Fisher v. Seligman

• Decision Date: 31 October 1881
• Citation: 75 Mo. 13
• Parties: FISHER, Appellant, v. SELIGMAN.
• Court: Missouri Supreme Court

75 Mo. 13

FISHER, Appellant,

v.SELIGMAN.

Supreme Court of Missouri.

October Term, 1881.

Appeal from St. Louis Court of Appeals.

REVERSED.

This was a proceeding by motion under the statute by Fisher, claiming as a judgment creditor of the Memphis, Carthage & Northwestern Railroad Company, an insolvent corporation, for execution against Joseph Seligman, an alleged stockholder of the corporation. The circuit court ordered execution to issue, and from this judgment Seligman appealed to the St. Louis court of appeals, which reversed the judgment and remanded the cause. From this latter judgment Fisher appealed to this court.

The evidence given on the trial showed the following state of facts: On the 15th day of May, 1874, plaintiff obtained judgment for $2,450 against the railroad company on an indebtedness which accrued January 21st, 1874. The company was then and ever afterward continued to be insolvent. It was organized under the general railroad law with a capital stock of $10,000,000. Joseph Seligman was a member of the firm of J. & W. Seligman & Co., bankers of New York. On the 14th day of March, 1872, this firm entered into a contract with the railroad company, which, after reciting that the road had been graded, bridged and tied, and the right of way obtained for twenty-seven miles, appointed Seligman & Co. financial agents for the negotiation of the first mortgage thirty-year bonds of the company, with a stipulation on their part to make certain advances of cash to be used in completing the road; in consideration of which the company agreed to deposit with them for sale its entire issue--5,000,000--of bonds, and also a majority of the capital stock which it was authorized to issue, the stock to remain in their control for one year at least. It was further stipulated that in the event that by some cause unforeseen Seligman & Co. should not succeed in the negotiation of said bonds, or any part of them, within twelve months, the railroad company should repay all sums of money advanced with interest, and in addition thereto a commission of two and a half per cent on all bonds returned by Seligman & Co.

To carry out this agreement, a deed of trust was executed on May 1st, 1872, to Jesse Seligman and one Stewart, as trustees, conveying the road and all its property and franchises, to secure bonds to the amount of $1,900,000. This deed provided that in case of default of interest the property conveyed should be surrendered to the trustees on demand. A certificate of stock, dated May 28th, 1872, issued to J. & W. Seligman for 60,000 shares in the Memphis, Carthage & Northwestern Railroad Company of $100 each, was produced on the trial from the possession of Seligman; as to which he testified that this stock was not paid for, or subscribed for, but issued as paid-up stock, in order that his firm might control the management of the company and the election of officers. This certificate was issued in accordance with a resolution of the board of directors ordering that, in making negotiations with the Seligmans, certificates for a majority of the stock be issued to them, to hold in trust for a period of twelve months. It was admitted that only $800,000 worth of bonds were issued, of which the Seligmans, having made large advances on the bonds, became owners to the amount of $400,000. Then, in 1873, at a meeting of the Seligmans and other bondholders in New York, at which Judge Baker was present, it was agreed that Baker should become a director and president, with a view to protecting the bondholders. A proxy was accordingly made out by the Seligmans and handed to Baker, which proxy was voted by Mr. Blow for the Seligmans at the annual election in March, 1874, at which election Baker named the ticket, Seligman being named as one of the directors and Baker as another. The ticket was elected; Judge Baker then became president. Baker testified that the Seligmans knew, in a general way, of these acts, and that from the time of his connection with the road to the foreclosure of the mortgage, the road was controlled by the 6,000,000 of stock issued to the Seligmans. During the ten months that Judge Baker was president of the road, he did not apply its earnings to the payment of interest. The newly elected directors held only one meeting, which was held in October, 1874, under the presidency of Judge Baker; at which meeting they did only one thing, that is, they turned over the road to the trustees in the mortgage for non-payment of interest. The stock book of the road, which contained merely the list of stockholders, without the number of shares, showed the names of J. & W. Seligman as stockholders. The transfer book has the following entry:

NAME.

RESIDENCE.

DATE.

J. & W. Seligman.

New York, N. Y.

May 29th, 1872.

NO. OF SHARES.

AMOUNT IN DOLLARS.

60,000. Sixty Thousand.

6,000,000. Six Million.

(Held in Escrow

These books were kept in obedience to the requirements of the corporation law of the State. Wag. Stat., 300, § 8.Joseph Shippen for appellant.

