Dunagan v. Bushey

• Decision Date: 02 December 1953
• Docket Number: No. A-4230,A-4230
• Parties: DUNAGAN v. BUSHEY et al.
• Court: Texas Supreme Court

Page 148

263 S.W.2d 148

152 Tex. 630

DUNAGAN v. BUSHEY et al.

No. A-4230.

Supreme Court of Texas.

Dec. 2, 1953.

Merrill & Scott, Houston, for petitioner.

Boyles & Billingsley and George Eddy, Houston, for respondents.

GRIFFIN, Justice.

This is a suit brought by petitioner, Dunagan, against respondents, C. W. Bushey, J. B. White and Harry L. Hill, and the First National Bank in Houston, Texas, for damages to Dunagan, individually and as a representative of the stockholders of Tem-Trol, Inc., a Texas corporation. The facts are as follows: Some time prior to April 1, 1948, Bushey and White and Hill were desirous of organizing a corporation to buy and sell goods, wares and merchandise having to do with the sale of refrigeration equipment and supplies. White approached Dunagan for the purpose of securing Dunagan to become one of the incorporators of Tem-Trol, Inc., but Dunagan refused to subscribe to any stock until the corporation should be chartered. In order to secure a charter Bushey, White and Hill formed a plan whereby they would subscribe for the $35,000 capital stock of Tem-Trol, Inc., and would pay in the sum of $18,000 cash on their stock subscription. The money was to be procured by the three incorporators through a loan for said sum. As soon as the charter had been secured the incorporators, who were named as all the directors for the corporation in the charter application, would return all their stock to the corporation, draw down the $18,000 cash and use the money to repay their note to the party lending them the $18,000. To procure funds with which to operate the corporation, they would sell the corporate stock to outside investors. Dunagan denies knowledge of this plan, but White and Bushey claim he knew about the details of the same. In order to obtain the $18,000, White and Bushey approached an officer of the First National Bank in Houston, and explained to such officer that they needed the $18,000 in order to secure a charter for Tem-Trol, Inc. They also informed this officer of the Bank that they proposed to repay the loan by selling to the corporation, after its organization, certain properties and a franchise for the sum of $18,000 and then repay the loan. The Bank made a loan for $18,000 to White, Bushey and Hill, individually, and each one signed the note to the Bank. On March 30, 1948 the Bank passed the $18,000 to the credit of Tem-Trol, Inc. and issued a deposit slip on a regular form showing this credit. This deposit slip delivered to White, et al. for use in securing the charter had thereon 'Duplicate. First National Bank, Houston, Texas. W. M. Note Teller' and was presented to the Secretary of State with the charter application. Upon such application with the deposit slip attached, and the usual accompanying affidavit of Bushey, White and Hill and that all of the $35,000 capital stock had been subscribed, and $18,000 paid in cash, the Secretary of State approved the application and issued the charter on April 1, 1948. On April 1, 1948, Bushey called Dunagan on the telephone and informed him that White was in Austin presenting the charter application and would secure the charter and called upon Dunagan for the $5,000.00 in payment for the stock in Tem-Trol, Inc. which Dunagan had agreed to purchase as soon as a charter had been secured. Bushey also told Dunagan the money was needed to pay for a carload of refrigeration equipment and machinery which was on the railroad track there in Houston, with the bill of lading attached to a draft for the purchase price of such equipment. The evidence shows this draft was in the amount of approximately $11,000. Dunagan gave two checks payable to Bushey in a total sum of $5,000 for stock in the corporation, which stock was represented as belonging to Bushey, White and Hill. No stock was ever issued to Dunagan. Other stock was sold to other parties at various dates. A Mrs. Petitt also paid in $1,000 for stock on April 1, 1948.

On April 8, 1948, White, Bushey and Hill, as directors of Tem-Trol, Inc., at a special called meeting, passed a resolution selecting The First National Bank of Houston, Harris County, Texas, as depository for the corporation, and passed a further resolution 'that all funds withdrawn from said bank shall be done by check or checks signed by C. W. Bushey and J. B. White'. On April 9, 1948, White and Bushey drew a check on the Tem-Trol, Inc. account in the Bank in the sum of $18,025.00 (the $25.00 being for interest on the $18,000.00) and payable to J. B. White and C. W. Bushey. This check was endorsed by White and Bushey and delivered to the Bank, and accepted by the Bank in payment of the loan for $18,000.00 made to White, Bushey and Hill on March 30, 1948, plus $25.00 interest. Their note stamped 'Paid' with a bank stamp used for such purpose was returned to White, et al.

