pledgee would have offered, under competitive bidding, $7.50 a share, he was able, as sole bidder, to buy the security for a dollar a share. It further appeared that shortly before the sale, the pledgee had offered to surrender the pledgor's note of $2,500.00 on transfer of 350 shares of the stock hypothecated, thus placing his estimate of value at practically $7.50 a share. It was adjudged, nevertheless, that he could not be held to account on the basis of the bid he would have made under competition. This seems wrong and, it is submitted, is not the law. Equity should here, as always, look to the substance and not to the form. The pledgee should account, in absence of acquiescence in the sale by the debtor, for the value of the property; not for what it may have brought.

The cases holding a pledgee responsible for more than his bid are not numerous, but their reasoning is incontrovertible.53 An interesting analogy is afforded by the recent holdings in the federal courts to the effect that the purchase at judicial sale, by a stockholders' reorganization committee, of the assets of an insolvent corporation at upset price, does not disprove recital of actual and far greater value, when subsequently transferred by the committee to a new corporation.54

One or two cases seem to have gone half-way and to have permitted transfer by private sale without notice, after an invalid purchase at public sale, and accounting on the basis of amount received at the private sale.55 Such a conclusion, where the pledgee is expressly authorized to buy, seems faulty, as authorizing a disposition of the gauge in excess of the power given. This is, to deal with the pledge at public or private sale; the right is to do either, not both; and the true deduction would be, that if the power is once invoked, it is exhausted. Should, however, the relation that the bank, as sole bidder, bought pledged bonds at a less price than paid in sales shortly before and after the one in question.

53 Dibert v. Wernicke, 214 Fed. 673, 682 (1914); Perkins v. Applegate, 27 Ky. L. Rep. 522, 525, 85 S. W. 723, 725 (1905); Phares v. Barbour, 49 Ill. 370, 374 (1868); Rush v. First Nat. Bank of Kansas City, 71 Fed. 102 (1895), 85 Fed. 539, 543-4 (1898); Sitgreaves v. Farmers', etc. Bank, 49 Pa. St. 359, 364 (1865).

54 Northern Pacific Ry. Co. v. Boyd, 228 U. S. 482 (1913); Stebbins v. Michigan Wheelbarrow, etc. Co., 212 Fed. 19 (1914); Central Imp. Co. v. Cambria Steel Co., 210 Fed. 696 (1913); Investment Registry, Ltd., v. Chicago & M. E. R. Co., 212 Fed. 594 (1913); 27 HARV. L. REV. 467, 486. But, see, In re Howell, 215 Fed. 1 (1914); Heinze v. McKinnon, 205 Fed. 366 (1913).

55 Hagan v. Continental Nat. Bank, 182 Mo. 319, 343, 81 S. W. 171, 178 (1904) Glidden v. Mechanics' Nat. Bank, 53 Oh. St. 588, 60c, 42 N. E. 995, 998 (1895).

of pledgor and pledgee survive an improper purchase by the pledgee, a later private sale can be had only after all formalities prescribed by law have been complied with.5

56

Mistaking one's rights under an instrument of pledge is sometimes a serious matter. An example is afforded by two recent decisions in different jurisdictions, arising out of the same transaction. A bank pledgee, holder of notes for $45,000.00, secured by the personal obligation of two surety makers, and $90,000.00 of unlisted mortgage bonds of the principal maker, which had been unused except for the purpose of collateral security to the loan, sold the bonds to itself without notice, as sole bidder, on the New Orleans Stock Exchange, for $1,800.00. If necessary to acquire ownership, it would have bid the amount of the debt, or perhaps more. The bank insisted that the sale so made was valid, and, treating the bonds as its own, free from any equity of redemption, transferred them and the note they had secured to a syndicate, whose agent foreclosed the mortgage securing the bonds, bought in the property, and sued the two surety makers, allowing a credit of $1,800.00. Recovery was denied in both instances, under somewhat different processes of reasoning.

