text:
    PHILIP A. RYAN LUMBER CO. v. BALL.
    (No. 7313.)
    (Court of Civil Appeals of Texas. Galveston.
    June 15, 1917.
    Rehearing Denied Oct. 4, 1917.)
    1. Railroads <©=^138 — “Connection.”
    A contract for a connection between railroads means a physical joining of the rails so as to permit trains to pass from one set of rails to the other.
    [Ed. Note. — Eor other definitions, see Words and Phrases, Connection.]
    2. Logs and Logging <©=>3(9) — Contracts— Construction — Contingencies.
    Under contract for the sale of timber by which vendor agreed to use his best efforts to obtain a railroad right of way to permit removal of the timber and to obtain a connection with another railway, there was no absolute liability of either party until the connection was secured and accepted.
    3. Logs and Logging <©=>3(9) — Contracts— Construction — Contingencies.
    The mere fact that the vendor’s agent could have secured the right of way, and did not at the vendor’s suggestion, did not change the liability of the parties.
    4. Eminent Domain @=5ll — Who May Exercise.
    An individual cannot exercise the right of eminent domain in view of Const, art. 1, § 17, and Rev. St. 1911, arts. 6504-6530, and article 6481 delegating such right to railroad corporations.
    5. Railroads <®=1 — Right to Own and Operate — Eoreign Corporations.
    A foreign corporation, having made a contract to buy lumber and operate a railroad to remove the lumber and having a permit only to engage in the lumber and logging business, had no power to operate the railroad in view of Vernon’s Say les’ Ann. Civ. St. 1914, art. 6406, providing that no corporation except one chartered under the laws of Texas shall be permitted to operate, or maintain any railway, so that its contract was for an illegal purpose and unenforceable.
    6. Railroads <§=j2 — “Railway.”
    A railroad laid down for the purpose of removing logs sold by the vendor to be owned by the individual vendor and operated by a foreign corporation without authorization was a railway within the meaning of Vernon’s Sayles’ Ann. Civ. St. 1914, art. 6406, prohibiting any but a Texas corporation to operate such a road.
    [Ed. Note. — Eor other definitions, see Words and Phrases, Eirst and Second Series, Railway.]
    Appeal from District Court, Anderson County; John S. Prince, Judge.
    Suit by the Philip A. Ryan Lumber Com-against P. D. C. Ball. Judgment for defendant, and plaintiff appeals.
    Affirmed.
    See, also, 177 S. W. 226.
    R. E. King, of Memphis, and Thos. B. Greenwood, of Palestine, for appellant. N. B. Morris, of Palestine, Lyon & Swarts, of St. Louis, Mo., and W. J. J. Smith, of Dallas, for appellee.
   GRAVES, J.

This suit was brought in the district court of Anderson county by appellant, Philip A. Ryan Lumber Company, against appellee, P. D. C. Ball, for damages in the sum of $61,500, for breach of a written agreement or contract of sale of ash, oak, cottonwood, and elm timber on Trinity river in Anderson county, the building of a railroad being a constitutent part thereof, dated March 20, 1912, which resulted in a judgment for appellee, after submission of the case to a jury upon special issues; and to seek revision of that judgment, this appeal is prosecuted.

In appropriate places hereinafter the parts of the contract deemed material will be more fully referred to. The relevant, consideration at this beginning point is that the sole cause of action declared upon was the alleged right to damages for refusal to sell the timber contracted for; the measure being stated at the difference between the contract price of the timber and its market value, and the amount being laid at the sum already given. There was no allegation of any other or special damage suffered, nor expense incurred, by reason of any other wrongful or fraudulent act. Among other defenses the appellee answered that the obligations of the contract declared upon had never in fact become binding upon either party to it, .because, while he had in good faith used his best efforts to do so, he had never been able to obtain the right of way and connection for the contemplated railroad provided for therein, which he alleged were indispensable conditions precedent to the imposing of any binding obligation under the contract upon either party; and, further, because it was an illegal contract, and its performance, at least in so far as appellant was concerned, directly prohibited by a statute of Texas, hereinafter set out.

If the instrument sued upon under the proof offered, without reference to the time when it was to become effective, whether on April 15th, or May 30th, or July 6th, the alleged extension dates never became, nor by the properly construed meaning and effect of its terms could ever become, a binding obligation upon either party until both such right of .way and connection as were specified as conditions precedent had been first secured, and they were in fact not secured, then no right of action existed. Or, if the enterprise and undertaking represented by the agreement of the parties was interdicted by law, a like consequence would necessarily follow, since recovery of damages for breach of a prohibited contract could not be had. If either result obtained here, the appellee was entitled to a peremptory instruction; and this court, after the most careful consideration of this voluminous record, and of the able briefs and arguments submitted in behalf of both litigants, has reached the conclusion that both these stated conditions have been shown. Tliat being true, it necessarily follows that the trial court’s judgment in favor of appellee was the only proper judgment that could have been rendered upon the entire record made, and that a detailed treatment of appellant’s various assignments, and of the many errors committed upon the trial, which they undoubtedly disclose, is unnecessary, all such errors becoming immaterial. Indeed, .but for our conclusion that no other judgment could properly have been rendered below, the errors committed would require a reversal of the judgment.

Our discussion will therefore be confined to these two fundamental questions, either one of which we think determinative of appellant’s right to maintain this suit, and of the merits of this appeal; and they may in substance be restated as follows: (1) Did the contract or agreement require, as conditions precedent to the imposing of its obligations upon either party, the obtaining of the right of way and connection therein provided for, and, if so, were such obtained? (2) Was' the contract, or the performance of it in the manner contemplated illegal?

In determining the first question, the most pertinent provisions of the contract relating-to right of way and connection must be looked to. They are as follows:

“The vendor agrees to use his best efforts to obtain a right of way for a railroad from the southern terminus of the proposed railroad on the vendor’s land, • shown on the map hereto, attached, to ■ the north end of what is known as the ‘Salt Works Spur’ on the International & Great Northern Railway, a distance of approximately six (6) miles, together with a connection with said railway at said Salt Works spur, by which the lumber cut and carried from the said vendor’s land may be transported to- and conveyed over International & Great Northern Railroad. * * * It is understood and' agreed that the railroad shall be constructed at the expense of the vendor, shall be of standard gauge, using a rail of not less than fifty-six (56). pounds, and shall be built in the manner adapted to the purposes of this contract.”

When the subject-matter of this contract,, the situation between, and the purposes of, the two parties to it are considered, as they should be in arriving at the true meaning of' the instrument, we are unable to see how it could mean anything else than that the right of way for the proposed railroad, and a physical connection of its tracks* with the tracks of the International & Great Northern Railroad Company at the north end of that company’s Salt Works spur must be first obtained. Ball owned and wanted to sell the-timber. Ryan was in the timber manufacturing and sawmill business, and wanted to. buy it; but it was necessary to build a railroad into it from another railroad to get it out, and to afford this outlet, as a part of their contract of sale and purchase of the timber, it was further agreed that Ball, immediately upon giving notice to Ryan that he had secured the right of way and connection, should with all reasonable diligence commence and continue the construction of such railroad from the north end of the Salt Works spur above mentioned to a terminus upon Ball’s land, keeping the railroad building from time to time one mile ahead of the cutting of the timber.

Testing the language used in the light of all these surrounding conditions, it seems plain that an ordinary right of way from the-owners of the necessary land to be traversed and a rail-to-rail physical connection with the International & Great Northern Railroad Company’s spur track was meant, and only that. How any other connection between two-standard gauge railroads, by and over which lumber could be transported and conveyed. from one to tlie other, could have heen in mind does not occur to us. When you speak of connecting one such railroad to another so. that trains may pass over the connection a physical joining of the rails is necessarily contemplated.

And that the obligations of the entire contract were contingent upon whether such right of way and connection between the proposed road and the International & Great Northern’s spur could first be obtained, we think is equally clear; in fact, this contingency not only inhered in, but by necessary implication constituted, the real meaning of the contract. Nor are we without direct light upon the subject, for the intention and understanding of both parties themselves is plainly stated. Ball testified;

“The situation in respect to the necessity of this railroad connection and the railroad right of way before the contract should ever take effect was discussed thoroughly between Mr. Ryan and myself. I was to secure the right of way to build the railroad to the Salt Works spur, and make connection with the Salt Works spur, and get an arrangement or contract or agreement from the International & Great Northern Railroad to handle standard equipment, and this road was to be standard gauge road, and Ryan was to operate and maintain it and we were to have the privilege of running ■cars out over it. In the event that I did not get the right of way or connection the contract ■certainly was not ever to be final; that was thoroughly understood between Mr. Ryan and myself; that if I could not get the right of way or could not build the railroad, and could not get the connection, that the trade was off, and that was understood all through our negotiations, and Mr. Ryan said that if I could not get the connection with the International & Great Northern he did not want the railroad; that it would not do him any good. Mr. Ryan wanted a connection with the International & Great Northern rails so that he could run his cars right out on the International & Great Northern to save reloading. That was a part of the agreement of Ryan with me. Under this contract or agreement of March 20th, he was entitled to that, and I was also entitled to it under that agreement. If I had got any railroad built I would have wanted a physical connection. I wanted a connection for running cars without reloading them. I never did, at any time, in writing, orally or otherwise, agree to build the railroad unless I could get a physical connection and operative contract with the International & Great Northern.”

