Giles v. Stanton

• Decision Date: 26 April 1894
• Citation: 26 S.W. 615
• Parties: GILES et al. v. STANTON.<SMALL><SUP>1</SUP></SMALL>
• Court: Texas Supreme Court

26 S.W. 615

GILES et al. v. STANTON.¹

Supreme Court of Texas.

April 26, 1894.

Error from court of civil appeals, third supreme judicial district.

Action by the state of Texas against the East Line & Red River Railroad Company. A. R. Stanton intervened.

To a judgment of the court of appeals (24 S. W. 556) affirming a judgment for said Stanton, the receiver of the railroad company brings error. Reversed.

Fisher & Townes and John T. Craddock, for plaintiffs in error. Robert G. West, for defendant in error.

BROWN, J.

In the year 1880 the East Line & Red River Railway Company, incorporated under the laws of Texas, in order to secure the payment of principal and interest of 1,400 bonds, for $1,000 each, executed and delivered to the Fidelity Trust Company of New York, as trustee, a mortgage or deed of trust, in which it conveyed to the said trustee, in trust, all of the property that it then owned, or might thereafter acquire, covering all property of every kind; also, "all the rents, issues, profits, tolls, and other incomes of said road." The deed of trust contains the following clauses: "It is understood and agreed that, until default shall be made either in the principal or interest of any of the said bonds, said company is suffered and permitted to possess, hold, and enjoy the said railway, with all its appurtenances and equipments, and all property conveyed herein, and to use and operate the same, and to receive the income and profits thereof, in the same manner as though this indenture had never been made and executed, except as hereinafter expressed, with reference to any land script or lands hereafter earned or acquired from the state of Texas by the construction of said road." By article 4 it is provided that, if default is made and continues for six months on any installment of interest, the trustee may, and on the demand of one-third in interest of the bonds outstanding shall, institute foreclosure proceedings to collect such interest; or, if preferred, may take possession of and operate the road until the net revenues are sufficient to satisfy unpaid interest, when the property shall be returned to the company. By article 5, if default is made and continues for 12 months on any installment of interest, the trustee may, and shall on demand of one-third in interest of outstanding bonds, proceed by legal proceedings to foreclose said mortgage. No provision was made for sale by the trustee. The railroad company defaulted in the payment of interest on the 1st of June, 1888, and continued in default thereafter. The trustee did not take possession of the road, nor did he take any steps to foreclose the mortgage, until the filing of the plea of intervention in the case of the state of Texas against the East Line & Red River Railway Company, June 18, 1891. June 17, 1888, A. R. Stanton, appellee herein, was injured on the East Line & Red River Railroad while it was being operated by the Missouri Pacific system as a part of the Missouri, Kansas & Texas Railroad, and instituted suit in the district court of Camp county against the East Line & Red River Railway Company about March, 1889. He recovered judgment against the railroad company December 5, 1889. Notice of appeal was given, but not prosecuted; and a writ of error was sued out, but was never prosecuted, the record being lost. Stanton presented his judgment to the master appointed in the suit of State of Texas v. East Line & R. R. Ry. Co. on the 2d day of November, 1889, which was allowed by the master, and placed in the sixth class of claims to be paid by the receiver. September 11, 1888, the state of Texas instituted a suit to forfeit the charter of the East Line & Red River Railway Company, in the district court of Travis county, and on the 25th day of May, 1889, judgment was entered in said court declaring the charter forfeited and dissolving the corporation, from which the company appealed to the supreme court of the state, giving a supersedeas bond, which judgment was by the said supreme court affirmed on the 17th day of December, 1889. 12 S. W. 690. On the 11th day of March, 1890, the district court of Travis county appointed W. M. Giles receiver of the East Line & Red River Railway Company, but the circuit court of the United States in the state of Kansas had in the meantime appointed Eddy & Cross receivers for the same company, who had taken possession of it, and Giles did not get possession until April 13, 1891. On the 18th day of June, 1891, the Central Trust Company of New York, which owned all the stock of the corporation, and Henry W. Poor, substitute trustee in the mortgage originally given to the Fidelity Trust Company, filed a plea of intervention in the suit of the state of Texas against the East Line & Red River Railway Company, asking a foreclosure of the said mortgage and the sale of the property covered by it. On the 28th day of October, 1891, the district court entered a decree adjudging that the trustee, Poor, recover of the receiver as such the sum claimed, and that the mortgage be foreclosed and the property sold. This decree required that the purchaser should deposit $10,000 to secure any deficiency that might exist in the revenue derived from the operation of the road, for the payment of claims adjudged to have a prior lien to the mortgage. Jurisdiction of the case and all parties was expressly retained by the court, for the purpose of settling the rights of all parties having claims against the fund. In this decree certain classes of claims were named as having prior right to the lien of the mortgage, but the character of claims to which Stanton's judgment belongs was not mentioned; that claim had not then been presented to the master for allowance. Before the filing of the plea of intervention by Poor and the trust company, the receiver had paid out of the earnings of the road while in his hands, for betterments of the said railroad, the sum of $14,978.20, and there remained in his hands of the net earnings the sum of $9,583.86 at the time the intervention was filed. From the beginning of the receivership to October 1, 1892, the receiver had invested in betterments of the railroad $20,000 of the earnings thereof, and at that date had on hand of such earnings $23,437.08. The property was sold under the decree foreclosing the mortgage, and purchased by Henry W. Poor, who deposited the sum of $10,000 on his bid, as required by order of the court. In March, 1892, the district court approved the allowance of Stanton's judgment, but reserved the classification of it for future consideration, and on the 24th day of December, 1892, the said court entered an order assigning the claim to the sixth class of claims to be paid by the receiver. It was also determined and ordered that Stanton's judgment was entitled in payment out of the net earnings of the road to priority over the debts secured by the mortgage, and it was ordered that, in case the earnings should not be sufficient to pay all claims holding priority over Stanton's judgment, then it should be paid out of the money deposited on the bid at the sale of the property. From the judgment of the district court the receiver and Poor appealed, and the judgment was affirmed by the court of civil appeals. 24 S. W. 556.

Plaintiffs in error object that the court had no authority to open the case and to give to Stanton's judgment priority over the mortgage debt, because the judgment and decree which ordered the sale of the property adjudged the mortgage creditors entitled to recover, subject to certain classes of claims named, which judgment was final. There was no error in overruling this objection. The decree was not final, and, besides, in its recitals expressly reserved jurisdiction of the parties for the purpose of adjusting the rights of the parties having claims against the fund. Counsel for plaintiffs in error claim that the judgment in favor of Stanton against the East Line & Red River Railway Company is void because it was rendered after the judgment of the district court was entered dissolving the corporation. It is well settled that after a corporation is dissolved, it can do no act, nor can any judgment be entered against it, although suit may be pending at the time of the dissolution. Association v. Goode, 2 Posey, Unrep. Cas. 414; Bank v. Colby, 21 Wall. 614; Terry v. Bank, 66 Ga. 178; Thornton v. Railway, 123 Mass. 32; Saltmarsh v. Bank, 17 Ala. 766. The case of Lindell v. Benton, 6 Mo. 361, is sometimes cited as holding differently; but in that case judgment was rendered against the bank while it existed, and a proceeding commenced against the defendants as debtors of the corporation, in which last proceeding the objection was made that the bank had ceased to exist, which was overruled. The court is careful to state that judgment was rendered against the corporation before its dissolution. In this case Stanton's judgment was rendered in the district court against the railroad...