Burgess v. Seligman

CourtUnited States Supreme Court
Citation107 U.S. 20,2 S.Ct. 10,27 L.Ed. 359
PartiesBURGESS v. SELIGMAN and others, Ex'rs, etc
Decision Date29 January 1883

B. H. Bristow and John P. Ellis, for plaintiff in error.

Jas. O. Broadhead and Jos. H. Choate, for defendants in error.


This is an action brought by the plaintiff, Burgess, against J. & W. Seligman & Co., as stockholders of the Memphis, Carthage & Northwestern Railroad Company, under a statute of the state of Missouri, to recover a debt due to him by the company. The plaintiff, in his petition, alleges that on the fifth on November, 1874, judgment was rendered in his favor against the corporation by the district court of Cherokee county, Kansas, for $73,661, which remains unsatisfied; that in December, 1874, the corporation was dissolved; and that the defendants, at the date of the dissolution and of the judgment, were, and still are, stockholders of the corporation to the amount of $6,000,000, on which there is due and unpaid $1,000,000; and he demands judgment for the amount of his debt. Joseph Seligman, the principal defendant, answered, denying that the defendants were ever stockholders, or subscribers to the stock, of the corporation, and setting forth certain facts and circumstances (stated in the findings) under which the stock alleged to be theirs was merely deposited in their hands by the corporation in trust for a temporary purpose by way of collateral security, to be returned when that purpose was accomplished.

The cause was tried by the court, and judgment was rendered for the defendants on certain findings of fact; and the question here is whether the facts as found are sufficient to support the judgment.

The principal facts upon which the case must turn are substantially the following:

The Memphis, Carthage & Northwestern Railroad Company was a corporation organized under the general laws of missouri, with an authorized capital of $10,000,000. On the tenth of March, 1872, a contract in writing was entered into between the corporation and J. & W. Seligman & Co., (the defendants,) which is set forth in the findings. In the recitals of this contract it was stated that certain municipal subscriptions, in the shape of bonds, to the amount of $645,000, had been obtained in aid of its construction; and that a portion of the road (27 miles) was already graded, bridged, and tied, and the right of way obtained, and all paid for by the proceeds of said subscriptions; and that the company now sought additional capital for procuring iron and equipment for the road by the sale of its first-mortgage bonds. It was, therefore, agreed that the railroad company should furnish the capital necessary to completely prepare the road for the iron, and would execute and deposit with the defendants their entire issue of first-mortgage bonds, to-wit, $5,000,000, and a majority of their capital stock authorized to be issued; 'said stock to remain in the control of said party of the second part [J. & W. Seligman & Co.] for the term of one year at least.' The latter agreed to purchase 2,000 tons of railroad iron under the railroad company's direction, and from time to time to make advances of cash during the completion of the road, not exceeding $200,000, (including the amount paid for iron,) and to receive interest thereon at the rate of 7 per cent. per annum until reimbursed by sale of the bonds. They were to have the privilege for the term of 12 months of calling any portion of the five millions of bonds at the rate of 70 cents currency and accrued interest, less 2 1/2 per cent., and if more bonds were sold than enough to iron the road, they should advance funds to purchase rolling stock, $2,000 per mile, the balance to remain with them on deposit, on interest at the rate of call loans, to pay any deficiency in net earnings of the road to meet demands for interest on the bonds. If the bonds, or part of them, could not, for any unforeseen cause, be negotiated during the next 12 months, the company were to repay to J. & W. Seligman & Co. all moneys advanced by them, with interest at the rate of 7 per cent. per annum, and a commission of 2 1/2 per cent. on all bonds returned. This is the purport of the written agreement.

On the first of May, 1872, a trust deed was executed by the company on its railroad and appurtenances to Jesse Seligman and John H. Stewart, trustees, to secure the company's bonds. On the eleventh of May, 1872, the following resolution of the directors was passed: 'It is ordered by the board of directors that in making negotiations for money with J. & W. Seligman & Co., certificates for a majority of the capital stock of this company be issued to the said J. & W. Seligman & Co., to hold in turst for the period of 12 months, and that such certiflcates be signed by the president and secretary, with the corporate seal of this company affixed.' A stock certificate for 60,000 shares, or $6,000,000, was accordingly issued in the usual form to J. & W. Seligman & Co. This certificate was delivered to the defendants, but the court finds that they never subscribed for the stock, nor agreed to do so, and obtained it only in the manner set forth. The list of stockholders on the stock-book of the company, required by law to be kept, contains the names of certain townships which contributed aid to the road, and several individuals, including J. & W. Seligman, but not the amount of shares held. The stock transfer-book (also required by law) contained the same list, with date, number of shares, and amount carried out opposite to each name. The name of J. & W. Seligman appeared therein as follows:


* * * * * * * * * * * * * * * * * * * * *

J. & W. New York, Dec. 20, 60,000, 6,000,000,

Seligman. N.Y. 1872. sixty thousand, six millions.

