The same executives and most of the directors were common to both companies. Employees of the subsidiary were paid out of its own account, but by the defendant's paymaster. The executives of the subsidiary company were often paid out of the parent's funds, but the latter was later repaid. Defendant had loaned the other corporation money and held all its second mortgage bonds. There was a single maintenance of way department, a single purchasing agent, a central printing plant, and one claim department. Power on the system was contracted for by the Third Avenue Company. New cars were leased to and were run exclusively on the line of the subsidiary. All the cars, wherever used, on the entire system were marked "Third Avenue System." The court, with two judges dissenting, upheld the trial court's order, dismissing the complaint on the ground that it affirmatively appeared that the defendant was not responsible for the accident. The court refused to send this question to the jury.

Grounds upon which courts have purported to impose liability, either with or without a disregard of the entity, upon parent corporations for acts of subsidiaries are fraud, illegality, agency, and identity. In many of the cases involving imposition of personal responsibility, courts have disregarded the entity to prevent fraud. Courts have disapproved of the fraudulent use of the corporate device to do what the shareholder cannot legally do. As pointed out above this is not the only ground upon which liability is imposed. A second basis for the imposition of liability upon the parent by the courts has been illegality; for example when an act is done in violation of a statute. Thus, in United States v. Lehigh Valley R. R. the court interpreted a statute, 10 which prohibited carriage by a railroad of anything mined by it, as applying to the Lehigh Valley R. R. which owned all the stock in the Lehigh Valley Coal Co. This result was reached without disregarding the entities. No question of illegality seems to have been raised in the principal case. Section 54 of the Public Service Commissions Law prohibits any contract or agreement to transfer or lease a franchise unless approved by the proper commission. Paragraph 2 of the same section provides that one street railway corporation may not acquire stock in another without authorization of the commission. The court says," "It (the law) does not prohibit stock ownership, or at least did not, so far as the record shows, when the defendant bought the shares."

A third reason for holding the parent liable for the torts of its subsidiaries has been on principles of agency.12 It is the general and normal rule that corporation is not an agent for its shareholders.13 It is conceivable, however, that the owners of the shares may use the corporation as an agent. A question in this field is how

Anthony v. American Glucose Co., 146 N. Y. 407, 41 N. E. 23 (1895). For a collection of cases see, COOK, CORPORATIONS (8th ed. 1923) §§ 663, 649, 857. 9220 U. S. 257, 31 Sup. Ct. 387 (1910); See U. S. v. Milwaukee Transit Co., 142 Fed. 247 (E. D. Wis. 1905).

10The Hepburn Act, 34 Stat. 584, c. 3591.

11At page 91.

13 Salomon v. Salomon Co. Ltd.,

12 Supra note 4. [1897] A. C. 22.

far may control extend before the parent becomes a principal and the subsidiary an agent? Dominion may be so complete and interference so obtrusive that an agency will arise. This result may be reached without a disregard of the entity.

The final reason courts have seized upon for holding the parent corporation has been that a union between parent and subsidiary so close as to amount to identification justifies a disregard of the formal entities.14 Liability is imposed not because of fraud necessarily, but because the parent has so manipulated the business of the other that it is doing it itself.

It is impossible to lay down a positive test of responsibility as adduced from the decided cases. Courts have almost unanimously agreed that stock ownership, without more, is insufficient to charge the dominant company with liability for the acts of a subsidiary, nor will liability follow if stock ownership is made use of for the purpose of participating in the affairs of the other in the normal and usual manner. Similarly, all courts would probably agree that selection of officers and directors of a shareholder's own choice is not objectionable or fraudulent, although it is able thus, indirectly to impose its will in matters of management and control.16 The sanction for this would seem to be in the present policy of the law permitting acquisition of stock of one corporation by another.17

Unfortunately, when once we pass the points of ownership of stock, and common directorates, it is not possible to lay down broad and positive rules. Commingling of funds, 18 irregularities in administration, operation of the two companies as a unit,19 use of the same employees over the entire system20 have been considered by some courts as strong evidence of agency or of identity of parent and subsidiary. Good faith or lack of it in borderline cases is almost decisive in some courts. The differences in the results of the decided cases may be based on the different conceptions of the courts as to the degree of control that must be exercised before liability will be imposed. Or the inconsistencies in the decisions may be due to differences of policies in the several courts. The Supreme Court of the United States, in passing on cases involving states of fact which were in some cases stronger and in others weaker than those in the principal case, has said: "Where one railroad company actually controls another and operates both as a single system, the dominant company will be liable for the injuries due to the negligence of the subsidiary."

