patents never has had any rights of this character greater than anyone else; the Sherman Act affected him exactly as it did all others in this respect, and Section 2 of the Clayton Act, if applied to him, does not infringe any of his statutory rights. Whether the patent and copyright monopolies include in their scope peculiar rights to discriminate in prices is, however, a question not yet completely answered by the courts. If they do, then to the extent of those peculiar rights there is the same reason for exempting patented and copyrighted commodities from the operation of Section 2 that there was in exempting them from the Sherman Act. Furthermore, by its terms the section only operates when the "effect of such discrimination may be to substantially lessen competition or tend to create a monopoly." To the extent that the patent or copyright laws are the moving cause which produces this effect, the section, by its own language, is inoperative. Section 2, therefore, applies to both patented and copyrighted commodities, but, like Section 3 and like the Sherman Act, it operates only outside of their "inherent limitations." Our conclusions regarding the effect of the Clayton Act can be summarized as follows: First: The Act in setting up the new test whether the effect of the transactions prohibited "may be to substantially lessen competition or tend to create a monopoly" does not change greatly, if at all, the old test of whether there was "unreasonable" or "undue" restraint of trade. The existence of a specific statute covering price discrimination and "tying contracts" will, however, cause such transactions to be scrutinized with care. Second: Sections 2 and 3 apply to both patented and copyrighted commodities. Section 3, at least, takes away no rights created by the patent and copyright laws, and Section 2 should be construed as operating only outside the scope of the monopolies created by those laws. The insertion of the words "whether patented or unpatented” in Section 3 was unnecessary. Amos J. Peaslee. NEW YORK CITY. HARVARD LAW REVIEW Published monthly, during the Academic Year, by Harvard Law Students SUBSCRIPTION PRICE, $2.50 PER ANNUM Editorial Board ROBERT P. PATTERSON, President. S. PARKER GILBERT, JR., Case Editor. ALEXANDER I. HENDERSON, HENRY E. MCELWAIN, JR., 35 CENTS PER NUMBER MONTGOMERY B. ANGELL, Treasurer. E. WILLOUGHBY MIDDLETON, THE ENGLISH MORATORIUM IN A NEUTRAL STATE. The influence of the European war on neutral America has many interesting sidelights. One striking illustration of the interdependence of the commercial communities on both sides of the Atlantic is afforded by a recent dispute between New York merchants over the effect of the English moratorium, a sort of measure which prior to August, 1914, seems to have been unheard of in English and American law. An opinion was given by the Hon. Edgar M. Cullen, formerly Chief Justice of the New York Court of Appeals, to whom the matter was referred as arbitrator. In the Matter of the Arbitration Agreement between Lazard Frères and L. Vogelstein & Co., 52 N. Y. L. J. 801. Before the war, a New York banking house made a loan of bills of exchange drawn upon its London correspondents. The borrowers agreed to refund three days before the maturity of the bills in London, at the then prevailing rate of exchange on London. The bills fell due after the outbreak of war, but the acceptors did not take advantage of a moratorium which had been proclaimed,1 and paid them at maturity. The question was whether the New York banker could hold the borrower liable on his contract at the extremely high rates of exchange then prevailing. 1 This was the Royal Proclamation of August 2, 1914 (No. 1164). THE POSTPONEMENT OF PAYMENTS ACT, ratifying the proclamation and authorizing them in the future, became law on August 3 (4 & 5 Geo. V, c. 11), the second time in English history that a statute has passed through all its stages and become law in a single day. 58 Sol. J. 758, 759. It was held that he could. The acceptors, who had been supplied with funds to meet the bankers' accruing obligations, were not bound to invoke the moratorium in order that the borrowers might secure the benefit of a possibly lower rate of exchange in the future. No decision involving this point has been found in the rapidly increasing number of reported English cases dealing with various phases of the recent moratoria, but the result seems to be in accordance with the spirit of the act. It was an emergency measure for the benefit of debtors. They were not obliged to accept its privileges. Indeed, a moratorium proclamation subsequent to the one here in dispute expressly provided that payments before the expiration of this special period of grace were not forbidden.2 WIDER JURISDICTION FOR THE UNITED STATES SUPREME Court. — A