tained in due course. The charge of actual fraud-that is, of intent to hinder, delay, and defraud plaintiff in the collection of his claimhas been withdrawn, and reliance is placed upon the general doctrine that plaintiff, under this brief recitation of the facts, is entitled in equity to enforce his judgment against the property of the cabinet company which was received, and is still held, by the undertaking company, on the theory that he has an equitable lien upon this property, or that the facts show a case of legal fraud entitling him to proceed against the property. We do not recognize the trust-fund doctrine to the extent that it has obtained in some of the courts; but are of opinion that corporate creditors are entitled in equity to the payment of their debts before any distribution of corporate property is made among the stockholders, and recognize the right of a creditor of a corporation to follow its assets or property into the hands of any one who is not a good-faith holder in the ordinary course of business.

We must also enforce our statute which prohibits the diversion of corporate funds and the payment of dividends not earned. So that, in its last analysis, the question here is, Is the undertaking company and its successor in interest such a bona fide purchaser as that it may hold the assets of the cabinet company free from the debts of that corporation? The answer to this must be in the negative, and for these among other reasons: It issued to Hartung individually whatever of consideration it paid for the assets of the cabinet company, knowing before it finally issued its stock that it was being used by Hartung for his own private ends. It did not buy the property in the usual course of business. On the contrary, it took it over, and issued its own stock in payment therefor, which did not go to the corporation from which it purchased. That it did not take the property free from liability for corporate debts under such circumstances is held by practically all of the cases which we have been able to find or which have been cited by counsel. In Thompson on Corporations, § 6547, it is said: "Where one corporation transfers all its assets to another corporation, and thus practically ceases to exist, without having paid its debts, the purchasing corporation takes the property subject to an equitable lien or charge in favor of the creditors of the selling corporation. * * * And while the right to follow a trust fund into the hands of a third party depends upon the answer to the inquiry whether such third party took it with knowledge of the trust, the case being one where the trustee who transferred it to him had a power of disposition, yet in such a case as we are supposing, where one corporation. transfers all its assets to another, not in the ordinary course of business, the very circumstances of the case imply full knowledge, on the part of the transferee, of all the facts necessary to charge the property in his hands with the debts of the transferror, and the case is still clearer where the corporation receiving the transfer agrees to assume and pay the debts of the corporation making it, in which case, under the principles of equity, and under the modern Codes of Procedure, the creditors of the transferring corporation may maintain a direct action against the transferee corporation upon the contract, as a contract made for their benefit. * The theory under which these cases proceed is that the purchasing corporation is not a good-faith buyer for value, in that the transaction is an unusual one; and the purchasing company is held to acknowledge that the property it buys is subject to the payment of corporate debts, and the buyer is not a bona

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fide purchaser for value. There are a very few cases which hold to a contrary doctrine, as, for example, O'Bear Co. v. Volfer, 106 Ala. 205, 17 South. 525, 28 L. R. A. 707, 54 Am. St. Rep. 31.

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For appellant it is argued that the plaintiff should have followed the stock received by Hartung. That proposition is very satisfactorily answered in Hibernia Co. v. St. Louis Co. (C. C.) 13 Fed. 516, where it is said that a creditor in such cases is not required to run the chances of following and recovering the value of the shares of the stock after they are placed upon the market. On account of the importance of the questions presented, we have given the case careful consideration, and have come to the conclusion that, while there is no personal liability on the part of the undertaking company as successor in interest to the plaintiff, yet it holds the property received from the cabinet company subject to the payment of plaintiff's claim, and that the trial court was right in establishing a lien against it and ordering a sale on special execution. The decree must be modified to the extent indicated; but, as this is of no material benefit to the defendant, as the property is worth very much more than plaintiff's claim, we think that the modification should be without cost to appellee. The decree will be modified, and, as so modified, will stand.

LANGHORNE v. RICHMOND RY. CO. et al.

(Supreme Court of Appeals of Virginia, 1895. 91 Va. 369, 22 S. E. 159.)