Likewise, Ryan’s testimony was:

“Now, in discussing this with Ball before this contract was entered into, we must have discussed the necessity of his getting the right of way. We discussed the necessity of him getting a railroad connection, because if he did not build the railroad for me I was not interested in the contract; and that day in St. Louis, when I saw Mr. Ball at his office in the morning. before I went to Mr. Swarts’ office, those matters were understood between Mr. Ball and myself, that he was to build the railroad and have it all ready to run trains over, and it was understood between him and me that morning before I went down there to sign the contract that he must get the right of way, and that he must get the railroad connection, so as to enable us to move our freight over the International & Great Northern before either of us would be bound. That is the way I understood it, and is the way I understood the contract ’ after it was written. Without those conditions, to wit, the right of way, and without railroad connection, and the contract, I would never have entered into that contract. And I understood that my obligations to Mr. Ball were contingent upon his getting this right of way and connection.”

If, therefore, neither of the contracting parties, in using the language quoted from their agreement, had any idea that he was binding himself or the other unless and until this essential right of way and connection had been first obtained, and the apparently inherent and inevitable force of the conditions under which, and the subject-matter about which they were thus! contracting fully complemented their specifically declared meaning, purpose, 'and understanding, how can it still be said that they meant anything else? If Ryan, as he himself says, was not to he hound, in the absence of such conditions precedent, how could he, under exactly the same' circumstances, hold Ball? The mere asking is the answer to both questions. It is perfectly clear, we think, that if this suit, instead of being one by Ryan for breach of this contract of sale of timbér to him, had been one against him by Ball for specific performance thereof, on identically the same state of facts, it would have been a complete answer for him to say:

“You have never obtained the necessary right of way and connection, the timber is worthless to me without them, and the consideration for my obligation to take it has failed.”

It only remains to inquire whether the right of way and connection ever were in fact secured; and the uncontroverted evidence shows that they were not. We are aware that the jury found, and it may be conceded upon sufficient evidence, that Ball’s failure to secure the right of way by May 28, 1912, was due to Ball’s instructions not to secure it; but that does not affect the result, because it otherwise conclusively appears that he neither did nor ever could have secured it, for the simple reason that the connecting link between the proposed road and the International & Great Northern Railroad Company’s spur on the latter company’s land was a necessary part of it, and the International & Great Northern Railroad Company at all times not only refused to concede this right of way, but also declined to permit the contemplated connection with its spur.

It is unnecessary to detail any evidence, because the facts supporting this conclusion are undisputed. But appellant pleads:

“That at all times from the date of the contract the defendant (Ball) was entitled to the connection desired from the International & Great Northern Railway, under state and federal statutes, and such connection could at ail times have been compelled at defendant’s option.”

We are not favored, however, with citation of any authority upholding any such right. Ball was an individual and acting in that capacity; as such, he neither had the right of eminent domain, nor to condemn the right of way, and enforce a physical connection for his road with another railway. The power of eminent domain is a sovereign power, and while it may be delegated by the Legislature for public uses, such grants are strictly construed, and can be exercised only by such donees of the power as are expressly named in the statute. The 'Legislature of Texas has never granted this power to an individual for the purpose of acquiring a right of way for a railroad, hut has given it to railroad corporations. Constitution of Texas, art. 1, § 17; Revised Statutes, arts. 6504 to 6530, 6481; Lewis on Eminent Domain, §§ 237, 254; International Bridge Co. v. McLane, 8 Tex. Civ. App. 665, 28 S. W. 456; Cooley’s Constitutional Limitations (7th Ed.) pp. 759 to 762.

Upon the threshold of a consideration of the second question, we are confronted with article 6406, Vernon’s Say les’ Statutes, later herein quoted in full. Before applying it, however, it is appropriate to say that appellant was a corporation chartered under the laws of the state of Tennessee; that it was never chartered in Texas, but that as a foreign corporation it was admitted to do business in Texas to the extent and for the purposes as follows:

“The business of manufacturing logs into lumber and for the purpose of conducting sawmills and planing mills.”
Ryan, its president, testified:
“The permit is dated December 30, 1912. I presume that is correct. Up to that time the Ryan Lumber Company had no permit to do business in the state of Texas, and it never was chartered in the state of Texas. Those are the only papers we have. By all the papers we have Í mean the charter from the state of Tennessee and the permit to do business in Texas, dated the 30th day of December, 1912.”

It thus appears that appellant had not even taken out this permit to do the kind of business in Texas it was thereby authorized to do until long after this contract had been made; and, aside from the suit itself being tantamount to an assertion of its right to recover under its legal status as thus shown, it otherwise fully appeared from the evidence that at all times, as such foreign corporation, it contemplated carrying out upon its part the obligations, whatever they were and whenever imposed, of the contract or agreement of March 20, 1912. Not only is there in this record neither pleading, proof, nor suggestion in any other form of a single fact from which any presumption could be indulged that it ever intended to reincorpórate in Texas so as to meet the requirements of Revised Statutes, art. 6406, but it thus affirmatively appears that the purpose at all times was to execute its part of the contract in its capacity as a Tennessee corporation, with only the limited powers already mentioned under its permit as such to do business in Texas; indeed, there is no dispute about this by appellant. It simply contends that the bar of this statute does not apply to such a railroad as this one was to be, nor to such limited use of and privileges in it as appellant was to have under the agreement. It therefore only remains for us to determine whether or not the.statute does apply to that kind of a railroad and such character of use thereof. And in answering the conjunctive part of this question, it is wholly immaterial by what names the acts of the appellant are called, that is, whether or not its agreement was to “operate, acquire, own or maintain the railway,” in the exact language of the statute; but th'e test is, whether the acts and things it was to do amounted to the same thing, and come within the inhibition of that law. Appellant’s exact position upon this question is thus presented in its written argument filed in this court:

“Appellee’s attack on the contract written by his own counsel as violative of public policy under article 6406 is without foundation. Reasonable minds cannot differ that the only basis for the attack is that the contract grants a foreign corporation the right to use a switch or spur for its own benefit in the operation of cutting- timber and running a sawmill. It is unthinkable that any court will ever hold that a timber and lumber company becomes a railroad corporation subject to the provisions of title 115, including article 6406, of the Revised Statutes, merely because it uses for its own private benefit a switch or spur track belonging to an individual in the conduct of its business and keeps the switch or spur track in repair. However, we are not without precedent on this inquiry. It was expressly held in Aycock v. S. A. Brewing Association, 26 Tex. Civ. App. 343 [63 S. W. 953], that a street railroad company, incorporated for the transportation of freight in a city, was not operating a railroad in contemplation of title 115 (then title 94), by reason of the fact that its line was used by a brewing company in the transportation of its freight by means of steam locomotives and cars. In B. S. L. & W. Ry. Co. v. Moore, 174 S. W. 847, it was determined that such a spur as this contract required for appellant’s use could be made subject to a lumber company’s exclusive control, and that no rights or duties to the public, such as title 115 is designed to safeguard, would be involved. In rejecting the contention that a member of the public could complain of a refusal of shipping facilities over such a spur, it was said: ‘The spur in question was a private track built for the sole and special use of the lumber company, and was under the exclusive control of that company. The railroad company could not, without violating its contract with the lumber company, which had assisted in the construction of the spur, place cars thereon for the use of shippers generally, unless by permission of said company.’ B. S. L. & W. Ry. Co. v. Moore, 174 S. W. 847. These cases are in line with the decision of the Supreme Court in Railroad Commission v. St. L. S. W. Ry. Co., 98 Tex. [67, 80 S. W. 141], that ‘it was not intended to require railroad companies to construct’ switches and spur tracks ‘away from their lines to accommodate individuals.’ It logically follows that such tracks may be provided and used, under private contract, like other necessary facilities to cut and move timber and lumber. The following cases uphold and enforce just such contracts as that sued upon in so far as the rights of appellant thereunder are concerned: M., K. & T. Ry. Co. v. Carter, 95 Tex. 461-474 [68 S. W. 159]; U. P. Ry. Co. v. C., R. I. & P. Ry. Co., 163 U. S. 564 [16 Sup. Ct. 1173], 41 L. Ed. 265; T. & E. S. Ry. Co. v. T. & N. O. Ry. Co., 28 Tex. Civ. App. 551, 554 to 555 [67 S. Vfr. 525]; Graham v. Railway Co. [Ill Ark. 598], 164 S. W. 729; Lamber Co. v. Railway Co., 36 Tex. Civ. App. 563 [82 S. W. 816]; S. A. & A. P. Ry. Co. v. Tracy [61 Tex. Civ. App. 574] 130 S. W. 639; Stolle Stone Co. v. M. P. Ry. Co. [189 Mo. App. 683], 175 S. W. 250.”

