155 F. 321 (N.D.W.Va. 1907), 654, Canton Roll & Machine Co. v. Rolling Mill Co. of America

Docket Nº:654.
Citation:155 F. 321
Party Name:CANTON ROLL & MACHINE CO. v. ROLLING MILL CO. OF AMERICA et al. STURGISS et al. v. SAME.
Case Date:August 02, 1907
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit

Page 321

155 F. 321 (N.D.W.Va. 1907)

CANTON ROLL & MACHINE CO.

v.

ROLLING MILL CO. OF AMERICA et al.

STURGISS et al.

v.

SAME.

No. 654.

United States Circuit Court, N.D. West Virginia.

August 2, 1907

On June 20, 1904, the Canton Roll & Machine Company, a Pennsylvania corporation, filed its bill in its own behalf and in behalf of all other creditors of the Rolling Mill Company of America who might join therein in this court against the Rolling Mill Company of America, a New Jersey corporation, the Morgantown Tin Plate Company, a West Virginia corporation, Hector M. Hitchings, Melvin J. Palliser, W. J. Logan, Jacob Meurer, Dick S. Ramsey, Andrew Meurer, August Kuhnla, Charles Merrill, W. H. Wells, J. L. Prescott, Wendell J. Wright, and C. H. Young, citizens of New York, in which it alleges: That the Rolling Mill Company of

Page 322

America acquired in the month of May, 1902, a tract of land near Morgantown, W. Va., of about 16 acres, conveyed to it by George C. Sturgiss and wife, by deed dated December 9, 1902. That, after obtaining title, it proceeded to erect a tin plate plant thereon, entering into various contracts for construction and machinery, and incurring large indebtedness. That, among others, it entered into a written contract with plaintiff on December 5, 1901, for the purchase of six hot tin mills complete, six stands of cold mills complete, and other machinery at an agreed price of $35,000. That plaintiff has fully performed said contract furnished the machinery, and has been paid thereon all of the contract price except $14,889.98, which, with interest from March 23, 1904, remains due and unpaid, and for which repeated demand for payment has been made. That said

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Rolling Mill Company of America is indebted to others for labor and machinery, and that, being so indebted, it sought and undertook to strip itself of all its property and assets by selling and conveying said property to the Morgantown Tin Plate Company, and fraudulently to distribute the proceeds of sale among its stockholders without paying its said debts. That, pursuant to such fraudulent scheme, it on or about December 19, 1904, did convey and transfer its real estate and plant to said Morgantown Tin Plate Company in consideration of $150,000 of stock of the latter company fully paid, issued direct to the stockholders of the Rolling Mill Company of America, without first paying the indebtedness; that the individual defendants named were at the time of such transfer stockholders of the Rolling Mill Company of America, and Hitchings, Logan, and Wright were directors thereof. That all of said stockholders conspired to commit said fraud, participated therein, and received the benefits thereof. That the stockholders of the Morgantown Tin Plate Company were the same as those of the Rolling Mill Company; that subsequently the Morgantown Tin Plate Company executed a deed of trust to the Federal Savings & Trust Company, as trustee, to secure $150,000 of its bonds, bearing date January 1, 1903, which deed of trust was duly recorded. That the execution of this deed of trust was a further step in the scheme to defraud plaintiff and other creditors, and place the property of the Rolling Mill Company beyond reach of its creditors. That of said bonds, $100,000 in value, were never sold, but were pledged for an alleged indebtedness of the Morgantown Tin Plate Company, amounting to a little over $20,000, and the creditor holding the same as collateral about October, 1903, sold or pretended to sell them at auction in New York City for $22,500. That plaintiff is not informed as to who was the purchaser of these bonds, but he believes such purchaser to be one of the individual defendants or some one holding for their benefit, and it is charged that all of the bonds for $150,000, not held by bona fide holders for value, without knowledge of the illegality, are void. That plaintiff is entitled to and has filed a mechanic's lien against the real estate and plant for its debt and claims a lien thereon by virtue thereof; that each and every creditor of the Rolling Mill Company has an equitable lien upon said property prior to the lien of the trust deed and bonds, except in so far as said bonds are in the hands of bona fide holders for value and without notice of the fraud charged. The prayer of the bill is that plaintiff may be decreed a lien against the land and plant for its debt prior to the mortgage or deed of trust and to all other liens; that bonds secured by said deed of trust be decreed null and void as to creditors of the Rolling Mill Company, excepting only in so far as held by bona fide purchasers for value without notice of the illegality thereof; that liens and claims be ascertained and fixed according to priorities, and be enforced by sale of the land and plant and a distribution of the proceeds; that the individual defendants be decreed liable for and to pay the plaintiff's and other debts of the Rolling Mill Company; that a receiver be appointed, and for general relief.