14 Supra note 4.

15U. S. v. Reading Co., 253 U. S. 26, 40 Sup. Ct. 425 (1919); Chicago etc. Ry. v. Civic Assn., supra note 4; Ellenkreig v. Siebrecht, supra note 5; Callery's App. 272 Pa. 255, 262, 116 Atl. 222 (1922).

16See Ambridge Borough v. Phila. Co., supra note 4.

17For an example of a typical statute, see Ñ. Y. Cons. Laws, c. 59, § 18 (1923), § 18 Stock Corporations Law.

18See, Foard Co. v. Maryland, 219 Fed. 827 (C. C. A. 4th, 1914).

19Westinghouse Elec. Co. v. Allis Chalmers Co., 176 Fed. 362 (C. C. A. 3d,

1910).

20Davis v. Alexander, supra note 4.

21 Ibid.

Evidentiary facts thus determine the degree of control in cases where it is sought to reach the parent on principles of agency or identity. In the principal case, the contention was that the evidentiary facts of ownership and management adduced pointed either to the fact of agency or of identity between the Third Ave. Company and 42nd Street Company, and that this was a question for the jury to decide. The majority of the court negatived this contention. Two judges in this court and the five judges in the Appellate Division22 believed that it was a question for the jury.23

However sound from a conservative viewpoint the result reached in the principal case may be considered to be, it is believed that the court has carried certain of its propositions to an extreme. Section 54 of the Public Service Commissions Law prohibits any contract or agreement to transfer or lease a franchise unless approved by the proper commission. Section 56 makes it a misdemeanor to do so. The purpose of this statute is to protect shareholders, creditors and the public against an extension of corporate activities, unless the proper approval has been secured. A decision for the plaintiff would have been equal to the declaration that the defendant had violated sections 54 and 56 of this statute. The court, in view of these sections, refused to imply a contract or agreement which would be both prohibited and illegal, and held that the presumption of law, on facts which it says are so equivocal and indefinite, is against such illegality.24 Regardless of its effect in the principal case, it is believed that the reasoning of the court may become a weapon in the hands of such public service companies as are affected by the statute. Such companies, protected by this presumption, could exercise a greater degree of control over a subsidiary than other corporations. On identical operative facts one parent corporation might be held liable while another would not be. Stressing such a presumption would seem to do violence to the intent of section 54, since the aim of that section is against unauthorized extension of control and yet this would sanction it indirectly.

The New York court had the choice in the Berkey case of following a recent tendency,25 so called, to disregard the entity even in cases not involving fraud or equities of third parties; that is, if the disregard seems justifiable under the particular circumstances of the case and if it will facilitate settlement of all litigation. The court did not follow this tendency. There is much to be said for the orthodox view taken by the New York court. The protection of creditors of the parent company, and the interest of the public in having its assets unimpaired are weighty. A further circumstance to be considered when public service companies are involved in the question is the policy to be fostered in achieving economy of operation.26 22217 App. Div. 504 (1st Dept. 1926).

23 See Werner v. Hearst, 177 N. Y. 63, 69 N. E. 221 (1903), holding that it is not a question for the jury to decide whether a corporation was a mere form and evasive device to escape liability.

24See JONES, COMMENTARIES ON EVIDENCE (1926) 91n. 25 Supra note 3. 26 Ins. Co. v. R. R. Co., 104 U. S. 146, 150 (1881). "Many arrangements for economy of expense and for convenience of administration may be made between carriers without subjecting them to liability . . ."

"The public has an interest in cheap, efficient and continuous operation."27 In such cases at least, somewhat closer relationship, it would seem, should be sanctioned before liability will be imposed, because of the ultimate benefit derived by the public in economical co-operation. It may be that the New York court considers public policy best served in the long run by conservative adherence to the corporate entity theory. The more liberal view taken by the Supreme Court of the United States and approved by the minority of the Court of Appeals in the principal case, is compatible with the impression on the lay mind that a railroad system is a unit and those who travel are justified in considering it as such and looking to the unit for redress. The situation is somewhat analogous to those cases which involve the question as to how much inquiry is required of a traveler to ascertain whether the transportation company is doing an ultra vires act. It is a question of reasonableness under the circumstances. This view is also compatible with a tendency in some courts to reduce to a minimum the abuses of joint ownership.

Burt Franklin.

Criminal Law: Public nuisance: Violation of Eighteenth Amendment and the Volstead Act as elements of crime in New York.Is the selling of intoxicating liquor in one's home, to several persons in the presence of other persons, but within doors, unobserved by persons outside the house and unaccompanied by any noise or violent or unseemly conduct, a crime under section 1530 of the Penal Law of New York? This novel question, first squarely presented in People v. Conti,' is again answered in the negative, this time by an appellate court in People v. Cook, 220 App. Div. 110 (4th Dept. 1927), two judges dissenting. This case is particularly important in that it discusses the status of the Eighteenth Amendment and of the Volstead Act within the sovereign state of New York.

