Hubbard v. Tod

• Citation: 171 U.S. 474,19 S.Ct. 14,43 L.Ed. 246
• Decision Date: 17 October 1898
• Docket Number: No. 24,24
• Parties: HUBBARD v. TOD et al
• Court: United States Supreme Court

171 U.S. 474

19 S.Ct. 14

43 L.Ed. 246

HUBBARD

v TOD et al.

No. 24.

October 17, 1898.

The Manhattan Trust Company, of New York, filed its bill on September 28, 1893, in the circuit court of the United States for the Northern district of Iowa, against the Sioux City & Northern Railroad Company, of Iowa, praying for the appointment of a receiver to take possession of the railroad and its properties, and to operate and preserve the same, under and by virtue of the terms of a trust deed made and executed by the Sioux City & Northern Railroad Company to the Manhattan Trust Company, January 1, 1890, to secure an issue of bonds to the amount of $1,920,000.

October 5, 1893, receivers were appointed, and on the same day E. H. Hubbard, as assignee of the Union Loan & Trust Company, a corporation of Iowa, filed in said cause an intervening petition against the members of the banking firm of J. Kennedy Tod & Co., of New York, praying in respect of 10,600 shares of the capital stock of the Sioux City & Northern Railroad Company, and $2,340,000 in first mortgage bonds of the Sioux City, O'Neill & Western Railway Company, a corporation of Nebraska, held by J. Kennedy Tod & Co., an injunction against the disposition thereof, an accounting of what sums J. Kennedy Tod & Co. had advanced in good faith on said securities, and the surrender by them of the collateral to the intervening petitioner on the ascertainment of the sums so advanced, and constituting a lien thereon.

J. Kennedy Tod, W. S. Tod, and Robert S. Tod, composing the firm of Tod & Co., objected to the jurisdiction, but answered November 16, 1893, and about the 1st of January, 1894, petitioner filed an amended petition, to which defendants filed a supplemental answer, and petitioner a replication.

The intervening petition and amendments averred that the Union Loan & Trust Company was a corporation of the state of Iowa, organized in the year 1885, and thereafter engaged in carrying on a loan and trust business up to and until April 25, 1893, when it made a general assignment of all its property and assets to E. H. Hubbard, of Sioux City, Iowa.

That on July 3, 1889, A. S. Garretson, John Hornick, J. D. Booge, Ed. Haakinson, and D. T. Hedges entered into an agreement in writing, referred to as a 'railroad syndicate agreement,' for the construction of the Sioux City & Northern Railroad, which construction was proceeded with, and from time to time the individual members of the syndicate executed and delivered their respective notes to the Union Loan & Trust Company in various sums, which notes that company sold to various bankers and brokers throughout the United States; that there existed an understanding or agreement between the syndicate and the company that the syndicate should deposit with the company, as collateral security for said notes, the stock and bonds of the Sioux City & Northern Railway Company when issued; that the syndicate caused the corporation to issue the mortgage described in the original bill; and that the bonds and stock of the corporation were held by the company 'as collateral security for the payment of the notes wtih the proceeds whereof the said railroad has been constructed and equipped as aforesaid.'

That afterwards the syndicate lent its aid to the Wyoming-Pacific Improvement Company, a Wyoming corporation, engaged in the construction of the Nebraska & Western Railroad, a line of road extending westward from Sioux City to the town of O'Neill, in the state of Nebraska, and that said syndicate also extended its aid and assistance to other corporations in and about Sioux City, such as the Pacific Short-Line Bridge Company, the Union Stock-Yards Company, the Sioux City Terminal Railroad & Warehouse Company, and the Sioux City Dressed Beef & Canning Company, with the like understanding between the syndicate and the Union Loan & Trust Company that the securities of the respective companies coming into the possession of the syndicate should be deposited with the Union Loan & Trust Company as collateral to the notes which the members of the syndicate might give to that company on behalf of the enterprises respectively.

