*1 Appellants, al., H. E. ENGLISH et INC., Appellees.
RAMO, al., et
No. 17663. Appeals Texas,
Court of Civil
Dallas.
Oct. 1971.
Rehearing Dec. Denied *3 Muse, Kohen, Currie,
Ralph Currie & W. Ford, Burford, Logan Ford, Ryburn & Bickel, Bromberg, Louis Leeds Johnson, P. Norris, Riggs, Jr., Jackson, & Robert J. Miller, Walker, Winstead, Cantwell & Dallas, appellants. for Winstead, Akin, Vial, Robert Peter G. Vial, Dallas, Tubb, Mary Hamilton, Koch & Clark, Thomas, Harris, Carroll, Denius Joe Winters, Austin, appellees. & GUITTARD, Justice. all stock begins
This the sale of case with by appel- Freight, of Red Ball Motor Inc. lants, his members of English E. H. Ramo, Ramo’s family, appellee Inc. stockholder, principal TeleCom appellee Corporation, purchase- guaranteed the money appellants are notes. We hold that notes and that entitled to accelerate the appellees for breach are to an offset entitled express warranty in the amount found jury. in- purchase price $15,500,000, cluding $4,000,000 notes cash and Ramo’s $11,500,000: At time of aggregating *4 security of the of the breaches One following: No. 18 the agreement Red appellants claimed was Ball’s advances Ramo from to time of to time preponderance find from you “Do amounting $2,272,376. Appel- of funds each of the occasion that on the evidence lants contend that these advances were Ramo Ball to Red of funds of transfer security agree- approximately dividends forbidden amount of aggregating an Appellees they ment. insist that were not in- no that time had $2,272,376,Ramo at dividends but inter-company were loans re-paying the same?” tention permitted by agreement. hold that We not have “Ramo did answered The they were forbidden dividends. rendering judg- repay.” In intention to among appears acceleration, limitation court
The dividend the trial denying ment (Ramo) disregard the “covenants” the debtor appellees’ motion to sustained 7(e), as Appellants Section follows: contend No. answer to Issue is evidence point first that there their “Debtor likewise cause Red Ball to finding. agree. support jury’s pay declare and cash dividends to Debtor stock, outstanding capital except on its substantially dis- is without The evidence may only that such dividends declared closed and pute. sale was When the profits accruing out after the date of signed on agreement was June this agreement, and no dividends shall be undistrib- showed Red Ball’s books paid declared or $2,250,000. would reduce profits more than On uted capital surplus continued and of Red Ball day, next business Ramo with- June and its aggregate subsidiaries below the Ball’s $1,500,000 in from Red drew cash capital surplus, as of March gave Ball no account. Ramo note 1968.” agreement pay made no interest. No resolution directors of Red Ball’s board of alleged that the Appellees admit amounts and no resolution to Ramo authorized a loan funds other were advanced to Ramo from any borrowing authorized board of Ramo’s profits accruing after date only formal- The amount from Red Ball. agreement. Ball’s books ity notation on Red was a Ramo, from $1,500,000“advance receivable” of this covenant To establish breach books of the same amount acceleration, and on Ramo’s authorizing default subsidiary.” payable “advance following rely provision on the Section Grogan made order of was withdrawal security agreement: 5(e) Ball, Lord, the boards of Red chairman of “ * * * in the Debtor defaults if the TeleCom, and chief executive Ramo and covenant, condition performance officer of all three. Agree- this agreement contained or advance, Red Ball’s checks After this first ment, mentioned default pay from time to time to Ramo’s were used been reme- not have paragraph shall Limitation. Interpretation b. Dividend payments on including interest obligations, by appellees, until October notes held finding controlling Whether this $2,272,375. In total came to on the ultimate issue of breach of the secur formality other each instance there question. ity agreement is a difficult more of Red Ball on the books than notations Appellees subjective that Ramo’s contend and Ramo. control, and unilateral intent cannot that in the absence of a formal declaration of Ramo officers and other Grogan Lord board, appellees of a dividend Red Ball’s for Ramo intended they testified required concurring, to show intention method Red Ball. No repay advances to part Red Ball in order to over planned or repayment funding such legal implication obligation come the of an Lord testified discusseed. even repay from the fact of withdrawals part of TeleCom companies were all three they showing the book entries He said company.” “just one and were like were treated as loans rather than as divi owed the indebtedness that since interests, matter dends. repayment was a to outside decision, that how inter-company difficulty applying the con- We have responsibility used was a funds were corpora- cept to a subjective intention applied
