McHenry v. Bankers' Trust Co.

• Decision Date: 20 June 1918
• Docket Number: (No. 7438.)
• Citation: 206 S.W. 560
• Parties: McHENRY et al. v. BANKERS' TRUST CO. et al.
• Court: Texas Court of Appeals

Page 560

206 S.W. 560

McHENRY et al. v. BANKERS' TRUST CO. et al.

(No. 7438.)

Court of Civil Appeals of Texas. Galveston.

June 20, 1918.

On Motion for Rehearing, October 24, 1918.

Appeal from District Court, Harris County; Wm. Masterson, Judge.

Receivership proceeding by Bankers' Trust Company, trustee, against the Mission Canal Company, in which S. A. McHenry and others intervened. Demurrer to interveners' second plea of intervention sustained, and from judgment against interveners upon their refusal to amend pleadings they appeal. Affirmed.

Townes & Vinson, of Houston, Geo. P. Brown, of Mission, and Don A. Bliss, of San Antonio, for appellants.

Andrews, Streetman, Burns & Logue and W. S. Bailey, all of Houston, for appellee Bankers' Trust Co.

T. J. Lawhon and Robt. A. John, both of Houston, for appellee Southern Trust Co.

D. W. Glasscock, of McAllen, in pro. per.

B. F. Louis, of Houston, for appellees United Irrigation Co. and John J. Conway.

LANE, J.

We deem it necessary for an understanding of the opinion to follow to make the following statement:

Some time during or prior to the year 1909 one J. J. Conway had purchased and owned a large body of land situated in the county of Hidalgo, Tex., bordering on the Rio Grande river, for the purpose of establishing an irrigation plant thereon, and of selling out the land to purchasers in small tracts. After such purchase by him, Conway did sell many small tracts or subdivisions of said land to a number of persons, among whom were the appellants herein. In making sales of said small tracts Conway represented to the purchasers that they would get water rights with their respective tracts, entitling their tracts to be irrigated from the canal, then partly constructed and to be constructed, and that they would be furnished with water from said irrigation plant to irrigate their lands at the price of $1 per acre for each watering. At some stage in the proceedings one James W. Hoit became associated with Conway in said enterprise. The exact time when this association began is not shown by the record. During the year 1909 the enterprise became heavily indebted, and to relieve the same a loan in the sum of $170,000 was procured from one F. H. Wellcome, a resident of the state of Minnesota; and the said Conway and Hoit, and Emma L. Conway, the wife of said John J. Conway, executed and delivered to the said F. H. Wellcome, as trustee, a certain deed of trust for the purpose of securing certain bonds to be executed by the said Conway and wife and Hoit for said indebtedness, which bonds were to bear interest from date at the rate of 6 per cent. per annum, with interest coupons attached, in which said deed of trust the said Conway and wife and Hoit conveyed to the said trustee all their right, title, and interest in and to all of said land, with certain exceptions, and also all their right, title, and interest to all water rights granted and to be granted, all buildings, flumes, trestleworks, ditches, laterals, engines, pumps, and machinery of every kind and description used upon or in connection with the said irrigation plant then located and being extended upon said land, as the same then stood, and as the same should be extended during the existence of such trust deed; and they further assigned to the said trustee all choses in action, including notes, mortgages, contracts for deeds, and conveyances, reserving liens and all other bills receivable then owned by said grantors and received by them from the sales of parts of said lands. Said deed of trust contained a number of covenants not deemed material to any issue involved in this case. Said trust deed was executed on November 1, 1909.

Thereafter the said Conway and Hoit, together with one W. E. Pope, procured a charter from the state of Texas, incorporating what is called the Mission Land Improvement Company, with a capital stock of $300,000, claimed to be fully paid up. Conway and Hoit owned practically all of said capital stock; the said Pope having merely a nominal interest in the same, having been made a member of those incorporating said company in order to have the number of incorporators required by the laws of the state of Texas. The purposes for which said corporation was formed, as stated in its said charter, were acquiring, constructing, owning, and operating an irrigation system for agricultural and other purposes for the irrigation of its own lands and the land contiguous to its irrigation canals and lands, for navigation, milling, mining, stock-raising, and for supplying of such persons with water, as it might determine, for remuneration paid to it.

