1. By a statute of Missouri, stockholders of a corporation at
its dissolution are liable for its debts, but it is provided that
no person holding stock as executor, administrator, guardian, or
trustee, and no person holding stock as collateral security, shall
be personally subject to such liability, but the persona pledging
such stock shall be considered as holding the same, and liable, and
the estates and funds in the hands of executors &c., shall be
liable.
Held 1. That persona to whom a corporation pledges
its stock as collateral security are within the exemption of the
statute. 2. That certificates of the stock absolute on their face,
issued in trust or as collateral security to a creditor, may be
shown to be so held by evidence in pals. 3. That the person holding
such stock in trust or as collateral security, is not by his voting
thereon, estopped from showing that it belongs to the company and
that he holds it as collateral security.
2. The Supreme Court of Missouri, after the circuit court had
decided this case, made a contrary decision against the same
stockholders at the suit of another plaintiff, holding that the
clause of exemption in the statute does not extend to persons
receiving from the corporation itself stock as collateral security.
Held that this Court is not bound to follow the
decision.
3. The courts of the United States, in the administration of
state laws in cases between citizens of different states, have an
independent jurisdiction coordinate with that of the state courts,
and are bound to exercise their own judgment as to the meaning and
effect of those laws.
4. Where, however, by the course of the decisions of the state
courts, certain rules are established which become rules of
property and action in the state and have all the effect of law --
especially with regard to the law of real estate and the
construction of state constitutions and statutes -- the courts of
the United States always regard such rules as authoritative
declarations of what the law is. But where the law has not been
thus settled, it is their right and duty to exercise their own
judgment, as they also always do in reference to the doctrines of
commercial law and general jurisprudence, and when contracts and
transactions have been entered into and rights have accrued thereon
under a particular state of the decisions of the state tribunals,
or when there has been no decision, the courts of the United States
assert the right to adopt their own interpretation of the law
applicable to the case although a different interpretation may be
given by the state courts after such rights have accrued.
Page 107 U. S. 21
5. But even in such cases, for the sake of harmony and to avoid
confusion, the courts of the United States will lean toward an
agreement of views with the state courts if the question seems to
them balanced with doubt.
6. Acting on these principles of comity, the courts of the
United States, without sacrificing their own dignity as independent
tribunals, endeavor to avoid, and in most cases do avoid, any
unseemly conflict with the well considered decisions of the state
courts.
7. As, however, the very object of giving to the national courts
jurisdiction to administer the laws of the states in controversies
between citizens of different states was to institute independent
tribunals which it might be supposed would be unaffected by local
prejudices and sectional views, it is their duty to exercise an
independent judgment in cases not foreclosed by previous
adjudication.
8. A judgment entered by consent for a specific amount, subject
to any credits which the defendant may produce vouchers for, is
good as between the parties themselves and their privies.
The case is stated in the opinion of the Court.
MR. JUSTICE BRADLEY delivered the opinion of the Court.
This is an action brought by the plaintiff, Burgess, against J.
& W. Seligman & Co., as stockholders of the Memphis,
Carthage and 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 5th 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
Page 107 U. S. 22
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 10th 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 seven percent per annum until reimbursed by sale of the bonds.
They were to have the privilege for the term of twelve months of
calling any portion of the
Page 107 U. S. 23
$5,000,000 of bonds at the rate of seventy cents currency and
accrued interest, less two and a half percent, 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 twelve
months, the company were to repay to J. & W. Seligman & Co.
all moneys advanced by them, with interest at the rate of seven
percent per annum, and a commission of two and a half percent on
all bonds returned. This is the purport of the written
agreement.
On the 1st 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
11th 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
trust for the period of twelve months, and that such
certificates be signed by the President and secretary, with the
corporate seal of this company affixed."
A stock certificate for sixty thousand 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:
Page 107 U. S. 24
image:a
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
Page 107 U. S. 25
& 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 5th 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, 14th 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, 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."
