contract has been made is indicated in the case of Howard v. Patent Ivory Co.,1 where one Jordan entered into an agreement with one Wyber, acting on behalf of the defendant company about to be formed, to sell certain property to the corporation. The corporation was organized, both the articles and memorandum providing for the adoption of the agreement in question. At a meeting of the directors, at which Jordan was present, resolutions were passed adopting the agreement and accepting the offer of Jordan to take part of the purchase price in debentures, and under the resolution the company's seal was affixed to the documents transferring a leasehold to the company and the debentures to Jordan. The company entered into possession of the leasehold premises and transacted business thereon. Subsequently the company was wound up, and the liquidator took an assignment of the rest of the property to be transferred under the agreement by Jordan to the company.

The court found on these facts that a new contract was entered into. The conclusion of the court in In re Northumberland Hotel Co. was criticised but distinguished from the case at bar, on the ground that Jordan was present at the directors' meetings and participated in a modification of the original contract, in effect making a new contract.

It is questionable whether Edwards v. Grand Junction Ry. Co.3 would be followed by the English courts even if the precise question were involved. It certainly has been thoroughly discredited on principle, and the view now taken is that the corporation is not liable on contracts antedating its formation, although made on its account, but that the corporation may become liable on a new contract made directly between the corporation and the other party. In determining whether or not such contract exists, steps taken by either party in the belief that the original agreement made through the promoter still exists will not be considered. The proposition just stated, of course, excludes the exceptions previously referred to, where the liability rests on some principle of trust, novation, assignment, or express provisions of statute or charter.

The American cases, both at law and in equity, are overwhelmingly in favor of holding the corporation liable on contract antedating its existence, wherever it has "ratified or adopted" the 2 Supra. 8 Supra.

1 38 Ch. D. 156.

Fry, Specific Performance of Contracts 107.

same, ratification or adoption being shown either by express resolution of the managing body or by accepting the benefits or fruits of the contract.1

The American cases without exception are subsequent in time to the group of cases decided by Lord Cottingham 2 which are cited. with approval as decisive of the questions decided by the American courts, and apparently form the basis of the generally accepted American doctrine. No case has been found, however, that goes as far as the English cases referred to, the American courts insisting in every instance on some act by the corporation subsequent to organization showing an intent to be bound.

The American courts, owing, perhaps, to the obliteration of distinctions between law and equity in matters of procedure, have failed to note the limitations which the circumstances of the English cases impose upon them as general legal propositions. The principles underlying the liability imposed are as a rule very meagerly discussed; the liability is assumed rather than justified. The criticisms of Lord Cottingham's view by the later English cases are not noticed by the American courts, although in a few instances the arguments urged against their soundness are dealt with."

A number of cases come within the exceptional classes noted in discussing the English decisions where the liability properly rests on a novation or assignment.1

1 Little Rock & Ft. Smith Ry. Co. v. Perry, 37 Ark. 164; M. & H. Hardware Co. v. Towers Hardware Co., 87 Ala. 206 (semble); Arapahoe Investment Co. v. Platt, 5 Colo. App. 515; Carter v. San Francisco Sugar Ref. Co., 19 Cal. 220; Stanton v. N. Y., etc., Ry. Co., 59 Conn. 272; The Georgia Co. v. Castlebury, 43 Ga. 187 (semble); Smith v. Parker, 148 Ind. 127; Dubuque Female College v. Township of Dubuque, 13 Iowa 555; Bank of Forest v. Argill Bros. & Co., 34 So. Rep. 325 (Miss.); Esper v. Muller, 91 N. W. Rep. 613 (Mich.) (semble); Grape Sugar & Vinegar Mfg. Co. v. Small, 40 Md. 395; Oaks v. C. W. Co., 143 N. Y. 430; Law v. Railway Co., 45 N. H. 370; Schreyer v. Turner Flouring Co., 29 Ore. 1; Bell Gap Ry. Co. v. Christy, 79 Pa. St. 54; Ireland v. Globe Milling Co., 20 R. I. 190 (semble); Huron Printing & Binding Co. v. Kittleson, 4 So. Dak. 520; Chase v. Redfield Creamery Co., 12 So. Dak. 529; Kaeppler v. Redfield Creamery Co., 81 N. W. Rep. 907 (So. Dak.); Pittsburg, etc., Mining Co. v. Quentrell, 91 Tenn. 693; McDonough v. Bank of Houston, 34 Tex. 309; Buffington v. Bordon et al., 80 Wis. 635; Whitney v. Wyman, 101 U. S. 392 (semble).

2 Edwards v. Grand Junction Ry. Co., Stanley v. Chester & B. Ry. Co., Webb v. L. & P. Ry. Co., supra.

N. Y., etc., Ry. Co. v. Ketchum, 27 Conn. 170; Safety Deposit Life Ins. Co. v. Smith, 65 Ill. 309; Park v. Modern Woodmen of America, 181 Ill. 214; Oldham 7. Mount Sterling Imp. Co., 103 Ky. 529.

