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tion is called to the terms of the declaration of trust of the Hollister Oil Company, in which the nonliability of shareholders is stressed with great emphasis, notwithstanding general and sweeping authority is conferred upon the trustees to contract every character of indebtedness for their benefit, and containing every element of agency on the part of the trustees to bind the shareholders for the debts created, with the exception of the use of the word 'trustees' instead of the word 'agents,' or language creating such agency. There is no magic in the word 'trustees' which necessarily excludes the idea agency. Even the Massachusetts courts recognize that as true, as reflected in those decisions in which declarations of trust were held to create partnerships. 'Equity looks to the intent rather than to the form' is one of the maxims of equity. 1 Pom. Eq. Jur. § 378." However, Buck, J., in a concurring opinion, said that he did not think it necessary to hold that the policy of the state precluded the organization of a trust estate in which the shareholders would not be personally liable for its debts, and reserved his opinion upon that question. The majority opinion is referred to in West Side Oil Co. v. McDorman (1922) Tex. Civ. App. 244 S. W. 167, as "apparently" holding that the Texas statute excludes the power to create a trust in which it is sought to limit the liability of shareholders. In Graham Hotel Corp. v. Leader (1922) - Tex. Civ. App. — 241 S. W. 700, it was again held that members of an unincorporated association doing business under a declaration of trust, and also acting as trustees, could not excuse personal liability on association obligations by provision for exemption, of which restriction of liability the creditor had no knowledge. And in Morehead v. Greenville Exch. Nat. Bank (1922)

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Tex. Civ. App., 243 S. W. 546, provisions for exemption of shareholders from personal liability on firm obligations were held ineffective where, because of failure to vest absolute control in the trustees, the

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And to the effect that a clause exempting trustees and shareholders from personal liability on trust contracts does not prevent holding them individually liable as partners on the contracts of the association, see Rand v. Morse (1923) 289 Fed. 339, as set out infra, IV. And that a provision in a declaration of trust, against personal liability on the part of the shareholders, does not relieve them from liability as to a third person who has contracted with the trustee in ignorance of such provision, at least where the trust is in effect a partnership, see Neville v. Gifford (1922) 242 Mass. 124, 136 N. E. 160, as set out infra, IV.

But an agreement in the declaration of trust that the trustees shall not make any contract which shall be binding on on the individual shareholders personally, and that a provision exempting them shall be inserted in every contract with third persons, while not binding as against innocent third persons, is binding as between the shareholders and the trustees. Barnett v. Cisco Cisco Bkg. Co. (Tex.)

supra.

And that trustees of a business trust may relieve themselves of any personal liability to a third person by express contract with such person, see Rand v. Farquhar (1917) 226 Mass. 91, 115 N. E. 286, McCarthy v. Parker (1923) 243 Mass. 465, 138 N. E. 8, and Hardee v. Adams Oil Asso. (1923) Tex. Civ. App. 254 S. W. 602, as set out infra, IV.

As to right of trustees to limit liability for negligence, see Fisheries Co. v. McCoy (1918) - Tex. Civ. App. - 202 S. W. 343, as set out infra, VI.

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d. As affected by rule against perpetuities.

No later decisions herein. For ear

lier cases, see annotation in 7 A.L.R. 618.

III. Purpose and legal nature.

a. Purposes for which business trust may be formed.

(Supplementing annotation in 7 A.L.R. 619, and 10 A.L.R. 887.)

Recent cases illustrative of the purposes for which business trusts have been formed are the following, in which the object included the dealing in or holding of real estate: Hecht v. Malley (1924) - U. S. —, 68 L. ed. —, Adv. Ops. p. 510, 44 Sup. Ct. Rep. reversing on other grounds (1922) 281 Fed. 363 (owning, managing, and leasing real estate, and manufacturing); Simson v. Klipstein (1920) 262 Fed. 823 (purchase of real estate, and establishment and operation of a factory thereon, for the manufacture of aniline oil, etc.); Weeks v. Sibley (1920) 269 Fed. 155 (developing an oil and gas lease); Fischer-Schein Syndicate V. Lee (1924) 295 Fed. 485 (real estate and loan business); Greene County v. Smith (1921) 148 Ark. 33, 228 S. W. 738 (purchase, sale, exchange, and development of oil and gas, or mineral lands, on leases); Sleeper v. Park (1919) 232 Mass. 292, 122 N. E. 315 (hold real estate and improve and lease buildings erected thereon); Horgan v. Morgan (1919) 233 Mass. 381, 124 N. E. 32 (purchase, sale, care, management, etc., of fruitbearing lands); Adams V. Swig (1920) 234 Mass. 584, 125 N. E. 857 (buy, sell, etc., real estate); Neville v. Gifford (1922) 242 Mass. 124, 136 N. E. 160 (purchase of land and sale of building lots); Dunbar v. Broomfield (1924) Mass. 142 N. E. 148 (real estate trust); Flint v. Codman (1924) - Mass. -, 142 N. E. 256 (acquire real estate and wharf property, erect buildings thereon, and lease the same); Bingham v. Graham (1920) Tex. Civ. App. 220 S. W. 105 (procuring oil leases. and developing the leased property); Davis v. Hudgins (1920) - Tex. Civ. App., 225 S. W. 73 (purchase and sale of oil lands, development for oil, gas, minerals, and production and