management, would tion, only by its board of direc- which acts *5 of the stockholders. to the best interest by agents tors and within and its officers are authority granted by the board. We that Red Ball’s suggestion is no There any of these not sure that the intention of by independent managed affairs be considered intentiоn Red individuals can of the six board of directors. Five any in corporation the absence of directors of Tele- Ball directors were also resolution, contemporaneous contract or directors of Ramo. Com and four were ap- statement. The sounder authorized picked and de- Ramo Red Ball’s directors proach light in the of is to determine policy. All Red termined its financial of .undisputed the advances were facts whether by and 89 Ball’s stock was owned Ramo terms by dividends within the of per of stock owned cent Ramo’s was hold agreement as a matter of law. We at the time of the Although Telecom. as a matter were dividends surplus Red Ball had a substantial its law, in their second as contend treasury, operated Ramo had at a loss since only possible fact points. and third acquired majority had of its TeleCom issue, intention, and that issue is Ramo’s operations stock and its both before controlling, appel- has resolved depended and after the sale on TeleCom’s finding, by jury’s lants’ which support. financial favor we held based on sufficient evi- to be dence. This evidence was enough justify to jury in concluding notwithstanding be dividends hold the advances the book testimony entries and the the divi- interpretation of because of our concerning Ramo’s officers Ramo’s inten purpose of dend The obvious limitation. tion repay, controlling the consideration the financial provision to maintain was repayment was the financial interest of in the event strength of Ball so that Red stockholders, TeleCom’s and that there was would by noteholders default Ramo in fact no repay intention to at the time of their balance collecting assured оf the advances were made such re because stock, Ball’s by Red *6 ment. was a factor in
withdrawals substantial these it is the ad- losses. Thus clear that holding supported by is various au This in precisely vances to Ramo resulted the issue advances thorities. The of whether type the divi- of financial weakness which are corporations to stockholders closed designed dend prevent. limitation was to arisen most rather loans has dividends The tax cases. often in federal income of Red Ball’s funds without Ramo’s use unanimously hold such decisions federal to a substantial detriment Red interest was if the be as dividends to taxable advances Ball a benefit in the nature to Ramo of the circumstances indicate an intention dividend, aof at least extent Spheeris v. repay. to Com stockholder interest, since even are the advances Revenue, 284 F.2d missioner of Intеrnal loans, treated Ramo had the benefit 366 U.S. 1960), cert. denied (7th Cir. 928 money. the use interest Red Ball’s Such on 855; Oyster 6 L.Ed.2d 81 S.Ct. equivalent payment to Ball’s R., 313 F.2d Corp. C. v. I. Products Shell debt, Ramo’s interest on which would Company 1963). Ogden (2d Cir. 449 been a dividend. Bell Bakeries v. Jefferson 1969), F.2d R., (5th 412 Cir. C. I. Co., Life 245 N.C. Standard Ins. parent a to applied to advances rule was (1957). S.E.2d 408 subsidiary. by wholly-owned corporation its controlling weight give The tax authorities Appellees insist that advances these intention finding of stockholders’ to a agreement were the security loans strictly here repay, to and if followed against inter-company contains no covenant require rendition would a may loans. be bona It conceded that Special finding to jury’s the basis Ramo, fide from Red Ball evi loan to providing note definite ma- Issue No. by denced a a presented here by the trial court and distinguish the tax cluded
Appellees attempt to exceptions. in This a bill of evidence they only establish cases on of would show that before sale accounting evasion to avoid a rule of legal English English H. B. had re- E. and O. adjudicate do not the tax laws and large similar advancements find ceived parties. We obligations between amounts, time they paid back of a the interest persuasive them because sale, in the course of and that corpora- a pledgee of the stock of closed repre- negotiations for the the sellers’ agreement a divi- a with tion under forbidding proposed provision a limitation, government sentative dend like loans, by rejected inter-company which was case, in a is determine whether tax buyers’ agent. do not ask Appellees actually enjoying beneficial stockholder so that this evi- us to reverse and remand corporate profits advanced distributions presented to at a new loans, dence a attempting and thus in the form of Rather, it is admis- distributing insist that trial. consequences of to evade the construing sible assist court funds as dividends. the same by showing the circum- dividend limitation comparable situa Authorities other made. which the contract was stances under tions hold that informal withdrawals a argue is not They that such construction by controlling corporate stockholders funds fact, solely question of a question of instance, For amount dividends. law, and can consider excluded that we Georgia Ry Trust Central Co. v. Central ques- a testimony here in determining Co., (1910), Ga. 69 S.E. tion. over company’s complete control a railroad require subsidiary a held to treatment subsidiary it consider the excluded deposited funds with cannot question for interest а
as dividend income available
law.
