River Oaks Shopping Center v. Pagan

• Court: Texas Court of Appeals
• Writing for the Court: SEARS
• Citation: River Oaks Shopping Center v. Pagan, 712 S.W.2d 190 (Tex. App. 1986)
• Decision Date: 08 May 1986
• Docket Number: No. B14-85-622-CV,B14-85-622-CV
• Petition History: writ ref'd n.r.e.
• Parties: RIVER OAKS SHOPPING CENTER, Appellant, v. Irene PAGAN and Charles Pagan, Appellees. (14th Dist.)

Page 190

712 S.W.2d 190

RIVER OAKS SHOPPING CENTER, Appellant, v. Irene PAGAN and Charles Pagan, Appellees.

No. B14-85-622-CV.

Court of Appeals of Texas Houston (14th Dist.).

May 8, 1986.

Rehearing Denied June 5, 1986.

Daniel Jay Goldberg, Francine A. Jackson, Houston, for appellant.

Allan E. Ball, Stephen W. Lemmon, Houston, for appellees.

Before PAUL PRESSLER, SEARS and CANNON, JJ.

OPINION

SEARS, Justice.

This is an appeal from a summary judgment granted in favor of Irene and Charles Pagan, appellees. The issue to be determined is whether, under Section 171.255 of Texas Tax Code (Vernon 1982), the debt sued upon by appellant, River Oaks Shopping Center, was "created" or "incurred" after the appellees' corporation forfeited its right to do business in Texas. If the debt was created or incurred after the Pagan Corporation forfeited its right to do business, then appellees, as officers of the corporation, would be individually liable for the debt pursuant to Section 171.255. If, however, the debt was created or incurred before the corporation forfeited its right to do business, as found by the trial court, they would not be individually liable. We affirm.

The debt involved in this suit arises from a lease contract for real property. Appellees, in their capacities as officers of the Pagan Corporation, entered into the lease agreement with appellant on April 11, 1978. On October 17, 1979, the Pagan Corporation assigned the lease. Appellant consented to the assignment, and the corporation acknowledged that it would remain directly and primarily liable to appellant as lessor for the performance of all its obligations under the lease. The assignment was also signed by appellees in their capacities as officers of the Pagan Corporation.

The corporation forfeited its right to do business on September 15, 1979, and on March 17, 1980, it forfeited its charter and corporate privileges. In August of 1980, the assignee defaulted on the lease. Appellant sued appellees individually for the breach of the lease contract and the assignment pursuant to the provisions of Section 171.255 of the Texas Tax Code.

Both appellant and appellees filed motions for summary judgment. After a hearing on the motions, the trial court found as a matter of law that, under the provisions of Section 171.255, the debt was created or incurred prior to the Pagan Corporation's forfeiture of its right to do business. Appellant takes exception to the trial court's finding in three points of error. In his first point appellant complains that the trial court erroneously found the debt was created or incurred prior to the forfeiture of the corporation's right to do business. Appellant argues in his second and third points that the court erred in granting appellees' motion for summary judgment and in denying its motion.

Appellant argues in his first point of error that the trial court erred in granting appellees' motion for summary judgment because the debt sued upon was not created or incurred until after the Pagan Corporation forfeited its right to do business. Section 171.255 of Texas Tax Code provides in pertinent part:

(a) If the corporate privileges of the corporation are forfeited for the failure to file a report or pay a tax or penalty, each director or officer of the corporation is liable for each debt of the corporation that is created or incurred in this state after the date on which the report, tax, or penalty is due and before the corporate privileges are revived....

(b) The liability of a director or officer is in the same manner and to the same extent as if the director or officer were a partner and the corporation were a partnership.

The supreme court in Schwab v. Schlumberger Well Surveying Corp., 145 Tex. 379, 198 S.W.2d 79 (1946), construed a predecessor statute with provisions identical in import to those of Section 171.255. In that case the officers of the corporation renewed and extended a promissory note after the corporation's privileges had been forfeited. In discussing the enactment of similar statutes in other jurisdictions, the court stated:

Such statutes, though held to be remedial in some instances, are also penal in nature, and it is generally held that they must be strictly construed and cannot be extended beyond the clear import of their language.

It will be noted that the statute involved fixes liability upon the directors and officers of a corporation only for debts "created or incurred" after the forfeiture of the corporation's right to do business. The words "created" and "incurred", as used in the statute, have a clear and well defined meaning. The word "create" means "To bring into existence something which did not exist." 10 Words and Phrases, Perm.Ed., p. 331; Roth v. State, 158 Ind. 242, 63 N.E. 460, 469. The word "incur" is defined in Ashe v. Youngst, 68 Tex. 123, 125, 3 S.W. 454, 455, as " 'Brought on,' 'occasioned' or 'caused.' " In view of these definitions no debt was "created" or "incurred" by the renewal of the note because the obligation theretofore existed. It thus seems obvious that the liability imposed under the statute is only for debts contracted after the forfeiture of the right to do business, and has no application to the renewal of obligations arising prior thereto. Providence Steam-Engine Co. v. Hubbard, 101 U.S. 188, 25 L.Ed. 786; 13 Am.Jur. 1008, Sec. 10071 (emphasis added).

Schwab v. Schlumberger Well Surveying Corp., 145 Tex. at 382, 198 S.W.2d at 81.

The Dallas Court of Appeals quoted the above language in Curry Auto Leasing v. Byrd, 683 S.W.2d 109 (Tex.App.--Dallas 1984, no writ), when it held that the debt of the corporation in question related back to the promise to pay made in a lease agreement executed before the corporation forfeited its right to do business. In the case at bar, appellees' obligation to pay rent was brought into existence, occasioned and caused by the execution of the lease agreement on April 11, 1978.

The terms of the agreement itself further support our holding. Section 3.02 of the agreement states that, although the lease term will commence at a date subsequent to the execution of the contract, the parties intend that each shall have vested rights immediately upon the signing of the instrument and that the instrument shall be binding and in full force from and after its execution. Section 4.01 of the lease agreement provides that rent is payable in advance each month, with payment due on the first day of each month of the lease term. When Sections 3.02 and 4.01 are read together, it is clear that the obligation to pay rent was created or incurred at the time the...