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the balance were applied with Smith's knowl- | everything belonging or appertaining to said
edge, without objection on his part, or that estate, and, generally, do whatsoever the
of any other officer or director of the trust debtor might have done in the premises."
company, to taking up notes secured thereby,
which had been given by Garretson to acquire
the Nebraska & Western bonds, which he af-
terwards pledged to Tod & Co., and which
were exchanged for the bonds of the Sioux
City, O'Neill, & Western Railroad in con-

None of the securities ever stood in the name of the Union Loan & Trust Company. And they were delivered in such form as to enable Garretson to hold himself out as the owner or lawful holder thereof, with full power of disposition.

The district judge well said [65 Fed. Rep. 564]: "It is entirely clear that E. R. Smith, the secretary and treasurer of the trust company, dealt with these securities as though he had full authority from the company so to do, and he obeyed Garretson's instructions in regard to the same without demur; and it does not appear that the trust company, or any officer thereof, ever objected to such disposition of the securities; and, furthermore, so far as the evidence in this case discloses, the general management of the business of the trust company was intrusted to Smith, with but little, if any, supervision on part of the directors or other officers of the corporation."

The truth of the matter seems to be, as the circuit court held, that, in order that the various properties represented by the stock and bonds should become valuable, it was necessary that the enterprises on which they were based should be carried through, and this required additional funds, to procure which the trust company consented to Garretson's negotiations with Tod & Co., and the debenture company, and the pledging of the urities.

[498] The presumption on the facts is that the curities were delivered by the company to Garretson for use, and, if they had ever been pledged to the company, that the pledge was discharged by the voluntary parting with possession. There is nothing to show an intention to limit the use to a hypothecation in subordination to a prior pledge, let alone the question whether any such pledge existed, and the absence of evidence of any assertion thereof.

Certainly, under the circumstances, the
company could not be allowed to set up its
alleged title as against third parties taking
in good faith and without notice. And the
same principle is applicable to its assignee
and to creditors seeking to enforce rights in

his name. So far as this case is concerned
there is nothing to the contrary in the stat-
ute of Iowa regulating assignments for the
benefit of creditors as expounded by the su-
preme court of the state. Code Iowa, title
14, chap. 7; Schaller v. Wright, 70 Iowa,
667; Mehlhop v. Ellsworth, 95 Iowa, 657.

Section 2127 of the Code provides: "Any
assignee as aforesaid, shall have as full pow-
er and authority to dispose of all estate, real
and personal, assigned, as the debtor had at
the time of the assignment, and to sue for
and recover in the name of such assignee
171 U. S.
U. S., Book 43.

Conveyances by insolvent debtors in fraud of their creditors may be attacked by their statutory assignees, though equity would not aid the debtors themselves to recover the property, for the property transferred would, in the eye of the law, remain the debtors' and pass to the assignees, who would not be subject to the rule that those who commit iniquity have no standing in equity to reap the fruits thereof. But equities or rights belonging to particular creditors are not, by operation of law, transferred to such assignees.

The trust company did not own these securities, and did not transfer them in fraud of its creditors, prior to the assignment, so as to entitle the assignee to treat the transfers as void and the securities as belonging to the company.

*And it must be remembered that this prc [499] ceeding is an attempt on behalf of the holders of railroad syndicate paper, which constituted only a portion of the liabilities of the trust company, to establish equities in the securities on the ground that they were pledged to the company to secure it against liability on its indorsements of such paper, and that these equities, if any, must be worked out through the company.

The difficulty with the contention that the trust company was bound to hold the securities for the benefit of the holders of syndicate paper; that they were not duly parted with; and that Tod & Co. took with notice of the alleged interest of the trust company, and the equities of those holders, is that it does not appear that any of the syndicate paper was taken on the strength of these particular securities; or that Smith acted otherwise than with the knowledge and assent of the directors; or that Tod & Co. had notice of any claim of the trust company or its indorsees, or of any defect in Garretson's right to dispose of the securities.

The securities were railroad bonds, payable to bearer, and certificates of stock in the names of Garretson and his associates, with transfers indorsed by them in blank; and they were, in large part, sent to Tod & Co. by the trust company, at Garretson's request, with presumably full knowledge that they were to be used as collateral to loans he was procuring, without anything to indicate that the trust company had any interest in them, or any intimation of such interest. The securities did not stand in the name of the trust company, and Garretson did not, in any of his dealings with Tod & Co., assume to act for the company. The mere fact that he was one of its officers was not in itself sufficient to call for an inference that he was acting as such in these transactions, nor did he make his requests of Smith in that capacity, nor were they complied with by Smith as on that theory.

