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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 Will 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 Coinpany 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 coguizant 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 plaintiff, took over the Rolling Mill Company's property and assumed its contracts and debts, whereupon the Rolling Mill Company was regularly dissolved under the laws of New Jersey, the state from which its charter emanated. The execution of the mortgage trust deed upon the estate and plant of the Morgantown Tin Plate Company is admitted, but it is denied that it was executed for the purpose of injuring or defrauding any one, but, on the contrary, its sole purpose was to obtain money to enable said company to continue and complete construction and permit operation for the benefit of stockholders and creditors, That this mortgage was made and recorded with full knowledge of the plaintiff, $50,000 of its bonds were taken and paid for by Sturgiss, and the proceeds thereof were expended in paying debts. Part thereof was applied to plaintiff's debt, and was received by it with full knowledge that it was part of the proceeds of these bonds. That one of the strong reasons for removing this plant and reorganizing under West Virginia law was the fact that these bonds would thus be taken, and it was expected a large part of the balance would be taken by the citizens of Morgantown. That at the time it was impossible to manufacture tin plate at a profit, and no outsider could be induced to take the bonds, and the company, being in financial straights, secured from the Kings County Trust Company a loan of $20,000, and the $100,000 of bonds remaining unsold were put up as collateral to secure this loan. That this transaction was in every way bona fide, and the money so borrowed was forwarded to Morgantown Tin Plate Company and used by it in payment of its bills. Nevertheless, the company's financial condition becoming worse, this loan was called by the Kings County Trust Company. The Tin Plate Company could not pay it. In consequence said bonds were sold at public auction in New York City to a person charged to be in no wise connected with the company for $22,500. It is denied that the defendants or any one of them purchased these bonds, or had or has any interest in such purchase, and all allegations of fraud in connection with the transaction are denied. It is denied that plaintiff has any valid mechanic's lien upon the property for its debt under the laws of West Virginia, but, on the contrary, it is alleged in effect that plaintiff undertook to acquire such lien, but, it being found long after the time had expired within which such lien could be filed for record that the lien attempted to be taken was void on its face, the plaintiff, contrary to order and without right, undertook to forward the six pairs of rolls only conditionally bought, in order to furnish it a basis and pretense to file another lien of record, dated from the day of this last unwarranted shipment. The equitable lien claimed by the plaintiff is denied, the personal liability of the individual defendants is denied, and it is finally charged that the Morgantown Tin Plate Company is, and was at the time of the institution of this suit, in bankruptcy with a trustee appointed by the bankrupt court in charge of the property, and it is insisted that plaintiff could and did have full remedy in the latter court to litigate its claim. To this answer replication was filed in the clerk's office and motion subsequently made to strike it from the files as not properly filed in time.
On March 8, 1905, Frank P. Corbin, trustee in bankruptcy for the Morgantown Tin Plate Company, filed an answer to plaintiff's bill, in which he says, while not named a defendant, he has been served with process requiring such answer from him. This answer substantially reiterates the al gations in different form of the joint answer of defendants above referred to, except in certain particular hereinafter set forth. Touching the organization of the Morgantown Tin Plate Company and the transfer of the assets and property of the Rolling Mill Company of America to it, this answer makes substantially the same statements of fact and the same denials of all fraud or fraudulent purpose or intent therein. It admits the execution of the contract by the Rolling Mill Company with plaintiff, but denies the sum claimed by plaintiff to be correct, says all payments were made by the Tin Plate Company, and that the shipments were largely, if not altogether, made by plaintiff to the latter company. It denies the Rolling Mill Company to be at all indebted to plaintiff or any one else, but charges all debts to be due from the Tin Plate Company and that these debts are about $15,000. It clearly and fully sets forth, in accord with the other answer, the facts of the formation of the Tin Plate Company, the transfer and conveyance of the real estate and plant to it in consideration of $150,000 of its capital stock issued to the stockholders of the Rolling Mill Company, and that for this $150,000 was received by the Tin Plate Company the real estate, the machinery, and machinery contracts, the residue unexpended of $100,000 paid into the Rolling Mill Company's treasury as stock subscriptions, the $20,000 bonus paid by Sturgiss, the contracts for freight rates, coal lands, gas, and other rights and privileges which respondent trustee charges were of a prospective value largely in excess of $150,000, and the further consideration was passed whereby the Tin Plate Company assumed all debts and liabilities of the Rolling Mill Company. Touching the mortgage, it agrees substantially with the answer of the other defendants herein referred to, as to the reasons for its excecution, that it was executed without fraud or fraudulent intent, and with full knowledge on the part of plaintiff, who made no shipments of material or machinery until after the recordation of the deed to the Morgantown Tin Plate Company and the recordation of this mortgage by the latter to the Federal Trust Company, and that the plaintiff and all other creditors of the Rolling Mill Company ac
cepted the Tin Plate Company as paymaster, received payments from it, and charges them all to be estopped from denying this acceptance, and of having had full notice of such transfers. Touching the hypothecation and sale, however, of the $100,000 of bonds, this respondent, trustee, assails the same, charging, in effect, that these bonds were sold for $22,500 to one A. K. Bolan, not a bona fide purchaser, but a holder of the same for stockholders, officers, and directors of said Tin Plate Company, and that the hypothecation and sale was in fraud of the rights of creditors and stockholders. His charges, in substance, are based on information and belief, the fact that the name of the purchaser was not disclosed, and he believes certain of the stockholders named caused the hypothecation and the sale to be made thereunder without due notice and advertisement thereof, although the bona fide existence of the loan of $21,500 for the payment of which these bonds were so hypothecated is not disputed or denied.
