Hunter v. Fort Worth Capital Corp., C-58

• Citation: 620 S.W.2d 547
• Decision Date: 15 July 1981
• Docket Number: No. C-58,C-58
• Parties: J. Peyton HUNTER, Jr. et al., Petitioners, v. FORT WORTH CAPITAL CORPORATION et al., Respondents.
• Court: Supreme Court of Texas

Page 547

620 S.W.2d 547

20 A.L.R.4th 399

J. Peyton HUNTER, Jr. et al., Petitioners, v. FORT WORTH CAPITAL CORPORATION et al., Respondents.

No. C-58.

Supreme Court of Texas.

July 15, 1981.

Rehearing Denied Sept. 23, 1981.

Jackson, Walker, Winstead, Cantwell & Miller, C. Steven Matlock, Dallas, for petitioners.

Thorne, Thorne & Robertson, Inc., Michael A. Robertson, Grand Prairie, McBryde, Bogle & Green, John McBryde, Fort Worth, for respondents.

McGEE, Justice.

The question is whether Theodore Moeller can recover damages against the former shareholders ¹ of Hunter-Hayes Elevator Company (Hunter-Hayes) for post-dissolution injuries resulting from the negligence of the company. The trial court rendered summary judgment for the shareholders. The court of civil appeals reversed the judgment and remanded the cause for trial. 608 S.W.2d 352. We reverse the judgment of the court of civil appeals and affirm the judgment of the trial court.

In 1960, Hunter-Hayes installed an elevator in a building under construction in Fort Worth, Texas. The company inspected and serviced the elevator until February 1, 1964, when it transferred its assets to Dover Corporation for 25,000 shares of Dover preferred stock. Hunter-Hayes then changed its name to H. H. Hunter Corporation and distributed the shares of Dover stock among its shareholders. On March 11, 1964, H. H. Hunter Corporation (formerly Hunter-Hayes) was issued a certificate of dissolution by the Secretary of State.

Approximately eleven years later, on May 13, 1975, Theodore Moeller was permanently injured when the elevator fell on him. At the time of the accident, Moeller was working in the elevator pit, which is located in the bottom of the elevator shaft, at the direction of his employer, Dover Elevator Company. The elevator fell when a valve in the elevator pit allegedly came apart, allowing its hydraulic system to lose fluid.

Theodore Moeller sued the former shareholders of Hunter-Hayes and others ² to recover damages for his personal injuries. He alleged causes of action based on negligence and strict liability. The other defendants filed cross-actions against the shareholders, seeking contribution and indemnity. In his suit against the shareholders, Moeller alleged his injuries were proximately caused by the negligent installation, inspection, and maintenance of the elevator by Hunter-Hayes. He also alleged the shareholders were personally liable to him, to the extent of the assets they received on dissolution, under the "trust fund theory."

In response, the shareholders moved for a summary judgment. They alleged Moeller's action and the cross-actions against them were barred because they were not brought within three years after the company dissolved as required by Article 7.12 of the Texas Business Corporation Act. ³ The trial court granted the motion and severed all causes of action against the shareholders so that it could render a final and appealable judgment. Moeller and cross-complainants, Fort Worth Capital Corporation and Stewart DeVore, Sr., ⁴ (the prior owner of the building and its majority shareholder) perfected separate appeals. The court of civil appeals reversed the judgment and remanded the cause for trial. The court of civil appeals held that Article 7.12 was vitiated in this cause by the "trust fund theory."

Article 7.12, which is derived from Section 105 of the Model Business Corporation Act, provides:

Survival of Remedy After Dissolution

A. The dissolution of a corporation either (1) by the issuance of a certificate of dissolution by the Secretary of State, or (2) by a decree of court when the court has not liquidated the assets and business of the corporation as provided in this Act, or (3) by expiration of its period of duration, shall not take away or impair any remedy available to or against such corporation, its officers, directors, or shareholders, for any right or claim existing, or any liability incurred, prior to such dissolution if action or other proceeding thereon is commenced within three years after the date of such dissolution. Any such action or proceeding by or against the corporation may be prosecuted or defended by the corporation in its corporate name. The shareholders, directors, and officers shall have power to take such corporate or other action as shall be appropriate to protect such remedy, right or claim. If such corporation was dissolved by the expiration of its period of duration, such corporation may amend its articles of incorporation at any time during such period of three years so as to extend its period of duration.

Article 7.12 provides statutory remedies for pre-dissolution claims only and thus is in the nature of a survival statute. Moeller's cause of action did not accrue until he was injured more than eleven years after the company dissolved. See Sims v. Southland Corp., 503 S.W.2d 660, 663 (Tex.Civ.App. Tyler 1973, writ ref'd n. r. e.). Consequently, Moeller cannot recover against the shareholders for his post-dissolution claim against the corporation, unless his suit is authorized by some other statute or legal theory.

