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able with expenses caused by their un- ceeding and on appeal, for which he justifiable conduct in interposing un- had not actually paid during the time founded claims and causing delays in he was executor and which were not the settlement of the estate.
entered as paid in the original account It has been held that the authority filed after revocation of the letters, of an executor to make any payment but as an amount due from him, noton account of an estate, or to act for withstanding that, after a ruling that the estate, ended with the revocation he could only be allowed for amounts of his letters testamentary, and the actually paid, he was allowed by the account was to be settled as of the surrogate to file a supplemental actime of the revocation of letters testa- . count in which he alleged that the sum mentary. Re Blair (1900) 49 App. had actually been paid by him; it apDiv. 417, 63 N. Y. Supp. 678. In that pearing that such payment had been case a person named as executor in an made by the giving of his promissory instrument purporting to be a will, note to the attorney after that ruling. who secured a decree of the surro
The reported case (RE PEDROLI, gate's court admitting the instrument ante, 841) holds, however, that the to probate and issuing letters testa- fact that one who intermeddles with mentary to him, which were thereafter an estate after his letters of adminisrevoked following a decision of the tration are revoked has not paid bills general term, affirmed by the court of incurred for its preservation does not appeals, reversing the surrogate's de- bar his right to an allowance for the cree, was denied an allowance against amount of such expenses when he the estate for legal services of counsel turns the estate over to the rightful employed by him in the probate pro- executor.
G. S. G.
A. L. BETTS et al., Appts.,
Arkansas Supreme Court - June 25, 1923,
(159 Ark. 621, 252 S. W. 602.) Trust - exemption declarations — effect. 1. A declaration is a so-called "Massachusetts trust," exempting the
, trustee from personal liability for obligations of the trust, does not affect the liability which the law fixes upon him; and, where the declaration of trust also provides for full control of the property by the trustee and exempts the cestui que trust from liability, the trustee is personally liable.
[See note on this question beginning on page 851.] — trustee as principal.
of the property in the trustee, relieves 2. A trustee is a principal, and not the cestuis que trust from liability for an agent of the cestui que trust. obligations incurred, and gives them [See 26 R. C. L. 1317.]
the right to share in the profits only, - personal liability of trustee. are not liable as partners or as prin
3. The trustee, and not the cestui cipals for debts of the enterprise. que trust, is personally responsible
[See notes in 7 A.L.R. 612; 10 A.L.R. for indebtedness growing out of trans
887.) actions in relation to the trust estate. Partnership test of. [See 26 R. C. L. 1317.]
5. The test of whether or not a busi- liability of shareholders.
ness is a partnership is the intention 4. Holders of shares in a so-called of the parties.
“Massachusetts trust" the declara- [See 20 R. C. L. 831; 3 R. C. L. Supp. tion in which vests absolute control 1104; 4 R. C. L. Supp. 1379.]
- construction of indenture.
Joint-stock company manager as 6. Whether a partnership or strict agent. trust is created by an indenture de
7. Managers in a joint-stock com
pany are agents for the shareholders. pends on the language and provisions
[See 20 R. C. L. 1076, 1077; 3 R. C. of the instrument involved.
L. Supp. 1124.]
APPEAL by defendants from a judgment of the Circuit Court for Hempstead County (Haynie, J.) in favor of plaintiff in an action brought to recover an amount due for goods sold and delivered to defendants as alleged members of a certain partnership. Affirmed as to defendant trustees and reversed as to the other defendants.
The facts are stated in the opinion of the court.
Messrs. Gentry & Purkins, for ap- tal Trust Co. v. Copeland, 39 R. I. 193, pellants:
98 Atl. 273; Howe v. Wichita State Practically every court that has Bank & T. Co. Tex. Civ. App. passed upon the question has upheld 242 S. W. 1091; Sergeant v. Goldsmith the validity of the "common-law trust Dry Goods Co. 110 Tex. 482, 10 A.L.R. relation,” and where the courts have 743, 221 S. W. 259. declared the “declaration” to create a All the defendants are liable as partnership relation, the turning point partners to third persons
on the has been upon the construction of the grounds of public policy. particular "declaration of trust" un- Wells v. Mackay Teleg.-Cable Co. der construction.
