& 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 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.

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 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 $1,000,000 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 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 re

claim the securities without compensation. The prohibition against usury of the New York laws (Rev. St. N. Y. [Banks Bros.' 7th Ed.] p. 2253) could not be interposed by corporations as a defense (Id. p. 2256; Laws 1850, c. 172); nor could the indorsers of their paper plead the statute (Bank v. Wheeler, 60 N. Y. 612, 96 U. S. 268; Stewart v. Bramhall, 74 N. Y. 85; Railroad Co. v. Bank, 12 Wall. 226); nor did it apply to demand loans of $5,000 or upward, secured by collateral (Laws 1882, c. 237, § 1; Laws 1892, c. 689, § 56).

Apart from these considerations, the circuit court disposed of this contention on the ground that 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 holder, 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 enforce an alleged usurious agreement, but *it was petitioner who sought the affirmative' aid of equity, which he could only obtain by doing equity. It is true that by a statute of New York (3 Rev. St. N. Y. [7th Ed.] p. 2255; Acts 1837, c. 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 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.

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 cancellation 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

502

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 business as to charge Tod & Co. and the loan holders 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 payment 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 syndicate.

The syndicate was engaged in constructing a bridge across the Missouri river, to connect the railroad in Nebraska with that in Iowa. 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 $1,000,000 loan, and get additional funds for the construction of the bridge.

As the railroads whose bonds and stock constituted the security were new, and the Becurities 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 optlons. 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 corporations owned by Garretson and his associates. The original suggestion was that the loan should be made to the Sioux City, O'Neill & Western Railway Company; but objections

being raised to this, in view of certain provisions 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 $1,000,000 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 cir cuit 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.

(171 U. 8. 505) UNITED STATES v. JOINT-TRAFFIC ASS'N. (October 24, 1898.) No. 84.

INTERSTATE COMMERCE COMBINATION IN RESTRAINT OF COMMERCE-RAILROAD TRAFFIC AS SOCIATIONS-ANTI-TRUST LAW-CONSTITUTIONAL

ITY.

1. A combination of competing railroads, engaged in interstate traffic, into a joint-traffic association, the declared purpose being in part "to co-operate with each other and adjacent transportation associations to establish and maintain reasonable and just rates, fares, rules, and regulations on state and interstate traffic, to prevent unjust discrimination, and to secure the reduction and concentration of agencies," and the agreement for which provides for the establishment of joint-traffic agencies, and the securing to each road which is a party an equitable proportion of the competi tive traffic, forbids agencies by the individual companies except with the approval of the managers of the association, and subjects a road violating its provisions, or deviating from the rates fixed or recommended by the managers, to a forfeiture of a sum of money to the association, is in restraint of interstate com

⚫504

merce, within the meaning of the anti-trust statute, and is not relieved from illegality thereunder by the fact that the initial rates are not fixed by the association, but as to interstate business are those already established by the several roads, and schedules of which had been filed with the interstate commerce commission, nor by the fact that each company has the right to change its own rates by resolution of its directors, to take effect in 30 days thereafter; it being made the duty of the managers, on notice of such change, to "act promptly for the protection of the parties" to the association, which would, in practical effect, subject the road so changing to the combined competi tion of all the remaining roads of the association.

2. It is only to contracts whose direct and immediate effect is a restraint upon interstate commerce, and not to such as are made to promote legitimate business, though they may indirectly or incidentally affect such commerce, that the anti-trust law applies; and, so construed, it is a legitimate exercise by congress of its power to regulate interstate commerce. Such legislation, rendering unlawful contracts the direct effect of which is to shut out from interstate commerce the operation of the general law of competition, is not an interference with the general liberty of contract possessed by the citizen under the fifth constitutional amendment.

3. The natural direct and immediate effect of free competition between railroad carriers is to lower rates, and to thereby increase the demand for commodities, the supplying of which increases commerce; and an agreement whose first and direct effect is to prevent this competition is in restraint of commerce. It cannot be assumed that such competition will result in higher rates, and thus operate as a restraint upon commerce, and be held upon that assumption that an agreement which prevents competition is an aid to commerce.

4. The decision in U. S. v. Trans-Missouri Freight Ass'n, 17 Sup. Ct. 540, 166 U. S. 290, reaffirmed.

Mr. Justice Gray, Mr. Justice Shiras, and Mr. Justice White, dissenting.

Appeal from the Circuit Court of Appeals of the United States for the Second Circuit.