There was no actual notice, and as the visible state of things was consistent with Garretson's right to deal with the securities as he did, such notice cannot be presumed or 17


implied. Nor do we regard the conduct of
Tod & Co. as so negligent as to justify the
application of the doctrine of constructive

[800] *The circumstances relied on as imputing
notice or requiring inquiry which would have
resulted in notice are in our judgment inad-
quate to sustain that conclusion.

which no issue could be, or was, joined, or additional testimony taken, and it was then set up, for the first time, that the loans were void because in contravention of the statutes of New York in relation to usury, and⚫ that petitioner was, therefore, entitled to reclaim the securities without compensation. The prohibition against usury of the New York laws (N. Y. Rev. Stat. Banks Bros.' 7th ed. p. 2253) could not be interposed by corporations as A defense (Id. p. 2256; Laws 1850, chap. 172), nor could the indorsers of their paper plead the statute (Union National Bank v. Wheeler, 60 N. Y. 612, 96 U. S. 268 [24: 833]; Stewart v. Bramhall, 74 N. Y. 85; Junction Railroad Co. v. Bank of Ashland, 12 Wall. 226 [20: 385]); nor did it apply to demand loans of $5,000 or upwards, secured by collateral. Laws 1882, chap, 237, § 1; Laws 1892, chap. 689, § 56.

Thus, it is said that because the Nebraska & Western bonds were overdue, and the mortgage in process of foreclosure, they were not negotiable and were taken subject to the alleged lien of the trust company. But they were assignable choses in action susceptible of being pledged, and were pledged to Tod & Co. until through the foreclosure and reorganization the new securities were substituted. As we have seen, the power of disposition had been lodged in Garretson by, or with the assent of, the trust company, and no secret equity could be set up by the latter. So as to the fact that some of the shares of Sioux City & Northern stock delivered to Tod & Co. under the agreement of December 31, 1892, stood in the name of "A. S. Garretson, Trustee," the evidence disclosed that this stock belonged to Booge, one of the original members of the syndicate, and that he, having failed, had consented it should be put out of his name and held in trust, and that at this time there were no notes furnished by Booge to the syndicate outstanding. The trust company had no greater interest in this stock than in any other, and the word "trus-er, was a party to the record. We think the tee" was not intended to give, and did not give notice of any rights claimed by the trust company.

Again, elaborate argument is devoted to the point that Garretson was induced to assume the Nebraska & Western enterprise by false representations by the Manhattan Trust Company as to the condition of the improvement company; and that this led him to pledge the securities which he should have left with the Union Loan & Trust Company.

Apart from these considerations, the circuit court disposed of this contention on the ground that the petitioner, in order to any relief in equity, would be compelled to pay the sums advanced and interest, but had not tendered or made any offer of payment. This assumed that the point might have been passed on, if there had been such tender or offer, notwithstanding the trust company was not a party to the contract of loan, and neither the bridge company, nor Garretson, nor any member of the syndicate, nor the debenture company, nor any other loan hold

court was right if the question was properly before it. This was not a proceeding to enforce an alleged usurious agreement, but it was petitioner who sought the affirmative [502] aid of equity, which he could only obtain by doing equity. It is true that by a statute of New York (N. Y. Rev. Stat. 7th ed. 2255; Acts 1837, chap. 430, § 4), it is provided that whenever a borrower files a bill for relief in respect of violation of the usury law, he need not pay or offer to pay "any interest or principal on the sum or thing loaned;" but this in-act has been rigidly confined to the borrower himself (Wheelock v. Lee, 64 N. Y. 242; Buckingham v. Corning, 91 N. Y. 525; Allerton v. Belden, 49 N. Y. 373); and, moreover, is not applicable to suits brought in courts not within the state of New York.

It is further urged that the transaction with the bridge company was ultra vires, and that, this being so, the securities should have been awarded petitioner free and clear from any condition whatsoever.

While we must not be understood as timating in any degree that this charge of misrepresentation was made out, or, if it were, that Tod & Co. were cognizant thereof, it is enough that we are not satisfied that the transactions complained of involved notice of the claim of the trust company now set up. But we do not feel called on to do more [501]than allude to these matters. Tod & Co. held the securities under the $1,500,000 loan in trust for the purchasers of the notes there- The circuit court held that the bridge comunder issued, and neither the debenture company did exceed its powers, and that the pany, through which the transaction was made, and which holds a few of the notes, nor any other of the beneficiaries, was before the court. Nor was Garretson, nor any member of the syndicate, nor any holder of part of the million-dollar loan, other than Tod & Co., a party to the record.

