Tretter and Simon Rosenzweig, representing the Pound Club for the Respondents.

In the evening all of the first year class dined at Straight Hall with the judges and members of the faculty, and at the close of the dinner the decision of the court was announced, which was in favor of the Respondents. The members of the court discussed at length the merits of the presentation of the case by the counsel, and also the interesting points of law involved. Plans are being made to provide for the maintenance of a permanent and public record in the Law Library of the winners of these final cases, which will be held annually in the future.

Saturday morning, April 30th, Professor Morris R. Cohen delivered the Phi Delta Phi address on the Frank Irvine Foundation, in Boardman Hall. The subject of his address, which will be printed in a subsequent issue of the QUARTERLY, was "Property and Sovereignty." After Professor Cohen had spoken, he was entertained informally at luncheon by the active chapter of the Phi Delta Phi fraternity.

The annual LAW QUARTERLY banquet was held on the evening of Saturday, April 30th, in Prudence Risley Hall, and was attended by the editors and a number of ex-editors, by the members of the faculty and by a number of invited guests. Those who spoke were Professor Robert S. Stevens, Faculty Editor of the LAW QUARTERLY, Honorable William L. Ransom, President of the Cornell Law Association, Professor James L. Brierly, Chichele Professor of International Law at Oxford, who is visiting professor in the Cornell Law School this spring, Professor Morris R. Cohen, this year's Phi Delta Phi lecturer and President Farrand. Mr. Thomas G. Rickert, retiring Editorin-Chief of the QUARTERLY, acted as toast-master.

HONORARY AWARDS

The following members of the Editorial Board have been elected to the Order of the Coif, national honorary law society: Eugene J. Conroy of Oneida, New York; Robert H. Dann of Douglaston, New York; Nathan Katz of Birmingham, Alabama; Samuel Mezansky of Poughkeepsie, New York; and Thomas G. Rickert of Niagara Falls, New York.

The prize set of McKinney's Consolidated Laws of New York has been awarded to Thomas G. Rickert of Niagara Falls, New York, as the senior who has done the best work for the CORNELL LAW QUARTERLY throughout his law course.

Notes and Comment

Confidential Relationship: When does such relation exist? — The term "fiduciary relation" or "confidential relation" appears in the law in apparently widely dissimilar cases as a basis of relief. For example, equity refuses to allow a person to keep real property in breach of an oral trust where there is a confidential relationship.2 Relief from an improvident contract or gift will be granted when the presumption of undue influence arising from such a relation is unrebutted. One who, by reason of his position, derives pecuniary profit inconsistent with the duties arising from confidential relation will be compelled to give up his gain, even though the profit was not at the expense of the complaining party.5

Just what constitutes a confidential or fiduciary relation? The courts and the writers have declined to define it for fear of the exclusion of cases in which equity ought to intervene," a fear similar to that which has left undefined and elastic such terms, as "equitable fraud," "undue influence," "unconscionable conduct," "negligence." However, there are general principles governing such terms. There seem to be two general situations where a fiduciary relation is said to exist. One is where one party is the legal representative of the other whether by agreement between the parties, or otherwise.

'BLACK'S LAW DICTIONARY (2d ed. 1910) 243. "These phrases are used as convertible terms."

'Alaniz v. Casenave, 91 Cal. 41, 27 Pac. 521 (1891); Stahl v. Stahl. 214 Ill. 131, 73 N. E. 319 (1905); Miller v. Miller, 266 Ill. 522, 107 N. E. 821 (1915); Stout v. Stout, 165 Iowa 552, 146 N. W. 474 (1914); Goldsmith v. Goldsmith, 145 N. Y. 313, 39 N. E. 1067 (1895); Cardiff v. Marquis, 17 N. D. 110, 114 N. W. 1088 (1908); Hatcher v. Hatcher, 264 Pa. 105, 107 Atl. 660 (1919), noted in (1920) 5 CORNELL LAW QUARTERLY 317. See Costigan, The Classification of Trusts (1914) 27 HARV. L. REV. 435, 445.

Cannon v. Gilmer, 135 Ala. 302, 33 So. 659 (1902); Jones v. Jones, 140 Cal. 587, 74 Pac. 143 (1903); McKnatt v. McKnatt, 10 Del. Ch. 392, 93 Atl. 367 (1915); Horner v. Bell, 102 Md. 435, 62 Atl. 736 (1906); Walsh v. Harkey, 69 Atl. 726 (N. J. 1908); See 3 WILLISTON, CONTRACTS (1920) § 1627.

