Pacific American Gasoline Co. of Texas v. Miller, 4266.

• Decision Date: 15 October 1934
• Docket Number: No. 4266.,4266.
• Parties: PACIFIC AMERICAN GASOLINE CO. OF TEXAS et al. v. MILLER et al.
• Court: Texas Court of Appeals

76 S.W.2d 833

PACIFIC AMERICAN GASOLINE CO. OF TEXAS et al. v. MILLER et al.

No. 4266.

Court of Civil Appeals of Texas. Amarillo.

October 15, 1934.

Rehearing Denied November 26, 1934.

Appeal from District Court, Potter County; W. E. Gee, Judge.

Action by Horace G. Miller and others against the Pacific American Gasoline Company of Texas and others, in which Evan O. Thomas Company intervened. From an adverse judgment, defendants appeal.

Affirmed except as to intervener Evan O. Thomas Company, and as to it reversed and rendered without prejudice.

See, also, 61 S.W.(2d) 1024; 74 S.W.(2d) 720.

Otis Trulove and L. M. Fischer, both of Amarillo, Lyndsay D. Hawkins, of Breckenridge, and Walter David, of Borger, for appellants.

Weeks, Morrow & Francis, of Wichita Falls, and Morgan, Culton, Morgan & Britain, of Amarillo, for appellees.

MARTIN, Justice.

This foreword, because of the great size and unusual character of the record: The appellees are holders of notes of approximately $140,000 in amount. The appellants are the Pacific American Gasoline Company of Texas (called herein the Gasoline Company), the J. M. Huber Petroleum Company (called herein the Petroleum Company), the J. M. Huber Company of Louisiana, Inc. (called herein the Carbon Company), and R. C. Ware, trustee. Of the appellants named the first is a domestic corporation, the second a Delaware corporation, and the third a Louisiana corporation. Their interrelation is stated hereafter, and as well also as their respective interests in the subject-matter of the present litigation.

Suit was brought in the district court of Potter county by appellees for the interest on so-called "gold notes" issued by said Pacific American Gasoline Company of Texas. Other relief was asked, the nature of which will later appear herein.

The trial court peremptorily instructed the jury against appellants and entered the judgment hereafter shown.

One of the major legal questions presented for our determination is that arising from appellants' contention that all of said notes are void, in that they represent a "fictitious indebtedness" created in contravention to the terms of article 12, § 6, of our state Constitution, which reads as follows: "No corporation shall issue stock or bonds except for money paid, labor done or property actually received, and all fictitious increase of stock or indebtedness shall be void."

This compels us to make a lengthy and involved statement of the facts which surround the note issue in question, including the reproduction verbatim of several written documents which vitally affect the questions decided by us.

In 1928 the Southwestern Engineering Corporation of California, and the Caltex Syndicate, an unincorporated partnership, owned or had claims against properties in Hutchinson county, Tex. Their investment in these amounted to some $250,000. They consisted of a casing-head gasoline plant, certain casing-head gas contracts, and other oil and gas properties nearby. Their investment at this time was not remunerative, and they were desirous of either disposing of these properties or of making them produce an income. To this end negotiations were begun with Masten and others of California. Masten was a highly efficient executive, and had been unusually successful in the production and sale of casing-head gasoline. The negotiations resulted in the execution of the following preliminary agreement:

"This agreement made and entered into by and between F. E. Keeler, F. B. Ansted and B. F. Masten, Trustees, and others, all of Los Angeles, California, parties of the first part, and the Southwestern Engineering Corporation, a California corporation, party of the second part, and H. Schwartz and Edward Thornton, both of Los Angeles, California, parties of the third part, Witnesseth:

"Whereas, the parties of the third part have and hold certain leases covering the right to take and treat casinghead gas, all of which leases are located near Borger, Texas, and cover approximately one-hundred-eighty (180) acres of land and have a gas volume of approximately 1000,000,000 cu. ft. daily, a list of which leases is attached hereto marked Exhibit `A' and expect to acquire additional leases in the same locality, and

"Whereas, the party of the second part has certain plants known as Absorption Plants located at Borger, Texas, and consisting of one No. 75 Southwestern Absorption Plant, four No. 25 Southwestern Absorption Plants, together with laboratory, boilers, storage tanks, lines, all as now located at Borger, Texas, and in addition thereto the said party of the second part is now erecting and constructing one Type 100 Southwestern Absorption Plant on the Deal Lease near Borger, Texas, acting under the instructions of the said parties of the first part for themselves and associates, and

