Cox v. Tyler Cotton Oil Co.

The two points presented by appellant are: (1) That the property in question was legally subject to attachment at the instance of appellant, and that he was entitled to have a decree of foreclosure of the lien on the property levied on; and (2) that creditors only of the corporation can object to the foreclosure of the attachment lien on the assets.

It is believed that the court did not err in holding that the property was not subject to attachment at the instance of the appellant at the time the attachment writ was levied upon it. At the time when the attachment issued, the Tyler Cotton Oil Company, a private corporation, was admittedly insolvent, owing debts above three times the value of all its assets, real and personal property. In virtue of its indebtedness, and with no ability to further carry on its business in the usual course of trade, the company actually ceased to do business and was a nongoing concern from and after the early part of June, 1924. At that time and date "the directors of the company took possession of the plant and all other property, and thereupon discharged all help, except necessary caretakers," and "said corporation thereafter remained insolvent and did not carry on any business whatever." In virtue of the situation the stockholders of the company met on July 31, 1924, under a call for the purpose, in keeping with the by-laws of the company, and at the meeting determined upon and consented to and expressly conferred authority upon the directors to make (1) the sale "of the plant of the corporation in the city of Tyler, and all of its other property, real, personal, and mixed," in order to pay "the debts of said Tyler Cotton Oil Company" due and owing; and (2) in order "that the corporation be liquidated." The board of directors of the company met on July 31, 1924, and "in all things approved" or consented to the action of the stockholders, and at the same time ordered a public sale of all the real property of the corporation, to take place on August 26, 1924, and the private sale of all the personal property, "including the choses in action." The sale was ordered by the directors for the purpose of paying "the debts of said Tyler Cotton Oil Company" and in order that "the corporation be liquidated," and at the time of the order of sale the directors were "in possession of the plant and all other property" and had "discharged all help, except necessary caretakers."

Clearly, the stockholders, with consent of the directors, in good faith actually undertook to place the property in a condition of trust, and to have sale made of all the corporate property to pay the debts due, and to bring about the "liquidation" or dissolution of the corporation on account of insolvency, and the inability of the company to continue in business. The company had actually and finally ceased to do business, by consent and authority of the stockholders and the directors. The legal effect attaching to the facts; is to fix upon the corporate property a trust primarily for the payment of the corporation debts, share and share alike, which the directors, being in actual possession of the assets, were entitled to enforce. Hardware Co. v. Perry Stove Mfg. Co.,86 Tex. 143, 24 S.W. 16, 22 L.R.A. 802; Wright v. Enless,12 Tex. Civ. App. 136, 34 S.W. 302. The directors were expressly clothed with authority by the stockholders to make appropriation and transfer of the property, to raise funds to pay the debts; and, as trustees, were actually undertaking to accomplish that purpose by taking possession of and ordering the property to be sold. In such case one creditor cannot secure an advantage over other creditors through means of an attachment. Shoe Co. v. Thompson, 89 Tex. 501, 35 S.W. 473; Rogers v. Lumber Co.,11 Tex. Civ. App. 108, 33 S.W. 312. Especially so in view of the present federal Bankruptcy Laws (U.S. Comp.St. §§ 9585-9656), for the facts present, in effect, a case constituting a general assignment for the benefit of creditors. Moody-Hormann-Boelhauwe v. Clinton Wire Cloth Co., 246 F. 653, 158 C.C.A. 609.

Quoting from the Thompson Case, supra:

"The rights of all creditors in the fund are by law fixed, so soon as the conditions arise out of which the trust relation springs. After the trust attaches, neither the corporation nor the trustees can by any act of theirs affect the rights of the creditors, and we think that it necessarily follows that no creditor can, by any act of diligence on his part, accomplish that which neither the corporation nor trustees could do by agreement with him. In such case the trust attaches in favor of creditors without acceptance by them. If one could secure an advantage * * * over other creditors, the equality of right created by law would be destroyed."

Such proceedings, in virtue of the circumstances, were not void and legally inoperative so as to warrant the levy of an attachment, even though the stockholders did not proceed, as agreed by the parties, to have the corporation "dissolved" according to the method of procedure or "in the manner provided by article 1205, Rev.Civ.Stat." The statute does not forbid or limit or restrict the right of stockholders of an insolvent corporation unable to continue in business to consent to have the corporation cease to do business, and to have the property sold through the agency of the directors, as trustees, to pay creditors.

The stockholders of an insolvent corporation which has "ceased to do business" can, independent of the terms of the statute, voluntarily pass property so as to create a fund to pay the debts due, share and share alike. It is an equitable doctrine independent of statute. In the case of Hardware Co. v. Perry, etc., Co., the court said:

"It has been held in many cases, with much reason, that such condition of affairs will confer on creditors practically the same rights as they would have under technical dissolution. Slee v. Bloom, 19 Johns. 456; Briggs v. Penniman, 8 Cow. 387; Bank v. Ibbotson, 24 Wend. 478; Carey v. Railway Co., 5 Iowa 357; Moore v. Whitcomb, 48 Mo. 543; Savings Association v. Kellog, 52 Mo. 588."

The appellant especially urges the point that the amendment of article 1206 by the Act of 1919 (Vernon's Ann.Civ.St. Supp. 1922, art. 1206) operates to "expressly abrogate the so-called ``trust fund' doctrine," and that the assets of an insolvent corporation that has ceased to be a going concern is subject to attachment, "unless such assets are drawn into a court of competent jurisdiction through receivership." The amendment does not, we think, have the effect, expressly or impliedly, contended for. The amended article is to the extent only that the "dissolution of the corporation" shall not operate to abate suits, pending or afterwards brought, and the same can be prosecuted to judgment "and the assets of said corporation shall be liable for the payment of such judgment just as if said corporation had not been dissolved." The article has especial application to solvent corporations dissolved under statutory authority, voluntary or by judicial process. The amendment was evidently brought about by reason of the doctrine applied in the following decisions: Lumber Co. v. Toole (Tex.Civ.App.) 181 S.W. 823; Transit Co. v. Walton (Tex.Civ.App.) 189 S.W. 307; Id. (Tex.Com.App.) 222 S.W. 979, and in the instant case the suit was not "abated" if the act in that sense and meaning was applicable. The appellant was allowed judgment for his claim, and the same was made payable out of "the assets of said corporation." The appellant was merely denied, in the circumstances, a preference lien over other creditors, the lien having origin in judicial process.

The second point made, before stated, cannot be sustained. The directors, as trustees and being in custody of the property, had the right, and it was their duty, to make such defenses in respect to the trust as should legally have been made. The attachment was an independent proceeding to have the property applied to appellant's claim, and in antagonism to the rights of the trustees to administer the trust. It was not coincident with, but adverse to, the proper administration of the trust.

The judgment is affirmed.