transportation of same); McCamey v. Hollister Oil Co. (1922) Tex. Civ. App., 241 S. W. 689 (own and conduct any business, trade, or enterprise of any kind, and to buy and sell property of every kind, character, and description); Martin v. Cummer Mfg. Co. (1924) Tex. Civ. App.

-, 259 S. W. 240 (buy and hold real estate and carry on a manufacturing business, etc.).

Purposes other than dealing in or holding real estate for which business trusts have been organized, include general shipping and forwarding, export business, etc. (Rand v. Morse (1923) 289 Fed. 339), and the sale of certificates in the trust, and the using of the proceeds for investment in securities and enterprises for the benefit of the shareholders (BETTS V. HACKATHORN (reported herewith) ante, 847.

b. Legal nature of organization.
1. In general.

(Supplementing annotation in 7 A.L.R. 621, and 10 A.L.R. 887.)

It was said in the reported case (BETTS V. HACKATHORN, ante, 847) that the true test of whether or not an enterprise organized as a business trust is to be regarded as a partnership is the. intention of the parties. In connection with this statement, see McCamey v. Hollister Oil Co. (1922)

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Tex. Civ. App., 241 S. W. 689, as set out infra this subdivision, where the purpose clearly was to create a so-called Massachusetts trust, but in which it was held that the declaration of trust as drawn did not as a matter of law, create such an organization.

But the test generally applied in determining whether a business association organized as a trust is a trust or is a partnership or joint-stock association is the instrument creating it, and the test to be applied to the articles of association is the power of control of the management of the association as actually set forth therein. See Simson v. Klipstein (1920) 262 Fed. 823; BETTS v. HACKATHORN (reported herewith) ante, 847; Flint v. Codman (1924) Mass. 142 N.

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E. 256; McCamey v. Hollister Oil Co. (Tex.) supra; Morehead v. Greenville Exch. Nat. Bank (1922) Tex. Civ. App. —, 243 S. W. 546; and Nini V. Cravens & C. Co. (1922) Tex. Civ. App. -; 253 S. W. 582; Feldman v. American Dist. Teleg. Co. (1924) Tex. Civ. App. —, 257 S. W. 929. Under this rule, it has been held that if the certificate holders have the power of control of the management of the association, it is a partnership, and that, if they have not, and the absolute power of control is in the trustees, it is a trust. Hecht v. Malley (1924) U. S. - 68 L. ed.

Adv. Ops. p. 510, 44 Sup. Ct. Rep. —; Simson v. Klipstein (Fed.) supra; Dana V. Treasurer (1917) 227 Mass. 562, 116 N. E. 941; Howe v. Chmielinski (1921) 237 Mass. 532, 130 N. E. 56; Neville v. Gifford (1922) 242 Mass. 124, 136 N. E. 160; Flint v. Codman (Mass.) supra; Davis v. Hudgins (1920)

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Tex. Civ. App., 225 S. W. 73; McCamey v. Hollister Oil Co. (Tex.) supra; Morehead v. Greenville Exch. Nat. Bank (1922) Tex. Civ. App.

243 S. W. 546; Feldman v. American Dist. Teleg. Co. (1924) Tex. Civ. App. —, 257 S. W. 929. And see Sleeper v. Park (1919) 232 Mass. 292, 122 N. E. 315, Rhode Island Hospital Trust Co. v. Copeland (1916) 39 R. I. 193, 98 Atl. 273, and Barnett v. Cisco Bkg. Co. (1923) Tex. Civ. App., 253 S. W. 339. The effect of placing absolute control of a business trust in the trustees is also pointed out in the reported case (BETTS V. HACKATHORN, ante, 847), wherein it is held that the vesting of absolute control in the trustees relieved the cestui que trust, either as partners or principals, from personal liability on obligations incurred, and gave them a right to share in the profits only.

