Van Valkenburgh v. Ford

Decision Date14 November 1918
Docket Number(No. 7527.)
CourtTexas Court of Appeals

Appeal from District Court, Brazoria County; Sam'l J. Styles, Judge.

Action by Charles G. Mugler against the Mugler Manufacturing Company, in which Mrs. Gay Ford, the Muncie Oil Engine Company, the Mercantile Trust Company of Illinois, the Southwest General Electric Company, and others intervened, consolidated with action by R. W. Van Valkenburgh against Charles G. Mugler and others. The lower court rendered judgment subordinating the vendor's lien on the real estate held by Van Valkenburgh, and the chattel mortgage liens held on certain machinery by the machinery interveners, to receiver's certificates issued and to the costs of the receivership, from which said Van Valkenburgh and the machinery interveners appealed. The court at the same time rendered judgment in favor of the machinery interveners against the said Van Valkenburgh, holding the chattel mortgage liens on the respective machinery sold by said interveners to the Mugler Manufacturing Company were superior to Van Valkenburgh's vendor's lien on the real estate and plant, from which judgment the said Van Valkenburgh appealed. Both judgments reversed and rendered in part, and affirmed in part.

Thompson, Knight, Baker & Harris, of Dallas, Munson & Williams, of Angleton, Cole & Cole, of Houston, and G. W. Follin, of Bell Buckle, Tenn., for appellant Van Valkenburgh.

Elliot Cage, of Houston, for appellant Muncie Oil Engine Co.

George A. Byers, of Houston, for appellant Mercantile Trust Co. of Illinois.

A. R. Rucks, of Angleton, for appellant Southwest General Electric Co.

John Charles Harris and Harris & Harris, all of Houston, and C. D. Jessup and W. S. Sproles, both of Angleton, for appellee Ford.


Prior to May, 1913, the Alvin Water, Light & Ice Company, whether a corporation or copartnership not shown by the record, was the owner of lots 2 and 3, in block 2, in the A. C. Wade addition to the town of Alvin, Brazoria county, Tex., together with all buildings, fixtures, machinery, etc., placed or built thereon as a part of its water, light and ice plant, and also all poles, wires, and fixtures constructed, in connection therewith, upon and along the streets of Alvin. The above-named company becoming insolvent, all of the property above described was sold under execution sale to appellant R. W. Van Valkenburgh on the 16th day of May, 1913.

Van Valkenburgh was the owner of this property from the date of its purchase up to the 5th day of January, 1915, a period of about 20 months. During the 20 months he owned said "plant" and property the plant was only operated for about five months, and during the eight months next preceding his disposition of the same, on January 5, 1915, it was not operated by any one. On January 5, 1915, Van Valkenburgh, by his deed of that date, conditionally conveyed all of said property to one Charles G. Mugler for a consideration of $5,500, of which $1,000 was paid by Mugler in cash. For the remainder Mugler executed four notes for $1,000 each and one for $500, all being payable to R. W. Van Valkenburgh or order, 9, 15, 20, 24, and 30 months, respectively, from their dates. Said deed contained a clause as follows:

"But it is expressly agreed and stipulated that the vendor's lien is retained against the above-described property, premises, and improvements until the above-described notes, and all interest thereon, are fully paid according to their face and tenor, effect, and reading, when this deed shall become absolute."

The first of the series of $1,000 notes was transferred by R. W. Van Valkenburgh to Harry Ford, a son of James and Gay Ford, hereinafter mentioned, with an indorsement thereon to the effect that as a lien against the property sold by Van Valkenburgh to Mugler it was to be secondary and subordinate to the other notes retained by Van Valkenburgh.