Tex. Civ. App. 239 S. W. 1001; Crocker v. Malley, 249 U. Ş. 223, 63 Jacoway v. Denton, 25 Ark. 634; DoyleL. ed. 573, 2 A.L.R. 1601, 39 Sup. Ct. Kidd Dry Goods Co. v. Kennedy, supra. Rep. 270; Williams v. Milton, 215 Mass. 1, 102 N. E. 355; Simson v. Klipstein,
Humphreys, J., delivered the opin
ion of the court: 88 N. J. Eq. 229, 102 Atl. 242; Rhode Island Hospital Trust Co. v. Copeland,
Appellee instituted suit against 39 R. I. 193, 98 Atl. 273; Home Lum- appellant in the circuit court of ber Co. v. Hopkins, 107 Kan. 153, 10 Hempstead county, to recover $180 A.L.R. 879, 190 Pac. 601; Wells-Stone for goods sold and delivered to the Mercantile Co. v. Grover, 7 N. D. 460, Hope Oil Trust, a concern doing 41 L.R.A. 252, 75 N. W. 911; Davis v. business under a written declaration Hudgins, - Tex. Civ. App. — 225 S.
commonly known as the “MassachuW. 73; Wilson v. Todhunter, 137 Ark.
setts trust.” The suit is based up80, 207 S. W. 221; Sears, Trust Estates, p. 138, ( 90; Mehaffy v. Wilson, 138
on an allegation that the Hope Oil Ark. 281, 211 S. W. 148; Buford v.
Trust is a partnership, and that apLewis, 87 Ark. 416, 112 S. W. 963. pellants are members thereof, and,
Mr. E. F. McFaddin, for appellee: as such, are individually liable for
The trustees themselves are certain the indebtedness of the concern. ly individually liable.
The six appellants first named were Taylor v. Davis (Taylor v. Mayo)
denominated trustees in the declara110 U. S. 330, 28 L. ed. 163, 4 Sup. Ct.
tion. They filed a separate answer, Rep. 147; Sears, Trust Estates, pp. 44, 45; Thompson, Business Trusts, pp.
admitting the amount of the account 35, 36.
and that the goods were sold to the The shareholders or beneficiaries Hope Oil Trust, but denying indiare liable to plaintiff.
vidual liability, upon the ground Doyle-Kidd Dry Goods Co. v. Ken- that they are exempted from liabilnedy, 154 Ark. 573, 243 S. W. 66; Mc- ity under paragraph 21 of the decCamey v. Hollister Oil Co. - Tex. Civ. laration, which in part is as follows: App. 241 S. W. 689; Baker-McGrew
"Every act done, power exercised, Co. v. Union Seed & Fertilizer Co. 125 Ark. 146, 183 S. W. 571; Wells V.
or obligation assumed, by the trusMackay Teleg.-Cable Co. - Tex. Civ.
tees, pursuant to the provisions of App. -239 S. W. 1001; Home Lumber
this agreement, or in carrying out Co. v. Hopkins, 107 Kan. 153, 10 A.L.R. the trusts herein contained, shall be 879, 190 Pac. 601; Rhode Island Hospi- held to be done, exercised, or as(159 Ark. 621, 252 8. W. 602.) sumed, as the case may be, by them tion of the personal liability of the as trustees, and not as individuals, trustees and certificate owners in and every person or corporav.on the business operated under the contracting with the trustees, as trust declaration. The instrument well as every beneficiary hereunder, is long, and it would unduly extend shall look only to the fund and prop- this opinion to set it out in extenso; erty of the trust for payment under a statement of the substance theresuch contract, or for the payment of of being sufficient for the purposes any debt, mortgage, judgment, or of this cause. In short the instrudecree, or the payment of any mon- ment reflects that trustees associatey that may otherwise become due ed themselves together for the puror payable on account of the trusts pose of selling certificates of stock herein provided for, and any other in the name of Hope Oil Trust and obligation arising under this agree- of using the proceeds for investment ment in whole or in part; and nei- in securities and enterprises for the ther the trustees nor the sharehold- equal benefit of the shareholders. ers, present or future, shall be per
be per- The trustees reserved the entir sonally liable therefor.”
