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(120 Kan. 557, 245 Pac. 143.)

plated. It is contrary to the intent of our Constitution and laws.

The statutes require corporations to file annual reports. Rev. Stat. §§ 17-701 et seq.

"All educational, religious, scientific and charitable corporations and all banking, insurance, building and loan associations or corporations and all corporations which are not organized or operated for pecuniary profit which are not doing business for pay, are exempt from the provisions of this act: Provided, That no other corporations doing business in this state shall be exempt." Rev. Stat. § 17-710.

All corporations, except those specifically mentioned, should conform to these requirements of the law. The objects of the trust agreement is to secure to those associated thereunder the advantages of corporations with freedom from the restrictions and regulations imposed upon corporations.

"It is a matter of common knowledge that, for most business and financial purposes, all the larger organizations of this sort have for years been indistinguishable from corporations. One might almost say that they are a device under which parties make their own corporation code. Business concerns so organized have come to occupy a large field in industry and in finance." Malley v. Howard (C. C. A. 1st) 281 Fed. 363, 370.

Washington has a constitutional provision respecting corporations similar to ours. In State ex rel. Range v. Hinkle, 126 Wash. 581, 219 Pac. 41, it was said: "Under the mandatory provisions of the Constitution, the so-called common-law trust is prohibited from doing business within this state. Our corporation laws are sufficiently broad to include every desired form of organization, and there is no reason for resorting to this form of organization except for the purpose of avoiding the payment of the fees, assessments and taxes imposed upon corporations in general and to avoid their statutory regulations. It would

seem that the framers of our Constitution anticipated such tendency and wisely provided that the term 'corporations' should include 'all associations and joint stock companies having any powers or privileges of corporation not possessed by individuals or partnerships,' and thereby prevented the formation of the self-organized associations of every kind for the purpose of transacting business without meeting the obligations and complying with the statutory regulations of corporations. The plaintiffs have no legal status in this state and are without legal standing in this court."

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We deem it unnecessary to discuss various questions or to analyze the many cases that have dealt with the subject under consideration. It received serious consideration in Home Lumber Co. v. Hopkins, 107 Kan. 153, 10 A.L.R. 879, 190 Pac. 601, and Harris v. United States Mexico Oil Co. 110 Kan. 532, 204 Pac. 754. Sce, also, notes on Massachusetts Trust, 7 A.L.R. 612; 10 A.L.R. 887; 31 A.L.R. 851; 35 A.L.R. 502; 502; State ex rel. Range v. Hinkle, supra; Thompson v. Schmitt, Tex. 274 S. W. 554; Victor Ref. Co. v. City Nat. Bank, Tex. 274 S. W. 561; Hollister v. McCamey, Tex. 274 S. W. 562; Howe v. Keystone Pipe & Supply Co. Tex., 274 S. W. 563; Brown v. Gorman Home Refinery, Tex. Civ. App. —, 276 S. W. 787; Roller v. Madison, 172 Ky. 693, 189 S. W. 914; "Shareholders in Business Trusts," No. 6, vol. 18, The Lawyer and Banker, p. 364; Willey v. W. J. Hoggson Corp. Fla., 106 So. 408; Reilly v. Clyne, Ariz., 40 A.L.R. 1005, 234 Pac. 35; Hecht v. Malley, 265 U. S. 144, 68 L. ed. 949, 44 Sup. Ct. Rep. 462; Burk-Waggoner Oil Asso. v. Hopkins, 269 U. S. 110, 70 L. ed. (Adv. 67), 46 Sup. Ct. Rep. 48; State ex rel. Colvin v. Paine, Wash. 243 Pac. 2; cases cited under "JointStock Companies and Business Trusts" in American Digest (Century ed.).

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We conclude that the organization

of "Massachusetts trusts" or "business trusts" should be limited to the purposes allowed to private corporations under general laws. They should be required to pay the same fees, proceed in the same manner to secure their authority to transact business either foreign or domestic, and be subject to all other corporate supervision and regulation; that such associations organized without authority of the state, and outside the pale of the corporate law, are not entitled to, and cannot assume, special privileges and exemptions which accompany the seal of the state in the granting of charters to corporations. Individuals cannot secure to themselves the benefits of corporate law without complying with its obligations.

