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Cleveland (1885) 43 Ohio St. 481. In that case the city of Cleveland had conveyed lands to the society which the latter had encumbered with various mortgages. Thereafter the attorney-general had the society adjudged not to have been legally incorporated. The question was whether the society could be grantee from the city as a de facto corporation. It was held, that the doctrine of de facto corporations is not based on any theory of estoppel but on public policy, and that a corporation de facto may be a grantee. “The highest considerations of public policy and fair dealing protest against treating such an organization as a nullity, and all of its transactions void." The de facto corporation then can be justified on no principle of law. It is an expedient, a fiction, adopted to attain a just result when the parties have failed to give true legal effect to their intentions—an equitable as opposed to a legal doctrine.
The question then remains whether there is any ground for distinction between the case where third parties are concerned, and the case where the “shareholders " are acting inter sese. On sırict legal theory their relation should be the same in both cases, for if they are partners to the world, this relation results from the status created by their acts, Coleman v. Coleman (1881) 78 Ind. 344; Parsons (James) on Partnership $ $ 45, 48, 50; Whipple v. Parker, supra, and not by reason of any holding out-they held themselves out as a corporation. However, there are jurisdictions which regard the same association as a corporation under certain circumstances but as a partnership under other circumstances. The cases of Bushnell v. Consolidated Ice Ma. chine Co. (1891) 138 Ill. 67 and Loverin v. McLaughlin (1896) 161 Ill. 417. taken together, illustrate this. In the former case one shareholder was not allowed to sue another on a partnership basis, since both parties had intended to stand towards each other in the position of shareholders in a corporation. In the latter case, the shareholder was not allowed to rely on the de facto corporation to avoid his personal liability as a partner 10 a third party. If rigidly adhered to, this position would lead to the unjust result that a shareholder might be liable to third parties as a partner for the association's obligations, but then would be unable to compel contribution from his fellow-shareholders on a partnership basis. In Maryland, where the principal case was decided, it has been held that the shareholders are partners as to third parties. Buonaparte v. Hampden (1892) 75 Md. 340. It seems therefore, logical and just that they should be so treated inter sese, a result contrary to that reached in the principal case.
THE LOTTERY CASE. - In the latest decision on the distribution of powers under our federal system, the Supreme Court has again taken a national point of view. The Lottery Case (1903) 188 U. S. 321. In holding that Congress may prohibit the carrying of lottery tickets by carriers from one State to another, it has strengthened the central government in two particulars. First, the commerce which Congress may regulate is conceived of broadly; and second, the power of regulating it is held to include to some extent the power of prohibiting it.
Lottery tickets are subjects of commerce, says the Court, because they are subjects of traffic. There would seem to be no objection to
such a position were it not for some previous decisions. In Paul v. Virginia (1868) 8 Wall. 168, and New York Life Ins. Co. v. Cravens (1900) 178 U. S. 389, it has been held that insurance business carried on between citizens of several States is not interstate commerce. These and similar decisions seem to the four dissenting justices insurmountable obstacles, as a lottery ricket is nothing more than a claim, contingent in character, against the lottery company. But the majority opinion pays no attention to them, and they are distinguishable, it may be, on the ground that they involved no actual carriage of tangible articles from one State to another. The carriage of things for hire might well be considered commerce, like the carriage of persons, irrespective of the purpose for which the things themselves are used.
That the power given to Congress in the Constitution to regulate interstate commerce was meant to include the power to forbid it, is probably a fair proposition for debate. Neither the majoriiy nor the minority opinion however puts forth any satisfactory reasoning for the interpretation which it urges HARLAN, J., for the majority, begs the question in triumphantly quoting from Marshall that the power “acknowledges no limitations other than are prescribed in the Constitution,” and then calling upon the other side to point out some limiting clause.
But the point has been practically settled by the acquiescence of the nation in the Embargo Acts of a century ago. Fuller, C. 1., gives no authority for his attempted distinction between the powers of Congress over interstate and over foreign commerce. The result of the decision is that the word “regulate” in this clause is practically equivalent to “ control.
The widespread interest the case has aroused is due in great measure to the possibilities it suggests. The Court carelully limits its decision to carriage by independent carriers, and to the carriage of lottery tickets. Perhaps the taking of lottery tickets from one State to another by a person for his own use would be beyond the control of Congress, on the ground that under the distinction already suggested it would not be interstate commerce. But the ground of the limitation to lottery tickets which most of the States have decided to be dangerous to public morals, is not apparent. The powers of Congress must be totally independent of the policy of the States, and of any changes therein. Nor can the power to prohibit be limited to what is against public health and morals; to repeat the quotation from MARSHALL,
the power to regulate acknowledges no limitations other than are prescribed in the Constitution.” Those limitations are found in the ninth section of Article I and in the first ten amendments; but the only one bearing on this matter is the guaranty of due process of law in the taking of life, liberty and property. Amend. V. The prohibition of combinations in restraint of trade is not an unlawful deprivation of liberty, U. S. v. Joint Traffic Ass'n (1898) 171 U. S. 505; and neither, it would accordingly appear, would be the prohibition of interstate transportation of goods manufactured by such a bination.
