The Galveston City Co. v. Thomas J. Scott and others, 42 Tex. 535

Roberts, C. J. The appellees obtained a decree establishing their right to a share of stock in the Galveston City Company, as now existing and acting under its act of incorporation, from which an appeal has been taken to this court. The jury was waived and the case submitted to the court upon the pleading and evidence, and it is assigned for error that the decree was not justified by the evidence under the law applicable thereto. There Avere various exceptions taken to the pleading and to the evidence, which, being overruled, are also assigned as error.

Without considering the questions arising upon these exceptions, for the present, it is believed that a satisfactory conclusion may be arrived at by a proper construction of the written instruments upon which the suit is founded, in connection with the evidence adduced in explanation of them. The first question that presents itself is, what is the legal import of the certificate sued on, and what right did it vest in the holder when issued by White as the agent of Menard?

It is an instrument in the nature of a deed of conveyance for an undivided interest (the one thousandth part) of a league and labor of land, on, and including the east end of Galveston Island, to be held subject to certain articles of covenant and association with other jpersons, who should hold similar deeds for shares in said land, which articles were attached to, and made a part of tlip deed, and prescribed the terms and contingencies upon which such association was afterwards to be formed, as well also as the objects of such association, when it should be formed and put into action, which were to lay off and erect a city upon said land, for their mutual and joint profit.

It made him an associate with Menard and other holders of like instruments, as a part-owner of the land then, obligated by a concurrent agreement to become, upon certain contingencies and terms (some of which were expressed and some not), an associate with Menard, and such others, as a co-partner in a partnership, in the shape of a joint-stock company, to be organized for the possession, management, and disposition of said land, in the erection of a city.

There is upon the face of this instrument, when regarded as vesting in the holder a part-ownership of the land, a condition subsequent, which put it in the power of Menard to vacate it, upon failure of compliance, and that was the payment of an additional sum in blank, if indeed an additional sum over that of five hundred dollars was contemplated to be paid, according to the scheme of which this instrument was 'a part, under the direction of White, as the agent of Menard.

This is not referred to as constituting of itself a want of title to part-ownership, but to show that it left a door open for Menard to set up and claim a want of compliance, if, in fact, an additional payment was contemplated in any subsequent adjustment of such right that may have been made by him.

The next question is, how was this interest of part-ownership to be changed into a partnership interest in the land \ By Menard giving notice to the shareholders at some time thereafter not named (being a blank in the articles), of the number of shares then sold, after which the shareholders 'should appoint directors who should be the attorneys in fact of all the shareholders in the management of said business, and whose appointment might be renewed every year, in person or by proxy, of a majority of the shareholders.

And a majority of said shareholders, or the board of directors appointed by them, might require Menard, upon notice given to. him, to execute a title to said land to trustees selected by them, to be held in trust for the shareholders or their assigns, and to be disposed of in lots under the direction of the board of directors.

But so far as the evidence shows, Menard never gave any such notice, and the shareholders never appointed any directors, and Menard' never executed a deed of trust to the land to trustees, named and appointed by the said shareholders, who held certificates of shares under Menard, through his agent, White. The association so as to make the part-owners or shareholders, under the scheme attempted to be carried out through White, wholly failed.

It was abandoned by Menard himself in pursuit of another, and White himself, after issuing one hundred and eighty-one or one hundred and eighty-tliree certificates of shares, upon what terms and consideration does not fully appear, ceased to operate upon said scheme, and never, so far as appears, even attempted to form an association by a meeting of the shareholders of his certificates, but instead of that, finally acquiesced in, and took stock in another association, which supplanted his scheme ; which fact is mentioned here now only to show, by affirmative evidence, that he never carried out the scheme of association inaugurated by him, whether right or wrong, so as to make the persons associates-as partners, by virtue of their acts under his certificates, in compliance with their terms.

So far then as this point is concerned, up to the period thus far considered, it is perfectly immaterial whether White’s scheme of ultimate association was sanctioned in its origin by Menard or not.

