ground that in certain respects they exceeded the statutory powers of the body making them. In this way a considerable quantity of case law has been collecting round the subject; and we note three distinct stages in its progress. First, in the days of the early application of the doctrine, it was thought that if an ultra vires act was committed, not by an individual but by a corporation, no one was entitled to complain, except the Crown, which had granted the corporation's charter, unless the act complained of directly injured the patrimonial rights of the complainers: Second, the foregoing proposition being found too feeble to keep in check the actings of municipalities, for instance, with regard to the rights of their citizens, it was laid down that the latter had a title and interest to challenge such actings as ultra vires, if they could show that they might have the effect of imposing heavier rates on them in the future. And another variety of the same idea is found in the class of cases as to improper administration of public property, which go to establish that those who contribute to the funds which bought the property have an interest in the administration of a subject to which they have contributed, and consequently a title to challenge flowing from that position and interest: Third, we come to the latest and broadest statement of the doctrine in the recent decision of the House of Lords in Nicol v. Dundee Harbor Trustees 1915; 2 S. L. I. 418. These trustees who by Act of Parliament were empowered to run a ferry used one of their ferry-steamers for popular excursions outside the ferry limits. Rival shipowners who were also harbor rate payers challenged this use of the steamer as ultra vires, and the trustees pleaded that they had no right title or interest to do so. The House of Lords negatived their title as rival traders but upheld it as harbor rate-payers; the ground of judgment being thus broadly expressed by one of the judges: "If any persons are in such a relation as to constitute themselves trustees, or if without being technically trustees they have a fiduciary duty to others, those persons to whom they owe a fiduciary duty will have a title to sue to prevent infringement of that duty." With that statement of the law, which seems broad enough to apply to all varieties of excess of statutory powers, we leave the subject, trusting that the point dealt with may suggest to readers a comparison with the existing state of American law on the subject of ultra vires.

A provision of one of our intestacy statutes is to the effect that the whole property of an intestate husband, if it does not exceed £500 in value, goes to the widow exclusively, pro

vided the deceased left "no lawful issue." A man died intestate survived by his wife and three grand-children, and having estate less than £500. The widow claimed the whole on the ground that grand-children were not within the term "issue." Action was raised in one of the inferior courts, and the appellate judge, reversing the decision of the judge below, has held that the term "issue" does include grandchildren, and has refused the widow's claim. Now there is but little doubt that a long series of cases hold that the words "issue" or "lawful issue," where occurring in a deed, such as a will or marriage settlement, mean descendants of whatever degree, but the peculiarity of the case referred to is that it raises for the first time and in a remarkably sharp way, the question, what is the meaning of these terms as occurring in a statute, where they can not be in any way controlled by extraneous considerations such as the intention of the testator, and the hearing of other clauses to be found in deeds. In this respect the case has attracted some attention in the general press, while as yet no official report of it to which we can refer has been issued. The opinion of the last judge is to the effect that the established rule of interpreting ordinary words in their ordinary sense is to be followed, whether such words occur in deeds or in statutes, and the ordinary and accepted meaning of "issue" he holds to include all descendants. What, it may be asked is the dictionary authority on the point? Well, Dr. Johnson's definition is "progeny, offspring," and the same meaning is put first in the article on the word in the great Oxford dictionary.

One of the most far-reaching decisions yet given as to the effect of the war on contracts is that of the House of Lords in Beal v. Horlock, 1916, T. L. R. A British ship was detained in a German port on the outbreak of the war, and the crew were interned in Germany. One of the crew had allotted half his monthly wages to his wife, and in order to ascertain the liability of the shipowner, an action for the allotted sum was raised by the wife, the defense to which was that it had ceased to be payable on the outbreak of war, for the detention of the ship by the enemy was equivalent to "loss or wreck" of the ship, an event which, by the merchant shipping act, terminates ipso facto all engagements with the crew. The divisional judge, and affirming him, the Court of Appeal held that the detention by the enemy was not equivalent to "loss" and that therefore the contract of service had not terminated; the owner was still liable to pay the wages of the crew; and apparently would continue to be so

liable till the end of the war. The House of Lords have, however, taken the view that the words "wreck or loss" in the statute referred exclusively to actual physical happenings, and, therefore, had no application to the case. In their opinion the hard facts of the situation simply made it an impossibility for the crew to perform the services for which they had contracted, and that, therefore, by force of the common law the contract between them and the shipowner was dissolved as from and after the date of their internment. The judgment was unexpected, and it will free many shipowners of an immense burden. The changed situation is being met by legislation. The gov ernment have formulated a scheme for the support of dependents of interned sailors, to which the shipowners are to contribute.

