Opinion
No. 3628.
February 3, 1938. Rehearing Denied February 24, 1938.
Appeal from District Court, El Paso County; Ballard Coldwell, Judge.
Suit by Dan R. Ponder against the Southwestern Hotel Company, the El Paso Hilton Hotel Company, and others, to recover on leasehold bonds executed by the El Paso Hilton Hotel Company, and to foreclose liens. From a judgment in favor of plaintiff for a certain sum against the El Paso Hilton Hotel Company, but denying all other relief sought by plaintiff, the plaintiff appeals.
Affirmed.
This is a suit by Dan R. Ponder against Southwestern Hotel Company, National Hotel Company, Great Southern Life Insurance Company, Texas Finance Company, City National Bank of Galveston, W. L. Moody, Jr., individually and as a partner of W. L. Moody Company, a copartnership, C. N. Hilton, El Paso Hilton Hotel Company, Hilton Hotel Company, Gustavus A. Trost, George E. Trost, and Adolphus G. Trost. The suit is to recover upon 95 bonds in the principal sum of $1,000 each and to foreclose liens. The plaintiff sues for the use and benefit of R. E. McKee and others who assigned the bonds and asserted liens to him. Such bonds are referred to as leasehold bonds. They are payable to bearer and were executed by the El Paso Hilton Hotel Company in payment for a leasehold interest in a parcel of very valuable land in the city of El Paso, which leasehold was conveyed to the El Paso Hilton Hotel Company by Hilton Hotels, Inc., the original lessee, on February 28, 1930. The bonds were secured by a vendor's lien reserved in the conveyance of the leasehold. They were further secured by a deed of trust dated March 1, 1930, executed by the El Paso Hilton Hotel Company to the El Paso National Bank, trustee, which covered the leasehold interest and furniture and furnishings which were to be placed later in the hotel which was to be built upon said land by the El Paso Hilton Hotel Company. The land was leased to Hilton Hotels, Inc., for 99 years by Albert Mathias by lease dated September 1, 1929.
The lien securing the payment of the leasehold bonds was inferior to a deed of trust lien upon the fee-simple title to the land in favor of the Pacific Mutual Life Insurance Company securing a note for $450,000 executed by the El Paso Hilton Hotel Company. The deed of trust in favor of the insurance company was executed by Mathias and El Paso Hilton Hotel Company. The lien of the leasehold bonds upon the leasehold estate and furniture and furnishings was also inferior to a lien in favor of Mathias to secure the payment of ground rentals and other obligations imposed by the lease from Mathias to Hilton Hotels, Inc.
The defendants Texas Finance Company, Great Southern Life Insurance Company, and the Trosts were owners of some of the leasehold bonds. They were evidently joined as parties defendant because they did not join as plaintiffs.
The defendants National Hotel Company, City National Bank of Galveston, W. L. Moody, Jr., individually and as a copartner of W. L. Moody Company, and Hilton Hotel Company were alleged to be asserting some inferior interest in the property upon which plaintiff sought to foreclose.
Heretofore, Robert E. McKee, who assigned to plaintiff Ponder 59 of the bonds here sued upon, brought a suit against Albert Mathias, C. N. Hilton, Southwestern Hotel Company, National Hotel Company, American National Insurance Company, Shearn Moody, and W. L. Moody, Jr. That suit was to recover damages based upon an alleged tort, consisting of a fraudulent conspiracy between the defendants to induce the El Paso Hilton Hotel Company to default on its bonds, with the understanding and agreement upon the part of Albert Mathias that he would forfeit and cancel his lease on the Hilton Hotel property and foreclose on the assets of the El Paso Hilton Hotel Company, and then enter into a new lease with a new corporation, to be owned and dominated by the Moodys and C. N. Hilton, and thereby eliminate the lien of the 150 leasehold bonds.
In that case an instructed verdict was returned and judgment rendered in favor of the defendants. Upon appeal the judgment was affirmed, this court holding the evidence failed to show that the action of Mathias in canceling the lease and foreclosing by court action his lien upon the personal property in the hotel was in pursuance of any preconceived fraudulent conspiracy or scheme upon the part of the defendants to eliminate the inferior lien of the holders of the leasehold bonds. See McKee v. Mathias, Tex. Civ. App. 83 S.W.2d 744, 749. Writ of error in the case was dismissed.
The case at bar was submitted upon special issues.
Defendants filed motion for judgment non obstante veredicto.
Upon the motion judgment was rendered in favor of the plaintiff Ponder for $123,618.87 against the El Paso Hilton Hotel Company, the maker of the bonds sued upon, and all other relief sought by the plaintiff was refused.
The relief sought by Ponder is a recovery in the sum of $123,618.75 against El Paso Hilton Hotel Company and Southwestern Hotel Company, together with foreclosure of lien against all defendants on the leasehold to the Southwestern Hotel Company, the improvements thereon, furniture, fixtures, and furnishings, and rents, revenues, and profits, now in the possession of Southwestern Hotel Company; in the alternative, that a constructive trust and equitable lien be fastened on all the stock in Southwestern Hotel Company to secure plaintiff's money judgment, that said stock be ordered sold and the proceeds thereof paid, pro tanto, to satisfy plaintiff's money judgment, and for general relief.
