111 U.S. 505 (1884), Pacific Railroad of Missouri v. Missouri Pac. Ry. Co.

Citation:111 U.S. 505, 4 S.Ct. 583, 28 L.Ed. 498
Case Date:May 05, 1884
Court:United States Supreme Court

Page 505

111 U.S. 505 (1884)

4 S.Ct. 583, 28 L.Ed. 498



MISSOURI PACIFIC RY. CO. and others. 1

United States Supreme Court.

May 5, 1884

Appeal from the Circuit Court of the United States for the Eastern District of Missouri.


[4 S.Ct. 584] N. A. Cowdrey, D. H. Chamberlain, and Wm. B. Hornblower, for appellant.

Melville C. Day, John F. Dillon, and Wager Swayne, for appellees.



Page 506

On the twenty-sixth of June, 1880, the Pacific Railroad, (of Missouri,) a Missouri corporation, filed a bill in equity in the circuit court of the United States for the Eastern district of Missouri, against the Missouri Pacific Railway Company, another Missouri corporation, and various individual defendants citizens of Missouri, Massachusetts, and New York, and a New York corporation. The main object of the bill is to impeach and vacate, for alleged fraud in fact, a decree made by that court, June 6, 1876, foreclosing a mortgage on railroad property of the plaintiff, and ordering its sale. The sale was made September 6, 1876, it was confirmed by the court October 7, 1876, and a deed was given October 24, 1876, by the master, to the purchaser, who was James Baker. The decree was made in a suit brought November 11, 1875, by one Ketchum, a citizen of New York, against the present plaintiff and various citizens of Missouri and New York, to foreclose a mortgage given by the present plaintiff, July 10, 1875, on its railroad and other property, to Henry F. Vail and James D. Fish, trustees, called the 'third mortgage,' to secure a proposed issue of bonds of $4,000,000. On the first of February, 1877, the present plaintiff took an appeal to this court from the decree of June 6, 1876, and from the order confirming the sale. The case was returnable at October term, 1877, was heard here in January,

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1880, was decided in April, 1880, the decree below being affirmed, and a rehearing was applied for and was denied May 10, 1880. See Pacific R. R. v. Ketchum, 101 U.S. 289. This bill was then promptly filed.

Copies of the bill in the Ketchum suit, and of the decree and the deed of the master, and the order of the court approving the deed, are annexed to and made a part of the bill in this suit. The material allegations of the latter are these:

C. K. Garrison, James Seligman, and Pierce (three of the defendants in this suit) were made co-plaintiffs in the Ketchum suit, before the decree was entered, and their solicitors were directed to receive their instructions from and be advised by said Baker, who was the solicitor of this plaintiff, and they did follow Baker's instructions. The decree was procured to be made by the court by false and fraudulent representations made by the defendants herein. The decree and the master's deed designedly and fraudulently embraced more and other property of this plaintiff than was embraced in the mortgage being foreclosed, in the following language, which was interpolated without the knowledge of this plaintiff, viz.: 'Including, among other things, the track on Poplar street, and the levee in the city of St. Louis, commonly known as the 'Poplar-street track," the value of which property is more than $200,000. All of the defendants in this suit (only three of whom, Baker, Vail, and Fish, were defendants in the Ketchum suit, and four others of whom, Ketchum, C. K. Garrison, James Seligman, and Pierce, were plaintiffs in the Ketchum suit) had knowledge of and were parties to the frauds herein complained of, either at their inception or by 'subsequent subrogation.' The Atlantic & Pacific Railroad Company (which will be called the Atlantic Company) was the lessee of this plaintiff's railroad, under a lease, a copy of which is annexed to the bill as an exhibit, and which this plaintiff asks leave to refer to with the same effect as if it were set out at length in the bill, and was in possession of the property of this plaintiff. By the terms of said lease the Atlantic Company assumed certain obligations, including the payment of a rental to this plaintiff, being unable to pay which its manager sought to evade its obligation by destroying this