The circuit court correctly held that the prior transactions could not be overhauled under such circumstances; and applied the same principle to the last loan as well.

By the final decree petitioner was permitted to file a second amended petition, on

matter must be treated as if that company had not been interposed as an actor in the transaction. Relief to the extent of redemption was on that account accorded, yet it was limited to that because there was nothing in the invalidity of the action of the bridge company which gave the trust company any greater right to the securities than it had before. The bridge company was not a party to the proceeding, and, indeed, if it had itself instituted suit for the cancelation of its notes, it could not have demanded pos session of the securities. Clearly the trust

score of the public good,-the maintenance of just and reasonable rates,-but must result in an infringement of the liberty and property of the defendants, to a degree far beyond what is necessary to that end, and in no way conducive to it.

Whatever the merits of the agreement in question may be, no case for an injunction is presented.

Even though the authority to make the decree sought exists, the bill is insufficient to invoke it.

Story, Eq. Pl. § 271, note; Id., § 27a, note; Campbell v. Mackay, 1 Myl. & C. 618.

Mr. George F. Edmunds, for the Pennsylvania Railroad Company, appellee: Before the agreement in question was made the rates of each road had been independently and fairly established by itself, and duly filed with the Interstate Commerce Commission; and these rates were in truth just, reasonable, and in conformity with law in every respect, and were in full operation. This is admitted by the pleadings.

and charges, and the rules applicable thereto, now in force and authorized by the companies parties hereto upon the traffic covered by this agreement (and filed with the Interstate Commerce Commission as to such of said traffic as is interstate), are hereby reaffirmed by the companies composing the association, and the companies parties hereto shall, within ten days after this agreement becomes effective, file with the managers copies of all such schedules of rates, fares, and charges, and the rules applicable thereto."

This section is the immediate and affirmative act of the association. Its essence is that all parties agree to abide by the preexisting just, reasonable, and lawful rates then on file with the Interstate Commerce Commission. It has not been contended by the learned Solicitor General that this section is contrary to law. It is submitted with confidence that no such contention can be nade, and that if the association agreement had stopped there, the agreement would have been simply one to stand by just and reasonable rates independently fixed, on file with the Interstate Commerce Commission, which would be agreeing to do the very thing that the plain words of the statute commanded should be done. The commerce law does not demand competition; it only demands justice, reason, and equality. Every one of its clauses is devoted directly to these ends; and the competition that produces departure from the reason and justice and equality that the act requires violates the essential principle upon which it is co-founded.

This being true, these rates could not have been either raised or lowered, under the existing conditions, without injustice to patrons or else injustice to those interested in the roads, including the people along their lines, as well as through shippers.

To have changed any of them would have been against justice and reason, disobeying the first commandment of the commerce law. In this state of things the agreement, was made. The preamble contains five distinct declarations as follows:

(1) To aid in fulfilling the purposes of the Interstate Commerce Act; (2) to operate with each other and adjacent transportation associations; (3) to establish and maintain reasonable and just rates, fares, rules, and regulations on state and interstate traffic; (4) to prevent unjust discrimination, and to secure the reduction and concentration of agencies; (5) and the introduction of economies in the conduct of the freight and passenger service.

Every one of these declarations is admitted to have been true in all respects; and it is admitted that there was no other purpose, and no secret or covert design in respect to the subject. The preamble thus be came, certainly as between the parties to it, the constitutional guide in the interpretation of the body of the contract.

The parties next declare that they "make this agreement for the purpose of carrying out the objects above named."

The first six articles of the contract provide for organization and administration, in respect of which no criticism has been sug gested except as to 5 of article 5 in connection with the Solicitor General's contention in regard to article 7.

Article 7 is the first one that is assailed in respect of its fundamental character. It is the fundamental one in regard to rates. If it violates law it is bad, and must not be put in execution. If it provides for the fullest obedience to law and promotes trade, it must be upheld.

I take it to be plain that if these thirtyone defendants had united in an engagement to truly and faithfully adhere to and carry out in their respective conduct all the requirements of the commerce law, and had agreed to the imposition of penalties for infraction, it would be manifest that they had not contracted to restrain trade, either in a general or a partial sense, or in any sense whatever. In this first provision of the agreement, they have engaged to do that very thing, and that very thing only, in the form of specific language referring to a specific and existing just, reasonable, and lawful state of things which they were then acting upon.

