Farmers Elevator Co. v. Wunschel

On Motion for Rehearing. Under different assignments of error in appellees' motion for rehearing, the statement is made that the written contract signed by E. C. Knox, John Hirschi, and the First National Bank of Iowa Park, which is copied in full in the trial judge's findings, was never introduced in evidence, and further that the same could not be given effect in this case, since Hirschi and Knox did not sign the same as directors or trustees of the defunct corporation and it was not executed at all by W. F. George and J. F. Boyd, the other directors. The record shows that at one stage of the trial one of plaintiffs' counsel offered the contract in evidence, but upon the suggestion of his co-counsel he refrained from introducing it at that time. But the statement of facts further shows that later the contract was introduced by one of plaintiffs' counsel and was copied in full by the court stenographer in the statement of facts, which statement of facts was agreed to by counsel for all parties and was approved by the trial judge.

While that contract was not executed by a majority of the board of directors, and therefore did not show on its face to be the contract of the board as a whole, and while it is further true, as found by the trial court, that the board did not execute a formal transfer of all the assets on hand to E. C. Knox as contemplated by the contract, yet the evidence further shows without contradiction that Knox, acting under that contract, actually took over all the assets and proceeded to operate the business for a period of approximately two years, all without objection from any of the directors until a complaint was later made by the trustees of mismanagement, but the services for which plaintiffs sued were rendered prior to such complaint. Furthermore, as found by the trial judge, Hirschi, in connection with other directors and creditors, caused the contract to be drawn and signed by the persons who did sign it. Further still, the execution of the contract was incidental to winding up the affairs of the defunct corporation and was within the implied authority of the board of directors without the necessity of any formal written order to that effect. Hart v. First State Bank (Tex. Civ. App.)24 S.W.2d 480, writ refused; Oil Well Supply Company v. Burk-Waggoner Oil Co. (Tex. Civ. App.) 261 S.W. 830, 831; United States v. Kemp (C.C.A.)12 F.2d 7, certiorari denied 273 U.S. 703, 47 S. Ct. 97, 71 Law Ed. 848.

Plaintiffs were not creditors of the defunct corporation, since the services for which they sued were rendered long after its charter had expired and, therefore, they could not claim any benefits of the provisions of article 1388, Rev.Civ.Statutes, and this is a complete answer to most of the complaints and arguments presented in the motion for rehearing.

In further support of the conclusion expressed on original hearing, that article 7091, Rev.Civ.Statutes, which was made the basis of the conclusion reached by the trial judge of partnership liability of all of the directors, has no application to this suit, we deem it proper to add the following observations: The provision of that statute fixing partnership liability of the directors under circumstances therein specified is an abrogation of the common law which would otherwise be applicable in such a situation, highly penal in its nature, and therefore must be strictly construed. And one invoking its benefits must bring his case within its provisions. 11 Tex.Jur. § 469, p. 132, and § 470, p. 135. That article does not purport to apply except where a corporation has forfeited its charter for failure to pay a franchise tax, and which forfeiture may be avoided under the provisions of article 7092, Rev.Civ.Statutes. We believe it manifest that it would have no application where the corporation has become defunct by the expiration of the term for which its charter was granted, and in which case the duties and obligations of the directors are as prescribed by article 1388, R.C. S., and that article relates to the handling of assets of the dissolved corporation for protection of its stockholders and creditors only.

The announcement made in the opinion of the Commission of Appeals in Burkburnett Refining Co. v. Ilseng, 116 Tex. 366, 292 S.W. 179, 181, "that the assets of a dissolved corporation will be protected in equity as a trust fund for creditors and stockholders," and other authorities cited in the motion for rehearing, to the effect that the directors will be liable for the misappropriation of such funds, are not applicable in this case, in the absence of a showing that plaintiffs were creditors of the defunct corporation and that assets belonging to the corporation on which plaintiffs had a claim as creditors of the corporation had been dissipated.

Knox, who was introduced as a witness for plaintiffs, testified without contradiction that he told plaintiff and Brown that he was taking over the business personally and, in answer to questions by plaintiffs' counsel:

"Q. Did you explain the exact terms? A. Well, to the best of my recollection, I told them how it was going to be handled.

"Q. Did you tell them the property had been turned over to you? A. I told them that I had made a contract and was taking the business over and if I pulled it through it would belong to me and if I did not, I did not know what would happen."

Upon cross-examination plaintiffs admitted, in substance, that they knew that Knox had taken over the business notwithstanding testimony on direct examination that the business continued to be run in the same manner as before. Counsel also call attention to the testimony of plaintiff Wunschel that in some instances Knox paid them for their services in cash, which he authorized them to take out of the cash drawer. Hence the recitals in our former opinion on this point will be modified to that extent. But the same can be given no controlling effect in the determination of this motion.

Appellees insist further that our former judgment should be vacated and the appeal dismissed for want of jurisdiction for two reasons: First, because interveners, Mrs. E. C. Knox and Mrs. I. N. Harrison, who were denied recovery, and the State National Bank of Iowa Park, the State National Company, and J. N. George, who were dismissed by the trial court, were not served with citation on plaintiffs' petition for writ of error. Second, for lack of service of citation on Max Wunschel of the petition for writ of error. A motion to dismiss on the first ground has heretofore been overruled on January 11, 1935, in a written opinion [79 S.W.2d 928] by Associate Justice Lattimore, and we adhere to the conclusions so reached.

As to the second ground, the record shows that Max Wunschel instituted this suit in his own name and appeared and testified in his own behalf while sane. The date of trial was May 22, 1934. On July 2, 1934, the court entered an order finding Wunschel to be of unsound mind and appointed Mr. W. W. Shuler, who had been his attorney of record in the case, guardian ad litem during the further prosecution of the suit and with all the power and authority necessary in the premises. Following that appointment, Mr. Shuler, in connection with associate counsel, has filed briefs here and appeared on oral argument when the case was submitted.

We conclude that the motion to dismiss is without merit. 3 Tex.Jur. p. 387, § 275; 4 Tex.Jur. p. 654; 32 C.J. p. 775, § 599.

And appellees' motion for rehearing is in all things overruled.

MARTIN, J., not sitting.