English Freight Co. v. Knox

• Decision Date: 03 May 1944
• Docket Number: No. 9433.,9433.
• Parties: ENGLISH FREIGHT CO. v. KNOX.
• Court: Texas Court of Appeals

180 S.W.2d 633

ENGLISH FREIGHT CO. v. KNOX.

No. 9433.

Court of Civil Appeals of Texas. Austin.

May 3, 1944.

Rehearing Denied May 24, 1944.

COPYRIGHT MATERIAL OMITTED

Appeal from District Court, Travis County; Roy C. Archer, Judge.

Action by Will G. Knox, receiver of and for United Employers Casualty Company, against English Freight Company for additional premiums and debits due on insurance policies. Judgment for plaintiff, and defendant appeals.

Affirmed.

Callaway & Reed and O. D. Montgomery, all of Dallas, for appellant.

Renne Allred, Jr., of Austin (Devereaux Henderson, of Houston, of counsel), for appellee.

BLAIR, Justice.

Appellee, Will G. Knox, as Receiver of United Employers Casualty Company, sued appellant, English Freight Company, a corporation, for $14,529.17 as additional premiums and debts due on three policies of insurance issued by UEC to C. T. English, an individual doing business as English Freight Company before he incorporated his business under the same name, and on a fourth policy on which appellant corporation admitted liability. Appellee alleged that appellant corporation assumed all of the liabilities of English on policies issued to him; and that having acquired all of the assets the corporation became liable for all of the debts of the individual English business. Appellant denied that it assumed such policy liabilities, and pled the two-year statute of limitation. The trial to the court without a jury resulted in judgment for appellee as prayed; hence this appeal.

The three policies issued by UEC to C. T. English were on standard forms of workmen's compensation and employer's liability policies prescribed by the Insurance Commission. The premium and debit liabilities established thereon were based 1) upon additional premiums due because of improper classifications of employees thereunder; and 2) upon a "debit charge", which arose from the loss experience of the policyholder, and which, if greater than the average, increased, on a percentage basis determined by the Commission, the normal or manual rate stated in the policies. The amount of the liabilities fixed by the judgment on the three policies issued to C. T. English is not contested.

On the issue of the assumption of the liabilities for the premiums and debits due on the policies, appellant corporation presents numerous contentions, which are here considered under four groups of points as follows:

Point 1. That appellant corporation did not assume the premium and debit liabilities on the policies issued to English.

Point 2. That if appellant corporation did assume such liabilities on two of the policies, the suit of appellee thereon was barred when filed under the two-year statute of limitation.

Point 3. That agreements were made between English and appellant corporation on the one hand, and the UEC on the other, for certain classifications of employees under the policies involved and the payment of premiums on such classifications, and which had been fully executed; and that the receiver as representative of UEC could not repudiate such agreements though illegal, and could not cause them to be adjudicated herein.

Point 4. That as applied to the rates, classifications and debits here involved the Workmen's Compensation Statutes are unconstitutional under the due process clauses of both the State and the Federal Constitution, in that they failed to provide for notice and hearing before the orders of the Insurance Board were made, and failed to make any provision for an appeal to the court from such order. And alternatively it is contended that the debit liabilities sought to be recovered herein were illegal and arbitrarily assessed by the Insurance Board, and were assessed without notice to appellant.

With respect to Point 1, the facts fully support the findings and conclusions of the trial court that appellant corporation began operation of the incorporated business of English on October 21, 1939, and that on that date it assumed the liabilities of C. T. English dba English Freight Company on the three policies issued to him. The facts will be stated in substance.

