tity," which could be sued, but "merely a voluntary association of individuals, a business trust."

In Gallagher v. Hannigan (1925; C. C. A. 1st) 5 F. (2d) 171, and Reeves v. Powell (1924) Tex. Civ. App. —, 267 S. W. 328, both infra, III. b, 2, trusts were considered to be within the scope of the Bankruptcy Act.

As to a trust being regarded as a corporation, within the meaning of the Revenue Act of 1918, see Burk-Waggoner Oil Asso. v. Hopkins (1925) 269 U. S. 110, 70 L. ed. (Adv. 67), 46 Sup. Ct. Rep. 48, infra, III. b, 3.

WEBER ENGINE Co. v. ALTER (reported herewith) ante, 158) takes the same view as the Kansas cases which have been heretofore set out and cited in the previous annotations (see particularly 31 A.L.R. 856, and 35 A.L.R. 504), so far as refusing to recognize any distinction between a corporation and an association organized as a common-law trust, and holding that the latter form of organization must comply with the requirements of the corporation law.

STATE EX REL. COLVIN V. PAINE (reported herewith) ante, 165, expressly follows State ex rel. Range v. Hinkle (1923) 126 Wash. 581, 219 Pac. 41 (see 31 A.L.R. 859), in holding that in that state an association organized as a common-law trust was 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.

Under a similar constitutional provision to that in the PAINE CASE, it has been held that a common-law trust must conform with the laws governing corporations and the "Blue Sky" laws before being permitted to dispose of its certificates of stock. Reilly v. Clyne (1925) Ariz. 40 A.L.R. 1005, 234 Pac. 35.

And as to whether or not a "Massachusetts trust" is within the scope of a "Blue Sky" law, see also the annotations in 24 A.L.R. 528; 27 A.L.R. 1170; 30 A.L.R. 1336; and 40 A.L.R. 1016 [Business Trusts, § 1].

2. Under Bankruptcy Act. (Supplementing annotation in 7 A.L.R. 624).

Re Associated Trust (1914) 222 Fed. 1012 (see 7 A.L.R. 624), was relied upon in Gallagher v. Hannigan (1925; C. C. A. 1st) 5 F. (2d) 171, holding to be an "unincorporated company," within the meaning of the Bankruptcy Act, a Boston concern which was started by three "trustees" under the name of the "Old Colony Foreign Exchange Company," and promised to pay 50 per cent interest in ninety days to those who should invest money with it, the business having been stopped by the state along with that of Ponzi, who operated a similar scheme. In holding that the trustee in bankruptcy could recover money fraudulently transferred by two of these "trustees," the court overruled the contention that the con

cern

was a partnership, and said: "While in fact this association was a mere sham and pretense, intended to gain the confidence of the public in order to defraud it, yet, so far as it had any status and could perform any acts, it could only do so through them [the 'trustees'], and their acts were its acts. . Undoubtedly, such associations, when fully organized as the declaration of trust in this case contemplated, are held by the Massachusetts courts to be, for certain narrowly limited purposes, partnerships. But it does not at all follow that under Federal law they cannot be properly adjudicated bankrupt as unincorporated companies. . . . The Old Colony Foreign Exchange Company and most of these associations limit their contractual liabilities to the res of the trust estate, thus seeking, and generally attaining, nearly if not quite all the limited liability of a corporation. . . . The fact, if it be a fact, that such associations may be partnerships as to creditors not charged with notice that the officers thereof are required to limit their contractual undertakings as to the res of the trust estate, is no reason for holding that bankruptcy may not be invoked in order to provide equality of treatment of all creditors of this separate entity."

The court further observed that the shareholders and officers of these associations stood outside the scope of the bankruptcy liquidation, just as did the officers and stockholders of an ordinary corporation; that their individual assets were not liable for the association's debts, and that the bankruptcy court therefore had no occasion to extend its jurisdiction over the shareholders.

