bonds were delivered to Tod & Co. October the railway company was not authorized un 19, 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. Of the remainder of the bonds, 500 were held by the Manhattan Trust Company as collateral to the $250,000 subscribed by Garretson and Hedges to the underwriter's agreement, and had been shipped to the Union Loan & Trust Company by the Manhattan Trust Company by direction of Garretson, December 2, 1890. And $933,000, which had been lodged in These bonds for $1,433,000 were sent to The railroad was sold under the foreclos- 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 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. from [488] The Pacific Short Line Bridge Company was a corporation of Iowa, organized for the purpose of constructing a bridge across the Missouri River at Sioux City, as a part of the Nebraska and Western enterprise. Its stock was divided into 20,000 shares of $100 each, which were issued November 13, 1891, in four certificates of 5,000 shares each, in the name of "A. S. Garretson, trustee," and these certificates were delivered by Garretson, November 19, 1891, to Tod & Co., who, on December 14, delivered them to the Manhattan Trust Company as trustee under the mortgage of the Sioux City, O'Neill, & Western Railway Company, pursuant to the million-dollar-loan agreement of October 1, 1891. The bridge company had executed a 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 appear that any had been negotiated. Garretson testified that the purpose of the $1,500,000 loan was to take up the million-dollar loan and to get "additional funds with which to carry on the construction of the bridge to a point where we could get money the bonds of the bridge to complete 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 Company, 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 securities and agreed to give its notes therefor, 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 secure the payment of said notes. The notes were to provide, and when issued did provide, 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 December 30, 1892, between Garretson and | The Union Debenture Company was a cor that company, which recited that the notes were to be secured by the 2,340 Sioux City, O'Neill, & Western bonds and 14,200 shares of the Sioux City & Northern stock, by an indenture of trust with Tod & Co. December 31, Garretson entered into this indenture of trust whereby he pledged the said bonds and stock to Tod & Co. as trustees for the equal and pro rata benefit and security of all the holders of the notes, it being provided that if default should be made in the payment of the principal or interest of any of the notes, the trustee, on request, might declare the [489] principal and interest due and sell the bonds and stock at public auction, and that the holders might appoint a purchasing trustee, in whom, if he bought at the sale, the right and title to the bonds and stock [should vest] in trust for all the note holders in proportion to the amounts due them respectively. The note holders were given certain options, and Garretson agreed to pay the debenture company three and a half per cent commission. As already set forth, Tod & Co. then held the 2,340 bonds and 7,200 shares of Sioux City & Northern stock. Of the remaining 7,000 shares of this stock to be pledged under the agreement, 6,190 shares were delivered to Tod & Co. by Garretson in December, 1892, in New York, and certificates for 1,000 shares were sent to Tod & Co. by Smith, secretary, January 16, 1893. All these shares were transferred by members of the syndicate. In March, 1893, Tod & Co., as authorized by the indenture of trust, at the request of Garretson, released and delivered to the poration of New Jersey, with a capital stock of $300,000 and over $800,000 of assets, and had issued and had outstanding $500,000 of twenty-year debenture bonds, which had been sold mainly in England, Scotland, and Holland. Tod & Co. owned one third of the capital stock, and the business of the company was transacted through Tod & Co. as brokers. The notes in question, except about $40,000 retained by the debenture company, were sold by them as brokers to various persons, including $590,000 to parties abroad and $500,000 to the Great Northern Railway Company, but Tod & Co. took no part of the loan. The commission of three and one-half per cent, $52,500, was paid to the debenture company by Tod & Co. The remainder of the proceeds of the $1,500,000 loan, after the discharge of the million-dollar loan, the payment of the commissions, and of a temporary loan of $30.000 to Garretson, was paid over on Garretson's drafts, to the Union Loan & Trust Company, to be applied to the payment of bridge estimates and to the credit of Hornick, trustee. About $200,000 was applied on bridge account. All the members of the syndicate were parties to the agreement