also involved the expenditure of considerable sums of money. But this is the mere statement of a fact, not a reason for the supposed distinction."

It also ignores the fixed custom of the automobile trade that titles to motor cars have to be examined and are examined as consistently as titles to real estate. Every now and then some thoughtless person omits the precaution, in both cases, but to prevent this purely personal misfortune the obstruction of a fixed course of commerce is hardly justified, apart from the violation of the great principles contended for by Mr. Maine. The Virginia court in justification of its position, argued that “the constructive notice furnished by a recorded mortgage or deed of trust in such cases is not sufficient. The act of knowingly permitting the goods to be so handled and used by the seller in the ordinary and usual conduct of his business is just as destructive of the rights of the creditor as if such permission had been expressly granted in the mortgage or deed of trust."

By all of which it is intended to point out that, in the light of what has been said, a splendid opportunity was lost for closing Sir Henry Maine's "gap" between the fixed law and a progressive commerce; that the result of the decision will be a little more lobbying and a little more legislation; and that it is as preferable to have the courts make the laws today as in John Marshall's time. THOMAS W. SHELTON.

NOTES OF IMPORTANT DECISIONS.

RIGHT OF MANUFACTURER TO BIND RETAILER TO OBSERVE RESALE PRICES BY CONTRACTS.-The precise distinctions to be observed in applying the rule denying the right of the manufacturer to fix prices on resale of article, as announced in Dr. Miles Medical Co. v. Park & Sons Co., 220 U. S. 373, 31 Sup. Ct. 376, are made clearer by the recent de cision of the Supreme Court in United States v. Schrader's Son, 40 Sup. Ct. 251.

In the Schrader case it appeared that the defendant manufactured rubber tire valves, pneumatic gauges and other automobile acces sories which it sold to tire manufacturers and jobbers. Before selling any of its goods to a customer the latter was required to execute a contract which granted a license to the pur chaser to resell the articles bought at prices to be fixed by defendant from time to time. If purchaser refused to sign the contract he could not secure the goods he desired. Defendant was indicted on this state of facts as being engaged in a combination made criminal under the Sherman Act. The District Court, relying on the case of United States v. Colgate Co., 250 U. S. 300, 39 Sup Ct. 465, sustained a demurrer to the indictment. On appeal the Supreme Court reversed the case and remanded it for trial.

There has been considerable controversy and confusion over the extent to which a manufacturer may fix prices for resale of an article, and this controversy has become confusion worse confounded since the decision of the Supreme Court in the Colgate Case, which apparently recognized the right on the part of the manufacturer to specify resale prices. In that case it was said:

"The purpose of the Sherman Act is to prohibit monopolies, contracts, and combinations which probably would unduly interfere with the free exercise of their rights by those engaged, or who wish to engage, in trade and commerce-in a word, to preserve the right of freedom to trade. In the absence of any purpose to create or maintain a monopoly, the act does not restrict the long-recognized right of trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal. And, of course, he may announce in advance the circumstances under which he will refuse to sell."

The District Court in the Schrader case declared that it could not reconcile the Miles case which made illegal contracts, fixing prices on resale, with the Colgate case holding valid a refusal of a manufacturer to further deal with retailers who refused to sell his goods at prices quoted to him for resale purposes. On this point the trial court said:

"I can see no real difference upon the facts between the Dr. Miles Medical Company Case and the Colgate Company Case. The only dif ference is that in the former the arrangement for marketing its product was put in writing, whereas in the latter the wholesale and retail dealers observed the prices fixed by the vendor. This is a distinction without a difference. The tacit acquiescence of the wholesalers

and retailers in the prices thus fixed is the equivalent for all practical purposes of an express agreement. Granting the fundamental proposition stated in the Colgate Case, that the manufacturer has an undoubted right to specify resale prices and refuse to deal with any one who fails to maintain the same, or, as further stated, the act does not restrict the long-recognized right of a trader or manufacturer engaged in an entirely private business freely to exercise his own independent discretion as to the parties with whom he will deal, and that he, of course, may announce in advance the circumstances under which he will refuse to sell, it seems to me that it is a distinction without a difference to say that he may do so by the subterfuges and devices set forth in the opinion and not violate the Sherman Anti-Trust Act; yet if he had done the same thing in the form of a written agreement, adequate only to effectuate the same purpose, he would be guilty of a violation of the law. Manifestly, therefore, the decision in the Dr. Miles Medical Case must rest upon some other ground than the mere fact that there were agreements between the manufacturer and the wholesalers. * * *