"Whereas, the parties of the first part have pledged to them the sum of One Hundred Fifty Thousand Dollars ($150,000.00) which sum is being furnished by the said parties of the first part and their associates, and

"Whereas, it is mutually desired and agreed that all of the parties hereto enter into and organize a corporation under the laws of Nevada or some other state suitable to the parties, which corporation shall have and hold all of the properties herein described free and clear from any and all incumbrances whatsoever,

"Now, therefore, it is mutually understood and agreed as follows:

"That a corporation shall be organized by the parties herein under the laws of the State of Nevada having a Common capital stock of $1,000,000.00 divided into 1,000,000 shares of the par value of $1.00 each, which stock shall be non-assessable.

"That said corporation shall have a Board of seven directors, consisting of the following: F. E. Keeler, Thomas W. Warner, F. B. Lewis, B. F. Masten, F. B. Ansted, Roger L. Dennis, Royal Bush.

"That said corporation shall issue in addition to the 1,000,000 shares of stock above mentioned, notes and/or debentures which shall be a first lien upon all of the property and assets described in this agreement to the amount of $350,000.00, bearing interest at the rate of 7% per annum, payable quarterly, commencing January 1, 1929. Said gold notes and/or debentures shall be a first lien upon all of the property, assets and holdings of the said corporation, and particularly upon the leases, plants and other property herein described, payable on or before three (3) years from January 1st, 1929, and shall be callable at any interest date, upon the giving of thirty (30) days written notice, at par plus accrued interest to the date of such call; provided, however, that no call shall be made for the retirement of said notes excepting in the amount of at least 10% or multiples thereof of the notes then outstanding, and if a call is made between any interest dates the interest shall be paid upon the notes called to the next paying period.

"It is the plan to retire these notes at the earliest possible moment consistent with a sound financial policy; and further it is understood and agreed that there is to be no dividends declared or paid on any of the Common capital stock of the corporation while any of these notes in whole or in part are outstanding.

"It is further agreed that there is to be no directors or executives salaries, excepting the salary of the Vice-President and Manager of operations while these notes are outstanding, to the end that all items of overhead excepting productive operatives shall be kept to the very minimum during the period that these notes are outstanding.

"It is further understood and agreed that until such time as the corporation has been perfected in all of its details and has received complete title to all of the property, free and clear from all incumbrances whatsoever, and that such trustees shall be Fred E. Keeler, Ben F. Masten and Frank B. Ansted. That any two of such trustees must sign checks for any disbursements from the funds of their trustee account, as well as requisitions for any work, labor or material ordered, and for any and all other items of expenditure in connection with this trust. Such trustees to give adequate bond for any and all funds and/or property coming into their hands or control during the period of such trust.

"The parties of the third part are immediately to transfer to the trustees designated, the leases now outstanding in their respective names and later the party of the second part, Southwestern Engineering Corporation, is to deliver by bill of sale or proper transfer of title, free and clear from all incumbrances whatsoever, the five absorption plants now located on said leases at Borger, Texas, together with laboratory, boilers, storage tanks, lines, and every item whatsoever now connected with their operations.

"The parties of the first part for themselves and associates having pledged the sum of $150,000.00, the same is to be made available in cash to the trustees and/or the corporation in the following amounts: 30%, or $45,000.00 on the 10th day of October, 1928, 40%, or $60,000.00, on the 10th day of November, 1928, 30%, or $45,000.00, on the 10th day of December, 1928.

"The said sum of $150,000.00 or whatever sum shall remain after having expended the amount necessary for the installation of Type 100 Plant now being installed on the Deal lease, and in the possible moving of the other plants now located at Borger, Texas, from their present location to and upon the most important of the leaseholds herein described, plus any other amount that has been properly expended in the management and operation of the business herein outlined, such sums so remaining will be delivered to the corporation as an operating fund and for the further capital requirements of the Treasury of the corporation to be later organized.

"The trustees, upon having fully carried out the terms of this agreement, having delivered all the leases, equipment, plants, properties, accounts, cash, etc., to the...