In Dibert v. Wernicke,57 the surety sued, was given an equitable right of set-off for the real, as opposed to the bid, value of the bonds. The same result was reached by reasoning that the sale of the bonds by the bank to the syndicate under a claim of ownership amounted to a conversion, and that this defense was available to the surety without the necessity of tender, when sued upon the debt.58 Still another ground for freeing the surety from liability was, that the sale on the Exchange, that to the syndicate, and its subsequent dealings with the security, taken together, constituted such an incumbrance upon his immediate right of subrogation as to discharge him.59

In Dibert v. D'Arcy,60 a suit by the syndicate agent against the assignee in insolvency of the other surety to compel recognition of the claim on the bonds, the holding was that the bonds would not be treated as issued nor as a debt in excess of the sum they

56 Leahy v. Lobdell, Farwell & Co., 80 Fed. 665, 671 (1897).

60 248 Mo. 617, 658, 662, 154 S. W. 1116, 1128, 1130 (1913).

secured, but only as intended to create a lien to the extent of the principal obligation.61 It was also held that the syndicate manager would have to account for what he had agreed to bid as the fair value of the property on foreclosure of the mortgage securing the bonds, an amount exceeding the debt for which he sued.62

Both cases held that the sale on the New Orleans Stock Exchange by the bank to itself was invalid, but did not alter the relation of pledgor and pledgee; in other words, that despite the sale, the bank still remained the pledgee. It is submitted, however, that the cases supporting this general conclusion in the event of invalid sale are all instances in which the instrument of pledge did not authorize the pledgee to become purchaser. Where, as in the facts upon which the Dibert cases are based, the instrument authorizes the pledgee to buy, it would seem that such dealing with the pledge would not be void, being made under color of right, but voidable only, and of itself constitute an incumbrance on the surety's immediate right of subrogation, discharging him then and there.

At all events, these cases establish that if the pledgee makes an unauthorized or dishonest sale to himself, and thereafter elects to stand on it, by suing the principal debtor or surety and allowing him credit for the amount realized, or by transferring the security as owner, not pledgee, to a third person, he may, in a case not involving ratification, release the surety, and will be liable to account to the principal maker for the fair value of the securities, or be chargeable with their value as for a conversion. 63

So, it appears that the "cut throat" instruments of pledge, now in common use, frequently do not accomplish all that their holders desire. The effort to deprive the pledgor of safeguards tending to bring about a fair sale of his property is met by the courts with persistent opposition. Should an instrument be drawn obviating the requirement of notice to the debtor, the necessity of advertising and giving of notice at the sale of amount and nature of the pledge, the parties to it, allowing a sale in bulk of property readily divisible, authorizing the pledgee to bid like any other bidder free

61 But, see, contra, Turner v. Metropolitan Trust Co. of City of New York, 207 Fed. 495, 500 (1913).

62 248 Mo. 617, 656, 154 S. W. 1116, 1128 (1913). 63 See, also, Wagner v. Kohn, 225 Fed. 718 (1915).

from a trust obligation, and, if purchaser, to account only for the sale price, less expenses, it seems likely that such an instrument would overreach itself and fall into the prohibited class of agreements for a forfeiture.

In conclusion, it will be apparent that the pledgee is bound, at his peril, to exercise the arbitrary powers given in the modern instrument of pledge in the utmost good faith.

Murray Seasongood.

CINCINNATI, OHIO.

THE UNIFORM PARTNERSHIP ACT A REPLY TO MR. CRANE'S CRITICISM

[Concluded]

DOES THE ACT ADOPT THE AGGREGATE THEORY OF PARTNERSHIP?

THE second general criticism of the Act is that though the intention of the draftsmen was apparently to proceed on the aggregate theory, "the Act does not adopt either the entity [legal person] or aggregate view of the nature of the partnership," and that, therefore, "in matters not expressly covered by any provision of the Act, and which depend upon the nature of a partnership, different results will be reached by different courts, and so we shall not attain the uniformity sought for by the Act." 40

In support of the criticism Mr. Crane takes up first the definition of a partnership in Section 6, arguing that as worded it is not inconsistent with a court's treating the partnership as a "legal person." The Act, as stated, defines a partnership as "an association of two or more persons." Mr. Crane alleges that "an association may or may not be treated as a legal person," and that therefore the word is "ambiguous."41 To this it may be answered, that if the common law proceeded on the assumption that every association of two or more persons for any purpose created a separate legal person, then it would have been necessary to add to the definition the words: "but the association shall not be considered a separate legal person"; but as our common law proceeds on the principle that an association of two or more persons does not primâ facie create a separate legal personality, it is not necessary that the words quoted should have been added to prevent the courts drawing the inference that a partnership is a legal person. Indeed, all that Mr. Crane subsequently contends is that in other sections of the Act the draftsman has unconsciously treated the partnership as a legal person and therefore a court, in a state adopting the Act, would be justified in holding that a partnership is a legal person in view of the fact that the legal personality of the 41 Ibid., 770.

40 28 HARV. L. REV. 774.