It seems, however, that the District Court stumbled over the very distinction the Supreme Court had taken the pains to lay down in the Colgate case. On this point, Justice McReynolds, speaking for the Court in the Schrader case, said:

"The court below misapprehended the meaning and effect of the opinion and judgment in that cause. We had no intention to overrule or modify the doctrine of Dr. Miles Medical Co. v. Park & Sons Co., where the effort was to destroy the dealers' independent discretion through restrictive agreements. Under the interpretation adopted by the trial court and necessarily accepted by us, the indictment failed to charge that Colgate Company made agreements, either express or implied, which undertook to obligate vendees to observe specified resale prices, and it was treated "as alleging only recognition of the manufacturer's undoubted right to specify resale prices and refuse to deal with any one who fails to maintain the same. It seems unnecessary to dwell upon the obvious difference between the situation presented when a manufacturer merely indicates his wishes concerning prices and declines further dealings with all who fail to observe them, and one where he enters into agreements-whether express or implied from a course of dealing or other circumstances-with all customers throughout the different states which undertake to bind them to observe fixed resale prices. In the first, the manufacturer but exercises his independent discretion concerning his customers and there is no contract or combination which imposes any limitation on the purchaser. In the second, the parties are combined through agreements designed to take away dealers' control of their own affairs and thereby destroy competition and restrain the free and natural flow of trade amongst the states."

WHERE

SPECIFIC PERFORMANCE THERE HAS BEEN MATERIAL MISREPRESENTATION. Some interesting questions concerning the enforceability by specific performance of contracts for the purchase of real property were decided by the Court of Appeals of New Jersey in the recent case of Muller v. Weiss, 109 Atl. Rep. 356.

The contract sought to be enforced in this case contained a provision that a conveyance would be made and accepted subject to, inter alia, "all restrictions and covenants of record." When this was read to defendant, and before it was signed he asked the complainant what the restrictions were, and he said that they only forbid the keeping of a saloon on the land. The proof showed that the deed by which complainants acquired title to a material portion of the land was subject to other restrictions, which limited the use ( the land to any building other than a dwelling house to cost not less than $4,000, to be of a required height and to be arranged in apartments not less than three stories in height and to be arranged for not more than three families. The vice chancellor found that the defendant was induced to enter into this contract through the fraudulent misrepresentation of the complainant as to the character of the restrictions which incumbered the property, and the Court of Appeals agreed with his findings on this branch of the case.

The plaintiff sought to overcome the objection of a material misrepresentatiin with respect to the restrictions on the property by having the former owner of the subdivision one John G. Gerber, who had inserted the restrictive covenants in the original deeds to each lot in the subdivision, to release by quitclaim deed the restrictive covenants running with the land in the lots which were the subject of this particular contract. In holding that these restrictions could not be removed by the grantor who created them, the Court said:

"There is another reason why this release cannot have the effect which the complainants urge, and that is it appears in the case that Gerber had sold, prior to this contract, to different persons, a number of lots designated on his map, subject to the same restrictions which he attempted to release, and he cannot in such manner release the rights of former purchasers to enforce a restriction made, presumably for their benefit and as a part of the inducement for their purchase. The release of Gerber would not destroy the right of prior buyers to the benefit of a general scheme, nor relieve the defendants from the possibility of lawsuits by such owners to enforce such restrictions."

PREFERENTIAL RIGHTS OF

SHAREHOLDERS.

