Company of Iowa, in which action E. H. derstanding or agreement between the syndi
Hubbard as assignee of the Union Loan & cate and the company that the syndicate
Trust Company filed an intervening petition should deposit with the company, as collat-
against J. Kennedy Tod & Co., and the de- eral security for said notes, the stock and
cree of the Circuit Court authorized the re- bonds of the Sioux City & Northern Railway
demption of certain securities by the inter- Company when issued; that the syndicate
vener on payment to Tod & Co. of a certain caused the corporation to issue the mortgage
sum with interest. Affirmed.
described in the original bill; and that the
bonds and stock of the corporation were held
by the company "as collateral security for
the payment of the notes with the proceeds
whereof the said railroad has been construct-
ed and equipped as aforesaid."

See same case below, 65 Fed. Rep. 559.

Statement by Mr. Chief Justice Fuller: The Manhattan Trust Company of New York filed its bill, on September 28, 1893, in the circuit court of the United States for the northern district of Iowa, against the Sioux City & Northern Railroad Company [475] of Iowa, praying for the appointment of a receiver to take possession of the railroad and its properties and to operate and preserve the same, under and by virtue of the terms of a trust deed made and executed by the Sioux City & Northern Railroad Company to the Manhattan Trust Company, January 1, 1890, to secure an issue of bonds to the amount of $1,920,000.

October 5, 1893, receivers were appointed, and on the same day E. H. Hubbard, as assignee of the Union Loan & Trust Company, a corporation of Iowa, filed in said cause an intervening petition against the members of the banking firm of J. Kennedy Tod & Co. of New York, praying in respect of 10,600 shares of the capital stock of the Sioux City & Northern Railroad Company, and $2,340,000 in first-mortgage bonds of the Sioux City, O'Neill, & Western Railway Company, a corporation of Nebraska, held by J. Kennedy Tod & Co., an injunction against the disposition thereof, an accounting of what sums J. Kennedy Tod & Co. had advanced in good faith on said securities, and the surrender by them of the collateral to the intervening petitioner on the ascertainment of the sums so advanced and constituting a lien thereon.

That afterwards the syndicate lent its aid to the Wyoming-Pacific Improvement Company, a Wyoming corporation engaged in the construction of the Nebraska & Western Railroad, a line of road extending westward from Sioux City to the town of O'Neill, in the state of Nebraska, and that said syndicate also extended its aid and assistance to other corporations in and about Sioux City, such as the Pacific Short Line Bridge Company, the Union Stock Yards Company, the Sioux City Terminal Railroad & Warehouse Company, and the Sioux City Dressed Beef & Canning Company, with a like understanding between the syndicate and the Union Loan & Trust Company that the securities of the respective companies coming into the possession of the syndicate should be deposited with the Union Loan & Trust Company as collateral to the notes which the members of the syndi cate might give to that company on behalf of the enterprises respectively.

And also that the syndicate organized the corporation known as the Pacific Short Line Bridge Company to construct a bridge across the Missouri River at Sioux City for the purpose of connecting said railroads, the stock of said company to belong to the Nebraska Company.

It was further averred that the syndicate acquired the ownership of all the bonds of J. Kennedy Tod, W. S. Tod, and Robert the Nebraska & Western Railway Company, S. Tod, composing the firm of Tod & Co. ob- and that they became subject to the lien of jected to the jurisdiction, but answered No- the Union Loan & Trust Company; yet that vember 16, 1893, and about the 1st of Janu-A. S. Garretson, *on or about October 1, 1891, [477] ary, 1894, petitioner filed an amended peti- without any apparent record or other authortion, to which defendants filed a supplement-ity from the Union Loan & Trust Company, al answer, and petitioner, a replication.

The intervening petition and amendments averred that the Union Loan & Trust Company was a corporation of the state of Iowa, organized in the year 1885, and thereafter engaged in carrying on a loan and trust business up to and until April 25, 1893, when it made a general assignment of all its property and assets to E. H. Hubbard of Sioux City, Iowa.

