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Central Law Journal.

ST. LOUIS, MO., SEPTEMBER 6, 1901

In this day of extensive corporate enterprise, one of the schemes often resorted to by promotors to induce the unwary to subscribe for stock in a proposed corporation is offering to issue to them full-paid stock for a small per cent. of its face value, and agreeing further in behalf of the corporation that no more than that per cent. will ever be called for by the corporation. While such agreement is good against the corporation, it is not good against creditors of the corporation who have extended credit to it on the faith that its corporate stock is payable in full, and without notice of a different agreement between the corporation and its stockholders, the unpaid subscriptions being assets for the payment of such creditors on the insolvency of the corporation. This question arose and was so decided in the case of Bent v. Underdown (Ind.), 60 N. E. Rep. 307, where the court gives this excellent statement of the rule:

"An agreement between a corporation and its stockholders that only a certain per cent. of the stock subscribed by each stockholder shall be paid in is binding on the corporation, and the corporation can collect the per cent. specified and no more. But if such corporation becomes insolvent, such unpaid stock subscriptions are subject to be made assets for the benefit of all creditors who gave credit to the corporation on the faith of its capital stock being paid in full, without any knowledge of such agreement."

Gourick's Digest makes a very excellent and pithy comment on the recent decision of the United States Supreme Court in the Insular Tariff Cases, in which it was held that the constitution did not follow the flag into the territories of the United States, unless congress so decreed by proper action. The criticism referred to is as follows: "Whether wittingly or unwittingly done, it is obvious that in holding that the constitution does not follow the flag the supreme court relieved the legislative and executive branches of the government of some problems that would

have been vexatious and troublesome for them to handle, but in spirit of 'let the future take care of itself' that seems to have possession of the country, the criticisms that are heard in every direction show that our proverbial insistence upon fair play and the golden rule is still strong and vigorous if not paramount to the selfishness of the age. The majority of the court may be right in holding that the constitution does not follow the flag until congress sends it after it, but it is hard to believe that the framers of the con

stitution had any thought of controlling or regulating its blessings for mankind by the whims and political intrigues of congress, even if capable of creating the anomaly of a congress controlled by the constitution controlling the constitution." In our editorial of June 21, 1901, 52 Cent. L. J. 477, we endeavored to show that in the light of plain wording of the constitution and its subsequent interpretation by the courts, the decision of the court in these cases was perfectly correct. That, however, does not lessen the appropriateness of the comment just quoted, but is rather an appeal to the people than to the judiciary.

The Supreme Court of New York furnished opportunity for an interesting discussion of the question of the proper punishment for different grades of professional misconduct on the part of attorneys, in the recent case of Re Reifschneider, 69 N. Y. Supp. 1069. In this case a father, as guardian of his injured child, desired to accept a railway company's offer to settle a damage suit for a sum which his attorneys thought inadequate. An attorney in the employ of the defendant railway company got himself substituted for plaintiff's attorneys by paying them a fee furnished by defendant, and then, in the capacity of plaintiff's attorney, advised and attempted to effect the settlement. The court was divided in opinion as to the degree of punishment; the majority decision holding that while the attorney was guilty of conduct which was very unprofessional, such conduct was not sufficiently flagrant to justify disbarment, but was properly punishable by reprimand. The minority opinion insisted on suspension or disbarment, and after calling attention to the New York statute on the misconduct of attorneys uses this

strong language: "The standard of honor among the members of the bar is high, and has been so maintained by the natural and instinctive probity and purity of the profession, and it should never be lowered by the action of the court. If a counselor refuses to sit down when told to do so by the court, or uses intemperate language, the occasion might justly admit of a rebuke or reprimand. But the framers of the law never meant that deliberate and persistent professional misconduct should be punished by a mere reprimand from the bench." We are inclined to favor the minority opinion to the extent of insisting that temporary suspension from practice would have been a more just and salutory punishment for the serious offense charged against this attorney. We are not unmindful of the fact, however, that this power in the court should not be exercised harshly, but in the wise discretion of the court after taking into consideration the surrounding circumstances, and the causes or motives which prompted the unprofessional action. And in this connection the plea of Justice Field in the case of Bradley v. Fisher, 13 Wall. 355, for a lenient policy in cases which are not exceedingly flagrant, can be wisely followed: "Admission as an attorney," says Justice Field, "is not obtained without years of labor and study. The office which the party thus acquires is one of value, and often becomes the source of great honor and emolument to its posses

