Delbert Sugg v. American National Bank of Gonzales

Sugg v. ANBG NO. 10-90-198-CV IN THE COURT OF APPEALS FOR THE TENTH DISTRICT OF TEXAS AT WACO * * * * * * * * * * * * * DELBERT SUGG AND DELBERT SUGG CATTLE CO., INC., Appellant v. AMERICAN NATIONAL BANK OF GONZALES, Appellee * * * * * * * * * * * * * From 220th Judicial District Court Bosque County, Texas Trial Court # 90-01-19190-BCCV * * * * * * * * * * * * * O P I N I O N * * * * * * * Delbert Sugg and Delbert Sugg Cattle Co., Inc. appeal from an ex parte order appointing a receiver. American National Bank of Gonzales applied for the receivership after it sued them in Gonzales County to collect delinquent notes and overdrafts. In points of error one through four, Sugg and the cattle company allege that the court erred in appointing a receiver, and in point five they complain about the amount of the receiver's bond. We will vacate the receiver's appointment as to the cattle company because the application failed to support the existence of the specific statutory grounds required by article 7.05 of the Texas Business Corporation Act and because the appointment was inconsistent with the usages of equity. Additionally, we will vacate the appointment as to Sugg and the cattle company because the bank failed to show any emergency which warranted an immediate appointment without notice and hearing. Sugg and the cattle company assert in point one that the court erred in appointing a receiver for the cattle company because the application did not meet the requirements of section 64.001 of the Texas Civil Practice and Remedies Code or of articles 7.04, 7.05 or 7.06 of the Texas Business Corporation Act. See Tex. Civ. Prac. & Rem. Code Ann. § 64.001 (Vernon 1986); Tex. Bus. Corp. Act Ann. arts 7.04, 7.05, 7.06 (Vernon 1980). Although the bank sought the receivership under the Civil Practice and Remedies Code, we believe that the court's order was consistent only with the extent of a receivership authorized by article 7.05 of the Texas Business Corporation Act. See Tex. Bus. Corp. Act. Ann. art. 7.05 (Vernon 1980); Humble Exploration Co. v. Fairway Land Co., 641 S.W.2d 934, 938 (Tex. App.--Dallas 1982, writ ref'd n.r.e.). The order, which authorized the receiver to do any and all acts necessary to the proper and lawful conduct of receivership, enumerated fourteen actions the receiver could take, including the rights: To take possession of and secure all cattle, livestock, contracts, notes, drafts, and monies representing proceeds thereof which are in possession or control of Defendants, or either of them; To collect all accounts receivable, drafts, contract rights, or other monies owing to Defendants, or either of them, from any person whatsoever; To take possession of Defendants' mail box keys and/or forward Defendants' mail to another mail box for the purpose of intercepting payments and documents in accordance herewith; To answer Defendants' office telephones to the exclusion of Defendants; To exclude Defendants from their business office; and if the receiver deems necessary, change the locks on such office to secure same; To hire such hands, cowboys, truckers, veterinarians, bookkeepers, typists, attorneys and accountants to assist the receiver in performing his duties hereunder, and to pay them from Defendants' property; The bank argues that the receivership was proper under article 7.04 of the Texas Business Corporation Act which allows the appointment of a receiver for specific corporate assets. See Tex. Bus. Corp. Act Ann. art. 7.04 (Vernon 1980). It denies, however, that the appointment was made over the cattle company's assets and business, asserting that the order merely authorized the receiver "to take possession" of the property but not to "operate the business." By excluding the cattle company from answering its telephone, receiving its mail, and entering its business office, the order effectively gave the receiver control of the cattle company's business. The bank's contention that the order did not grant a receivership over the cattle company's business because it did not specifically authorize the receiver to "operate the business" ignores the reality that this order was more onerous to the cattle company than one directing the receiver to operate the business. This order effectively prevented the cattle company from conducting any operations. No one, not even the receiver, could conduct any business on behalf of the cattle company. Article 7.04 does not provide for a receivership that causes business operations to cease; it merely provides for a receivership over "specific corporate assets." Id. Because the court effectively appointed a receiver over the cattle company's assets and business, each and every element and condition in article 7.05 had to be satisfied. See Humble, 641 S.W.2d at 939. In Humble, the court summarizes the requirements of article 7.05 as follows: [T]he evidence must show: (a) circumstances requiring a receiver to conserve such assets and