city increase, so does the opportunity for inefficient and corrupt government increase and the greater will be the efforts of the administration to remain in control of such a political prize.

"The richer the city the greater the incentive to stifle opposition. In so far as the question before us is concerned, no distinction can be made with respect to the proprietary and governmental capacities of a city.

"All organized governments own and operate more or less property, and certain proprietary rights have long been recognized as necessary for the welfare of the inhabitants of the municipality. Municipal corporations, however, exist primarily for governmental purposes, and they are permitted to enter the commercial field, solely for the purpose of subserving the interests of the public which they represent. A city is no less. a government because it owns and operates its own water system, its own gas, and electric system, and its own transportation system. In Byrne v. Chicago General Railway Co., 169, Ill, 75, this Court said: "The city is but an agency of the state, and governs, within its sphere, for the state.'

The other principle upon which the Court's decision is based is stated as follows:

"While in the early history of the struggle for freedom of speech the restrictions were enforced by criminal prosecutions, it is clear that a civil action is as great. if not a greater, restriction than a criminal prosecution.

"If the right to criticize the government is a privilege which, with the exceptions above enumerated cannot be restricted, then all civil as well as criminal actions are forbidden.

"A despotic or corrupt government can more easily stifle opposition by a series of civil actions than by criminal prosecutions.'

Applying these principles to the case at bar, the Court reached the conclusion that the action "is out of tune with the American spirit, and has no place in American jurisprudence."

A remarkable consequence of the Illinois decision is that it extends immunity to pub lishers of newspapers even for false statements affecting the credit of municipalitie when made maliciously and with knowl edge of their falsehood. The Court said:

"By its demurrer appellee admits it published malicious and false statements regarding the City of Chicago with intent to destroy its credit and financial standing, and assuming that there was a temporary damage to the city and a resultant increase in taxes, it is better that an occasional individual or newspaper that is so perverted in jdugment and so misguided in his or its civic duty should go free than that all of the citizens should be put in jeopardy of imprisonment or economic subjugation if they venture to criticize an inefficient or corrupt government.

"We do not pass upon the truth or falsity of the publications nor the merits of the political controversy between the parties. We consider the question solely from the standpoint of public policy and fundamental principles of government. For the same reason that members of the legislature, judges of the courts, and other persons engaged in certain fields of the public service or in the administration of justice are absolutely immune from actions, civil or criminal, for libel for words published in the discharge of such public duties, the individual citizen must be given a like privi lege when he is acting in his sovereign capacity."

The only limitation to which the press is subjected is that it must not incite its readers to seek the overthrow of the gov ernment by force. In this connection the Court said:

"Where any person, by speech or writing, seeks to persuade others to violate existing law or to overthrow, by force or other unlawful means, the existing government, he may be punished. (People v. Lloyd, 304 Ill., 23; Gilbert v. Minnesota, 254 U. S. 325; 41 Supreme Court, 125), but all other utterances or publications against the government must be considered absolutely privileged."

PARTNERSHIP ELEMENTS OF

NATIONAL BANK OF COMMERCE OF ST. LOUIS v. FRANCIS

246 S. W. 326

(Supreme Court of Mo, Dec. 6, 1922)

In an action by a national bank against first mortgage bondholders or a railroad company, on notes of a construction company organized by the bondholders, who had purchased the property of the railroad company at foreclosure sale through a reorganization committee and heid certificates of beneficial interest, brought on the theory that the bondholders were partners and that the construction company was a mere dummy corporation acting as their agent, held, that defendants were not liable as partners, since the reorganization agreement, while providing for sharing profits, did not provide for sharing losses, the notes being specifically limited to the securities pledged for payment thereof, the net earnings of the railroad, and unexpended funds derived from the notes, and it not appearing that defendants ever intended to become partners, as among themselves.

Edw. J White and Geo. L. Edwards, both of St. Louis, for appellant.

Bryan, Williams & Cave, of St. Louis, for respondent Mallinckrodt.

A. & J. F. Lee and Thomas S. McPheeters, all of St. Louis, for respondents Francis and others.

Jourdan, Rassieur & Pierce, of St. Louis, for respondents Scullin and others.

Jeffries & Corum, of St. Louis, for respondents Knight and others

SMALL, C. I. Appeal from the circuit court of the City of St. Louis. The petition of the plaintiff, a national bank, to recover a money judgment against the defendants, is in three counts: First, it seeks to hold defendants as

partners; second, to set aside the transaction under which the money was paid out by the plaintiff, as ultra vires the plaintiff as a national bank, and to recover same from defendants under an implied contract to repay said money; third, to hold defendants liable as for money had and received.

