Enterprise Trading Co. v. Bank of Crowell

• Decision Date: 09 May 1914
• Docket Number: (No. 602.)
• Citation: 167 S.W. 296
• Parties: ENTERPRISE TRADING CO. et al. v. BANK OF CROWELL.
• Court: Texas Court of Appeals

167 S.W. 296

ENTERPRISE TRADING CO. et al. v. BANK OF CROWELL.

(No. 602.)

Court of Civil Appeals of Texas. Amarillo.

May 9, 1914.

Appeal from District Court, Foard County; J. A. Nabers, Judge.

Action by the Bank of Crowell against the Enterprise Trading Company and others. Judgment for plaintiff, and defendants appeal. Reversed and rendered in part and affirmed in part.

J. R. Stubblefield, of Eastland, and Cooper Sansom, of Georgetown, for appellants. Robert Cole and G. W. Walthall, both of Crowell, and Crudgington & Works, of Amarillo, for appellee.

HENDRICKS, J.

This suit was instituted by the appellee, a banking copartnership, against the Enterprise Trading Company, alleged to be a corporation, P. S. Witherspoon, S. L. Cleaves, Frank Carrothers, and W. F. Magee, the appellants herein, in the district court of Foard county, praying for a judgment against the appellants, Witherspoon, Cleaves, Carrothers, and Magee, for the amount, principal, interest, and attorney's fees, due on a certain note executed by Witherspoon and Cleaves to plaintiff, the suit against said Carrothers and Magee having been based on an alleged verbal promise made by Carrothers to pay said note, and also allegations in the alternative against some of said appellants for the value of 10 shares of corporation stock held as collateral by plaintiff to the note above mentioned, alleging a conversion of a portion of the stock of goods by defendants Carrothers and Magee, owned by said Enterprise Trading Company.

Cleaves and Witherspoon, the latter as surety, executed the note in favor of the appellee bank, and Cleaves pledged to said bank, as collateral security, 10 shares of stock in the R. N. Magee Company, a private corporation, afterwards the Enterprise Trading Company, to secure the payment of said promissory note, and the record developes that in 1912, while the principal of said note was unpaid, and while the stock was still held as collateral security by said bank, the corporation, the Enterprise Trading Company, through its directors, commissioned and authorized the manager of the corporation "to make a sale of the dry goods * * * owned by it in bulk, for the sum of $11,000, or the invoice price of said goods, and to take in payment thereof cash or notes, or certificates of stock, in such manner as may be authorized by law, for the purpose of securing and eventually paying off" the creditors of said corporation.

At this time W. F. Magee was the president of this corporation, and F. W. Carrothers was a stockholder and director of the same, and negotiations in that year were thereafter entered into with other parties in a different part of the state, organizing a similar corporation, for the sale of the dry goods of said Enterprise Trading Company, to said new corporation, and to take in consideration for such sale the stock in said new corporation, the Thorndale Mercantile Company, which was finally consummated for $10,000 of the par value of said stock, and a note for $908.67, executed by one Gore, and which was 80 per cent. of the inventory cost of said dry goods. Some time in 1912, we presume during the pendency of the negotiations, and at a time when the goods were boxed preparatory to shipment, it developed that the Bank of Crowell, which was the pledgee of the 10 shares of stock in said Magee corporation, or Enterprise Trading Company, as collateral to said note, was remonstrating against the shipment of said dry goods and the removal of the same from the town of Crowell, and during this condition Mr. Carrothers, the appellant herein, discussed the matter with Mr. McFarland, the manager and acting vice president of said Bank of Crowell. Mr. McFarland testified:

"I told Mr. Carrothers when he came into the bank that I was not willing for the goods to be moved from here. He * * * said that the business was not doing much good here (meaning at Crowell), and that he and Magee would take the stock of goods down to Williamson or Milam county and organize another company down there, or put it in another concern down there, and if they would be permitted to move the goods, and if I would not object to them moving them, they would pay me my money within 60 or 90 days. I told Mr. Carrothers the situation we were in with regard to this note with the stock attached, and told him that I would take legal steps to protect my rights."

Mr. McFarland agreed to forbear the institution of any suit in regard to the removal of the goods, and Mr. Carrothers promised that he would pay, or see that it was paid, the note executed by Cleaves and Witherspoon to the bank. The bank, in consideration of Carrothers' promise, did not institute the suit; the goods were shipped to a different part of the state, and transferred to the new corporation at 80 cents upon the dollar, and for which $10,000 of stock was issued by the new corporation and handled by Magee, the president of the company, who seemed in this matter to have acted principally as managing trustee for the Enterprise Trading Company, with the Gore note, as additional consideration, as stated. The jury found, in answer to a question submitted by the court, as upon special issues, that Carrothers promised to pay Sandifer, meaning, of course, the bank, the Cleaves-Witherspoon note, or see that Sandifer got his money within 60 or 90 days, in consideration that Sandifer would not object to the removal of the stock of dry goods from Crowell; and the judgment of the court against Carrothers upon this finding is earnestly challenged upon the ground that the promise is to answer for the debt of another, the enforcement of which is prevented by the statute of frauds, which, as we view it, is the only question worthy of serious consideration in this record.

One of appellants' subdivisional propositions is that, the bank "having no legal right to prevent the removal of the assets of the Enterprise Trading Company from Crowell, its agreement to forbear taking steps to institute legal proceedings upon any promise of Carrothers would not constitute an agreement upon which a valuable consideration could be predicated."

In what manner the "Magee Company," a corporation, became the Enterprise Trading Company, a corporation, is not exhibited, but the identity of the same is so treated in this record by all parties, likewise by the trial court in the proceeding below, as to preclude any doubt, but that the pledgee of the stock of the first-named corporation is entitled to the same rights against the Enterprise Trading Company which in some manner is the successor of the other.

We believe that the law is well settled that a pledgee of corporate stock has such an interest in the assets of a corporation as in this instance would have entitled the bank to have invoked equitable relief against the corporation and those acting for it, to have prevented the removal of its assets from the place of its domicile, and the transmutation of its property into corporation stock of another corporation, which Carrothers informed Sandifer they contemplated doing, and with reference to which, as well as the removal of same, the goods having already been boxed for that purpose, Sandifer objected. Thompson says (volume 4, § 4241, Corporations):

"The pledgee had a right equal with the pledgor to appear and protect in the courts his interest in the stock and prevent a dissipation of corporate assets."

The appellant, however, says that if the pledgee had the right to prevent the removal of the assets and the conversion of the same, the exercise of that right should be based upon the precedent condition of an appeal, first to the corporation to prevent the contemplated illegal move. The Supreme Court of Georgia, in a well-considered case, Andrews Co. v....