(held in escrow.)

* * * * * * * * * * * * * * * * * * * * *

The court further found that shortly after the contract of March 14, 1872, Joseph Shippen, an attorney of St. Louis, saw and examined its provisions, and a few days after told Burgess (the plaintiff) of the contract, and that thereby the Seligmans were to have control of the road, and of the stock and bonds, and told Burgess it would be well for him to have a talk with Joseph Seligman before entering into contract with the railroad for its construction. Burgess accordingly saw Seligman, and testifies that the following conversation ensued: 'I told him I had been constructing on that Carthage road, and that I understood he was interested in the road now, and I would like to talk to him on that matter; that this company owed me—or Cunningham, who was the president of the corporation—that he owed me then some money for work I had done between there and Pierce City, and I wanted to know what the prospect was for pushing the work forward, the means of getting the iron, and so on, and he said: 'I think the best thing you can do is to go on with the work westward, and we will have ample means to get hold of the local bonds.' It seems Cunningham had represented to him that there was local means enough to grade the road, and he suggested to me then that I would be safe in going on and entering into such a contract, and then he mentioned that he thought it would be better for all parties if the road was built and the work prosecuted westward.'

Afterwards, on June 14, 1872, Burgess entered into a contract with the railroad company for the construction of the road from Carthage, Missouri, to Independence, Kansas. He immediately began work under the contract, and so continued until the fall of 1873. The bonds of the company to the amount of $864,000 were issued, and were negotiated and sold by J. & W. Seligman & Co., they themselves becoming holders of over $400,000 thereof. The stock issued to them was voted on by proxy at two successive annual meetings for election of directors. The company being unable to meet its interest on the bonds, the road and property were delivered to the trustees of the mortgage and sold in December, 1874, and Joseph Seligman and Josiah Macy, as a bondholders' committee, became purchasers thereof, and the railroad corporation was dissolved, in conformity with the laws of Missouri, about the same time.

On the fifth of November, 1874, Burgess obtained judgment in the district court of Cherokee county, Kansas, against the railroad corporation for work and materials under his contract, for the sum of $73,661, which judgment recited that it was entered by agreement, with a stipulation that it would be entitled to a credit of the amount which had been paid by the railroad company to subcontractors and laborers of the plaintiff, when the exact amount thereof should have been ascertained and proper vouchers furnished. No credits, however, were claimed. The present action was brought to recover the amount of this judgment. The findings also set out the contract made by Burgess and his associate with the railroad company, fourteenth June, 1872, for constructing the road, by which it appeared that they agreed to take their pay in township bonds, so far as the same should be furnished.

Upon these facts the court gave judgment in favor of the defendants. Burgess brings the case here by writ of error.

The statutory provision upon which the action is founded is the twenty-second section of article 1 of the act of Missouri relating to private corporations, (1 Wagner's St. c. 37,) which declares as follows:

'If any company, formed under this act, dissolve, leaving debts unpaid, suits may be brought against any person or persons who were stockholders at the time of such dissolution without joining the company in such suit, and if judgment be rendered and execution satisfied, the defendant or defendants may sue all who were stockholders at the time of dissolution for the recovery of the portion of such debt for which they were liable.'

By section 9 of article 2 of the same chapter, it is enacted as follows:

'No person holding stock in any such...

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    ...judicial tribunal of Kansas passed upon the question and the decision of the Supreme Court concludes this issue. Burgess v. Seligman, 107 U.S. 20, 27, 2 Sup.Ct. 10, 27 L.Ed. 359; Clapp v. Otoe County, 45 C.C.A. 579, 582, 104 F. 473, 476; Speer v. Board, etc., 88 F. 749, 760, 32 C.C.A. 101, ......
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