even on
only
bondholders.
that evi
payments
railroad’s
decisions cited to
effect
Moore,
(9th
exceptions
obtained
Other
Oil
fraud.
S.W.
*7
Mills,
have
(Tex.
controlling
Gray v.
by
1927);
stockholders
difference in value based on that Co., Doyle operating costs. Union Bank & Trust 102 the estimated increase in v. merely interpret testimony as Mont. 59 P.2d do not his A.L.R. We Co., 105 assuming $15,500,000 (1936); was the market Ford H. Dubiske that v. W. Meyers widely- (1927); that the most Conn. A. value. He testified Co., market Acme Iron measuring Kan. 175 P. recognized factor (1918). a fide market value stock was bona actually transaction, had and since the stock by appel- the authorities cited None of figure, that this sold for that he concluded pur- support lants their contention that accepted as the market amount could price chase be taken some evi- cannot as his ex- value at time. understand that We dence of market in a situation like value pert opinion to that sale itself was Pondrom, this. In Morriss-Buick Co. v. of the stock evidence of market value (1938), Tex. true, if the warranted facts had been al- Supreme that the amount Court held accepted it on he that basis. as for an car was not lowed a trade-in old agree appellants’ argu- do not with value, it of its since conclusive evidence only proving that mar- ment method of knowledge that such allow- was common closely-held ket value of stock a cor- negotiations a ances were made as result
poration by a under these circumstances paid to be for the concerning the difference appraisal all its Such detailed assets. car, careful to limit new but the court was appraisal an enter- a multimillion-dollar by saying, might “There exist opinion its truck, Ball, prise like Red truck facts, proper a it would be state of where terminal, prospects all terminal with its to be the actual agreed to assume the value risks, expensive pro- is a difficult and Bond, 362 cash market value.” White cedure, involving many different estimates for dam- (Tex.Sup.1962), a suit S.W.2d 295 value, result no more and the would be in a ages for fraud in the of stock sale figure reliable than the actual corporation, proposed uranium-mining re- parties arms’-length here reached covery ground that was denied on appellants trade. Since sold the stock “wholly record was silent as what value $15,500,000 warranty certain a that with representa- if would have had stock true, appellees allege now facts were no Apparently true.” con- tions had been true, do not facts we that those were paid for price tention was made say be heard think should it would the stock evidence the value be taken as selling price cannot representations if been have had of what the stock would have true, to rest on and the decision seems do those facts were true. Neither worth representations that the stock purchaser be re- should we think that the purchasers “good and that stock” ” quired complete appraisal to obtain ‘ground floor’ being let in on the “were in order to estab- the assets of business vague too indefinite and could warranty damages for breach lish its any proof basis for as form the requirеment respects. Such one or two Certain- represented. value the stock preclude any might be so onerous purchase that a ly the not hold court did practical remedy breach. for an established price investigation careful determined after selling shows Since the evidence here, is evi- negotiation, like arms’-length nego- price was determined dence market value. experienced and well-in- tiations between fig- men, hold that we formed business *9 the Hous- Subsequent Authority b. used upon properly agreed could be ure so ton-New Orleans Route. testimony expert concern- the basis Stuart, oral in- Appellants complain also of an 142 Denman ing market value. limiting the ef- of the trial court 129, struction (1944); 730 White 176 Tex. S.W.2d
609 over application for direct service ap- ing Ball’s concerning Red feet of evidence 10, the about which Highway directly Interstate operate authority plication for . Developments fully informed. jury was over Houston and New Orleans between to the issue not relevant the sale were after trial court’s Highway 10 and the Interstate the date of on value on market trial because grant failure to a new such reduced they enhanced or whether “newly-discovered au- that such evidence” prospects the they bore on value, unless was the trial thority granted had been after at may considered parties have which the these contentions. over. We overrule the time of the sale. testimony show- admitted The