1 Wagner's Statutes, c. 37.
Page 107 U. S. 26
By sec. 9 of art. 2 of the same chapter, it is enacted as
follows:
"No person holding stock in any such company as executor,
administrator, guardian, or trustee, and no person holding such
stock as collateral security, shall be personally subject to any
liability as a stockholder of such company, but the person pledging
such stock shall be considered as holding the same, and shall be
liable as a stockholder accordingly, and the estates and funds in
the hands of such executor, administrator, guardian, or trustee
shall be liable, in like manner and to the same extent, as the
testator or intestate, or the ward or person interested in such
fund, would have been if he had been living and competent to act,
and held the stock in his own name."
The first question for consideration is whether the plaintiff's
claim was established. He relied on the judgment recovered by him
against the corporation in Kansas. It is contended by the
defendants that this judgment does not establish any debt due to
the plaintiff. But we think that the objection is not sound. The
judgment, as against the corporation and its privies, does
establish the debt named therein as due to the plaintiff, but
subject to a defeasance for such an amount as might be shown to
have been paid to subcontractors and laborers by the corporation.
The defendants, as well as the corporation, were at liberty to show
any credits which, by the stipulation, were properly applicable in
reduction of the amount of the judgment. None such were shown, or
attempted to be shown. Until such credits were shown the judgment
stood valid for the whole amount. It was not for the plaintiff, but
for the defendants, to show that any such credits existed.
The next and principal question is whether J. & W. Seligman
& & Co., or J. & W. Seligman, were stockholders of the
Memphis, Carthage & Northwestern Railroad Company within the
meaning of the law. Did the sixty thousand shares of stock belong
to them? or did they hold it by way of trust or as collateral
security for the fulfillment of the company's obligations in
relation to the bonds? The courts in England, and some in this
country, have gone very far in sustaining a liability for unpaid
subscriptions to stock against persons holding the same in any
capacity whatever, whether as trustees, guardians,
Page 107 U. S. 27
or executors, or merely as collateral security. It cannot be
denied that in some cases, the extreme length to which the doctrine
has been pushed has operated very harshly, and in cases in which
the corporation itself has no just right to enforce payment, and
where no bad faith or fraudulent intent has intervened, it may be
doubted whether creditors have any better right, unless by force of
some express provision of a statute. The Missouri statute
recognizes the justice of making a discrimination between those who
hold stock in their own right, and those who hold it merely in a
representative capacity, or as trustees, or by way of collateral
security.
Upon a careful examination of the facts found in this case we do
not see how a reasonable doubt can exist that the Seligmans held
the stock in question as trustees and custodians by way of
collateral security for themselves and the purchasers of the bonds.
That was clearly the intent of the parties, declared in almost so
many words, and that intent must prevail, unless, by some
inadvertency in carrying it our, the Seligmans have been
unwittingly caught in some legal snare of which the creditors can
take advantage. By the contract executed between them and the
corporation they were to act as its financial agents in the
disposal of its bonds, and to make advances of money from time to
time to enable the company to get the necessary iron for completing
its road and equipment for running it. The company were to prepare
the superstructure and procure the ties, and everything necessary
by way of preparation for laying the iron down, and was to do this
by means of the resources it had already secured, and expected to
obtain, from the township subscriptions, in order that the mortgage
to be given as security for the bonds might be good and valid for
that purpose, and the company further agreed to deposit with
Seligman & Co. a majority of its capital stock, to remain in
their control for the term of one year at least. The reasonable
inference is that this deposit of stock was to be made for the
purpose alleged in defendant's answer, namely, as security for the
payment of the bonds, and to enable Seligman & Co. to control
the corporation, and see that its affairs were honestly conducted
and the earnings properly applied. The resolution of the directors,
adopted for carrying out this agreement, is to
Page 107 U. S. 28
the same purport and effect: it directs that, in making
negotiations for money with Seligman & Co., certificates for a
majority of the capital stock should be issued to them to hold in
trust for the period of twelve months, and when the stock was
entered upon the transfer book in the name of J. & W. Seligman,
it was characterized as being "held in escrow."