Questions of some nicety occasionally arise in ascertaining the rights of the respective classes of shareholders in a company. The imporant point practically is to see that in drawing the constitution of the company the position and privileges of the various classes be clearly defined. If this is done it will save much trouble and possible recrimination afterwards. A recent decision here,1 while it does not introduce any novel principle into company law, reaffirms some points of much practical moment. As in all such case the decision expended on the construction of certain clauses in the articles but principles of interpretation emerged which are of general importance.

The case was brought for the purpose of settling certain questions which had arisen. between the "A" Preference and the "B" Preference shareholders. It seems the company some years ago was in financial difficulties and its creditors agreed to scheme whereby they compounded their claims for "A" Preference shares and the original preference shares were cut down in value and became "B" Preference. In carrying out this arrangement a special resolution was passed that out of the profits | of the company after making due provision for depreciation and reserve fund the "A" Preference shareholders should receive as a first charge thereon a cumulative preferential dividend at the rate of 8 per cent, and that the holders of the "B" Preference should receive as a second and postponed charge a preferential dividend at the rate of 5 per cent.

For some years after this re-organization the revenue of the company did little more than meet current expenses. For some

(1) Ferguson & Forrester, Ld., v. Buchanan, 1920, 1 S. L. T. 85.

time no dividend was paid to the "A" shareholders and since 1904 no dividend was paid to the "B" shareholders. The arrears of dividend on the "A" preference shares have now however been paid up to date and there remained a substantial balance after providing for depreciation and reserve at the credit of profit and loss account available for division among the shareholders. The question then arose and this was the point on which the opinion of the Court was sought, whether the "B" Preference shareholders were entitled to receive out of the distributable profits in any year not only a preferential dividend of 5 per cent for that year but also a similar dividend for each and every preceding year in which the distributable profits had not sufficed for the payment of a dividend on the "B" Preference shares in preference to the rights of the ordinary shareholders and other postponed interests.

In dealing with this question the Court in the first place pointed out that the words of the special resolution referred to provided for payment out of the profits of the company and reminded the parties of the well marked distinction in company law between providing that dividends are to be paid out of "the profits of the company" and to be paid "out of the profits of each year" of the company. In this case they could not read the words of the resolution "out of the profits of the company" as meaning anything else than that the profits there referred to were the whole profits of the company.

The argument was next used as against the B Shareholders that as regards the holders of the A preference shares their dividend was stated to be a "cumulative preferential dividend" whereas the word "cumulative" was not related as regards the preference dividend of the B preference shareholders. The relation of this

point to the way in which the profits were defined in the special resolution was shown to be very material. According to the definition in Stroud's Dictionary of Law Terms "a preferred dividend is prima facie cumulative so that the failure of profits wherewith to pay it in any one year will be made good out of any profits that may be made in a subsequent year;" and Palmer in his Company Law points out that the use of the word cumulative prevents doubt. But on the construction of the resolution before them in which that word was omitted as regards the "B" shares, the Court held no hesitation in finding that a preference dividend out of profits implies a dividend out of the whole profits and not out of the profits of an particular year thus effecting a "cumulative preference." "If support for this position were needed it will be found in the case of Foster v. Coles.2 There the dividend was originally declared to be a cumulative preference dividend. In a subsequent amended set of articles the word "cumulative" was struck out and it was simply left to be a preference dividend. But it was held that though the change had been effected it made no difference as regards the cumulative character of the right for in any event, as the judge in that case observed, the preference share holders were entitled to have any deficiency in their dividends made up out of the profits of the subsequent years. And again there is the case of Patrick Hillhead and Maryhill Gas Co. Ld. v. Taylor. There was a distinction taken there between certain of the dividends in respect that one of them was declared to be a charge for dividend for the year and "all arrears" whereas these words did not occur as regards certain of the other dividends; it was urged therefore that dividends where the words did not occur were not to be cumulative. But the Lord Presi

dent there said this: "The fourth rule is that 'in payment to the preferential shareholders if any of their dividends according to their respective priority.'" With regard to that rule it is said that the words 'all arrears' which occur in rule 1 are omitted and it is therefore contended that the directors are not entitled to pay arrears of these dividends. I think that it is far too strict, I may say too fanciful a construction of the rule. If the rights of preference shareholders are such as I have stated them to be I cannot think they can be cut off by any such construction of the articles of association." And accordingly the omission of these words in regard to the dividend to one set of shares was not held sufficient to deprive them of the preferential character so as to make them non-cumulative.