The failure of his scheme left those who held, by a full valuable consideration, shares in said land from him, associates with Menard as part-owners, but not associates as partners, by virtue of the certificates or deeds issued by him, and so they may continue to be up to the present time, if he liad full authority, as would appear to be the case from his mortgage and power of sale, to do what he did, as to selling the land, unless such right has been submerged into some other, or they have lost it by limitation or laches, pleaded or to be pleaded as a bar to them.

It is contended by plaintiffs below, that the holder of the share one hundred and fifty-three in book A, issued by White, upon which this suit is brought, was fully recognized' as a valid right by the deed of trust, made at Richmond, by Menard and Triplett, in compromise of their conflicting interests; and that by said recognition, the holder of said certificate became an equal partner in the association, afterwards formed at Galveston, styled the Galveston City Company, in pursuance of the terms of said deed of trust to Jones, Johnson & Green.

It will be seen that the first branch of this proposition might be true without its being at all necessary that the second branch of the proposition should follow from it.

To appreciate properly each branch of the above proposition, and their true relation to each other, it is necessary to consider that this league and labor of land was granted by the Congress of Texas to “ Menard and such associates as he may hereafter “ include,” for the purpose of building a town upon it; that Hardin, Yates, Allen, Baker, Jack, and others, to the number of nine, who were in some way concerned with him in the grant, not disclosed in this record, were silent owners of some sort of interest in it, and that they were not the persons designated in this act, as the associates that he might thereafter include in the grant.

From the mortgage to White, and the obligation to Hardin, both only a few days after the grant, it reasonably appears "that these nine silent owneffe of an interest confided the title to the land, and the management of the enterprise to Menard, holding him responsible only for their shares of the net profits of it, and that some such scheme as that which was afterwards put forward by White, as his agent, was contemplated, without its exact terms being settled, which is evidenced also by the generalities, as well as the blanks in the certificates issued by White.

The basis of the scheme was that Menard should continue to hold the legal title to the land until an organized association was formed by the shareholders, who were to be associates, by him thereafter included, and until they, or the directors appointed by them, should notify and direct him to convey the legal title to trustees selected by them, thereafter to be under their control; and also that White should assist Menard in the sales of the shares, and, after he was paid his fifty thousand dollars advanced by him, have “ ten per cent on the amount re- “ maining in consideration of his services.” It is equally probable that White had five books prepared, with two hundred certificates of shares similar to one hundred and fifty-three of book A; for by reference to the Menard papers in evidence White speaks of turning over five hundred shares and retaining enough to make himself safe.

And again, on the 7th of March he speaks of “ the balance of the unsold stock of the Galveston stock, together with the stock-book 0,” being turned over to Menard upon certain conditions. It appears that Allen and Yates, two of the silent owners of interests in this land, not content to leave the enterprise to the management of Menard, went to Mobile early in March, 1837, and drew out from White their proportional shares. Allen drew out one hundred shares, and paid White five thousand dollars. Yates drew out fifty shares, and paid by his note two thousand five hundred dollars.

Whether this payment was their proportions of the fifty thousand dollars due from Menard to White, or only the ten per cent, commissions on them, treating them as sales of stock by White, it was throwing the stock upon the market in a way to produce competition in the sale of it by such of the original owners as might choose to break off from Menard, and which would inevitably, in a short time, run down the price of it, and most probably put it out of Menard’s power to pay the debt to White, for which he had made himself personally responsible.

In addition to this, he had in trust the interest of those joint-owners who still confided in him.

Hence, when he met Jones in Hew Orleans, the first week in April, 1837, just having come from Mobile, he was dissatisfied with White’s arrangements, and when he and Jones could not alter them, he determined to repudiate them, of which he then gave notice in the newspapers, and coming back to Hew Orleans on the 11th day of April, 1837, entered into an agreement of compromise with Triplett, who, with his associates, had a claim to six hundred and forty acres on the east end of the island, which was consummated on the 18th of the same month by a deed of trust from Menard and Triplett to Johnson, Green, and Jones, to the said six hundred and forty acres, and by Menard to Jones for the balance of the league and labor.

