General Bonding & Casualty Insurance v. Moseley

The suit was one for the cancellation of a note and deed of trust upon land to secure its payment, given by the plaintiffs for shares of stock in the defendant corporation, upon the ground of fraud in the procurement of the plaintiff's subscription agreement, and because, as is claimed, the note and mortgage were not "property" within the meaning of section 6 of article 12 of the Constitution, and hence could not be accepted in payment for the stock.

It is undisputed that the mortgage was a first mortgage upon the land; that the title of the plaintiffs to the land was valid; and that the value of the land was double the amount of the note, a policy of fire insurance for $3,000 covering the buildings on the property having been delivered to the corporation with loss payable to it.

The corporation was organized under Section 62 of the Act of 1909. By the provisions of that act its capital could consist of first mortgages upon unincumbered real estate in this State, the title to which was valid and whose market value was double the amount loaned thereon exclusive of buildings, unless the buildings were insured in some responsible company and the policy or policies were transferred to the corporation. Article 4711, Revised Statutes.

The question in the case is whether the subscribers' note and first mortgage upon the land constituted "property actually received" by the corporation, within the meaning of section 6 of article 12 of the Constitution.

We held in Washer v. Smyer, 109 Tex. 398, 4 A.L.R., 1320,211 S.W. 985, that the naked note of a subscriber to the capital stock of a corporation given in payment of his subscription was not property within the intendment of the Constitution, since it was simply his promise to pay the amount of his subscription in another form. But under the established rule of decision in this court, that contract rights transferred to a corporation in payment for stock are, to the extent of their value, "property actually received" by the corporation, Cole v. Adams, 92 Tex. 171 [92 Tex. 171], (46 S.W. 790) — a decision whose soundness cannot be controverted — a subscriber's note secured by a valid first mortgage upon real estate, accepted by the corporation in payment for stock, cannot be held as other than property in the full sense of the Constitution. The corporation thereby obtains something more than the mere promise of the subscriber to pay. It obtains the right to have the land appropriated to the payment of the note. This is a valuable right, a property right, as fully so as any contract right, and, in general, as valuable as any such right. The corporation receives it and owns it. It constitutes a distinct asset in its hands; recognized, generally, as one of the most stable, desirable and easily convertible forms of property, as instanced by the Legislature's Act authrizing the capital of such corporations as this one to consist of such mortgages.

The right acquired under such mortgages is clearly property, and the law was therefore one within the power of the Legislature to enact.

The judgments of the District Court and Court of Civil Appeals are reversed and the cause remanded to the District Court for trial upon the issues of fraud.

Reversed and remanded.