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The scope outlined in 7 A.L.R. 612, Dunbar v. Broomfield (1924) Mass. is followed herein.

142 N. E. 148. For cases in which it has been New York. Bartley v. Andrews determined whether or not “Massa- (1923) 202 N. Y. Supp. 227. chusetts trusts” are within the scope Texas.- Bingham v. Graham (1920) of “Blue Sky Laws,” see annotation Tex. Civ. App. —, 220 S. W. 105; in 24 A.L.R. 529, 530, and Superior Davis v. Hudgins (1920) Tex. Civ. Oil & Ref. Syndicate v. Handley App. —, 225 S. W. 73; Wells v. Mackay (1921) 99 Or. 146, 195 Pac. 159, and Teleg.-Cable Co. (1921) Tex. Civ. State ex rel. Range v. Hinkle (1923) App. —, 239 S. W. 1001; Moss v. Re· Wash. 219 Pac. 41.

public Supply Co. (1922) Tex. Civ.

App. -, 240 S. W. 326; Cox v. Lucky II. Validity.

Pat. Oil & Gas Asso. (1922) — Tex. a. In general.

241 S. W. 105, modifying on other (Supplementing annotations in 7 grounds (1921) - Tex. Civ. App. -,

. A.L.R. 613, and 10 A.L.R. 887.)

230 S. W. 858 (holding that persons In the following recent cases, the

buying shares in a mining corporation courts, either expressly or impliedly, association organized as a business have recognized the validity-funda- trust are bound by the articles of mentally, at least-of business trusts association, especially provisions of the character under consideration: specifically authorizing the trustees

United States. Hecht v. Malley to conduct the business and affairs of (1924) – U. S. 68 L. ed. -, U. S. the firm, which include power to sell Adv. p. 510, 44 Sup. Ct. Rep.

the trust properties). And see Banreversing on other grounds (1922) ner Oil & Gas Co. v. Gordon (1921) 281 Fed. 363, which reversed on other Tex. Civ. App. 235 S. W. 945. grounds (1921) 276 Fed. 830; Sim- But compare McCamey v. Hollister Oil son v. Klipstein (1920) 262 Fed. 823; Co. (1922) - Tex. Civ. App. 241

—, Weeks v. Sibley (1920) 269 Fed. 155; S. W. 689, as quoted infra, II. c. Rand v. Morse (1923) 289 Fed. 339. And it has been held that a busi

Arkansas. Greene County v. ness trust is not rendered illegal beSmith (1921) 148 Ark. 33, 228 S. W. cause of the fact that it was formed 738; BETTS v. HACKATHORN (reported for the express purpose of reducing herewith) ante, 847.

or avoiding taxation. Thus, in Weeks California. McMillan v. Green- v. Sibley (1920) 269 Fed. 155, where amyer (1920) 50 Cal. App. 601, 195 a joint-stock association was changed Pac. 734, on subsequent appeal in into a business trust for the purpose (1921) 53 Cal. App. 13, 199 Pac. 841. of avoiding or lessening future tax

Indiana. Ridge y. State (1923) liability, in holding that such purpose - Ind. — 137 N. E. 758 (holding that did not affect the validity of the trust, a common-law trust association is the change apparently being percapable of taking and holding title to manent and otherwise in good faith, property).

the court said: “Bearing in mind the Kansas.--Harris v. United States rule of construction ... to the efMexico Oil Co. (1922) 110 an, 532, fect that the provisions of the tax204 Pac. 754.

ing statutes are not to be extended Massachusetts. Sleeper v. Park by implication beyond the clear im(1919) 232 Mass. 292, 122 N. E. 315; port of the language used, and that Horgan v. Morgan (1919) 233 Mass. they are to be construed most strongly 381, 124 N. E. 32; Adams V. Swig against the government and in favor (1920) 234 Mass. 584, 125 N. E. 857; of the taxpayer, it is the opinion of Howe v. Chmielinski (1921) 237 Mass. this court that the right to change 532, 130 N. E. 56; Neville v. Gifford the status of an organization, or to (1922) 242 Mass. 124, 136 N. E. 160; dissolve an organization in any legal McCarthy v. Parker (1923) 243 Mass. manner, is not made ineffectual be465, 138 N. E. 8; Hull V. Newhall cause the motive impelling the change (1923) 244 Mass. 207, 138 N. E. 249; is to reduce or avoid taxation in the

