American Surety Co. of New York v. M-B Ise Kream Co.

• Decision Date: 28 March 1931
• Docket Number: No. 10751.,10751.
• Parties: AMERICAN SURETY CO. OF NEW YORK v. M-B ISE KREAM CO.<SMALL><SUP>*</SUP></SMALL>
• Court: Texas Court of Appeals

38 S.W.2d 118

AMERICAN SURETY CO. OF NEW YORK v. M-B ISE KREAM CO.^*

No. 10751.

Court of Civil Appeals of Texas. Dallas.

March 28, 1931.

Rehearing Denied April 25, 1931.

Appeal from District Court, Dallas County; T. A. Work, Judge.

Action by the American Surety Company of New York against the M-B Ise Kream Company and others. From that part of the judgment in favor of M-B Ise Kream Company, plaintiff appeals.

Affirmed.

Lee G. Carter, of Dallas, for appellant.

Nathaniel Jacks, of Dallas, for appellee.

JONES, C. J.

In a suit by appellant, American Surety Company of New York, against appellee, M-B Ise Kream Company, a corporation, and a number of individual defendants, a recovery against appellee was denied by the judgment rendered, but recovery was allowed against some of the defendants and denied as to others. The appeal is prosecuted by appellant only from that part of the judgment in favor of appellee. The following are the necessary facts:

In 1921, the Crystal Ice Cream Company and the Smith Ice Cream Company, corporations, separate and independent of each other, operated the business in Dallas as manufacturers of ice cream for sale to the retailer in their respective territories. During that year, A. P. McLendon began separate negotiations with the officers of each of said corporations for the purchase of each of said plants and its properties, for the purpose of operating a new ice cream company for the manufacture of ice cream. The negotiations culminated in the purchase by McLendon of the entire plants, business, and properties of these two corporations. The questions raised on this appeal are concerned only with the purchase of the Crystal Ice Cream Company, designated hereafter as the Crystal Company, though the Smith Company was taken over by McLendon at approximately the same time. A written contract for the purchase of the Crystal Company was entered into between such company and McLendon on November 21, 1921, but the sale did not become effective until December 1, 1921.

It was the intention of McLendon when he purchased these two corporations to form a corporation to be known as the M-B Ise Kream Company, and to transfer to it the purchased properties. This corporation, however, was not formed until in May, 1922, when the appellee corporation was formed and the properties and business, then being operated by McLendon, passed to appellee. During the time existing between December 1, 1921, and the organization of appellee as a corporation in May, 1922, the business was operated by McLendon under the trade-name given to the new corporation. The undisputed evidence shows that there was no consolidation of the Crystal Company with appellee by such sale, and that the new corporation was not a mere continuation of the old corporation, but that the transaction was a bona fide purchase of all the properties of the Crystal Company by McLendon, and that he operated the business as a new and independent business for approximately six months, when the properties he purchased were taken over by appellee and afterwards operated by it as a new and independent business.

The Internal Revenue Department of the United States government had a claim against the Crystal Company for delinquent income taxes for the year 1918, in the sum of $1,780.15, and also for the year 1919, in the sum of $2,631.85. The Crystal Company disputed the right to these claims, and, desiring to contest the right of the government to such claims, applied to the proper forum for the privilege of executing a bond, the effect of which would be to abate the collection of these taxes, until the issue in reference to the validity of the claims could be determined by the forum existing for such purpose. The requested abatement was allowed, and on October 6, 1921, the Crystal Company, with the American Surety Company, as surety, filed the required abatement bond, in effect guaranteeing the payment of the delinquent taxes, if the Crystal Company should be adjudged in default. In consideration for the execution of this bond by appellant as surety, the Crystal Company and its president, H. F. Owsley, expressly agreed to indemnify appellant and to pay to it any losses sustained by reason of its suretyship on the bond. The contest in reference to these taxes arose over the difference between the Internal Revenue Department and the Crystal Company as to the percentage of depreciation that should be allowed the said company as a credit on its receipts. The Crystal Company contended that this depreciation should be placed at 30 per cent.; the Revenue Department contended that it should be placed at 10 per cent. The result of the contest was that the Revenue Department prevailed, and appellant, as surety on the bond, was compelled to pay the delinquent taxes, together with interest and penalties. This payment was made by appellant July 6, 1923, by checks issued to the collector of internal revenue at Dallas, Tex., and such payment is the basis for appellant's suit. Appellant's original petition was filed December 6, 1923. Final judgment in this cause was entered in the minutes of the court November 15, 1929.