4 Colo. L. & W. Co. v. Adams, 5 Colo. App. 190; Stanton v. N. Y., etc., Ry. Co., 59 Conn. 272 (semble); Oldham v. Mount Sterling Imp. Co, 103 Ky. 529; Esper v. Miller, 91 N. W. 613 (Mich.) (semble); Snow v. Thompson Oil Co., 59 Pa. St. 209 (semble).

The view that a corporation may be estopped to deny that it is bound by the contract made by the promoter is advanced by a well known writer on corporations,' and is accepted as the basis of decision by a few courts.2 The application of the principle is not clear, since the action of the corporation in approving the contract made on its account and in taking possession under it is attributable ordinarily to the belief shared by both parties that the original contract is binding upon them. How, then, is it possible to estop the corporation by conduct obviously due to a mutual mistake as to the legal liabilities of the parties?

In a number of jurisdictions the agreement between the promoter and third person is regarded as an open offer to the corporation, which it may accept when organized, and thus create a new contract between the third person and the corporation. A resolution adopting or ratifying the original agreement, or the acceptance of the fruits of the contract is generally regarded as sufficient proof of acceptance.

It is evident that practically all of the cases decided on the ground of ratification or adoption could rest on the grounds stated in the cases just referred to, since in every instance the corporation has assented to the agreement made on its account, either in terms or by implication.

Both the English and American decisions recognize the possibility of a new contract between the corporation when organized and the third person, the broad line of distinction between the cases being the manner in which such contract can be made out; the English courts taking the position that acts of the corporation which are clearly attributable to the erroneous belief on its part that it is liable on the original contract cannot be received as evidence of a new contract, particularly when coupled with the further fact that direct negotiations between the third party and the corporation cannot be shown. The American courts, on the other hand, receive as evidence of a new contract all acts indicating an intent by the corporation to receive the benefits of the original contract.

1 Thompson, I Commentaries on Corporations, § 480.

2 Blood v. La Serena Land & Water Co., 121 Cal. 221; Grape Sugar & Vinegar Mfg. Co. v. Small, 40 Md. 390 (semble).

3 Smith v. Parker, 148 Ind. 127; Penn. M. Co. v. Hapgood, 141 Mass. 145 (semble) ; Holyoke Envelope Co. v. U. S. Envelope Co., 182 Mass. 171 (semble); Waetherford, etc., Ry. Co. v. Granger, 86 Tex. 350; E. & C. Oil Co. v. Burks, 39 S. W. Rep. 966 (Tex.); Wall z. Niagara Mining & Smelting Co., 20 Utah 474; Pratt v. Oshkosh Match Co., 89 Wis. 406.

The Supreme Court of Massachusetts approaches most nearly the present English view, when it declares that a corporation cannot become liable on its promoters' contract by ratification or adoption. In a later decision, the court, by way of dictum, intimates that the acceptance of benefits may be evidence of a new contract between the third party and the corporation.

The American decisions, while practically unanimous in the result reached, are far from satisfactory as to the legal principles underlying the liability. The English cases, on the other hand, have developed a logical, consistent theory of liability. The consequences of the liberal American view on the question of proof are not unjust: the corporation is protected against improvident agreements made on its account by promoters, since it has the power of acceptance or refusal. It is submitted that an equally just result is possible without doing violence to recognized principles of agency and contract.

UNIVERSITY OF WISCONSIN.

1 Abbott et al. v. Hapgood et al., 150 Mass. 248.

H. S. Richards.

• Holyoke Envelope Co. v. U. S. Envelope Co., 182 Mass. 171.

DEBTOR'S

INTERFERENCE IN THE ELEC

TION OF A TRUSTEE IN BANKRUPTCY.

ENERALLY in the Continental systems of bankruptcy legis

GE

lation it is the policy of the law for the court to appoint its own official administrator to handle the bankrupt's estate. The creditors may be consulted, or even have some advisory or supervisory control over the official court administration, but the actual executive control of the assets is in the hands of the court official.1

In the English bankruptcy system it is a cardinal principle that the creditors are to have the full control of the administration of the bankrupt's estate. The court is merely the supervisory power. The last English Bankruptcy Act of 18832 gives the creditors an absolute right to name the trustee who shall administer the estate in their behalf. The Board of Trade may for cause object to the selection of the creditors, and the High Court will pass on the validity of the objections, which may be for any of three causes: first, that the appointment was not made in good faith; second, that the appointee is not a fit person. The only persons absolutely disqualified are the official receivers, or a person who has previously been removed from the office of trustee for misconduct or neglect. Third, that the relations of the appointee are such that it would be difficult for him to act impartially. In this country the policy of bankruptcy legislation on this subject has not been uniform. Beginning with our first Bankruptcy Law in 1800, Congress gave to the creditors the fullest liberty in the choice of the trustee. The Act of 1800 provided that the major part in value of the creditors should choose a person or persons to whom the bankrupt's estate and effects should be transferred. No approval of the choice on the part of the court was provided for.

In the Bankruptcy Act of 1841, however, the Continental practice was adopted. The title to the bankrupt's estate was vested in an assignee appointed by the court.1

1 Dunacomb, Bankruptcy, Columbia College Studies in History, etc., No. 2, p. 2. 2 46 & 47 Vict. c. 53. 3 Bankruptcy Act of 1800, § 6.

4 Bankruptcy Act of 1841, § 3.