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future. The right so to do is an in the trustees, and other business incidental right, inseparably con- trusts where the beneficiaries retain nected with an individual's right to control over the trustees and the trust own and control his property. It is property, and distinguished Bakerpractically identical with the sale by McGrew Co. v. Union Seed & Fertilizer a citizen of tax-burdened securities Co. (1916) 125 Ark. 146, 188 S. W. 571, and the investment of the proceeds wherein it was held without discusthereof in tax-exempt ones, for the sion that an unincorporated busipurpose of reducing or avoiding taxa- ness association organized "under a tion. It is not unnatural that any scheme known as the 'Massachusetts thoughtful business man take such trust,' was no more than a partnersteps. It is altogether different from ship, and certainly not a corporation tax dodging, the hiding of taxable or joint-stock company, upon the property, or the doing of some un- ground that in the Baker-McGrew lawful or illegal thing in order to Co. Case the indenture provided for avoid taxation."

the election of trustees which, it was In Washington it has been held said, gave the shareholders the conthat, by virtue of mandatory provi- trol and management of the business sions of the state Constitution, so- and property. called common-law trusts are pro- However, where the declaration hibited from doing business in the vests absolute control in the trustees state, so that they can have no legal so as to render them personally and status in its courts. State ex rel. individually liable for obligations Range v. Hinkle (1923) Wash. incurred on behalf of the trust, and 219 Pac. 41. Compare Jesseph v. gives the cestui que trust the right Carroll (1923) Wash. —, 219. Pac. to share in the profits only, it has 429, wherein the validity of a chattel been held that the declaration may mortgage executed by the trustee of exempt the beneficiaries from personà common-law business trust as se- al liability, and that, where it does curity for a loan was upheld, so that so provide, they cannot be held liathe trust could not successfully at- ble, either as partners or as printack the validity of a foreclosure cipals, for debts of the enterprise. sale.

BETTS V. HACKATHORN (reported here

with). And in Rhode Island Hospital b. Capital stock or shares; effect of transferability.

Trust Co. v. Copeland (1916) 39 R. I.

193, 98 Atl. 273, where the declaraNo later decisions herein. For ear

tion of a business trust limited lialier cases, see annotation in 7 A.L.R.

bility to the trust property, and the 616.

organization was such as to render c. Provisions limiting liability. it a true trust as distinguished from (Supplementing annotation in 7 a partnership, it was held that the A.L.R. 617, and 10 A.L.R. 887.)

holders of the stock were not under In the reported case (BETTS v.

personal and individual liability for HACKATHORN, ante, 847), where the

any of the obligations or indebtedness trust vested absolute control in the

of the trust association beyond the trustees, and relieved the cestui que amount represented by the shares betrust from liability, it was held that a

longing thereto. declaration exempting the trustees But in Texas, in holding that the from personal liability for obligations individual members of an unincorof the trust did not relieve them from porated association organized as a the liability which the law fixes business trust cannot, by so organizupon trustees, so that the trustees ing, relieve themselves of joint and were personally liable on such obliga- several liability on firm obligations, tions. In reaching this conclusion the the court, in Wells v. Mackay Teleg.court pointed out the distinction be- Cable Co. (1921) - Tex. Civ. App. —, tween so-called pure trusts, arising 239 S. W. 1001, said: “In late years from the vesting of absolute control much fine writing has been used in


describing the beauties of the com- troversy, nevertheless the sharemon-law trust. The development of holders are liable for the debt sued the doctrine and the extension of the for under the rules of law applicable scope of its operation have increased to the relation of principal and agent. with our ever-increasing business de- A partnership or joint-stock company velopment and expansion, and its could have been organized for the purusefulness may not be questioned, pose of transacting the same busibut it cannot be substituted for statu- ness that was transacted under the tory methods of limiting the liability declaration of trust. Manifestly, it of persons associating themselves would be unjust to visit upon the together for the purpose of conduct- plaintiff the loss of labor and material ing a business for profit. The pub- furnished by him as a creditor for the lic, in its dealings with such busi- benefit of the shareholders in that ness organizations, has a right to the association, when the debt was conprotection afforded them by our stat- tracted for their benefit by persons utes, regulating the formation of called trustees and clothed with excorporations. This protection would press authority from the sharebe greatly lessened if it should be held holders to incur it; and the injustice that, by declaring and recording a of such a result is the basic principle declaration of trust, persons can as- of individual obligation imposed by sociate themselves together for busi- law upon each member of a partnerness purposes, giving their organiza ship joint-stock company to tion all the powers of a corporation answer for all the debts of the firm and limiting their individual liability, or company. To allow the accomwithout complying with the statutes plishment of such an injustice which require proof of the funds or through a resort to the rules of equity assets of such an association before by the substitution of a trust agreea charter will be granted it to con- ment for a partnership or joint-stock duct its business." To the same ef- agreement would be to violate the fect is Nini v. Cravens & C. Co. most vital, fundamental principle of (1922) Tex. Civ. App. 253 the whole doctrine of equity jurisS. W. 582. And in McCamey v. prudence. The right to create an Hollister Oil Co. (1922) Tex. Civ. express trust is subordinate to those App. - , 241 S. W. 689, where the so- fundamental principles, and, if an called declaration of trust was held attempt be made to create an express to create not a trust, but a joint- trust which is obnoxious to those stock company with the individual principles, the same must fail, and members liable as partners, it was the relation of partnership, jointalso held that the individual mem- stock company, or principal and agent, bers were personally liable on firm necessarily arises under the rules of obligations, although the declaration the common law. ... And this of trust expressly provided against vice in the declaration of trust in such liability, the contracts creating controversy is a further reason why such obligations not having provided it should be held to create a partnerfor personal exemption of share ship or a joint-stock company renderholders from liability, and the Texas ing the shareholders liable as partstatutes seemingly precluding mem- ners, if it is otherwise susceptible of bers of joint-stock associations, etc., that construction, and that, too, in avoiding personal liability by provi- the absence of the statutes relating sion therefor in the articles of organi- to unincorporated joint-stock comzation. And in the McCamey Case the panies. Equity is more just than the writer of the majority opinion went law. 1 Pom. Eq. Jur. § 67. In order so far as to say: "If for any pos

