without notice on account of the securities, and the disposition made by them of any other collateral held by them under the loan agreement of December 31, 1892; the surrender of the certificates to the petitioner upon an accounting, and the ascertainment of what sums, if any, constituted a lien thereon; and the appointment of a receiver pendente lite.

The answers of Tod & Co. traversed the allegations of the petition and amended petition on which petitioner based his claim to the securities, and particularly denied all charges of fraud, want of good faith, or notice, 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 further 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 $1,000,000 and the loan of $1,500,000 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 summarized as follows:

(1) 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 bylaws 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, secretary 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 there

after 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 securities on the market, and its financial management was intrusted to him.

The so-called "railroad syndicate agreement" was entered into July 3, 1889, by A. S. Garretson, John Hornick, J. E. Booge, Ed. Haakinson, and D. T. Hedges for the purpose of building and equipping the Sioux City & Northern Railroad, and provided that all money borrowed and contracts made for the building and equipment of the road should be borne equally by the parties; that where notes were executed by one for the purposes expressed, each should be equally liable therefor; that all money borrowed should be placed to the credit of John Hornick, trustee, at the office of the Union Loan & Trust Company; and that the contract should continue until the railroad should be completed, and its debts paid; and be lodged with the company.

The agreement contained no provision that the money borrowed for the uses of the copartnership should be borrowed from or through the Union Loan & Trust Company; nor any stipulation for the depositing with that company of the stock and bonds of the Sioux City & Northern Railroad as security for any money the syndicate might borrow.

It appeared that when the Union Loan & Trust Company desired to rediscount or sell notes it sent out a circular offering them at a considerable discount, and reciting, "In every case we hold good and sufficient security from the maker;" but it did not ap-, pear that the holders of notes, the creditors? *represented by the assignee, took them on the faith of any pledge of the securities in question. Nor was any reference thereto made in the notes themselves. The understanding between the syndicate and the Union Loan & Trust Company that railroad securities should be deposited to secure syndicate paper, rested on conversations between the parties, and did not involve the liberty of the syndicate to borrow elsewhere; nor did the understanding permit securities held for moneys advanced to one enterprise to be held as security for any other.

The Sioux City & Northern Railroad was constructed by the syndicate, some of the money being raised on notes of its members, which were discounted by the Union Loan & Trust Company, the proceeds credited to Hornick, trustee, and drawn against as provided in the agreement.

The road was completed in January, 1890, and the syndicate acquired its first mortgage bonds for $1,920,000, secured by mortgage to the Manhattan Trust Company as trustee, and its capital stock of about 14,400 shares.

None of the shares of this stock ever stood in the name of the Union Loan & Trust Company, nor did any of the bonds; nor did the books of the company contain entries referring to the collateral in controversy as pledged to secure syndicate paper or the company's indorsement thereof.

The bonds came into the custody of the Union Loan & Trust Company before they were certified by the Manhattan Trust Company, and on February 24, 1890, Smith, secretary, transmitted them to the Manhattan Trust Company to be certified, but did not request that they should be returned. On the same day Garretson directed the Manhattan Trust Company to certify the bonds, and hold them subject to his order; and on March 12, 1890, Smith, secretary, directed the Manhattan Trust Company to issue its receipt for said bonds to A. S. Garretson, individually, which was accordingly done.

Efforts to sell the bonds were made, and in furtherance thereof, August 26, 1890, Garretson directed the Manhattan Trust Company to ship the bonds to the Boston Safe-Deposit & Trust Company, Boston, to be held subject to the order of F. V. Parker & Co., and the bonds were so shipped.

*Subsequently Garretson hypothecated portions of these bonds to secure his own notes given for loans made for the purpose of acquiring control of the Nebraska & Western Railroad, forming part of the Pacific Short Line enterprise, promoted to build a road from a point on the Missouri river, opposite Sioux City, westward to Ogden, Utah.