management and control of the busiThe two last-named appellants ness in themselves, the right to hold are shareholders, and filed a sep- the title to all the property and disarate answer denying liability, upon pose of same, and to elect their own the ground that under the terms of successors in case of the resignation the declaration they are cestuis que or death of either one of them. The trust. They claim exemption under indenture in effect provided that the paragraph 21, quoted above, and trustees should be masters of the paragraphs 9 and 20, which are as trust property as well as the busifollows:
ness, without suggestion, supervi9. “The trustees under this agree- sion, or interference on the part of ment shall have the sole legal title the stockholders.
the stockholders. No authority or to all property, in any part of the power whatever was conferred upon United States of America, or in any the stockholders. In fact all auforeign country, at any time held, thority and control of the property acquired, or received by them as and business was withheld from trustees under the terms of this them. No provision was even made agreement, or in which the share- for a meeting of the stockholders at holders under this agreement shall any time for any purpose. Under have any beneficial interest as such the terms of the declaration they shareholders, and they shall have were nonparticipants, save to share and exercise the exclusive manage- in dividends and profits that might ment and control of the same, in any be declared and distributed among manner that they shall deem for the them by the trustees. best interest of the shareholders, graphs of the declaration exempting with all the rights and powers of ab- the shareholders from personal liasolute owners thereof."
bility have been set out in full. 20. "Shareholders hereunder shall The statutes of this state provide not be liable for any assessment, for and regulate two kinds of busiand the trustees shall have no power ness concerns,-limited partnerto bind the shareholders personal ships and corporations. The other ly.”
business organizations operate in Demurrers were filed to the sep- this state under the general law of arate answers and sustained by the the land, not under statutory proteccourt. Appellants stood upon their tion and restrictions. General partanswers and refused to plead fur- nerships, joint-stock companies, ther, whereupon the court rendered business trusts, and other associajudgment against them, from which tions, are not prohibited from doing is this appeal.
business in this state. With these The appeal involves the sole ques- preliminary remarks we proceed at
once to determine whether the trus- and creditors, and for that reason tees and shareholders in the Hope are individually liable. Oil Trust are individually liable for We next proceed to a determinathe account sued upon.
We will tion of the liability of the shareholdfirst determine the liability of the ers.
The declaration not only extrustees.
empts the shareholders from indiA general rule in the law of trusts vidual liability in specific terms, but is that a trustee is a principal and shears them of all control and man
not an agent for the agement of the business. ParaTrust-trustee as cestui que trust. It graph 9 of the indenture makes the principal.
follows from this trustees absolute masters of the rule that the trustee, and not the property and business. The only cestui que trust, is personally re- right accorded to the holders of cersponsible for an indebtedness grow- tificates of stock is to share in prof
ing out of transac- its or dividends. They are in the --personal liabil. tions in relation to
attitude of one lending money to a ity of trustee.
the trust estate. partnership for a share of the profThe creditor's guaranty is the per- its in lieu of interest. A reading of sonal liability of the trustee. We see the trust instrument in its entirety no reason why the trustees here
has convinced us that the sharehold should be exempt from this general ers are not associated with each rule. Their declaration exempting other and the trusthem from personal liability cannot tees for the pur- liability of Texemption dec. prevent
prevent individual pose of conducting
from at- a business in person or through
taching, as the law agents for a profit. There is nothfixes the liability of trustees. Ac- ing in the instrument showing an cording to the declaration, they are intention on the part of the shareself-appointed trustees, with abso- holders to enter into a copartnerlute authority over the trust busi- ship or an intention on the part of ness and property. The rule an- the trustees to co-operate with the nounced above is supported by the
shareholders in the conduct of the decided weight of authority, as will business. The test, after all, in debe seen by reference to the list of termining whether a business is a cases cited on page 46 of Sears on partnership, is to Trust Estates. It was said by the ascertain whether PartnershipSupreme Court of the United States the parties intended in the case of Taylor v. Davis (Tay- one. Buford v. Lewis, 87 Ark. 417, lor v. Mayo) 110 U. S. 330, 28 L. ed.