Wardwell v. Railroad Co., 103 U. S. 651 (1880) (director); Gower v. Andrew, 59 Cal. 119 (1881) (clerk); Davis v. Hamlin, 108 Ill. 39 (1883) (general manager); Grumley v. Webb, 44 Mo. 444 (1869) (agent); Essex Trust Co. v. Enwright, 214 Mass. 507, 102 N. E. 441 (1913) (employee); Steinberg v. Steinberg, 123 Misc. 764, 206 N. Y. Supp. 134 (Sup. Ct. 1924) (employee) commented upon in (1925) 25 COL. L. REV. 380.

Nebraska Power Co. v. Koenig, 93 Neb. 68, 139 N. W. 839 (1913); In re North Australian Territory Co., L. R. 1 Ch. Div. 322 (1892); 3 COOK, CORPORATIONS (8th ed. 1923) § 650.

62 POMEROY, EQUITY JURISPRUDENCE (4th ed. 1918) § 956 at 2040.

"Western Union Telegraph Co. v. Northcutt, 158 Ala. 539, 48 So. 553 (1909) (agency); Peters v. St. Louis & S. F. R. Co., 150 Mo. App. 721, 131 S. W. 917 (1910) (agency); Nebraska Power Co. v. Koenig, 93 Neb. 68, 139 N. W. 839 (1913) (director); People ex rel. Manice v. Powell, 201 N. Y. 194, 94 N. E. 634 (1911), affirming 140 App. Div. 912, 125 N. Y. Supp. 1139 (1st Dept. 1910) (director); Continental Securities Co. v. Belmont, 206 N. Y. 7, 99 N. E. 138 (1912) (director); Newell v. Halloran, 250 Pac. 986 (Utah 1926) (agency).

Ex parte Lacey, 6 Ves. 625 (Ch. 1802) (assignee in bankruptcy); Magruder v. Drury and Maddox, 235 U. S. 106, 35 Sup. Ct. 77 (1914) (trustee under trust notes); Scott v. Royston, 223 Mo. 568, 123 S. W. 454 (1909) (general guardian);

The second is when the circumstances justify one party reposing unusual confidence in the other, as where one party occupies such a relation, domestic, moral, or social as would naturally give him a dominant and controlling influence. The second is the far more difficult to apply and naturally enough the courts differ in that application. For instance, it has been held that mother and son are not in confidential relation,1o and there are cases which hold that they are." Each result is the application to the particular facts before the court of the same test; did the defendant have a controlling influence, or was there unusual confidence in fact, or was there a justifiable dependence of one upon the other?12 When the relationship of the parties, whether by blood, by affinity, by religion or otherwise is so close as to give rise to a natural dependence of one on the other, then a presumption of confidence ought to follow, subject, however, to rebuttal. Beyond that, no presumption would aid the plaintiff, but such confidence and abuse could be shown as would justify the intervention of equity. A good example of the last point is the case of Cannon v. Gilmer13 in which the court held that a white man and a seventy year old illiterate negress, who were neighbors, were in confidential relation, where the circumstances showed that the negress, threatened by another negro, sought the advice of this white man, who took advantage of the situation and procured property from the negress. In the recent case of Newell v. Halloran, 250 Pac. 986 (Utah 1926) the point was squarely in question. The facts were that an old man, still alert mentally, made to a younger man a thirty year lease of real estate with a somewhat improvident option of purchase. The lessee several years earlier had been thrown in close business association with the lessor, among other ways as directors of a trust company which then managed the lessor's property, and in which the lessee was an officer. The lessor filed

In re Andrews, 192 N. Y. 514, 85 N. E. 699 (1908) (committee for insane person); Brewster v. Brewster Co., 204 N. Y. 687, 98 N. E. 1099 (1912) modifying order 145 App. Div. 812, 130 N. Y. Supp. 654 (1st Dept. 1911) (receiver), Ñ. Y. Ann. Cons. Laws (1923) c. 787, § 106.