In the latter part of December, 1890, or early in January, 1891, Garretson and Hedges offered the Sioux City & Northern bonds to Tod & Co. at 90 cents, but no purchase was made, Tod & Co. offering 66%. A few weeks later, Tod & Co. were again applied to, and they purchased the bonds at 75 cents. The evidence tended to show that out of the proceeds Garretson's notes to the aggregate of $690,000, secured by 920 Sioux City & Northern bonds, were taken up, and $750,000 were paid over to the Union Loan & Trust Company, and credited to the syndicate.

(2) The Nebraska & Western Railway Company was organized in 1889, and on the 1st day of July of that year made and executed Its mortgage to the Manhattan Trust Company to secure its issue of bonds to the amount of $2,583,000.

It then contracted with the Wyoming-Pacific Improvement Company to construct and equip the road, which was to receive therefor the bonds of the railway company, to be delivered by the Manhattan Trust Company as issued and certified to by it, and in this way the improvement company became the owner of the bonds. On February 1, 1890, the improvement company entered into an agreement with the Manhattan Trust Company, under which the latter procured for the former, on its notes, loans to the amount of $1,050,000, secured by bonds held in trust in 19 S.C.-2

the ratio of $2 in bonds to $1 in money loaned. At the same time an underwriter's agreement was entered into between the improvement company and the subscribers thereto, by which, if the loans were not paid, the bonds were to be taken at 50 cents on the dollar. Of this loan Belmont & Co. took $500,000, and Garretson and Hedges $125,000 each.

Garretson, Hornick, and Booge had previously become subscribers to the enterprise* to the extent of $100,000 for certificates of the improvement company, and they and Hedges and Haakinson executed an agreement February 15, 1890, agreeing that for the purpose of securing the "construction of the Pacific Short Line from Sioux City westward to O'Neill" they would raise $350,000, $250,000 to be loaned the improvement company on the security of $500,000 first mortgage bonds of the Nebraska & Western Railway Company, held by the Manhattan Trust Company, and $100,000 certificates of the improvement company to be assigned to the syndicate by the original subscribers.

The Manhattan Trust Company held $2,100,000 of the Nebraska & Western bonds to secure the $1,050,000 loan, and subsequently $483,000 more to secure other loans.

About November 1, 1890, it became necessary 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.

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.

Among the transactions Garretson borrowed 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.

The testimony of Garretson was relied on to sustain the charge that the Manhattan' Trust Company perpetrated a fraud on him at the time he entered into negotiations to assume or take up the obligations of the improvement company in the acquisition of the Nebraska & Western road, in that it misrepresented the amount of that company's indebtedness. The officers of the Manhattan Trust Company positively denied any such

without notice on account of the securities, and the disposition made by them of any other collateral held by them under the loan agreement of December 31, 1892; the surrender of the certificates to the petitioner upon an accounting, and the ascertainment of what sums, if any, constituted a lien thereon; and the appointment of a receiver pendente lite.

The answers of Tod & Co. traversed the allegations of the petition and amended petition on which petitioner based his claim to the securities, and particularly denied all charges of fraud, want of good faith, or notice, 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 further 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 $1,000,000 and the loan of $1,500,000 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 summarized as follows:

(1) 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 bylaws 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, secretary 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 there

after 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 securities on the market, and its financial management was intrusted to him.

The so-called "railroad syndicate agreement" was entered into July 3, 1889, by A. S. Garretson, John Hornick, J. E. Booge, Ed. Haakinson, and D. T. Hedges for the purpose of building and equipping the Sioux City & Northern Railroad, and provided that all money borrowed and contracts made for the building and equipment of the road should be borne equally by the parties; that where notes were executed by one for the purposes expressed, each should be equally liable therefor; that all money borrowed should be placed to the credit of John Hornick, trustee, at the office of the Union Loan & Trust Company; and that the contract should continue until the railroad should be completed, and its debts paid; and be lodged with the company.