The terms used may not have been strictly technical. The issuing
of the stock in their names may not have been a "deposit" or an
"escrow" in the strict sense of those words; but the intent is very
clear that the stock was not to be regarded as their stock, but as
belonging to the company, though in their names, and that it was to
be held by them simply as a security. They never subscribed for the
stock; they never became indebted to the company for it; the
company never acquired any right to demand from them a single
dollar on account of it. Though issued in form, it was only issued
in a qualified sense, to subserve a specific purpose by way of
collateral security for a limited period, and was returnable to the
company when that purpose should be accomplished. It seems to us
that the Seligmans, in taking and holding the stock, held it merely
in trust by way of collateral security for themselves and others,
and that they were therefore within the express exception made by
the law in favor of those holding stock in that way.
It is urged, however, that they are estopped from claiming the
benefit of this exemption by their conduct in being represented and
voting at stockholders' meetings. But if the law allows stock to be
held in trust or as collateral security without personal liability,
and if, as we suppose, the clear effect of the contract was to
create such a holding in this case, we do not see how the doctrine
of estoppel can apply. The only parties to complain would be the
other stockholders, who might perhaps complain that stock held
merely in trust, or as collateral security, is not entitled to
participate with them in the privilege of voting. But from them no
complaint is heard. Creditors could not complain, for, on the
hypothesis that stock may lawfully be held at all in trust, or as
collateral security, without incurring liability to them, the act
of voting on the stock cannot injure or affect them. In the absence
of such a law the case might be very different. Undoubtedly it
has
Page 107 U. S. 29
been held, in cases innumerable, that acting as a stockholder
binds one as such; but that is where the law does not allow stock
to be held at all without incurring all the liabilities incident to
such holding. The present is an action at law based upon the
supposed liability of the defendants under a statute which makes
the distinction referred to, and which does not make all
stockholders liable indiscriminately. We think that this makes a
material difference. If the defendants can show, as we think they
have shown, that they are within the exception of the statute, the
statutory liability does not apply to them.
It is by no means clear, however, that J. & W. Seligman did
not have a right to vote on the stock, even as against the
stockholders. When the law provides that if a person holds stock as
a trustee, or by way of collateral security only, he shall not be
personally liable for the company's debts, it supposes that the
stock shall be holden, and that the pledgee or trustee shall be the
holder. If, then, the law is to have any force or effect, the mere
fact of holding cannot be set up as a bar or estoppel against proof
of the manner and character of such holding. And if such pledgee or
trustee may be a holder of the stock in that character, is he bound
to be perfectly passive in his holding? He will not be entitled to
any dividends or profits, it is true, or, if he receives dividends
or profits, he must account therefor; but is it certain that he may
not lawfully vote on the stock? An executor administrator,
guardian, or trustee certainly may vote, and where is the rule to
be found that a holder for collateral security, under a law which
permits such holding, may not vote on the stock so held without
losing his character as a mere pledgee? But, as before said, if the
pledgee in voting the stock exceeds his rights as such pledgee, it
cannot have the effect of making the stock his own. No one is
injured, and no one can complain except the other stockholders
whose rights are invaded.
The line of authorities usually quoted to show that those who
actually hold stock, and who manifest a voluntary or intentional
holding by voting on it, or receiving dividends or other benefit
from it, consists mainly of cases in which parties have been held
as corporators or associates as between themselves
Page 107 U. S. 30
and the corporation or joint stock association, and as such
incidentally liable to the creditors of such companies. Sir
Nathaniel Lindsley, in his able Treatise on Partnership, has amply
discussed the whole subject upon the platform of the English
decisions. His fundamental proposition is this:
"The type, then, of a member or shareholder of a company is a
person who has agreed to become a member, and with respect to whom
all conditions precedent to the acquisition of the rights of a
member have been duly observed. . . . In practice, difficulties are
only presented where this standard is not reached, and the
important question really is to what extent it can be departed
from, and membership be nevertheless constituted."
