lease under which the old company held, expired a few months before the expiration of its charter. So the life of the old company and the leasehold estate under which the old company occupied the hotel site were not for coterminous periods. If it had been the intention of the parties to fix either one of these periods as the limit bevond which the liability of the old comnany should not extend, it seems reasonable that they .would have named specifically one or the other of these periods, for these were definite and certain and but a few years in the future.

If the parties had really intended that the company should pay the sum of $600 per annum only for a definite period of a little more than five years, the most natural way to have expressed such intention would have been to fix the liability at an aggregate sum embracing that period, to be paid in annual payments; or, to designate the sum of $600 to be paid annually, beginning the first of January, 1907, and continuing until the charter or lease of the old company expired, naming the date. If the parties had contemplated that the liability of the old company should continue until its charter expired, then they could not have intended that its liability should cease with the termination of the lease under which it held; for, as we have seen, the time when the lease expired was a few months before the time of the expiration of Cie charter life of the old company. It is manifest that the lease from the United States to S. H. Stitt & Co. was mentioned simply for the purpose of designating the hotel site as the property constituting the subject-matter of the contract between them, and not for the purpose of fixing a definite time when the liability of the old comnnny should end. If the purpose in mentioning the lease from the Government to S. H. Stitt & Co. had been to fix the time of the expiration of that lease as the time also when the liability of the old company to pay the annual sum named should cease, then the natural language would have been as follows: “As long as the Arlington Hotel Company, or its successors or assigns, shall continue to occupy the Arlington Hotel site under a lease by the United States to S. H. Stitt & Co. for a term of twenty years beginning March 3, 1892, and ending March 3, 1912.” And doubtless the language “embracing the grounds included in said lease, or any part .of said grounds, used for the purpose of operating the hotel, nr for any other purposes, as the lessee or lessees of the United States or otherwise,” would not have been added, because it was meaningless surplusage, and because the words “or for any other purposes” and “or otherwise” were entirely inconsistent with, the theory that the liability of the old company to pay $600 per annum ended when either the charter or the lease expired.

The consent judgment was doubtless drafted by the attorneys for the respective parties, and the court rendered the judgment in the language used to express their intention. The old company, its assigns or successors, could not have occupied the hotel site under its charter and the Stitt & Co. lease for ¡any other purpose than operating a hotel. Under the charter and lease then existing the old company was holding only as a lessee of the United States government, and only for the purpose of operating a hotel. But the language, “or for any other purpose as the lessee or lessees of the United .States or otherwise,” shows that the parties contemplated that the old company or its successors or assigns might occupy the hotel site under lease from the Government for some other purpose than ¡operating a hotel, and that the old company, its successors or assigns, might occupy the. site as lessee under some other lessor than the Government.

The parties who framed the consent judgment knew of course when the old company’s charter and the Stitt lease would expire; yet they used language which is absolutely incompatible with an intention to limit the annual payments to the time of the expiration of the charter or lease, and language which shows affirmatively that such was not the intention.

(2) We conclude therefore that the intention of the parties to this contract was that the old company should be liable for the sum of $600 per annum on the first day of each year, as stipulated, as long as the old company, or those who succeeded to its rights as assigns, or successors, continued to occupy the Arlington Hotel site, or any part of the grounds embraced in said site, for any purpose whatever, whether it was occupied under a lease from the United States or in any other manner, even though such occupancy continued beyond the life of the old company and the term of the Stitt lease. This construction is the correct one if effect is to be given to the language of the contract when considered as a whole, and if any meaning is to be attached to many of the words which the parties used to express their intention.- Any other construction would result in ignoring much of the language of the contract, and in treating some of the words in which the latter portion is couched as meaningless. This we can not do. Any other construction would also do' violence to the familiar rule, that where the contract is ambiguous in its term the parties will be held 'bound to the construction which they themselves have placed upon it. Hastings Industrial Co. v. Copeland, 114 Ark. 415; Clark v. J. R. Watkins Medical Co., 115 Ark. 166-176.

