State v. Perlstein

• Decision Date: 31 October 1934
• Docket Number: No. 8132.,8132.
• Citation: 79 S.W.2d 143
• Parties: STATE v. PERLSTEIN et al.
• Court: Texas Court of Appeals

Page 143

79 S.W.2d 143

STATE v. PERLSTEIN et al.

No. 8132.

Court of Civil Appeals of Texas. Austin.

October 31, 1934.

Rehearing Denied January 9, 1935.

Appeal from District Court, Travis County; J. M. Patterson, Special Judge.

Suit by H. A. Perlstein and others against the State of Texas, wherein defendant filed a cross-action. Judgment for plaintiffs, and defendant appeals.

Reversed and rendered.

James V. Allred, Atty. Gen., and Pauline R. Frank and F. O. McKinsey, Asst. Attys. Gen., for the State.

Howth, Adams & Hart and A. Milton Vance, all of Beaumont, for appellees.

BLAIR, Justice.

This litigation arose as follows:

The state of Texas owned the "State Iron Industry," consisting of a blast furnace, pipe plant, and foundry, located on 123 acres of land owned in fee by the state, at the Rusk Penitentiary, together with about 6,000 acres of iron ore leases near the plant. For several years prior to 1917, the plant had not been operated, and had become dilapidated, parts removed, and a fire had damaged it. April 2, 1917, by H. C. R. No. 22, 35th Legislature (Acts 1917, p. 499), the board of penitentiary commissioners, with consent of the Governor and Attorney General, were "requested to sell * * * said property * * * on such terms as will justify the purchase, rehabilitation and operation * * * to any person * * * who will agree and give a good and sufficient bond in the sum of one hundred thousand ($100,000.00) dollars to take, pay for, rehabilitate and put in operation the blast furnace, the cast iron pipe plant, and the foundry * * * within a reasonable time from the date of the sale thereof, and to operate said industries for at least one full year." The sale was to include land needed for the plant, but not "the Rusk Penitentiary, its buildings, grounds, and present prison industries, nor such lands as may be needed or wanted for other purposes." Accordingly, the properties were duly advertised and sold to L. P. Featherstone, acting for the Texas Steel Company, for $112,500 and 50 cents per ton for the iron ore in the leases, to be paid for as used. December 2, 1917, a written contract for the purchase of the properties was executed, which provided that the deed would be delivered when purchaser made the required bond of $100,000, and paid one-fourth of the purchase price; and further provided that the remainder of the purchase price be paid one-fourth in one year, one-fourth on or before eighteen months, and one-fourth on or before two years from date of contract. January 8, 1918, Featherstone paid $5,000 as earnest money, to be applied on purchase price if the sale was completed, otherwise to be forfeited.

The Texas Steel Company took possession of the properties and expended about $100,000 for repairs; and in April, 1919, put the blast furnace in operation and operated it for about three months. By H. C. R. No. 43, dated March 15, 1919, the 36th Legislature (Acts 1919, p. 380) recited that Featherstone had "deposited $5,000.00 as earnest money," and had made improvements "to the amount of approximately $100,000.00," but had not made the bond nor paid the first installment as required by the purchase contract; and extended the time for making the bond and first payment to July 1, 1919. By H. C. R. No. 11, dated July 16, 1919, the Legislature (Acts 1919, 1st and 2d Called Sess., p. 460) again extended the time for making the bond and first payment to January 1, 1920, reciting that "said L. P. Featherstone has expended more than $100,000.00 in rehabilitation and improvement of said property," but had closed the plant temporarily on account of unfavorable freight rates made under the Federal Administration of Railroads. In October, 1919, the Texas Steel Company was placed in the hands of a receiver.