by which the bonds and stock in controversy were sold to the bridge company, and knew of the use Garretson proposed to make of the notes and securities. They did not repudiate the transaction, and never made any complaint or gave any notice to Tod & Co. that Garretson was wrongfully pledging the collateral. Tod treasurer of the Great Northern Railroad & Co. rendered full accounts of the two loans Company 3,600 shares, which Garretson had sold to that company for $350,000 in cash, all of which was received by Garretson. W. S. Tod testified that his firm supposed the proceeds of this sale were to be applied towards the construction of the bridge, and the evidence tended to show that the money was paid over to the Union Loan & Trust Company to be applied in payment of notes of the syndicate. The notes for the $1,500,000 were executed and indorsed by Garretson, and the transaction closed, January 30, 1893, and on that date the Union Debenture Company turned over to Tod & Co. $1,507,500, being principal with accrued interest, and thereupon Tod & Co. paid off the million-dollar loan with accrued interest, $1,004,833.33. They thus released the $2.340.000 Sioux City, O'Neill, & Western bonds, the 18,000 shares of Sioux City & Western stock, and 7,200 shares of Sioux City & Northern stock, and delivered to themselves as trustees under the indenture of trust the bonds, 10,200 shares of Sioux City & Northern stock and also 4,000 of the latter stock; and certified and delivered the bridge notes to the debenture company. [490] *These notes contained the provision that they might be declared due on default in payment of interest or principal, and that they were secured by the indenture of trust of December 31, 1892, and the deposit of the bonds and stock as collateral. to Garretson, which were sent by him to Garretson was a prominent man in bank- The Tods testified that they knew nothing of the dealings between the Manhattan Trust Company and the improvement company, or of the loan transactions of the improvement company, and had no connection therewith; that they had no knowledge or notice of any claims of the Union Loan & Trust Company to these securities at or before the time they were pledged to secure either the loan for $1,000,000. or the loan for $1,500,000, and the first information they had of any such claim was after default had been made in the payment of interest on the latter loan. The interest on the notes was payable July 1, 1893, and January 1, 1894, and the interest due July 1, 1893, not having been paid, and the default having continued for thirty to repledge the same as security for further days, Tod & Co., on a request of a majority of advances." That "the fair inference from the note holders, declared the principal due, the entire evidence is that the trust company and advertised the securities for sale on consented to the repledging of these securi September 19, in accordance with the indenture of trust, due notice being given, which sale was adjourned to September 26, at the instance of the creditors of the Union Loan & Trust Company, when the sale took place, and Tod & Co. bought the securities as purchasing trustees, thereto duly appointed, and held the same for the benefit of the holders of the notes. Certificates were issued by Tod & Co. as such purchasing trustees that they so held the securities and that each of the note holders was entitled to a three-hundredth part interest for every $5,000 note deposited. After the interest had defaulted Tod & Co. were interviewed on behalf of some of the creditors of the Union Loan & Trust Company, and an offer to pay the defaulted interest was made on condition that such creditors should be put in control of the board of directors of the Sioux City & Northern Railroad Company, but with this condition Tod [492]& Co. were without "authority to comply, and the creditors committee declined to pay. No money was tendered. According to the evidence of the Tods it was then, for the first time, that Tod & Co. received any intimation that their right to hold the securities was questioned by the Union Loan & Trust Company or its cred itors. The circuit court entered a final decree authorizing the redemption of the securities by the intervener on payment to Tod & Co., as trustees, of the sum of $1,500,000, with interest thereon from December 30, 1892, computed with semiannual rests, to the date of payment. The opinion is reported 65 Fed. Rep. 559, and it appears therefrom that District Judge Shiras, by whom the cause was heard, held that the transactions prior to the million and a half loan could not be passed on, but that the inquiry at issue was to be determined by considering the contracts under which Tod & Co. obtained possession of and claimed title to the 10,600 shares of Sioux City & Northern stock, and the $2,340,000 of Sioux City, O'Neill, & Western bonds held by them. After a brief review of the