After the charter of the old company had expired in 1912 its officers and agents continued to occupy the Arlington Hotel site, accepting leases from the Government in the name of the old company, paying the sum named to Rector, and operating the hotel just as it had done before. And not until the -Secretary of the Interior, some two years after the expiration of its -charter, demanded that the charter be extended or renewed, did they take steps towards the organization of the new company, thus showing that it was the intention of the old company long after its charter had expired'to continue to occupy and operate the hotel just as if its charter had not expired. This conduct upon the part of the old company shows that it was not its intention to treat its 'contract with Rector as at an end when its 'charter expired. The officers of the old company knew, when the charter expired, and if they had intended -to treat the liability under the contract with Rector for payment of the $600 per annum as at an end when the charter expired it stands to reason that they then would have refused to pay -and thus have repudiated the obligation.

II. It is a well settled principle in the interpretation of contracts that where parties contract for a service that is purely personal, or with reference to the continueexistence of some particular thing 'constituting the subject matter of -the contract, -if the person dies or the thing ceases to exist, then the performance of the contract will be excused because impossible. 9 Cyc. 631; Pollock’s Principles of Contract, p. 362. See also Collins v. Woodruff, 9 Ark. 463.

Appellant invokes this rule, citing Smith v. Preston, 48 N. E. (Ill.) 688, and Janin v. Browne, 59 Cal. 44. But the rule has no application here because in the sense contemplated by the parties to the consent judgment, the old company did not die when its charter expired, but continued to exist in legal effect, at least, until the new company was organized. And because the occupancy of the Arlington Hotel site by the parties designated, which was the particular thing or subject matter of the contract between them, has not ceased. As we have seen, the parties to the contract intended that the Arlington Hotel site should be occupied by the old company or its suoces- or assigns for an indefinite period beyond the time of the expiration of its charter or the lease under which it then held.

(3) In those jurisdictions where the law limits the existence cf corporations to a certain period of time, the expiration of that period, ipso facto, would dissolve the corporation. But the general statutes under which business corporations are 'organized in this 'State do not limit the time of the existence of such corporations; nor do they require that any definite time for the existence of the corporation be specified in their articles of association declaring the purposes for which the corporation is formed. See Kirby’s Digest, sections 837 to 845, inc. The time for the existence of a corporation therefore rests primarily with the incorporators, and unless they specify a time in their articles of association, the franchise continues indefinitely. Where the statutes limit the existence of a corporation to a certain period there could not be such a thing as a de facto corporation after the time limit. But such is' not the case where the law of incorporation does not prescribe a time limit, even though a time limit may be specified by the incorporators themselves in their charter. See 2 Mor. on Corporations, section 1003; 7 R. C. L. 47-48, and eases cited in note.

(4) Mr. Morawetz, supra, says: “If the shareholders of the corporation .should preserve the corporate organization, and continue the company’s operations after the expiratin of their charter, the corporation would be a corporation de facto existing without legal right.”

In R. C. L. supra, it is said: “A corporation de facto may legally do and perform every act and thing which the same entity could do or perform were it a de jure corporation. As to all the world except-the paramount authority under which it -acts, and from which it receives its charter, it occupies the same position as though in all respects valid.”

The doctrine of our own court is: “That a corporation de facto can sue and be sued, and, as a rule, do whatever a corporation de jure can do, and none but the State can call its existence in question. ” Whipple v. Tuxworth, 81 Ark. 391.

The shareholders of the old company, -after the expiration of its charter, continued the business of operating the hotel under leases from the Government just as it had done before until the organization of the new company. The old company, therefore, to all. intents and purposes, had a corporate existence de facto up to that time. Likewise, the particular thing, the Arlington Hotel site, and the occupancy thereof, which was the subject-matter of the contract, had not ceased to exist. Furthermore, the payment of the annual sum provided for by the contract was not -a purely personal service that could be performed only by the old company.

In Janin v. Browne, supra, cited by the appellant, it is held: “Where an executory contract is of a strictly personal nature, the death of a party by whom work is to be done before its completion determines -the contract, unless what remains to be executed can certainly be done to the -same purpose by another; but where the personal representative can fairly and sufficiently execute all that deceased could have done, he may do so and enforce the contract. ’ ’

Concerning’ contracts -and their obligations, that do not involve a purely personal service, and the liabilities created by breaches or nonperformance of those contracts, there is no distinction between the contracts of individuals and corporations. In other words, the debts of corporations and the debts of individuals are alike after the death of the debtor except as to the remedy for nonpayment. •

(5) The debts or liabilities of a corporation existing at the time of its dissolution are not extinguished thereby, and, in equity, they may be collected out of the assets of the defunct corporation in the hands of the shareholders or any parties receiving the same except innocent purchasers without notice. Jones, McDowell & Co. et al. v. Ark. Mechanical & Agricultural Co., 38 Ark. 17. See, also, Worthen v. Griffith, 59 Ark. 562-575; 2 Morw. on Corp., sections 1034, 1035 ; Woods Field on the Law of Corporations, section 442, et seq.