In Reeves v. Powell (1924) Tex. Civ. App. - 267 S. W. 328, holding that the trustee in bankruptcy of a joint stock association operating under a declaration of trust was entitled to recover from a former shareholder the amount which he paid for stock, and which was returned to him in pursuance of an optional rescission contract, he having claimed the right to cancel his subscription for fraudulent misrepresentations, the court said that the association was "as nearly a pure business trust as could be written," and, after setting out some of the provisions of the declaration, it >bserved: "The trust instrument completely limited the personal liability of both the shareholders and trustees, and required the creditors to look solely to the trust estate or fund for their debts. Under the test laid down by our courts, as well as the Massachusetts courts, from whence such trust companies as the one here declared came, a pure business trust was organized." It also declared that the supreme court had from earliest times recognized the private trust as a valid legal relation citing Connally v. Lyons (1891) 82 Tex. 664, 27 Am. St. Rep. 935, 18 S. W. 799 (see reference to this case in 7 A.L.R. at pages 613 and 621). But the decision of the case rested upon the ground that the shareholder, in effect, acquiesced in the fraud, so could not assert it as against creditors in good faith of the business which his stock contribution helped to place in the position to contract such debts; and the court said that the shareholder's position was analogous to that of a married woman, whose contribution to a partnership was subject to the payment of partnership debts, although at common law she could not

make a contract, or to that of a minor partner, who could not withdraw his contribution until the firm's debts were paid, although his contracts were voidable.

3. For purposes of taxation. (Supplementing annotations in 7 A.L.R. 624; 31 A.L.R. 859; and 35 A.L.R. 505.)

The Supreme Court of the United States has held in Burk-Waggoner Oil Asso. v. Hopkins (1925) 269 U. S. 110, 70 L. ed. (Adv. 67), 46 Sup. Ct. Rep. 48, affirming (1924; D. C.) 296 Fed. 492 (see 35 A.L.R. 505), that, for the purposes of the Revenue Act of 1918, an unincorporated joint stock association was taxable as a corporation, even though regarded as a partnership under the law of the state where it was located (Texas). In overruling the contentions that, by taxing the association's income, it would be made an entity capable of owning property and receiving income, whereas under the laws of the state a partnership was not an entity, but its property was owned by the partners individually; that taxing it would be an unlawful invasion of the state's exclusive power to regulate the ownership of property within its borders; that, if considered as a tax imposed upon the members and collected from the group, it would be void as a direct tax not imposed upon income and not apportioned among the states, and as being so arbitrary and variable in its rates and application as to conflict with the due process clause; and that there was a conflict between the act's specific provisions for the taxation of partnership income to the members only, and the definition of the term "corporation" in § 1, which presented a compelling reason for construing the act as not subjecting the association's income to the taxes imposed upon corporations, the court said: "There is no room for applying the rule of construction urged in aid of constitutionality. It is clear that Congress intended to subject such joint stock associations to the income and excess profits taxes as well as to the capital stock tax. The definition given to the term

'corporation' in § 1 applies to the entire act. The language of the section presents no ambiguity. Nor is there any inconsistency between that section and §§ 218 (a) and 335 (c), which refer specifically to the taxation of partnerships. The term 'partnership' as used in these sections obviously refers only to ordinary partnerships. Unincorporated joint stock associations, although technically partnerships under the law of many states, are not in common parlance referred to as such. They have usually a fixed capital stock divided into shares represented by certificates transferable only upon the books of the company, manage their affairs by a board of directors and executive officers, and conduct their business in the general form and mode of procedure of a corporation. Because of this resemblance in form and effectiveness, these business organizations are subjected by the act to these taxes as corporations. The claim that the act, if so construed, violates the Constitution, is also unsound. It is true that Congress cannot make a thing income which is not so in fact. But the thing to which the tax was here applied is confessedly income earned in the name of the association. It is true that Congress cannot convert into a corporation an organization which by the law of its state is deemed to be a partnership. But nothing in the Constitution precludes Congress from taxing as a corporation an association which, although unincorporated, transacts its business as if it were incorporated. The power of Congress so to tax associations is not affected by the fact that, under the law of a particular state, the association cannot hold title to property, or that its shareholders are individually liable for the association's debts, or that it is not recognized as a legal entity. Neither the conception of unincorporated associations prevailing under the local law, nor the relation under that law of the association to its shareholders, nor their relation to each other and to outsiders, is of legal significance as bearing upon the power of Congress to determine how and

at what rate the income of the joint enterprise shall be taxed."

And see in this connection the court's previous opinion, of substantially the same effect, in Hecht v. Malley (1924) 265 U. S. 144, 68 L. ed. 949, 44 Sup. Ct. Rep. 462, which is set out in 31 A.L.R. at pages 860 and 861.

c. Legal characteristics of capital stock. (Supplementing annotation in 7 A.L.R. 628.)