That on July 3, 1889, A. S. Garretson, John Hornick, J. D. Booge, Ed. Haakinson, and D. T. Hedges entered into an agreement in writing, referred to as a railroad syndicate agreement, for the construction of the Sioux City & Northern Railroad, which construction was proceeded with and from time to time the individual members of the syndi[476]cate executed and *delivered their respective notes to the Union Loan & Trust Company in various sums, which notes that company sold to various bankers and brokers throughout the United States; that there existed an un

caused all of the Nebraska & Western bonds and 7,200 shares of Sioux City & Northern Railroad stock to be transferred to Tod & Co. as security for a loan of one million dollars, but that Tod & Co. were chargeable with notice of Garretson's want of authority.

That the Nebraska & Western Railway was built by the Wyoming & Pacific Improvement Company, which was practically owned and controlled by the Manhattan Trust Company, and that the improvement company received stock and bonds of the Nebraska & Western Company, and delivered them to the Manhattan Trust Company, by which they were pledged, or held in trust, as security for loans negotiated and advanced by it to the improvement company, including a loan of $500,000 by Belmont & Co., all of which were outstanding when, on November 1, 1890, the improvement company collapsed, to the knowledge of Tod & Co.

That to relieve itself from impending loss, the Manhattan Trust Company, by untruth

ful representations as to the amount of the
indebtedness of the Nebraska & Western Rail-
way Company, induced Garretson to pur-
chase said loans; that Garretson thereupon
deposited $750,000 of the Sioux City &
Northern bonds with the Manhattan Trust
Company as security for relief of the matur-
ing obligations to Belmont & Co.; and that
about the same time Tod & Co. began to
make advances to Garretson on the security
of the Nebraska & Western bonds; that Gar-
retson was obliged to sell all the Sioux City
& Northern bonds at a sacrifice price of
seventy-five per cent, and to pledge all the
Nebraska & Western bonds and half of the
Sioux City & Northern stock substantially
for the value of the purchase price of the
Nebraska & Western bonds.

held by them under the loan agreement of
December 31, 1892; the surrender of the cer-
tificates to the petitioner upon an account-
ing, and the *ascertainment of what sums, if [479]
any, constituted a lien thereon; and the ap-
pointment of a receiver pendente lite.

The answers of Tod & Co. traversed the al-
legations of the petition and amended peti-
tion on which petitioner based his claim to
the securities, and particularly denied all
charges of fraud, want of good faith or no-
tice; and set forth at length the transactions
in respect of said securities on which they
claimed the title thereto or right to hold the
same. After much of the testimony had
been taken petitioner moved for leave to fur-
ther amend his petition, which motion was
held over to the hearing.

The case was heard on the merits, and, in the final decree, leave to further amend was granted. This second amended petition made the Manhattan Trust Company a party, and averred, among other things, that the loan of one million dollars, and the loan of one million and a half, were usurious, and prayed that each be declared void, and that the securities be surrendered to petitioner free and clear of any claim, right, interest, or lien of Kennedy Tod & Co.

The evidence may be sufficiently summar

That the mortgage covering said bonds was foreclosed, and the property conveyed to a new corporation called the Sioux City, O'Neill, & Western Railway Company in exchange for the issue of $2,340,000 of firstmortgage bonds, and 36,000 shares of stock; and that in the latter part of 1892, or early (478]*in 1893, Garretson, without any apparent record or other authority from the Union Loan & Trust Company, caused all of the bonds of the Sioux City, O'Neill, & Western Railway Company, and substantially all of the stock of the Sioux City & Northern Rail-ized as follows: road Company, to be vested in the Pacific Short Line Bridge Company, and the notes of the latter company, to the amount of $1,500,000, to be given to himself, and the payment hereof to be secured by the pledge of all said bonds and stock, and transferred the notes and securities to J. Kennedy Tod & Co., who, acting as trustees, but chargeable with notice, negotiated or bought the greater part of the said notes for different holders or purchasers thereof, $500,000 being taken by the Great Northern Railway, which desired to acquire the Sioux City & Northern Railroad, and with which Tod & Co. were allied. That after the failure of the Union Loan & Trust Company, a committee of its creditors, Tod & Co. having advertised the sale of the collateral pursuant to the terms of the $1,500,000 loan, there having been default in payment of interest for thirty days, offered to pay the overdue interest on certain conditions, which were refused, and the collateral was sold and bought in by Tod & Co. for $1,000,000.