Glasgow, Scotland.

DONALD MACKAY,

COLLATERAL ATTACK IN SUITS BY OR AGAINST DE FACTO CORPORATIONS.

General Rule.-The most generally expressed declaration of the rule is that a corporation's existence cannot be assailed by a private suitor, that this is the affair of a state under whose license or authority it purports to act. It may be conceded, that, where there is an effective estoppel either as to the corporation or its adversary, the principle of no collateral attack will be invariably applied. Whether the principle will be applied, no estoppel being present, purely as a matter of public policy, may depend upon several considerations, and first it becomes useful to inquire what is a de facto corporation.

De Facto Corporation. The U. S. Supreme Court has summarized the requisites in the creation of a de facto corporation as follows, saying these are three: "(1) A charter or general law under which such a corporation as it purports to be might be lawfully organized; (2) an attempt to organize thereunder, and (3) actual user of the corporate franchise." Speaking of the

(1) Tulare Irrigation Dist. v. Shepard, 185 U. S. 1, 22 Sup. Ct. 531, 46 L. Ed. 773.

case before the court, it was said: "The case at bar contains these requisites. There was a general valid law under which a corporation, such as the defendant claimed to be, could be formed; there was undoubtedly a bona fide attempt to organize thereunder, and there has been actual user of the corporate franchise." The opinion. goes on to show that the corporation, which was claimed to be duly organized and, therefore, was liable for the bonds and negotiated by it, had done a number of things, besides, as a corporation, and it was said: "If anything can constitute a de facto corporation, the defendant herein constitutes one, notwithstanding there were irregularities in its organization." This case will be referred to hereinafter when I come to consider exceptions to the rule of collateral attack attempting to call in question a corporation's existence. Many cases might be cited to show, that the summary made by this case aptly describes in a general way, at least, the requisites to the constitution of a corporation in the absence of direct attack by the state creating the corporation.

Conditions Precedent to the Creation of a De Facto Corporation.-Looking at the summary of requisites to the constitution of a de facto corporation and at the reasoning by the court in the Tulare case, and especially at the facts in the case, and it must be admitted that the court was speaking in a general sense. For example when it is stated, that there must be an authorizing law. this means a valid authorizing law. Thus, the court says in its reasoning: "There was a general valid law" under which a corporation was organized (such as was before the court) and could be formed. It has been said: "That there can be no de facto corporation unless the statute authorizes the formation of a de jure corporation is too clear to admit of any dispute." And: "In order that there should be a de facto cor

(2) State v. Stephens, 16 S. D. 309, 92 N. W.

420.

poration two things are essential: First, there must be a law under which the corporation might lawfully be created; and second, used." To this has been added a further requirement, as stated in some cases, and that is that there has been a bona fide attempt to incorporate under an authorizing law. But it is not necessary that the particular law under which a corporation attempts to organize and makes use of an alleged franchise should be a valid constitutional law, if there exist another general law, that can authorize it."

Good Faith in Organizing a Necessity to Create Corporation De Facto.—The principle that there must be good faith in organizing a corporation for it to become one de facto often has been expressed, but the declaration has been made in cases where there was no contention that the associates had acted in bad faith. In a Texas case it was said that whether the rule of necessity of good faith should be "applied in a case in which the corporators have knowingly and intentionally violated the law in procuring a charter under general law we need not decide, but we are clearly of the opinion that it is not a proper rule to be ap

road company organized under a special

charter held to be unconstitutional was nevertheless a corporation de facto as to its bondholders and other creditors. In Alabama it was broadly declared that: “A corporation de facto exists, when, from irregularity or defect in the organization or constitution or from some omission to comply with conditions precedent, a corporation de jure is not created, but there has been a colorable compliance with the requirements of some law under which an association might lawfully be incorporated for the purpose and with the powers assumed and a user of the rights claimed to be conferred by the law; that is, when there is an organization with color of law and the exercise of corporate franchises and functions." In the Jennings case supra it appeared, that the corporation claimed to have been organized under a law that had been superseded and by it there was a difference as to liability of stockholders, but its existence as a corporation de facto was upheld as against collateral attack.

(3) Imperial Bldg. Co. V. Chicago Oper. Board of Trade, 238 11. 100, 87 N. E. 167. (4) Jennings v. Dark, 175 Ind. 332, 92 N. E. 778.

