must be classified and treated as a corporation.

Home Lumber Co. v. Hopkins, 107 Kan. 153, 10 A.L.R. 879, 190 Pac. 601; Harris v. United States Mexico Oil Co. 110 Kan. 532, 204 Pac. 754.

It is clearly against the intent and policy of the law of the state of Kansas to permit individuals to secure to themselves, by personal contract or otherwise, the benefit of corporate exemptions, without compliance with the requirements of the state law. Any other situation would make a mockery of the corporate law of the state and of the statutory guards which the state has so carefully enacted for the protection of the public. 36 Cyc. 1122; Harvey Co. v. Braden, Tex. Civ. App. - 260 S. W. 655; Victor Ref. Co. v. City Nat. Bank, Tex. Civ. App. —, 263 S. W. 622; Wells v. Mackay Teleg.-Cable Co. Tex. Civ. App., 239 S. W. 1001; Harris v. United States Mexico Oil Co. supra. Inasmuch as the defendants doing business under the name of David S. Alter & Company did not comply with the law of the state of Kansas regarding corporations, the association and its shareholders are not entitled to the privileges and exemptions created by the corporate law of the state limiting the liability of shareholders, and the organizers and members of the association are liable individually in like manner as partners.

McLennan v. Hopkins, 2 Kan. App. 260, 41 Pac. 1061; Central Nat. Bank v. Sheldon, 86 Kan. 460, 121 Pac. 340; 30 Cyc. 397, 398; Hall Lithographing Co. v. Crist, 98 Kan. 723, 160 Pac. 198; Murdock v. Lamb, 92 Kan. 857, 142 Pac. 961.

The exempting clause in the trust agreement is without effect.

20 R. C. L. p. 1074, § 321; Lyon v. Denison, 80 Mich. 371, 8 L.R.A. 358, 45 N. W. 358; Oliver's Estate, 136 Pa. 43, 9 L.R.A. 421, 20 Am. St. Rep. 894, 20 Atl. 527; People ex rel. Platt v. Wemple, 117 N. Y. 136, 6 L.R.A. 303, 2 Inters. Com. Rep. 735, 22 N. E. 1046; People ex rel. Winchester v. Coleman, 133 N. Y. 279, 16 L.R.A. 183, 31 N. E. 96; Hibbs v. Brown, 190 N. Y. 167, 82 N. E. 1108; 9 Fletcher, Cyc. Corp. § 6106; Wells v. Mackay Teleg.-Cable Co. Tex. Civ. App., 239 S. W. 1001; Industrial Lumber Co. v. Texas Pine Land Asso. 31 Tex. Civ. App. 375, 72 S. W. 875.

-

Messrs. Chester I. Long, Joseph D.

Houston, Austin M. Cowan, Claude I. Depew, James G. Norton, W. E. Stanley, and W. B. Harms, for appellees:

Corporations, as defined by Constitution, need not comply with statutes relating to creation of corporations.

Harris v. United States Mexico Oil Co. 110 Kan. 532, 204 Pac. 754; Hamilton v. Young, 116 Kan. 128, 35 A.L.R. 496, 225 Pac. 1045; Home Lumber Co. v. Hopkins, 107 Kan. 153, 10 A.L.R. 879, 190 Pac. 601.

Shareholders may restrict their individual liability.

Hamilton v. Young, 116 Kan. 128, 35 A.L.R. 496, 225 Pac. 1045; Home Lumber Co. v. Hopkins, 107 Kan. 153, 10 A.L.R. 879, 190 Pac. 601; Harris v. United States Mexico Oil Co. supra; Central Nat. Bank v. Sheldon, 86 Kan. 460, 121 Pac. 340.

Plaintiff cannot question defendants' compliance with corporate laws, and is estopped to deny corporate existence of association.

Root v. Wear, 98 Kan. 234, 157 Pac. 1181; Broseghini v. Sheridan Coal Co. 92 Kan. 113, 139 Pac. 1025; Morawetz, Priv. Corp. § 748; Whitney v. Wyman, 101 U. S. 397, 25 L. ed. 1052; Gartside Coal Co. v. Maxwell (C. C.) 22 Fed. 197; Nebraska Nat. Bank v. Ferguson, 49 Neb. 109, 59 Am. St. Rep. 522, 68 N. W. 370; Stout v. Zulick, 48 N. J. L. 599, 7 Atl. 363; Clausen v. Head, 110 Wis. 405, 84 Am. St. Rep. 933, 85 N. W. 1028; Bon Aqua Improv. Co. v. Standard F. Ins. Co. 34 W. Va. 764, 12 S. E. 771; Bushnell v. Consolidated Ice-Mach. Co. 138 Ill. 67, 27 N. E. 596.