BUCHANAN, J. * * * The declaration contains but one count, and that is for an injury alleged to have been done the plaintiff by the Richmond Railway Company. The declaration alleges substantially, after giving a history of the organization of the first-named company, and of three deeds of trust that it had given upon its property, works, and franchises to secure its creditors, that there had been a sale under the second and third deeds of trust, subject to the lien of the first, and that certain parties, who were the owners and officers of the corporation, became the purchasers at such sale of its works and property, and continued to carry on the business of said corporation, subject to the first lien or deed of trust, adopting the name of the Richmond City Railway Company, by which last name said corporation has since been known and called; that on or about the 2d day of January, 1882, said Parker Campbell, president of the said Richmond Railway Company, and styling himself president of the Richmond City Railway Company, filed a petition with the common council of the city of Richmond praying for the extension of the charter of the said Richmond Railway Company; that said petition was granted, and on the 17th of May, 1882, said common council of the city of Richmond passed an ordinance extending the charter of the Richmond Railway Company, and continuing to it its powers and privileges until the 31st of December, 1900; that by an act of the general assembly of Virginia passed 17th day of March, 1884, the said Richmond City Railway Company was "recognized" as the same corporation chartered by and under the act of assembly of 20th of March, 1860, and the ordinance thereunder, and contract with the city of Richmond of the 17th May, 1860, and subsequent amendments thereto, under the name of the Richmond Railway company; that, under and by virtue of statutes of Virginia for such case made and

provided, the said defendant the Richmond City Railway Company, by deed dated October, 1890, and recorded in the clerk's office of the chancery court the 20th November, 1890, conveyed to the Richmond Railway & Electric Company all its works, property, and franchises, and, by such sale and the statutes aforesaid, became consolidated with the said Richmond Railway & Electric Company, subject to the following provision, in the said conveyance contained, to wit: "The foregoing conveyance is made subject to the payment by the Richmond Railway and Electric Company of all the liabilities of the party of the first part which may not have been discharged prior to this conveyance." * * *

Whether the Richmond Railway Company and the Richmond City Railway Company was the same corporation or not, or whether there had been a consolidation of the Richmond City Railway Company with the Richmond Railway & Electric Company, as alleged in the declaration, would depend upon the evidence introduced upon these questions, and could not properly be the subject of a demurrer to the declaration. * * *

The grounds of demurrer relied on are that there is a misjoinder of causes of action, of the form of action, and of parties. The declaration states a good cause of action against the Richmond Railway Company for the injury complained of. It alleges that the Richmond City Railway Company is one and the same corporation as the Richmond Railway Company. It also alleges the authority of the Richmond City Railway Company to consolidate with the Richmond Railway & Electric Company, and that a consolidation has been made by which the last-named company acquired all the works, property, and franchises of the Richmond City Railway Company, and assumed all its liabilities. Such a consolidation as is alleged in the declaration not only renders the property and works of the old company, which passed to the company with which it is consolidated, subject to the liabilities of the old company, but also makes the new or surviving company responsible for them. Where two railroad companies unite or become consolidated under the authority of law, the presumption is, until the contrary appears, that the united or consolidated company has all the powers and privileges and is subject to all the restrictions. and liabilities of those out of which it is created. * * * The corporation which is created by such consolidation, or the surviving corporation, where another or others are merged into it or consolidated with it, is ordinarily deemed the same as each of the corporations which formed it for the purpose of answering for the liabilities of the old corporation, and may be sued under its new name or under the name of the surviving company for their debts as if no change had been made in the name or in the organization of the original corporations. *

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The privity, some cases say, necessary to support this action, is created by the statute authorizing the consolidation and the purchase. and conveyance under it. Other authorities place the right to bring such action on the ground that the effect of the consolidation is, as to the liabilities of the old company, not to dissolve the corporation which is the immediate debtor, but to continue its existence in the consolidated corporation.

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*

Since, by authority of law and the act of the parties, the consolidated corporations are molded into one with none of their rights im

paired, and none of their responsibilities lessened, there is no good reason why the same proceedings may not be had against the new corporation as might have been had against the old to compel payment of liabilities. It avoids circuity of action. It allows the party with whom the contract was made or to whom the injury was done to proceed directly against the corporation which, by virtue of the consolidation proceedings, is made liable for it.

