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This case belongs to the class of cases in which the decree of the circuit court of appeals is made final by the statute, and having been brought up by certiorari on the application of petitioner below, is pending before us as if on his appeal.

And as respondents did not apply for certiorari, we shall confine our consideration of the case to the examination of errors assigned by petitioner.

These errors as assigned in the brief of counsel are, in short, that the circuit court erred, (1) in not establishing the priority of petitioner's lien or right in and to the securities; (2) in subordinating that lien or right, and decreeing foreclosure unless payment was made as prescribed; (3) in not entering a decree giving priority to petitioner because respondents set up absolute title by purchase, which was not sustained by the court; (4) in not restraining respondents by injunction and not ordering the surrender of the securities to petitioner.

[195] *The supposed errors in decreeing foreclosure, and that respondents were entitled to hold as pledgees notwithstanding their title by purchase was so far defective as to let in redemption, may readily be disposed of.

This was not a proceeding by Tod & Co. to obtain foreclosure. It was petitioner who sought the aid of the court, and this by an application which was, in effect, a bill to reclaim the securities absolutely and free from encumbrance. The circuit court treated the pleading as if framed in the alternative, and

the securities did not absolutely cut off the claim of the company or its assignee, that would be an error of which petitioner could not, of course, complain.

Petitioner contends that his alleged lien or right was entitled to priority, because the securities "were wrongfully and fraudulently abstracted and diverted from said trust company in subsequent rehypothecation with respondents;" and respondents did not hold them as received in good faith, in due course of business, for value and without notice, but acquired possession through transactions known to be *fictitious, usurious, ultra vires, [496] fraudulent and void, and with notice.

The circuit court and the circuit court of appeals agreed that respondents' right to the securities was superior to that asserted by petitioner, and we entirely concur in that conclusion.

So far from the securities being wrongfully abstracted from the trust company, we think that, whatever the agreement between the trust company and the syndicate, the trust company must be held to have parted with such of the securities as were ever in its custody, with full knowledge that they were to be hypothecated by Garretson; that, indeed, the evidence fairly shows that those which at any time came into the possession of the trust company were either deposited there by Garretson or by his order and direction, with the understanding on his part that he was authorized to withdraw them for the purpose of sale, pledge, or otherwise, and that he always acted on that theory, with the consent and participation of Smith, as secretary and treasurer; and that in any view Smith's acts in the company's behalf must be held to have been performed with the actual or implied authority of the directors.

Smith, as secretary and treasurer, was the person who was actively engaged in the management of the affairs of the Union Loan & Trust Company, and held out to the public as having unlimited authority to manage its business and dispose of any of its securi

allowed redemption on conditions stated, the ties. He indorsed in the company's name right thus accorded being necessarily de- every note it put out, signed every letter that clared to be extinguished if the conditions it wrote, and was, as respected the public,

were not complied with as prescribed. And no error is assigned to the particular terms imposed.

Nor is there any tenable basis for the proposition that respondents' failure to sustain their purchase at the sale as a defense affected their rights as pledgees. Respondents stood on all their rights, and were not put

the trust company itself. Throughout all the transactions his conduct conceded that Garretson was the lawful holder of the stock and bonds tendered by him as collateral to the loans he negotiated. As such officer, he directly transmitted the securities of the Sioux City & Northern Railroad Company to New York, and likewise the $1,433,000 of

to an election. If the purchase were valid Nebraska & Western bonds to Garretson at

the equity of redemption was wiped out. If invalid, the original lien remained. If superior, its superiority was not displaced by the claim of absolute title derived through the pledge as set forth in the pleadings.

Assuming that, as between the Union Loan & Trust Company and the syndicate, the company or its assignee had a lien on the securities in question, did the circuit court err in holding that the rights of respondents in respect thereof were paramount to those asserted by the intervening petitioner?

If not, then although the circuit court may have erred in holding that the sale of

Omaha, to be delivered to the agent of Tod & Co., under the contract for the million-dollar loan, and to be turned into court in carrying out the reorganization scheme *in ac-[497 cordance with which the Sioux City, O'Neill, & Western bonds were to be issued.