But after carefully reviewing the authorities thus cited, we are convinced that they have no application to the situation here involved; the principle declared in those cases wiis, simply, that railroad companies could neither be compelled to construct switches and spur tracks away from their lines to accommodate individuals, nor to respond in damages to individuals from refusal to furnish cars to and accept freight from them at privately owned spurs, in which they had no interest; but in discussing the particular question now before us, our Supreme Court, in the case of Cunningham v. Neal, 101 Tex. 338, 107 S. W. 539, 15 L. R. A. (N. S.) 479, expressly held that such a railroad as this one was to be, and operated in a similar manner by ,a company in other than railroad business, was included within the meaning of the fellow-servant law then in force (article 4560f). In that opinion the Supreme Court cited and approved the case of Lumber Co. v. Taylor, 39 Tex. Civ. App. 302, 87 S. W. 358, in which the Court of Civil Appeals for the Third District had held that “r,ailroad” was used in the same sense in that fellow-servant act (article 4560f), as it was in the act relating to injuries resulting in death, then article 3017, now article 4694, of Yemon’s Sayles’ Statutes ; likewise, and following Lumber Co. v. Taylor and Cunningham v. Neal, the Court of Civil Appeals for the Fourth District, in Kirby Lumber Co.’s Receivers v. Owens, 56 Tex. Civ. App. 370, 120 S. W. 936, held that a standard gauge logging spur, or tramroad, owned and operated by a lumber company, leading from a commercial railroad to its plant and timber, and used for transportation of its products and supplies, was a railroad within the meaning of the last-mentioned article, then 3017, now 4694. A writ of error was refused by the Supreme Court in that case, and the same question was presented to this court in the case of Rice & Lyon, Receivers, v. Lewis, 59 Tex. Civ. App. 273, 125 S. W. 961, and it was there held that, by its refusal of a writ of error in the Owens Case, the Supreme Court had directly approved that decision of the question, and this court accordingly refused to further consider the question, but held it must be treated as settled by the Supreme Court’s action. A writ of error has also since been denied in the Lewis Case.

If, therefore, a lumber company so owning and operating a logging or tramroad is in charge and control of a railroad within the meaning of the statutes referred to, we can see no reason why appellant, under the agreement it here undertook, would not have been under the bar of article 6406, Re-vised Statutes of Texas, passed by the Legislature in 1903 (Acts 1903, p. 90), and in effect ever since, reading as follows:

“No corporation, except one chartered under the laws of the state of Texas, shall be authorized or permitted to construct, build, operate, acquire, own or maintain any railway within this state.”

Recurring now to the parts of the contract descriptive of the character of the road and of the things appellant was to do in connection with it, we quote as follows, italicizing where it seems pertinent in emphasis of the matter under consideration:

“The vendor agrees to use his best efforts to obtain a right of way for a railroad from the southern terminus of the proposed railroad on the vendor’s land, shown on the map hereto attached, to the north end of what is known as the ‘Salt Works Spur’ on the International & Great Northern Railway, a distance of approximately six (6) miles, together with a connection with said railway at said Salt Works spur, by which the lumber cut and carried from the said vendor’s land may be * * * conveyed over International á Great northern Railroad. * * * It is understood and agreed that the railroad shall be constructed at the expense of the vendor, shall be of standard gauge, using a rail of not less than fifty-six (56) pounds, and shall be built in the manner adapted to the purposes of this contract. It is understood that the vendor is under no obligation to purchase or furnish either cars or locomotives, and it is further understood and agreed that the purchaser, during the_ term of this contract, shall heep the railroad in repair. It is understood and agreed that after said vendor shall have built said railroad or any part or section thereof, that the purchaser shall be liable for any accident or injuries which may result to any person whatsoever in the conduct of said railroad. It is understood and agreed that the vendor shall not be liable for any accident or injury which the purchaser or any agent or employé of the purchaser may suffer by reason of traveling or in any way using said railroad or any part thereof. * * * For the purpose of felling, cutting down and carrying away of said timber the vendor gives the right of entry and right of way to the purchaser, his servants, agents, workmen, and trains through and over and upon said premises, so far as said entry and right of. way may be for the purposes of the within contract. It is understood and agreed that subject to_ the use of said railroad for the purposes herein contained by the purchaser, the vendor reserves to himself the right to operate trains over said railroad at any time and all times and for such purposes as to him may seem best. At the termination of this contract the purchaser shall have the right to remove all improvements by him erected on said land, including machinery and fixtures, it being understood that said right shall not include the right to remove said railroad or any repairs thereon.”

In explanation of what he meant to undertake under these paragraphs of the agreement, appellant’s president testified:

“I understood from that that we were to operate the railroad so far as removing the timber is concerned; that we were to furnish our own engines, cars, and trains; that we were to buy all equipment and furnish employes to operate it on this road; and that I was to exempt Mt. Ball from any liability for any accident that happened on that road, under our operation of the road. I exempted him from any liability, and if there was any responsibility it would be on me. I further understood that that road was-to be operated by us for the purpose of this contract and during the life of this contract to get out material, to get out the timber that we were going to cut, and to bring in our supplies, too. I further understood by this contract that we were to maintain tbie railroad and to keep it in repair at our own expense. I understood by it that I was .to acquire this railroad for the purpose of this contract, but I did not own the railroad. X acquired the use of it.”

Without further discussion, it seems to us the doing of the very thing denounced by the statute was confessedly contemplated. It is immaterial that the railroad was to he owned by Ball, who, under the laws of Texas, was without the power of eminent domain. It was still a railway within the meaning of the above-quoted statute, and the appellant in carrying out the purposes of such contract would have been undertaking to acquire, maintain, and operate a railway within the meaning of the law. This purpose was clearly illegal and contrary to the public policy of the state of Texas. R. S. art. 6106; Cunningham v. Neal, 101 Tex. 838, 107 S. W. 539, 15 I*. R. A. (N. S.) 479; Lumber Co. v. Taylor, 39 Tex. Civ. App. 302, 87 S. W. 358; Kirby’s Receivers v. Owens, 56 Tex. Civ. App. 370, 120 S. W. 936; Receivers v. Lewis, 59 Tex. Civ. App. 273, 125 S. W. 961.

It is contended in appellant’s brief, however, that upon a former appeal in the litigation over this same contract, the Court of Civil Appeals for the Fourth District, in Ryan Lumber Company v. Ball, 177 S. W. 226, held differently to the conclusions' we have stated upion the legal meaning and effect of this contract; but an analysis of that opinion will not, we think, sustain the contention. That court did not pass upon either of the questions herein decided, because neither was presented to it. The issues there determined were that the following issues should have been submitted to the jury: (1) Was the time within which notice was to be given about securing right of way and connection extended, waived, given, or was the contract to continue in force, that clause eliminated? (2) What was the status of E. H. Craig as between Ball and Ryan, and was he Ball’s agent or middleman? (3) Did the evidence show a repudiation of the contract by plaintiff in that suit? Further, that no interest in the land upon which the timber stood was conveyed, nor was the description of the land void for uncertainty; and, lastly, that Vernon’s Say les’ Ann. Civ. Statutes, 1914, arts. 1314, 1318, requiring that foreign corporations secure permits before doing business within the state, did not prevent a foreign corporation, which had not procured a permit, from contracting to buy timber located in this state, in contemplation of doing business in this state. It seems that the contract was there construed by both parties as meaning that the attaching of its obligations was conditioned alone upon the giving of the notice therein specified, and that the court, in deciding that appeal, accordingly so treated it; indeed, such is likewise appellant’s position upon this appeal also, and its counsel arraigns appellee’s counsel for an alleged change of viewpoint between the two appeals as to the proper interpretation and effect of the contract.

While these matters are in no way material to any issues here involved, they are mentioned merely in emphasis of what has been already stated, that the objections to the contract herein treated were not before the San Antonio court upon the other appeal. Especially is it to be noted that its holding that a foreign corporation, without first procuring a permit to do business in Texas, is not prevented by Revised Statutes, arts. 1314, 1318, from contracting to buy timber located in Texas, in contemplation of doing business here, is very far from deciding that a foreign lumber corporation with nothing but a permit to do a lumber and sawmill business in Texas could in that avowed capacity acquire, operate, and maintain a standard gauge- railway within this state, in the face of our above-quoted statute directly prohibiting it.

Having thus concluded that the action brought could not be maintained for the reasons given, it follows that the trial court’s judgment should be affirmed, and it has been so ordered.

Affirmed.
      other oases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes


source: Caselaw Access Project

author: PLEASANTS, C. J.

license: Public Domain

text:
    BAKER et al. v. DRUESEDOW, Tax Collector, et al.
    (No. 7339.)
    (Court of Civil Appeals of Texas. Galveston.
    June 28, 1917.
    On Motion for Rehearing, Oct. 11, 1917.)
    1. Taxation c^3oo(1) — Railroads—Intangible Property — Evidence—Sufficiency.
    Evidence held to show that the railroad had no intangible property taxable in Texas, and that the fixing of values on intangible property by the state tax board was an arbitrary finding of values that did not exist.
    2. Taxation <@=390(2) — Railroads—Intangible Property.
    Vernon’s Sayles’ Ann. Civ. St. 1914, art. 7420, as to taxation of railroad property, does not require the tax board to fix the entire value of the property by adding the value of the capital stock and the mortgage indebtedness but must adopt that method unless it seems unfair or unjust.
    3. Taxation <@=>390(2) — Railroads—Intangible Property.
    Under such statute, it is within the power of the court in proper cases to determine the real value of the railroad by capitalizing its not earnings at a reasonable interest rate.
    4. Taxation <@=>390(2) — Railroads—'“Intangible Values.”
    The intangible values of a railroad company are the values of the railroad property over and above the value of its physical assets which intangibles ordinarily result from profits of its business as actually conducted.
    5. Taxation <@=>390(2) — Railroads—Powers op Board.
    Vernon’s Sayles’ Ann. Civ. St. 1914, art. 7420, as to taxation of railroad property does not authorize the state tax board arbitrarily to fix the intangible values of a railroad if the rendition of the physical property for taxation has been made at less than fair and just value.
    6. Taxation <@=>611(4) — Improper Values— Relief — Injunction—Parties.
    Where the tax board made an improper valuation of railroad property for taxation and the railroad sought injunction restraining the certification, but the suit was dismissed and later the railroad sought injunction solely against the county, attempting to enforce the assessment without joining state tax board, there was no fatal defect ot parties.
    7. Judgment <@=>570(13) — Res Adjudicata— Matters Concluded.
    A judge’s order, refusing a temporary injunction, after which plaintiff dismissed its suit, is not res adjudicata of the right of the petitioners to have an alleged illegal assessment of taxes enjoined.
    8. Taxation <@=>611(4) — Void Assessments— Injunction — Parties.
    The state tax board, having certified its findings assessing railway property to the various counties, was not a necessary party to a suit to enjoin the collection of taxes levied on their assessment which was void and illegal.
    9. Taxation <@=>608(6) — Collection—Injunction — Mistake—Effect.
    The mere fact that the county board in assessing railroad tangibles made the levy too low did not affect the railroad’s right to enjoin collection of the tax on intangible property certified to the county by the state board.