to reach the ends of justice, it often sible

it can be said that relieves against the hardships of the neither a partnership nor a joint- rigorous rules of law; but it can never stock company was created by the be used as an instrumentality to work articles of the association in con- an injustice. In this connection atten


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tion is called to the terms of the dec- organization was held to be in effect laration of trust of the Hollister a joint-stock company, a form of partOil Company, in which the nonliabili- nership, rather than a trust of the ty of shareholders is stressed with so-called Massachusetts type. To the great emphasis, notwithstanding gen- same effect are Barnett v. Cisco Bkg. eral and sweeping authority is con- Co. (1923) Tex. Civ. App. 253 ferred upon the trustees to contract S. W. 339, and Hardee v. Adams Oil every character of indebtedness for Asso. (1923) Tex. Civ. App. their benefit, and containing every 254 S. W. 602. element of agency on the part of the And to the effect that a clause extrustees to bind the shareholders for empting trustees and shareholders the debts created, with the exception from personal liability on trust conof the use of the word 'trustees' in- tracts does not prevent holding them stead of the word 'agents,' or lan- individually liable as partners on the guage creating such agency. There is contracts of the association, see Rand no magic in the word 'trustees' which v. Morse (1923) 289 Fed. 339, as set necessarily excludes the idea of out infra, IV. And that a provision agency. Even the Massachusetts in a declaration of trust, against percourts recognize that as true, as re- sonal liability on the part of the flected in those decisions in which shareholders, does not relieve them declarations of trust were held to from liability as to a third person who create partnerships. 'Equity looks to has contracted with the trustee in the intent rather than to the form' ignorance of such provision, at least is one of the maxims of equity. 1 where the trust is in effect a partPom. Eq. Jur. § 378.” However, Buck, nership, see Neville v. Gifford (1922) J., in a concurring opinion, said that 242 Mass. 124, 136 N. E. 160, as set he did not think it necessary to hold out infra, IV. that the policy of the state precluded But an agreement in the declaration the organization of a trust estate in of trust that the trustees shall not which the shareholders would not make any contract which shall be be personally liable for its debts, and binding on the individual sharereserved his opinion upon that ques- holders personally, and that a provition. The majority opinion is re- sion exempting them shall be inserted ferred to in West Side Oil Co. v. Mc- in every contract with third persons, Dorman (1922) Tex. Civ. App. while not binding as against innocent 244 S. W. 167, as "apparently" hold- third persons, is binding as between ing that the Texas statute excludes the shareholders and the trustees. the power to create a trust in which Barnett v. Cisco Bkg. Co. (Tex.) it is sought to limit the liability of supra. shareholders. In Graham Hotel Corp.

