Sprague-Brimmer Mfg. Co. v. M.J. Murphy Furnishing Goods Co.

• Decision Date: 23 February 1886
• Court: U.S. District Court — Eastern District of Missouri
• Parties: SPRAGUE-BRIMMER MANUF'G CO. and others v. M. J. MURPHY FURNISHING GOODS CO. and others. [1]

26 F. 572

SPRAGUE-BRIMMER MANUF'G CO. and others v. M. J. MURPHY FURNISHING GOODS CO. and others. ^[1]

United States Circuit Court, E.D. Missouri.

February 23, 1886

This is a suit brought by certain creditors of the M. J. Murphy Furnishing Goods Company against said company and Jesse Arnot, Alfred Bradford, George H. Gill, the Continental Bank of St. Louis, the Importers' & Traders' National Bank, and the Fifth Avenue Bank of New York. The allegations of the bill, so far as they need be here stated, are substantially as follows, viz.:

That M J. Murphy is the president and Jesse Arnot a director of, and George H. Gill a stockholder in, the M. J. Murphy Furnishing Goods Company; that Alfred Bradford is in fact the owner of a large amount of the capital stock of said company, and for many years was a director, and during the time he was a director commenced indorsing notes for the corporation for discount in the Continental Bank; that about March 1, 1885 he transferred his stock to his wife, and ceased to be a director, for the purpose of enabling himself to secure a preference out of the assets of said company in the event of its final failure, which was then anticipated; that the notes upon which he was then liable as indorser were renewed from time to time until the notes were given, upon which judgment was afterwards confessed in favor of the Continental Bank; that Bradford is a son-in-law of Arnot, and exercised the same control over the corporation after the transfer of his stock as before, and that the transfer was only colorable; that Murphy, Arnot, and Bradford, after the hopeless insolvency of the corporation became manifest confederate together to dispose of the assets of the company, so as to pay in full the notes indorsed by them, and leave the general creditors totally without payment; that in pursuance of this scheme judgments were confessed by the corporation in favor of the Continental Bank, Fifth Avenue Bank, and George H. Gill, holders of corporate paper indorsed as aforesaid, and the property of the corporation was levied upon and sold, and the proceeds applied to the satisfaction of such judgments; and that at the time judgment was so confessed in favor of said Gill he was aware of the company's insolvency.

The bill prays that the corporation be declared to have been insolvent before said judgments were confessed; that the funds and assets in the hands of defendants are trust funds for the benefit of all the creditors; that Murphy and Arnot be removed from their position; and that all the defendants hereto be ordered and directed to turn over all assets of said corporation in their hands, including all funds received by them from the sale of said corporate property, to such trustees as the court may appoint to administer the trust. All the defendants except Mr. Murphy demur.

Section 744 of the Revised Statutes of Missouri is as follows:

'Upon the dissolution of any corporation, already created, or which may hereafter be created by the laws of this state, the president and directors or managers of said corporation, at the time of its dissolution, by whatever name they may be known in law, shall be trustees of such corporation, with full power to settle the affairs, collect the outstanding debts, and divide the moneys and other property among the stockholders, after paying the debts due and owing by such corporation at the time of its dissolution, as far as such money and property will enable them; to sue for and recover such debts and property, by the name of the trustees of such corporation, describing it by its corporate name, and may be sued by the same; and such trustees shall be jointly and severally responsible to the creditors and stockholders of such corporation to the extent of its property and effects that shall have come into their hands.'

Mills & Flitcraft, for complainants.

Dyer, Lee & Ellis, for the Continental Bank.

Frank J. Donovan, for Alfred Bradford.

Fisher & Rowell, for Jesse Arnot.

John G. Chandler, for George H. Gill.

TREAT J., (orally.)

Certain propositions have been argued in this case on demurrers as to the respective obligations of parties under the circumstances set forth in the bill, to-wit: The M. J. Murphy Furnishing Goods Company is one of those corporations tolerated by the laws of Missouri, whereby a man, in order to escape his obligations as a private individual, incorporates himself by bringing in just a sufficient number of others to comply numerically with the requirements of the statute, so that if the business is successful all will be well; but if it is unsuccessful, those dealing with the concern may have no remedies against the only real party who is transacting the business. That class of corporations has been characterized by Brothers MILLER, McCRARY, and BREWER, very emphatically; but as long as it is the law, every may who deals with such a corporation does so with a full knowledge of the opportunities thereby presented to effect a result which...