formation of the syndicate and its dealings with the Union Loan & Trust Company, the conclusion was drawn "that the trust company, as against the members of the syndicate, is entitled to the benefit of the securities which were placed in its possession, and upon the faith of which it may be assumed it indorsed the syndicate paper," but that it was fairly deducible from the evidence that "the trust company parted with the possession of the securities, knowing that it was intended to rehypothecate them," and that "it is not now open to the trust company to repudiate the acts of its secretary and treasurer in regard to these securities, by whose action in placing the same in the possession and under the control of Garretson the latter was enabled ties, in order that further funds might be procured for carrying on the work in question, but by so doing it did not abandon its "lien upon or equity in the securities, but [493] only subordinated its rights to those created by the repledging of the securities." That the sale of the securities by Tod & Co. under the provisions of the trust agreement of December 31, 1892, did not devest the trust company, or its assignee, of the junior lien on the securities, and that its right to redeem remained because the $1,500,000 of notes were not purchased in the ordinary course of business, nor in fact issued by the bridge company in connection with its business, but made at the dictation of the syndicate on the suggestion of Tod & Co., and operated as a fraud on the bridge company; that the use of its name was in reality a matter of form merely, and was so understood; and that the transaction must be considered as a loan to the syndicate, secured by a pledge of the collateral, which lien was superior to that existing in favor of the trust company. The suggestion as to usury was dismissed on the ground that in any view equity required the payment of the sums advanced with interest, and no offer to do this was made by the intervener. From the decree the intervener prosecuted an appeal to une circuit court of appeals for the eighth circuit, assigning as error, in substance, that the circuit court erred in not finding that intervener had a prior lien; that the securities were wrongfully taken from the Union Loan & Trust Company, and that defendants were not bona fide holders and took with notice; that the loans were usurious and void, and defendants, therefore, unable to hold the securities as against the intervener. Defendants also appealed from the decree, assigning as error the failure of the court to sustain objections to certain evidence; the allowance in the final decree of leave to intervener to file his second amended petition; and the award of redemption. The cause was heard in the court of appeals by two circuit judges, and the decree affirmed by an equal division; but on a petition for rehearing by the intervener an opinion was filed from which it appeared that both judges were agreed that appellees' lien [494] on the securities was paramount to any claim of intervener, but that they were divided on the question whether or not the right of redemption was cut off by the auction sale under the loan agreement. The intervener then applied to this court for a writ of certiorari, which was granted. Messrs. John C. Coombs, Henry J. Taylor, and William Faxon, Jr., for appellant: An equitable lien may be created by agreеment of the parties. Walker v. Brown, 165 U. S. 654, 664 41 L. : 1 ed. 865, 871; Fourth Street Bank v. Yardley, 165 U. S. 634, 41 L. ed. 855; Ketchum v. St. Louis, 101 U. S. 306, 25 L. ed. 999; Pinch v. Anthony, 8 Allen, 536. Such equitable liens do not depend upon the possession of the property, but are founded upon the contract of the parties, which may be either oral or in writing. Nichols v. Hudgins, 19 U. S. App. 144, 58 Fed. Rep. 490, 7 C. C. A. 335; Hovey v. Elliott, 118 Ν. Υ. 124. The Union Loan & Trust Company, as well in its receipt of these collateral securities as in the agreement so to receive them in pledge and trust, became a trustee in interest, vested with a legal, or entitled to an equitable, lien and trust to protect its indorsement, and for the benefit of all parties, that might be come holders of these syndicate notes. Morrill v. Morrill, 53 Vt. 74, 38 Am. Rep. 659; Kramer and Rahms's Appeal, 37 Pa.71; Ijmes v. Gaither, 93 N. C. 363; Heath v. Hand, 1 Paige, 329; Clark v. Ely, 2 Sandf. Ch. 166; Woodville v. Reed, 26 Md. 181. The discharge of the surety by any cause will not bar the creditor's right. Cullum v. Branch Bank, 23 Ala. 797; Helm v. Young, 9 B. Mon. 394; Crosby v. Crafts, 5 Hun, 327; Roberts v. Colvin, 3 Gratt, 359; Eastman v. Foster, 8 Met. 19. After a trust of this kind has been created, it cannot usually be defeated without the consent of the parties in interest, unless it be by a conveyance to a bona fide purchaser without notice. Capehart v. Dettrick, 91 N. C. 344; Jones, Mortg. § 