upon the Political Equality of States" calls attention to the fact that any limitation placed upon a nation's participation in the privileges and responsibilites of collective international activity-such as in international organization-is forcing upon such nation an unequal or inferior status.

The underlying thought-that while states may be regarded as equal before the law, some are denied the same capacity for rights, and in this sense are unequal-is very forcibly brought home to the reader by the author's critical review of the "Peace of Paris," and forces a doubt as to the working value of the principle of equality in a world of realities.

His conclusions (given at page 334) are:

1. The principle of state equality in international law was a creation of the publicists-having been derived from the application to nations of theories of natural law, the state of nature, and natural equality.

2. The conception of state equality was first developed as part of a coherent theory by the naturalists of the seventeenth and eighteenth centuries. Grotius neither discussed the conception nor based his system upon it.

3. The principle of equality finds significance in two legal principles: the first, equal protection of the law or equality before the law that is, that states are equal when they are equally protected in the enjoyment of their rights, and that there is nothing inconsistent with equality before the law and the grouping of states into classes and the attributing to the members of each class a status which is the measure of capacity for rights; and second: equality of rights and obligations-a principle that is not essential to the reign of law and never has been more than an ideal in perfecting national organization, and that among nations where there are such differences in physical characteristics there are necessarily limitations upon the ideal when put in practice.

4. That while equality of capacity is limited to rules of conduct and to the acquiring of rights and the assuming of obligations under those rules-that it is inapplicable to rules or organization, for if it were not so considered the possibility of effective international organization could not be realized.

While these conclusions admit that, although states may be properly regarded as unequal in a certain sense, it is urgently insisted that "equality of legal capacity has its place as an ideal in the system of international law." If we keep in mind the distinction made in the two meanings of the principle as stated, we must agree with the author's conclusions.

Dr. Dickinson states in the preface that he has endeavored to avoid the "loose writing and nebulous speculation" that has caused so much confusion of thought on this subject. His constructive thinking, thorough examination and critical analysis, together with his happy power of illustration will prevent any such accusation, and will command for this work, which now stands alone in this particular field, the admiration which it merits.

Chicago.

CHARLES H. WATSON.

Of late years there has been a rapid growth in the use of the so-called 'Business Trust,' that is, a trust estate operating in the field of commerce and trade and doing the work of the ordinary private business corporation. The business trust, as we know it, is either a testamentary trust, or a voluntary trust controlled by an instrument executed by trustees to whom there has been or will presently be transferred the property or money to constitute the corpus of the trust.

The business trust first came into its own in this country as a means of handling valuable real estate and particularly in Massachusetts. In that state we find a long line of well considered cases involving such use of the voluntary trust form of business organization. In that state also, and in Rhode Island as well, we find an early line of cases covering the operation of commercial businesses under testamentary trusts. In Illinois, with the growth of capital and with the rise of property values, especially in Chicago, we find an increasing use of the business trust, both under testamentary provisions and under trust agreements, but until comparatively recently this use has been limited and there are only two or three Illinois Supreme Court cases which bear directly on the subject. Many Chicago loop office buildings are operated by testamentary trustees; for example, the Conway Building owned by the Marshall Field Estate, the National City Bank Building owned by the Shepherd Brooks Estate, and the various Lehmann Estate buildings. Other loop buildings are held and operated by trustees under trust agreements, as, for example, until recently, the Masonic Temple. 1. A paper read before the Legal Club of Chicago.

Of late years, also, the trust form of organization has been made use of to cover the ownership and management of the many cooperatively owned apartment buildings on the North Side. Also, we have in Chicago business trusts engaged in industrial pursuits, as, for example, the trust which controls the surface street car lines.

The business trust under modern conditions is found to have certain advantages over the ordinary corporate form of doing business. These advantages are the convenience, continuity, and flexibility of its management; its right to do business in any state; its freedom, up to date, from inquisitorial laws; and its present freedom from the many annoying forms of corporate taxation. On the other hand, there are at the present time, certain very serious practical disadvantages in using this form of organization: "the employment of the voluntary business trust is comparatively new; attacks upon its validity in new respects will probably still be made; regulating legislation affecting it may reasonably be expected; the precise nature of the beneficiary's interest is still undetermined; what rights the beneficiaries may have in addition to those essential to cestuis que trust are questions still to be decided"; but most important of all, the line of demarcation between the domain of the business trust and that of the partnership is yet to be clearly drawn by the courts. It is the last named point which is the subject of this article.

The first question to be considered, then, is whether or not the trust form for a business organizations permits liability of the investors or shareholders to be limited. Are the beneficiaries, who voluntarily make themselves the recipients of the trust earnings and profits, free from liability for the indebtedness of the trust business, or are they individually liable for the whole of it as partners?