The petition and amended petition contained an averment that petitioner, "as assignee of said Union Loan & Trust Company, is entitled to the immediate surrender of all and singular of said securities by said J. Kennedy Tod & Co. to your petitioner without any payment of principal or interest upon said alleged loan, or any other consideration whatsoever."

The prayer of the amended petition was: That Tod & Co. surrender to petitioner, without any terms or conditions, the collateral held by them as aforesaid, and that they be enjoined from selling or disposing of the same; for an accounting of sums advanced by Tod & Co. in good faith and without notice on account of the securities, and the disposition made by them of any other collateral

I. The Union Loan & Trust Company was organized in 1885 with a capital stock of $100,000, which was afterwards increased to $1,000,000. The purposes of its incorporation, as stated in its certificate of organization, were the loaning of money on real and personal security; the purchase and sale of securities; the negotiation of loans; and the execution of trusts; but the company was not to "purchase, nor loan its funds on the securities of any railroad company." It had a board of five directors, a president, vice president, and secretary, and by its by-laws a committee of three members on applications for loans was provided for.

November 2, 1885, George L. Joy was elected president, A. S. Garretson, vice president, and E. R. Smith, secretary, subsequently also made treasurer, and these three persons were appointed the committee on loans. They continued to hold these offices and to constitute that committee up to and until April 24, 1893, when the company made an assignment to E. H. Hubbard.

The practical management of the company's affairs was left to E. R. Smith, sec-[480] retary and treasurer, and he accepted, indorsed and discounted notes as if he were solely in charge of the business.

When individual members of the syndicate presented notes to the company, Smith accepted the notes without collateral, but claimed that this was on the understanding that securities were to be or would be thereafter deposited; and when securities, whether bonds or stock, did come to the hands of Smith as secretary and treasurer, he parted with them to Garretson, or transmitted them as requested by Garretson, constantly recognizing Garretson's right to sell or rehypothecate the same. Garretson testified to the right of the syndicate to sell or pledge the


is sold and the seller covenants that he will not thereafter carry it on, or where a man takes an apprentice with an agreement that he will not set himself up in opposition to his master in trade, supply familiar examples of this character.

Inasmuch as such contracts would not be entered into unless it was believed that the law would afford redress in case of a breach of them, the repressive purposes of the law, where they are supposed to be opposed to public policy, are, in general, fully satisfied by declaring them void and denying redress, and this is usually the extent of the notice which the law takes of them. There is no occasion for criminal legislation, both for the reason that there is not present, ordinarily, any criminal purpose, and, if there were, repression is sufficiently accomplished without a resort to it. The doctrine respecting contracts of this character belongs, therefore, to the law of contracts.

often called an agreenient, or contract; but in giving it this name we should not lose sight of its real character. In reality it is simply an act, and innocent or guilty according as the law may be inclined to regard it. It is manifest that where the law does regard it as mischievous, and to such a degree as to call for repression, it is not enough to simply declare it illegal. The practice may nevertheless be persisted in, and as it does not rely for its efficacy upon legal remedies, the mere withholding of such remedies may be ineffectual. The action, therefore, which the law usually takes in respect to such socalled contracts, is in the form of prohibition and penalty; and the subject belongs, not to the law of contracts, but to the criminal law, where it is usually dealt with under the head of conspiracy.

We do not mean by the above observations that there may not be instances which partake to a greater or less degree of the qualities of both the classes above mentioned; but the distinction between them is so constant and pervading that it will be at once recognized.

But there is another and much smaller description of contracts supposed to be injurious to trade, of quite a different character. They are not, properly speaking, business transactions. They do not involve the sale, leasing, or exchange of property, or the hire of services; nor does a breach of them usually result in distinct and ascertainable pecuniary loss. They are not, indeed, entered into by parties in different interests, as in the case of buyer and seller, one of which expects to gain something from the other, but by parties in the same interest having in The inaptitude of some of the language of view an object for the common good of all; this legislation is quite apparent. Undoubtnor do the parties to them generally look to, edly the object of Congress was to reach that or rely upon, any legal remedies to secure class of supposed mischiefs which flow from obedience to them. They spring out of cir- combinations. But the great bulk of the cumstances which impress the parties to cases in which the courts have felt called upthem with the belief that they have a com- on to say anything about contracts in remon interest, or that it is expedient to cre-straint of trade has been the business transate a common interest among them, and seek to control or regulate the conduct of each other in relation to business. Instances of this description of agreement are found where laborers or employers unite, in the form of agreement, to regulate hours of labor or prices, or where merchants or tradesmen combine to transact their business in certain prescribed ways, or to establish uniform prices for their goods, or to suppress or regulate competition among themselves; or where a class of producers or dealers combine together to control a product or a business, with a view of imposing upon others their own terms as to prices, or other incidents of the business.