Volume 1, p. 128. He then devotes many pages to show, by
adjudged cases, how a man may be held as a corporator by the
company itself, by holding himself out as such, as by taking
dividends, etc. Now, in the present case, the relation of J. &
W. Seligman & Co. to the corporation is expressly settled and
fixed by the written contract between them. We have already
examined that contract, and have shown that the stock issued by the
corporation to J. & W. Seligman & Co. was issued to them
only as trustees and by way of collateral security. The proposition
that the corporation could hold them as subscribers to its stock
would be in flat defiance of the contract in whole and in every
part. We do not know of any iron rule of law which would prevent
them from showing this contract relation between them and the
company. It is the origin and foundation of their whole connection
with it. The sufficiency of the evidence to control their status
toward the company is another thing. Its competency seems to us
free from doubt. When examined, it shows, as before stated, that as
between them and the company the latter has no claim whatever
against them in relation to the stock except to have it returned
when properly required, after the purpose of its issue had been
accomplished. It belongs to the company, and to it alone. J. &
W. Seligman are mere trustees or custodians of it for a special
purpose, that purpose being collateral security.
In this connection we may properly refer to the decision of the
Court of Appeals of Maryland in the case of
Matthews v.
Albert, 24 Md. 527, which was a case arising upon the
Page 107 U. S. 31
Maryland statute from which that of Missouri was copied, so far
as relates to the exception of those holding stock in trust or as
collateral security. That was a suit in equity brought against
stockholders to render them liable for the company's debts. One of
them, by the name of Tieman, had loaned money to the corporation,
and, as security for its payment, a certificate of stock had been
issued to him. After its issue an endorsement was made on it by the
president of the corporation to the effect that it had been
deposited with Tieman as collateral security for the loan. The
court said:
"The claim of W. H. Tieman is for $2,000, money alleged to be
loaned to the company on the eighth of January, 1859. But it is
insisted by the appellees lees that Tieman, instead of being a
nonstockholding creditor, is, according to the evidence, a
stockholder, and as much liable as the Alberts. We do not concur in
this view of the relation of Tieman to the company. In our opinion,
his claim is for money loaned, and the stock transferred to him was
held by him as collateral security for his loan, and, so holding
it, he is not personally subject to any liability as stockholder,
but is protected by the provision of the twelfth section of the act
of 1852, c. 338."
A similar decision in a case arising upon a like statute in New
York was made by the Commissioners of Appeal of that state in the
case of
MacMahon v. Macy, 51 N.Y. 155. The New York
railroad act of 1850, as amended by the act of 1854, made
stockholders liable to creditors of the company for the amount
unpaid on their stock: but the eleventh section of the act
contained precisely the same provision as that in the ninth section
of the Missouri law, that no person holding stock as executor,
administrator, guardian, or trustee, and no person holding stock as
collateral security, should be personally subject to any liability
as stockholders, imposing the liability, however, as the Missouri
law does, on the pledgeor or
cestui que trust. Macy was
sued as a stockholder, and it was shown on the trial that the stock
held by him was transferred to him as collateral security. The
referee refused to give any effect to this evidence, holding that
parol evidence could not be received to contradict or vary the
written assignments or transfers, which were absolute in form. The
Commissioners of Appeal, on this
Page 107 U. S. 32
branch of the case, said:
"In this he erred. It is always competent to show that an
assignment or conveyance absolute in form, was only intended as a
security. There is nothing in any statute which makes the books of
the company incontrovertible evidence of ownership of stock. A
person may be the absolute legal and equitable owner of stock
without any transfer appearing upon the books."
All the judges of the commission concurred in this opinion.
We do not well see how any different conclusion could logically
have been arrived at. If the law declares that stock held as
collateral security shall not make the holder liable, surely it
must be competent to show that it is so held. And when this fact is
once established, there is an end of the application of estoppel,
unless it can be invoked by some party who has been specially
misled by the conduct of the defendants.
It is urged by the plaintiff in this case that the defendants
are estopped as to him, because of a certain conversation between
Joseph Seligman and himself before he entered into the contract for
construction. We have carefully examined the account given of this
conversation by the plaintiff himself, and we see nothing in it
which at all compromits the defendants on the question of their
actual status and position in the affairs of the company.
Especially may this be said in view of the fact that, prior to that
conversation, an attorney, who had inspected the contract of
Seligman & Co., told him of it, and that it would be well for
him to have a talk with Joseph Seligman before entering into
contract with the railroad company for its construction. The
general purport of the conversation which he afterwards had with
Seligman was that Seligman advised him to take the contract and go
on with the work, as the best thing for all parties, as there would
be ample means to get hold of the local bonds, which would be
sufficient to grade the road. Surely there was nothing in this
conversation to estop the defendants from showing what their real
position was with regard to the stock which they held.