The documentary and oral evidence in the case is very voluminous and practically the same as in the suit of McKee v. Mathias, supra. We refer to the opinion in that case for a more complete and detailed statement of the evidence.
C. N. Hilton is the owner of all of the capital stock of the defendant Southwestern Hotel Company. That company was organized by him for the purpose of acquiring the assets of the El Paso Hilton Hotel Company, which purpose was accomplished in this manner:
Mathias canceled the lease to Hilton Hotels, Inc., which he had theretofore given because of default in the payment of ground rentals and other obligations imposed upon the lessee by the lease.
Mathias acquired title to the furniture and furnishings in the El Paso Hilton Hotel by foreclosure suit in cause No. 39971 and a release from the receiver Bowie. Bowie had been appointed receiver of the El Paso Hilton Hotel by the district court of El Paso in a suit by the El Paso National Bank, the trustee named in the deed of trust above mentioned given to secure the leasehold bonds.
After canceling the lease and acquiring title to the furniture and furnishings, Mathias sold the latter to the Southwestern Hotel Company and executed a new 99-year lease upon the land above mentioned in favor of said Southwestern Hotel Company at reduced ground rentals.
Armstrong Jaffe, of El Paso, for appellant.
Frank S. Anderson, of Galveston, and Jones, Hardie, Grambling Howell, of El Paso, for appellees.
We shall not discuss the various theories advanced in the appellant's lengthy brief. Our conclusions will be briefly stated.
From the statement made it is apparent none of the defendants are personally and contractually liable on the bonds sued upon except the El Paso Hilton Company, the maker thereof, and against whom personal judgment in plaintiff's favor has been rendered for the amount due upon said bonds.
It is also manifest the lien securing the payment of said bonds has been apparently eliminated and lost.
Appellant seems to recognize this situation, but as we understand his theory it is that his right of recovery against Southwestern Hotel Company, C. N. Hilton, and some of the other defendants is founded upon fraud.
We quote from the petition:
"These assets were thus transferred for the purpose of hindering, delaying and defrauding the noteholders and/or bondholders, and for the purpose and as a means of obtaining such assets for C. N. Hilton and his alter egos free of the legal and equitable liens securing the claims evidenced by the notes herein sued on" * *
"The Southwestern Hotel Company is merely a continuation of the El Paso Hilton Hotel Company and was created, organized and brought into being by C. N. Hilton as a mere tool and business conduit of El Paso Hilton Hotel Company, Hilton Hotel Company and C. N. Hilton, as a means of perpetrating a fraud, as detailed herein, and for the express purpose and as a means of evading the existing obligations evidenced by the notes, among which are those sued on herein by plaintiff, together with the liens securing same, all to the profit of C. N. Hilton, who at all times herein was the president, general manager, director and dominating stockholder of El Paso Hilton Hotel Company, Hilton Hotels, Inc., Hilton Hotel Company and Southwestern Hotel Company, debtors of the noteholders."
In this connection we quote from McKee v. Mathias, supra:
"The El Paso Hilton Hotel Company was in financial difficulty from the time the hotel began operating. The economic condition prevailing throughout the entire period covered by the transactions in question is known to all men. Said company was unable to meet its obligations. The evidence shows that C. N. Hilton strenuously endeavored to meet and protect the company's obligations, and was unable to do so. The Pacific Mutual was threatening to mature the entire debt of $450,000 because of tax delinquency and delinquency in the payment of interest and principal installments due it. The record indicates Mathias is of perhaps advanced age and intrusts his business affairs in large measure to his son-in-law, E. H. Krohn, who, with the approval of Mathias, acted for him. By the delinquencies mentioned and the threatened action of the Pacific Mutual, the situation was fraught with grave danger to Mathias, who owned the land subject to the leasehold. In addition to that danger, McKee and other holders of the leasehold bonds, before the cancellation of the lease was made by Mathias, caused the El Paso National Bank, trustee, to file suit upon the bonds and sought a receivership.
"The evidence shows conclusively that McKee and the other holders of the leasehold bonds were afforded every opportunity and besought to protect the delinquencies, and failed and refused to do so. The action of Mathias in protecting the delinquencies was compulsory upon him in order to protect his own superior title and lien. The evidence, as we view it, wholly fails to impeach the good faith of Mathias and Krohn in the action taken in canceling the lease and foreclosing the superior lien of Mathias upon the hotel furniture and fixtures.
"It is to be remembered that the lien of the leasehold bonds was subordinate to the title of Mathias and his lien for ground rentals and advancements.
"The second lienholders were either unwilling or unable to protect their lien, and certainly no obligation rested upon Mathias to do so for them.
"Appellant stresses the fact that in a short time Mathias surrendered the property under a new lease to the Southwestern Hotel Company, a corporation organized and controlled by Hilton, together with the hotel furnishings, upon being reimbursed for the advances which he had made and expenses incurred.