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a mansion to which the remainder-man was entitled in remainder. The tapestries in question had been affixed to the walls of a drawing room in the following way: strips of wood were fastened on the walls by nails, canvas was then stretched over the strips, and the tapestries were then stretched over the canvas and fastened by tacks to it, and pieces of wood mouldings fastened to the walls were placed round each piece of tapestry. Portions of the wall not covered by tapestries were covered with canvas, which was colored so as to harmonize with the tapestries. Byrne, J., considered that the tapestries had been so affixed to the freehold as to be irremovable by the tenant for life or his personal representative. but the court of appeal (Rigby, Williams and Sterling, L. JJ.) took a more liberal view, and held that as the tapestries had been affixed to the walls merely for purposes of decoration, they were removable by the tenant for life or her representative, and though the latter should make good any damage to the wall occasioned by the removal, he was not liable for the cost of entirely redecorating the room. Although Williams, L. J., seems to think the principles laid down by Lord Romilly in D'Eyncourt v. Gregory, L. R. 3 Eq. 382, were not in conflict with the present decision, Rigby, L. J. did not hesitate to say that he thought the decision in that case was not right "if it would apply to such a case as the present" and ought not to be followed.

INTOXICATING LIQUORS-UNLAWFUL RESALE. -A very difficult question was encountered by the court in the case of Graves v. Johnson (Mass.), 60 N. E. Rep. 383. This suit was for the price of intoxicating liquors sold in Massachusetts. It was found that the plaintiff's agent supposed rightly, that the defendant intended to resell the liquors in Maine unlawfully, but that the plaintiffs and their agent were known by the de

fendant to be indifferent to what he did with the goods, and to have no other motive or purpose than to sell them in Massachusetts in the usual course of business. The court held that although the buyer of the liquor intended when he made the purchase to resell them in the state of Maine. contrary to the laws of that state, the seller's mere knowledge of the buyer's intent will not prevent recovery of the purchase price. The court makes the following argument:

"The defendant was free to change his mind, and there was no communicated desire of the

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different courts with regard to the same or similar matters. Compare Hubbard v. Moore, 24 La. Ann. 591, and Michael v. Bacon, 49 Mo. 474, with Pearce v. Brooks, L. R. 1 Exch. 213. But the decisions tend more and more to agree that the connection with the unlawful act in cases like the present is too remote. McIntyre v. Parks, 3 Metc. 207; Sortwell v. Hughes, 1 Curt. 244, 247, Fed. Cas. No. 13,177; Green v. Collins, 3 Cliff. 494, Fed. Cas. No. 5755; Hill v. Spear, 50 N. H. 253, 9 Am. Rep. 205; Tracy v. Talmage, 14 N. Y. 162, 67 Am. Dec. 132; Distilling Co. v. Nutt, 34 Kan. 724, 729, 10 Pac. Rep. 163; Webber v. Donnelly, 33 Mich. 469; Tuttle v. Holland, 43 Vt. 542; Braunn v. Keatly, 146 Pa. 519, 524, 23 Atl. Rep. 389; Wallace v. Lark, 12 S. Car. 576, 578, 32 Am. Rep. 516; Rose v. Mitchell, 6 Colo. 102; Jameson v. Gregory's Exr., 4 Metc. (Ky.) 363, 370; Bickel v. Sheets, supra; Hubbard v. Moore, supra; Michael v. Bacon, supra."