But the appellant's counsel, with much confidence, press upon
our attention the decisions of the Supreme Court of Missouri on the
questions involved in this case, and on the very transactions which
we are considering. That court, since the
Page 107 U. S. 33
determination of this case by the circuit court, has given
judgment in two cases adversely to the judgment in this, and to the
views above expressed. The first case was that of
Griswold v.
Seligman, decided in November, 1880; the other, that of
Fisher v. Seligman, decided in February, 1882, in which
the former case was substantially followed and confirmed. The case
of
Griswold v. Seligman seems to have been very fully and
carefully considered. We have read the opinion of the court and the
dissenting opinion of one of the judges with much attention, but we
are unable to come to the conclusion reached by the majority.
We do not consider ourselves bound to follow the decisions of
the state court in this case. When the transactions in controversy
occurred, and when the case was under the consideration of the
circuit court, no construction of the statute had been given by the
state tribunals contrary to that given by the circuit court. The
federal courts have an independent jurisdiction in the
administration of state laws, coordinate with, and not subordinate
to, that of the state courts, and are bound to exercise their own
judgment as to the meaning and effect of those laws. The existence
of two coordinate jurisdictions in the same territory is peculiar,
and the results would be anomalous and inconvenient but for the
exercise of mutual respect and deference. Since the ordinary
administration of the law is carried on by the state courts, it
necessarily happens that by the course of their decisions certain
rules are established which become rules of property and action in
the state, and have all the effect of law, and which it would be
wrong to disturb. This is especially true with regard to the law of
real estate, and the construction of state constitutions and
statutes. Such established rules are always regarded by the federal
courts, no less than by the state courts themselves, as
authoritative declarations of what the law is. But where the law
has not been thus settled, it is the right and duty of the federal
courts to exercise their own judgment; as they also always do in
reference to the doctrines of commercial law and general
jurisprudence. So when contracts and transactions have been entered
into, and rights have accrued thereon under a particular State of
the decisions, or when there has been no decision of the
Page 107 U. S. 34
state tribunals, the federal courts properly claim the right to
adopt their own interpretation of the law applicable to the case,
although a different interpretation may be adopted by the state
courts after such rights have accrued. But even in such cases, for
the sake of harmony and to avoid confusion, the federal courts will
lean toward an agreement of views with the state courts if the
question seems to them balanced with doubt. Acting on these
principles, founded as they are on comity and good sense, the
courts of the United States, without sacrificing their own dignity
as independent tribunals, endeavor to avoid, and in most cases do
avoid, any unseemly conflict with the well considered decisions of
the state courts. As, however, the very object of giving to the
national courts jurisdiction to administer the laws of the states
in controversies between citizens of different states was to
institute independent tribunals, which, it might be supposed, would
be unaffected by local prejudices and sectional views, it would be
a dereliction of their duty not to exercise an independent judgment
in cases not foreclosed by previous adjudication. As this matter
has received our special consideration, we have endeavored thus
briefly to state our views with distinctness, in order to obviate
any misapprehensions that may arise from language and expressions
used in previous decisions. The principal cases bearing upon the
subject are referred to in the margin, but it is not deemed
necessary to discuss them in detail.
*
Page 107 U. S. 35
In the present case, as already observed, when the transactions
in question took place, and when the decision of the circuit court
was rendered, not only was there no settled construction of the
statute on the point under consideration, but the Missouri cases
referred to arose upon the identical transactions which the circuit
court was called upon, and which we are now called upon, to
consider. It can hardly be contended that the federal court was to
wait for the state courts to decide the merits of the controversy
and then simply register their decision; or that the judgment of
the circuit court should be reversed merely because the state court
has since adopted a different view. If we could see fair and
reasonable ground to acquiesce in that view, we should gladly do
so; but in the exercise of that independent judgment which it is
our duty to apply to the case, we are forced to a different
conclusion. The cases of
Pease v. Peck,
18 How. 595, and
Morgan v.