The only basis for predication of partnership liability upon the beneficiaries is the agency theory that he who accepts the income and profits arising from a business thereby ratifies all the acts of the manager of the business, and as he has had the benefits of the profits, so must he also suffer for the losses. But it is submitted that if ratification or non-ratification by the beneficiary has no legal effect upon the act of the manager, if the manager is in no sense the agent of the beneficiary, this doctrine is not applicable.*

2. In the case of the earlier of these buildings, of course, the trust form of organization was made necessary by the former Illinois statutory prohibitions against real estate corporations.

3. See Thompson "Business Trusts as Substitutes for Business Corporations" 45.

4. See Sears "Trust Estates as Business Companies" 108.

Now it is well settled that a trustee is not an agent.

"An agent represents and acts for his principal, who may be a natural or an artificial person. A trustee may be defined, generally, as a person in whom some estate, interest, or power in or affecting property is vested for the benefit of another. When an agent contracts for his principal, the principal contracts and is bound, but the agent is not. When a trustee contracts as such, unless he is bound, no one is bound, for he has no principal."

The trustee is not an agent either of the cestuis que trustent or of the estate. He is the owner of the trust property and of the trust business. He is the principal, the master. Since, in relation to the property and the business in which it is employed, the trustee is the principal, upon no recognized theory of agency can the beneficiary be bound for the trustee's obligations with respect to the trust business. This is true if the trust organization in question is a true trust; if it is not a true trust, then the question of liability is an open one. Is there then a definite test by which we can ascertain whether or not the organization qualifies as a true trust?

"If the instrument of trust under which the business is operated confers absolute and uncontrolled power upon the trustee with respect to the management of the property given him, and the beneficiaries have only the rights that are implied because they are fundamental to the trust relation, that is, to call upon the trustee to account, to have him removed for misconduct or negligence, to receive the income while the trust lasts and their share of the trust estate upon its termination, then plainly the arrangement is a pure trust”.

and the beneficiaries or shareholders cannot by any extension of partnership or agency theory be held liable to creditors of the trust business.

However, owing to the desire of investors to do business under a trust form of organization with all its advantages and yet to maintain as much control over their business as possible, many business trust agreements have provided for certain rights in the beneficiaries beyond those fundamentally inherent in cestuis que trustent; for example, beneficiaries are given the right to hold meetings and fill vacancies among the trustees, to elect trustees periodically, to remove trustees and choose successors, to adopt amendments to the trust agreement, to direct or agree to a termination of the trust and to give various directions to the trustees as to the management of the trust business. In the case of such instruments the question at

5. Taylor v. Davis (1884) 110 U. S. 330, 4 Sup. Ct. 147.

6. Thompson "Business Trusts" etc. 28.

once arises, is the organization a true trust, or is it an agency or partnership arrangement? If it is the latter, then, of course, the beneficiaries are personally liable for the debts of the trust business.

8

There are two cases on the subject in England, Smith v. Anderson,' and Cox v. Hickman, which have settled the law in that country. In Smith v. Anderson, shares in a number of submarine telegraph companies were purchased by subscription and vested in trustees. The trusts were declared by deed between the trustees and a covenantee on behalf of the beneficiaries. The income of the trust might with the consent of the beneficiaries be reinvested in submarine telegraph shares. Meetings of the beneficiaries might be held for the purpose of receiving reports from the trustees and of appointing new trustees to fill vacancies. Action was brought to have the trust wound up as being an illegal association because, being an association of more than twenty persons formed for the purpose of carrying on a business having for its object the acquisition of gain, it was within the British Companies Act and had not been duly registered under that Act. The court in holding that the arrangement constituted a true trust and not an association under the Companies Act said:

"If there is any business at all, it is to be carried on by the trustees. Whatever is to be done, is to be done by the trustees.

"All the power which the subscribers of this money had was to attend sometimes at meetings and the meetings which were held most usually were those to receive a report from the trustees on the condition and affairs of the trust, to appoint auditors to audit the accounts of the trustees and to elect new trustees to supply vacancies. It is impossible in my opinion to say that the certificate holders are by themselves in any way carrying on any business by reason of what is done at these meetings.

"Then the agreement says that a reinvestment must be sanctioned at a meeting of the certificate holders summoned for that purpose. This is not a power to speculate or to carry on a business and really all here given to the certificate holders is the power to give such assent as cestuis que trust usually give for a change of securities when they are not incapacitated by infancy or otherwise."

In Smith v. Anderson, then, the court was of the opinion that the power to fill vacancies among the trustees at a meeting of the shareholders and the provision for ratification of the trustees' investments by the beneficiaries did not give the beneficiaries sufficient control over the trustees to take the organization out of the realm of the true trust.