Also on April 9, 1948, Bushey paid the draft against the bill of lading for the car of equipment and supplies and secured the delivery of the car to Tem-Trol, Inc. He testified that he used Dunagan's $5,000, Mrs. Petitt's $1,000 and about $4,500 of his own money, which was later repaid to him by Tem-Trol, Inc. Between April 9th and April 26th, 1948, (the date of a stockholders' meeting) White, Bushey, and Hill and their agents had sold stock to some fourteen other persons than Mrs. Petitt and Dunagan. The meeting of stockholders of Tem-Trol, Inc. was called for April 26, 1948 at the place of business of said corporation. At 10:00 a. m., April 26, 1948, White, Bushey and Hill, purporting to be 'all of the incorporators of Tem-Trol, Inc. and all of the subscribers to its capital stock entitled to notice of said meeting' had an organization meeting and passed a resolution whereby 'it was unanimously voted that all subscribed capital stock be returned to the company'. No one else participated in this first meeting although it was held in the same room where Dunagan, W. D. Petitt, and W. R. Freeman (purchasers of stock) were present. At 10:30 a. m. of the same date in the same room and with White, Bushey, Hill, Dunagan, Petitt and Freeman present, was held what purports to be 'a meeting of the stockholders thereof (Tem-Trol, Inc.) * * * for organization of said corporation, the election of directors and the transaction of such other business as may properly come before said meeting'. At this meeting the six persons last above named were elected directors, by-laws were 'accepted'; J. B. White was elected chairman, and E. D. Dunagan, Secretary. Immediately following this stockholders' meeting, at which the directors were elected, was held a directors' meeting at 11:00 a. m. of the same day. At this meeting the First National Bank was selected as depository of the corporation and C. W. Bushey and J. B. White were directed to sign all checks. 'It was voted to pay C. W. Bushey and J. B. White $7,500 in capital stock for the franchise of Frigid-Freeze and notes would be given for an additional $6,500 of capital stock. Said notes to be paid on or before two years'. On this motion Bushey and White did not vote. Bushey, White and Hill testified that they never paid to the corporation one dollar on their stock subscriptions except the $18,000.00 they individually borrowed, and that they had never been called upon by the corporation to pay for the stock subscribed. It was their plan to finance the corporation through sales of the capital stock-all of which they had voted to turn back to the corporation. The evidence reflects that Tem-Trol, Inc. did not have sufficient funds to operate its business after the $18,000 was withdrawn by Bushey, White and Hill and paid the Bank in satisfaction of their individual note. Bushey testified that between April 1 and December 17, 1948, (when the corporation ceased to do business) he, or a corporation named Better Built Equipment Company, advanced to Tem-Trol, Inc. a total of $19,243.31, of which there was repaid by Tem-Trol, Inc. all but about $1,200. The record further shows that Tem-Trol, Inc. never received a franchise from the Frigid-Freeze people. Trial was before a jury, but at the end of the evidence the trial court 'took the case from the jury and discharged the jurors and proceeded to render judgment for defendants herein'. On appeal this judgment of the trial court was affirmed. 257 S.W.2d 822. We granted a writ of error and the cause has been duly argued and submitted.

Respondents contend that petitioner has no right to maintain this suit on behalf of the corporation, or individually. The record herein shows that prior to entry of judgment by the trial court, the State, through its Attorney General, had secured a judgment forfeiting the charter of Tem-Trol, Inc. for failure to make payment of its franchise tax for the year 1949. This fact Dunagan pled in an amended original petition. Where the charter of a corporation has been forfeited, such corporation may not sue, but the stockholders of such corporation '* * * may prosecute or defend such actions in the courts as may be necessary to protect their property rights.' Humble Oil & Refining Co. v. Blankenburg, 149 Tex. 498, 235 S.W.2d 891, 894(3, 4); Pratt-Hewit Oil Corporation v. Hewit, 122 Tex. 38, 52 S.W.2d 64(2); Baldwin v. Johnson, 95 Tex. 85, 65 S.W. 171. Where the directors of a corporation are claiming the property adverse to the corporation, stockholders may maintain a suit for its recovery. Canadian Country Club v. Johnson, Tex.Civ.App., 176 S.W. 835(1, 2), writ refused; Hildebrand, Texas Corporations, Vol. 3, 77 et seq., § 701.

The directors of a corporation stand in a fiduciary relationship to the corporation and its stockholders, and they are without authority to act as such in a matter in which a director's interest is adverse to that of the corporation. The directors are not permitted to appropriate the property of...