387. Assent or knowledge on the part of the creditor is not necessary to perfect the trust. The transaction being for his benefit, his assent will be presumed. Baltimore & O. R. Co. v. Trimble, 51 Md. 99; Moses v. Murgatroyd, 1 Johns. Ch. 119, 7 Am. Dec. 478. It makes no difference that the creditor did not act upon the credit of such security in the first instance, or even know of its existence. Curtis v. Tyler, 9 Paige, 432; Kramer's Appeal, 37 Pa. 71; Re Jaycox, 7 Nat. Bankr. Reg. 314, 8 Nat. Bankr. Reg. 253. Property given to a surety for the payment of a debt is held by such surety in trust for the creditor. Kelly v. Herrick, 131 Mass. 374. There was a trust created in its favor as payee of the note, which was imposed upon the surety. Aldrich v. Blake, 134 Mass. 585. U. S. 362, 42 L. ed. 198; Wenlock v. River Dee Co. L. R. 10 App. Cas. 354; Ex parte Watson, L. R. 21 Q. B. Div. 301; Bank of United States v. Owens. 2 Pet. 527, 7 L. ed. 508; Gibbs v. Consolidated Gas Co. 130 U. S. 412, 32 L. ed. 985; Miller v. Ammon, 145 U. S. 426, 36 L. ed. 762; Pratt v. Short, 79 N. Y. 437, 35 Am. Rep. 531; Blasdel v. Fowle, 120 Mass. 447; Cincinnati Mut. Health A8sur. Co. v. Rosenthal, 55 111. 85; 27 Am. & Eng. Enc. Law, pp. 943, 945, 946; Tiffany v. Boatman's Sav. Inst. 18 Wall. 375, 21 L. ed. 868. The contracts further offend against the statutory policy of Iowa, and against good faith everywhere. Ottumwa Screen Co. v. Stodghill, 103 Iowa, 437; Murphy's Application, 51 Wis. 519; Moore v. Marshalltown Opera-House, 81 Iowa, 45; Hammond v. Hastings, 134 U. S. 401, 33 L. ed. 960. The contract into which the bridge company seemingly entered was ultra vires and contrary to the policy of the state of Iowa. Buckeye Marble & F. Co. v. Harvey, 92 Tenn. 115, 18 L. R. A. 252. To recover upon paper which has been diverted from its original destination and fraudulently put in circulation, the holder must show that he received it in good faith, in the ordinary course of business, and paid for it a valuable consideration. Thompson v. Sioux Falls Nat. Bank, 150 U. S. 231, 37 L. ed. 1063; Brooklyn City & N. R. Co. v. National Bank of the Republic, 102 U. S. 14, 26 L. ed. 61; Canajohurie Nat. Bank v. Diefendorf, 123 N. Y. 191, 10 L. R. A. 676; Paton v. Coit, 5 Mich. 505; Bank of United States v. Owens, 2 Pet. 527, 7 L. ed. 508. The doctrine of estoppel is applied to pro mote justice and fair dealing, never to aid a fraudulent purpose. Royce v. Watrous, 73 N. Y. 597. The doctrine of estoppel in pais rests upon equity, good conscience, and honest dealing. Wilcox v. Howell, 44 N Y. 398. The parties and their privies only are bound by, or can take advantage of, an estoppel. 7 Am. & Eng. Enc. Law, p. 23; 2 Pom. Eq. Jur. 2d ed. § 813. The Federal courts sitting in Iowa, in a case brought by an Iowa assignee for the re covery of the assets of an assigned estate, are bound to follow the supreme court of the state of Iowa in construing the assignment laws of that state. South Branch Lumber Co. v. Ott, 142 U. These syndicate securities were partner- S. 627, 35 L. ed. 1136; Union Nat. Bank v. ship property primarily applicable to rail- Beach, Trusts, § 254; Case v. Beaure- The holder of negotiable security must have taken it in good faith and due course of an actual business transaction, in order to be entitled to hold it, either absolutely or conditionally, as against an antecedent lienor from whose possession the security was wrongfully diverted. California Nat. Bank v. Kennedy, 167 Bank of Kansas City, 13C U. S. 235, 34 L. ed. 341; May v. Tenney, 148 U. S. 60, 37 L. ed. 368; Etheridge v. Sperry, 139 U. S. 266, 35 L. ed. 171: German Sav. Bank v. Franklin County, 128 U. S. 526. 32 L. ed. 519. When one who is entitled to a lien only, withholds under a claim of absolute ownership, property to which a demandant would be entitled but for the lien, and fails to maintain the ownership claimed, he must surrender the property. Boardman v. Sill, 1 Campb. 410. note; Legg v. Willard, 17 Pick. 140: Meral v. The question thus presented is not whether the act in general, or in its application to the many other cases to which it is obviously addressed, is unconstitutional, but whether the agreement here under consideration is one that may be prohibited by legislation without infringing the freedom of contract and the right of property, which the Constitution declares and protects. The record before the court conclusively establishes the fact that the agreement here in question was designed and intended and is necessary, as determined by long practical experience, to the maintenance of just and reasonable rates, and to the proper discharge of the business of the companies. And in the Trans-Missouri Case, where the contract under consideration was similar to the one here in controversy, though far more open to the objections here urged, it was conceded, both in the majority and miLority opinions of the