This case is governed by the case of Griswold v. Seligman, 72 Mo. 110, and the numerous authorities therein cited. Defendants became and were stockholders in said railroad company, and in all respects liable as such, despite their secret agreements. Thompson on Stockholders, §§ 124, 129; Kansas City Hotel Co. v. Harris, 51 Mo. 464; Kansas City Hotel Co. v. Hunt, 57 Mo. 126; Burke v. Smith, 16 Wall. 390; Sawyer v. Hoag, 17 Wall. 610; Upton v. Tribilcock, 91 U. S. 45; Sanger v. Upton, 91 U. S. 56; Webster v. Upton, 91 U. S. 67; In re Empire City Bank, 18 N. Y. 199; Hatch v. Dana, 101 U. S. 205; County of Morgan v. Allen, 103 U. S. 498. Defendants' conduct and acts estop them from making the defenses herein attempted. (1) By accepting and holding said absolute and unconditional certificate. Thompson on Stockholders, §§ 105, 161, 171; Upton v. Tribilcock, 91 U. S. 48; Upton v. Englehart, 3 Dill. 496; Pickering v. Templeton, 2 Mo. App. 424; Van Cott v. Van Brunt, 2 Ab. New Cas. 283. (2) By voting said 60,000 shares of stock. Thompson on Stockholders, § 160; 1 Wag. Stat., sub. 5, § 6, p. 300; In re Reciprocity Bank, 22 N. Y. 17; Eaton v. Aspinwall, 19 N. Y. 119; Upton v. Tribilcock, 91 U. S. 48. (3) By electing himself a director, and accepting and holding such position. 1 Wag. Stat., p. 299, § 6. Section 771, Revised Statutes 1879, has no application to this case. Thompson on Stockholders, § 224; Stover v. Flack, 30 N. Y. 70; Johnston v. Laflin, 6 Cent. L. J. 133; Pullman v. Upton, 96 U. S. 328; National Bank v. Case, 99 U. S. 628; Brewster v. Hartley, 37 Cal. 15; Wheelock v. Kost, 77 Ill. 296; Hale v. Walker, 31 Iowa 344; s. c., 7 Am. Rep. 137; Adderly v. Storm, 6 Hill (N. Y.) 624; Holyoke Bank v. Burnham, 11 Cush. 183; In re Empire City Bank, 18 N. Y. 199; Rosevelt v. Brown, 11 N. Y. 148; Newry R'y Co. v. Moss, 14 Beav. 64.John P. Ellis for appellant.

The control of a corporation can never be legally surrendered to its creditors, secured or unsecured. Where one, whether creditor or not, contracts with a corporation for its control through the use of a majority of its stock, receives the stock with the intention of using it for that purpose, afterward so uses it, and thereby acquires full corporate control, he has deliberately done that which can be done only by a stockholder. Having bargained for, used and enjoyed the privileges of a stockholder, he ought to be held to a stockholder's liability. One who holds, uses and votes stock for his own benefit, holds the stock cum onere, and to the extent of his interest is individually liable to the creditors of the corporation whose stock he so uses. Maguire's case, 3 DeG. & Sm. 31; Bunn's case, 2 DeG. F. & J. 295; St. Charles Man'f'g Co. v. Britton, 2 Mo. App. 290; Webster v. Upton, 1 Otto 68; Sawyer v. Upton, 1 Otto 56; Upton v. Tribilcock, 1 Otto 45; Re Bachman, 12 B. R. 223; Sagory v. Dubois, 3 Sandf. Ch. 466; Sawyer v. Hoag, 17 Wall. 610; Wheelock v. Kost, 77 Ill. 296; Pullman v. Upton, 6 Otto 328; Am. R'y Frog Co. v. Haven, 101 Mass. 398; Farrar v. Walker, 3 Dill. 506; Schaeffer v. Mo. Home Ins. Co., 46 Mo. 248; Adderly v. Storm, 6 Hill 624; Smith v. Heidecker, 39 Mo. 157. It may be true that defendant could not have compelled the railroad company to permit him to vote his stock. But the company waived objection, accepted the defendant as a legal stockholder, and gave him full control of the corporation. Under these circumstances the defendant cannot be heard, even against the corporation, to dispute his conduct as a stockholder, much less against a creditor. Holyoke B'k v. Goodman Paper Man'f'g Co., 9 Cush. 576; Kansas City Hotel Co. v. Hunt, 57 Mo. 126; Kansas City Hotel Co. v. Harris, 51 Mo. 464; Barrett v. Schuyler Co., 44 Mo. 197; Piscataqua Ferry Co. v. Jones, 39 N. H. 491. The acceptance and holding of a certificate of shares in an incorporation makes the holder liable to the responsibility of a shareholder. In this case, in addition, the name of defendant's firm appeared in the list of stockholders required to be kept by the statute. 1 Wag. Stat., p. 300, § 6; McLaughlin v. Detroit R. R. Co., 8 Mich. 100; Holbrook v. N. J. Zinc Co., 57 N. Y. 616; Pullman v. Upton, 6 Otto 328; Upton v. Tribilcock, 1 Otto 47, 48; Rosevelt v. Brown, 1 Kernan 151; Holyoke Bank v. Burnham, 11 Cush. 183; Johnson v. Somerville Dyeing, etc., Co., 15 Gray 219; Hoagland v. Bell, 36 Barb. 57; R. & W. Turnpike Co. v. Van Ness, 2 Cranch C. C. 449; Trumbull v. Payson, 5 Otto 418. The actual delivery of stock cuts out the defense that it was in escrow. Wight v. Shelby R. R. Co., 16 B. Mon. 4. A false entry upon the corporate books, in respect to the ownership of stock, will not avail the real owner as a defense against creditors. Castleman v. Holmes, 4 J. J. Marsh 1; Roman v. Fry, 5 J. J. Marsh, 634; Sanger v. Upton, 1 Otto 60; Chaffin v. Cummings, 37 Me. 76; Harvey v. Kay,9 B. & C. 356; Adderly v. Storm, 6 Hill 624; Schaeffer v. Ins. Co., 46 Mo. 248; Thorp v....