Hopkins, J., delivered the opinion of the court:

This controversy presents two questions: First, whether a "Massachusetts trust" or "business trust" may transact business in this state without corporate license; and, second, whether failure to secure corporate license renders those composing such a "trust" liable as individuals for its debts. The action was one to recover from certain of the individuals composing such a trust the purchase price of a gas engine and accessories. The defendants prevailed, and plaintiff appeals.

The plaintiff is a corporation with an office in Kansas City, Mo. The defendants, operating under a trust agreement, with office in Wichita,

conducted a business, among other things, of manufacturing road materials, of mining, quarrying, and road construction. The agreement under which they operated provided for a number of trustees, in whom the legal title of the business was vested and who had its exclusive management and control. The trustees were empowered to act under the name of David C. Alter & Co., to adopt by-laws, provide for proper officers, select successors to fill vacancies, and issue certificates of interest to shareholders. The agreement provided that shareholders should have no title to the property; that no shareholder or trustee should be held individually responsible for the debts of the association; that creditors should look to the trust property alone for satisfaction.

A salesman on commission for plaintiff, in Wichita, who had been employed about 60 days, solicited business from the defendants. D. S. Alter, acting for defendants, went to Kansas City to plaintiff's establishment to inspect an engine. The evidence shows that he talked with the general manager of the plaintiff company, and stated that he was associated with defendants Craig and Callahan. Nothing was said with reference to the manner or form of organization under which the defendants were operating. Later, plaintiff's salesman, in Wichita, procured an order for the engine and accessories amounting approximately to $5,000. The order was transmitted to the plaintiff at Kansas City and the goods shipped. Afterwards plaintiff's salesman procured from the defendants an order on the regular order blank of the plaintiff as a substitute for the first order. At the time of procuring the substitute order, the salesman's attention was directed to the fact that the defendants were operating under a trust agreement, and a copy of the instrument was shown him. This information was not conveyed to the plaintiff company. In course of time the defendants sent to the plaintiff a trade acceptance. It was

indorsed by plaintiff and sent through for collection. Payment was refused. The order and trade acceptance were signed, "David S. Alter & Co., by D. S. Alter, Pres. & G. M." Action was brought against the defendants, alleging that they had purchased the engine and accessories while engaged in a joint adventure or enterprise. Defendants answered, setting up a copy of the trust agreement, and denying individual liability. The trial court concluded that the defendants were not liable, either as partners, individuals, or trustees.

The plaintiff contends that it is contrary to the intent and policy of the law to permit individuals to secure to themselves by personal contract, or otherwise, the benefit of corporate exemptions without compliance with the requirements of the Corporation Law; that an association such as that under which defendants operated must be classified and treated as a corporation; that parties attempting to form such an association must comply with the statutes providing the manner in which corporations may be organized; that business trusts, as such, are unauthorized by our law and have no legal standing in this state; that those composing them are individually liable for their debts.

On the other hand, defendants contend that, while such an association is to be treated and classed as a corporation, it is not bound to comply with the statutes relating to the organization of corporations, and that its members could and did in this instance, exempt themselves from personal liability.

A declaration of trust, similar in many respects to the one involved here, was considered in Home Lumber Co. v. Hopkins, 107 Kan. 153, 10 A.L.R. 879, 190 Pac. 601. The case concerned an application by the lumber company to the state charter board for permission to sell its stock and securities. The permit was refused and mandamus proceedings instituted by the lumber company to compel its issuance.

The

court said: "The trust, although an unincorporated company, is deemed to be a corporation within the meaning of 6 of article 12 of the state Constitution, since the agreement under which the company is organized gives it powers and privileges not possessed by individuals or partnerships." Syl.

In the opinion it was said: "To meet the requirements of our law, the company must bring itself within the rules applicable to corporations and conform to the regulations imposed by statute on corporations.

Within the rule of the Constitution the organization is to be regarded as a corporation. Many statutory provisions have been enacted for the organization and regulation of corporations, which are wholly inconsistent with the organization and plan of the plaintiff company, and with which it will manifestly be unable to conform. For this reason the writ of mandamus applied for is denied." p. 160. A motion for rehearing disclosed that the "trust" desired only to sell shares of its stock within the state and not "to transact business" within the accepted meaning of that term, whereupon the writ was allowed.