court oral change in analogous for au- to a ing application that Red Ball made The situation in route of land taken thority operate affecting this direct market value zoning over 1966, Austin v. appliсation City in of and an amended domain. In eminent Cannizzo, 808 pending at the time of the sale 267 S.W.2d which was 153 Tex. evi- was held that June, application Supreme in this Court (1954), our proba- a reasonable joint tending later heard before a Texas-Louisiana to show dence board, taking of the granting zoning change the after bility which recommended of a 1, 1970, authority, the the April that on issue of value at admissible on the Highway entered taking. Interstate State Commerce Commission time of State recommendation, affirming Gorga, an order 138 Commissioner v. N.J. by a Supreme of (1958), but that a for reconsideration A.2d Court motion competing proof the time an actual pending Jersey carrier was at held that of New taking ad- Copies application, change zoning of trial. of of after the rezoning amendment, brief, report of supporting probability missible оn the board, carefully joint taking, and the commission’s order time of but should evidence, 1, 1970, the date of April were admitted in limited the value so exhibits, basis admitting taking but after the court determined on the these would be gave appeared am have following they instruction: “I then would facts as Also, buyer going jury they hypothetical and seller. to instruct purpose Appeals Maryland deter- held considered for the the Court of Kaiser, 314, A.2d mining the of Red Ball stock on Reindollar v. 195 Md. value June or before (1950), of the transaction view of evidence date June into immediately jury zoning or laws which went thereafter.” taking, the trial court effect after Appellants contend that these ex prop- properly instructed the hibits should all have been admitted for erty been utilized sold for could have or purposes because that no established any purpose taking be- at the time damages in fact resulted from lack zoning then force. cause no laws were authority for the Houston-New Orleans occasionally route. find questions no error in the trial court’s Similar in McDonnell- limiting instruction cases. Thus jury’s consideration arisen fraud Cranford, Builders, these Inc. v. exhibits. The issue was not the Perkins Fort (Tex.Civ.App., actual increase in Worth expenses Red Ball’s be operating e.), cause of ref’d n. r. which involved over a between writ route representation Houston that a house sold was and New than the Orleans longer flood, area, cut, testimony concerning Leesville short difference than two property more day market value of its stock on the value occurred, later, a flood had authority sale because such in after lack of months submission support prospective dicated a insufficient operating increase in was held expenses. at the time Offsetting issue to value prospect of an Also, Development Co. probability day in Westwood sale of additional sale. (Tex.Civ.App., being granted Esponge, pend- later *10 610 1961,writ ref’d n. which e.),
San Antonio r. From these authorities we con subsequent of a sanitary fill on clude that involved concealment of events is evidence sold, be- property value of lots the reversed admissible the issue of on be- logical a bearing cause it was based difference at if it has a certain time time, the value of at it may tween the market the lots on that but conditions at have- the dis- jury time sale and value after the tendency of the such a confuse about covery rather than the fill the difference time of of valuation that and manner represented the time an accompanied value at it should instruction actual be of of purpose but the condition evidence limited its ad explaining the of trial ad- property subsequent at time held mission. the evidence Here operating its condition at the proceedings missible on time additional to obtain Payne, Forshagen v. 225 sale. In S.W.2d Houston New between 1949, character, Fort no appel 229 Worth (Tex.Civ.App., of that Orleans was on writ), dry property well sold was lants the evidence for a made no offer of represented productive and trial request a new limited for a limit purpose and no contrary, newly-discovered ing was ordered because of On the instruction. plaintiff argued court, presumably the trial sold that after evidence would the property paid argued jury for as much he had if the have exhibits had for it. qualification, been without admitted
these subsequent proceedings showed that
involving
fraud in
of cor
cases
sale
damages
no
In this
sustained.