DAMAGES DISTINCTION BETWEEN LIQUIDATED DAMAGES AND A PENALTY.-When the courts depart from the ordinary practice of judging of the intention of the parties to a contract by the words they have used, and look beyond the words to discover that intention in the circumstances of the transaction, they embark upon a course of doubtful utility and open the way for litigation. Such has been the case with the wellknown line of decisions as to the effect of describing a fixed sum made payable upon a breach of contract as either a penalty or liquidated damages. These expressions do no more than give a prima facie indication of the meaning of the parties, and before it can be said with any confidence that a sum is a penalty-so as in effect to give a right only to unliquidated damages-or liquidated damages so as to give a right to recover the specified amount-a careful inquiry must be made as to the relation between this sum and the nature of the breaches in respect of which it is payable. It is probable that the whole doctrine in question arose from the absurdity of allowing payment of a fixed sum as liquidated damages to be enforced on breach of an agreement to pay a fixed smaller sum, and in such cases the larger sum is treated as a penalty, notwithstanding that the language used indicates the contrary. Astley v. Weldon, 2 B. & P. 346. On the other hand, a fixed sum made payable on the breach of a single stipulation, not itself involving payment of a sum of smaller amount, will be treated as liquidated damages. Of this nature were the sums fixed in Re An Arbitration between White and Arthur

mained unfinished. These sums were made payable each in respect of a breach of a single stipulation not involving payment of money, and hence, according to the test stated above, they were liquidated damages, notwithstanding that they were described as penalties. In Law V. Local Board of Redditch (1892), 1 Q. B. 127, the circumstances were similar, save that the sum was there described as "liquidated damages," and it was held to be such. The decision in the present case was to the same effect. A different case arises where the sum is made payable upon breach of any one of a number of stipulations. Usually it will be treated as a liquidated sum, but if the breach of one or more of the stipulations involves payment of a smaller fixed sum of money, or is trivial in its nature, then the opposite construction prevails, and the sum payable, being a penalty, is reduced to the amount of the loss actually sustained Wallis v. Smith, 31 W. R. 214, 21 Ch. Div. 243: Elphinstone v. Monkland Iron Co., 35 W. R. 17, 11 App. Cas. 332.- Solicitors' Journal.

TAXATION-EXEMPTION OF PROPERTY USED PARTLY FOR RELIGIOUS SERVICES AND PARTLY AS A SOURCE OF REVENUE.-A most valuable annotation on the right of exemption of property used for religious or charitable purposes, but also as a source of revenue for the same purposes, appears in the opinion of Bartech, J., in the recent case of Parker v. Quinn (Utah), 64 Pac. Rep. 961. In that case a society organized exclusively for mission work and other charitable purposes owned certain premises in Salt Lake City. The upper floor of these premises was used for meetings and other work of the society, while the lower floor was rented out at $25 per month, and the income used entirely in carrying on the work of the society. In a suit to enjoin the assessment and taxation of the property, the court held that only that portion of the property of a religious or benevolent society which is occupied and used exclusively for the purpose for which the society was organized, is exempt from taxation, and that the exemption does not extend to that portion not appropriated by the society to its own use, but held as a source of revenue, especially when the value of each portion is separately ascertainable. After alluding to the statutes specifying what property should be exempt from taxation, the court said:

"Among the several classes of property exempt are lots with the buildings thereon used exclusively for either religious worship or charitable purposes.' Only such of the society's