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plaintiff. On and before June, 1872, the chief officers and directors of the Atlantic Company, who were Andrew [4 S.Ct. 585] Pierce, Jr., Joseph Seligman, A. V. Stout, and others unknown, procured the ownership or control of a majority of this plaintiff's stock, for the avowed purpose of procuring control of all its assets and road; and, in execution of such purpose, said directors and officers procured the execution of said lease between the two roads on June 29, 1872. Upon the execution of the lease, the Atlantic Company became possessed of all the property and franchises of this plaintiff, and at all times since this plaintiff has not been in control of any of its property, except to receive rents under the lease, from June, 1872, to July, 1875. Since the making of the lease, the stockholders of this plaintiff have been paid all dues under the lease, to July, 1875. All interest on its bonds was also paid, and this plaintiff was not in default on any mortgage liability which existed when the lease was made. During the lease, the Atlantic Company, by false and fraudulent representations that this plaintiff was indebted to it for improvements made on this plaintiff's property, procured the execution by this plaintiff of three issues of bonds, namely, income bonds, for $1,500,000; improvement bonds, for $2,000,000; third mortgage bonds, so-called, for $4,000,000. The proceeds of all of said issues of bonds went to the Atlantic Company, or the persons by whose false and fraudulent action their issue was procured. At or before November 11, 1875, when the Ketchum foreclosure suit was begun, the Atlantic Company was indebted to various persons and corporations, whose names are set forth.

C. K. Garrison, on his examination in the Ketchum suit, said that he was one of the complainants in that suit, and the owner of over $1,500,000 of the third mortgage bonds, and represented the owners of the rest. By the terms of the lease the Atlantic Company undertook to pay all the debts of this plaintiff, as well as all operating and repairing expenses, and all interest on bonds to be issued after the date of the lease, for extending its lines, buying rolling stock, and rentals. The pretended increase of mortgage debt of $4,000,000, between July 1, 1871, and July 10, 1875, is fictitious, fraudulent, without consideration, and contrary

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to the laws of Missouri. The net income of this plaintiff's road from the date of the lease to December 31, 1874, was $739,172.68. The recitals in the third mortgage bonds, that they were issued to procure additional rolling stock for this plaintiff's road, were false. This plaintiff had no legal capacity to execute the third mortgage, or to issue $4,000,000 of bonds. The law of Missouri only authorized mortgages of railroad property for certain stated purposes, and no issue of bonds is valid without the vote of the stockholders. The only pretended authority for making the third mortgage (a copy of which is annexed to the bill) is shown by a circular and form of proxy issued to the stockholders by Mr. Hays, president, of which copies are attached to the bill. The circular and proxy do not authorize the mortgage of $4,000,000, or of any amount whatever. The Atlantic Company did not negotiate absolutely any of the $2,000,000 of improvement bonds, but used them to aid its own credit, and several of its directors and officers of this plaintiff were indorsers on obligations of the Atlantic Company secured by said bonds. The third mortgage was procured to be executed fraudulently, to be used as additional security for said indorsements, and $2,500,000 of the third mortgage bonds were used to secure the payment of obligations of the Atlantic Company; and said Garrison and Seligman and the defendant Sage, with full knowledge of these facts, bought at heavy discount the past-due obligations of the Atlantic Company, with the accompanying third mortgage bonds. Some of the directors and former officers of this plaintiff were interested in the bonds or the obligations, and vigorously prosecuted the foreclosure suit, to the destruction of the interests of the stockholders of this plaintiff. The defendants Stout, Fish, D. R. Garrison, Samuels, W. R. Garrison, and C. K. Garrison were, during all these transactions, up to the commencement of the foreclosure suit, either directors of the Atlantic Company or of this plaintiff, or creditors of, or otherwise interested [4 S.Ct. 586] in, the Atlantic Company, and benefited by said frauds, and were fully cognizant of the creation of said...

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