And that trustees of a business v. Leader (1922) - Tex. Civ. App. —,

trust may relieve themselves of any 241 S. W. 700, it was again held

personal liability to a third person by that members of an unincorporated

express contract with such person, association doing business under a

see Rand v. Farquhar (1917) 226 declaration of trust, and also acting

Mass. 91, 115 N. E. 286, McCarthy

v. Parker (1923) 243 Mass. 465, 138 as trustees, could not excuse personal liability on association obligations by

N. E. 8, and Hardee V. Adams Oil

Asso. (1923) Tex. Civ. App. provision for exemption, of which re

254 S. W. 602, as set out infra, IV. striction of liability the creditor had

As to right of trustees to limit liano knowledge. And in Morehead v. Greenville Exch. Nat. Bank (1922)

bility for negligence, see Fisheries

Co. v. McCoy (1918) Tex. Civ. App. Tex. Civ. App. —, 243 S. W. 546,

202 S. W. 343, as set out infra, provisions for exemption of share

VI. holders from personal liability on firm obligations were held ineffective d. As affected by rule against perpetui. where, because of failure to vest ab

ties. solute control in the trustees, the No later decisions herein. For ear

lier cases, see annotation in 7 A.L.R. transportation of same); McCamey 618.

V. Hollister Oil Co. (1922) Tex.

Civ. App. — 241 S. W. 689 (own and III. Purpose and legal nature.

conduct any business, trade, or ena. Purposes for which business trust terprise of any kind, and to buy and may be formed.

sell property of every kind, character, (Supplementing annotation in 7 and description); Martin v. Cummer A.L.R. 619, and 10 A.L.R. 887.)

Mfg. Co. (1924) Tex. Civ. App. Recent cases illustrative of the pur- 259 S. W. 240 (buy and hold real poses for which business trusts have estate and carry on a manufacturing been formed are the following, in business, etc.). which the object included the deal- Purposes other than dealing in or ing in or holding of real estate: holding real estate for which busiHecht v. Malley (1924) – U. S. —, 68 ness trusts have been organized, inL. ed. Adv. Ops. p. 510, 44 Sup. clude general shipping and forwardCt. Rep. reversing on other ing, export business, etc. (Rand v. grounds (1922) 281 Fed. 363 (own- Morse (1923) 289 Fed. 339), and the ing, managing, and leasing real estate, sale of certificates in the trust, and and manufacturing); Simson v. Klip- the using of the proceeds for investstein (1920) 262 Fed. 823 (purchase ment in securities and enterprises of real estate, and establishment and for the benefit of the shareholders operation of a factory thereon, for (BETTS V. HACKATHORN (reported the manufacture of aniline oil, etc.); herewith) ante, 847. Weeks v. Sibley (1920) 269 Fed. 155

b. Legal nature of organization, (developing an oil and gas lease); Fischer-Schein Syndicate v. Lee

1. In general. (1924) 295 Fed. 485 (real estate and (Supplementing annotation in 7 loan business); Greene County A.L.R. 621, and 10 A.L.R. 887.) v. Smith (1921) 148 Ark. 33, 228

It was said in the reported case S. W. 738 (purchase, sale, exchange, (BETTS v. HACKATHORN, ante, 847) and development

of oil and gas, that the true test of whether or not or mineral lands, on leases); Sleeper

an enterprise organized as a business v. Park (1919) 232 Mass. 292, 122 trust is to be regarded as a partnerN. E. 315 (hold real estate and

ship is the intention of the parties. improve and lease buildings erected In connection with this statement, see thereon); Horgan v. Morgan (1919) McCamey v. Hollister Oil Co. (1922) 233 Mass. 381, 124 N. E. 32 (purchase, Tex. Civ. App. — 241 S. W. 689, sale, care, management, etc., of fruit

as set out infra this subdivision, bearing lands); Adams

V. Swig where the purpose clearly was to (1920) 234 Mass. 584, 125 N. E. 857 create a so-called Massachusetts trust, (buy, sell, etc., real estate); Neville but in which it was held that the decv. Gifford (1922) 242 Mass. 124, 136 laration of trust as drawn did not N. E. 160 (purchase of land and sale as a matter of law, create such an of building lots); Dunbar v. Broom- organization. field (1924) Mass. -, 142 N. E. But the test generally applied in de148 (real estate trust); Flint v. Cod- termining whether a business associaman (1924) Mass. -, 142 N. E. tion organized as a trust is a trust or 256 (acquire real estate and wharf is a partnership or joint-stock associaproperty, erect buildings

thereon, tion is the instrument creating it, and and lease the same); Bingham v. the test to be applied to the articles of Graham (1920) Tex. Civ. App. association is the power of control 220 S. W. 105 (procuring oil leases of the management of the association and developing the leased property); as actually set forth therein. Davis v. Hudgins (1920) — Tex. Civ. Simson v. Klipstein (1920) 262 Fed. App. 225 S. W. 73 (purchase and 823; BETTS V. HACKATHORN (reported sale of oil lands, development for oil, herewith) ante, 847; Flint v. Codgas, minerals, and production and man (1924) Mass.

142 N.


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