As a conclusion to what is said we desire to point out that the legal doctrine and policy to which this Anti-Trust Act belongs is manifestly the one last described. The circumstance that contracts are grouped together with combinations and conspiracies, and made the subject of criminal treatment, shows this very plainly.

The marked distinction between these cases and the ordinary business transactions first spoken of is that in the latter there is a difference of interest, sometimes regarded as a hostility of interest, between the parties, each seeking to gain the utmost from the other; whereas in the former the parties are in the same interest, each seeking the same end. The term "contract" does not well express this sort of agreement. It is a uniting together for a common purpose,-a combination, or, when thought to be of an objectionable character, a conspiracy. Such unions always suppose agreement, but it need not be in writing; where it is in writing it is

actions first alluded to, in which an agree
ment has been entered into not to exercise a
particular calling,-as, where the keeper of
a well-patronized tavern sells out his estab-
lishment and goodwill, and covenants not to
further carry on the business.
Such agree-
ments at the common law have been held
valid or void according to the supposed rea-
sonableness of the covenant; but surely even
when void, there was nothing about them
calling for the intervention of the criminal
law. And yet this statute bunches the valid
and void all together, and makes them all
criminal, when probably there was not the
remotest intention to make any of them


These observations, of course, fully admit that the particular agreement or combination against which this action is aimed would be, assuming that the act covers the contracts between railroad companies, obnoxious to the penalty imposed by the act, provided it were in fact in restraint of trade or commerce between the states. That it is in fact in restraint of trade or commerce must be shown before this action can be maintained, and this is the proper subject for discussion in this action. This question is broadly open and unaffected by any decision of this court, and we expect to show that the agreement is, not only not in restraint of

the Pacific Short Line from Sioux City west- | the obligations of the improvement company
ward to O'Neill," they would raise $350,000, and the Nebraska & Western bonds, he caused
$250,000 to be loaned the improvement com- the bonds to be sold on May 27, 1891, and
pany on the security of $500,000 first-mort- June 24, 1891, pursuant to a demand made
gage bonds of the Nebraska & Western Rail- on the Manhattan Trust Company as trustee
way Co., held by the Manhattan Trust Com-and to notice given, and at the sale purchased
pany, and $100,000 certificates of the im- all the bonds of the Nebraska & Western
provement company to be assigned to the Railway Company.
syndicate by the original subscribers.

In June, 1891, Tod & Co. loaned Garretson $75,000 on $200,000 Nebraska & Western bonds as collateral.

The Manhattan Trust Company held $2,100,000 of the Nebraska & Western bonds to secure the $1,050,000 loan and, subsequently, III. October 1, 1891, Garretson entered in $483,000 more to secure other loans. to a contract with Tod & Co. to borrow one About November 1, 1890, it became neces-million dollars, which recited that Garretson sary to provide for the payment of the loan by Belmont & Co.

On that date Garretson borrowed through the Manhattan Trust Company $500,000 on his individual notes secured by $750,000 Sioux City & Northern bonds, and took up the Belmont loan of $500,000. He at the same time negotiated with the officers of the Manhattan Trust Company touching other loans to the improvement company under the underwriter's agreement to the effect that the Manhattan Trust Company should cause said loans to be renewed or placed elsewhere and that the Nebraska & Western bonds in possession of the Manhattan Trust Company should be used as collateral.

was the holder of $2,500,000, or thereabouts, of Nebraska & Western bonds; of 25,000 shares of the stock of the Nebraska & Western Railway Company, and of 7,200 shares of the stock of the Sioux City & Northern Railroad Company; that proceedings were pending for the foreclosure and sale of the Nebraska & Western Railway; and that Garretson desired to borrow money, purchase the road, form a new corporation, and obtain a new issue of bonds and stock; *and Tod [485] & Co. agreed to make or procure him a loan on these terms: Garretson to deliver to Tod & Co. his two hundred promissory notes of $5,000 each, dated October 1, 1891, and payable on demand, and to deposit as security for the equal and common benefit of all who should become holders thereof the Nebraska & Western bonds, the shares of Nebraska & Western stock, and the shares of Sioux City & Northern stock; Tod & Co. to procure the Among the transactions, Garretson bor-sale of the notes at par, and to advance rowed in February, $190,000 secured by 170 Sioux City & Northern bonds, and the equity in the 750 bonds held to secure the $500,000 loan. These loans were paid out of the proceeds of the sale of the whole issue of the Sioux City & Northern bonds, as before stated.