The subject was again considered in Harris v. United States Mexico Oil Co. 110 Kan. 532, 204 Pac. 754. There judgment had been rendered against the association as a foreign. corporation on publication summons. It moved to vacate the judgment for want of jurisdiction, and sought to overrule the decision in the Home Lumber Co. Case, but the court said: "This court has already decided that an organization of the character of the defendant is deemed to be a corporation within the meaning of the Kansas law making permission from the charter board necessary to enable a corporation to do business in this state. Home Lumber Co. v. Hopkins, 107 Kan. 153, 161, 10 A.L.R. 879, 190 Pac. 601. The defendant urges, however, that that case is out of harmony with decisions in other states and with the 46 A.L.R.-11.

reason of the matter, and ought to be overruled. The effect of the decision was to hold that an organization in the form known as a 'Massachusetts trust' is subject to regulation and control under the existing statutes regarding corporations. A regular session of the Legislature has since been held without making any change in the law as so interpreted. This implies legislative acceptance of the policy of regulating organizations such as the defendant and gives room for the presumption that, if the existing law had been otherwise interpreted, such regulation would have been provided by new legislation-a special reason why the decision should not be overturned except upon the strongest grounds." (110 Kan. 533).

It was held that "in a proper case service by publication may be had upon a 'Massachusetts trust' which is not a resident of this state, as a foreign corporation." Syl.

It

The question also came before the court in Hamilton v. Young, 116 Kan. 128, 35 A.L.R. 496, 225 Pac. 1045, an action to recover on a promissory note. Charles and Young had executed the note as president and secretary of the company. was held that the Negotiable Instruments Law exempted them from personal liability. The defendants argue that while they are an association to be treated and classed as a corporation, they were not bound as such to comply with the statutes relating to the organization of corporations; that there is a fundamental distinction between an association and a corporation, giving to the latter word its ordinary meaning, which is that an association is a nonchartered body not dependent upon the sovereign power for its existence, while a corporation can only exist by virtue of a charter issued by a sovereign power; that, obviously, by the term "association," as used in § 6 of article 12 of the Constitution, was meant an association as known at the common law such as the one in question, and that these associations require no author

ity from the state to organize and exist; that they exist by reason of the declaration and agreement of the parties creating them; that a "corporation," as the word is ordinarily used, is a creation of the state and can exist only by reason of a grant of power from the state, but a "corporation," as defined by the Constitution, includes not only those corporations created by the statute but associations (like defendant) created by the agreement of the parties; that the common law is made a part of the laws of this state (Rev. Stat. § 77-109); that, inasmuch as there has been no statute or constitutional provision passed prohibiting such associations, they have the same right to organize and exist as they had at common law.

The name of the post office where the principal office or place of business is to be located. (3) The full nature and character of the business in which the corporation proposes to engage. (4) The names and addresses of the proposed incorporators. (5) The proposed amount of the capital stock. Such statement shall be subscribed by all of the proposed incorporators." Rev. Stat. § 17-402.

"Where [a statute] directs the performance of certain things in a particular manner, it forbids by im

plication every other manner of performance." 36 Cyc. 1122.

That is to say, we have a law which recites that corporations may be formed by compliance with specific requirements. The recitation is a clear denial of the right to organize a corporation in any other manner. Corporations are the creatures of the state. The right to create them is a sovereign right. In 1 Fletcher, Cyc. Corp. 343, it is said: "The right to be a corporation is not a natural or a civil right of any person, but it is the general law that the creation of corporations is dependent upon the consent of the sovereign power."

49.

See also 1 Cook, Corp. 3; 14 C. J.

As compensation for their privileges, corporations have substantial burdens to bear. For instance, they are subject to supervision by the state; they pay fees for incorporation; they make detailed reports to the state, and pay special taxes. In return, the state has given to their shareholders the privilege to engage in business without personal liability, provided they comply with the corporate law in the organization and conduct of the business. The law is strict concerning them. It requires an accurate statement of the capital, the recording of the articles, and safeguarding of the public in its dealings with them in various ways. It requires proof that the capital of the corporation has been paid in before it is permitted to do business. It provides means by which those who purchase stock therein may know that the proceeds. of the purchase go into the capital of the company. It discloses a policy designed to protect the public against loss in the transaction of business with them. These purposes of the law may be circumvented if associations of the kind under consideration are permitted to secure exemption from personal liability for their membership without compliance with the provisions of law. Such a situation was never contem