situa
porate securities,
general
is that
rule
tion we
in the instruction
find
error
actual
of the
value must
determined as
these
for
should not be considered
exhibits
time of
sale rather
after financial
purpose
determining
the market
Doyle
Bank &
occur.
v. Union
reverses
the time of
value
at
the sale.
stock
563,
1171,
Co.,
Trust
102 Mont.
59 P.2d
However,
(1936).
gil Likewise, purpose. study final After a the commission’s careful of that trial, opinion agree. Consequently, order issued and more we must after we years opinion after withdraw granting two author our the first motion for ity rehearing original for use the direct Houston-New Or and reinstate our route, newly-discovered judgment. not such leans require That evidence as new trial. Pippen decision, appellees’ Under the generally order was not to show admissible equitable claim for relief on for motion sustained, damages and at best
that no
rehearing in
court comes
this
too late.
only for the
would have been admissible
city
that case the
agent
sued its
for con-
purpose
showing
probability
limited
joined
version
of funds
a title com-
at the time of sale
additional
obtaining
pany
vice-president
grounds
and its
authority.
purрose,
for
If admissible
they
money
paid
agent
with
already
it was cumulative of evidence
be
knowledge of his
conversions.
.The
jury.
by
Highway
fore the
State
State
city,
found for the
ren-
but
trial court
Speare, N.J.Super.
Commissioner v.
dered
not-
judgment
the defendants
Neither
we
they
appellees
rehearing.
are
In their first motion
that the
relief
original
equitable
legal.
challenge
The
the statement
in our
seeking is
rather
nature,
evidencing
equitable
opinion
only
ac
Pippen case was
that the
formalities
the advances to Ramo were entries on
cording
opinion
of the court
civil
appeals.
They di-
Appel-
corporations.
the two
books of
holding
equitable
lees cite no
first
time to
rect our attention for the
relief
granted
pleading
be
without
resolution
Ball’s
of directors
of Red
board
grounds
sought.
authorizing
which such relief
dated
a loan
June
Gause Gause,
$1,500,000
set al which the trial court first Though this matter is raised per lowed per at the rate of 6 cent annum. say appellees rehearing, time on motion for In this appellants’ connection Points until they did not discover it after submis respect 100 and assign error with deny any Appellants appeal. sion application of in the offset and the rate of jurisdiction impropriety, and we have no points. sustain terest. We these The off dispute. ver resolve the factual set separate judgment should not bear be is material to our decision on dict ing applied propor It should interest. limitation, we have held the since dividend tionately to reduce principal of all to be dividends as a matter advances outstanding principal The reduced notes. however, pоint out, Appellees law. rate, should bear interest at contract them on the verdict was unfavorable to and if payments interest have been issues material to their claims for several greater required than would have been warranty. After the trial court breach principal view this reduction of the instructed, judgment as renders final now which the interest has computed, may file a motion for trial new excess pay should be credited as advance Allen, ground. See De Winne v. on this principal. ments of Ar (1955); S.W.2d 95 Tex. Paschall, (Tex. rington v. Appellants’ 103,complain- Points 102and e.); Civ.App., Dallas writ ref’d n. r. ing the provisions judgment Anderson, Bardwell v. charges payable trustee, to the Mercantile ref’d Houston writ (Tex.Civ.App., Bank, sustained, National are also e.). n. r. such charges should in the be included rehearing motion for judgment second Appellants’ rendered unlеss established complains extent that it evidence and granted allowed the court. orig- change our Accordingly, rehearing. inal motion for on re- opinion
we withdraw our former sup- original
hearing and reaffirm our Otherwise,
plemental opinions. all motions rehearing are overruled. NORTHRUP, Appellant,
L. L. O’BRIEN, Appellee.
Lucille Miller
No. 17744. Texas, Appeals
Court of Civil
Dallas.