      10. Taxation <@=47(4) — Railroads—Intangible Property — Statutes—Validity.
    The amendment of the railroad intangible tax law (Acts 29th Leg. c. 146) by Acts 30th Leg. (1st Ex. Sess.) c. 17, so as to provide for a local tax on intangible assets “in addition to the ad valorem taxes on intangible properties” was not void as providing dual tax, inasmuch as the phrase “ad valorem tax on intangible property” was a mere clerical error, and should have been “ad valorem tax on tangible property.”
    On Motion for Rehearing.
    11. Evidence <@=>113(5) — Value — Admissibility.
    In suit by a railroad for reduction of its assessment, testimony as to the value of real estate abutting upon that owned and occupied by the railway was admissible to show the value of the land owned by the railway and not devoted to railway purposes.
    Appeal from District Court, Harris County; J. D. Harvey, Judge.
    Suit by James A. Baker and another, as receivers for the International & Great Northern Railway Company, against Karl D. Druesedow, Tax Collector, and others. Judgment for defendants, and plaintiffs appeal.
    Reversed and rendered.
    On motion for rehearing. Motion denied.
    Wilson, Dabney & King, of Houston, for appellants. Sewall Myer, of Houston, and B. E. Looney and Luther Nickels, both of Austin, for appellees.
   PLEASANTS, C. J.

This suit was brought by the appellants, as receivers for the International & Great Northern Railway Company, against appellee, Druesedow, tax collector of Harris county, and the county judge and members of the commissioners’ court of said county, to restrain the collection of the tax assessed against the (International & Great Northern Railway Company upon the value of the intangible property found by the state tax board to he owned by said road and apportioned by said board to Harris county. The taxes assessed upon said intangible property so apportioned to Harris county, the collection of which is sought to be enjoined by this suit, amount to the sum of $6,605.34.

Plaintiff’s petition is necessarily voluminous, and it would serve no useful purpose to set out its allegations at length, or to give the substance of all of them. The tax is attacked as illegal, and its collection asked to be enjoined upon the ground, among others, that the railway company had no intangible value upon which the tax could be levied. It is charged, in substance, that the valuation of the whole intangible property of the railway at $10,743,223 by tbe state tax board was tbe arbitrary fixing and attempting to create value that had no actual existence. We adopt the following summary of most of the material allegations of the petition, which we copy from appellants’ brief:

“And that in finding the same did exist, the board did not endeavor, in the words of the statute, ‘to bring about a just, fair, equitable and lawful valuation,’ but did state the existence of intangible property which did not exist, and against all evidence, upon a deliberated plan to suppose the existence of such fictional property, and that the board did act for the purpose of subjecting to illegal taxation the properties of the International & Great Northern Railway, and for the purpose of collecting out of these properties, under the security of tax liens and preferences created by law, great sums of money because of the claimed intangibles.”

It was further charged that the railway had no intangibles, but that if it had any, which is not admitted, but denied, then that they were of no such value as stated by the tax board; that the plaintiffs were grossly discriminated against in the valuations made, by discrimination in favor of other and competing railroads' arbitrarily and wilfully made, and that the board, by a false formula and by methods which no reasonable mind could in good faith follow, and through gross error and mistake, as well as by deliberate plan, did make this assessment.

It is then alleged that plaintiffs, in response to a notice issued by the tax board under the provision of the statute to show cause why the preliminary assessment should n,ot be made final, appeared before said board, and in writing and orally protested against the preliminary assessment and mathematical formula which the board applied in ascertaining the intangible values of the railway, and requested the board to explain the formula and the board’s process in making the valuation. The board refused to explain its process, or to state the basis of its action, and on what basis or evidence it was acting in making this assessment, and refused to state why, in the formula, they had valued the stock of the insolvent and foreclosed railroad at $12,934,533, its par being $4,822,000, except that the board insisted that the formula was correct.

At this hearing no evidence was offered in support of the board’s action, and no reason given therefor, except the formula, but the plaintiffs proved without controversy the following facts:

“(a) The amount of stocks and bonds of the railway outstanding on December 31, 1914, including equipment notes, all taken at par, was $32,154,000, of which $4,822,000 was stock and the railroad commission’s valuation was $32,-471,027.05, to which might be added additions and betterments not then valued by the railroad commission of book cost of $1,542,065.02.
“(b) The railroad paid interest at 6 per cent, on its first mortgage bonds amounting to $11,-290,500, and partly out of receivers’ certificates, and that the second mortgage had been foreclosed and interest on its bonds was in default.
“(c) The tax board was placing a premium of $8,112,533 on the capital stock of par $4,822,-000, although this stock had been foreclosed and was worthless.
“(d) The properties had been foreclosed in 1910-11, and sold out, and unsecured debts of over $7,000,000, and third mortgage bonds of approximately $3,000,000, and a stock capitalization of $9,755,000 were eliminated and thrown away.
“(e, f, g) The net income above operating expenses for 1914 was $65,405, which would capitalize at 7 per cent. $934,361, and for the calendar year of 1913, $1,153,660.92, which would capitalize at 7 per cent. $16,523,727.43, and for the calendar year of 1912, $2,084,149.50, which would capitalize at 7 per cent. $29,773,564.28. It was shown that no income had ever been paid on the stock of the railroad, except on preferred stock for one year, and that the taxes had increased on the properties from 1904 $127,-304.81 to, for 1914, $371,420.22.”
“Other testimony was offered on said hearing by the plaintiffs, and they offered to furnish all information in their possession, and requested the board to make complete and full investigation, which it refused to do.”
“The plaintiffs invoke the Constitution of the state of Texas and the laws of Texas against the illegal valuation and assessment, and section 1, of article 14 of the Amendments to the Constitution of the United States, in bar of the taxation attacked and the valuation made, and represent that if the court does not intervene, the property will be illegally taken and diverted to the extent of such illegal taxation from its lawful owners, or the persons entitled thereto, and that taxes will be levied and taken without due process of law and in violation of the equal protection of the law.”
It is further alleged:
“That if any intangibles existed, which was not admitted, then that they were assessed and taxed at par, or enormously over par, by the state tax board’s valuation, and that there existed in Hands county a scheme, custom, use, and design, participated in by the tax assessors and the defendants, whereby it was agieed, understood, or permitted that other tangibles in the county should be assessed at far below the true values, and a large amount of moneys, stock, bonds, loans, and choses in action and household furniture, subject to taxation, were understood and agreed not to be taxed at all, and were not taxed, and that it was understood and agreed or permitted that no intangibles, except those of railroads, should be taxed, and that by reason of these facts not less than one-half of the property in the county, subject to taxation, escaped all taxation whatever, and that tangibles were taxed at not over 38 per cent, of their true value, or true cash and market value, and that all of these undervalua-tions and all of these permissions of property to escape from taxation were done systematically by the defendants and the Board of Equalization and the tax assessor, and were intentional and arbitrary, whereby it was asserted that the plaintiffs were unjustly, arbitrarily, and willfully discriminated against, even if the International & Great Northern Railway had intangible values, which was not admitted, wherefore, adhering to the first branch of this case and subject to the same, the plaintiffs claim that if they had any intangibles, they must be taxed in Harris county on a basis of the taxation of the property of others in this county, also taking into consideration the failure and refusal of the taxing authorities to value or tax great bodies of property. Upon this branch of the case the plaintiffs invoked the Constitution of the state of Texas, and its laws, against such illegal valuations, assessments, and discrimination, and section 1 of article 14 of the Amendments to the Constitution of the United States, and represented that, if the couz-t did not intervene, the property would be illegally taken and diverted to the extent of the illegal taxation by reason of such discriminations.
“Plaintiffs prayed for a temporary injunction (which, was never sued out) and that upon final trial the defendants and their successors be forever enjoined from collecting the taxes in litigation, and that in the event the court should hold that some parts of the taxes in controversy were due, and not all, then that the amount should be ascertained upon the principles set out above, but this was subject to all of the contentions of the plaintiffs, as above made, that there were no taxes due. The plaintiffs prayed for the removal of every cloud or burden resting upon the properties of the railway by reason of these illegal claims, and for general relief.”