"Under the circumstances, this cannot be regarded as sufficiently showing the fraudulent conspiracy asserted by the plaintiff. Mathias was not a hotel man, and, as we have heretofore indicated, his action in canceling the lease and foreclosing his chattel mortgage lien was under compulsion in order to protect his own interests. It was most natural that he should again lease the property at the earliest possible time.
"Without discussing the matter further, our conclusion is that the evidence was insufficient to warrant submission of the tort alleged."
This lengthy quotation from the opinion in McKee v. Mathias, supra, is applicable in the present case. The evidence in this case, as in that case, shows "that C. N. Hilton strenuously endeavored to meet and protect the Company's obligations and was unable to do so." The "holders of the leasehold bonds were afforded every opportunity and besought to protect the delinquencies (taxes, interest due the Insurance Company and ground rentals due Mathias), and failed and refused to do so."
They also failed and refused to co-operate with or aid Hilton and Mathias in the strenuous efforts they made to protect the properties of the El Paso Hilton Hotel Company and its creditors. In fact, they made it more difficult for Hilton and Mathias by the suit and receivership which they caused the El Paso National Bank to institute in the district court of El Paso county.
Our conclusion upon this phase of the case is that no actionable fraud, actual or constructive, is shown by the evidence or the jury findings, and the court properly limited plaintiff's recovery to a personal judgment against the El Paso Hilton Hotel Company, the maker of the leasehold bonds, for the amount due thereon.
The many cases which the appellant cites in this connection present different facts and are not regarded as in point here.
As we view it, the action taken by Hilton in organizing the Southwestern Hotel Company which was intended to acquire and did later acquire the assets of the hopelessly insolvent El Paso Hilton Hotel Company was a bona fide reorganization of said insolvent corporation, which reorganization was free from fraud, actual or constructive. It was a reorganization following a valid foreclosure, and the leasehold interest and personal property acquired by the Southwestern Hotel stand discharged of the lien asserted by plaintiff. 14a C.J. p. 1050, § 3620; Murphy v. Argonaut Oil Co., Tex.Com.App., 23 S.W.2d 339; Armour v. E. Bement's Sons, 6 Cir., 123 F. 56, 59; Coriell v. Morris White, Inc., 2 Cir., 54 F.2d 255; Berry v. Old South Engraving Co., 283 Mass. 441, 186 N.E. 601; Ewing v. Composite Brake Shoe Co., 169 Mass. 72, 47 N.E. 241; National Foundry Pipe Works v. Oconto City Water Supply Co., 105 Wis. 48, 81 N.W. 125; Swing v. Empire Lumber Co., 105 Minn. 356, 117 N.W. 467; Knott v. Fisher Vehicle Co., Mo. App., 190 S.W. 378; Midland R. Co. v. Fisher, 125 Ind. 19, 24 N.E. 756, 8 L.R.A. 604, 21 Am.St.Rep. 189.
In this connection we quote from Armour v. E. Bement's Sons, supra, as follows: "It is of common occurrence that an insolvent corporation is compelled to go into liquidation. The individuals who compose it seek to save what they can from the wreck by organizing themselves in a new corporation, and buying such of the properties of the former corporation as they can profitably use in the new. No principle of law is violated by their forming the new organization; and no right of the creditors of the old organization is injured, provided its assets are lawfully acquired by the new one. If they are not lawfully acquired, the creditors have the same right to pursue the assets as they would have if any other person had unlawfully acquired them; and it is difficult to find any basis for any other equity which they could claim as inuring to them from the transaction. The stockholders of an insolvent corporation are not bound to maintain the corporation in a hopeless struggle. The claims of creditors do not impose such an obligation, and public policy requires that they should be free to engage in new enterprises. They may do this, but they cannot gain profit from the assets of the corporation, to the detriment of the lawful rights of creditors, any more than any other person may. To be sure, the relation of the stockholders, and especially of the directors, to the subject-matter, may afford reason for close scrutiny of such transactions; but in the end the question is one of fair dealing in the exercise of a legal right. I Morawetz on Corp. § 811. All this is inconsistent with the idea that a new corporation, organized with the intention of acquiring for it the assets of an existing one, must, upon acquiring them, be regarded as the old corporation in a new dress, and so liable for the old debts. The fact that the directors are the same persons as the directors of the old has no tendency to prove the identity of the corporations, where, as here, each is conceded to be separately organized at widely different dates, with different stockholders and with different stock, under laws which, when complied with, create a distinct legal body, having rights and duties conferred and imposed upon it by its separate charter."
There is no merit in those assignments which assert the lease of Mathias violates the rule against perpetuities. If there is a violation of such rule, it would not aid the appellant.
The appointment of a receiver in the suit brought by the El Paso National Bank was not void because such appointment was made in vacation. Lyons-Thomas Hardware Co. v. Perry Stove Co., 88 Tex. 468, 27 S.W. 100.
All other points submitted by appellant have been considered. They are regarded as without merit and are overruled.
Affirmed.