The three counts are based upon the same transaction, to-wit: The purchase by the plaintiff on October 1, 1906, of 525 notes (so called) of the Allegheny Improvement Company, for $1,000 each, which company the petition alleges, in effect, was a dummy corporation used by defendants as their agent to make said notes as a construction company in pursuance of a reorganization agreement of the defendants, who were first mortgage bondholders of the St. Louis & North Arkansas Railroad Company, and who had caused said mortgage to be foreclosed and had purchased the property of said railroad company at the foreclosure sale, through a reorganization committee. The allegations of the petition in this regard are as follows:

"For the purpose of making said extensions of said property the agents used a pretended corporation, known by the name of the Allegheny Improvement Company. Said company was organized or adopted and used for the purposes for which a construction company was directed to be organized or adopted and used by the principals' agreement, and pursuant thereto. Said company was organized or adopted and used by the agents, in the exercise of the powers conferred upon them by the principals' agreement. The agents appointed or elected the shareholders, directors, and officers of said company from time to time, none of whom had any financial interest in said company. Said company never had any actual paid-up capital, and never owned any property of any. kind or character. Said company had no real independent existence, and was a corporation in name only, being solely the instrument and hand of the agents. The agents caused said company to contract with the railroad company selected by them for the extension of said property east and west, in consideration of said railroad company paying to said construction company for the use and benefit of the principals $25,000 par value of its stock and $25,000 par value of its first mortgage bonds for each mile of road so constructed."

The petition further states "that plaintiff has always relied for the repayment of said moneys upon the notes of the Allegheny Improvement Company" The petition also shows

that no interest was paid on said Allegheny Improvement Company notes after October 1, 1909, and that the principal thereof came due October 1, 1911. This suit was filed April 8, 1918. Defendants filed a demurrer to each count in the petition, setting forth two grounds: First, that it failed to state facts sufficient to constitute a cause of action against defendants, or either of them; and second, that it appears upon the face of each count that the cause of action attempted to be alleged therein was barred by the statute of limitations.

The Court sustained said demurrer, and plaintiffs refusing to plead further, final judgment was rendered in favor of the defendants, from which plaintiff appealed to this court.

By an agreement of counsel in the lower court, and continued here, the exhibits referred to in the petition are deemed part of the petition and are to be so considereu in disposing of the demurrer. Said exhibits are very voluminous and are four in number. No. 1 may be denominated the bondholders' reorganization agreement. It recites: The default of the St. Louis & North Arkansas Railroad to pay its interest due on the bonds, July 1, 1905, and January 1, 1906, and that its then existing road would not produce revenues enough to pay expenses, and that this condition could only be relieved by an extension of its lines, to connect with Joplin, Mo., on the west, and Helena, Ark., on the east, which extensions were estimated to cost $5,000,000. That some of the bondholders were unwilling to subscribe toward the fund necessary to make such extensions, and the railroad company could not raise the necessary money without the co-operation of the majority of its first mortgage bondholders, who had requested the trustees in the mortgage to foreclose the same, and that to protect the interests of the bondholders it was necessary to appoint a reorganization committee. Therefore, the parties signing said agreement mutually agreed:

First. To forthwith surrender their bonds and coupons to the Union Trust Company of St. Louis, as depositary, subject to the order of the committee of reorganization.

Second. For which the trust company wou'd issue to each bondholder a certificate of beneficial interest, in a certain prescribed form.

Third. That John Scullin, D. R. Francis, Robert S. Brookings and R. C. Kerens should be the committee of reorganization and empowered:

(a) To bid in the property and franchises of the railroad company at the foreclosure sale and use the bonds and coupons of the subscribing bondholders in payment of such part

of the purchase price as permitted by the decree of the court.

(b) To have full power to execute a tem porary mortgage upon the railroad so purchased "for the purpose of raising money to pay into the registry of the court" the neces sary sum to pay ratably other bondholders not parties to the reorganization agreement, and costs of the forceclosure proceedings, includ ing master's and attorney's fees, "or to bind the subscribers hereto severally in the proportion of their interests as represented by the certificates of beneficial interest issued to them for the payment of money borrowed by said committee to be used for the aforesaid purposes, but to no greater extent, it being expressly understood that the subscribers hereto shall be held as security for such sum as the committee may borrow for the purposes aforesaid, only in the event a temporary mortgage upon the property purchased is not executed, and then only severally to the extent alone of their ratable share of said loan."