Section 2, of article 7 is the one upon which the principal assault of my learned brother on the other side is made. He maintains that the language used in describing the powers and duties of the managers is intended to be evasive and to conceal its real purpose, and to make the managers the absolute masters, subject to an appeal to the board of control (being the presidents of all the roads), of the changing and fixing of future rates. The first answer to this is that the pleadings distinctly admit that there was no evasive intention, or any other unjust purpose, in any part of the arrangement. It is therefore not just to maintain what the record admits to be untrue. But whatever construction or implication

The first section provides: "Section 1. The duly published schedules of rates, fares, may exist in respect of the language of this 171 U. S.


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fic, to prevent unjust discrimination, and to secure the reduction and concentration of agencies and the introduction of economies in the conduct of the freight and passenger service." To accomplish these purposes the railroad companies adopted articles of asso

3. Congress has the power to forbid any agree ment or combination among or between com peting railroad companies for interstate commerce, by means of which competition is preciation, by which they agreed that the affairs


4. The constitutional freedom of contract in the use and management of property does not Include the right of railroad companies to combine as one consolidated and powerful as sociation for the purpose of stifling competition among themselves, and of thus keeping their rates and charges higher than they might otherwise be under the laws of competition, even if their rates and charges are reasonable.

5. The statute under review is a legitimate exercise of the power of Congress over inter state commerce, and a valid regulation there.


of the association should be administered by several different boards, and that it should have jurisdiction over all competitive traffic (with certain exceptions therein noted) which passed through the western termini of the trunk lires (naming them), and such other points as might be thereafter designated by the managers. The duly published schedules of rates, fares, and charges, and the rules applicable thereto, which were in force at the time of the execution of the agreement and authorized by the different companies and filed with the Interstate Commerce Commission, were reaffirmed by the companies composing the association. From time to time the managers were to recommend such changes in the rates, fares, charg es, and rules as might be reasonable and just and necessary for governing the traffic covered by the agreement and for protecting the interests of the parties to the agreement, and a failure to observe such recommendations by any of the parties to the agreement Decided was to be deemed a violation of the agreement. No company which was a party to it was permitted in any way to deviate from or

6. An agreement of railroad companies which directly and effectually prevents competition is, under the statute, in restraint of trade, notwithstanding the possibility that a re

straint of trade might also follow unrestricted

competition, which might destroy weaker

roads and give the survivor power to raise


[No. 84.]

Argued February 24, 25, 1898.
October 24, 1898.

APPEAL from a decree of the United change the rates, fares, charges, or rules set States Circuit court of Appeals for the forth in the agreement or recommended by Second Circuit affirming the decree of the the managers except by a resolution of the Circuit Court of the United States for the board of directors of the company, and its Southern District of New York, dismissing action was not to affect the rates, etc., disa suit in equity brought by the United States, approved, except to the extent of its interest [507] therein over its own road. plaintiff, against the Joint-Traffic AssociaA copy of such tion et al., for the purpose of obtaining an resolution of the board of any company auadjudication that an agreement entered into thorizing a change of rates or fares, etc., was between some thirty-one different railroad to be immediately forwarded by the company companies was illegal, and enjoining its fur-making the same to the managers of the asther execution. Judgments of the Circuit sociation, and the change was not to become Court and of the Circuit Court of Appeals reversed, and the case remanded to the Circuit Court with directions to take further proceedings in conformity with the opinion of this court.

See same case below, 76 Fed. Rep. 895.

effective until thirty days after the receipt of such resolution by the managers. Upon the receipt of such resolution the managers were "to act promptly upon the same for the protection of the parties hereto." It was further stated in the agreement that "the powers conferred upon the managers shall be so construed and exercised as not to perStatement by Mr. Justice Peckham: mit violation of the Interstate Commerce The bill was filed in this case in the cir- Act, or any other law applicable to the premcuit court of the United States for the south-ises or any provision of the charters or the ern district of New York for the purpose of laws applicable to any of the companies parobtaining an adjudication that an agreement ties hereto, and the managers shall co-ope1506]*entered into between some thirty-one differ-rate with the Interstate Commerce Commisent railroad companies was illegal, and enjoining its further execution.

These railroad companies formed most (but not all) of the lines engaged in the business of railroad transportation between Chicago and the Atlantic coast, and the object of the agreement, as expressed in its preamble, was to form an association of railroad companies "to aid in fulfilling the purpose of the Interstate Commerce Act, to cooperate with each other and adjacent transportation associations to establish and maintain reasonable and just rates, fares, rules, and regulations on state and interstate traf


sion to secure stability and uniformity in the rates, fares, charges, and rules established hereunder."