This scheme contemplated a cooperative, though not in all respects a joint plan, for the sale of stock, shares, and scrip, through said trustees. It made no reference whatever to the White shares, or to White, further than to provide that Jones should pay him the balance of his debt out of the first sales of stock. Menard at once parted with the legal title to the land, which of course was entirely inconsistent with his thereafter performing what was expected of him, in forwarding the perfection of the association in the White scheme.

This scheme, originating in the compromise, also failed, and never matured into the formation of a joint-stock company. It is probable that Dr. Jones went to work under this plan in the erection of a city, for we find in the subsequent arrangement founded on this, that a sale by him of ten squares or parts of squares was expressly ratified.

But the compromise was remodeled in Richmond,Virginia, by articles of agreement between Menard, Triplett, Neblett, Gray, Green, and Jones, on the 15th day of June, 1837, by which the legal title to the whole of the league and labor of land was conveyed to Johnson, Green, and Jones, in fee simple, as trustees and commissioners, to execute and carry into effect the purposes, terms, and intentions of the agreement then entered into.

It was provided therein, “ that said league and labor of “ land shall, by the said trustees or commissioners, he divided “ into one thousand shares, of which the four hundred shares, “ for which certificates have already been issued by the said “ Jones, shall be regarded as four hundred shares, and the law- “ ful holders of said certificates shall be on the same footing, “ and entitled to the same rights with the holders of certificates “ issued under the present articles, and upon surrendering their “ said certificates, new certificates in lieu thereof shall be issued “ by the said commissioners or trustees.” It provided that the remaining six hundred- shares should be sold by the trustees in such manner as they should deem expedient, the proceeds of which were to be divided in the proportion of one-third to Triplett, and those claiming- under or through him, and two-thirds to Menard, and those claiming under or through him.

It provided, that out of the first proceeds of the sales, after paying the expenses of the trust or commission, the debt to White, believed to be less than fifty thousand dollars, should be paid, and one-third of which amount should be paid to Triplett, or those claiming through him. It provided for the regulation of the price of the Jones certificates still not sold, and that it should not be less than others sold for, and also provided for each party having an interest, to take certificates for it without paying money.

It provided that the trustees, when they thought enough certificates of shares had been sold, should call a meeting of the shareholders, and in such meeting Menard should represent the unsold Jones certificates, and two-thirds, and Triplett one-third of the unsold certificates of the remaining six hundred, and that the trustees should hold the land subject to the orders of the shareholders.' This instrument -has been thus extensively quoted to show that almost -every provision requires the exhibition of outside facts to make its terms intelligible.

For instance, if the trustees should divide the land into one thousand shares, how are the six hundred to be numbered, and how many books of certificates were then made? If Jones had already issued four hundred certificates, how was it that some of them were unsold, and must not he sold at a less price than other certificates, and while unsold to he represented by Menard, upon a meeting of the shareholders ?

The evidence of Green explains, that the whole of the one thousand certificates of stock were drawn up and signed in five books, A, B, C, D, and E, four hundred of which dn books A and B, were given to Menard at once, two hundred in book E, was kept by him “ for parties in interest “ under Triplett,” and four hundred were delivered to Dr. Jones. The evidence of Jones shows that he had never previously issued any certificates, and that his name in that respect is a fiction in the deed. Green says that books A and B were for four hundred shares, to or by Dr.

Levi Jones or Menard, before the compromise, and which were to be renewed for uniformity in the new plan.

If we examine the certificate one hundred and fifty-three of the book A, spoken of by Green, we will see that it was issued by Jones,- Johnson, and Green, trustees, “ in consideration of the return of the certificate of corresponding book and number, as formerly issued by said Levi Jones (one of the first four hundred shares).” As Jones did not issue it, we naturally search for the certificate Ho. one hundred and fifty-three, in book A, that was issued by some one having some connection with this matter, and in doing so, by the aid of Dr. Jones’s evidence, we find it in White’s book, A, made previously. Dr.

Jones says that book A was given to Menard to settle with those who held certificates of shares under White, and the form in which they were written is consistent with that object.