Tex.

Upon the rehearing of Continental Supply Co. v. Adams (1925) Civ. App. 272 S. W. 329, supra, III. b, 1, the majority of the court considered that designation of the shareholders' certificates as "unit certificates" did not change their real character, since they were essentially certificates of stock in the association in spite of that designation; and that the receipt by the certificate holders of certain interests in the oil, rather than the proceeds of its sale, would not make the oil so received any the less profits.

The contention that the purchaser of shares of preferred stock in an association had in fact merely loaned money to it and thus become a general creditor, and that the holders of its common stock were liable for such loan as partners, was overruled in Wineinger v. Farmers' & Stockmen's Loan & Invest. Asso. (1925) — Тех. Civ. App. —, 278 S. W. 932, the court stating that no clearer statement of relation to the association could well be made than that in the stock certificate. It also observed that the mere fact that the holder of such stock could not vote was immaterial, and, in reference to a provision in the declaration of trust that the association should not be dissolved without the written consent of the holders of two thirds of the preferred stock, pointed out that, to this extent at least, the preferred stockholders might exercise the right of control over the powers granted the board of trustees; and reached the conclusion that the association was a joint stock company or business trust, and plaintiff a member of it, and so bound by its declaration of trust.

Shares of stock in an unincorporated trust association were held to be personal property, and accordingly to convey no interest in an oil lease, this being regarded as real property, in Parker v. Mona-Marie Trust (1925) Tex. Civ. App. —, 278 S. W. 321.

IV. Rights of trust creditors. (Supplementing annotations in 7 A.L.R. 628; 31 A.L.R. 862; and 35 A.L.R. 505.)

See WEBER ENGINE Co. v. ALTI (reported herewith) ante, 158.

In Thompson v. Schmitt (1925) Tex. —, 274 S. W. 554, the certificate holder of a so-called "trust" was held to be liable for merchandise purchased by the trustees, upon the ground that it was in fact an ordinary partnership. (See reference to this case in subdivisions II. a, and III. b, 1, supra.) See also, to the same effect, Victor Ref. Co. v. City Nat. Bank (1925) Tex. 274 S. W. 561, affirming (1924) Tex. Civ. App. 263 S. W. 622, and Hollister v. McCamey (1925) Tex., 274 S. W. 562, affirming (1922) Tex. Civ. App. 241 S. W. 689 (see 31 A.L.R. 864).

A syndicate consisting of two individuals, who did business as a common-law company and trust estate, was held liable for a debt contracted by one of the individuals for it, and at the same time the other member of the syndicate was also held liable for the same debt, in Pomona Mut. Oil Syndicate v. Williamsport Wire Rope Co. (1926) Tex. Civ. App. —, 282 S. W. 958, where the court said as to the latter member that, as the evidence showed him to be a stockholder and trustee, he was liable as a partner.

not liable to creditors who knew that the liability of the shareholders was expressly limited.

In Wineinger v. Farmers' & Stockmen's Loan & Invest. Asso. (1925) Tex. Civ. App., 278 S. W. 932, the court said: "It seems to be well settled in Texas that when two or more parties engage in a business enterprise under what is variously called a trust agreement, articles of association, or declaration of trust, all of the members of such association are liable to third parties under the general law of partnership, unless relieved from such liability by express contract with their creditors."

But, in Greco v. Hubbard (1925) 252 Mass. 37, 147 N. E. 272, where an architect sought to recover in equity from the trustees of an investment concern, upon the theory that they were undisclosed principals, for services rendered at the request of the trustees of a building trust, to which the investment concern had made a loan and which transferred to such concern all its shares in connection with another advance, the court observed that the building trust was organized as a valid trust, that it was not a partnership, and that its representatives alone made the contract with the plaintiff; and said that the concern had no relation except that of creditor to the trust, which continued as a genuine trust, that such concern could use the trust as a valid trust, and that the concern's trustees were merely the cestuis of the building trust, and so were entitled to protection against the liability which was sought to be enforced against them.

And an agreement between an attorney and one of the three trustees of a motion picture trust (the declaration being stated by the court to be similar in form to what was commonly known as a Massachusetts trust) was held not to be binding upon the other trustees as such, without proof that they authorized or ratified it, directly or indirectly, in view of a provision in the trust agreement that "a majority of said trustees shall rule" (the question as to their personal liability not being at issue), in De Witt v. Cabanne