The shareholders contend the court of civil appeals erred in holding that Moeller could maintain suit against them under the "trust fund theory." More specifically, they argue Article 7.12 supplants the trust fund theory and Moeller must look solely to that statute in order to determine if the legislature provided him with a remedy.

This contention calls for a construction of Article 7.12. In doing so, our primary objective will be to ascertain the legislative intent. State v. Terrell, 588 S.W.2d 784, 786 (Tex.1979); Minton v. Frank, 545 S.W.2d 442, 445 (Tex.1976.) Because Article 7.12 is a provision in the Texas Business Corporation Act, we must ascertain the legislative intent by looking to the entire Act, and not its isolated provisions, keeping in mind at all times "the old law, the evil and the remedy." Woods v. Littleton, 554 S.W.2d 662, 665 (Tex.1977); Calvert v. Kadane, 427 S.W.2d 605, 608 (Tex.1968). The legislative intent in enacting Article 7.12 is nowhere clearly stated. The comment to Section 105 of the Model Business Corporation Act does not help us either.

At common law, dissolution terminated the legal existence of a corporation. Once dissolved, the corporation could neither sue nor be sued, and all legal proceedings in which it was a party abated. ⁵ Nardis Sportswear v. Simmons, 147 Tex. 608, 218 S.W.2d 451, 453 (1949); Burkburnett Refining Co. v. Ilseng, 116 Tex. 366, 292 S.W. 179, 181 (1927); Life Association of America v. Goode, 71 Tex. 90, 8 S.W. 639, 640 (1888); Lyon-Gray Lumber Co. v. Gibraltar Life Insurance Co., 269 S.W. 80, 81 (Tex. Comm'n App. 1925, judgmt. adopted); Model Bus. Corp. Act Ann.2d § 105 Comment (1971).

To alleviate the harsh effects of the common law on creditors, an equitable doctrine evolved. This doctrine provided that when the assets of a dissolved corporation are distributed among its shareholders, a creditor of the dissolved corporation may pursue the assets on the theory that in equity they are burdened with a lien in his favor. See Koch v. United States, 138 F.2d 850, 852 (10th Cir. 1943). This doctrine is often referred to as the "trust fund theory." Actually, the equitable doctrine has a much broader application. The trust fund theory applies whenever the assets of a dissolved corporation are held by any third party, including corporate officers and directors, so long as the assets are traceable and have not been acquired by a bona fide purchaser. Norton, Relationship of Shareholders to Corporate Creditors upon Dissolution: Nature and Implications of the "Trust Fund" Doctrine of Corporate Assets, 30 Bus. Law. 1061, 1074 (1975).

Prior to the enactment of Article 7.12, Texas courts had long applied the trust fund theory to dissolved corporations, but only as it was embodied within the general framework of certain remedial statutes. See Humble Oil & Refining Co. v. Blankenburg, 149 Tex. 498, 235 S.W.2d 891, 893 (1951); Nardis Sportswear v. Simmons, supra, 218 S.W.2d at 453, 454; McBride v. Clayton, 140 Tex. 71, 166 S.W.2d 125, 128 (1942); Peurifoy v. Wiebusch, 132 Tex. 36, 117 S.W.2d 773, 775 (1938); Burkburnett Refining Co. v. Ilseng, supra 292 S.W. at 181; Lyons-Thomas Hardware Co. v. Perry Stove Manufacturing Co., 86 Tex. 143, 24 S.W. 16, 20 (1893); Lyon-Gray Lumber Co. v. Gibraltar Life Ins. Co., supra at 82; Krueger v. Young, 406 S.W.2d 751, 758 (Tex.Civ.App. Eastland 1966, writ ref'd n. r. e.); Evons v. Winkler, 388 S.W.2d 265, 270 (Tex.Civ.App. Corpus Christi 1965, writ ref'd n. r. e.).

As early as 1879, the Texas legislature began enacting remedial statutes which embodied the trust fund theory. Tex.Rev.Civ.Stat. arts. 606, 608 (1879). The purpose of these statutes was to abrogate the common law abatement rule. Lyon-Gray Lumber Co. v. Gibraltar Life Ins. Co., supra at 82. In 1909 and 1919, other statutes were added. These statutes were carried forward by subsequent legislatures, with only minor changes, until repealed in 1955 with the enactment of Article 7.12. Among others, the statutes repealed by Article 7.12 were Articles 1388, 1389, 1390, and 1392, Tex.Rev.Civ.Stat. Under these remedial statutes, the legislature had given creditors of a dissolved corporation "the same broad measure of relief which equity would have afforded in the absence of legislation." Burkburnett Refining Co. v. Ilseng, supra, 292 S.W. at 181. The effect of these statutes was to supplant the equitable trust fund theory by declaring a statutory equivalent. In Texas, recognition of the trust fund theory, as applied to dissolved corporations, did not exist apart from these statutes.

We find no indication that the legislature intended for Article 7.12 to be interpreted any differently. Because the statute applies to officers, directors, and shareholders of a dissolved corporation, it embodies the trust fund doctrine but only to the extent...