Texarkana & fort Smith Railway Co. v. Bemis Lumber Co.

• Decision Date: 03 March 1900
• Citation: 55 S.W. 944,67 Ark. 542
• Parties: TEXARKANA & FORT SMITH RAILWAY COMPANY v. BEMIS LUMBER COMPANY
• Court: Arkansas Supreme Court

55 S.W. 944

67 Ark. 542

TEXARKANA & FORT SMITH RAILWAY COMPANY v. BEMIS LUMBER COMPANY

Supreme Court of Arkansas

March 3, 1900

Appeal from Little River Circuit Court, WILL P. FEAZEL, Judge.

STATEMENT BY THE COURT.

Appellee sued appellant on the following note:

"$ 300.

TEXARKANA TEX., November 16, 1891.

"Sixty days after date we promise to pay to the order of A Weinstein three hundred dollars at . If collected by law or placed for collection, we agree to pay 10 per cent. for attorney fees. [Signed]

"TEXARKANA & FT. SMITH RAILWAY CO.,

"By W. L. WHITAKER, President."

Indorsed on face:

"Protested for non-payment January 21, 1892.

[Signed.]

"W ESTES, Notary Public."

Indorsed on back:

"W L. Whitaker, Benj. Whitaker.

"Assigned to Bemis Lumber Co., without any recourse or liability of any kind whatsoever on me. This 21st day of December, 1894. [Signed.]

"A WEINSTEIN."

Appellant and appellee were both corporations organized under the laws of the state of Texas. The complaint alleged that the note was executed in Texas, and there delivered for a valuable consideration to Weinstein, who for a valuable consideration transferred same to the appellee. The prayer of the complaint was for judgment against appellant and the endorsers, for the debt, interest, protest and attorney's fees, and for costs.

Appellant, for answer to the complaint, denied that the note was executed by appellant or by its authority; averred that it was executed by W. L. Whitaker solely for himself and Benjamin Whitaker; denied that the board of directors had knowledge of the execution of the note until after this suit was brought; alleged that the appellee recovered judgment on said note in the Nevada circuit court against W. L. Whitaker and Benjamin Whitaker, and that said judgment had been satisfied by them or other voluntary payers for them; denied that appellee was the owner of the note; alleged that appellee had acquired possession of the note with full knowledge of all the facts, and after its maturity; that appellant had received no consideration for the note; pleaded the laws of the state of Texas, and alleged that said note was void under the laws of Texas, as well as under the laws of Arkansas. By an amendment to its answer, appellant alleged that the payment of said note to Weinstein was secured by collaterals furnished by W. L. and Benjamin Whitaker; that said collaterals consisted of stock in certain corporations, and was of a greater value than the amount of said note; that appellee purchased said shares from Weinstein and the Whitakers and that part of the consideration was the payment by appellee to Weinstein of the note and judgment thereon; that appellee had paid to Benjamin Whitaker large sums of money in consideration for said collaterals, knowing at the time that the same were pledged to Weinstein for the payment of this note; that appellee was estopped from complaining against appellant.

The proof tended to show that appellant, at the time of the execution of the note sued on, owned and operated a railroad from Texarkana, Texas, north into Little River county, Arkansas, and was then engaged in the construction of its road in the state of Arkansas; that W. L. Whitaker was the president of appellant railway company at the time the note in suit was executed, and was the principal party interested in said railroad, and owned nearly all of the capital stock of the company; that he was in the habit of signing the name of appellant, by himself as its president, to notes, drafts and bonds, without express authority from the board of directors, and that this was the "course of business under which the business of the company" was then being conducted; that, there were but few meetings of the board of directors, and that W. L. Whitaker was the general manager of the company; that, in 1889, F. M. Henry, one of the directors, at a meeting of the board, brought up the question as to Whitaker's right to execute notes in the name of the company, and the matter was discussed at the meeting, but no action was taken by the board. "It was not a very formal matter." The matter was afterwards mentioned on the streets to Whitaker by some members of the board. Whitaker continued to execute notes on behalf of appellant as president from 1889 to 1892. His authority to do so was never challenged, except at the times and in the manner mentioned above. On November 19, 1891, W. L. Whitaker, as president of the Texarkana & Fort Smith Railway Company, in the office of the company in Texarkana, Texas, applied to A. Weinstein for a loan of money to the company. He then and there stated to Weinstein that he was bound to have some money to pay off the hands who were at work in constructing said railroad. Weinstein made the loan requested to the amount of the note, less the discount, and Whitaker gave Weinstein the note in suit, indorsed by W. L. Whitaker and Benjamin Whitaker for the money. Weinstein understood from Whitaker at the time that the money was being loaned on the railway company for the purpose of paying off its employees for labor done in the construction of the road, and if he had not so understood he would not have loaned the money. Prior to the execution of this note, Weinstein had discounted $ 2,000 of this railway company's notes signed by W. L. Whitaker, president, payable to Grigsby Bros., who were contractors engaged in the construction of the railroad. Appellee paid to Weinstein the amount due on the note, and Weinstein indorsed the note to appellee without recourse on him.