"The situation is stated by Lord Chelmsford in Tate v. Williamson, L. R. 2 Ch. App. 55, 61 (1866). "Wherever two persons stand in such a relation that while it continues, confidence is necessarily reposed by one, and the influence which naturally grows out of that confidence is possessed by the other, and this confidence is abused or the influence is exerted to obtain an advantage at the expense of the confiding party, the party so availing himself of his position will not be permitted to retain that advantage, although the transaction could not have been impeached if no such confidential relation had existed."

10 Powers v. Powers, 46 Or. 479, 80 Pac. 1058 (1905).

"Stahl v. Stahl, supra note 2; Goldsmith v. Goldsmith, supra note 2. 12"A fiduciary relation is not limited to cases of trustee and cestui que trust, guardian and ward, attorney and client, or other recognized legal relation, but it exists in all cases in which influence has been acquired and abused, in which confidence has been reposed and betrayed. The origin of the confidence is immaterial. It may be moral, social, domestic or merely personal. If the confidence in fact exists, is reposed by the one party and accepted by the other, the relation is fiduciary.' Kochorimbus v. Maggos, 154 N. E. 235, 238 (Ill. 1926). 13135 Ala. 302, 33 So. 659 (1902); for cases similar in principle see McKnatt v. McKnatt, supra note 3; Beach v. Wilton, 244 Ill. 413, 91 N. E. 492 (1910); Hunter v. Owen, 9 S. W. 717 (Ky. 1888); Wood v. White, 123 Me. 139, 122 Atl. 177 (1923), commented upon in (1923) 22 MICH. L. REV. 500.

suit to cancel the lease on the ground that the lessee was in a confidential relationship to him. The majority of the court held there was no confidential relationship, but the minority of one, relying on numerous circumstances that colored the relation, thought that relief should have been granted.

14

The field in which relief is given because of this relationship is a very broad one, shading into other fields where there is inequality between the parties. In these latter fields, relief may be given on the ground of "non-disclosure," because of the failure to fulfill a duty of disclosure, greater than ordinary. 15

The refusal of the courts to set down limits to this principle of confidential relationship has, of course, the undesirable result of making for less certainty, whereas certainty is often an essential requirement for the law as a practical instrument. 16 However, the policy of the courts seems wise inasmuch as this is a field of law in which definiteness is not so desirable as is flexibility for, whether or not a "fiduciary relation" exists is greatly dependent upon the particular facts surrounding the parties and the transaction in question.17

Anthony A. Goerner.

Corporations: Parent and subsidiary: Parent not liable for tort of subsidiary. It is well established that shareholders are distinct from the corporation. While it may be true in fact that corporate action is the action of individuals associated in a corporate form of organization, the law, in the normal situation, treats such action as though it were that of the corporation, by the attribution or recognition of an independent entity. The rights and liabilities of a corporation are thus kept separate from those of the shareholders. Where the circumstances are sufficiently compelling, as where there is abuse or perversion of this statutory privilege, or where policy demands it, the separate entity has been disregarded to reach the individuals. Abuses of this privilege have led to the creation of

14The court in Newell v. Halloran, supra note 7 at 988, speaking of confidential relation said, "The doctrine rests upon the principle of inequality between the parties, and implies a position of superiority occupied by one of the parties over the other."

15 BOWERS, ACTIONABLE NON-DISCLOSURE (1915) 2. The writer has, as examples, contracts of insurance, of suretyship, of sales, releases and compromises as illustrative of situations where there is a high duty of disclosure. 16COUDERT, CERTAINTY AND JUSTICE (1913) I, 3.

17Cowee v. Cornell, 75 N. Y. 91, 101 (1878). "The question as to parties so situated (grandfather and grandson, employer and employee) is a question of fact dependent upon the circumstances in each case."

While it is beyond the scope of this note to define this so called corporate fiction, it may be well to remember that the term fiction, as applied to corporate personality, must be differentiated from the use of the term fiction as applied in other fields of the law. As used in the former sense it conforms to the real intent of the parties; as used in the latter sense it may do violence to intent in order to reach a just result. See Canfield, Scope and Limits of the Corporate Entity Theory (1917) 17 COL. L. REV. 128; Machen, Corporate Personality, (1910) 24 HARV. L. REV. 253, 347; HOHFELD, FUNDAMENTAL LEGAL CONCEPTIONS (1923) 196 et seq. Berolzheimer, WORLDS LEGAL PHILOSOPHIES, (1912) 369.

several well established exceptions to the normal rule. Others have been proposed.3

2

The question in Berkey v. Third Avenue Railroad, 244 N. Y. 84 (1926) was whether, on the facts in that case, New York should follow the rule established in somewhat analogous situations in other jurisdictions and disregard the entity of a subsidiary corporation to place responsibility on the parent corporation for the former's tort." Plaintiff sued the Third Avenue Railroad for injuries due to the negligence of employees of the subsidiary line, the 42nd Street Company. Defendant did not organize the subsidiary but subsequent to its organization acquired all the shares of the former."