And it has been declared that, to render a business association a partnership, it is not necessary that the shareholders have actually exercised the power of control, it being sufficient if the power is given by the articles of association, though never exercised. Simson v. Klipstein (Fed.),

and McCamey v. Hollister Oil Co., and Nini v. Cravens & C. Co. (Tex.) supra.

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In McCamey v. Hollister Oil Co. (Tex.) supra, where the declaration of trust in terms declared that the purpose was to create a trust and not a partnership, placed the title to the trust property in trustees, and gave them "the absolute management, control, and disposition of all the trust estate and its business and affairs of every kind and character," it was held that the fact that the articles of agreement delegated to the owner of shares the power to alter or amend the articles of association rendered it a joint-stock association with the members liable as partners, rather than a trust, since the contractual right to alter or amend "unquestionably included the power to limit and restrict the control of the trustees over the assets and the conduct of the business, even though the legal title be permitted to remain in the trustees," which lack of absolute control in the trustees precluded a finding that the organization was a trust such as I would relieve the trustees and shareholders from individual liability on association contracts, even though the declaration of trust attempted to exempt the latter from personal liability. Here the court seems to have used the terms "Massachusetts trust" and "trust," meaning pure trust, as synonymous, whereas the actual holding seems to have been that a pure trust, so called, was not created by the instrument under consideration. The principles adopted in this case were applied in Henderson v. Scott Oil & Ref. Co. (1923) — Tex. Civ. App. —, 258 S. W. 1082. And in Morehead v. Greenville Exch. Nat. Bank (1922) Tex. Civ. App., 243 S. W. 546, it was held that where a declaration of trust permitted the shareholders to instruct the trustees, there was no such absolute control in the latter as warranted a holding that the organization was a trust, rather than a joint-stock company, "a form of partnership," wherefore provisions for exemption of shareholders from individual liability were ineffective to

work the expressed purpose. And in Stroud Motor Mfg. Co. v. Gunzer (1922) Tex. Civ. App. —, 240 S. W. 644, it was held generally that the members of unincorporated associations, organized as business trusts, are liable as a partnership for debts incurred by the trustees in carrying on the business. To the same effect are Graham Hotel Corp. v. Leader (1922) Tex. Civ. App., 241 S. W. 700; Geiselman v. Andreson (1922). Tex. Civ. App. —, 242 S. W. 798 (holding that an allegation that an association was an "unincorporated joint-stock company" was an allegation of partnership, which could only be refuted by pleading facts actually constituting the association a trust, it being insufficient merely to allege it to be a business trust); Howe v. Wichita State Bank & T. Co. (1922) Tex. Civ. App. - 242 S. W. 1091 (holding that Vernon's Sayles's Civ. Stat. [Tex.] art. 6153, renders the trustees and shareholders of an association organized as a business trust individually liable for firm debts); West Side Oil Co. V. McDorman (1922) Tex. Civ. App. 244 S. W. 167; Barnett v. Cisco Bkg. Co. (Tex.) supra; Nini v. Cravens & C. Co. (1922) Tex. Civ. App. —, 253 S. W. 382; Webster v. Utopia Confectionery (1923) Tex. Civ. App. -, 254 S. W. 123.

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And in Massachusetts it has recently been held that where the shareholders retain control over the trustees and managing agents, the relation of partners exists between the shareholders and such agent trustees, as well as to third persons, so that the courts will not enforce a contract whereby a trustee seeks gain at the expense of the trust, the parties being regarded under such circumstances as sustaining a fiduciary relation to each other. Howe v. Chmielinski (1921) 237 Mass. 532, 130 N. E. 56. And see Flint v. Codman (1924) Mass. 142 N. E. 256. And in Rand v. Morse (1923) 289 Fed. 339, the members of a business trust organized to carry on a mercantile business for profit were regarded as partners.

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The decision in Home Lumber Co. v.