It appears to us indisputable on the face of this record that Garretson was intrusted, according to the understanding of all parties, with the right to sell the Sioux City & Northern bonds; that the Union Loan & Trust Company received the proceeds of a million dollars of those bonds, thus ratifying the transaction; and that the proceeds of

.

the balance wereapplied 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, Conveyances by insolvent debtors in fraud which had been given by Garretson to acquire of their creditors may be attacked by their

the Nebraska & Western bonds, which he afterwards pledged to Tod & Co., and which were exchanged for the bonds of the Sioux City, O'Neill, & Western Railroad in controversy.

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, further more, 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

curities.

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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 supreme 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 power 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

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 holder 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 suffi

cient 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 257

and recover in the name of such assignee he did, such notice cannot be presumed or 171 U. S. 17

U. S., BOOK 43.

implied. Nor do we regard the conduct of which no issue could be, or was, joined, or Tod & Co. as so negligent as to justify the additional testimony taken, and it was then application of the doctrine of constructive set up, for the first time, that the loans were notice.

[500] The circumstances relied on as imputing notice or requiring inquiry which would have resulted in notice are in our judgment inadquate to sustain that conclusion.

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 "trustee" 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 as sume 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.

While we must not be understood as intimating 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 [601]than allude to these matters. Tod & Co. held the securities under the $1,500,000 loan in trust for the purchasers of the notes thereunder issued, and neither the debenture company, 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

void because in contravention of the stat-
utes of New York in relation to usury, and.
that petitioner was, therefore, entitled to re-
claim 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 corpo-
rations as a defense (Id. p. 2256; Laws
1850, chap. 172), nor could the indorsers of
their paper plead the statute (Union Na-
tional 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 up-
wards, secured by collateral. Laws 1882,
chap, 237, § 1; Laws 1892, chap. 689, § 56.
Apart from these considerations, the cir-
cuit 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-
er, was a party to the record. We think the
court was right if the question was properly
before it. This was not a proceeding to en-
force 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 prin-
cipal on the sum or thing loaned;" but this
act has been rigidly confined to the borrower
himself (Wheelock v. Lee, 64 N. Y. 242;
Buckingham v. Corning, 91 N. Y. 525; Aller-
ton 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.

The circuit court held that the bridge company did exceed its powers, and that the 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 possession of the securities. Clearly the trust

company could not avail itself, in favor of its own alleged claim, of such an infirmity, if it existed, nor could the holders of the notes, which had passed into their hands as strangers, be deprived of the securities on the faith of which they had advanced their money; or have their rights adjudicated in their absence.

However, whatever the contention in the courts below may have been the errors assigned here merely put forward the theory that the alleged usurious character of the contract by reason of the options granted and commissions paid, and its invalidity for lack of power in the bridge company, so took the transaction out of the ordinary course of [503]business as to *charge Tod & Co. and the loanholders with bad faith and notice of the alleged claims of the trust company.

But we cannot perceive that the fact of usury between the parties to the contract, if usury there were, or action in excess of power, if that existed, either or both, can be laid hold of to justify the imputation of notice that Garretson was dealing with the securities in derogation of rights of the trust company. Doubtless there are cases where commercial paper or securities may be offered for negotiation under circumstances so out of the usual course of business as to throw such grave suspicion on the source of title that lack of inquiry, assuming that it would disclose defects, might amount to culpable negligence. But that doctrine has no application here.

Respondents had possession of all the Sioux City, O'Neill, & Western bonds, and 7,200 shares of Sioux City & Northern stock, in pledge to secure payınent of $1,000,000 of Garretson's notes payable on demand, which amount had been borrowed for the purposes of, and was used in, acquiring the Sioux City, O'Neill, & Western Railroad for the syndi

cate.

The syndicate was engaged in constructing a bridge across the Missouri river to connect the railroad in Nebraska with that in lowa. The stock of the bridge company was all owned by the syndicate, and had been pledged with the bonds of the Sioux City, O'Neill, & Western Railway.

Garretson applied for a new loan of $1,500,000,with which to take up the million dollar loan and get additional funds for the construction of the bridge.