The result in the instant case is that while the defendants did not attempt to organize a corporation, they have done those things which place them in precisely the position of parties who begin the organization of a corporation, accumulate debts in the process, but never complete organization. The defendants associated themselves together for the purpose of engaging in business for profit. In that business they incurred this debt. There are two ways only by which persons may escape liability for debts when engaged in a business enterprise for profit. One, by complying with the corporate law of the state; the other, by means of a limited partnership. Where persons seek to incorporate and fail to comply with the requirements of the law, they are individually liable. Walton v. Oliver, 49 Kan. 107, 33 Am. St. Rep. 355, 30 Pac. 172; Central Nat. Bank v. Sheldon, 86 Kan. 460, 121 Pac. 340; Central Nat. Bank v. Sheldon, 96 Kan. 492, 152 Pac. 765; Hall Lithographing Co. v. Crist, 98 Kan. 723, 160 Pac. 198.

-individual liability.

The judgment is reversed, and the cause remanded, with directions to enter judgment for the plaintiff.

Burch and Mason, JJ., concur in the result.

Marshall, J., concurring specially: I concur in the conclusion reached for the following reasons: D. S. Alter & Co. is not a corporation, because it has not been organized as such. The defendants did not attempt to organize a corporation. For that reason, the law governing corporations in their dealings with third parties cannot be applied to the transaction involved in this action. D. S. Alter & Co. is an association of individuals. The only applicable laws governing the business transactions of the associations of men are those which concern partnerships. Under the "declaration of trust" now being considered, "the trustees shall hold all money and property, real, personal or mixed, which they shall in any manner acquire as such trustees, together with the proceeds thereof, in trust, to manage and dispose of the same for the benefit of the holders from time to time of the certificates for shares issued and to be issued hereunder as hereinafter provided." The trustees are named by those beneficially interested in the trust to act for them in the management of the trust property and business; in other words, the trustees are agents. If this association of persons is a partnership, it is what is called a "limited partnership." Such a partnership may be organized under the laws of this state. Rev. Stat. § 56101 to § 56-121, inc. It is not shown that the declaration of trust under consideration was filed with the county clerk of Sedgwick county. By the failure to file the declaration of trust with the county clerk, the association became a general partnership. The trustees, being partners, had power under the law to contract, and all the members are liable thereunder.

NOTE.

"Massachusetts trusts," sometimes termed business trusts, are the subject of the annotation following STATE EX REL. COLVIN v. PAINE, post, 169, and the earlier annotations there referred to. Specifically as to provisions limiting liability, see subdivision II. c, of those annotations.

(137 Wash. 566, 248 Pac. 2.)

STATE OF WASHINGTON EX REL. EWING D. COLVIN, Prosecuting Attorney for King County, Respt.,

V.

RENE E. PAINE et al., Trustees of the Alaska Building, Appts.

Washington Supreme Court (En Banc)

February 11, 1926.

(137 Wash. 566, 243 Pac. 2.)

Business trusts, § 1 how far corporations.

1. A Massachusetts or common-law trust under which real estate is placed in possession of trustees to manage for holders of certificates which are transferable, each trustee to be answerable only for his own acts, and the shareholders to have no assessments levied upon them, and to have no interest in the property or right to partition of it, and no liability for debts of the corporation or the trust terminated by the death of a shareholder, is a corporation within a constitutional provision that corporations shall include all associations and joint stock companies having any powers or privileges of corporations not possessed by individuals or partnerships. [See annotation on this question beginning on page 169.]

Constitutional law, §§ 311, 551 declaring business trust to be corporation validity.

2. Declaring a common-law trust or business trust to be a corporation does

not unconstitutionally abridge the privileges or immunities of any citizen, or deprive anyone of property without due process of law or of the equal protection of the laws.

APPEAL by defendants from a judgment of the Superior Court for King County (Griffiths, J.) in favor of plaintiff in a quo warranto proceeding brought to exclude defendants from exercising corporate rights within the state without having complied with the state corporation law. Affirmed. The facts are stated in the opinion of the court.

Mr. Charles E. Shepard, for appellants:

Neither the Constitution nor the statute of Washington forbids a private and personal trust, as distinguished from a general trust, or trust business.