Curtenius, 20 How. 1, in which the opinions of the
Court were delivered by Mr. Justice Grier, are precisely in
point.
The cardinal position assumed by the state court is that,
inasmuch as certificates of stock were in fact issued to and
accepted by J. & W. Seligman, and they voted on the stock, they
are absolutely estopped from denying that they are the owners of
the stock, subject to all the liabilities incident to that
relation, and that they cannot have the benefit of the exception
accorded by the law to those who hold stock as collateral security,
because, as the court holds, that exemption only applies to those
who have received stock in that way from some stockholder who can
be made liable as a stockholder, and not to those who have received
stock from the corporation itself by way of collateral
security.
The first position, that the acceptance of the stock, and voting
upon it, absolutely precluded the defendants from denying that they
are owners of the stock, has been already considered.
Page 107 U. S. 36
The great mass of authorities relied on by the Supreme Court of
Missouri, on this part of the case, English as well as American,
are cases in which parties have been held as corporators or
associates as between themselves and the corporation, and upon that
footing have been held responsible to creditors when the rights of
creditors have been in question. We think that we have sufficiently
shown that these authorities cannot govern the case in hand if any
effect is to be given to the law of Missouri, exempting from
personal liability those who hold stock in a fiduciary character or
by way of collateral security. We will therefore briefly examine
the other position, that this law does not apply to those who
receive stock as collateral security from the corporation
itself.
The argument that the exemption from liability in cases of stock
held as collateral security applies only to those who have received
it from third persons who were stockholders, and who can be
proceeded against as such, seems to us unsound, and contrary both
to the words and the reason of the law. It takes for granted that
stock cannot be received as collateral security from the
corporation itself and still belong to the corporation, and yet we
know that such transactions are very common in the business of this
country. The words of the statute are positive, and relate to all
holders of stock for collateral security. They are as follows:
"No person holding stock in any such company as executor,
administrator, guardian, or trustee, and no person holding such
stock as collateral security, shall be personally subject to any
liability as stockholder of such company."
The reason of this law is derived from the gross injustice of
making a person liable as the owner of stock when he only holds it
in trust or by way of security, and from the inexpediency of
putting a clog upon this species of property, which will have the
effect of making it unavailable to the owner, or of deterring
prudent and responsible men from accepting positions of trust where
any such property is concerned. It seems to us that not only the
law, but the reason upon which it is founded, applies to the
holders of stock as collateral security, whether received from an
individual or from the corporation itself. It is argued, however,
that the remaining words of the law are repugnant to this view.
These words are as follows:
"But
Page 107 U. S. 37
the person pledging such stock shall be considered as holding
the same, and shall be liable as a stockholder accordingly, and the
estates and funds in the hands of such executor, administrator,
guardian, or trustee shall be liable, in like manner and to the
same extent, as the testator or intestate, or the ward or person
interested in such fund, would have been if he had been living and
competent to act, and held the stock in his own name."
The argument is that these words imply that there must always be
some person or estate to respond for the stock, or else the
exemption cannot take effect. The obvious answer is that this
clause fixes the liability upon the pledgeor as a stockholder,
where there is a pledgeor who can be made liable in that character.
When the corporation pledges its own stock as collateral security,
though it cannot be proceeded against as a stockholder
eo
nomine, the reason is because it is primary liable, before all
stockholders, for all its debts. In such a case, the clause last
quoted would not strictly apply to it, but the holder of its stock
as collateral security would be within both the letter and the
spirit of the first clause. It is supposed that some flagrant
injustice would ensue if there was not some one who could be
reached as a stockholder in every case of stock pledged as
collateral security; hence, stock pledged by the corporation itself
must be regarded as belonging to the pledgee, though no other
pledgee of stock is treated in this way. Where is the justice of
this? Why should the stock be necessarily considered as belonging
to some one besides the corporation itself? Is anyone harmed by
considering the corporation as its true owner? If the stock had not
been issued as collateral security, it would not have been issued
at all; it would not have been in existence. Would the creditors
have been any better off in such case? They are better off by the
issue of the stock as collateral, because the general assets of the
company have received the benefit of the moneys obtained by means
of the pledge. The more closely the matter is examined, the more
unreasonable it seems to deny to a pledgee of the corporation the
same exemption which is extended to the pledgee of third persons.
