Mitchell v. Bowles

• Decision Date: 14 February 1923
• Docket Number: (No. 1097.)
• Citation: 248 S.W. 459
• Parties: MITCHELL v. BOWLES.
• Court: Texas Court of Appeals

Page 459

248 S.W. 459

MITCHELL v. BOWLES.

(No. 1097.)

Court of Civil Appeals of Texas. Amarillo.

February 14, 1923.

Appeal from District Court, Lubbock County; W. R. Spencer, Judge.

Suit by J. C. Bowles against J. W. Mitchell, receiver, and another, with cross-action by the receiver. Judgment for plaintiff, and defendant receiver appeals. Reversed and remanded.

Marvin H. Brown, of Fort Worth, for appellant.

W. F. Schenck, of Graham, and Bean & Klett, of Lubbock, for appellee.

BOYCE, J.

This case comes back to us, after a sojourn of nearly six years in the Supreme Court, for reconsideration on assignments not disposed of in our original judgment. See 192 S. W. 611, and 245 S. W. 74.

The suit was brought by J. C. Bowles, as plaintiff, against the Commonwealth Bonding & Casualty Insurance Company, and J. W. Mitchell, receiver, to cancel his note and deed of trust securing it, given in payment of his subscription for certain shares of stock in the Commonwealth Bonding & Casualty Insurance Company, and to recover a certain amount of money paid on said subscription. The defendant Mitchell answered and by cross-action sought judgment on the note and foreclosure of lien and in the alternative on plaintiff's subscription contract. The plaintiff, in answer to this cross-action, set up the same matters pleaded to sustain his action for cancellation of such contracts. This appeal is from a judgment in plaintiff's favor, canceling the note and deed of trust and against the receiver, on his cross-action.

The facts alleged and sustained by proof are as follows: Plaintiff, on September, 30, 1910, executed a contract, whereby he subscribed for 62½ shares of the capital stock of a corporation to be "incorporated in pursuance to the laws of the state of Texas, under the name of the Commonwealth Bonding & Accident Insurance Company," agreeing to pay therefor $2,500, $312.50 in cash to Stuart-Harkrider & Co. as organization expenses, and the remaining $2,187.50 to be paid to the company or its trustees, in money or securities satisfactory to the insurance department on notice from Stuart-Harkrider & Co. that the capital stock of the corporation had been subscribed so as to perfect the organization. This subscription contract was secured by false representations as to material matters, which it is not necessary to here detail. On January 31, 1911, Bowles, on representation that the corporation was ready to organize, executed and delivered to one of its organizers his note, payable to the corporation, dated December 1, 1910, payable December 1, 1915, for the $2,187.50, securing its payment by deed of trust on land in Lubbock county. The Commonwealth Bonding & Casualty Insurance Company was thereafter incorporated under the laws of the state of Arizona, by a charter filed on March 23, 1911, and some time thereafter secured a permit to do business in Texas. Certificates of stock were issued and delivered to plaintiff in June, 1911. These did not disclose that the corporation was an Arizona corporation, and plaintiff did not discover such fact and the falsity of the representations made to him until a short while before the institution of this suit, on October 15, 1915. Plaintiff paid interest as it accrued on his notes and was represented by proxy in at least one stockholders' meeting of the corporation. On September 18, 1915, the district court of Tarrant county appointed appellant Mitchell and J. W. Hill receivers of all the property of the defendant corporation, and J. W. Mitchell was thereafter made sole receiver. A judgment was entered in the receivership case, adjudicating that the corporation was insolvent and directing the receivers to collect all unpaid subscriptions to the capital stock, reciting that the liabilities of the company would, in all reasonable probability, far exceed its assets. The receiver pleaded that he did not have possession of the plaintiff's note and deed of trust; that these were in possession of a receiver for the corporation, appointed by the courts of Arizona. Plaintiff, on the trial, offered testimony of the former secretary of the company, who remained in the service of the receiver as an employee, as follows:

"The records of the company indicate that plaintiff's notes, for which plaintiff sues, for a cancellation thereof, are on deposit with the treasurer of the state of Arizona. I do not know the exact date, but they have been so deposited since I have been secretary and treasurer, which is since March, 1913. The collaterals and securities, if any there are accompanying said notes, are at this time attached to the notes and are in the same custody as stated above, to wit, with the treasurer of the state of Arizona."

If it were not for the fact of the intervening insolvency of the defendant company, the plaintiff made a good defense to liability on the subscription contract or the note on at least two grounds—fraud in securing the subscription contract and the organization of the corporation under the laws of Arizona. Medlin v. Commonwealth Bonding & Casualty Co. (Tex. Civ. App.) 180 S. W. 899; Wrather v. Parks (Tex. Civ. App.) 227 S. W. 518 (3); Commonwealth, etc., Co. v. Meeks (Tex. Civ. App.) 187 S. W. 684. But it is now well settled that fraud in procuring the subscription contract is not a good defense where the suit is for the benefit of creditors whose...