The agreement contained no provision that the money borrowed for the uses of the copartnership should be borrowed from or through the Union Loan & Trust Company; nor any stipulation for the depositing with that company of the stock and bonds of the Sioux City & Northern Railroad as security for any money the syndicate might borrow. It appeared that when the Union Loan & Trust Company desired to rediscount or sell notes it sent out a circular offering them at a considerable discount, and reciting, "In every case we hold good and sufficient security from the maker;" but it did not ap-, pear that the holders of notes, the creditors *represented by the assignee, took them on the faith of any pledge of the securities in question. Nor was any reference thereto made in the notes themselves. The understanding between the syndicate and the Union Loan & Trust Company that railroad securities should be deposited to secure syndicate paper, rested on conversations between the parties, and did not involve the liberty of the syndicate to borrow elsewhere; nor did the understanding permit securities held for moneys advanced to one enterprise to be held as security for any other.

The Sioux City & Northern Railroad was constructed by the syndicate, some of the money being raised on notes of its members, which were discounted by the Union Loan & Trust Company, the proceeds credited to Hornick, trustee, and drawn against as provided in the agreement.

The road was completed in January, 1890, and the syndicate acquired its first mortgage bonds for $1,920,000, secured by mortgage to the Manhattan Trust Company as trustee, and its capital stock of about 14,400 shares.

None of the shares of this stock ever stood in the name of the Union Loan & Trust Company, nor did any of the bonds; nor did the books of the company contain entries referring to the collateral in controversy as pledged to secure syndicate paper or the company's indorsement thereof.

the ratio of $2 in bonds to $1 in money loaned. At the same time an underwriter's agreement was entered into between the improvement company and the subscribers thereto, by which, if the loans were not paid, the bonds were to be taken at 50 cents on the dollar. Of this loan Belmont & Co. took $500,000, and Garretson and Hedges $125,000 each. Garretson, Hornick, and Booge had pre

Efforts to sell the bonds were made, and in furtherance thereof, August 26, 1890, Garretson directed the Manhattan Trust Company to ship the bonds to the Boston Safe-Deposit & Trust Company, Boston, to be held subject to the order of F. V. Parker & Co., and the bonds were so shipped.

Subsequently Garretson hypothecated portions of these bonds to secure his own notes given for loans made for the purpose of acquiring control of the Nebraska & Western Railroad, forming part of the Pacific Short Line enterprise, promoted to build a road from a point on the Missouri river, opposite Sioux City, westward to Ogden, Utah.

In the latter part of December, 1890, or early in January, 1891, Garretson and Hedges offered the Sioux City & Northern bonds to Tod & Co. at 90 cents, but no purchase was made, Tod & Co. offering 66%. A few weeks later, Tod & Co. were again applied to, and they purchased the bonds at 75 cents. The evidence tended to show that out of the proceeds Garretson's notes to the aggregate of $690,000, secured by 920 Sioux City & Northern bonds, were taken up, and $750,000 were paid over to the Union Loan & Trust Company, and credited to the syndicate.

(2) The Nebraska & Western Railway Company was organized in 1889, and on the 1st day of July of that year made and executed Its mortgage to the Manhattan Trust Company to secure its issue of bonds to the amount of $2,583,000.

It then contracted with the Wyoming-Pacific Improvement Company to construct and equip the road, which was to receive therefor the bonds of the railway company, to be delivered by the Manhattan Trust Company as Issued and certified to by it, and in this way the improvement company became the owner of the bonds. On February 1, 1890, the improvement company entered into an agreement with the Manhattan Trust Company, under which the latter procured for the former, on its notes, loans to the amount of $1,050,000, secured by bonds held in trust in 19 S.C.-2

to the extent of $100,000 for certificates of the improvement company, and they and Hedges and Haakinson executed an agree ment February 15, 1890, agreeing that for the purpose of securing the "construction of the Pacific Short Line from Sioux City westward to O'Neill" they would raise $350,000, $250,000 to be loaned the improvement company on the security of $500,000 first mortgage bonds of the Nebraska & Western Railway Company, held by the Manhattan Trust Company, and $100,000 certificates of the improvement company to be assigned to the syndicate by the original subscribers.