And January 28, 1891, Garretson entered into a written agreement with the Manhattan Trust Company for the taking up of the then outstanding notes and receiving the collateral held as security therefor.

thereon at once $200,000, if required in obtaining title, the collateral to be held by Tod & Co. for the equal benefit of the holders of the notes; on the reorganization of the Nebraska & Western Railway Company under the foreclosure, a new mortgage to be executed to the Manhattan Trust Company The testimony of Garretson was relied on to secure a new issue of bonds at the rate (484]to sustain the charge that the Manhattan of $18,000 per mile, and the whole amount of Trust Company perpetrated a fraud on him such issue, $2,340,000 and one half of the at the time he entered into negotiations to capital stock of the new company to be de assume or take up the obligations of the im-livered to Tod & Co. in the place of the Neprovement company, in the acquisition of the braska & Western bonds and stock. If the Nebraska & Western road, in that it misrep- Nebraska & Western bonds were required to resented the amount of that company's in- be deposited in court, the road was to be debtedness. The officers of the Manhattan purchased in the name of trustees, and unTrust Company positively denied any such til the new corporation was formed and new misrepresentation; and the eighth paragraph bonds and stock delivered, no more than of Garretson's contract with the Manhattan $600,000 was to be paid over to Garretson, Trust Company of January 28, 1891, de- the balance to remain to his credit with the clared: "This agreement and the settlement banking company.

The new bonds were also to be further se

herein made is in full adjustment and settle-cured by all the stock of the Pacific Bridge ment of all questions heretofore arising be- Company except such part not exceeding fifty tween the parties hereto, in reference to the shares as should be necessary to qualify said improvement company or the construc- directors. The note holders were also given tion of the Nebraska & Western Railway, and certain options, and Tod & Co. were to rethe first party agrees that his note for $500,-ceive one per cent commission for their serv000 heretofore given on taking up certain | ices. loans shall be paid at or before maturity." The notes representing this million-dollar The evidence did not show that if there had loan were not executed October 1, 1891, but been any misrepresentation, Tod & Co. had were thereafter prepared and sent to Garretany knowledge in fact thereof, though at one son at Sioux City, were there executed by time a member of the firm, now deceased, him, and were received by Tod & Co. October was a director of that trust company, and 26, Garretson being credited with the prinits counsel was also Tod & Co.'s. cipal and twenty-five days' interest.

After Garretson had become the holder of


One million of the Nebraska & Western

der the law of Nebraska to contract so large an indebtedness in excess of its outstanding bonds, and thereupon it was suggested that Garretson should sell the securities to the Pacifie Short Line Bridge Company and receive back the notes of that company for $1,500,000, to be secured by a pledge of said securities, and that Tod & Co. should negotiate a sale of these notes on the strength of the securities thus pledged.

bonds were delivered to Tod & Co. October the railway company was not authorized un19, 1891, $800,000 by the Manhattan Trust Company and $200,000 by Tod & Co.'s cashier, which had been pledged to them to secure the loan of $75,000, and these bonds [486]*were sent that day to Wickersham, Tod & Co.'s attorney and agent at Omaha, to be used in the purchase under the foreclosure. One hundred and fifty thousand dollars of the bonds had been delivered to the St. Charles Car Company, and were received by Tod & Co. October 27, and forwarded to Wickersham that day.