court, that its substantive character and purpose were such as the answers in the case aver and set forth. It was for this reason believed by the minority of the judges that it could not have been the intention of Congress that such a contract should be made a penal offense. But it was held by the majority that the language of the act admitted of no other construction, though it was conceded in the opinion of the court that the arguments against that conclusion "bear with much force upon the policy of an act which should prevent a general agreement of rates among competing railroad companies, to the extent simply of maintaining those rates which were reasonable and fair." And in the opinion of the minority of the court, by Mr. Justice White, he remarks, after stating the general features of the contract: "I content myself with giving this mere outline of the contract, and do not stop to demonstrate that its provisions are reaserable, since the opinion of the court rests upon that hypothesis." The accuracy of the statement we have made above, of the legal effect upon this case of the Anti-Trust Act as so construed, is thus both established and conceded. And the question distinctly arises whether legislation having such result is within the power of Congress. The operation of the act as thus interpreted does in fact, by prohibiting the contract here in question, deprive the defendants, whether rightfully or not, of both liberty and property to a very grave and perhaps ruinous extent. A just freedom of contract in lawful business is one of the most important rights reserved to the citizen under the general term of "liberty," for all human industry depends upon such freedom for its fair reward. The use of property is an essential part of it, and when abridged the property itself is taken. Its use is abridged when the owner is precluded from any contract that is necessary or desirable in order to secure to him a just compensation for its employment. And when any class in the community is 80 precluded it is to that extent "deprived of the equal protection of the laws." 171 U. S. U. S., Book 43. 18 These are elementary propositions in con stitutional law, and have often been asserted by this court. Pumpelly v. Green Bay & M. Canal Co. 13 Wall. 166, 20 L. ed. 557; Stone v. Farmers' Loan & T. Co. 116 U. S. 307, 29 L. ed. 636; Chicago, M. & St. P. R. Co. v. Minnesota, 134 U. S. 459, 33 L. ed. 982, 3 Inters. Com. Rep. 209; Reagan v. Farmers' Loan & T. Co. 154 U. S. 397, 38 L. ed. 1023, 4 Inters. Com. Rep. 360. The only authority of Congress over the agreement in controversy is such as may be deduced from its power "to regulate commerce," and is limited by the reasonable necessities of such regulation. As contracts of this sort are not in themselves wrongful, have never before been held or deemed unlawful, and have been customary in all kinds of business in which they have been found useful, the right to prohibit them, if it exists at all, must arise under what is called the police power. But the general power of police regulation is not vested in Congress. It is reserved to the states. United States v. E. C. Knight Co. 156 U. S. 11, 39 L. ed. 329. No exercise of the police power, whether the authority on which it rests is general or special, can be allowed to infringe rights secured by the Constitution of the United States. No public good can be attained and no public necessity relieved by unconstitutional means. New Orleans Gas Co. v. Louisiana Light & H. P. & Mfg. Co. 115 U. S. 661, 29 L. ed. 521; Walling v. Michigan, 116 U. S. 446, 29 L. ed. 691; Mugler v. Kansas, 123 U. S. 661, 31 L. ed. 210. There is no case known to English or American law, in which any man can maintain a claim that the use of property should be furnished or services performed for him at less than a reasonable compensation, unless under a specific contract for a less sum. Railway companies, though creations of the legislatures, from which they derive their powers and to whose enactments they are subject, are no exception to this rule. Though the legislatures may regulate and to a reasonable extent prescribe their rates, it has been repeatedly held by this court, and is now fully settled, that they cannot be reduced below a just and reasonable amount, fixed in view of all the circumstances of the case. Reagan v. Farmers' Loan & T. Co. 154 U. S. 362, 38 L. ed. 1014, 4 Inters. Com. Rep. 560; Chicago, M. & St. P. R. Co. v. Minnesota, 134 U. S. 459, 33 L. ed. 982, 3 Inters. Com. Rep. 209; Stone v. Farmers' Loan & T. Co. 116 U. S. 307, 29 L. ed. 636. The true test of the constitutionality of a law which abridges the freedom of contract must necessarily be found in the reasonableness and justice of the contract abridged. The legislature cannot create restrictions upon the freedom of contract which the established rules of law and dictates of justice do not justify, and which result in tak 273 |