recent amendment to the Federal Judicial Code gives the Supreme Court jurisdiction to review all cases involving a federal right which have been carried to the state court of last resort for such questions.1 Hitherto the right of review in such cases has been limited to decisions adverse to the federal right. This is a significant victory for legal reform, won by the American Bar Association after a single-handed fight, with practically no assistance from the press.2 Congress was reluctant to extend the jurisdiction which had remained substantially without change since the Judiciary Act of 1789,3 but new conditions bringing new problems have supplanted those which gave rise to the old rule, and it had become a positive obstacle to a just and uniform interpretation of the federal Constitution. The jurisdiction conferred upon the Supreme Court by the Judiciary Act was wide enough to restrain local jealousies and to preserve the newly created central authority from encroachment by the states. No more was necessary. If a state court in that day and generation sustained a federal right, it would be practically certain to prevail in the Supreme Court also. The denial of an appeal in such cases was a wise measure to prevent fruitless litigation. To-day the most important disputes arising under the Constitution no longer turn upon conflicts between the states and the national government, but between the states and their own citizens. The state judiciary no longer harbors a local jealousy of central authority. But many state judges, clinging tenaciously to an outworn economic creed, are likely to regard as offending the Fourteenth Amendment humanitarian legislation which the Supreme Court would sustain if the case 2 Proclamation of Sept. 30, 1914, s. 4. 58 Sol. J. 854. 1 PUBLIC ACT No. 224; 63d CONGRESS, SENATE BILL No. 94; Approved Dec. 23, 1914, amending FED. JUD. CODE of 1911, c. 10, § 237. 2 The measure was proposed in the report of a special committee of the American Bar Association in 1911, which was adopted without change by the Association. 36 A. B. A. 462, 469, 48. It was passed by the Senate in the 62d Congress, but not by the House. 37 A. B. A. 559, 564; 38 A. B. A. 547. 3 Sec. 25. could be appealed. Under the code as it stood prior to the recent amendment, no such appeal could be taken. This injustice was not certain to be removed even if the Supreme Court definitely affirmed the validity of a similar statute on appeal from the court of another state which happened to rule against the federal right. At least one state court expressly declared: "We are not bound by any obligation imposed upon us in the federal Constitution to uphold a state statute merely because, in the view of the Supreme Court of the United States, it is not unconstitutional." 5 Thus the rule which has been superseded made possible a situation in which one "supreme law of the land" would have, permanently, a different meaning in different parts of the land. Moreover, it was conceivable that the Supreme Court would never have a chance to pass upon legislation which all the state courts held invalid. The new amendment gives the Supreme Court a discretionary power to review by certiorari, or otherwise, decisions which sustain the federal right. If the decision is adverse to the federal right the losing party may still demand a writ of error from the Supreme Court as of right. The slight difference in procedure enables the court to free its calendar from dilatory appeals under the new jurisdiction, without impairing the position which is now assured to it as the final interpreter of the Constitution. DIRECT RECOVERY BY A CORPORATION FOR DAMAGE SUSTAINED AS STOCKHOLDER IN ANOTHER CORPORATION. Can a shareholder, the value of whose stock had been depreciated by a wrongful reduction of the corporate assets, circumvent the long-established principle that a stockholder cannot sue for damage to his interest caused through injury to the corporation for which the latter has a right of action,' by showing that the wrongdoer was simultaneously violating a duty owed the shareholder in his individual capacity? This question received its first judicial consideration in a decision just handed down by the Appellate Division of the New York Supreme Court. General Rubber Co. v. Benedict, 164 N. Y. App. Div. 332, 149 N. Y. Supp. 880.2 The plaintiff corporation was a large stockholder in another corporation, and defendant was a director of the former but not of the latter. With 4 Many interesting examples of this have been collected by Professor W. F. Dodd in an article entitled, "The United States Supreme Court as the Final Interpreter of the Federal Constitution," 6 Ill. L. Rev. 289. Cf. State v. Williams, 189 N. Y. 131 (1907), with Muller v. Oregon, 208 U. S. 412 (1908); and People v. Orange, etc. Co., 175 N. Y. 84 (1903), with Atkin v. Kansas, 191 U. S. 207 (1903). 