The defendants answered first by pleas in abatement, setting up proceedings instituted in the District Court of the United States for the Southern District of Texas against the state tax board Peking to enjoin said hoard from certifying to the various county tax assessors the intangible valuations attached in this suit, which proceedings and the judgment of said court denying plaintiffs’ prayer for temporary injunction are pleaded as res adjudicata of the cause of action asserted in this suit. The defendants further pleaded:

“That, in addition to the above and foregoing pleas in abatement, these defendants say that this cause of action should and ought to abate, for the following reasons, to wit:
“(a) Because plaintiffs have an adequate remedy at law, and because there is no threatened injury which will result in irreparable damage to plaintiffs.
“(b) Because this suit is, in effect, a suit against the state of Texas, and permission has not been given by the state of Texas to the plaintiffs to file this said suit.
“Wherefore, these defendants say that this suit should abate, be dismissed, and held for naught.”

These pleas are followed by a general demurrer and special exceptions to all of the material allegations of the petition, and by general and special denials of said allegations. The answer further set out at great length facts showing-that the total valuation of the railroad properties is less than the total valuation including intangibles fixed by the state tax board, and avers that, this being true, the plaintiffs cannot be heard to complain that intangible values have been assessed, even if no such values exist. The following paragraphs of the answer show this contention of defendants:

“By chapter 4, tit. 125, R. S. 1911, it is made the duty of the state tax board to diligently inquire into all facts relative to railroad values so as to enable it to determine the true value of such properties, and, from all information which it is able to secure, the board is charged with the duty of finding (1) ‘the entire value of the property (of the company, etc.) (2) ‘the true value of the tangible property’; and it is then required to subtract the latter amount from the former ‘and the residue and remainder of value shall be by said state tax board fixed, determined, and declared as the true value of the intangible properties.’ Article 7420. As aforesaid, the state tax board had the right to rely upon the sworn statements of the plaintiffs’ agents, stating the ‘full and true value’ of the tangible properties and the classification of their properties made thereby, and, if said sworn statements were untrue, and if error was made in the classification and in the amount of value of the tangible properties, by reason thereof plaintiffs are now estopped to take advantage of the same, and for such relief defendants pray. That as aforesaid the ‘entire value’ of plaintiffs’ properties is and was far in excess of the sum of $40,000,000, as will more specifically he alleged hereinafter. And defendants, therefore, say:
“First. That the entire properties of the plaintiffs in the state have been assessed for taxation, both upon the tangible and the intangible assets, at much less than 50 per cent, of their true value.
“Second. That their intangible properties have been assessed by the state tax board and the various county tax assessors at much less than 40 per cent, of their real values.
“Third. That the proportion of the sum of their intangible values properly belonging to this county has been assessed at much less than, or at least not exceeding, the proportion of value at which other property in the county has been assessed.
“Fourth. That even if a mistake has been made in classifying plaintiffs’ property into ‘tangibles’ and ‘intangibles’ and that a larger proportion of the entire values should be regarded as belonging to the ‘tangibles,’ still the true ‘intangibles’ properly belonging to this county for taxation purposes have not been assessed at a greater proportion of their value than other property in the county.
“Fifth. That if it be true, which is not admitted, but denied, that the state tax board did not use logical formulas, or methods of calculation, and did not correctly understand the information in their possession and its application, nevertheless the results of their action and calculations are not erroneous, and therefore their mistakes, if any, are immaterial and afford no basis for relief to the plaintiffs. * * *
“As aforesaid, defendants say that the total value of all of the properties of the plaintiff’s justly subject to taxation within the state exceeds the aggregated assessments thereof by the various county taxing authorities and the state tax board; and in this connection defendants show unto the court the following:
“First. The total valuation of tangibles and intangibles for taxation is the sum of $24,086,-719.
“Second. The “hook cost” of the properties of the plaintiffs up to June 30, 1914, as shown by their records, was the sum of $43,818,430.79, representing actual investments, and since that time a largo amount of money, the exact amount of which is to defendants unknown, has been invested therein, which records are in the possession of the plaintiffs, and they are hereby notified to produce the same upon the hearing hereof.”

It is further averred, in substance, that the total assessment of plaintiffs’ property in Harris county, including the intangible values, is at a less per cent, of its true value than the assessed valuation for other property in said, county, and therefore plaintiffs show no equity and no right to complain of the taxes which they seek to enjoin. The defendant, Druesedow, filed a cross-bill for recovery of the taxes due the county according to the assessment roils.

Plaintiffs, by supplemental petition, excepted to the defendants’ answer. The pleas in abatement, and all of the demurrers were overruled. The cause was tried without a jury and judgment rendered in favor of defendants that plaintiffs take nothing by their suit, and that the defendant, Druesedow, recover of plaintiffs for the use and benefit of the state of Texas and Harris county the sum of $0,605.34, and the further sum of $01.27 interest from February 1, 1916.

The undisputed evidence adduced upon the trial shows that, upon a hearing by the state tax board on June 18, 1915, after notice to plaintiff to appear and show cause why a valuation of the intangible property of the railway company theretofore made by the board should not be made final, the board, after considering plaintiffs’ protest and the evidence offered by them, adopted its corrected preliminary valuation, fixing the valuation of said intangibles at the sum of $10,743,223, and apportioned and certified said valuation to the various counties in accordance with the provision of the statute. The amount so apportioned and certified to Harris county was $603,227. The state and county taxes assessed in Harris county on said sum amount to $6,605.34. At said hearing plaintiffs showed that the valuation of the physical properties of the railway company as fixed by the State Railroad Commission some time previous to this hearing was $32,471,-027.05, and that since said valuation was made, betterments valued at $1,542,065 had been added to the property, making the aggregate valuation of the tangible property of the railway $34,013,092.07.

The aggregate of the stocks, bonds, and lien obligations of every character of the railway was shown to be $32,154,000. It was further shown that the properties now owned by the railway company, except some additions which have been since made, were sold out under mortgage foreclosure in 1911 in a suit brought by bondholders of the now defunct International & Great Northern Railroad Company, and bought in by the present International & Great Northern Railway Company, which was organized for the purpose of purchasing and operating the sold-out company. By this foreclosure the capital stock of $10,000,000 and indebtedness to the amount of $8,000,000 of the old company were wiped out. The present company was placed in the hands of receivers on August 10, 1914, for default on its mortgage indebtedness and decree of foreclosure had been entered on May 17, 1915.

The properties were shown to have been well managed for the past 14 years, and the net average income during that time was 4.25 per cent, on the Railroad Commission’s valuation. The average net income for the year 1912, which was shown to be the best year in the history of the properties, was $2,084,149.50, which, capitalized at 7 per cent., the average rate of interest in the section through which the railway operates, would show a valuation of $29,743,564.28. The net income for 1913 at 7 per cent, would capitalize $16,523,727.43. The net income for the year 1914 at 7 per cent, would capitalize $934,361.

All of the facts above stated were shown in the trial in the court below by undisputed evidence. At the hearing before mentioned plaintiffs in writing requested the board to give the data or information on which it based its findings of the value of the intangible property of the railroad. In response to this request, it furnished the following formula, which it had used in ascertaining said value:

International & Great Northern Ey. Co.
Gross receipts, 1911 .$ 9,782,165
“ “ 1912 11,254,327
" “ 1913 10,902,041
" " 1914 9,645,785
Total . $41,584,318
$41,584,318-i-4 . 10,396,079
Capital stock issued and outstanding .;. $ 4,822,000
26,181,500
Total capitalization . $31,003,500
$10,396,079-f-31,003,500— 33.53 ratio
12.50 ratio T. & P.
33.53-t-12.50 —268.24 ratio
$4,822,000X268.24 .$ 12,934,533
Mortgage debt at par. 26,181,500
True value ....,...>. $39,116,033
Physical value (assessed value). 28,372,810
Intangible value. $10,743,233
The Texas & Pacific Railroad Company ratio used in this formula was obtained by the following formula applied to the earnings; indebtedness, and tangible values of that road:
State Tax Board, Austin, Texas. Texas & Pacific Railroad Co.
Gross receipts, 1911 .$11,079,618
“ “ 1912 12,341,684
" “ 1913 12,381,305
" " 1914 11,745,562
Total . $47,548,169
$47,548,169 — 4— 11,887,042
Stock issued and outstanding... $38,763,810
Bonded Debt.
First mortgage (par) $24,992,975 First mortgage “ 4,970,000
Second mortgage (par) . 24,987,036
$54,950,011
Secured interest accrued . 1,498,500
Total . $56,488,511
56,488,511
Total capitalization . $95,212,321
$11,887,042-H95,212,321=12.48 ratio
38,763,810X12.50 — Val. Stk. 4,845,476
Lien obligations . 56,448,511
True value, Texas share, $61,293,987X57.60 $35,305,336 Physical value . 15,588,147
Intangible value . $19,717,189

In both of these formulas it is apparent the decimal point has been misplaced. In the International & Great Northern formula the figure 33.53 should be .3353; 12.50 should he .125, and 268.24 should be 2.6824. In the Texas & Pacific formula 12.48 should be .1248, and 12.50 should be .125.