The Manhattan Trust Company held $2,100,000 of the Nebraska & Western bonds to secure the $1,050,000 loan, and subsequently $483,000 more to secure other loans.

About November 1, 1890, it became necessary 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.

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.

Among the transactions Garretson borrowed 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.

The testimony of Garretson was relied on to sustain the* charge that the Manhattan* Trust Company perpetrated a fraud on him at the time he entered into negotiations to assume or take up the obligations of the improvement company in the acquisition of the Nebraska & Western road, in that it misrepresented the amount of that company's indebtedness. The officers of the Manhattan Trust Company positively denied any such

485

misrepresentation; and the eighth paragraph of Garretson's contract with the Manhattan Trust Company of January 28, 1891, declared: "This agreement and the settlement herein made is in full adjustment and settlement of all questions heretofore arising between the parties hereto in reference to the said improvement company or the construction of the Nebraska and Western Railway, and the first party agrees that his note for $500,000 heretofore given on taking up certain loans shall be paid at or before maturity." The evidence did not show that, if there had been any misrepresentation, Tod & Co. had any knowledge in fact thereof, though at one time a member of the firm, now deceased, was a director of that trust company, and its counsel was also Tod & Co.'s.

After Garretson had become the holder of the obligations of the improvement company and the Nebraska & Western bonds, he caused the bonds to be sold on May 27, 1891, and June 24, 1891, pursuant to a demand made on the Manhattan Trust Company as trustee, and to notice given, and at the sale purchased all the bonds of the Nebraska & Western Railway Company.

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

(3) October 1, 1891, Garretson entered into a contract with Tod & Co. to borrow $1,000,000, which recited that Garretson 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 & Co. agreed to make or procure him a loan on these terms: Garretson to deliver to Tod & Co. his 200 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 sale of the notes at par, and to advance 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 to secure a new issue of bonds at the rate of $18,000 per mile, and the whole amount of such issue, $2.340,000, and one-half of the capital stock of the new company, to be delivered to Tod & Co. in the place of the Nebraska & Western bonds and stock. If the Nebraska & Western

bonds were required to be deposited in court, the road was to be purchased in the name of trustees, and until the new corporation was formed, and new bonds and stock delivered, no more than $600,000 was to be paid over to Garretson, the balance to remain to his credit with the banking company.

The new bonds were also to be further secured by all the stock of the Pacific Bridge Company except such part, not exceeding 50 shares, as should be necessary to qualify directors. The note holders were also given certain options, and Tod & Co. were to receive 1 per cent. commission for their services.

The notes representing this $1,000,000 loan were not executed October 1, 1891, but were thereafter prepared and sent to Garretson at Sioux City, were there executed by him, and were received by Tod & Co. October 26th, Garretson being credited with the principal and 25 days' interest.

One million of the Nebraska & Western bonds were delivered to Tod & Co. October 19, 1891,-$800,000 by the Manhattan Trust Company and $200,000 by Tod & Co.'s cash-, ier, which had been pledged to them to se-g cure the loan of $75,000; and these bonds were sent that day to Wickersham, Tod & Co.'s attorney and agent at Omaha, to be used in the purchase under the foreclosure. $150,000 of the bonds had been delivered to the St. Charles Car Company, and were received by Tod & Co. October 27th, 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 Tod & Co.'s custody by Garretson, had been sent to the company in August, 1891, on his instructions, which contained nothing to indicate that the Union Loan & Trust Company had any claim of lien thereon, or right thereto, while Tod & Co. testified that they 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 Wicker

sham.

The railroad was sold under the foreclosure 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 Company; and on October 30th 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 Garret