As the railroads whose bonds and stock

being raised to this in view of certain provi sions of the statutes of Nebraska, it was arranged between Tod & Co. and Garretson and his associates that the bridge company, which was equally owned by the syndicate, and to the purposes of which $500,000 of the loan were ostensibly to be devoted, should become the borrower. The sale of the securities, the issue of the notes secured thereby, and the making of the loan followed.

Garretson executed the indenture of trust to Tod & Co., the debenture company paid over $1,500,000 and interest to them, and they took up the million dollar loan, thereby releasing the Sioux City, O'Neill, & Western bonds and 7,200 shares of Sioux City & Northern stock; the balance of the latter stock was sent to Tod & Co. by the trust company; Tod & Co., as trustees, certified on the notes that the collateral had been deposited with them, and the notes were sold to various purchasers, who apparently advanced their money in good faith.

If the transactions, thus briefly stated, were unaffected by notice of any want of authority in Garretson in respect of the trust company as now alleged, it is not for that company to say that Tod & Co., or the holders of the loan, should be held chargeable with notice simply because the commissions and options might have constituted usury as between the parties to the loan, or the bridge company, its stockholders, or judgment creditors might have had cause of complaint of defect of power.

In letting petitioner in to redeem the circuit court went at least as far as the record would permit. Whether or not there was error in the decree of which respondents might have complained, we do not feel at liberty to decide.

Decree affirmed.

UNITED STATES*

v.

JOINT-TRAFFIC ASSOCIATION et al.

(See S. C. Reporter's ed. 505-578.)

Joint-traffic association, when illegalpower of Congress to prohibit-agreement ement by which competition is prevented-freedom of contract-valid statute-agreement between railroad companies.

constituted the security were new, and the 1. The right of a railroad company in a joint

securities were then without market value,
the negotiation of the loan was made more
attractive to the debenture company by the
allowance of the commission and certain op-
tions. And since there seems to have been a
question as to whether the agreements might
not be obnoxious to the New York usury
statutes, and as notes of a corporation were
supposed to be more readily salable than
those of an individual, it was thought best to
make the loan directly to one of the corpora-
tions owned by Garretson and his associates. 2. Congress has the power to prohibit, as in

The original suggestion was that the loan [504]*should be made to the Sioux City, O'Neill,

& Western Railway Company, but objections.

traffic association to deviate from the rates prescribed, provided it acts on a resolution of its board of directors and serves a copy thereof on the managers of the association, who, upon its receipt, are required to "act promptly for the protection of the parties hereto," does not relieve the association from condemnation as an illegal restraint of competition, as the privilege of deviating from the rates would be exercised upon pain of a war of competition against it by the whole association.

restraint of interstate commerce, a contract or combination between competing railroad companies to establish and maintain interstate rates and fares for the transportation

[505]

of freight and passengers on any of the rail-fic, to prevent unjust discrimination, and to roads, parties to the contract or combination, secure the reduction and concentration of

even though the rates and fares thus estab

lished are reasonable.

• 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 pre vented.

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 competi

tion 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.

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 rates.

[No. 84.]

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

A

United

PPEAL from a decree of the States Circuit court of Appeals for the Second Circuit affirming the decree of the Circuit Court of the United States for the

Southern District of New York, dismissing a suit in equity brought by the United States, plaintiff, against the Joint-Traffic Association et al., for the purpose of obtaining an adjudication that an agreement entered into between some thirty-one different railroad companies was illegal, and enjoining its further execution. Judgments of the Circuit 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.

Statement by Mr. Justice Peckham: The bill was filed in this case in the circuit court of the United States for the south ern district of New York for the purpose of [506]*entered into between some thirty-one differobtaining an adjudication that an agreement ent 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

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 association, by which they agreed that the affairs 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, charges, 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 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 change the rates, fares, charges, or rules set forth in the agreement or recommended by the managers except by a resolution of the board of directors of the company, and its action was not to affect the rates, etc., disapproved, except to the extent of its interest[507] therein over its own road. A copy of such resolution of the board of any company authorizing a change of rates or fares, etc., was to be immediately forwarded by the company making the same to the managers of the association, and the change was not to become 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 permit violation of the Interstate Commerce

Act, or any other law applicable to the premises or any provision of the charters or the laws applicable to any of the companies parties hereto, and the managers shall co-ope

rate with the Interstate Commerce Commis

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

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