The method followed by the board in as: eertaining the amount of intangible values of the railway company for the purpose of taxation and the explanation of the formula above set out and their use in fixing said values is stated by Mr. Bagby, state tax commissioner, as follows:

“That in any mathematical calculation or formula, the two main factors which he had endeavored to find in order to arrive at the value of intangibles were the real value and the physical value of the railroads; that is, the real value of the entire property as a whole, and that he had done this in the case of the International & Great Northern Railway in connection with its valuation for 1915, and that the valuation found by the board of $39,999,000, plus represented his best judgment as to the true value of the entire properties upon all the information which he had before him, and that the facts showed that that was the proper valuation in the judgment of the board, and that he was under no coercion from any source in making that valuation, and that it was hard to get anybody to discuss the intangible matters with him, and that the valuation of the property of the international & Great Northern for 1915 took into consideration the mathematical calculation to be used, and that, disregarding the mathematical calculation and looking only to the result that the valuation reflects the best judgment of which the witness was capable under all the information he had, and that he saw no conduct upon part of any other members of the board indicating that they were not exercising their best judgment; and so he would say the same as to every one of the railroads. That the representatives of the international & Great Northern Railway had appeared before the board on June 18, 1915, but that these representatives did not offer the board any facts not disclosed by the records already before the board. That their representations consisted partly of facts and partly of arguments, with perhaps three witnesses, the auditor, the tax man, and the head of the traffic department testified, but what they said did not change the opinion of the board, and that, as far as he was concerned, he went into the hearing with an open mind and gave a patient hearing, or tried to.
Cross-examination by the plaintiffs:
“The law says that the intangible assets of a railroad is the difference between its physical value and real value, or, in other words, is the metaphysical value, if any. The witness said that he was a fairly good arithmetician and fairly well knew the ‘rule of three’ and common and decimal fractions. The witness then testified the various formula which had been introduced in evidence from each railroad emanated from the state tax board in 1915, and stated that he, for the most part, made these calculations, based upon a formula of the Texas & Pacific Railway, with the assistance of his associates; that they first got gross receipts of the Texas & Pacific Railway, for four years, divided that by four, then got the total of the capital stock and bonds and found the ratio between the gross receipts and the capital, average gross receipts and the capital stock, and found it to be 12% or 12.48; that is %. That they then took the capital stock and multiplied it by 12% or %; that is, by .125: that it was first found that the Texas & Pacific was the only railroad in the state that had a marketable value for its stock, the Wall Street bulletin showing a quotation on it at either 12% per cent, or 16 cents on the dollar; that then the board took the capital stock and multiplied it by 12% per cent, and found out what they thought was the real value of the Texas & Pacific and added the bonded indebtedness to tliis real value of the Texas & Pacific capital stock, and took that for the total true value of the railroad, and then subtracted the physical value and took the balance for the intangible value.
“Coming now to the International & Great Northern Railway. The witness stated that he found the- average gross receipts for four years, then the difference between the bonded indebtedness, and then applied the Texas & Pacific formula and multiplied the difference of its ratio between its capital stock and divided by 12% per cent. (126). The gross receipts for four years were $41,000,000 of the International & Great Northern Railway, divide it by four, and it averages $10,000,000. The capital stock issued and outstanding is $4,822,000 and the mortgage debt at par was $26,000,000 in round numbers, or in round numbers about $31,-000,000 for stocks and bonds; that then they divided the average gross income of $10,369,000 by the $31,000,500, and that gave the ratio of the capital stock and gross receipts, and ‘we divided, then, the ratio of the capital stock of the International & Great Northern Railway and gross receipts, by the ratio of the Texas & Pacific, 12%.’ That would make a ratio of 2.6, and we multiplied the $4,822,000 by that and added the mortgage debt at par, then subtracted the physical valuation and found the intangible values of $10,743,000.”

It is shown from the whole evidence that the alleged intangible values of the railway company were found by increasing the par value of its capital stock by the application of the formula and reducing the value of its physical properties below the amount fixed by the state railroad commission, and shown by the undisputed evidence to he their fair value, and from the sum of the mortgage indebtedness and the value of the stock so fixed by the board deducting the decreased value of the physical properties. Unless this process can be held sufficient to show that the railway company has intangible values upon which the assessment can be based, there is no evidence of the existence of said values.

It was shown by the testimony of Mr. Arthur Lafevre, a mathematical expert and teacher of the highest standing and large practical experience, that the formulas used by the board could not possibly show the value of the railway’s stock, nor in any way aid in ascertaining such value. The Texas & Pacific formula is based upon the theory that the ratio of average gross income to total capitalization has a bearing upon the value of capital stock. It is mathematically certain that since the average gross receipts of a railway company never exceeds its capital, the ration between the two must always be expressed by a fraction. It follows that when the par or face value of the capital stock is multiplied by this ratio to determine its value, the result will show the value of the stock to be less than par. This was the result of the application of the Texas & Pacific formula by which the value of the stock of that road was shown to be 12% peí-cent. of par. The fortuitous circumstance that at the time this formula was applied for the purpose of ascertaining the value of the stock of that road, the stock was selling on the market at 12% per cent, cannot he regarded as showing that the value of railroad stock can be ascertained by multiplying its par value by the fraction representing the ratio of its average gross receipts to its capitalization. It is manifest that the use of such a formula would, in many cases, greatly and unnecessarily reduce the value of the stock. The hoard realized this, and applied that formula to no other road.

The use of the Texas & Pacific ratio in the formula applied to the other roads for the purpose of increasing the ratio obtained by the application of such formula is purely arbitrary, and could not, upon any rational theory, demonstrate the value of the stock. Such process must necessarily result in great discrimination in the valuation of the stocks of the different roads, the valuation varying in the proportion to the variation of the ratio of the capital stock to the total capitalization of the various roads. That the application of the formula did produce discrimination between the various roads is shown by the undisputed evidence in this ease.

There have been no sales of the stock of the International & Great Northern Railway Company, and no market quotation of its value was shown. An expert witness on market value of stocks and securities testified that the stock of a railroad having the capitalization, indebtedness and earning capacity of this railway had no market value. Our conclusion of fact from a consideration of all the evidence is that the International & Great Northern Railway Company had no intangible property taxable under the laws of this state when the taxes sought to be enjoined were assessed thereon, and the fixing of such values by the state tax board was the arbitrary finding of values that did not exist.

Upon these facts appellants are entitled to protection against the collection of the taxes unless such right is defeated upon grounds urged by appellees, and which will be hereinafter considered.

Our statute providing for the assessment for taxation of the intangible values of railroad companies is a just and necessary law, and its constitutionality has been upheld by the decision of our Supreme Court and the Supreme Court of the United States.

The act provides, in substance (Yernon’s Sayles’ Civ. Statutes, art. 7420), that unless the evidence or information adduced before the state tax board shall make it appear improper or unjust, the board in fixing the time value of the entire property of the railroad shall take as a basis the aggregate market or true value of all of its shares of stock and add thereto the true or market value of all of its mortgage or lien indebtedness or other charge upon its property or assets, and the sum so produced shall be deemed the true value of the entire property. From this sum is to be deducted the true value of all the tangible property of the railroad, and the remainder shall be determined and declared to be the true value of the intangible-property owned by the railroad. It then provides for the apportionment of this value of intangible property to the various counties through which the road operates in the proportion which the mileage of the road in each of the counties respectively bears to the entire mileage in the state.

It will be observed that under this statute the board is not absolutely required to fix the entire value of the property by adding the value of the capital stock and mortgage indebtedness, but is directed to adopt this method unless from the evidence before it such method should appear improper or unjust. It can readily be seen that in some cases this method would not be proper and just either to the railroad or the state, and the capitalization of the net earnings of the road at reasonable interest rate would be the proper and just method. In the case of Railway Co. v. Shannon, 100 Tex. 379, 109 S. W. 138, 10 L. R. A. (N. S.) 681, our Supreme Court defines the intangible values of a railroad as follows:

“The intangible values of a railroad company are the values of the railroad properties [over and] above the value of its physical assets, which intangibles ordinarily result from profits of its business as actually conducted.”

This is, we think, a clear and accurate definition, and it seems to ns that such intangible values can only be shown to exist by one of the methods above stated. But be this as it may, the evidence in this case shows that the board, in fixing the intangible value of the railway company, took the basis suggested by the statute, and unless the value of the capital stock fixed by the board can he sustained, there is no basis for any intangible values. We have found that the so-called “rule of three” formula, applied by the board to ascertain the value of the stock, cannot he so applied upon any mathematical principle or rational theory, and its general application produces unjust discrimination between railroads. There is no evidence upon which the value of the stock fixed by the board can be sustained, and when called upon and urged by the appellants upon the hearing before it to disclose what, if any, evidence or information it had which tended to disprove the showing made by appellants that no such values existed, the board only offered its “rule of three” formula.

Upon the trial in the court below appellees offered testimony showing that the value of the tangible property was much greater than the value at which it was assessed for taxation, and greater than the valuation placed thereon by tho state Railroad Commission. This testimony does not tend to sustain the intangible valuation found by the state tax board. It may be contended that the addition of value to the physical properties of the road increases the value of the capital stock, but this fact could have no effect upon the intangible value, for the obvious reason that in determining said value by the method authorized by the statute and adopted by the board, the true value of the tangibles must be deducted from the value of the stock and mortgage indebtedness.