(c) Committee to collect proceeds for bondholders in case third party purchased at foreclosure sale.

(d) "If the committee becomes the purchaser of said property, the members thereof shall, as trustees and agents of the subscribers, hereto forthwith reorganize the company in accordance with the provisions of the statutes of the states of Arkansas and Missouri relating to the reorganization of railroad companies by pur chasers at judicial sales."

(e) For the purpose of controlling the stock and bonds of the companies which may construct the proposed extensions, the committee shall make such contract with the Southeastern Railroad Company for constructing the eastern extension as is necessary "to acquire the ownership of said railroad as trustees and agents of the subscribers hereto," or may incorporate another company to acquire its property rights and franchises. The committee shall also cause to be organized a corporation in Missouri, "for and on behalf of the subscribers hereto," for extension westward to Joplin. Said committee also to have power to sell the property and franchises of the reorganized company to any construction company, and undertake with such purchasing company to cause to be con structed said extensions, upon the purchasing company agreeing to issue and deliver to the committee all the stock and bonds of the entire line when completed, including the line of the St. Louis & North Arkansas Railroad Company, as reorganized, for not less than an issue of $25,000 per mile, each of stock and bonds, and said committee shall have power to cause the St. Louis & North Arkansas Rail

road Company, as reorganized, to purchase any such construction company, or to consolidate said reorganized St. Louis & North Arkansas Railroad Company, with any such construction company upon such terms as the committee may deem "best for the subscribers hereto."

(f) Said committee to have power to cause a construction company to be organized for the "benefit of the subscribers hereto," and cause said company to make contracts with the company undertaking to build said extensions for the stock and bonds received by said construction company from the railroad company as consideration for building such extensions. "All profits made by any such construction company shall, under proper contract to be made by the committee, be paid to the committee for the benefit of the holders of the certificates of interest."

(g) Committee may buy the bonds of bondholders not parties to reorganization agreement, and use same in payment of purchase price at foreclosure sale.

(h) Committee to use all bonds and stocks received by it "under any of the contracts aforesaid which in its option it is authorized to make for and on behalf of the subscribers hereto," except such as it may retain to reimburse itself for money borrowed to pay purchase price of the property and costs of foreclosure sale, "as collateral security for loans made to construct said proposed extensions upon the terms and conditions hereinafter set out."

(i) The committee, in order to secure funds for building and equipment of said extensions shall have power to pledge all the stock and bonds issued upon the existing line and extensions of said railroad "as security for loans made to it, or to the construction or railroad company engaged in the construction of said proposed extensions," except such as may be retained under clause (h) hereor, "and it shall deposit all of said bonds and stock with a trustee, to be held by said trustee as security equally and without preference of one loan over another. The loan so made shall be evidenced by notes all payable at the same date, the first of said notes executed for the first advances made, to be due and payable five years from the date of said advance, and all of said notes shall bear interest payable semiannually at the rate of 5 per cent per annum, said semi-annual interest payments to be evidenced by coupon interest notes attached to the principal notes. Each of said notes shall contain a provision that the maker thereof shall have the right to pay the same at the date of the maturity of any interest coupon, if

notice of the intention of the maker thereof to so pay it is given to the trustee holding the security days or more before the maturity of said semi-annual interest coupon. None of said notes shall be discounted at more than 5 per cent of their face value; and the subscribers hereto and such bondholders as may hereafter become parties hereto shall have the privilege and right to subscribe for the purchase or discount of said notes in advance of the issuance therof in an amount not exceeding twice the par value of their present holdings of the bonds of the said St. Louis & North Arkansas Railroad Company, upon as favorable terms as are accorded other pur chasers, and shall be bound by said subscription when the same is filed with the said trustee."

(j) The net earnings of the existing line and extensions when completed shall be used by the committee to pay interest on the construction notes, and any deficiency to be paid out of money borrowed or received on sale or discount of such notes. If earnings exceed accruing interest, the excess shall be applied in retiring the construction notes.

(k) Committee empowered subject to approval of majority of holders of beneficial certificates to sell the property of the St. Louis & North Arkansas Railroad as reorganized and all rights and interests of the subscribers hereto, in any other railroad company, to any independent company not organized by said committee, or to any individual, for the purpose of retiring all the indebtedness incurred by said committee in the acquisition of the St. Louis & North Arkansas Railroad Company, and in the construction of the extensions herein provided for, "and if any surplus remains, to distribute same to subscribers," or committee shall have power to make sale of property before reorganization.