We conclude therefore, that if it was within the power of the old corporation to create a liability to Rector in the sum named as specified in the contract it was a continuing and existing liability at the time the new corporation was formed.

III. Was it within the power of the old company to-create such liability?

The record does not disclose the nature of the claim that Rector was asserting against the old company. But the appellant does not challenge the consideration for the contract. We must assume, therefore, that whatever the nature and character of Rector’s claim, it was entirely sufficient to justify the old company in agreeing to pay the' amount specified according to the terms of the contract. It was certainly within the power -of a corporation to settle by a consent judgment a lawsuit that was pending against it.

IV. The transactions set out in the statement which led to the organization of the new company and the taking over by it of all the assets of the old company, were such, as to constitute the new .company a successor or assign of the old one.

After the expiration of the Stitt & Co. lease under which the old company held, and the expiration of its charter, it continued the business of operating the Arlington Hotel under precisely the same organization, and under lease from the Government, just as if its charter had not expired, under the same name ■and with the same officers and shareholders as it had done before. The officers and stockholders did not consider it necessary or advisable to take out a new charter. They had procured a lease from the Government for another term of twenty years and operated under that lease for a period of two years, when the Secretary of the Interior, having discovered that the time for the expiration of the charter of the old company had expired, demanded that the charter be renewed and extended. It was not until then that the shareholders of the old company took steps to organize a new company.

The new company was organized, as expressed in a resolution of its stockholders, “for the purpose of taking over all ef the assets of the former, The Arlington Hotel Company,” and to continue the business of the old company. To further this purpose, the .shareholders of the old company passed a resolution authorizing its president to convey to the new company “all the assets, property and effects, real and personal,” and to execute such deed of conveyance as may be necessary for vesting title to the property” in the new company. The resolution also provided that the consideration for these transfers was the assumption by the new company “of all indebtedness and liabilities of every kind” of the old company, and the agreement upon the part of the new company “to issue its full paid capital stock” to the holders of the stock of the old company “in exchange share for share.”

The shareholders of the new company passed a resolution accepting the transfers “of the assets, property and effects, real and personal, including .all real estate owned and held” by the eld company “in fee or by lease■hold” in Garland County, in the city of Hot Springs, and agreeing to accept the transfers of the capital stock'of its shareholders, and in consideration of all these transfers, the new company agreed to “assume each and every of its liabilities of every kind and character which are in existence at that date, * * * and to issue its full paid capital stock to the shareholders” of the old company “in exchange share for share.”

The transfers were made in pursuance of these resolutions. The deed of the old company to the new recited, among other things, “This conveyance includes all our right, title and interest in all the real estate owned by said corporation, either in fee or leasehold, which is situated in the city of Hot Springs, .Garland County, Arkansas, or in said county.” '

The lease executed by the Government to the new company, after setting forth that the period for which the .old company was chartered had expired, recited that “The Arlington Hotel'Company has again filed articles of agreement and incorporation.” And also set forth that, “by reason of the reincorporation of the said Arlington Hotel Company aforesaid, ” etc. The lease executed by the 'Government, with change of date, was but a copy of the lease that had been executed to the old company.

It was the manifest intention of all the parties concerned in these transactions to substitute the new company for the old, and to make the new company a successor to the old. Treating the old company as a de facto corporation, the transfers as set forth above from it to the new company were sufficient to constitute the latter company an assign of the former in the ordinary and literal acceptation of that term.

(6) The definition of “assign” is, “to make a right over to another, as to assign an estate, annuity, bond, etc., over to another. ’’ Seventh National Bank v. Shenandoah Iron Co., 35 Fed. 436; Richie v. Cralle, 56 S. W. 963, 108 Ky. 483; Bouv. Law Dic.; Webster’s Dic.; 1 Words & Phrases, p. 559.