And also that the syndicate organized the corporation known as the Pacific Short-Line Bridge Company to construct a bridge across the Missouri river at Sioux City for the purpose of connecting said railroads, the stock of said company to belong to the Nebraska Company.

It was further averred that the syndicate acquired the ownership of all the bonds of the Nebraska & Western Railway Company, and that they became subject to the lien of the Union Loan & Trust Company; yet that A. S. Garretson on or about October 1, 1891, without any apparent record or other authority from the Union Loan & Trust Company, caused all of the Nebraska & Western bonds and 7,200 shares of Sioux City & Northern Railroad stock to be transferred to Tod & Co. as security for a loan of $1,000,000, but that Tod & Co. were chargeable with notice of Garretson's want of authority.

That the Nebraska & Western Railway was built by the Wyoming & Pacific Improvement Company, which was practically owned and controlled by the Manhattan Trust Company, and that the improvement company received stock and bonds of the Nebraska & Western Company, and delivered them to the Manhattan Trust Company, by which they were pledged, or held in trust, as security for loans negotiated and advanced by it to the improvement company, including a loan of $500,000 by Belmont & Co.; all of which were outstanding when, on November 1, 1890, the improvement company collapsed, to the knowledge of Tod & Co.

That to relieve itself from impending loss the Manhattan Trust Company, by untruthful representations as to the amount of the indebtedness of the Nebraska & Western Railway Company, induced Garretson to purchase said loans; that Garretson thereupon deposited $750,000 of the Sioux City & Northern bonds with the Manhattan Trust Company as security for relief of the maturing obligations to Belmont & Co., and that about the same time Tod & Co. began to make advances to Garretson on the security of the Nebraska & Western bonds; that Garretson was obliged to sell all the Sioux City & Northern bonds at a sacrifice price of 75 per cent., and to pledge all the Nebraska & Western bonds and half of the Sioux City & Northern stock substantially for the value of the purchase price of the Nebraska & Western bonds.

That the mortgage covering said bonds was foreclosed, and the property conveyed to a new corporation, called the Sioux City, O'Neill & Western Railway Company, in exchange for the issue of $2,340,000 of first mortgage bonds and 36,000 shares of stock; and that in the latter part of 1892, or early in 1893, Garretson, without any apparent record or other authority from the Union Loan & Trust Company, caused all of the bonds of the Sioux City, O'Neill & Western Railway Company, and substantially all of the stock of the Sioux City & Northern Railroad Company, to be vested in the Pacific Short-Line Bridge Company, and the notes of the latter company, to the amount of $1,500,000, to be given to himself, and the payment thereof to be secured by the pledge of all said bonds and stock, and transferred the notes and securities to J. Kennedy Tod & Co., who, acting as trustees, but chargeable with notice, negotiated or bought the greater part of the said notes for different holders or purchasers thereof, $500,000 being taken by the Great Northern Railway, which desired to acquired the Sioux City & Northern Railroad, and with which Tod & Co. were allied.

That after the failure of the Union Loan & Trust Company, a committee of its creditors, Tod & Co. having advertised the sale of the collateral pursuant to the terms of the $1,500,000 loan, there having been default in payment of interest for 30 days, offered to pay the overdue interest on certain conditions, which were refused, and the collateral was sold and bought in by Tod & Co. for $1,000,000.

The petition and amended petition contained an averment that petitioner, 'as assignee of said Union Loan & Trust Company, is entitled to the immediate surrender of all and singular of said securities by said J. Kennedy Tod & Co. to your petitioner, without any payment of principal or interest upon said alleged loan, or any other consideration whatsoever.'

The prayer of the amended petition was that Tod & Co. surrender to petitioner, without any terms or conditions, the collateral held by them as aforesaid, and that they be enjoined from selling or disposing of the same; for an accounting of sums advanced by Tod & Co. in good faith, and 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...