Priorities in Partial AssignmENTS OF Mortgage Debt. — The rule that in equity the mortgage follows the debt, so that an assignee of
the debt becomes thereby equitably entitled to the benefit of the mortgage security, applies to partial, as well as to absolute assign
Ordinarily, therefore, each assignee acquires an interest in the mortgage equal to his share of the debt. When, however, the security is insufficient it becomes important to determine whether any priority arises in favor of the assignee of one part against the assignee of the other parts or against the assignor. A recent Indiana case, Alden v. White (Ind. 1903) 66 N. E. 509, reaches the conclusion that as between assignor and assignee the latter has a priority. After judgment had been taken on the mortgage debt and a decree of foreclosure entered, twelve-fifteenths of the judgment were assigned, and it was held that such parts were entitled to a preference over the three-fifteenths that had always remained in the hands of the mortgagee.
The question usually arises in a more complicated form, as where several notes, maturing at different dates, are given in payment of a debt and a single mortgage made to secure the whole. The courts differ irreconcilably in their views; some holding that the assignment of any note carries with it a right merely to a proportionate interest in the mortgage and hence all parties must share pro rata without any priority; others holding that an assignment operates as a transfer of the mortgage pro tanto and hence gives a priority sufficient to secure fully the note assigned. And it is disputed among the supporters of the latter view whether the fact of the assignment as against the assignor, or the date of the assignment as between assignees, or the date of maturity of the note should determine the priority.
This divergence of opinion appears in the leading case on the subject, Donley v. Hays (Pa. 1828) 17 Serg. & R. 400. The majority of the court, assuming the maxim “equality is equity” to be applicable, decreed that the various holders of bonds secured by a mortgage including the mortgagee should all share pro rata in the proceeds of the foreclosure sale ; but Gibson, C. J., in an able dissenting opinion supported the theory of priority according to the date of assignment. His view has been approved and followed in a few states. Cullum v. Erwin (1842) 4 Ala. 452 ; Gordon v. Fitzhugh (Va. 1876) 27 Gratt. 835; but the weight of authority is in accordance with Donley v. Hays. Jones on Mortgages $$ 1699-1703 ; Keyes v. Wood (1849) 21 Vt. 331 ; Wilson v. Eigenbrodt (1882) 30 Minn. 4; Penzel v. Brookmire (1888) 51 Ark. 105.
It is undoubtedly competent for the parties to the assignment to create, regulate, or prevent a priority by means of an express agreement, or one to be implied in fact from the circumstances of the transaction. Granger v. Crouch (1881) 86 N. Y. 494. When, however, as in many cases, nothing appears beyond the mere fact of the assignment, it is necessary to adopt some general rule of construction, which shall give to it the fairest and most equitable interpretation. Approaching the question from this point of view the Virginia and Alabama courts argue that it is natural to suppose that a secured claim, or any portion thereof, is assigned at its face value, and so if a deficiency results, the assignee, who has relied on the collectibility of the demand, should be entitled to prior satisfaction out of the security. The assignor is not bound to make good to him the loss
if the security be inadequate, but he should not at least cause him loss by interposing his own competing claim. Further it is suggested that this principle is merely the converse of that by which the vendor of part of an incumbered estate is held not entitled to contribution from the vendee in paying off the incumbrance, Clowes v. Dickinson (1821) 5 Johns. Ch. 235, and from which is derived the rule that where a part of mortgaged premises has been alienated a decree of foreclosure must direct the part still held by the mortgagor to be sold first. It would follow from this reasoning that a subsequent assignee of another installment of the debt, though he gets an equal equity, is barred by the priority in time of the claim of the first assignee.
Some states, however, adopt the rule, that the priority of any note is determined by the date of its maturity. Pomeroy's Equity Jurisprudence $$ 1201-1203 ; Isett v. Lucas (1864) 17 Iowa 503; Aultman-Taylor Co. v. McGeorge (1884) 31 Kan. 329.
These cases apply this rule even between assignor and assignee ; but Indiana, following Pomeroy's opinion, has very inconsistently confined it to the determination of priorities between assignees, who as Alden v. White declares, are always preferred to the assignor. Parkhurst v. Watertown Steam Engine Co. (1886) 107 Ind. 594.
