Brenton & McKay v. Peck

The briefs of counsel in this case failed to reach the hands of the reporter.

GILL, Associate Justice.

Chas. B. Peck filed this suit January 2, 1905, alleging that he had been appointed receiver of the La Porte Wharf and Channel Company by an order of the United States Circuit-Court sitting at Houston on August 22, 1904. That about December 20, 1904, the Improvement Company, a corporation, made and delivered to him, as such receiver, its obligation for the sum of $46,386.01, due and payable - days thereafter, and that the obligation is past due and unpaid. That on the 19th day of September, 1904, Brenton & McKay recovered judgment against the Improvement Company in th§ District Court of Harris County for $10,977, and caused an execution to be issued thereon and levied upon all of the property of the Improvement Company. That the sheriff had advertised the property for sale, and if such sale should occur the property would be sacrificed, to the great loss and detriment of plaintiff. That the Improvement Company is insolvent, or in imminent danger of insolvency. He therefore prayed that the sale be enjoined; that a receiver be appointed to take charge of the affairs and properties of the Improvement Company, and that, on hearing, plaintiff have judgment for his debt, and that the property of the company be impounded and sold for the payment of his debt.

The bill was presented to the district judge and a temporary restraining order issued. The application for the appointment of a receiver was set down for hearing in chambers for January 5, 1905.

1 Brenton & McKay answered, excepting to the bill because it showed no equity which would justify the relief prayed for, and that it showed on its face that plaintiff’s debt was unsecured and had not been reduced to judgment. It was also objected to upon other grounds. The truth of the allegations was controverted. The Improvement Company, though cited, failed to appear and resist the application.

On January 5, 1905, the court overruled the exceptions, and, after hearing evidence, appointed A. O. Blackwell receiver of the La Porte Improvement Company. Brenton & McKay have appealed from the order. Plaintiff withdrew his application for injunction, and the restraining order was dissolved January 30, 1905.

The following facts "were disclosed upon the hearing: The La Porte Improvement Company of Texas ivas duly incorporated under the laws of this State for the purpose of “purchasing land and real property, to survey off, plat or subdivide the same into town lots or acreage subdivisions, to lay out and grade streets, alleys and thoroughfares adjacent to such property, and to construct drainage, sidewalks, etc., to make such property desirable for residence, business or manufacturing purposes; to improve, sell and dispose of same, and to do any other necessary thing in aiding the purpose of platting, subdividing and selling such property.”

The company of which plaintiff was receiver, as alleged, was also a Texas corporation, its purpose being to dredge a ship channel and construct and maintain a wharf at the present site of the city of La Porte, on Galveston Bay. The two corporations were formed for the purpose of cooperating with each other in building up and developing a town and seaport at the present site of La Porte. The two corporations were formed by the same individuals, having the same interests in common in building said town and developing the harbor, and the officers' of the two companies are identical.

In pursuance of the purpose for which the two companies were formed, the Channel Company began the construction of its wharves and docks at the town of La Porte, and undertook the construction of a ship channel from what is known as Galveston Channel, in the bay, to the wharves at La Porte. The Channel Company issued its securities, defaulted thereon, and the plaintiff was appointed receiver, as alleged.

The Improvement Company, in pursuance of its corporate purposes, acquired various and sundry tracts of land upon which the town of La Porte is now established, and immediately surrounding and adjoining such town. A part of it has been subdivided into about ten thousand town lots, and there is also about six hundred acres of land in the town yet undivided. Streets and alleys have been laid out and some of the lots have been improved.

In December, 1904, the La Porte Improvement Company had become indebted to the Channel Company and its receiver in the sum sued for, and on the- day of December, 1904, executed its note for the sum as alleged. The due date thereof was as alleged in the petition. It was unsecured by any lien, and had not, at the time the receiver was appointed, been reduced to judgment.

Most of the lands of the Improvement Company were encumbered by vendor’s liens amounting to about $70,000, but the Compaq, in order to make sales and title when opportunity offered, had secured from the vendor the privilege of releasing each lot upon payment of a specified sum, the amount named in the testimony against lots on certain named streets being $25 per lot, the testimony showing that as to these lots the sum was nominal. Some of the lots had been improved and rented out. These had been released from the vendor’s lien and were unincumbered. Among these were the lots on which the offices of the company were situated. The value of these unincumbered lots is not shown, nor is the total value of its property estimated by Blackwell, the manager and executive officer of the company, except by the general statement of the witness that it largely exceeds the Improvment Company’s. indebtedness.