Dec. notes paid $3,188,000 on the trial Ramo Appellants due. payments and no $8,- sought to accelerate the balance 312,000 their lien and to foreclose alleged stock because of breaches Ap- Security Agreement.” “Noteholders pellees denied breach of agreement prayed declar- existed, ing that no of acceleration ex- and also breach of claimed offsets for holders satisfaction died to time of press made at the warranties thirty hereunder, within issued the Notes trial, the district court jury After a sale. thereof notice written after days (30) offset denied and allowed an acceleration Debtor by the received have been shall for one jury in the amount found holders, shall same holder or from such appellees’ warranty, breach but denied default.” an act of constitute waranty. Both claim breach for another present points The facts sides of error. default that notice is evidence There appeal relating phase and law each satisfactory cure and that no given separately. bewill discussed days. thirty within was effected Finding. Jury Support a. Evidence Appellants’ Claim Acceleration. as Issue submitted The court
Notes
notes a trustee’s sale of payment would not be the stockholders’ security. The main- pledged which as strength Consequently, first appellants’ interest. Ball’s financial tenance of Red working availability of depended part pоint is sustained. turity time of at a capita], was assured at the date which reasonable rate of interest $2,- by surplus a and sale more secured such manner as sound busi- 250,000, ness judgment in cash. De- require, much which was would would pletion surplus by a within 7(e). of this dividends was “dividend” Section These specifi- by 7(e), Section which advances were not of Lord forbidden that sort. testi- cally would dividend that fied that prohibited not owed advances were interests,” capital surplus Red Ball reduce “outside he speaks Red Ball, aggregate its subsidiaries below the Ramo and TeleCom “all one com- capital pany.” Evidently surplus as of March so he treated them ignored the fact that Red stock Ball’s surplus as maintaining this Instead of property, Ramo’s absolute immediately with- capital, working Ramo pledged appellees. to secure notes held purposes and $1,500,000 its drew own unwilling permit areWe the dividend to pay later Red Ball out additional caused to be limitation circumvented so trans- benefit, the total bringing sums Ramo’s parent entering a device as the withdrawals $2,272,375. Red these Ball’s need on the books as “accounts receivable” and working capital its funds shown calling regard- them loans. We hold Com- borrowings from National Bank of transaction, less the form of dis- $200,000, from Bank & Bossier merce corporate controlling tribution funds to a $250,000, Company Trust and from ownership stockholder because its stock $1,425,000, running TeleCom of at interest benefit, repayable and for its sole at per surplus from cent. The discretion, sole in so its is a dividend far 91/2 81/2 English profits come from earned under rights of as the creditors concerned. are over, management, but took after Ramo Therefore, we hold as a matter of law Rеd reason- operated Ball loss. It is these advancements were “dividends” able to that the suppose high interest security agree- meaning within the pay had to of Ramo’s Ball because
notes
outstanding
for acceleration
Supreme
agreed
Court
de-
with the law as
balance, interest, attorneys’ fees, and fore-
by
clared
appeals,
the court
re-
of civil
stock,
closure of the lien on
Ball
versed the order of remand on the
less the amount of the offset for breach that defendants
their
off-
waived
claim of
warranty
jury.
as found
sets
it in the trial
failing
present
court. 439
ON MOTIONS FOR REHEARING
distinguish
find
on which to
no basis
there,
Here,
appel-
Pippen
case.
orig
On consideration
appellees’
allege in the trial court the
lees failed to
inal motion for rehearing, we sustained
they
desire to ob-
grounds upon
now
their
contention that
remand
we should
Appellees be-
tain relief on a new trial.
they
cause to the trial court so that
declaratory
by an action for
gan this suit
might plead
grounds
equita
and prove
counterclaimed for
judgment,
against
ble relief
appellants’ claim for ac
Appellees’
acceleration
foreclosure.
celeration and
Appellants
foreclosure.
original pe-
an amended
pleading was
trial
filed a second
in
rehearing
motion for
only
ad-
their
reference to
in which
tition
sisting that
City
under
Fort Worth v.
allegation
was an
Red Ball
from
Pippen,
vances
(Tex.Sup.1969),