On November 4, 1904, the defendants, the Rolling Mill Company of America, Jacob Meurer, Hector M. Hitchings, Melvin G. Palliser, Dick S. Ramsey, Wendell J. Wright, C. H. Young, W. J. Logan, and Andrew Meurer, filed their joint and separate answer to this bill, in which they in substance aver: That the Rolling Mill Company was organized under the laws of New Jersey for the purpose of building and operating a plant at Connellsville, Pa., and had commenced the construction of its plant there and expended $17,000 in cash and had in its treasury $100,000 less the $17,000 so expended, when George C. Sturgiss made it a proposition that if a new company should be organized, known as the Morgantown Tin Plate Company, and the plant located at Morgantown, he would procure certain coal lands, gas rights, railroad contracts for cheaper rates and a more favorable charter. These grants and privileges it was estimated would be of $20,000 value, and, in addition, he proposed to pay a bonus of $20,000 to pay for amount expended at Connellsville, and take $50,000 in bonds of the new company. That this proposition was accepted. The new company known as the Morgantown Tin Plate Company was organized. Sturgiss turned over $20,000 in cash and land estimated to be worth $20,000 to $25,000, and the freight and gas contracts and the coal

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option as he had proposed. That this contract for organizing anew and transferring the plant was entered into in good faith with no purpose to defraud, and that it was greatly to the benefit instead of to the detriment of creditors of the Rolling Mill Company of America. That all rights and property of the Rolling Mill Company of America were transferred to the Morgantown Tin Plate Company, which latter company assumed all the obligations and liabilities of the former. It is denied: That the Rolling Mill Company acquired title to the land, but, on the contrary, it is charged such title was acquired by the Morgantown Tin Plate Company. That the plaintiff was fully cognizant of these transactions, and, while its contract was with the Rolling Mill Company, yet it, being fully acquainted with the transfer of property and the assumption of contracts, obligations, and liabilities on the part of the Morgantown Tin Plate Company, delivered to the latter all the machinery and materials and received from the latter all the moneys paid on account thereof, and all its business transactions, relations and dealings were had with the Tin Plate Company. That plaintiff knew fully that the Rolling Mill Company had been succeeded by the Tin Plate Company, and that the latter had placed the trust mortgage on the property for $150,000 and had knowingly received proceeds of the bonds. Such acquiescence in the transfer of the rights and property of the Rolling Mill Company to the Tin Plate Company on the part of the plaintiff is charged to be an estoppel of any right on its part to assail the same. It is denied that the Rolling Mill Company acquired the land; that it entered into the various construction and machinery contracts or incurred large indebtedness but that the Tin Plate Company did; that the indebtedness of $14,889.98 claimed by plaintiff is not correct, but only $11,089.98 is due, and $3,800 more than is due is claimed under the contract. It is admitted that the Rolling Mill Company entered into the contract for machinery with the plaintiff, and by its terms it is charged plaintiff was to furnish twelve pair of chilled rolls, six pairs of which were to be delivered without condition or further order, but the remaining six were not to be delivered until required by the purchaser, which provision of the contract constituted a conditional sale of these last six pairs of rolls depending entirely upon future order for delivery, and that the same never were directed to be delivered, but, on the contrary, plaintiff by letter directed to the Tin Plate Company inquiring as to such delivery was, in reply, absolutely instructed not to deliver said rolls. That said rolls were shipped by plaintiff nevertheless, but were not accepted or received, and the same, so far as known, remain in the railroad yards at Morgantown unaccepted, and, for payment of same, defendants are not liable. It is denied that the Rolling Mill Company is indebted to any one, but it is admitted that the Tin Plate Company is indebted to the extent of about $35,000, inclusive of plaintiff's debt. It is denied that any fraud was committed or intended by either the Rolling Mill Company, or by the individual defendants as directors and stockholders thereof, or that it stripped itself of its property and assets for the purpose of defrauding its creditors, or that it had at the time any creditor or debt outstanding, save and except the one due plaintiff, which was assumed by the Tin Plate Company, which latter company, with the full consent of...

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