The Pacific Short Line Bridge Company
was a corporation of Iowa, organized for the
Of the remainder of the bonds, 500 were purpose of constructing a bridge across the
held by the Manhattan Trust Company as Missouri River at Sioux City, as a part of
collateral to the $250,000 subscribed by Gar- the Nebraska and Western enterprise. Its
retson and Hedges to the underwriter's stock was divided into 20,000 shares of $100
agreement, and had been shipped to the each, which were issued November 13, 1891,
Union Loan & Trust Company by the Man-in four certificates of 5,000 shares each, in
hattan Trust Company by direction of Gar-
retson, December 2, 1890.

the name of "A. S. Garretson, trustee," and
these certificates were delivered by Garret-
And $933,000, which had been lodged in son, November 19, 1891, to Tod & Co., who,
Tod & Co.'s custody by Garretson, had been on December 14, delivered them to the Man-
sent to the company in August, 1891, on his hattan Trust Company as trustee under the
instructions, which contained nothing to in- mortgage of the Sioux City, O'Neill, & West-
dicate that the Union Loan & Trust Com-ern Railway Company, pursuant to the mil-
pany had any claim of lien thereon, or right | lion-dollar-loan agreement of October 1,
thereto, while Tod & Co. testified that they 1891. The bridge company had executed a
supposed they were transmitted as a mere
matter of safety deposit.

These bonds for $1,433,000 were sent to
Garretson at Omaha by the Union Loan &
Trust Company, and delivered by him to

mortgage to secure $1,500,000 of bonds, but
of these only $500,000 had been certified by
the trustee, and it did not affirmatively ap-
pear that any had been negotiated. Garret
son testified that the purpose of the $1,500,-
000 loan was to take up the million-dollar
The railroad was sold under the foreclos-loan and to get "additional funds with which
ure decree October 23, 1891, and bought in
by Garretson and Wickersham as trustees
for the holders of the first-mortgage bonds
of the Nebraska & Western Railway Com-
pany, and on October 30 the entire issue,
$2,583,000, was deposited by Wickersham
with the clerk of the court, and the sale
thereupon confirmed.

The road was reorganized under the name of the Sioux City, O'Neill, & Western Railway Company, and Wickersham and Garretson as trustees conveyed the property to the new company in exchange for the issue of the bonds and stock.

Pending the issue of the engraved bonds of the Sioux City, O'Neill, & Western Railway Company, a temporary bond was issued and delivered to Tod & Co., and afterwards exchanged for the engraved bonds.

All the bonds of the company were thus pledged to secure the $1,000,000 loan with [487] the full knowledge and participation of Garretson, and of Smith, secretary and treasurer of the Union Loan & Trust Company.

Some of the notes issued under this loan were sold to various parties and some retained by Tod & Co.

It having been intimated that payment of the one million-dollar loan would be required, Garretson applied to Tod & Co. for the negotiation of a loan of $1,500,000. It was contemplated that the notes of the Sioux City, O'Neill, & Western Railway Company for that amount should be given, to be secured by the bonds of that company and the stock of the Sioux City & Northern Company, then in pledge with Tod & Co. But Tod & Co. were advised by their counsel that

to carry on the construction of the bridge
to a point where we could get money from [488]
the bonds of the bridge to complete it."

December 26, 1892, the Pacific Short Line
Bridge Company, at a meeting of its board
of directors, passed a series of resolutions
by which it agreed to purchase the bonds of
the Sioux City, O'Neill, & Western Railway
Company, and 10,200 shares of the capital
stock of the Sioux City & Northern Com-
pany, and to give therefor its promissory
notes in the sum of $1,500,000 to the order
of Garretson, dated December 30, 1892, and
to pledge said bonds and stock to Garretson
as security. Accordingly on December 31,
1892, a contract was entered into between
Garretson, Hedges, Hornick, and Haakinson
(the remaining member of the syndicate,
Booge, having failed and dropped out), and
the Pacific Short Line Bridge Company, by
which the bridge company purchased the se-
curities and agreed to give its notes there-
for, payable to Garretson's order, February
1, March 1, and April 1, 1894, bearing date
December 30, 1892, to be forwarded to Tod
& Co. to be delivered to Garretson or his
order, or held by Tod & Co. as trustees to
The notes
secure the payment of said notes.
were to provide, and when issued did pro-
vide, that on thirty days' default in payment
of interest, the principal was to become due
and payable at the option of Tod & Co., on
behalf of the holders, to be exercised on the
written request of a majority.

Tod & Co. negotiated a sale of the notes
through the Union Debenture Company, a
corporation of the state of New Jersey, which
was evidenced by a contract under date of

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