Farwell v. Babcock

• Decision Date: 18 November 1901
• Citation: 65 S.W. 509
• Parties: FARWELL et al. v. BABCOCK et al.<SMALL><SUP>1</SUP></SMALL>
• Court: Texas Court of Appeals

65 S.W. 509

FARWELL et al. v. BABCOCK et al.¹

Court of Civil Appeals of Texas.

November 18, 1901.

Appeal from district court, Hartley county; H. H. Wallace, Judge.

Suit by Margaret Ann Babcock, administratrix, and another, against John V. Farwell and others, to wind up a corporation, and for other relief. From an order appointing receivers, defendants appeal. Reversed.

Tenney, McConnell, Coffeen & Harding and Matlock, Miller & Dycus, for appellants. Bomar & Bomar and A. M. Carter, for appellees.

HUNTER, J.

This is an appeal by John V. Farwell and Charles B. Farwell, two of the defendants, from an interlocutory order of the district judge of Hartley county appointing receivers for the property of the Capitol Freehold Land & Investment Company, Limited, a corporation organized under the laws of England, consisting of about 3,000,000 acres of land lying in what is called the "Pan Handle of Texas," along the northwestern border thereof, embracing most of the counties of Dallam, Hartley, Oldham, Deaf Smith, Parmer, Castro, Bailey, Lamb, and Hockley, and extending a distance of about 200 miles north and south, and about 120,000 head of cattle running and ranging thereon, together with the horses, mules, wagons, and all improvements and appurtenances belonging to said company and in use on said ranch, which is said to be the largest in the world. The order covered property worth $10,000,000, which has been in the undisputed possession of appellant for 12 years. The petition was filed by complainants on the 23d day of July, 1901, and the order made by the honorable district judge at chambers afterwards on the same day, and without notice to any of the defendants, on the ex parte statements, exhibits and affidavits of the complainants and then counsel. The petition was filed by Mrs. Margaret A. Babcock in her individual capacity and as executrix of the will of her husband, Amos C. Babcock, deceased, and Morris B. Brown, resident citizens of Cook county, Ill., who bring the suit on behalf of themselves and all other minority stockholders of the Capitol Company similarly situated to themselves, and for the use and benefit of said Capitol Company. They complain of John V. Farwell, Charles B. Farwell, and Abner Taylor, resident citizens of Cook county, Ill., and whom they denominate "the syndicate," and of the Capitol Company aforesaid, whose principal office is in London, England, with John V. Farwell its managing director in the United States, with an office in Chicago. It is alleged: That Morris B. Brown owns of the Capitol Company's stock 180 ordinary shares of £2. 10s. each, and 180 deferred ordinary shares of £7. 10s. each, and that he has owned the same since December 8, 1897. That Mrs. Babcock is the owner of 7,458 ordinary shares and 7,738 deferred ordinary shares. That said Capitol Company was organized in 1885 by the two Farwells, Abner Taylor, and Amos C. Babcock, who were contractors with the state of Texas for the erection of its present state capitol building at Austin, Tex., and for which they were to and did receive the 3,000,000 acres of land aforesaid. That said Capitol Company was chartered and organized for the purpose of acquiring these lands and developing and maintaining them as a cattle ranch, and for the acquisition, raising, and breeding of cattle thereon, and the doing of a general ranching business. There were nine directors, five of whom were residents of Great Britain, and the remainder of the United States. That the two Farwells and Abner Taylor own, and from the beginning have owned, a controlling interest in the capital stock of said company,—about three-fourths thereof,—and have from the organization of the company been directors therein, and the said John V. Farwell has been the managing director in the United States. That substantially all of the British directors were made so at the instance and request of the Farwells and Taylor, and it is alleged (on information and belief) that the syndicate gave them stock in the company in order to qualify them to be directors, and as an inducement to secure their assistance in organizing the company. That at all times the board of directors of said company has been in a great degree controlled, influenced, and dominated by the syndicate. That soon after the organization of the company, bonds, or, as they are called by the Englishmen, "debentures," were issued by the company, and sold, to the amount of £1,000,000, which bonds were secured by a mortgage lien on all the lands and property then owned by the company or afterwards to be acquired. These bonds matured from 5 to 10 years after their dates, and bore interest some at 5 per cent. and some at 6 per cent. per annum. They were sold, it seems, principally in Great Britain, at par; and £600,000 of the proceeds were paid to the syndicate for the lands aforesaid, and £400,000 were to be used to improve the lands and purchase cattle, horses, wagons, and ranch equipage, etc. It is then alleged (on information and belief): That only a portion of the latter sum was used for the purpose indicated, and the balance was retained by the syndicate and unaccounted for. That the first annual meeting of the stockholders and directors was held on January 1, 1887, and the minutes of that meeting show a report from John V. Farwell of the business of the company to October 31, 1886, which discloses that he had on the ranch 69,423 head of cattle, and had contracted for 41,298 head more, and that the profits accruing from the business to that time was £18,706. 