This arbitrary action of the board was doubtless due to the misconception of the scope of the statute creating the board and of the power conferred upon it by the statute. The pleadings of the defendants and the testimony of the tax commissioner show that the board construed the statute as authorizing it, when it deems the rendition of the physical properties of a railroad for taxation has been made at a valuation less than its fair and just value, to add to this value by an “arbitrary” fixing of intangible values of such railroad. It is clear that the statute has no such meaning, and cannot be construed as conferring any such power upon the state tax board. It has no power to pass upon, correct, or in any way change valuation of tangible property as fixed in the rendition and assessment of such property for taxation. Its right to fix the value of tangible property is only for the purpose stated in the statute of deducting the “true” value of such property from the aggregate value of the stock and mortgage indebtedness, and thus determine the value of the intangible property of the road. Any statute which conferred upon the state tax board the power to value and assess tangibles as intangibles and apportion such values among the various counties of the state as provided in this statute would be clearly obnoxious to the provision of the Constitution which requires tangible property to be assessed in the county in which it is situated. Article 8, §§ 8-11, 14, State Constitution ; Railway Co. v. Shannon, 100 Tex. 379, 100 S. W. 138, 10 L. R. A. (N.S.) 681. But it matters not what may have been the motive or cause of the illegal action of the board in arbitrarily fixing values of intangible property that did not, in fact, exist, appellant is entitled to relief against the collection of taxes levied upon such illegal assessment. In the case of Lively v. Railway Co., 102 Tex. 559, 120 S. W. 857, our Supreme Court says:

“It is not necessary that the officers in so discriminating should have intended specifically to injure the appellee or other railroad companies. It is sufficient that by their action they denied the appellee the equal protection of the Constitution and laws of the state. The intention with which the acts were done is of no consequence. Such deliberate action on the part of officers [which are] charged with the enforcement of the law (i. e., making an assessment) must be held to he the act of the state, and the appellee was entitled to relief against the enforcement of the excessive assessment.”

In the case of Cummings v. Bank, 101 U. S. 153, 25 L. Ed. 903, the Supreme Court of the United States, in considering a case involving inequality in assessing values, says:

“Independently of this statute, however, we are of opinion that when a rule or system of valuation is adopted by those whose duty it is to make the assessment, which is designed to operate unequally and to violate a fundamental principle of the Constitution, and when this rule is applied not solely to one individual, but to a large class of individuals, or corporations, that equity may properly interfere to restrain the operation of this unconstitutional exercise of power. [The word “designed” as here used is not used as a synonym of “intended,” but rather in the sense of calculated.] >ln Railroad & Telephone Co.’s v. Board (C. C.) 85 Fed. 305, it was said: ‘It is conceded, and could not he controverted, that the bill contains no specific allegation of fraud on the part of the board of equalization. While I do not regard this as a controlling point at all in the case, it must he stated, to avoid misapprehension, that, although acting with perfect honesty, if the assessors or board of equalizers pursued methods calculated to bring about a substantial inequality in the * * * value of the properties here in question, as compared with other species of property in the state, the innocent intent in such a procedure would be no [legal] justification whatever, in law for a wrong result. Full legal responsibility is recognized for the necessary, legitimate, and natural result of acts and a systematic course of procedure, and an innocent mistake about the matter does not change the effect. For legal purposes, all persons are presumed conclusively to contemplate and. intend the necessary and natural result of their acts. Agnew v. U. S., 165 U. S. 36 [17 Sup. Ct. 235, 41 L. Ed. 624]. If the hoard of equalization was under a duty to equalize, a mistaken view that such was not its duty could not change the law, and could not render a result legal which would otherwise be illegal.’ In German National Bank v. Kimball, Collector, et al., 103 U. S. 732, S. C. of U. S., and 26 L. Ed. 469, the court says: ‘It is held in these cases that when the inequality of valuation is the result of a statute of a state designed (i.. e._, the necessary operation of which is) to discriminate injuriously against any class of persons or any species of property, a court of equity will give appropriate relief, and also where, though the law itself is unobjectionable, the officers who are appointed to make assessments combine together and establish a rule or principle of valuation, the necessary result of which is to tax one species of property higher than others, and higher than the average rate, the court will also give relief.’

In addition to the above authorities appellants’ right to relief is sustained by the following cases: Galveston County v. Galveston Gas Co., 72 Tex. 517, 10 S. W. 583; Johnson v. Holland, 17 Tex. Civ. App. 210, 43 S. W. 71; State Board of Equalization v. People, 191 Ill. 528, 61 N. E. 339, 58 L. R. A. 513.

The first contention of appellees in reply to appellants’ brief is as follows:

“Since the state tax board, and no other official or body, representing the state of Texas as a whole is not a party to the litigation; since the state tax board has long since performed all of the duties laid upon it by law, and has certified the results of its valuations to the various counties, and had done so long before the filing of this suit; and since it was the duty of the appellants to enjoin said board from certifying said valuations before it did so, if there was error therein so that such error could he corrected; and since appellants attempted in the federal courts to secure such injunction and abandoned the attempt; and since the result of a successful attack upon such, valuation in this suit to which only the taxing authorities of Harris county are parties defendant would nullify the valuations certified by the state tax board to some 36 other counties and thus deprivé each and all of such counties of such taxable values and also deprive the state of the whole of such taxable values — there is a fatal defect of parties, and the appellants are concluded from making such attack in this case.”
There is no merit in this contention.

Appellants were, in our opinion, entitled to an injunction restraining the board from certifying the intangible values' found by it to the various counties because, as we have before concluded, the finding of such values was without any evidence to support it, and was purely arbitrary. The record shows that they attempted to pursue this remedy by a suit filed in the federal district court, but upon a denial by the judge of that court of their application for temporary injunction they dismissed their suit. The order of the judge on a preliminary hearing refusing a temporary injunction is not res ad-judicata of appellants’ cause of action, and the trial court properly so held. The board having certified its findings to the various counties, no suit against it to enjoin such certification could have been brought when this Suit was instituted, and it was not a necessary party to a suit to enjoin the collection of taxes levied on an illegal and void assessment made by it. Railway Co. v. Shannon, 100 Tex. 388, 100 S. W. 138, 10 L. R. A. (N. S.) 681; Chicago Union Traction Co. v. Board (C. C.) 114 Fed. 557; Raymond v. Chicago Union Traction Co., 207 U. S. 20, 28 Sup. Ct. 7, 52 L. Ed. 78, 12 Ann. Cas. 757; Pelton v. Bank, 101 U. S. 143, 25 L. Ed. 901.

The trial court found, and there is evidence to sustain the finding, that, taking the Railroad Commission’s valuation of the physical properties of the railway in Harris county as a basis, the total value of the property assessed against the railway in Harris county, including the intangible values, did not amount to a greater per cent, of the true value of the tangible property of the railway than the per cent, at which other tangible property in said county was assessed for taxation. Upon this ground the court held that the plaintiffs showed no equity and were therefore not entitled to relief against the collection of taxes upon intangible values, regardless of whether such intangibles existed. We do not think this holding is sound. The valuation of the tangible property of the road in Harris county was fixed by the officers of the county charged by law with that duty, and if they fixed such taxable valuation at a less per cent, than the value at which the property of the citizens generally in said county was assessed for taxation, this mistake cannot entitle the county to collect taxes upon property which the company does not own and which, in, fact, has no existence. Appellants’ contention that our present intangible tax law is unconstitutional by reason of an amendment to the statute enacted by the Legislature in 1907, after the decision of our Supreme Court upholding the constitutionality of the intangible tax statute of 1905, cannot be sustained. The section of the original act and the amendment thereof which appellants claim renders the law unconstitutional are as follows:

Act o£ 1905.
“And every individual or association of individuals doing such business shall, in addition to the ad valorem taxes on tangible properties which are now imposed upon them by law, annually, beginning with the first day of January, A. D. 1900, pay a tax to the state for the year 1906, and for each year thereafter, on their unrender-ed intangible assets and property, and local taxes thereon, to the counties in which its business is or shall hereafter be carried on, which additional tax shall be assessed and levied upon such assets and property in the manner hereinafter provided.” Acts 29th Leg. c. 146, § 1.
Act of 1907.
Every incorporated railroad * * * ferry, * *■ * bridge, * * * turnpike or toll eom-pany, * * * and every other individual, company, corporation or association doing business of the same character, in this state, in addition to the ad valorem taxes on intangible properties which are * * * or may * * * be imposed upon them, respectively, by law,” shall pay an annual tax to the state, beginning with the first day of January of each year, “on their intangi-bio assets and property, and local taxes thereon, to the counties in which its business is carried on; which additional tax shall be assessed and levied upon such intangible assets and property in the manner provided in this chapter.” Acts 30th Leg. [1st Ex. Sess.] c. 17, § 1.

Appellants claim that the amendment renders the law unconstitutional because it authorizes the levy of taxes on intangible property in addition to the ad valorem taxes on intangible properties which are or may be imposed by law, and thereby authorizes a double assessment of intangible properties. We do not think this is a proper construction of the amended statute. When the statute is considered as a whole, we think it clear that the word “intangible,” where it first appears in the section of the amendment above quoted, was so written by clerical mistake, and that it was- the manifest intention of the Legislature to there use the word “tangible,” and therefore the amendment does not authorize a double assessment of intangible properties.

As before stated, we are of the opinion that the appellants upon the uncontradicted evidence were entitled to be relieved from the payment of taxes levied upon an arbitrary valuation of intangibles which had no existence in fact, and- the trial court should have granted an injunction restraining the collection of said taxes.

It follows from this conclusion that the judgment of the trial court should be reversed, and judgment here rendered, granting such injunction; and it is so ordered.

Reversed and rendered.

On Motion for Rehearing.