The bill was filed in this case in the circuit court of the United States for the Southern DisItrict of New York for the purpose of obtaining an adjudication that an agreement entered into between some 31 different 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 co-operate with each other and adjacent transportation associations to establish and maintain reasonable and just rates, fares, rules, and regulations on state and interstate traffic, 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 association, by which they agreed that the affairs of the association should be administered by several differ

ent boards, and that It should have jurisdic tion over all competitive traffic (with certain exceptions therein noted) which passed through the western termini of the trunk lines (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 to change the rates, fares, charges, or rules set forth in the agree ment 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 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 30 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-operate with the interstate commerce commission to secure stability and uniformity in the rates, fares, charges, and rules established thereunder."

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 decline or fail to observe the rates, etc., established under it; and the interests of parties injuriously affected by such action of the managers were to be accorded reasonable protection in so far as the managers could reasonably do So. When, in the judgment of the managers, it was necessary to the purposes of the agree

909.

ment, they might determine the divisions of rates and fares between connecting companies who were parties to the agreement and connections not parties thereto, keeping in view uniformity and the equities involved.

Joint freight and passenger agencies might be organized by the managers, and, if established, were to be so arranged as to give proper representation to each company party to the agreement. Soliciting or contracting passenger or freight agencies were not to be maintained by the companies, except with the approval of the managers; and no one that the managers decided to be objectionable was to be employed or continued in an agency. The officials and employés of any of the companies could be examined, and an investigation made, when, in the judgment of the managers, their information or any complaint might so warrant. Any violation of the agreement was to be followed by a forfeiture of the offending company in a sum to be determined by the managers, which should not exceed $5,000, or, if the gross receipts of the transaction which violated the agreement should exceed $5,000, 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.

The agreement also provided for assessments upon the companies in order to pay the expenses of the association, and also for the appointment of commissioners and arbitrators, 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 entitled to any refund from the residue of the deposits remaining at the close of the agreement.

It was to take effect January 1, 1896, and to continue in existence 5 years, after which any company could retire upon giving 90 days' written notice of its desire to do so.

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 trade and commerce continuously carried on among the several states of the Union and between the several states and the territories thereof. The hill also charged that the defendants, unlawfully intending to restrain commerce among the several states, and to prevent competition Iamong the railroads named in respect to all their interstate commerce, entered into the agreement referred to above; and it charged that the agreement was an unlawful one, and a combination and conspiracy, and that it was entered into in order to terminate all competition among the parties to it for freight

and passenger traffic, and that the agreement unlawfully restrained trade and commerce among the several states and territories of the United States, and unlawfully attempted to monopolize a part of such interstate trade and commerce. The bill ended with the allegation that the companies were preparing to put into full operation all the provisions of the agreement, and the relief sought was a judgment declaring the agreement void, and enjoining the parties from operating their roads under the same. The defendant the Joint-Traffic Association filed an answer (the other defendants substantially adopting it), which admitted the making of the contract, but denied its invalidity, or that it is or was intended to be an unlawful contract, combination, or conspiracy to restrain trade or commerce, or that it was an attempt to monopolize the same, or that it was intended to restrain or prevent legitimate competition among the railroads which were parties to the agreement. The answer, in brief, denied all allegations of unlawful acts or of an unlawful intent, unless the making of the agreement itself was an unlawful act. The answer then set forth in quite lengthy terms a general history of the condition of the raЛlroad traffic among the various railroads which were parties to the agreement at the time it was entered into, and alleged the necessity 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.

The case came on for hearing on bill and answer, and the circuit court, after a hearing, dismissed the bill (76 Fed. 895), and upon appeal its decree was affirmed by the cir cuit court of appeals for the Second circuit, and the government has appealed here.

Sol. Gen. Richards, for appellant. James a Carter, George F. Edmunds, and E. J. Phelps, for appellees.

* Mr. Justice PECKHAM, after stating the facts, delivered the opinion of the court.

This case has been most ably argued by counsel both for the government and the railroad companies. The suit is brought to obtain a decree declaring null and void the agreement mentioned in the bill. Upon comparing that agreement with the one set forth in the case of U. S. v. Trans-Missouri Freight Ass'n, 166 U. S. 290, 17 Sup. Ct. 540, the great similarity between them suggests that a similar result should be reached in the two cases. The respondents, however, object to this, and give several reasons why this case should not be controlled by the other. It is, among other things, said that one of the questions sought to be raised in this case might have been, but was not, made in the other; that the point therein decided, after holding that the statute applied to railroad companies as common carriers, was simply that all contracts, whether in reasonable as well as in unreasonable re

straint of trade, were included in the terms of the act, and the question whether the contract then under review was in fact in restraint of trade in any degree whatever was neither made nor decided, while it is plainly raised in this.