March 16, 1920, the prison board, with the consent of the Governor and Attorney General, executed and delivered a deed to the property to L. P. Featherstone, who on the same date executed the $100,000 bond with appellees, or those whom they represent, as sureties, conditioned as provided for by the resolution and the purchase contract. On the same day appellees personally raised $23,125, which was delivered to the receiver, and which together with the $5,000 earnest money was paid by him as the first payment on the purchase contract. And on the same day Featherstone executed and delivered to the prison board his three notes of even date with the deed, each for $28,125; note No. 1 due one year, note No. 2 due eighteen months, and note No. 3 due two years after date, and bearing 6 per cent. interest. The deed was without warranty, and recited that no vendor's lien was retained. As security for payment of any amounts on account of their liability on the bond, appellees were to receive receiver's certificates, which under order of the court were to constitute a first lien on the property; and, as additional security Featherstone executed a deed of trust on the property to appellees, and then deeded the property to the receiver of the Texas Steel Company, without warranty, and in consideration of the assumption of the performance of his contract with the state. Beginning about April, 1920, the receiver operated the blast furnace for three months; and for these and other expenses appellees advanced funds to the receiver until they held his certificates, taken at 66 2/3 cents on the dollar, in an amount in excess of $100,000.

March 16, 1921, appellees paid direct to the prison board $28,125.00 principal, and $5,062.50, interest, in payment of note No. 1, and all interest due to that date. A Senate Resolution of the 37th Legislature, and an agreement of the parties, dated October 26, 1921, extended the time of payment of notes Nos. 2 and 3 to September 16, 1923, and March 16, 1924, respectively; and March 16, 1922, the appellees paid the prison board $3,375, the accrued interest to that date on the balance of the unpaid purchase price.

December 18, 1922, under orders of the court, and after due advertisement and sale, the receiver deeded the property to John L. Keith, as trustee for appellees; the consideration being the surrender of receiver's certificates of the face value of $97,121.08, and $27,878.92 cash, and the receiver also sold all accounts, notes, and claims receivable of the Texas Steel Company to the trustee. The receiver's deed was without warranty, and provided that purchasers would perform all conditions of the order of sale and would assume all the obligations of Featherstone as provided in his contract and bond to the state.

After receiving the deed from the receiver, appellees paid interest on the two remaining purchase-money notes as follows: March 16, 1923, $3,375; March 16, 1924, $3,375; March 16, 1925, $3,375; and December 29, 1926, $1,687.50, which last payment was claimed by appellees to have been made under some sort of compromise agreement with the board of managers of state properties, created by the 39th Legislature, by which the two remaining notes were to be canceled upon appellees' deeding 17½ acres of the land back to the state for insane asylum purposes, and putting the blast furnace in operation; but which agreement was not approved by the Legislature, and was never carried out.

After appellees purchased the property they did not attempt to operate the plants in any manner; but upon the advice of engineers, who found that most of the state leases did not contain iron ore in paying quantities, appellees purchased 8,000 acres of ore leases at an approximate cost of $100,000, which leases were claimed to be necessary to the future operation of the industries.

September 13, 1927, the state by its Attorney General filed suit against appellees, or those whom they now represent, on the two remaining purchase-money notes and the bond, the action being one for debt, no lien being asserted against the properties in question. Appellees answered, setting up the claim that H. B. No. 451, Acts 35th Legislature (chapter 198), approved April 4, 1917, providing for the establishment of the East Texas Hospital for the Insane, authorized the committee named therein to select the site for such hospital on the property known as the State Iron Industry; that since this act was approved two days after the approval of H. C. R. No. 22, under which the prison board purported to act in selling the said State Iron Industry to Featherstone, the subsequent act superseded the former H. C. R. No. 22; and that therefore the deed to Featherstone was void and passed no title to the property; and pleaded failure of consideration for the purchase money notes and the bond executed by appellees to secure the payment of them. Prayer was that the state take nothing by its suit, and in the alternative that the suit be stayed until the state furnished good title to the property. Appellees also set up by cross-action that upon the rescission of the conveyance and cancellation of the notes and bond they would be entitled to a return of the purchase money paid by them and their predecessors to the contract. By supplemental petition the state again asserted the validity of the conveyance and sought to collect its debt, and, in the alternative, alleged that if the consideration for the notes and bond had failed, then that the deed be canceled, and that the title to the property be vested in the state. The state excepted to the cross-action to recover the purchase money paid, because appellees had not been granted permission to sue the state.

July 22, 1929, final judgment was entered in said cause, which recited, "that the law and the facts are with defendants and that prayer for the cancellation of the bond and notes should be granted and sustained"; and further recited that the law and facts are with the state "wherein in the alternative it prays for the cancellation of the deed to L. P. Featherstone." The judgment accordingly decreed that the state take nothing by its suit against appellees on the notes...