Appellees, in a motion for rehearing filed hy them, very earnestly contend that we have erred in holding that the evidence in this case fails to show that the International & Groat Northern Railway Company has any intangible property or intangible values subject to taxation under the laws of this state. No attempt is made in the motion to justify the holding of the tax board that the so-called “rule of three” formula, used by the board for the purpose of ascertaining the value of the stock of the railway company, demonstrated that the stock is worth the amount found by the board. It is urged, however, that the record does not justify our conclusion that the board relied solely upon the application of the formula to show the value of the stock, and that if the formula be discarded there is evidence to sustain the finding of the board as to the value of the stock, and that the railway company owned intangible property in this state of more than $10,000,1)00 in value.

We cannot agree with either of these contentions. We think the record as a whole shows conclusively that the board relied solely upon the mathematical result obtained by the axjplieation of the formula in fixing the value of the stock of the railway company, and the intangible values were found by the board by deducting from the aggregate of the value of the stock so found and the value of the lien indebtedness of the company, the value of its tangible property. Mr. Bagly, state tax commissioner, the only member of the state tax board who testified in the case, stated that in fixing the intangible values of the railway company the board considered all the evidence before it, but he failed to state what evidence the board had before it showing, or tending to show, that the railway company had any intangible value, and no such evidence was introduced upon the trial. He insisted that the use of the formula, as shown in our main opinion, was a rational and scientific method of arriving at the true value of the stock of the railway company. Upon cross-examination he was asked how stock that had never paid a dividend could be worth 2.68 times its face value, and if the board did not fix the value of the stock by applying the formula, and he replied; “Yes, sir; we did on the formula add stuck to the formula.” As stated in our main opinion, the true value of the stock could not possibly be ascertained by the method or formula used by the tax board, and there is no evidence to sustain a finding that the stock was worth more than its face value. This being so, no intangible value is shown by subtracting the value of the tangible property of the company from ’the sum of the value of the stock and lien indebtedness of the company. In our main opinion we say that the value of the tangible properties of the railway company fixed by the state Railroad Commission was “shown by the undisputed evidence to be their true value.” This statement is not accurate. What we had in mind and intended to say was that the undisputed evidence shows that the value of the tangible properties of the railway company was not less than the amount fixed by the Railroad Commission. The only evidence tending to show that it was worth less was the tax- rendition values, made by the company. The great preponderance of the evidence shows that the value was largely in excess of the amount fixed by the Commission.

Unless we adopt appellees’ theory that the tax board is authorized under the intangible tax statute of this state to assess as intangible values the value of tangible property of a railroad in excess of the value for which the tangibles are assessed for taxes, or that such board can make an “arbitrary” finding of tangible values, the finding of the board that the International & Great Northern Railway Company had intangible property of any value at the time the assessment in question was made cannot be sustained. We cannot adopt either of these theories of appellees, and feel constrained to adhere to the conclusions stated in our main opinion.

Appellants have presented a motion asking us to correct that portion of our main opinion in which we state that there was evidence to sustain, the finding of the trial court:

“That, taking the Railroad Commission’s valuation of the physical properties of the railway in Harris county as a basis, the total value of the property assessed against the railway in Harris county, including the intangible values, did not amount to a greater per cent, of the true value of the tangible property of the railway than the per cent, at which other tangible property in said county was assessed for taxation.”

The ground on which appellants complain of this statement is that the evidence upon which the trial judge based his finding as to the value of the tangible property of the railway in Harris county was the testimony of Mr. Parker as to the cost of reproduction of the tracks, depot building, and other permanent improvements used by the railway in the operation of its road in said county, and the testimony of the witness Kelly as to the value of real estate abutting upon that owned and occupied by the railway. The contention is made that the testimony of neither of these witnesses was admissible for the purpose of showing the value of the railway property, and that the finding of the trial court based upon such testimony, which was admitted over the objection of appellants, was without evidence to support it.

We did not, in our main opinion, pass upon appellants’ assignments complaining of the admission of the above-stated testimony, and we do not find it necessary now to decide the questions presented by said assignments. The trial court expressly states in his findings of fact that he did not consider the testimony as to the value of abutting property in fixing the value of land held and used by the railway company for railway purposes only, but only considered such testimony in fixing the value of land owned by the railway which is not now used for such purposes and may never be so used, and which “is reasonably adapted to use for general commercial purposes.” We think this testimony could be properly considered in finding the value of real estate owned by the railway company, but not used for railway purposes, and which may never be needed for such use. There was testimony other than that of Mr. Parker, above stated, which sustains the findings of the trial court as to the value of the railway tracks, buildings, and other superstructures in said county, and we cannot say that the findings of the court were based in whole or in part upon the testimony of Mr. Parker.

Appellants further complain of our holding that the intangible tax statute, under which the assessment complained of in this suit was made, is not unconstitutional on the ground that it authorizes a double assessment of intangible property. We do not care to add anything to what was said in our main opinion in overruling the assignment presenting this question.

Our conclusion is that both motions should be refused; and it has been so ordered.
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author: WALTHALL, J.

text:
    NEAL COMMISSION CO. v. RADFORD.
    (No. 728.)
    (Court of Civil Appeals of Texas. El Paso.
    Oct. 11, 1917.)
    Action <&wkey;38(l) — Judgment <&wkey;596 — Single and Entire Cause oj? Action — Bar oe Action.
    Under a contract to pay $249 rental for a year at $20 a month, each month’s rent was a separate and distinct demand; and the landlord could elect to sue therefor separately, and his first suit did not estop him to sue again.
    Appeal from Taylor County Court; E. M. Overshiner, Judge.
    Suit by J. M. Radford against the Neal Commission Company. From a judgment for plaintiff, defendant appeals.
    Affirmed.
    Cunningham & Sewell, of Abilene, for appellant. Ben L. Cox and W. B. Oliver, both of Abilene, for appellee.
   WALTHALL, J.

This suit originated in the justice court of Taylor county, and on a rendition of final judgment in that court the case was appealed to the county court. In the county court the case was tried before the court without a jury, and from the judgment there rendered this appeal is prosecuted.

There is no statement of facts filed in this court, but the county court made findings of fact which are in no way questioned by the appellant, and from the court’s findings we make a statement of the facts found and nature and result of the suit, sufficient to present the issues involved in this appeal.

Appellee and appellant entered into a contract by the terms of which appellant leased from appellee a building in Abilene, agreeing to pay the sum of $240 for the lease of the building for the year 1915 at the rate of $20 per month, payable at the end of each month; the contract to extend from January 1, 1915, to December 31, 1915. Appellant, in the latter part of December, 1914, notified appellee that it would not occupy the leased building during any part of the year 1915, but appellee refused to release appellant from the lease contract. Appellant did not occupy the building during any part of the lease term, and the building stood vacant during the whole year. Parties applied to appellee to rent the building, but were told that it was leased to appellant for the year, and the proposed renters were referred to appellant. Appellant refused to pay any of the lease money contemplated in the lease contract. Appellee filed suit in the justice court for the sum of $40 for rent due for the months of January and February, 1915, and later, on March 30th, the suit still pending, amended his pleading, so as to recover for the months of March and April, and recovered judgment in the justice court for $80. From that judgment the case was appealed to the county court. On October 29th the case was tried in the county court. The county court sustained appellant’s demurrer to appellee’s cause of action for the months of March and April, holding that suit was prematurely brought for rent for those months, and on a trial on the merits rendered judgment for appellee for the $40 for rent due for January and February. Appellant paid the judgment. On the 29th day of December, 1915, appellee brought suit in the justice court for $20 rent due for March. To this suit appellant filed a cross-action for damages and cancellation of the lease contract. The justice court rendered judgment in favor of appellee for $20, and against appellant on its cross-action, and from that judgment appellant prosecuted its appeal to the county court. Later appellant dismissed its appeal, paid the costs in both courts, and paid appellee the rent due for March. On the 31st day of May, 1916, appellee brought this suit in the justice court for $80 for rents due for April, May, June, and July, 1915, and later amended his pleading, stating the whole amount due to be $180, and to cover the rents for the months of August, September, October, November, and December, 1915.

The only part of appellant’s answer which we need state asserts the proposition that, if appellant made and entered into the rental contract alleged, same was breached by appellee before January, 1915; that appellant never occupied the rented premises, and had refused to do so, and for that reason appellee’s two former causes of action theretofore filed by him, based on the same rental contract, having fully accrued and prosecuted to final judgments, were a bar to the present suit. The trial court stated the facts fuller than we have stated them here, and concluded that appellee was entitled to judgment for the $1S0, sued for as rent for the months from April to December, 1915, both inclusive, at $20 per month, with interest, and rendered judgment for that amount.

Appellant assigns error to the trial court’s conclusion of law and judgment, and asserts the proposition that, the contract sued upon being entire, appellee’s cause of action accrued upon the entire contract upon its breach, and that he could maintain but one suit thereon. We do not concur in appellant's view of the law. Each of appellee’s two former suits was for rents due upon a contract to pay $240 rental for the year at $20 a month, and was not for damages for a breach of the contract. It has often been held in this state, under similar facts, that each month’s rent is a separate and distinct demand. Williams v. Houston Cornice Works, 46 Tex. Civ. App. 70, 101 S. W. 839, 1195, and cases there referred to. Appellee, in bringing his suits, so regarded the contract. In Racke v. Anheuser-Busch Brewing Ass’n, 17 Tex. Civ. App. 167, 42 S. W. 774, the court held that appellee was not estop-ped by former suit for an installment of rent from bringing a subsequent suit for another installment. The court said:

“She could have brought suit every time an installment of rent accrued.”

Appellant’s second assignment involves the same proposition as the one discussed, and is overruled.

The case is affirmed.
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