We think that the one equally with the other is protected by the
express words and true spirit of the law.
Page 107 U. S. 38
We might pursue the subject further and examine in detail the
suggestions and authorities adduced by the learned court which
decided the cases of
Griswold v. Seligman and
Fisher
v. Seligman, but it is unnecessary. What we have said is
sufficient to indicate substantially the grounds on which we feel
obliged to dissent from its conclusions. In our judgment, the facts
found by the court below make out a clear case of stock held in
trust and by way of collateral security only, and the judgment
rendered thereon was correct.
Judgment affirmed.
*
McKeen v. Delancy's
Lessee, 5 Cranch 22;
Polk's
Lessee v. Wendell, 9 Cranch 87;
Thatcher
v. Powell, 6 Wheat. 119;
Preston's
Heirs v. Bowmar, 6 Wheat. 580;
Daly's
Lessee v. James, 8 Wheat. 495;
Elmendorf
v. Taylor, 10 Wheat. 152;
Shelby v.
Gay, 11 Wheat. 361;
Jackson v.
Chew, 12 Wheat. 153,
25 U. S. 168;
Fullerton v. Bank of United
States, 1 Pet. 604;
Gardner v.
Collins, 2 Pet. 58;
United
States v. Morrison, 4 Pet. 124;
Green v.
Neal's Lessee, 6 Pet. 291;
Groves v.
Slaughter, 15 Pet. 449;
41 U.
S. Tyson,
16 Pet. 1; Carpenter
v. Provident Washington Insurance Co., 16 Pet. 495;
Carroll v.
Sofford, 3 How. 441; Lane v.
Vick, 3 How. 464; Rowan v.
Runnels, 5 How. 134; Smith v.
Kernochan, 7 How. 198; Nesmith v.
Sheldon, 7 How. 198; Williamson
v. Berry, 8 How. 495; Van
Renesselaer v. Kearney, 11 How. 297;
Webster v.
Cooper, 14 How. 488; Ohio Life
Insurance & Trust Co. v. De Bolt, 16 How. 416;
59 U. S. New
Orleans, 18 How. 497;
Watson v.
Tarpley, 18 How. 517;
Pease v.
Peck, 18 How. 517;
Morgan v.
Curtenius, 20 How. 1;
League v.
Egery, 24 How. 264;
Suydam v.
Williamson, 24 How. 427;
S.C. 73 U. S. 6
Wall. 736;
Leffingwell v.
Warren, 2 Black 590;
Mercer
County v. Hacket, 1 Wall. 83;
Gelpcke v.
City of Dubuque, 1 Wall. 175;
Seybert v.
Pittsburgh, 1 Wall. 272;
Havemeyer
v. Iowa City 3 Wall. 294;
Thomson v.
Lee County, 3 Wall. 327;
Christy v.
Pridgeon, 4 Wall. 196;
Mitchell
v. Burlington, 7 Wall. 270;
Lee County
v. Rogers, 7 Wall. 181;
Butz v.
City of Muscatine, 8 Wall. 575;
City v.
Lamson, 9 Wall. 477;
Olcott v.
Supervisors, 16 Wall. 678;
Supervisors
v. United States, 18 Wall. 71;
Boyce v.
Tabb, 18 Wall. 546;
Township
of Pine Grove v. Talcott, 19 Wall. 666;
Elmwood
v. Marcy, 92 U. S. 289;
State Railroad Tax Cases, 91 U.
S. 617;
Ober v. Gallagher, 93 U. S.
199;
Ottawa v. Perkins, 94 U. S.
260;
Davie v. Briggs, 97 U. S.
628;
Fairfield v. County of Gallatin,
100 U. S. 47;
Oates v. National Bank, 100 U. S. 245;
Douglas v. Pike County, 101 U. S. 677;
Barrett v. Holmes, 102 U. S. 651;
Thompson v. Perrine, 103 U. S. 806;
S.C., 106 U. S. 589.