W. L. Whitaker testified that he borrowed the money from Weinstein to take up his individual note at Texarkana National Bank, and used the money for that purpose; that he signed the name of appellant as maker of the note without any authority; that the note was accommodation paper, so far as the railroad was concerned; that he was putting up his own money in the construction of the road, etc. But Whitaker nowhere denies affirmatively the testimony of Weinstein. "He told me he was bound to have some money to pay off the hands on the said railroad. I loaned him the amount of the note, less the legal discount, for the purpose of paying off these hands." Whitaker only testified that he did not remember any such statement.

Art. 12, § 6, of the constitution of Texas is 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."

A statute of Texas provides that no corporation created under its laws "shall employ its stock, means, assets or other property, directly or indirectly, for any other purpose whatever than to accomplish the legitimate objects of its creation." Rev. Stat. 1895, art. 665.

The only statute of Texas relative to the power of railroad corporations to borrow money is the following: A railroad corporation "shall have the right from time to time to borrow such sums of money as may be necessary for constructing, completing, improving or operating its railway, and to issue and dispose of its bonds for any amount so borrowed, and to mortgage its corporate property and franchise to secure the payment of any debt contracted by such corporation for the purpose aforesaid." Id., art. 4486.

Under the laws of Texas the provision in a note for the payment of attorney's fees is valid, and can be enforced. The note in suit was executed in Texas, and all the parties thereto were at the time of its execution residents and citizens of Texas.

The following, in substance, was testified by W. N. Bemis: The Bemis Lumber Company owned the note sued on at the time of the institution of this suit, and no part of said note has ever been paid. The Bemis Lumber Company paid Weinstein the amount due on this note in order to relieve the stock of the Ozan Lumber Company, and the stock of the Prescott & Northwestern Railroad Company, which stock had been pledged by Benjamin Whitaker to A. Weinstein to secure the indebtedness due by Benjamin Whitaker to A. Weinstein, including this note on which Benjamin Whitaker was liable as indorser. On payment of the amount due thereon to A. Weinstein, the Bemis Lumber Company took up the note. Before paying the note the Bemis Lumber company tried to get A. Weinstein to sue the railroad company on it, but Weinstein, knowing that his security was ample, refused to sue, and in order to bring suit, the Bemis Lumber Company took up the note. The Bemis Lumber Company did not take up the note voluntarily. The money was due Weinstein from the Texarkana & Ft. Smith Railway Company, and the Bemis Lumber Company took up the note to relieve the stock, and then sued the railway company. It paid the money due on this note to Scott & Jones, attorneys for A. Weinstein. The note was taken up before the Bemis Lumber Company had a settlement with Benjamin Whitaker. Weinstein had nothing to do with the Whitaker trade, and Whitaker had nothing to do with the Weinstein trade, so far as this note was concerned.

When the Bemis Lumber Company paid the amount due on the note sued on, and the note was transferred to the company, it instructed Scott & Jones, as its attorneys, to bring suit on the note at once.

Such other facts as may be necessary will be stated in the opinion.

Affirmed.

William T. Hudgins, for appellant.

The note sued on was void and unenforceable, as against the railroad company, because the corporation had no power to make it without receiving value for it. Accommodation paper of a corporation is void. Texas const., art. 12, § 6; Ark. const., art. 12, § 8. That such an obligation is void, see: 116 U.S. 491; 41 Ark. 331; 167 U.S. 362; 40 S.W 328; 88 Tex. 570; S. C. 30 S.W. 1055; 167 U.S. 362; 120...