Most of the cases have involved one or more of these elements: evasion of the obligations of a statute, attempts to form a monopoly, taxation, fraud, concealment or oppression. See, Ballantine, Parent and Subsidiary Corporations (1925) 14 CALIF. L. REV. 12; Canfield, loc. cit. supra note 1.

See (1926) 36 YALE L. J. 254.

'Davis v. Alexander, 269 U. S. 114, 46 Sup. Ct. 34 (1925); Lehigh Valley v. Dupont, 128 Fed. 840 (C. C. A. 2d, 1904); Lehigh Valley v. Delachesa, 145 Fed. 617 (C. C. A. 2d, 1906); The Willem Van Driel Sr., 252 Fed. 35 (C. C.A.4th, 1918); Gulf etc. Ry. v. Cities Service Co., 281 Fed. 214 (C. C. A. 2d, 1922). See Chicago etc. R. R. v. Civic Assn., 247 U. S. 490, 38 Sup. Ct. 553 (1918). Contra: Stone v. Cleveland etc. Ry., 202 N. Y. 352, 95 N. E. 816 (1911); 35 L. R. A. (N. S.) 770 n.; Atchison, etc. R. R. v. Cochran, 43 Kans. 225, 23 Pac. 151 (1890); See, Bethlehem Steel Co. v. Raymond Pile Co., 141 Md. 67, 118 Atl. 279 (1922). See Ambridge Borough v. Phila. Co. 283 Pa. 5, 129 Atl. 67 (1925) for a case where the facts were similar to those in the principal case, but a somewhat different question was involved.

"What should be the effect of the circumstance of control of one corporation by another corporation, instead of, as is normally the case, control by natural persons? It is believed that this difference is not material and the result should not differ from that in the normal situation, unless not to do so would produce an unjust result. The situation is comparable with, and analagous to, that of a one man corporation. The sole shareholder should not be permitted to commit with impunity, a wrong in one capacity through the guise of having committed it in another. Kirkpatrick v. Allemania Ins. Co., 102 App. Div. 327, 92 N. Y. Supp. 466 (2d Dept. 1905). But one who is suing the sole shareholer in contract or in tort cannot, according to the sound and majority view, reach him merely because he is the sole shareholder. Wenban Estate v. Hewlett, 193 Cal. 675, 227 Pac. 723 (1924); Ellenkreig v. Siebrecht, 238 N. Y. 254, 144 N. E. 519 (1924), (1924) 34 A. L. R. 592.

For a most interesting and recent case, indicating what may be accomplished by means of the entity theory and subsidiary corporations see People ex rel Studebaker Corp. v. Gilchrist, 244 N. Y. 114 (1926). There the tax commission sought to tax an automobile manufacturing corporation whose retail branches were separately incorporated but apparently controlled by the manufacturer, a foreign corporation. The tax law made provision for a return on the consolidated income if the owner corporation did business in the state. Every retail branch lost money, yet the parent made several millions of dollars. The court based its decision on the tax laws as they were before suit was brought and denied the plaintiff relief because the tax law did not apply to a foreign corporation in the manner assumed by the plaintiff. It was suggested that the proper theory upon which to obtain relief for the plaintiff would be to attempt to reach the defendant by disregarding the entities, or because the parent was a principal and the other an agent. The tax law was subsequently amended, L. 1925 c. 322. See also Fayette Grocery Co. v. Brown Bros., 135 S. E. 235 (W. Va. 1926).

The court distinguishes cases where the defendant organizes the subsidiary from cases where the defendant subsequently comes into control of an existing corporation. In the former case courts will scrutinize the transaction somewhat more narrowly, to ascertain whether the organized corporation is no more than a blind or decoy. See Wabash Ry. v. Am. Refrigerator Co., 7 Fed. (2d) 335 (C. C. A. 8th, 1925).