One provision of the agreement was to the effect that the managers were charged with the duty of securing to each company which was a party to the agreement equitable proportions of the competitive traffic covered by the agreement, so far as it could be legally done. The managers were given power to decide and enforce the course which should be pursued with connecting companies, not parties to the agreement which might de

171 U. S.

cline or fail to observe the rates, etc., estab- | prevent competition among the railroads lished under it, and the interests of parties named, in respect to all their interstate com-[509] injuriously affected by such action of the merce, entered into the agreement referred managers were to be accorded reasonable to above, and it charged that the agreement protection in so far as the managers could was an unlawful one, and a combination and reasonably do so. When in the judgment of conspiracy, and that it was entered into in the managers it was necessary to the pur- order to terminate all competition among the poses of the agreement, they might deter-parties to it for freight and passenger traffic, mine the divisions of rates and fares between and that the agreement unlawfully reconnecting companies who were parties to strained trade and commerce among the sev the agreement and connections not parties erai states and territories of the United thereto, keeping in view uniformity and the States, and unlawfully attempted to monopoequities involved. lize a part of such interstate trade and comJoint freight and passenger agencies merce. The bill ended with the allegation might be organized by the managers, and, if that the companies were preparing to put established, were to be so arranged as to into full operation all the provisions of the give proper representation to cach company agreement, and the relief sought was a judgparty to the agreement. Soliciting or con-ment declaring the agreement void and entracting passenger or freight agencies were joining the parties from operating their not to be maintained by the companies, ex-roads under the same. The defendant, the [508]cept *with the approval of the managers, and Joint Traffic Association, filed an answer no one that the managers decided to be ob- (the other defendants substantially adopting jectionable was to be employed or continued it), which admitted the making of the conin an agency. The officials and employees tract, but denied its invalidity or that it is of any of the companies could be examined, or was intended to be an unlawful contract, and an investigation made when, in the judg- combination, or conspiracy to restrain trade ment of the managers, their information or or commerce, or that it was an attempt to any complaint might so warrant. Any vio- monopolize the same, or that it was intended lation of the agreement was to be followed to restrain or prevent legitimate competiby a forfeiture of the offending company in tion among the railroads which were parties a sum to be determined by the managers, to the agreement. The answer, in brief, denied which should not exceed five thousand dol-all allegations of unlawful acts or of an unlars, or if the gross receipts of the transac- lawful intent, unless the making of the agreetion which violated the agreement should ment itself was an unlawful act. The anexceed five thousand dollars, the offending party should, in the discretion of the managers, forfeit a sum not exceeding such gross receipts. The sums thus collected were to go to the payment of the expenses of the association, except the offending company should not participate in the application of its own forfeiture.

swer then set forth in quite lengthy terms
a general history of the condition of the rail-
road traffic among the various railroads
which were parties to the agreement at the
time it was entered into, and alleged the ne-
cessity of some such agreement in order to
the harmonious operation of the different
roads, and that it was necessary as well to
the public as to the railroads themselves.

decree was affirmed by the circuit court of ap-
peals for the second circuit, and the govern
ment has appealed here.

The agreement also provided for assess ments upon the companies in order to pay The case came on for hearing on bill and the expenses of the association, and also for answer, and the circuit court, after a hearthe appointment of commissioners and arbi-ing, dismissed the bill, and upon appeal its trators who were to decide matters coming before them. No one retiring from the agreement before the time fixed for its final completion, except by the unanimous consent of the parties, should be entiled to any reMr. John K. Richards, Solicitor Generfund from the residue of the deposits remain-al, for the appellant, the United States: ing at the close of the agreement.

It was to take effect January 1, 1896, and to continue in existence five years, after which any company could retire upon giving ninety days' written notice of its desire to do


The agreement violates the anti-trust law
because it creates an association of compet-
ing trunk-line systems, to which is given ju-
risdiction over competitive interstate traf-
fic, with power, through a central authority,
aided by a skilful scheme of restrictions, reg-
maintain rates and fares on such traffic and
ulations, and penalties, to establish and
prevent competition, thus constituting a con-
tract in restraint of trade
among the several states, as defined by this
court in United States v. Trans-Missouri
Freight Asso. 166 U. S. 290, 41 L. ed. 1007.

or commerce

In the Trans-Missouri case this court held

The bill filed by the government contained allegations showing that all the defendant railroad companies were common carriers duly incorporated by the several states through which they passed, and that they were engaged as such carriers in the transportation of freight and passengers, separately or in connection with each other, in (1) that the anti-trust law applies to comtrade and commerce continuously carried on mon carriers by railroad; (2) that it prohibamong the several states of the Union and its and renders illegal all agreements in rebetween the several states and territor-straint of interstate trade and commerce, ies thereof. The bill also charged that the whether the restraint be reasonable or undefendants, unlawfully intending to restrain reasonable. commerce among the several states, and to

The question, then, is whether the agree

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