Prior to October 21, 1939, C. T. English, an individual dba English Freight Company, owned and operated as sole manager a large common carrier motor truck freight business over the Texas highways, under a certificate issued to him by the Texas Railroad Commission. He also operated interstate under a certificate issued to him by the Interstate Commerce Commission. On October 21, 1939, English incorporated his individual business, using the same name, English Freight Company, for the corporation as he had used for his individual business. At this time English, under the guise of the corporation, took over as sole manager of the corporation, and continued the operation of his former individual business, which the court found he incorporated for the purpose of attempting to defeat his liabilities on the policies here sued upon. The private business was not sold to the corporation, but its charter recited that all the properties of the private business were received in consideration of the issuance of $300,000 of stock, all of which, except two qualifying shares of $25 each, went to English. The same equipment and business facilities were used after the incorporation as were used by the individual business of English. The assets and properties of the individual business constituted the sole assets of the corporation. The place of business remained the same, and the agents and employees of the individual business were retained by the corporation from the date of its incorporation, on October 21, 1939. It took out a policy of insurance on some of its employees, which was dated October 21, 1939, and was effective until October 21, 1940. On March 1, 1940, in a sworn application to the Interstate Commerce Commission, there appears over the signature of Clarence T. English, signing individually and as president of the corporation, the statement: "Clarence T. English, the individual, trading as English Freight Company, has merely incorporated his business." The corporation operated under the state and federal certificates issued to C. T. English until after the death of English in 1941. Nothing was said or done about the debts and liabilities of the individual business of English at the time it was taken over and operations began under the guise of the corporation, and the corporation assumed them as a matter of law under the rule stated in 10 Tex.Jur., 1016, § 353, as follows:

"In absence of an express undertaking to pay the debts of a predecessor, there is a presumption that it was intended that a corporation organized to take over all the assets of its predecessor should assume its liabilities also."

Also, under the facts detailed, the corporation was merely the alter ego of English or his individual business, and the rule stated in 18 C.J.S., Corporations, 522, 523, § 121, is applicable. It reads as follows:

"Where an individual or sole trader organizes a corporation to take over his business and all his assets, and it becomes in effect merely the alter ego of the incorporator, the corporation, either on the grounds of implied assumption of the debts or on the grounds that the business is the same and is merely being conducted under a new guise, is liable for the incorporator's preëxisting debts and liabilities."

Numerous Texas cases have adopted this rule, among which are: Victoria Gravel Co. v. Neyland, Tex.Civ.App., 114 S.W.2d 415, writ dismissed; Maffi v. O'Neil, Tex. Civ.App., 138 S.W.2d 134, affirmed Wellington Oil Co. of Delaware v. Maffi, 136 Tex. 201, 150 S.W.2d 60; Hunger v. Toubin Bros., Tex.Civ.App., 164 S.W.2d 765, writ dismissed; Cattle Raisers' Loan Co. v. Sutton, Tex.Civ.App., 271 S.W. 233; East Texas Title Co. v. Parchman, Tex. Civ.App., 116 S.W.2d 497.

The further contention made under Point 1 is not sustained. It is that the corporation did not begin operation of the English business until January 1, 1940, at which time a written instrument of that date transferred and assigned the assets of the English business to the corporation; and that Paragraph 3 of the instrument limited the liability of the corporation for the debts of the English business as follows:

"English Freight Company agrees to assume and pay all of the liabilities shown on Exhibit A as above referred to, which are specifically identified by said books of the English Freight Company, the new corporation, and Clarence T. English."

In arguing to this point, appellant states that "it was not within the contemplation of the parties that there would or could be any claim for additional premiums on the policies issued to C. T. English," and in consequence there could be no intention to assume such liabilities.

Having assumed the debts of the private business of English as of October 21, 1939, the parties to the incorporation of it could not subsequently limit the liability of the corporation to certain debts as appellant contends was done by the written instrument of January 1, 1940. The corporation was merely the alter ego under the guise of which English continued his private business. In consequence, to permit him to limit the liability of the corporation to the payment of certain debts would simply permit him to contract with himself not to pay the debts of his private business. To permit the corporation by subsequent contract with English to limit its liability for debts already assumed at the time of incorporation, would also permit it to contract with itself, as concerns creditors whose debts it had already assumed, not to pay them.

Moreover, the proof of appellant did not show that the debts sued upon by appellee were by Paragraph 3 of the assignment excluded from the debts expressly assumed thereby. On the contrary, the proof offered would support a finding and conclusion of the trial court that the corporation thereby assumed in writing the liabilities of...