In short the use of the terms preferential and "cumulative preferential" in describing dividends is not conclusive, the reality of the matter has to be looked at and the reality of it is in the manner in which a preference dividend is paid-whether out of the profits of each year or out of the profits of the company. The Lord Justice Clerk in the case we are dealing with tersely stated the position in the following words: "Reading the clause as a whole it seems to me that the A Preference shareholders and the B Preference shareholders are given a charge on the profits which entitles them to get out of the profits whether they were for the year actually in question or for any subsequent year that would make their dividends preferential dividends in the ordinary sense of the term and that to my mind means a preferential cumulative dividend. I think if there had been no other word than preferential that that would involve that it was cumulative."

Glasgow, Scotland.

DONALD MACKAY.

JUDICIAL DISCRETION.

The fundamental rules respecting judicial discretion to be exercised by trial Courts have been torn to pieces and thrown to the winds. Repeated attempts to define the term "judicial discretion" have led to almost as much confusion as similar attempts to define the term "reasonable doubt." Does there never come a stage in such refinements when further definition and division is, at least, ill-advised?

Lord Coke defined judicial discretion as the "science or understanding to discern between falsity and truth, between wrong and right, between shadow and substance, between equity and colorable glosses and pretenses." He probably did not obscure the matter when he further added that discretion of Court was an "ability to discern by the right line of law and not by the crooked cord of private opinion." When the Colorado Supreme Court, following many others of high repute, and particularly California, defined it as "an impartial discretion, guided and controlled in its exercise by fixed legal principles," it certainly skidded a trifle. Such a discretion may be so "guided," but if it may also be so "controlled" there is no discretion. The attempt to reason away this principle seems to be prompted by that view of its exercise expressed by the Supreme Court of Alabama when that Court said, "The discretion of a judge is the law of tyrants. It is always unknown. It is different in different men. It is casual and depends upon constitution and passion. In the best it is at times

ridiculous by the absurdity of its reasoning. New York has tried to draw a line between an absolute discretion in a trial Court and that which is governed by fixed legal rules, and it must be admitted that in this attempt New York is, if anything, a little less logical than Alabama. The looseness with which language is used in these definitions is well illustrated by the attempt of the Supreme Court of Nebraska to point out that certain matters are "largely within the discretion of the Court." What guide such a statement would furnish for a trial Court it is difficult to conceive. Is it not after all true that Senator Tracy best sizes up the situation when he says that "What is to be understood by a discretion that is governed by fixed legal principles is, I must be allowed to say, something that I have not found satisfactorily explained, and what it is not easy for me to comprehend,” and did not the Supreme Court of the United States lay down the correct rule when it said that "Whenever a statute gives a discretionary power to any person to be exercised by him upon his own opinion of certain facts, it is a sound rule of construction that the statute constitutes him the sole and conclusive judge of the existence of those facts?"8 The entire difficulty as to this subject is due to a misconception on the part of the people of the functions of a trial Court and an unconscious eagerness on the part of appellate Courts to exercise their own discretion where no discretion is given them.

The story of the judge who took evidence to determine whether a certain con

table in its terms as to shock the conscience of the chancellor is well known. The absurdity of taking evidence to determine the

(4)

Brown v. State, 109 Ala. 70.

(5) In Matter of Eldridge, 82 N. Y. 161; P. ex rel. Gas Light Co. v. Common Council, 78 N. Y. 56. (6)

Mulhollan v: Scroggin, 8 Neb. 202. (7) Judges v. The People, 18 Wend. (N. Y.)

(8)

Martin v. Mott, 12 Wheat. 19; 6 L. Ed.

(U. S.) 537.