112 S. W. 963; Wilson v. Todhun163, 4 Sup. Ct. Rep. 147: “When
ter, 137 Ark. 80, 207 S. W. 221; Mea trustee contracts as such, unless
haffy v. Wilson, 138 Ark. 281, 211 he is bound no one is bound, for he
S. W. 148. Under the terms of the
instrument the shareholders are ceshas no principal. The trust estate cannot promise; the contract is
tuis que trust, and the instrument, therefore the personal undertaking
in so far as they are concerned, creof the trustee.
ates a pure trust. Common-law If a trustee
trusts are generally recognized and contracting for the benefit of a trust
have been upheld by the weight of wants to protect himself from indi- authority. Williams v. Milton, 215 vidual liability on the contract, he
Mass. 1, 102 N. E. 355 ; Simson v. must stipulate that he is not to be
Klipstein, 88 N. J. Eq. 229, 102 Atl. responsible, but that the oth
242; Rhode Island Hospital Trust er party is to look solely to the trust Co. v. Copeland, 39 R. I. 193, 98 Atl. estate.”
273; Home Lumber Co. v. Hopkins, The trustees under the terms of 107 Kan. 153, 10 A.L.R. 879, 190 the indenture interposed themselves Pac. 601; Wells-Stone Mercantile as a shield between the stockholders Co. v. Grover, 7 N. D. 460, 41 L.R.A.
(159 Ark. 621, 252 8. W. 602.) 252, 75 N. W. 911; Mayo v. Moritzpany and a pure business trust. In 151 Mass. 481, 24 N. E. 1083; Fos- a joint-stock com
Joint-stock comter v. Boston, 215 Mass. 31, 102 N.
pany the managers pany-manager E. 359. Appellee insists that this
are agents for the as agent. court is committed to the doctrine shareholders. Not so in a business that immunity from individual lia- trust. The managers are princibility to shareholders in a business pals, and the shareholders are cesorganization can be accomplished in tuis que trust. In the Baker-McArkansas through the medium only Grew Co. Case the indenture providof limited partnerships and corpo- ed for shareholders to meet and rations. In support of this conten- elect trustees. In this way they tion two Arkansas cases are cited in were in a position to control and which the court held the members manage the business and property. of the organization liable as part. We have not overlooked the case of ners. Doyle-Kidd Dry Goods Co. v. Greene County v. Smith, 148 Ark. Kennedy, 154 Ark. 573, 243 S. W. 33, 228 S. W. 738. In that case the 66; Baker-McGrew Co. v. Union question of the liability of shareSeed & Fertilizer Co. 125 Ark. 146, holders to creditors or third persons 188 S. W. 571. The declaration of was not involved; the only question trust in each of these cases was involved being one of taxation. quite different from the declaration The instrument in the instant in the instant case.
case created a pure trust, in so far The question as to whether a as appellants P. M. Simms and T. partnership or strict trust is created M. Kinser are concerned, and they
by an indenture are immune from individual liabil. construction of must depend on the ity.
language and provi- The judgment is affirmed as to the sions of the instrument involved in trustees, and reversed, and the each case.
In the Doyle-Kidd Dry cause remanded, as to Kinser and Goods Co. Case this court ruled that Simms, with directions to overrule the instrument created a joint-stock the demurrer to their answer and to company. There is a marked dif- proceed in
proceed in accordance with this ference between a joint-stock com- opinion.
I. Scope, 851.
a. In general, 852.
(No later decisions herein.) III. Purpose and legal nature:
a. Purposes for which business
trust may be formed, 856.
1. In general, 856.
2. Under Bankruptcy Act, 859. (No later decisions herein.)
3. For purposes of taxation,
859. IV. Rights of trust creditors, 862. V. Power of officers or shareholders to
sell trust lands, 865. V. [a] [New] Power of trustees to main
tain suit in own name, 865. V. [b] (New) Power of beneficiaries to
maintain suit, 865. V. (c) (New) Right to bring suit in firm
name, 866. V. [d] [New] Defense of suits against
business trusts, 866. VI. Liability of trustees for negligence,
1. Scope. This annotation is supplemental to annotations on the same subject in
7 A.L.R. 612, and 10 A.L.R. 887, to which reference should be made for the earlier cases.