The effect of the foregoing transactions was that a large portion of the properties owned by Conway and associates was conveyed to the Mission Land Improvement Company, particularly all the notes that had been executed and delivered to such owners for parts of the purchase money of the various tracts sold by them.

On the 28th day of December, 1909, the Mission Land Improvement Company assigned all of said notes over to F. H. Wellcome as trustee. Prior to the incorporation of the Mission Land Improvement Company the owners of the irrigation plant recognized the rights of the purchasers of said small tracts to have their lands irrigated at $1 per acre for each watering, and did so irrigate said land at said price, and after the incorporation of said company, and after said properties had passed into its hands, it continued to recognize such rights of such purchasers. In operating its irrigation plant, and in the further conduct of its business, the Mission Land Improvement Company incurred a debt of over $300,000, which included a part of the purchase price of the land it owned and the sum due to Wellcome. On the 18th day of March, 1910, said Mission Land Improvement Company conveyed to the Mission Canal Company, a corporation organized and chartered through the efforts of Conway and his associates, the said irrigation system, together with all water rights and water contracts owned by it, for a recited consideration of $331,422. For the purpose of paying the purchase price for said properties the Mission Canal Company issued bonds in the sum of $331,422, which finally passed into the hands of and became the property of the Bankers' Trust Company, one of the appellees herein.

On the 15th day of March, 1911, the Mission Land Improvement Company conveyed to J. J. Conway all the land owned by it on that date for a recited consideration of $400,000, and upon the same date Conway executed and delivered to the Bankers' Trust Company, as trustee, a certain deed of trust upon all of said lands for the purpose of securing certain bonds amounting to the total sum of $480,000, and thereafter had F. H. Wellcome to assign to the Bankers' Trust Company all right, title, and interest of Wellcome in and to said properties by virtue of the trust deed theretofore executed and delivered to him by J. J. Conway and others. Thus the Bankers' Trust Company became the owner of a large amount of bonds of the Mission Canal Company, and also became trustee of all of the properties of said company under the aforementioned deed of trust.

On the 16th day of August, 1912, the Bankers' Trust Company, as trustee, filed its petition in the Sixty-First district court of Harris county, Tex., and, after reciting its trusteeship, the indebtedness of the Canal Company, and its inability to pay the same, much of which was past due, further alleged:

"That the defendant company is an irrigation corporation, and is the owner of and is now operating a large irrigation canal in said Hidalgo county, Tex.; that about 25,000 acres of land lie under and adjacent to the canals and laterals of said defendant company, and the owners thereof hold contracts entitling them to water for said lands; that of this acreage about 15,000 acres are now under cultivation by a large number of farmers and croppers, who now have crops consisting of corn, cotton, cane, feedstuffs, vegetables, and other crops, depending upon the supply of water from said canal; that said lands are in the dry and arid district of this state, where the natural rainfall is insufficient to make or save agricultural crops, and unless water is furnished, and continued to be furnished, from said canal, each and all of the said crops will be lost and destroyed, and the large number of landowners and farmers will be greatly damaged, and great financial loss and injury will follow; that the number of said landowners, farmers, tenants, and persons who are dependent upon the operations and continued operation of said canal is so large as to constitute a public interest in the continued operation of said canal.

"Plaintiff is informed and believes, and alleges upon information and belief of affiant, that the defendant company is without funds, and unable to obtain funds, to further operate its said canal, and is preparing to, and necessarily must, close down the said canal and discontinue the operation thereof for lack of sufficient funds; that if said canal be closed, and the operation thereof discontinued, even for a short time, not only will great loss and damage be caused to the landowners and farmers, as above stated, but the properties of said company will greatly depreciate in value, and the lien and security of the bonds above described be greatly impaired.

"Plaintiff is informed, and alleges upon information and belief of affiant, that many of the farmers, tenants, and landowners are indebted to said canal company for water furnished and supplied to their lands, and have failed and refused, and do now fail and refuse, to pay therefor, and the defendant company has failed, and does now fail, to enforce or secure the collection thereof; that many persons thus indebted to said company are now removing their crops and effects from the said lands, and from said community and county, and, unless prompt action is had, much of the...