The property of the Improvement Company exceeded in value its indebtedness, and, though its management had taken no steps toward paying the Brenton & McICay judgment, and for about two jrears had made no sales, and paid nothing on its indebtedness for want of cash, it was still a going concern, having offices at- La Porte, an officer in charge of its affairs, and was actively conducting at said town a hotel and bathing establishment and park, owning its furniture and equipment. There was no proof that, if the property was sold under execution, it would not bring enough to discharge all the outstanding indebtedness. The only witness who testified admitted that there was no reason to hope that the property would bring more at receiver’s sale than at execution sale, unless the receiver could induce someone to put up more funds, and hold the property for a year or more, until the operation of the Dock and Channel Company, or some other uncertain event, ran up the value of the property.

The reason why the company was not pressing its real estate upon the market was because it was hoped that certain public improvements affecting that port, and then in prospect, would largely enhance the value of the property, and the company did not wish to sell at prevailing prices. Those who own a controlling interest in each concern, and direct the policies of each corporation, are desirous of holding the property of the Improvement Company until prices advance, or, at least, until time shall prove whether the expected will materialize from the causes to which they are prospectively ascribed. Brenton & McKay, by virtue of the levy of their execution, have now, upon all the real estate of the concern, a lien, subject to the vendor’s lien above mentioned.

Pretermitting the questions made by the exceptions, and especially, whether one holding an unsecured claim can place the property of a corporation in the hands of a receiver upon allegation and proof of one or more of the statutory grounds, we shall determine this appeal upon the assignment assailing the sufficiency of the evidence.

Neither of the grounds upon which the prayer is predicated is established. The testimony of Blackwell, the general manager of the Improvement Company, its highest officer in the State, and presumably familiar with its financial condition, discloses no such state of affairs as is alleged. It is true the witness states that there has been no meeting of the directors in Texas in two years; that two years’ taxes are due on the property, and have not been paid for lack of cash funds; that a floating indebtedness of the company amounting to about two thousand dollars is outstanding and unpaid for the same reason. But it is still a going concern under the active management of witness. It is operating the park, hotel and bathing pavilion, collecting rents on the improved property, and looking after and preserving the whole. It is still doing, in a small way, all that it ever did, but is not selling any property because it does not wish to do so at prevailing prices. It is not pretended that the unincumbered property will not be sufficient to discharge the Brenton & McKay judgment, or that the remainder will not sell for enough to satisfy all of the remaining outstanding indebtedness. The lots could not be sold in bulk under the execution, but must be sold separately. If the lots are worth more than the release price of each (and they are so under the testimony adduced), the ultimate collection of the receiver plaintiff’s claim is not even endangered.

The purpose to delay a sale until things yet to come may enhance the Improvement Company’s holdings is practically admitted, and the powers of a court of equity are invoked, not upon a reasonably satisfactory showing that the plaintiff will otherwise lose his debt, but in order that the defendant Improvement Company may not have its property subjected to the danger of sacrifice at public sale when it prefers to hold for higher prices.

Under the evidence adduced, it is not surprising that the defendant company submits with such complacency to a proceeding which is usuallv termed harsh and drastic, and which is generally denied except upon a clear showing of necessity. The trial court seems to have felt constrained, under the provisions of the statute, to grant the plaintiff’s prayer, because the sale of all the property under the execution would render the company insolvent. Such a result would, of course, follow, if there were no bidders at the sale, but no such prospect threatens, and the fear of a sacrifice is not shown to be more than a baseless apprehension. A company with assets greatly in excess of its liabilities, with prospects of great enhancement in value, is not likely to permit the apprehended sacrifice.

Corporations must pay their debts as other debtors, or else suffer execution as others do. And to command a diligent creditor of a solvent and going concern to stay his hand until the happening of some hoped-for contingency shall save the company from loss would be inexcusable.

Because no reason is shown requiring or justifying the appointment, the order is annulled, the bill dismissed, and the property is ordered to be returned to the possession of the company.

Reversed and dismissed.