Hopkins (1920) 107 Kan. 153, 10 A.L.R. 879, 190 Pac. 601, to the effect that an organization in the form known as a "Massachusetts trust," although an unincorporated association, is a corporation within the meaning of the Kansas Constitution, so as to render it subject to regulation and control under the existing statutes regarding corporations, was adhered to in the recent case of Harris v. United States Mexico Oil Co. (1922) 110 Kan. 532, 204 Pac. 754. This conclusion, as pointed out in the annotation in 10 A.L.R. 887, apparently is novel except in Kansas. However, the courts of that state have arranged a very logical argument in favor of their conclusion. The article of the Constitution in question (Kansas Const. art. 12, § 6) defines a corporation as including "all associations and joint-stock companies having powers and privileges not possessed by individuals or partnerships;" and the courts have held that the articles of trust do give the so-called trust powers and privileges not possessed by individuals or partnerships. In the Harris Case, the court admitted that contrary conclusions had been reached in other jurisdictions, but pointed out that, in its opinion, the Kansas Constitution differed essential. ly from the Constitutions under which contrary conclusions had been reached, in that the Kansas Constitution did not contain the words "of corporations," as used, for instance, in the Idaho Constitution, which defined corporations as including all associations and joint-stock companies having or exercising any of the powers or privileges "of corporations" not possessed by individuals or partIn this nerships. connection the court said that the omission of the words "of corporations" must be regarded as intended to affect the meaning; also that the legislature had apparently accepted the interpretation as given in the Home Lumber Co. Case, as it had since met and had not changed the law. In the Harris Case, however, the court also added that, were it not for the constitutional provision under consideration, it

might be conceded that "Massachusetts trusts" are not to be classed as corporations-citing the annotation in 7 A.L.R. 612, 621-628. The specific holding in the later case is that in a proper case service by publication may be had upon a "Massachusetts trust," which is not a resident of the state, as a foreign corporation.

And that, in Washington, an association organized as a common-law trust is now within the meaning of a constitutional provision defining the term "corporation" as including all associations and joint-stock companies having any powers or privileges of corporations not possessed by individuals or partnerships, see State ex rel. Range v. Hinkle (1923) Wash., 219 Pac. 41.

In Superior Oil & Ref. Co. v. Handley (1921) 99 Or. 146, 195 Pac. 159, it was held that a foreign syndicate organized in the form of a trust for the purpose of making brick and refining oil was a "foreign trust company," and not a corporation within the meaning of the Oregon statutes dealing with such companies doing business in the state.

2. Under Bankruptcy Act.

No later decisions herein. For earlier cases, see annotation in 7 A.L.R. 624.

3. For purposes of taxation. (Supplementing annotation in 7 A.L.R. 624.)

Under the Federal Corporation Tax Act of 1909, and the Federal Income Tax Act of 1913, it was held that a business trust of the so-called Massachusetts type was not an "association" subject to tax. See annotation in 7 A.L.R. 625. And it is now settled that a business trust is not an "association" under the provisions of the Internal Revenue Act of 1916, which impose an excise tax upon the capital stock of every association "now or hereafter organized under the laws of the United States, or any state or territory." Hecht v. Malley (1924) – U. S. —, 68 L. ed. Adv. Ops. p. 510, 44 Sup. Ct. Rep., reversing on this point (1922) 281 Fed. 363, which reversed (1921) 276 Fed. 830.

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In so holding the Supreme Court said: "The words, 'now or hereafter organized under the laws of the United States or any state or territory,' appear in the Act of 1916 in precisely the same place with reference to the preceding words, 'every corporation, joint-stock company, or association,' as in the Act of 1909, and are separated from them in like manner by the phrase, 'and every insurance company,' followed by the like comma. And it is clear that in the intermediate phrase, 'now or hereafter organized in the United States for profit and having a capital stock represented by shares,' the words 'in the United States' were inserted in the Act of 1916 after the words 'organized' merely by reason of the fact that this act refers to domestic and foreign corporations, joint-stock companies and associations in two separate paragraphs instead of in the same paragraph, as in the Act of 1909. The words 'organized in the United States' have no different effect, as applied to domestic corporations, joint-stock companies, and associations, from the word 'organized,' as used in the Act of 1909, and in no wise remove the ensuing general limitation that they must be such as are 'organized under the laws of the United States, or any state or territory.' And since these limiting words, when used in the Act of 1909, had been held by this court, show the intention of Congress to embrace within the statute only such corporations and joint-stock associations as 'are organized under some statute, or derive from that source some quality or benefit not existing at the common law,' they must be given the same meaning and effect when used in the Act of 1916. . . Here the legislative history of the excise tax provision of the Act of 1916, and the marked contrast between its language and that of the income tax provision of the same act, plainly show, aside from this rule of statutory construction, that this is what Congress in fact intended. We conclude that, as the trusts involved in these four cases are not organized

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