Now, during all 'these transactions and before "the lease was entered into with the new company, the old company, under the act of Congress, had the right to compensation for the improvements on the Arlington Hotel site. This was a property right of great value, of which the Government could not deprive it until an opportunity had been given the old company to have compensation for these improvements in the method provided by the act of Congress. No lease could be entered into with another party until the old company had had the opportunity for compensation. The old company had never received compensation for these improvements prior to the lease to-the new company according to the method provided by the act of Congress. The old company waived this method and accepted its compensation in the transaction entered into with the new company which met with the approval of the Government as evidenced by its lease to the new company.

It would be most unreasonable to conclude that the old company, or its shareholders, would have surrendered its right to be compensated for its improvements without a satisfactory equivalent, which it received when the new company took over all of its assets, assumed all of its liabilities and issued to its shareholders the same amount of stock in the new company that they ¡had in the old.

V. The old company, in its contract with Rector made itself liable to pay annually the sum of $600 as long as it or its successors or assigns should continue to occupy the Arlington Hotel site. Appellant, the new company, as the successor of the -old company, had occupied the Arlington Hotel -site -and was occupying the same at the time of the institution of this suit, and refused to pay the annual sum when it was due. Having taken -over the assets of the old company under the arrangements above set forth, it would have been liable for the -sum named even if there had been no express agreement upon its part to pay the same.

In Hibernia v. St. Louis & N. O. Trans. Co., 13 Fed. 516, Judge Treat, speaking for the court, used this language: “The facility with which new corporations are formed under local statutes to succeed to rights of property by transfer 'from the old corporations is to be considered, and such transfers are not to be held in equity destructive of prior and existing rights. A corporation with obligations determined or undetermined can not change its name or assume the form of a new corporation, and thus escape its obligations, or relieve the new corporation of the obligations of the old. * * * It is the duty of the court to examine the whole transaction, .and to cut through mere paper transfers designed to obstruct or destroy the rights of parties. The evidence sufficiently discloses that the new corporation was a mere continuance' of the old, with substantially the same parties in interest — a mere change of name. Whether that change, with attendant transfers, was designed or not to defeat 'all outstanding demands of the old corporation, it is evident that substantially the two corporations are the same, and that the new must respond to the obligations of the old. The evidence is clear enough that there was a hidden purpose in the change of corporate existence to escape possible liabilities which equity does not tolerate. A mere change of name can not avoid obligations. The new corporation took all the property of the old, went forward with its business, had the same stockholders, except a few formal ones, was, in short, the old corporation.” See, also, Blair v. H. & K. Ry., 22 Fed. 36; Parsons Mfg. Co. v. Hamilton, 73 Atl. (N. J.) 255, and other oases cited in appellant’s brief.

The above language is appropriate to the facts of this record. True, it was used in equity proceedings, but that can make no difference, because, -under the facts discovered by the agreed statement, although the appellee sued at law upon an express promise of appellant to assume the liabilities of the old company which inured to his benefit, he was nevertheless entitled to have the principles of equity applied in considering the facts and circumstances out of which the liability arose. Organ v. Memphis & L. R. R. Co., 51 Ark. 235-259, and cases cited.

VI. (7) The facts presented do not show that the contract between Rector and the old company violated any principle ¡set forth in the Constitution and laws of the United States or of this State, nor in the decisions of their courts. These are the sources which must be consulted to determine an issue of public policy. Vidal v. Girard’s Executors, 2 How. 127-197; Elliott on Contracts, § 651 and note; Hartford Fire Ins. Co. v. Chicago, etc., Ry. Co., 62 Fed. 904 s. c., affirmed 17 C. C. A. 62, 30 L. R. A. 193; Greenhood on Pub. Policy, p. 1, rule 2,note. The burden as to this issue was on appellant. Hartford Fire Ins. Co. v. Chicago Ry. Co., supra. In the absence of proof to the contrary, we must assume that Rector was asserting a meritorious claim against the old company — one that presented a formidable obstacle to the operation of its hotel business — and that in order to remove it the old company was fully warranted in mating the contract evidenced by-the consent judgment. There is nothing in the record to show that the public weal was in any manner injuriously affected by the contract between Rector and the old company.

Affirmed.