As the issues in this case in a great measure depend upon the construction of the written sales contract entered into between the Crystal Company and McLendon, we deem it best to copy the entire contract, except the formal parts, and it is:

"1. That the company agrees to sell to McLendon, and McLendon agrees to purchase from the company for the consideration of $126,000.00, to be paid by McLendon to the company, that certain ice cream manufacturing business and plant, together with delivery equipment, and cars, all factory equipment, machinery, ice machinery, office furniture, and real estate, together with such other articles and equipment as are now being used by the Crystal Ice Cream Company, located in the City of Dallas, in Dallas County, Texas, at the corner of Canton and Wharton Streets. It is further agreed that the said McLendon buy from the Crystal Ice Cream Company, all of its merchandise used in the manufacture of ice cream, such invoice to include only such merchandise as is in good condition and suitable to be used in the manufacture of ice cream at prices ruling on December 1st, 1921.

"2. It is also agreed that all accounts receivable and bills receivable of the Crystal Ice Cream Company be accepted at face value by the Crystal Ice Cream Company for collection, and are to be applied as first payment to certain stockholders of Crystal Ice Cream Company for their stock in said company, and the difference between the amounts of bills receivable and accounts receivable as of December 1st, 1921, as shown by the Crystal Ice Cream Company's books, balance of payment due to the stockholders of Crystal Ice Cream Company, to be paid in two equal payments, on May 1st and August 1st, 1922, such preferred payments bearing 7 per cent. interest.

"3. McLendon further agrees to issue stock in the M-B Ise Kream Company of Dallas, Texas, to H. F. Owsley, to the amount of $21,870, in payment of his stock in the Crystal Ice Cream Company. McLendon further agrees to accept and settle in full, all of Crystal Ice Cream Company's indebtedness, covering open accounts, bills payable, and real estate mortgage amounting to $63,570.30, as per financial statement of October 31st, 1921. It is understood that the figures covering bills and accounts receivable and bills and accounts payable, are to be settled in the same ratio, December 1st, 1921, as shown in statement of October 31, 1921.

"4. That the Crystal Ice Cream Company will furnish M-B Ise Kream Company, Dallas, Texas, with a deed and abstract covering its real estate situated at Canton and Wharton Streets, Dallas, Texas.

"5. It is further agreed that this contract shall be consummated and the purchase and sale completed by the delivery of the possession of said property and premises, together with the payment of the said purchase price by McLendon, within 10 days of date hereof. Unless otherwise specified in the foregoing paragraphs of this contract. It being understood that all proper and necessary action by the Board of Directors of the Crystal Ice Cream Company shall be had and done of the proper and legal carrying out of this contract, and that proper instrument in writing conveying said property shall be duly executed and delivered."

The financial statement of the Crystal Company for October 31, 1921, referred to in the contract, showed an indebtedness consisting of notes payable and accounts payable of $52,070.30, and a real estate mortgage indebtedness of $11,500, making a total indebtedness, as shown by said statement, of $63,570.30. The undisputed evidence shows that, at the time the deal was closed on December 1, 1921, the accounts payable by the Crystal Company had been reduced by payments of the Crystal Company $1,867, and that the bills payable had been reduced to some extent by monthly payments on certain outstanding notes, so that the indebtedness actually existing at the time the deal was closed, as shown by said statement, was $61,053.50. This decrease of indebtedness was taken care of by a corresponding increase in the deferred payments. All of this indebtedness was paid by McLendon.

The undisputed evidence also shows that the books of the Crystal Company did not carry the item of indebtedness for delinquent taxes claimed by the Internal Revenue Department, and that such item was not embraced in the financial statement of October 31, 1921, nor in the itemized list of such indebtedness furnished to McLendon. The undisputed evidence shows that, at the time of this sale, the Crystal Company was a solvent going corporation. The plant and buildings used in connection with its business were located in the city of Dallas at the corner of Canton and Wharton streets on a lot owned by the Crystal Company, which was transferred by deed of such company to A. P. McLendon on December...