1s. 5d. That the next annual meeting was held on February 1, 1888, and the report of the managing director aforesaid showed that from October 31, 1886, to October 31, 1887, the losses of cattle was 2 per cent. of the herd. That the company had on its ranch 109,807 head of cattle, valued at £400,000, and that the net profits of the business up to October 31, 1887, made a total of £20,723. 5s. 1d. That the next annual meeting was held on March 12, 1889, and the report of John V. Farwell showed that the total amount of bonds sold up to December 31, 1888, was £738,792, and that he had sold from the ranch 30,339 head of cattle for the sum of £154,514. 10s., and that the net profits of the company, after paying all expenses, interest, etc., was the sum of £23,334, and that he had expended on said ranch, up to said date, in fencing, buildings, reservoirs, wells, tanks, etc., £114,429. 18s. 1d., and that the company had on hand in cash £44,230. 3s. 11d., of which £40,636. 7s. 1d. was in possession of John V. Farwell, and there were 95,926 head of cattle, worth £337,363, and that the profits up to said date in American money had been $113,168. It is then averred that about this time (January 1, 1889) the said syndicate, "realizing the great possibilities of profit to be derived from said business, became covetous, and conceived and put into execution a well-laid plan looking to the ultimate conversion of the assets of said company to their own use and benefit to the exclusion of your petitioners and the other nonsyndicate stockholders," and, in pursuance of said plan, it is averred that on March 27, 1889, the said syndicate caused the company to execute to them "a pretended and fraudulent lease on all of said company's lands, cattle, and other personal property in Texas for a period of five years beginning on the 1st day of January, 1889." This lease is set out in the petition, as well as all the others hereinafter named, and in substance provided that the entire property of the company should be turned over to the syndicate for five years, they agreeing, in effect, to pay certain rentals, and keep up the herd to 150,000 head, and pay all ranch expenses, interest on the bonds, etc., and were to be allowed to sell steers over three years old, surplus bulls, and fat cows to repay themselves for moneys paid out. The next contract was dated July 29, 1892, and took the place of the former one. In this, however, the syndicate guaranteed the interest on the bonds, and continued to operate the ranch. The third was dated February 22, 1893, and was somewhat similar to the others, but provided for a reissue of bonds at a lower rate of interest, the syndicate guarantying the interest on them, and agreeing to transfer to such of the bondholders of the 4 per cent. bonds paid-up capital stock in the company to the amount of 25 per cent. of the face value of such bonds as additional security to their guaranty and to the mortgage which was to be given to certain named trustees on all the property of the company to secure all the bonds named. The fourth and last contract was dated July 12, 1894. It is alleged that all of these contracts were fraudulent, null, and void, and that they were made with the syndicate while they were directors of the company, and that the result of them is to deprive the plaintiffs of any dividends or profits of the business until the bonds of the company aforesaid are paid off in full; and many other complaints are made against the syndicate, but all of them, where full enough to make a charge of fraud or oppression, are of such character as to render the acts and contracts voidable only, and not void; and, being voidable only, could, of course, be ratified by the plaintiffs, and made as valid against them as if no fraud or other wrong had entered therein. This petition was sworn to in Chicago July 20, 1901, and filed with the district clerk of Hartley county July 23, 1901, and the order appointing J. V. Goode, of Tarrant county, and W. H. Fuqua, of Potter county, receivers, was made in chambers, and filed with the clerk on the same day. The receivers' bonds in the sum of $100,000 each were approved by the district judge on the 24th day of July, and the oath required by law was administered to the receivers by him on the same day, and the bonds were filed with the clerk on the 25th. The order was not entered on the minutes of the court and signed...