(1), Committee has power with consent of majority in interest of holders of beneficial certificates to secure extensions of such construction loan or to sell so much of the bonds and stock pledged as security therefor, to pay off said loans.

(m) If said construction loans are paid either by a sale of the bonds and stocks pledged as security therefor or by sale of the entire property, as before provided, the committee shall, after payment of expenses incurred in the performance of its duty, distribute any balance of moneys remaining in its hands ratably to the holders of certificates of beneficial interest. If the committee shall fail to make financial arrangements for the extensions of said road, as contemplated, with

in 12 months from the confirmation of the foreclosure sale, the reorganization agreement shall terminate and the holders of certificates of interest shall be entitled to a ratable distribution of the stock and bonds of the St. Louis & North Arkansas Railroad Company, as reorganized, less expenses incurred and paid out by the committee.

Fourth. Provides as to the duties and liabilities of St. Louis Union Trust Company depositary.

Fifth. Sets out form of beneficial certificate and form of transfer thereof.

Sixth. Provides for other bondholders becoming parties to reorganization agreement by depositing their bonds on or before April 1, 1906.

Seventh. Provides for filling vacancies in the Committee of Reorganization.

Eighth. Provides for change of powers of the committee by a majority in interest of the subscribers thereto.

The document is signed by the consenting bondholders and by the committee of reorganization named therein. Exhibit 2, attached to petition, is the form of the notes and interest coupons of the Allegheny Improvement Company, subscribed for and purchased by the plaintiff, and is as follows:

"Exhibit 2. "$1000.

"United States of America.

"State of Missouri.

"Allgheny Improvement Company Five Per Cent Collateral Trust Note.

"No.

"Know all men by these presents: That the undersigned, for value received, promises to pay to the bearer, at the office of the St. Louis Union Trust Company, in the City of St. Louis, Missouri, or, if registered, to the registered holder thereof, on the 1st day of October, 1911, the sum of one thousand dollars ($1,000) with interest thereon from the 1st day of October, 1906, at the rate of 5 per cent per annum, payable semi-annually, on the 1st day of April and October of each year; upon presentation and surrender of the annexed coupons as the same severally become due. This note is one of a series issued, for an aggregate amount not exceeding in par value the sum of six million dollars ($6,000,000) under and in pursuance of an agreement dated the 20th day of June, 1906, between John Scullin, D. R. Francis, Powell Clayton, R. C. Kerens and John F. Shepley, therein referred to as the committee, and certain other persons, firms and corporations therein referred to as subscribers, and of an indenture of pledge of even date herewith be

tween the said committee, as pledgors, and the St. Louis Union Trust Company, as trustee, whereby certain bonds and stock of the Missouri & North Arkansas Railroad Company, and certain other property, have been and are to be deposited with the said trustee as collateral security to the payment thereof. This note may be paid or redeemed at the option of the signers hereof, at any time before maturity, upon the date of maturity of any of the coupons hereunto attached after having previously given at least twenty (20) days' notice thereof, by publication of the same in some daily newspaper, printed and published in the said City of St. Louis, Missouri, signea by the trustee under said instrument of pledge. The holder of this note shall have the right to institute and prosecute against the signer hereof, whatever proceeding may be necessary in order to reach and apply to the payment hereof the securities held by it or by said committee, or the manager under the abovementioned agreement of June 20, 1906, or deposited under said instrument of pledge as collateral security to the payment hereof, or to reach or apply as aforesaid any sum of money due said commitee under said agreement of June 20, 1906, from the subscribers thereto; provided, however, that no judgment or decree which may be rendered in such proceeding or otherwise upon this note or any agreement or covenant contained therein, shall be enforced against the signer hereof, or its stockholders, or against any member of said committee individually, or against his individual property.

"Dated at the said City of St. Louis this, the 1st day of October, 1906.

"Allegheny Improvement Company,
"By John Scullin, President."
(Form of Coupon)

"The Allegheny Improvement Company will pay to bearer at the office of the St. Louis Union Trust Company in the City of St. Louis, Missouri, twenty-five ($25) dollars on the first day of interest due on its

No. "$25.

being six months' collateral trust note

$25.

"Charles Gilbert, Secretary." (Form of Trustee's. Certificate) "Trustee's Certificate.

"The undersigned trustee, named in the within note, and the indenture of pledge therein referred to, hereby certifies that this note is one of the notes described in the within-mentioned indenture of pledge. "St. Louis Union Trust Company, Trustee, "By Vice-President."