Section 1530 of the Penal Law defines a "public nuisance" as "unlawfully doing an act, or omitting to perform a duty, which act or omission: 1, annoys, injures or endangers the comfort, repose, health or safety of any considerable number of persons; or 2, offends public decency; or . . . 4, in any way renders a considerable number of persons insecure in life, or the use of property." It was not seriously contended that the defendant's act constituted a nuisance except under subsection two. In this connection it is necessary to determine whether the selling of liquor under the circumstances of this case was (1) an unlawful act, and (2) an offense against public decency. The majority of the court held that the act in question did not satisfy the above requisites, and that the defendant was therefore not guilty of a crime; while Judge Sears, dissenting, thought that this act did meet these requirements and that the defendant was guilty of the crime charged.

Is the selling of intoxicating liquor in New York at the present time an unlawful act? The dissenting judge answered this question

27244 N. Y. 84, 92 (1926).

1127 Misc. 244, 216 N. Y. Supp. 442 (Sup. Ct. 1926).

in the affirmative, while the majority of the court answered it in the negative. It is submitted that the majority's conclusion is doubtful for two reasons.

Section 21 of the Volstead Act,2 provides in part as follows: "Any room... where intoxicating liquor is sold. . . in violation of this title ... is hereby declared to be a common nuisance, and any person who maintains such a common nuisance shall be guilty of a misdemeanor." It is not contended that the defendant is being, or could be, prosecuted under this section. Under section 22 of the New York Penal Law, which provides that "no act or omission... shall be deemed criminal or punishable, except as prescribed or authorized by this chapter", and under section 256 of the Federal Judicial Code, which provides that "The jurisdiction vested in the courts of the United States in the cases and proceedings hereinafter mentioned, shall be exclusive of the courts of the several states: First, of all crimes and offenses cognizable under the authority of the United States . . ." the courts of New York State have no jurisdiction to enforce the criminal provisions of the Volstead Act.

But it is contended that a violation of the Volstead Act is unlawful and answers that requirement of a public nuisance. The minority of the court concede that "so far as its criminal provisions are concerned the Volstead Act is no part of the law of this state as a separate sovereignty." "So far, however, as its provisions are enforceable by civil process, it is a part of the law of this state."

ניי

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In the recent case of United States v. Sumner,5 the instant court unanimously affirmed without comment this holding of the court below: "The National Prohibition Act is the Supreme Law of the land and neither the state, its citizens nor its courts can override it."

In People v. Otis, the court held that: "The possession of intoxicating liquor is now unlawful. Liquor so possessed may not be sold... to any one." For this reason a contract for the sale of in

241 U. S. Statutes at Large, c. 85, p. 314.

"In Ex parte Bridges, Fed. Case No. 1862 (1875) at 100 the court held that: "The judiciary power of every government can work beyond its own municipal laws in civil cases. . . But as regards crime the rule is otherwise; for the courts of one state or nation will not hold cognizance of, nor enforce the criminal acts of another. And as to crimes made so be legislative enactments, the government of the United States stands in the same relation to the government of this state as any foreign power. Mr. Justice Story, in giving the opinion of the Supreme Court in Martin v. Hunter, I Wheat 304, said: 'No part of the criminal jurisdiction of the United States can consistently with the constitution be delegated to state tribunals.' Thus it is manifest that the state courts cannot hold criminal jurisdiction over offenses exclusively existing as offenses against the United States: for every criminal prosecution must charge the crime to have been committed against the sovereign whose courts sit in judgment upon the offender." See also, Tennan v. Davis, 100 U. S. 257 (1879); People v. Welch, 141 N. Y. 266, 36 N. E. 328 (1894); Herbert v. State of Louisiana, 47 Sup. Ct. 103 (1926). But see (1924) 33 YALE L. J. 637.

4U. S. v. Myers, 215 App. Div. 624, 214 N. Y. Supp. 438 (2d Dept. 1925); U. S. v. Sumner, 216 App. Div. 782, 214 N. Y. Supp. 930 (4th Dept. 1926); Claflin v. Houseman, 93 U. S. 130 (1876); Second Employers Liability Cases, 223 U. S. 1, (1911); 32 Sup. Ct. 169 (1911); 38 L. R. A. (N. S.) 44, 15 C. J. 1155. Supra note 4.

$235 N. Y. 421, 423, 139 N. E. 562 (1923).