Again, it is asserted that there are differences between the provisions contained in the two agreements of such a material and fundamental nature that the decision in the case referred to ought to form no precedent for the decision of the case now before the court.

It is also objected that the statute, if construed as it has been construed in the Trans-Missouri Case, is unconstitutional, in that it unduly interferes with the liberty of the individual, and takes away from him the right to make contracts regarding his own affairs, which is guarantied to him by the fifth amendment to the constitution, which provides that "no person shall be * * deprived of life, liberty or property without due process of law; nor shall private property be taken for public use without just compensation." This objection was not advanced in the arguments in the other case.

Finally, a reconsideration of the questions decided in the former case is very strongly pressed upon our attention, because, as is stated, the decision in that case is quite plainly erroneous, and the consequences of such error are far-reaching and disastrous, and clearly at war with justice and sound policy, and the construction placed upon the anti-trust statute has been received by the public with surprise and alarm.

We will refer to these propositions in the order in which they have been named.

As to the first, we think the report of the Trans-Missouri Case clearly shows, not only that the point now taken was there urged upon the attention of the court, but it was then intentionally and necessarily decided. The whole foundation of the case on the part of the government was the allegation that the agreement there set forth was a contract or combination in restraint of trade, and unlawful on that account. If the agreement did not in fact restrain trade, the government had no case.

If it did not in any degree restrain trade, it was immaterial whether the statute embraced all contracts in restraint of trade, or only such as were in unreasonable restraint thereof. There was no admission or concession in that case that the agreement did, in fact, restrain trade to a reasonable degree. Hence it was necessary to determine the fact as to the character of the agreement before the case was made out on the part of the government.

The great stress of the argument on both sides was undoubtedly upon the question as to the proper construction of the statute, for that seemed to admit of the most doubt; but the other question was before the court, was plainly raised, and was necessarily decided. The opinion shows this to be true. At page

341, 166 U. S., and page 559, 17 Sup. Ct., the opinion contains the following language:

"The conclusion which we have drawn from the examination above made of the question before us is that the anti-trust act applies to railroads, and that it renders illegal all agreements which are in restraint of trade or commerce as we have above defined that expression, and the question then arises whether the agreement before us is of that nature. * Does the agreement restrain trade or commerce in any way so as to be a violation of the act? We have no doubt that it does. The agreement on its face recites that it is entered into for the purpose of mutual protection by establishing and maintaining reasonable rates, rules, and regulations on all freight traffic, both through and local.

"To that end the association is formed, and a body created, which is to adopt rates for all the companies, and a violation of which subjects the defaulting company to the payment of a penalty; and although the parties have a right to withdraw from the agree ment on giving thirty days' notice of a desire so to do, yet while in force, and assuming it to. be lived up to, there can be no doubt that its direct, immediate, and necessary effect is to put a restraint upon trade or commerce as de scribed in the act. For these reasons the suit of the government can be maintained without proof of the allegation that the agreement was entered into for the purpose of restraining trade or commerce, or for maintaining rates above what was reasonable. The necessary effect of the agreement is to restrain trade, no matter what the intent was on the part of those who signed it."

The bill of the complainants in that case, while alleging an illegal and unlawful intent on the part of the railroad companies in entering into the agreement, also alleged that by means of the agreement the trade, traffic, and commerce in the region of country affected by the agreement had been and were monopolized and restrained, hindered, injured, and retarded. These allegations were denied by defendants.

There was thus a clear issue made by the pleadings as to the character of the agree ment,-whether it was or was not one in restraint of trade.

The extract from the opinion of the court above given shows that the issue so made was not ignored, nor was it assumed as a concession that the agreement did restrain trade to a reasonable extent. The statement in the opinion is quite plain, and it inevitably leads to the conclusion that the question of fact as to the necessary tendency of the agreement was distinctly presented to the mind of the court, and was consciously, purposely, and necessarily decided. It cannot, therefore, be correctly stated that the opinlon only dealt with the question of the construction of the act, and that it was assumed that the agreement did to some reasonable extent restrain trade. In discussing the