(5) Jennings v. Dart, Supra; G. S. R. Co. v. Trust Co., 94 Ga. 306, 21 S. E. 701, 32 L. R. A. 208.

(6) See also St. Louis v. Shields, 62 Mo. 247. (7) Sniders Sons Co. v. Troy, 91 Ala. 224, So. 650.

stockholders, who are sought to be held liable as partners, bought their stock after the organization had been effected and under the belief that a legal corporation existed." And it was said by Story, J., that: "It would be extremely difficult to maintain, upon general principles of law, that a private fraud between the original subscribers could be permitted to be set up to the injury of subsequent purchasers of the stock, who became bona fide holders, without any participation or notice of the fraud." As to original subscribers it was said: "If the subscriptions were fraudulently made, with a view to evade the provisions of the charter, the law will hold the parties bound by their subscriptions and compellable to comply with all the terms and responsibilities imposed upon them, in the same manner, as if they were bona fide subscribers. It will not make the subscription itself a nullity, but it will deprive the subscribers of the power of availing themselves of the same." There seems here a negative pregnant against a fraudulent subscription operating in any way against a corporation being even a corporation de facto and far less against its being a corporation de jure.

(8) American Salt Co. v. Haidenheimer, 80 Tex. 344.

(9) Minor v. Mechanics Bank, 1 Pac. 46, 66.

domain. Therefore some cases hold that a stricter rule obtains in condemnation cases, than in estoppel cases. Thus in an Ohio case13 a railroad company desiring to condemn land, proved its incorporation by producing the certificate of the secretary of state, which the law declared should be sufficient evidence of that fact, but it offered no evidence of its full organization and, therefore, of user of its franchise. The court said: "The statute under which the proceeding was conducted proceeds on the theory that the high power of eminent domain shall be invoked only in case the necessity arises from the inability of the corporation to agree with the landowner upon the compensation to be paid for the land appropriated." This attempt to agree must of necessity be by a corporation exercising its franchise. It is not held here, however, that corporate existence could have been attacked had the corporation have made some use of the franchise, notwithstanding it may have been defectively organized.

In a New York case a corporation a corporation sought to condemn land subsequent to the expiration of the time in which, by its charter, its right to construct a railroad was to begin. The statute declared that for such failure "its corporate existence and powers shall cease," and so if it does not fully construct its railroad within a limited number of years. The court said: "The legal existence of a corporation authorized

to construct a railroad is at the foundation of the right to take property for its use."14 This case, like that from Ohio, does not decide that, had the proceeding been in time, defective organization could have been set up, but it was said that: "The statute executed itself and the non-existence of the corporation could be alleged in opposition to this application by the respondents." Nevertheless, the non-ex

(13) Powers v. Railway Co., 33 Ohio St. 429. (14) Matter of Brooklyn & R. Co., 72 N. Y. 245.

istence of estoppel against defendants might be thought to have cut some figure.

But a later New York case dissipates or appears to dissipate this theory.15 There was a condemnation case and it was urged, that the right to condemn had been lost by cesser of corporate existence by way of forfeiture. The court construing a later statute, said the statute was not self-executing and advantage only could be taken by the state in a direct proceeding. This case, however, is not necessarily conclusive, in a claim by one not estopped, in a case of defective organization. There are many cases which apply the same principle to condemnation as to other cases, that is to say, that a corporation being de facto, its existence cannot be collaterally attacked, and those are believed to represent the weight of authority. For authority pro and con on this subject see extensive note in 2 L. R. A. (N. S.) 144.

Suing Associates as Partners.-I think the cases I have referred to, and there is abundance of others, show that estoppel avails to prevent associates and stockholders in a merely defectively organized corporation from being sued as co-partners. And defectiveness may even arise out of bad faith.16 But if the fraud is to create an incorporation for the conduct of illegal, such as gambling, transactions, the associates may be held to personal liability.1 And so where there is no law authorizing incorporation, notwithstanding the associates may have acted in good faith and under the advice of counsel.18 Where there was an attempt by an insurance company in one city to remove to another and change its scheme from a mutual to a stock

(15)

Re Brooklyn El. R. Co., 125 N. Y. 434, 26 N. E. 474. (16) Stokes v. Findley, 4 McCrary, 205; Second Natl. Bank v. Hall, 35 Ohio St. 158; Am. Salt Co. v. Heidenheimer, 80 Tex. 344.

(17) McGrew v. City Produce Exch., 85 Tenn. 572, 4 Am. St. Rep. 771.

(18) Eaton v. Walker, 76 Mich. 579, 6 L. R. A. 102.