a charitable institution is occupied and used by it for charitable purposes, and the other portion thereof is devoted to purposes of revenue, the portion used and occupied for charitable purposes is exempt, and the portion not so used and occupied is subject to taxation. "We are aware that a few cases hold that under such circumstances the exemption is lost as to the whole property, and that some, on the contrary, hold that the whole property is exempt. We think, however, that the weight of authority is in harmony with the rule above stated, and that the disposition of this case in accordance therewith is equitable and just. In City of Philadelphia v. Barber, 160 Pa. 128, 28 Atl. Rep. 644, it was held: 'Where a part of a building is used for church purposes, and certain rooms in the building are rented for a school, the building may be divided for the purposes of taxation, and the portion used solely for church purposes be declared exempt from taxation.' County Comrs. of Frederick Co. v. Sisters of Charity of St. Joseph, 48 Md. 34, is a case where the proof showed that, among other improvements which were claimed by the appellees, a society organized for charitable purposes, to be exempt, there were one or more buildings in which a number of schools were required to pay tuition at the rate of $250 per annum; and the court held that so much of the property as was appropriated to this secular and educational purpose for revenue' was taxable, notwithstanding the fact that the 'surplus revenue' thus derived was devoted to charitable uses." The court cites the following recent authorities as sustaining its position: Sunday School Union v. City of Philadelphia, 161 Pa. 307, 29 Atl. Rep. 26; Detroit Young Men's Soc. v. Mayor, etc., of City of Detroit, 3 Mich. 172; Trustees of Chapel of Good Shepherd v. City of Boston, 120 Mass. 212; City of Cambridge v. County Comrs. of Middlesex, 114 Mass. 337; Appeal Tax Court of Baltimore City v. St. Peter's Academy, 50 Md. 321; Appeal Tax Court of Baltimore City v. Grand Lodge A. F. & A. M., Id. 421, 429: Redemptorists v. Howard Co. Comrs., Id. 449; Ft. Des Moines Lodge v. Polk Co., 56 Iowa, 34, 8 N. W. Rep. 687; Mulroy v. Churchman, 52 Iowa, 238, 3 N. W. Rep. 72; Society v. Kelley, 28 Oreg. 173, 42 Pac. Rep. 3; Elizabeth Library Assn. v. Leester, 28 N. J. Law, 103; First M. E. Church v. City of Chicago, 26 Ill. 482; Presbyterian Theological Seminary v. People, 101 Ill. 578; State v. Board of Assessors, 35 La. Ann. 668; State v. Ross, 24 N. J. Law, 497; Massenburg v. Grand Lodge, 81 Ga. 212, 7 S. E. Rep. 636; Morris v. Lone Star, 68 Tex. 698, 5 S. W. Rep. 519; Bank of Commerce v. State, 104 U. S. 493, 26 L. Ed. 810; Young Men's Christian Assn. v. Mayor, etc., of City of New York, 113 N. Y. 187, 21 N. E. Rep. 86.

Before dismissing this subject, it might be well to call attention to the authorities holding a different rule. Thus, in Missouri, it is held that a hospital building is not excluded from the benefits of a statute exempting from taxation prop

erty used for "purposes purely charitable.” merely because certain patients pay for what they receive, where it appears that any profit derived therefrom is applied exclusively to the charitable purposes of the institution. State v. Powers, 74 Mo. 476. Also, the case of North St. Louis Gymnastic Society v. Hudson. 12 Mo. App. 342, affirmed 85 Mo. 32, in which it was held that a school building exempted from taxation "so long as it is used only for the purpose of education,” is not made taxable by the renting of a room therein for other purposes when the proceeds thereof are used exctusively for the benefit of the schools. The following authorities hold that whenever part of the property alleged to be exempt is used for other than the exempt purposes, the whole becomes taxable. Red v. Johnson. 53 Tex. 284; St. Mary's College v. Crowl, 10 Kan. 451; Morris v. Lone Star Chapter, 68 Tex. 698.

VESTED INTEREST OF BENEFICIARY UNDER A POLICY OF LIFE INSURANCE.

The character of the beneficiary's interest under a policy of life insurance is a question of growing importance, and one often litigated. Its difficulty lies in the fact that it is comparatively a new question, having sprung into existence contemporaneously with modern life insurance, and at once assuming many different and surprising aspects. In the light of the common law a policy of life insurance was nothing more or less than a contract entered into between two parties for the benefit of a third party. In Langdell's Cases on Contracts,1 the learned author says: "In truth, a binding promise to A to pay one hundred dollars to B confers no right upon B in law or equity. It confers no authority upon the promisor to pay the money to B, but the authority may be revoked by A at any moment." In the light of modern statutes and public sentiment, however, a life insurance policy is something more than a mere contract between two parties for the benefit of a third. The contingency upon which payment is to be made is the death of one of the parties, and the consideration, the payment of certain stipulated premiums, the amount of which is determined by the probabilities of life in the obligee. It is evident that unless sustained for other reasons such an agreement would have all the earmarks of a wagering contract,