This answer further joins in denying the validity of the mechanic's lien or other equitable lien claimed by plaintiff, charging that plaintiff filed a pretended lien for that purpose, instituted suit to enforce it, recognized in the progress thereof that such declaration, not conforming to the requirements of the West Virginia statute, was void, and dismissed the suit, and then almost a year after work on the plant of the Morgantown Tin Plate Company had ceased, and about a year after it had been notified by the Tin Plate Company not to ship further materials, had acknowledged said notice, and complied therewith, said plaintiff proceeded to ship to the Rolling Mill Company, an extinct corporation, certain material conditionally bought under terms of the contract solely for the purpose of enabling it to file another declaration of lien including the real account due it, time for securing which by such lien had long since expired. That this shipment was not made until after bankruptcy proceeding had been commenced against the Tin Plate Company, the true owner of the plant and mill. That such material was never delivered at the plant or mill, but is piled up in the railroad yards at Morgantown. He closes by asking that the sale of the $100,000 bonds be set aside as fraudulent, and the sum of $22,500 paid therefor be allowed as a common unsecured debt.
On the 14th day of March, 1906, George C. Sturgiss, and the Farmer's De posit National Bank of Pittsburg, filed a joint petition in this cause, in which it is alleged, after reciting in substance the pleadings in the cause: That Sturgiss purchased $50,000 of the bonds at par value, paid $20,000 agreed bonus for removal of plant, and for the purpose of protecting his investment since the Tin Plate Company suspended operations and became involved, and after commencement of this suit had purchased a number of liens and claims against the company and property, among which were the lien and claim of the Canton Roll & Machine Company for $14,889.98 (the plaintiff's demand involved in this suit), the lien and claim of the Hoovens, Owens, Rentschler Company for $13,868.09, amounts owed to George J. Humbert $3,746.47, W. L. Sutherland $426.00, W. C. Voight $164.50, and Mike Sarbo $156. That said Tin Plate Company was also indebted to Sturgiss for $17,450 for cash bonus paid by him, the consideration for which wholly failed. That after acquiring these claims and additional ones of the Northern Electrical Manufacturing Company of $1,042.75, and the Dunbar Fire Brick Company of $952.24, he, Sturgiss, borrowed from his co-petitioner bank a large sum of money, and to secure such loan assigned and transferred each and all of said claims to the said bank, as collateral security, in writing, except the last two to the Northern Electrical Manufacturing Company and Dunbar Fire Brick Company, and it is alleged all said claims so assigned have been proved before the referee in bankruptcy, and the bank is entitled to collect same, subject to Sturgiss' equity therein upon payment of his debt to it. It is then charged in this petition : That the Hoovens, Owens, Rentschler Company claim arose from the sale by it to the Rolling Mill Company of several Corliss engines and other machinery which was installed in the plant of the Tin Plate Company. That this sale was a conditional one in writing, reserving title until property was paid for. That in the bankruptcy cause against the Tin Plate Company an order was entered December 5, 1904, that the property should be sold free of liens, and on March 30, 1905, it was sold and purchased by said Sturgiss for $200,200,
which sale was confirmed, and that the proceeds arising from said sale were in the bankruptcy court's registry to probably more than $194,000, after paying costs and expenses, and to pay the bonds and interest would require $177,000. That petitioners are interested in and insist upon the cancellation at least of so much of the $100,000 bonds as exceeds the $21,500 for which they were hypothecated and sold. They ask to be made parties; that a first lien on the funds arising from the sale of the property be declared for the original demand of plaintiff now owned by them; that a lien be declared in their favor for Hoovens, Owens, Rentschler Company claim; that the $50,000 of bonds bought by Sturgiss be paid to them with interest; that the remaining $100,000 thereof be wholly canceled ; that their petition be considered as a cross-bill; that this court settle all rights, priorities, interests, liens, and claims in the order in which the same are entitled to be paid.