1 Perry, Trusts, 6th ed. § 321; 2 Perry, Trusts, 6th ed. §§ 920, 921; 5 C. J. 836-839, § 4, note 13; Deaton v. Lawson, 40 Wash. 486, 2 L.R.A. (N.S.) 392, 111 Am. St. Rep. 922, 82 Pac. 879; King v. West Coast Grocery Co. 72 Wash. 132, 129 Pac. 1081; Devlin v. New York, 63 N. Y. 8; Conaway v. Cooperative Homebuilders, 65 Wash. 39, 117 Pac. 716; Oriental Realty Co. v. Taylor, 69 Wash. 115, 124 Pac. 489; Slauson v. Schwabacher Bros. 4 Wash. 783. 31 Am. St. Rep. 948, 31 Pac. 329; Johnson v. Martin, 83 Wash. 364, L.R.A.1916C, 1057, 145 Pac. 429; McCartney v. Bostwick, 32 N. Y. 53; Vidal v. Philadelphia, 2 How. 128, 11 L. ed. 205; Shepherd v. M'Evers, 4 Johns. Ch. 136, 8 Am. Dec. 561; Thompson v. Price, 37 Wash. 394, 79 Pac. 951; J. J.

McCaskill Co. v. United States, 216 U. S. 504, 54 L. ed. 590, 30 Sup. Ct. Rep. 386; Exchange Bank v. Macon Constr. Co. (McTighe v. Macon Constr. Co.) 97 Ga. 1, 33 L.R.A. 800, 25 S. E. 326.

The legislature cannot forbid trusts such as these defendants hold.

Story, Eq. Jur. § 964; Jones V. Byrne (C. C.) 149 Fed. 457; Yeo v. Mercereau, 18 N. J. L. 387; Danforth v. Oshkosh, 119 Wis. 262, 97 N. W. 258; Taylor v. Davis (Taylor v. Mayo) 110 U. S. 330, 335, 28 L. ed. 163, 165, 4 Sup. Ct. Rep. 147; 2 Perry, Trusts, 6th ed. § 14; Bowditch v. Andrew, 8 Allen, 341; Seymour v. Freer, 8 Wall. 202, 213, 19 L. ed. 306, 310; Farmers' Loan & T. Co. v. Chicago & A. R. Co. (C. C.) 27 Fed. 146; Shaver v. Pennsylvania Co. (C. C.) 71 Fed. 931; Johnson v. Philadelphia & R. R. Co. 163 Pa. 127, 29 Atl. 854; Martin v. Baltimore & O. R. Co. (C. C.) 41 Fed. 125; Soulard v. United States, 4 Pet. 511, 7 L. ed. 938; Northwestern Nat. Ins. Co. v. Fishback, 130 Wash. 490, 36 A.L.R. 1507, 228 Pac. 516; State ex rel. Mc

Kell v. Robins, 71 Ohio St. 273, 69 L.R.A. 427, 73 N. E. 470, 2 Ann. Cas. 485; Shirk v. La Fayette (C. C.) 52 Fed. 857; Bryant v. Richardson, 126 Ind. 145, 25 N. E. 807; Roby v. Smith, 131 Ind. 342, 15 L.R.A. 792, 31 Am. St. Rep. 439, 30 N. E. 1093.

Messrs. Ewing D. Colvin, Arthur Schramm, Jr., and Stanley Kent, for respondent:

Where an action is to prevent individuals from exercising powers obtainable only under a corporate franchise, it should be brought against the individuals, and not against the pseudo

company.

32 Cyc. 1445; State ex rel. Sanche v. Webb, 97 Ala. 111, 38 Am. St. Rep. 151, 12 So. 377; 23 Am. & Eng. Enc. Law, 2d ed. p. 623; State v. South Park, 34 Wash. 162, 101 Am. St. Rep. 998, 75 Pac. 636.

Defendants constitute an association such as has been declared by this court to be a corporation under our Constitution.

State ex rel. Range v. Hinkle, 126 Wash. 581, 219 Pac. 41; Hecht v. Malley, 265 U. S. 144, 68 L. ed. 949, 44 Sup. Ct. Rep. 462; Hamilton v. Young, 116 Kan. 128, 35 A.L.R. 496, 225 Pac. 1045; Reilly v. Clyne, Ariz. - 40 A.L.R. 1005, 234 Pac. 35.

It is immaterial in this case just what the declaration of trust would be construed to be in Massachusetts.

State ex rel. Range v. Hinkle, supra; Re Associated Trust (D. C.) 222 Fed. 1012.