1 Langdell, Cases on Contracts (2d Ed.), p. 1021.

and, therefore, void on grounds of public policy. There is only one reason which will sustain such a contract, i. e., that the third party for whose benefit the contract is made is not a disinterested party, his pecuniary interest in the life of the obligee, and in the contingency upon which payment is to be made, giving him the right to enforce the agreement. A contract of this kind is usually made for the benefit of wife or children or others dependent upon or having some pecuniary interest in the life of the insured, and is in the nature of an irrevocable trust conferred upon interested parties for their protection and indemnity against pecuniary loss by reason of his death in their lifetime.2 This is undoubtedly the origin, and certainly the only reason for the modern doctrine of vested interest. Statutes which have hedged about the interest of the wife and children to the proceeds of insurance policies, of which they were the beneficiaries against the claims of creditors or the act of the insured himself, while giving force to the rule and defining public sentiment, were not necessary to its existence nor gave any reason for its extension.3

The clearest statement of what is known as the doctrine of vested interest, in its application to the construction of life insurance policies, is to be found in the opinion of Fuller, C. J., in the case of Central Bank v. Hume, where the learned judge said: "We think it cannot be doubted that in the instance of contracts of insurance with a wife or children, or both, upon their insurable interest in the life of the husband or father, the latter, while they are living, can exercise no powers of disposition over the same without their consent, nor has he any interest therein of which he can avail himself, nor upon his death have his personal representatives or his creditors any interest in the proceeds of such contracts which belong to the beneficiaries to whom they are payable. It is indeed the general rule that a policy, and the money to become due under it, belong the moment it is issued to the person or persons named in it as the beneficiary or beneficiaries, and that there is no power in the person procuring the insurance by any act

2 See Ryan v. Rothweiler, 50 Ohio St. 595.

3 Hubbard v. Stapp, 32 Ill. App. 541. 4 128 U. S. 195.

of his, by deed or will, to transfer to any other person the interest of the person named." This statement of the law, as the general rule upon this subject, is sustained by the overwhelming weight of authority." The only authority holding to an absolutely contrary doctrine is to be found in the decisions of the Supreme Court of Wisconsin." To exactly define just what he meant by "vested interest" is not an easy undertaking, and the authorities themselves lend us very little assistance. In the effort to literally interpret this doctrine and apply it logically to all cases many difficulties are encountered. Suppose by the terms or nature of the contract the interest of the beneficiary is contingent upon surviving the insured, or, as in endowment policies, contingent also on surviving the insured within the endowment period, or, as in accident policies, contingent not only on survivorship within a definite time (accident policies being generally in force for only one year at a time), but also contingent on the injury causing the death of the insured being the result of an accident of the particular description named in the policy. In such cases can the interest of the beneficiary, which is plainly contingent as to its enjoyment, be considered at the same time and for some purposes as vested. These difficulties, in aggravated form, were encountered by the court in the case of Lockwood v. Insurance Co. In this case the policy was payable to the insured in twenty years, if living; but in case of his death before the completion of the endowment period, then to A, if living, and, if not, then to B and C. The court said: "The brief of the plaintiff is based upon the theory that the interests of the beneficiaries were contingent, that the insured could deal with the policies as he chose. Such, however, is not the rule of law governing contracts of life insurance.

Pingrey v. Insurance Co., 144 Mass. 374; Chapin v. Fellowes, 36 Conn. 132; Glanz v. Gloeckeler, 104 Ill. 573; Small v. Jose, 86 Me. 120; Lockwood v. Insurance Co., 108 Mich. 334; Splawn v. Chew, 60 Tex. 532; Johnson v. Hall, 55 Ark. 210; Smith v. Insurance Co. 44 Atl. Rep. 531; Wilmaser v. Insurance Co., 66 Iowa 417; Packard v. Insurance Co., 9 Mo. App. 469; Van Bibber v. Van Bibber, 82 Ky. 347; Allis v. Ware, 28 Minn. 166; Brown's Appeal, 125 Pa. St. 303.

6 Clark v. Durand, 12 Wis. 223; Kernan v. Howard, 23 Wis. 108; Breitung's Estate, 78 Wis. 33.

7 108 Mich. 334.

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