Armour v. E. Bement's Sons

• Decision Date: 16 June 1903
• Docket Number: 1,157.
• Citation: 123 F. 56
• Parties: ARMOUR v. E. BEMENT'S SONS.
• Court: U.S. Court of Appeals — Sixth Circuit

123 F. 56

ARMOUR v. E. BEMENT'S SONS.

No. 1,157.

United States Court of Appeals, Sixth Circuit.

June 16, 1903

Thomas Cummins & Nichols, for plaintiff in error.

Cahill & Wood (S. T. Douglas, of counsel), for defendants in error.

In Error to the Circuit Court of the United States for the Eastern District of Michigan.

Before LURTON and SEVERENS, Circuit Judges.

SEVERENS Circuit Judge.

This is an action of debt, brought by the plaintiff in error against 'E. Bement's Sons,' a corporation organized under the laws of Michigan, to recover the amount of four several judgments theretofore obtained by different parties against 'E. Bement & Sons,' also a Michigan corporation, but organized at an earlier date than the other. The plaintiff claims to own these judgments by assignment from the parties in whose favor they were rendered, and he sues this defendant, 'E. Bement's Sons,' upon the theory that it is the same corporation, with a new name, as 'E. Bement & Sons,' against which the judgments were recovered. Certain transactions to which these corporations were parties, occurring about the time of the organization of the new company, are set out in the declaration in support of the plaintiff's contention that the new corporation is identical with the old. The defendant appeared and pleaded the general issue, and gave notice of certain special matter which it would prove thereunder. The case came on for trial before the court and a jury, and upon the opening statement by counsel for the plaintiff of the facts which the plaintiff expected to prove to maintain his suit, the court, either upon its own motion or upon objection of counsel for defendant-- it is not clear which--indicated its opinion to be that, upon the facts pleaded and stated, no cause of action was shown which would entitle the plaintiff to recover in this suit against the new corporation, and the jury was directed to find a verdict for the defendant. To this direction counsel for the plaintiff excepted. This exception presents the main controversy upon this writ of error.

It becomes necessary therefore, to go into further detail of the facts alleged upon which the plaintiff relied to maintain his right to recover the vital question being whether such facts would justify the conclusion that the defendant was identical with the corporation against which the judgments sued on were rendered. For we think that in a suit of this character where there has been no assumption of the debts of the old corporation, and the circumstances negative any purpose to assume them, it must appear that the defendant corporation is the same legal entity as that whose obligation is sought to be charged upon it, as one of its own; that is to say, it must be the same legal person, having a continued existence under a new name. Trust Co. v. Bridges, 57 F. 753, 6 C.C.A. 539.

The case as stated in the declaration and supplemented by certain agreed facts is this. The corporation, 'E. Bement &amp Sons,' was organized and had been engaged in the business of manufacturing and selling agricultural implements at Lansing, Mich., for several years prior to 1896. On May 16th of that year, having become financially embarrassed, it executed two mortgages, one of its real and one of its chattel property, to Edward Cahill, in trust for certain named creditors, to secure the sum of $150,000, in three equal payments in 30, 60, and 90 days, respectively, and also at the same time executed two other mortgages, one of the same real property and one of the same chattels, to Arthur O. Bement, its president, in trust for the rest of its creditors, to secure the sum of $190,000, in three equal payments in 4, 5, and 6 months, respectively. These second mortgages expressly stated that they were given subject to the first. As is seen, the sum total of the indebtedness thus secured amounted to $350,000. It is stated under a videlicet that the property was of the value of $700,000. The assignors of the plaintiff namely, the Belfont Iron Works Company, the Schloss Iron & Steel Company, the Canton Steel Company, and Rogers, Brown & Co., who were creditors secured by the second mortgages above mentioned, representing about $9,500 of the debts, refused to accept the securities, and brought suits against E. Bement # Sons, some in the state and some in the federal courts, to recover their demands, and recovered the judgments which they assigned to the plaintiff. Some of these creditors issued executions and filed bills in aid thereof, alleging fraud in the making of the mortgages which are pending. One dismissed its bill. Rogers, Brown & Company did not take out any execution.

Bement & Sons compromised $60,000 of the debts of the second mortgage at 50 cents on the dollar, and proposed to the holders of the other debts to settle their claims by paying one-half thereof in the company's stock and one-half in the company's bonds secured by a mortgage upon its property. But this involved the discharge of the mortgages which already covered it; and, while most of the creditors assented, the scheme fell through because some of them refused. Thereupon A. O. Bement, the trustee in the second mortgages, took possession of the mortgaged chattels, duly advertised them for sale, and sold them at public auction, pursuant to the power contained in the mortgage. They were bid off for the sum of $100, which it is alleged was not in fact paid, by Clarence E. Bement, one of the directors of E. Bement & Sons. A. O. Bement, who was trustee of the second mortgage of the realty, also filed in the state circuit court for Ingham county a bill to foreclose the mortgage, and include as defendants all the assignors of the plaintiff except the one who had not obtained any lien. At this time all the remaining creditors of E. Bement & Sons, except the assignors of the plaintiff, had accepted the proposition of the company to settle their claims for its stock and bonds. The foreclosure suit proceeded to a decree of sale.

Meantime a new corporation, styled 'E. Bement's Sons,' had been organized, by those who had been the principal stockholders...