In this case, as the plaintiff had instituted his action to recover damages from the consolidated corporation for the injury alleged to have been done him by the corporation consolidated with it, it was necessary for him to allege generally the authority of the old companies to consolidate, and the fact that they had consolidated, and under what name, in order to show the liability of the new or consolidated corporation for the injury sued for. * * *

The declaration states a good cause of action, not only against the Richmond Railway Company, known also as the Richmond City Railway Company, but also against the Richmond Railway & Electric Company. To this there can be no objection, as it was necessary to state a good cause of action against both the Richmond City Railway Company and the Richmond Railway & Electric Company; otherwise there could be no recovery against the last-named company, since its liability depends upon the liability of the Richmond City Railway Company. But the defect in the declaration is in joining them as defendants. They are not jointly liable. One is liable for committing the alleged injury; the other is liable by reason of the consolidation proceedings. The plaintiff has the right to sue either for the injury alleged to have been done, but has no right to sue both in the same action at law. If an action at law be brought against two or more persons, it must appear from the declaration that the contract or tort upon which it is brought is a joint contract or a joint tort. * * * On these grounds, it was proper for the trial court to sustain the demurrer to the declaration, and its judgment must be affirmed.

SECTION 2.-PRIORITIES AMONG THE VARIOUS CLASSES OF CREDITORS IN GENERAL

WESTERN UNION TELEGRAPH CO. v. UNITED STATES & MEXICAN TRUST CO. et al.

(United States Circuit Court of Appeals, Eighth Circuit, 1915. 221 Fed. 545, 137 C. C. A. 113.)

SANBORN, Circuit Judge. The property of an insolvent railroad corporation in the custody of a court in a suit to foreclose a mortgage upon it is charged with a trust for the benefit, first, of the holders of preferential claims superior in equity to the lien of the mortgage; second, of the holders of the lien of the mortgage and of other such liens in their order of priority; third, of the unsecured or general creditors of the mortgagor; and, fourth, of its stockholders. Any plan or scheme threatened or executed whereby the holders of the bonds secured by the mortgage and the stockholders secure, or intend or undertake to secure, to the stockholders, by contract, foreclosure sale, or other device, an equal or a greater benefit from the property than is thereby secured to, or offered to and rejected by, the general cred

itors, is such a breach or threatened breach of trust as entitles any complaining creditor to relief in a court of equity. A purchase through a foreclosure sale, or otherwise, of the property of an insolvent corporation by a new corporation, pursuant to a plan or scheme of the bondholders and stockholders of the insolvent company, whereby the stockholders thereof derive, by receipt of stock or bonds of the new company, or otherwise, benefits equal to or greater than those received by, or openly offered to and rejected by, its general creditors, is fraudulent in law as to the latter, and renders the new corporation and the property it purchased at such sale liable for the claims of such creditors against the old company, at least to the extent of the value of the interest secured by the stockholders of the old company in excess of the value of the interest secured by, or openly offered to and rejected by, the unsecured creditors. Northern Pacific Ry. Co. v. Boyd, 177 Fed. 804, 101 C. C. A. 18. *

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SECTION 3.-CURRENT OPERATING EXPENSES TO BE PAID OUT OF CURRENT EARNINGS IN PREFERENCE TO CLAIMS OF SECURED CREDITORS

SOUTHERN RY. CO. v. CARNEGIE STEEL CO.

(Supreme Court of the United States, 1900. 176 U. S. 257, 20 Sup. Ct. 347, 44 L. Ed. 458.)

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HARLAN, J. * It appears from the above statement that the property in the hands of the receivers in the Clyde or insolvency suit was surrendered to the receivers in the foreclosure suit under an order that expressly reserved power in the court to adjudge and decree in the Clyde suit upon the rights of creditors asserting claims against the property of the railroad company or its income in preference to mortgage debts. Besides, the decree of sale provided that the purchaser or purchasers, or his or their assigns, under any decretal sale should, as a part of the consideration, in addition to any sum bid, take the property upon the express condition that he or they would pay and satisfy (among other specified claims) all claims theretofore "filed in this case or in either of the causes consolidated herein, but only when said court shall allow such claims and adjudge the same to be prior in lien or superior in equity to the mortgage foreclosed in this suit, and in accordance with the order or orders of the court allowing such claims and adjudging with respect thereto." And the right was distinctly reserved to retake and resell the property in case the purchaser or purchasers, or his or their assigns, failed or neglected to comply with the order of court in respect of the payment of such prior liens. These conditions were repeated in the order confirming the sale. So that the right of the Carnegie Company to have its claims determined upon their merits is not at all affected by the sale of the property held by the receivers in the consolidated cause, or by the fact of its transfer to the Southern Railway Company. And we add that the above reservation in the orders and decree of the Circuit Court left it open for the Southern Railway Company to contest, upon their merits, any claims allowed after its purchase under the decree of sale.