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

This is an action in quo warranto to exclude the appellants from exercising corporate rights within this state without having complied with the state law relating to corporations. The information alleges that the appellants, as trustees, have been operating in this state as a corporation without being incorporated, in that they have engaged in business in Seattle, under the name of Alaska Building Trust, under a declaration of trust, which is a long and elaborate instrument, the material parts of which are that it was made in April, 1917, and discloses that a widow, Mrs. Evans, conveyed by deed a large office building in Seattle, known as the Alaska Build

ing, to the appellants as trustees, the grantees to hold the property in trust for the benefit of 15,000 fractional beneficial interests, each of which had a par value of $100; the trustees to hold and manage the property as a trust fund for 20 years, unless the trust is earlier terminated; the beneficial interests to be represented by certificates which can be transferred on the books of the trustees by the owner. The trustees are never to be held responsible to any one but a registered shareholder, and are to divide the net income among the shareholders at such times as they may determine. They are to rent offices, appoint officers and agents, fix their compensation, define their duties, and the trustees themselves are to be compensated in a reasonable amount. The trustees shall keep accounts and make an annual statement, and are to have all the powers of managing and disposing of the property as if they were the sole owners, and all the powers delegated to the trustees shall be vested in the surviving trustee and in any or all trustees lawfully acting. No bond is required, and each trustee shall be answerable only for his own acts, and not one for another, and not for any mere errors of judgment. Any trustee may resign, and, if a trustee resigns or dies, the surviving trustee shall fill the vacancy; and, if the trustees determine that the number of trustees ought to be increased to three, the third shall be appointed by the two existing trustees. When any trustee is absent from Massachusetts, where the instrument was made, or incapacitated by illness, the other trustee can exercise all powers under the declaration, except the power to sell real estate, and either trustee by power of attorney can deliver his powers to the other trustee for not over six months. The shareholders shall have no assessments levied on them, and at the termination of the trust the trustees are to sell the property and distribute the net proceeds among the shareholders, and

(137 Wash. 566, 243 Pac. 2.)

until that time the property shall be considered as having been so converted into personal property on the date of the declaration, and the income shall be treated as if produced by the investment of the increase and proceeds in personal property until the property is finally sold. The shareholders are not to have a legal or other title or interest in the trust property and are not to have the right to call for any partition; and the death of a shareholder during the continuation of the trust is not to terminate the trust or entitle the representatives of the deceased shareholder to any other rights than he had in his lifetime. No persons dealing with the trustees shall be obliged to see to the distribution of the proceeds or the faithful discharge of the trust. The trust can be terminated before the expiration of the 20 years whenever a majority of the shareholders request it. The trustees shall not bind the shareholders personally, and every creditor or contractor with the trustees shall look solely to the property for payment. The shareholders may have their own government, bylaws, and elected officers, and may instruct the trustees in any manner not inconsistent with their powers or with the rights of third parties, and the trust agreement can be altered in any respect, except not to extend the trust period beyond 20 years. This declaration of trust was recorded in King county.

Article 12, § 5, of our Constitution, provides: "The term corporations, as used in this article, shall be construed to include all associations and joint stock companies having any powers or privileges of corporations not possessed by individuals or partnerships."

The question is whether what is generally known as a common-law or "Massachusetts trust," such as the one under which the appellants are operating, comes within this constitutional definition of corporations, and that depends upon whether the appellants under the trust agreement have any powers or priv

ileges possessed by corporations not possessed by individuals or partnerships.

We deem it scarcely necessary to enter into an original investigation of this question, for, as we view it, this court has already answered it in favor of the respondent's position. With great learning and diligence the appellants' counsel has discussed the nice points involved, but this discussion amounts, in its final analysis, to a request that the decision in State ex rel. Range v. Hinkle, 126 Wash. 581, 219 Pac. 41, be receded from. There are concededly some points of difference between the trust agreement here and the one under consideration in the Range Case. But those differences are superficial, and cannot result in the establishment of a different rule

in the two cases. The following quotation from the Range Case is sufficient to be determinative of the issue here, although some of the quoted language is not accurately applicable to the Alaska Building Trust agreement: "The question then arises whether or not this common-law trust is an 'association having powers and privileges of corporations not possessed by individuals and partnerships.' The declaration of trust of the Securities Sales Syndicate consists of six typewritten pages of single space, and we will refer to some of the provisions showing the similarity of this association to that of corporations in general, without setting forth the entire declaration. The declaration of trust provides that the trustees shall not be personally liable for their acts, and that a certificate holder shall not be liable for the acts of the other certificate holders or of the trustees. This is a privilege not enjoyed by individuals or partnerships. The joint property is held during the existence of the trust agreement free from the rules of tenancy in common, and the organization is not dissolved by the death of a certificate holder or trustee. Individuals do not possess this privilege and

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