On October 5, 1904, there was lodged in the clerk's office, and indorsed as filed by the clerk, a written demurrer to the original bill, not sworn to or certified to by counsel, by the defendants who subsequently, on November 4, 1904, filed the answer hereinbefore referred to, in which demurrer they allege the bill not sufficient in law, no sufficient cause of action to be stated therein, and no cause for liability as against defendants to be shown. This demurrer was by order of May 29, 1907, stricken out. On April 8, 1906, was filed by all the defendants, except Corbin, trustee, a written demurrer, properly certified to by counsel, to the petition of George C. Sturgiss and the Farmers' Deposit National Bank, in which it is charged that this court has no jurisdiction of the cause of action, in that all plaintiffs are not citizens of the same state, all parties defendant are not citizens of the same state; that all parties plaintiff do not have a lien upon the real estate set out in the bill and petition; that none of the parties plaintiff have exhausted their remedy at law by obtaining thereat judgment and execution; that on the face of the bill sufficient facts are not stated to constitute cause of action; that the Federal Trust & Savings Company, trustee in the $150,000 mortgage, and the Kings Couny Trust Company, to whom the $100,000 of bonds were hypothecated, are necessary parties; that a misjoinder of actions appears to establish a mechanic's lien to set aside mortgage and bonds and to assert personal liability of stockholders; that the bill fails to show that plaintiffs have tendered back to the purchaser of the $100,000 of hypothecated bonds the sum paid by him therefor, or facts sufficient to show that the hypothecation and sale thereof was illegal, or was then or now of any actual value, or that the property conveyed in exchange for the stock was not its full value, or that the Tin Plate Company is not liable for all the debts, or that it has not sufficient assets to pay the same. To the joint answer of the Rolling Mill Company and others and of Corbin, trustee, replications were filed, subsequent motion was made to strike out the replication to the former as not filed in time, depositions were taken, motions made by plaintiff and petitioners to extend time to take such by plaintiff and by defendants to suppress those already taken by plaintiff and petitioners. These motions to strike out replication and suppress depositions were overruled, and the time was extended to take depositions with right to defendants further to cross-examine certain witnesses introduced by plaintiffs.
A. Leo Weil and B. M. Ambler, for plaintiffs.
DAYTON, District Judge (after stating the facts). Every proposition involved in this case has been so bitterly, and, I may say so ably, contested by counsel that upon my former considerations of it I thought it best to postpone all questions of demurrer and other technical objections until final hearing. Nevertheless, I have had grave doubt all along as to whether this bill could be maintained for many, if any, of the purposes for which brought. It is earnestly insisted by counsel that the bill is warranted by section 8 of the jurisdictional act of March 3, 1875 (18 Stat. 472, c. 137 [U. S. Comp. St. 1901, p. 513]), allowing suits "to enforce a legal or equitable lien upon, or claim to, or to remove any incumbrance, lien, or cloud upon title to real or personal property" to be brought in the district where such property is. This statute clearly does not enlarge the right of the individual to bring suit, where before he had no right to sue, but simply allows him, if he has right of action, to bring it in loco rei sitæ. The cases of Scott v. Neely, 140 U. S. 106, 11 Sup. Ct. 712, 35 L. Ed. 358; Cates v. Allen, 149 U. S. 451, 13 Sup. Ct. 977, 37 L. Ed. 804, and Hollins v. Brierfield Coal & Iron Co., 150 U. S. 371, 14 Sup. Ct. 127, 37 L. Ed. 1113, were all decided long since the passage of the act of 1875, and all distinctly hold that no simple contract creditor can maintain in federal courts, under and by virtue of state statutes or otherwise, a suit in equity to set aside as fraudulent a conveyance by his debtor of property, because to allow him to do so would contravene the seventh amendment to the Constitution of the United States, guaranteeing to the defendant, where the amount in controversy exceeds $20, the right of trial by jury to test the validity of such debt demanded of him. If the statute of 1875 did have the scope contended for by plaintiff's bill, it would under these decisions be unconstitutional and void; but to my mind, as above stated, it has no such scope or purpose. I have no doubt that in the preparation of the bill the right of plaintiff to assail, before judgment obtained, alleged fraudulent conveyances, was misconceived, and that its purpose was to rely upon this supposed right. It is true, I think, that a suit in equity can be maintained in the federal court to enforce a mechanic's lien. In Scott v. Neely, supra, Justice Field says:
“It is the existence, before the suit in equity is instituted, of a lien upon or interest in the property, created by contract or by contribution to its value by labor or material, or by judicial proceedings had, which distinguishes cases for the enforcement of such lien or interest from the case at bar.”
See, also, Sheffield Furnace Co. v. Withrow, 149 U. S. 574, 13 Sup. Ct. 936, 37 I. Ed. 853 ; Idaho, etc., Co. v. Bradbury, 132 U. S. 509, 10 Sup. Ct. 177, 33 L. Ed. 433; Davis v. Alvord, 94 U. S. 545, 24 L. Ed. 283.
But this last case, to an extent at least, defines the extent to which suit can go in the enforcement of such lien, to wit, that it is “a suit in equity, requiring specific directions for the sale of the property, such as are usually given upon the foreclosure of mortgages and the sale of mortgaged premises.” It is to be remembered that this lien is not a general one like a judgment, binding the property generally of the debtor therein; but, on the contrary, is a limited one against a specific piece of property, and may, according to circumstances, involve no personal liability upon the owner of the property. The holder of such lien can be interested only to the extent of the specific property itself and the order of priority of his lien thereon. If such lien has, by compliance with the requirements of law, attached to the property, iť is immaterial to the holder what mortgage or judgment liens may thereafter attach to it, and, I conceive, it is likewise ordinarily immaterial to him what conveyances, fraudulent or otherwise, may be made of the property. In other words, such conveyances cannot affect this specific lien, affecting not the individual, but attaching solely ad