On the 14th day of April, 1915, three months and ten days after Mugler bought the "plant" from Van Valkenburgh, he (Mugler), one James Ford, and his wife, Gay Ford, procured the issuance of a charter incorporating the Mugler Manufacturing Company, with Charles G. Mugler, James Ford, and Gay Ford as organizers and directors. The purposes for which the company was incorporated were expressed in its charter as follows: "The manufacture of and supply of ice to the public, and the generation of a supply of gas, electric light, and motor power to the public." The capital stock was $12,000, all paid as follows: $6,000 by Mugler, by his promise to convey to said corporation property conveyed to him by Van Valkenburgh; $5,900 cash, paid by James Ford; and $100 cash paid by Gay Ford. Mugler never did convey said property to the corporation, but his affidavit made to procure the issuance of the charter is to the effect that he had conveyed the same to said corporation. Mugler was the owner of $6,000, James Ford $5,900, and Gay Ford $100 worth of the stock of said corporation, respectively. The corporation thus formed commenced business with Charles G. Mugler as president, James Ford as secretary, and Mrs. Gay Ford as treasurer, and shortly after the incorporation of said company it incurred a large indebtedness for machinery and material bought for the purpose of commencing operations, as the plant was not in operation at the date of its sale by Van Valkenburgh to Mugler, and, as before stated, had not been for eight months next prior to such sale.

After the incorporation of said company, on April 14, 1915, and after the plant was overhauled and new engines and other machinery were installed, which we assume consumed some considerable time, the corporation began the operation of the plant. After operating the plant for a few months only, Charles G. Mugler, president of the corporation, on October 27, 1915, filed his suit No. 11,204 in the district court of Brazoria county against said corporation, the Mugler Manufacturing Company, and in his petition he alleged the organization and incorporation of the company; that he was president of the company, and the owner of one-half of the capital stock; that he was the active manager of the business and plant of the Mugler Manufacturing Company; that the assets of defendant corporation consisted of real estate, electric light and ice manufacturing plant, electric light poles, and lines and fixtures incident thereto (together with a small amount of bills receivable), of the approximate value of $22,300; that the liability of said corporation aggregated approximately $23,250; that he had advanced $6,000 to the company, and that the company was also further indebted to him for $300 for borrowed money and $900 for past salary due him as president and manager; that said corporation was in eminent danger of insolvency, and that the interest and welfare of the stockholders and of the public rendered it necessary that a receiver should be appointed immediately.

Upon this petition one A. T. Page was by the court appointed receiver of the properties of the corporation on the 28th day of October, 1915, and on the same day duly qualified as such. On October 30, 1915, two days after his appointment and qualification, said receiver filed his petition, praying that he be permitted to operate said plant, setting forth the fact that the company had no funds to defray the expenses of operating the same, and prayed that he be authorized to issue receiver's certificates to defray said expenses; and at various and sundry times, upon the application of the receiver, he was authorized to issue receiver's certificates to defray the expenses of operation, and for improving and adding to the plant, until he had issued certificates aggregating $3,500, which by order of the court were made prior and superior liens on all of the assets of the corporation over every other class of claims, including the vendor's lien notes held by Van Valkenburgh and Harry Ford.

Certificate No. 1 was issued October 26, 1915, for the sum of $500; certificates Nos. 2 and 3, for the sum of $500 each, were issued in favor of Harry Ford on the 25th day of November, 1915; certificates Nos. 4 and 5, for the sum of $500 each, were issued on the 25th day of November, 1915, in favor of Mrs. Gay Ford; and certificate No. 6, for the sum of $1,000, was issued on the 7th day of April, 1917, in favor of Mrs. Gay Ford; all aggregating the sum of $3,500. By transfer and otherwise all became the property of Mrs. Gay Ford, and were owned and held by her at the time of the trial of this cause.

At the time the receiver was appointed upon the petition of Charles G. Mugler, president of the corporation, James Ford, husband of Mrs. Gay Ford, and father of Harry Ford, had an investment in the plant of some eight or ten thousand dollars. After the receiver took charge of the properties, Harry Ford stayed at the plant for a month and a half, and assisted in its management, when he was called north on account of his father's death. The Fords agreed with the receiver to buy the receiver's certificates when the court authorized their issuance, in order to keep the business running. The Fords were familiar with the character of the business done by the plant, and knew that the principal business of the company was the manufacture and sale of ice, and knew that a much larger portion of the money secured by the issuance and sale of said receiver's certificates was to be used in the manufacture of ice, and that a very small portion thereof was to be used in furnishing light to the public.

The Mugler Manufacturing Company, by its officers and directors, James Ford and Mrs. Gay Ford, answered the suit of Mugler, and, after alleging its incorporation, further alleged that plaintiff Charles G. Mugler had subscribed for one-half of the total capital stock of the company, to wit, $6,000 worth, and had promised to convey the...

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