business; (b) but, only, if all other requirements of law are met; (c) but, also, only if all other remedies, at law or equity, including a receiver of specific assets, are inadequate; (d) but, also again, only in these instances; (1) In an action by a shareholder (inapplicable here) or; (2) In an action by a creditor when it is established: (a) That the corporation is insolvent and the claim of the creditor has been reduced to judgment and an execution thereon returned unsatisfied; or (b) That the corporation is insolvent and the corporation has admitted in writing that the claim of the creditor is due and owing. (3) In any other actions where receivers have heretofore been appointed by the usages of the court of equity. (Emphasis supplied). Id. The order was granted ex parte, so the only facts in the record for our review are those in the application and the order. Nowhere in the application does the bank show that its claims were either reduced to judgment or admitted in writing. See Tex. Bus. Corp. Act Ann. art. 7.05(A)(2)(a), (b) (Vernon 1980). Nor does the bank allege or factually show the inadequacy of all other legal or equitable remedies. See id. at 7.05(A). Additionally, this was not a situation in which receivers had "heretofore been appointed by the usages of the court of equity." See id. at 7.05(A)(3). As the court in Humble held, "[m]ere proof of a need to conserve specific corporate assets . . . does not justify a receiver of the entire corporation, its assets and its business, as a `usage of equity.' To conserve specific assets by a receivership of the whole corporation would, in fact, defeat equity." Humble, 641 S.W.2d at 939. The court then quoted the holding in Texas Consolidated Oils v. Hartwell that: Conservation of the assets through receivership is ofttimes a myth--a total destruction of the corporate assets. No more radical remedy could be devised which would discredit, cripple and, in the majority of instances, put to an end any business or enterprise. Texas Consolidated Oils v. Hartwell, 240 S.W.2d 324, 327 (Tex. Civ. App.--Dallas 1951, orig. proceeding [leave denied]). The bank maintains that the appointment of a receiver lies within the sound discretion of the trial court and that we should not disturb this appointment without a showing of a clear abuse of discretion. See Collegiate Recovery & Credit, etc. v. State, 525 S.W.2d 900, 901 (Tex. App.--Waco 1975, no writ). Because all of the conditions of article 7.05 were not satisfied, we hold that the court abused its discretion in appointing a receiver over the cattle company's assets and business and sustain point one. See Tex. Bus. Corp. Act. Ann. art. 7.05 (Vernon 1980). By point four, Sugg and the cattle company complain that the court erred in entering the order ex parte because the bank failed to show any emergency which warranted an immediate appointment of a receiver without notice or a hearing. The appointment of a receiver is "one of the most drastic actions known to law or equity and should be exercised with extreme caution and only where great emergency or imperative necessity requires it." Best Investment Co. v. Whirley, 536 S.W.2d 578, 581 (Tex. App.--Dallas 1976, no writ). The application for an ex parte receivership must be verified and contain specific facts, as distinguished from mere conclusions, regarding the necessity of the appointment without notice. Morris v. North Fort Worth State Bank, 300 S.W.2d 314, 315 (Tex. Civ. App.--Fort Worth 1957, no writ). The appointment should not be made without notice unless the applicant shows that he will suffer some material injury by the delay necessary to give notice. Id. The bank's application, although verified, merely provided: "Plaintiff believes that Defendants will conceal or dispose of Plaintiff's collateral unless the receiver is granted." This statement was a conclusion, unsupported by specific facts, and, more importantly, failed to indicate what injury would be incurred by the "delay necessary to give notice." The bank does not even suggest that Sugg and the cattle company might conceal or dispose of its collateral during the time necessary to hold a hearing on the application. Therefore, because there was no showing in the application of an immediate and pressing necessity for appointment of a receiver without notice, we sustain point four. See id. Because we have sustained points one and four and agree that the order was improper as to both Sugg and the cattle company we do not reach their remaining points. The receivership order is reversed, the appointment of a receiver is vacated and the cause is remanded to the trial court for further proceedings. BILL VANCE Justice Before Chief Justice Thomas Justice Cummings and Justice Vance Reversed and remanded Opinion delivered and filed March 28, 1991 Do not publish serif"> Justice Before Chief Justice Thomas Justice Cummings and Justice Vance Reversed and remanded (Chief Justice Thomas dissenting) Opinion delivered and filed June 13, 1991 Publish