5 See McCollum v. McConaughy, 141 Ia. 172, 176, 119 N. W. 539, 540. 1 Smith v. Hurd, 12 Met. (Mass.) 371, is the leading case. A stockholder brought an action on the case against certain directors for negligently permitting the corporate assets to be wasted. A demurrer to the declaration was sustained. Other cases involving the same principle are Smith v. Poor, 40 Me. 415; Allen v. Curtis, 26 Conn. 456; Converse v. United Shoe Machinery Co., 185 Mass. 422, 70 N. E. 444; Niles v. Johnson, 69 N. Y. App. Div. 144, 74 N. Y. Supp. 617, affirmed 176 N. Y. 119, 68 N. E. 142. See I MORAWETZ, CORPORATIONS, 2 ed., §§ 239, 566; 4 THOMPSON, CORPORATIONS, 2 ed., §§ 4550-1; 22 HARV. L. REV. 594. 2 This case is more fully stated in this issue of the REVIEW, p. 427. The opinion was by Dowling, J., in which Scott and Hotchkiss, JJ., concurred. There was a dissenting opinion by Ingraham, P. J., in which Laughlin, J., concurred. defendant's acquiescence and connivance the manager of the latter misappropriated a large part of its assets to the use of still another company of which defendant and he were part owners. A demurrer was overruled to a complaint based on violation of defendant's duty as director.3 The true purport of this adjudication appears from a review of the reasons underlying the rule of Smith v. Hurd. Where the corporation has been injured, it is primarily for its directors to proceed against the wrongdoer, but should they fail to act, the shareholder has his ultimate remedy by a bill in equity to require the assertion of the corporate right.5 Although the shareholder has suffered indirect harm to the value of his stock, if it was through negligence of the defendant, as in Smith v. Hurd, he has no cause of action in his own name, because the law of torts does not recognize as a basis for recovery indirect negligent injury of this sort through direct damage to a third person. But where, as in the principal case, the indirect injury is intentional, ordinary principles of tort liability would seem to afford direct relief." Yet a universal exception is to be found where a tortfeasor interferes with a debtor's assets to the detriment of creditors. In such cases the sole cause of action is in the debtor. This qualification is attended by eminently desirable results of convenience. Not only would each petty creditor with his trivial claim be a potential litigant, but also the estimation of damages in a given suit would necessitate adjudicating the extent and sufficiency of the claim of all individual creditors who might have participated in the assets destroyed. In corporation cases the reasons for making an exception are equally cogent, for not only might each holder of a single share sue for any wrongful depreciation, however trifling, but, inasmuch as the rights of creditors 3 At the outset it is best to concede that there was a violation of defendant's duty as director in not notifying plaintiff. The dissent intimates that the director's duty did not extend to plaintiff's interest in this subsidiary corporation. This view, it is submitted, places too low an estimate upon the duties of directors. Business morality demands that all a corporation's interests be protected. On the question of a director's duties arising out of his fiduciary position, see I MORAWETZ, CORPORATIONS, 2 ed., §§ 516 et seq.; 2 THOMPSON, CORPORATIONS, 2 ed., §§ 1215-22. 4 Supra, n. I. 5 With reference to bringing a shareholder's bill, see I MORAWETZ, CORPORATIONS, 2 ed., §§ 240-1; 4 THOMPSON, CORPORATIONS, 2 ed., §§ 4553-9; 22 HARV. L. Rev. 594. See Hawes v. Oakland, 104 U. S. 450; Smith v. Poor, supra. 6 See 28 HARV. L. REV. 307. 7 See ibid. It would seem incontrovertible that the wrongdoer in misapplying the corporate funds must have had in mind, and intended, a depreciation in the value of the shares. 8 Lamb v. Stone, 11 Pick. (Mass.) 527; Bradley v. Fuller, 118 Mass. 239; Adler v. Fenton, 24 How. (U. S.) 407; Klous v. Hennessey, 13 R. I. 332. 9 This reason alone would not explain the cases denying relief to a sole shareholder. Fitzgerald v. Missouri Pacific Ry. Co., 45 Fed. 812; Randall v. Dudley, III Mich. 437, 69 N. W. 729; Cutshaw v. Fargo, 8 Ind. App. 691, 34 N. E. 376, 36 N. E. 650. Shaw, C. J., in Smith v. Hurd, supra, 383, says, "If an action can be brought by one stockholder, it may be brought by the holder of a single share; so that for one and the same default of these directors, thirty-five hundred actions might be brought. If it may be sustained by proof of an act, or series of acts, of carelessness, neglect, and breach of duty, in managing the affairs of the bank, by which the whole value of the stock is destroyed, it may, on the same principle, be maintained on any act or instance |