This theory in any form seems objectionable because it rests on an unwarranted separation of the single mortgage into several to correspond with each successive note, and because, in assuming that the right of the holder of the earliest maturing note to enforce it by foreclosure gives him a preference, it violates the principle that it is the time of the creation of liens, not that of their enforcement, which regulates the mutual rights of the holders.
The position of the opposing decisions, that all parties stand in æquali jure, is defended on the ground that as no portion of the debt is entitled to preference while all is held by the mortgagee, he cannot be presumed to give another a better right than he himself possesses. It is also said to be supported by the doctrine that in the application of the proceeds of the sale of a security for several debts, all must be paid pro rata, whether otherwise secured or not. Orleans Co. Nat. Bank v. Moore (1889) 112 N. Y. 543. But these rules are made for the protection of the mortgagor and the sureties for his debts and, whatever the equities they may create, they hardly apply to the present class of cases, where the mortgagor is an entirely indifferent party. If the debts secured by the mortgage were separate and distinct transactions, there would be reason for holding that the mortgage should under all circumstances be divided proportionally between them; but where it stands as security for what is really one obligation, it should not be material whether the latter is single or in the form of a series of notes or bonds. If this pro rata rule is to be preferred it is because it is based on an equally fair interpretation of what was contemplated by the parties; its application is not affected by the equities of the mortgagor and his sureties; and it avoids obvious hardship to subsequent assignees.
ATTEMPT TO ENJoin SubwaY CONSTRUCTION IN New York City. — The New York Supreme Court has, for the second time refused to enjoin the construction of the New York City Subway through Park Av ue. Barney v. City of New York (1903) 39 Misc. 719. A pre
vious action for the same relief but brought by the plaintiff as a taspayer instead of as an injured property owner was, some months ago, dismissed by GIEGERICH, J. Barney v. City of New York (1902) 38 Misc. 549. In each case it appeared that the defendants were following a route substantially nearer the house line than was provided for by the plans under which alone the work could lawfully be done. This caused appreciable damage to the abutting property owners, of whom the plaintiff was one, from the increased noise and vibration from the blasting, and threatened future damage from vibration when the road should be in operation. In each action the plaintiff was defeated by the fact that if the work were stopped by injunction the public would be greatly inconvenienced, as the completion of the subway is an urgent necessity for the comfort of a large portion of the urban population.
The position of GIEGERICH, J., in the first decision seems sound. There inasmuch as the plaintiff sued as a representative of the public it was a proper subject of inquiry. whether, in fact, the public welfare demanded the success of the action, Rogers v. O'Brien (1897) 153 N. Y. 357, and it was properly decided that it did not.
But was LEVENTRITT, J., justified in dismissing on the ground of “public interest" the second action, in which the plaintiff sued simply as the owner of property for the protection of his property rights ?
Examination of the authorities shows that public convenience has been considered as a factor in granting or withholding equitable relief in private litigation in several classes of cases. The first intimation of such a doctrine is in Barnes v. Baker (1752) Ambler 158; s.c., sub. nom. Anon. 3 Atk. 750. There, in dismissing a bill to enjoin the erection of a smallpox hospital next to the plaintiff's land, primarily on the ground that it was a public nuisance if any, LORD HARDWICKE is reported by Ambler to have said: “I am of opinion it is a charity like to prove of great advantage to mankind." The question of the application of the doctrine has frequently arisen under the constitutional inhibitions of taking property without compensation. In the ordinary case the direct taking of property without compensation will be enjoined, irrespective of public convenience, at least until compensation is made. Storck v. El. Ry. (1892) 131 N. Y. 514; Chambers v. R. R. Co. (1882) 69 Ga. 320. But equity will not at the expense of public or private interests lend its aid to the protection of a bare technical right, as where the taking, consisting only of the deprivation of easements of light, air, and access, actually enhances the value of the property to an amount exceeding the damage done. Gray v. El. Ry. (1891) 128 N Y. 499 ; O'Reilly v. El. Ry. 148 N. Y. 347. Again, Romilly, M. R. in Wood v. Charing Cross Ry. (1863), 33 Beav. 290 treated the public convenience as a determining factor in dismissing a bill to enjoin the further construction of a railroad through the plaintiff's land. The defendant. required by charter to give compensation, under an honest mistake as to the true value of the plaintiff's land had begun work, the plaintiff making no objection, without making full compensation, And so even where an absolute injunction would have been granted at the inception of the injury, subsequent relief has been denied on the ground of public convenience and disproportionate injury to the defendant, the plaintiff's injury being such as could be readily com