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 time the defendants sent to the plaintiff a trade acceptance. It was

of

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.

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. It was held that the Negotiable Instruments Law exempted them from personal liability. 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

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. nerships. 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.