Blair v. St. Louis, H. & K.R. Co.

• Decision Date: 20 October 1884
• Citation: 22 F. 36
• Parties: BLAIR v. ST. LOUIS, H. & K.R. CO. and others. [1]
• Court: U.S. District Court — Eastern District of Missouri

22 F. 36

BLAIR v. ST. LOUIS, H. & K.R. CO. and others. ^[1]

United States Circuit Court, E.D. Missouri.

October 20, 1884

Walter C. Larned and Theodore G. Case, for complainant.

Geo. D Reynolds and Jas. Carr, for defendant.

TREAT J.

As the allegations are necessarily taken as true on the demurrers submitted, the question may be briefly stated: A former railroad corporation, being largely indebted, transferred to another corporation all of its assets. The latter corporation proceeded with the contemplated and unfinished work, taking possession of all the railroad bed, etc., of the prior corporation, with notice of the respondent's demand, not then reduced to judgment. It subsequently issued a mortgage to secure its bonds, and the plaintiff filed his bill to foreclose the same, with an intervening receiver, duly appointed. The bill makes the respondent a defendant, and he has answered, setting up his demand, now reduced to judgment and by a cross-bill, praying for a decree establishing his demand as a lien prior in right to the mortgagee, as against so much of the property of the old corporation as is included in the mortgage by the new corporation, etc.; that a transfer of the assets of one corporation to another, whereby, through a mere change of name, an attempt is made to defraud creditors, or which would operate a fraud, cannot be upheld against said creditors, and a transfer disabling it from its corporate duties is practically such a fraud, making transferee with notice a trustee, taking cum onere. That doctrine is plain, where no intervening rights are presented. The respondent's claim in this case was at the time of the transfer a demand at large, and whether to be ultimately established, undetermined. Subsequently, by the judgment and decree of this court, said demand was established against both the old and new corporations; but it was not then adjudged to be a lien demand, specifically or generally. The point of the present demurrers or 'exceptions' is to have the decision of this court as to the relative rights of the respondent and of the bondholders under the mortgage. Had no mortgage interests intervened, the court would, in accordance with decisions heretofore rendered, charge the property transferred to the new corporation with the obligations of the old. After the new had received the assets of the old, could it, by mortgaging the same, rescue them from the quasi trust under which they rested, by the interposition of mortgages or otherwise?

It is averred that the mortgagee had notice of the existence of the respondent's demand when the mortgage was accepted although said demand was not reduced to judgment and a decree thereon had. The case is somewhat anomalous. Under the statute of Missouri, corporations are readily formed, and, as heretofore stated, often formed for the mere purpose of enabling an old corporation or private parties to escape liabilities, and at the same time transfer all assets to a new corporation; thus practically, by a mere change of name defeat creditors and violate obligations. Courts cut through all such contrivances when designed to defeat honest claims, or when they practically look to that end, especially where the stockholders and officers are substantially the same. It has been heretofore held in this case that the new corporation was charged with respondent's demand. Are the subsequent bondholders, pending the judicial determination of plaintiff's rights, bound by the outcome? It is averred that they had notice thereof. If that be true, as is confessed, then they took their bonds subject to respondent's rights, and it may be irrespective of notice under the facts charged. In the answer and cross-bill there are allegations that the amount of unpaid stock would be sufficient, if exacted, to meet all demands, the theory being that the mortgagee and receiver should exhaust the remedies against...