The reasons why White’s name was not mentioned may well be supposed to be, that White had not consented to this scheme, which was being organized in direct hostility to his own, and he, and those holding his certificates, might go on to organize under his plan; that Tates and Allen, original owners of an interest, had drawn their full share under the White plan, and much more than they would be entitled to under the new scheme under the compromise with Triplett, which would require Menard, in justice to himself and his other original co-proprietors, to have equitably settled with them, and those who might hold under them; that if litigation arose between the parties, then standing in direct antagonism, the use of Jones’s name would not commit the new combination to a recognition of the White scheme ; that if there could be a satisfactory arrangement made with White, and those who held under him, to come into the new scheme, an easy way was provided for an equitable deduction of their claims if necessary, and a substitution of certificates out of the new book A, and thereby, as Green says, preserve a uniformity in the shape of the stock.

All this is strongly indicated inferen tially in the provisions of the trust-deed, which recognized unsold Jones stock in the hands of Menard, and to be represented in the meeting of stockholders by him, and in the prohibition of such Jones stock being afterwards sold under the regular price of stock, which was fixed in the outset at fifteen hundred dollars per share.

Now if it be legitimate to explain this fiction in the trust-deed, and show that it was introduced with reference to the interest of White, and of those -who held under him, which it is thought would certainly be proper under appropriate pleadings for that purpose, it is equally legitimate .to explain, as Dr.

Jones does, how, and through whom, their interests were to be managed, so as to introduce, them into this new scheme as stockholders and partners, and that results in showing that it was to be done by a settlement and equitable adjustment with Menard, requiring both consent and action on their part, as well as his. Those who held under White, being then only part-owners, it certainly required their assent and action, in complying with the prescribed terms of surrendering their certificates, that constituted a charge on the land, in order to introduce them into the new scheme of association as partners.

Under this scheme the stock was disposed óf, and the association was organized by the stockholders, who held what is termed the Trustee Stock, and by those only, who took actual exclusive possession of the land, and proceeded to carry out the objects of the association. White, Allen, Yates, and others holding White stock, came into it, and received stock under it. The White scheme, as an association of stockholders, never was formed at all.

These were the persons who were incorporated as “the “stockholders of the Galveston City Company, 'under the “same name and style,” on the 5th day of February, 1841, at which time there were only ten certificates of the trustee stock, of book A, in the hands of Menard, which, on the 7th of May, following, were issued to Origin Sibley, and William Dennis, who had bought and paid for five shares each in 1837, from White, at the rate of five hundred dollars per share. The certificate number one hundred and fifty-three, of the trustee stock with others, was issued by Menard, by order of the Board of Directors, to Dr.

Jones in payment of his services. Thus was the door closed, certainly by the 7th of May, 1841, that had been provided,, through which the holder of the White stock, number one hundred and fifty-three, now sued on, could enter said organized' company as a stockholder, by the means that had been provided for that purpose, under its terms of association, as the Galveston City Company. If then he was wrongfully debarred, he had a cause of action for damages, or he might have elected to prosecute his right to a part of the land, and claim partition.

Had he made this claim while Menard had in his hands certificates devoted to the purpose, under the provisions of the association, he might, upon- establishing a lonco fide right to this share, have forced his way into the company, as a stockholder, by a decree of a court. But such a suit now, or a suit in the alternative for damages, after the lapse of more than twice the length of our longest limitation, and after nearly every person is dead, who, if alive, could make plain what must now be dimly seen, must be held to be barred as a stale demand.

The principles of law involved in this exposition of the case, pertain mainly to the well-known, distinction between a tenant in common or part-owner of an interest in land, and a partner or stockholder in an incorporated real-estate joint-stock company, and the means by which the one or the other position, in relation to persons and property, may be assumed or created. In its application to the facts of this case, we think the court erred in rendering a decree in favor of the plaintiffs below.

The exceptions of defendant below to the admission of transfers of the White certificate, No. 153; the alleged deficiency of evidence of the right of Mrs.

Scott- to recover as the widow of one of the Scott brothers; and the alleged error of the court in not sustaining defendant’s special exceptions to plaintiffs’ general allegation of the ratification of their right by the defendant, are all questions, the law of which is well settled, and present no great difficulty, except in the application of it to the particular facts of each case, which may vary in each trial of the same case, and therefore it is hardly necessary to say anything upon them. The judgment is reversed and the cause remanded. Eeversed and remanded.