(137 Wash. 566, 243 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 de claring 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. V. Story, Eq. Jur. § 964; Jones 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, 69 131 Ind. 342, 15 L.R.A. 792, 31 Am. St. 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, 40 A.L.R. 1005, 234 Pac. 35. Ariz. 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 at such times as they may deternet income among the shareholders mine. 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 share holders 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 Constitutien, 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 power. The interest of the cestui que trustent is represented by a negotiable certificate assignable without the consent of the other shareholders. This privilege is not enjoyed by a copartnership. This This organization acts through the majority of its trustees, while each member of a copartnership participates in its management. The association has the power as an association to make by-laws, to have a common seal, to sue and be sued, and to receive and to grant, to purchase and hold lands and chattels in the names of the trustees, with perpetual succession. These powers are in their nature corporate powers and not enjoyed by partnerships. The declaration of trust provides that the trust shall exist during the life of its present trustees, and for twenty-one years thereafter and cannot be terminated by the certificate holders." In the Range Case reference is made to the decision of the Supreme Court of the United States in Crocker v. Malley, 249 U. S. 223, 63 L. ed. 573, 2 A.L.R. 1601, 39 Sup. Ct. Rep. 270, where that court held that a "Massachusetts trust" was not a corporation. Since the decision in the Range Case, however, the Supreme Court of the United States, in Hecht v. Malley, 265 U. S. 144, 68 L. ed. 949, 44 Sup. Ct. Rep. 462, has held that "Massachusetts trusts," whereby property was conveyed to (and it may be noted here that those trusts referred to real estate in Boston used for office and business buildings) and managed in business operations by trustees, the shares of the cestuis que trustent being represented by transferable certificates entitling holders to share ratably in the income and upon termination of the trust in the proceeds of the property, were corporations, and the prior case of Crocker v. Malley, supra, was, in effect, overruled. It is not necessary to again refer to the cases which are reviewed in the Range Case, but it is proper to make some reference to decisions which have been made subsequent thereto. In Hamilton v. Young, 116 Kan. 128, 35 A.L.R. 496, 225 Pac. 1045, the Supreme Court of Kansas, having before it a "Massachusetts trust," held that the trust created a corporation under the Kansas law to the extent that it was a legal entity distinct from the persons who composed it. In that opinion various cases involving the same question are considered, and the result reached is the same as that later reached by the Supreme Court of Arizona in Reilly v. Clyne, Ariz. - 40 A.L.R. 1005, 234 Pac. 35, where it was held that a "Massachusetts trust" was a corporation within a constitutional definition similar to ours. The Supreme Court of the United States still later, and in an opinion. filed since the briefs in this case were written, has reconsidered the question, and in Burk-Waggoner Oil Asso. v. Hopkins, 269 U. S. 110, 70 L. ed. (Adv. 67), 46 Sup. Ct. Rep. 48, has again held that a "Massachusetts trust" possessed powers and privileges of corporations which are not possessed by individuals or partnerships, and follows the rule of the Range Case. porations. In view of our prior decision and these subsequent confirming authorities, it must be sufficient to follow that decision, and to hold, as did the trial court, Business truststhat the appellants how far corare exercising corporate rights without compliance with the requirements of our laws. Under those laws the state has said, as is its right, that no one shall exercise corporate powers except those upon whom the state has chosen to confer such powers, and, in order to be able to exercise those powers, which were created by virtue of law, an artificial person, that is, a corporation, should be created. The appellants demurred on the ground that the respondent's action was a violation of § 1, Amend. 14, of the federal Constitution, but a. In general, 169. b. Capital stock or shares; effect of transferability, 170. c. Provisions limiting liability, 171. d. As affected by rule against perpetuities, 174. [No later decisions herein.] III. Purpose and legal nature: a. Purposes for which business trust may be formed, 174. b. Legal nature of organization: 1. In general, 175. 2. Under Bankruptcy Act, 179. 3. For purposes of taxation, 180. c. Legal characteristics of capital stock, 181. IV. Rights of trust creditors, 182. V. Power of officers or shareholders to sell trust lands, 183. V. [a] [New] Power of trustees to maintain suit in own name, 183. V. [b] [New] Power of beneficiaries to maintain suit, 183. V. [c] [New] Right to bring suit in firm name, 184. V. [d] [New] Defense of suits against business trusts, 185. I. Scope. This annotation supplements those in 7 A.L.R. 612; 10 A.L.R. 887; 31 ALR. 851; and 35 A.L.R. 502, to which reference should be made for the earlier cases. The scope outlined in 7 A.L.R. 612 is followed herein. Attention is called to annotations in 27 A.L.R. 1170; 30 A.L.R. 1338; and 40 A.L.R. 1016, supplementing that in 24 A.L.R. 529, for cases in which it has been determined whether or not "Massachusetts trusts" are within the Scope of "Blue Sky" laws. II. Validity. a. In general. (Supplementing annotations in 7 A.L.R. 613; 10 A.L.R. 887; 31 A.L.R. 852; and 35 A.L.R. 502.) An enterprise which was undertaken under the trust form, by inexperienced men, for the purpose of manufacturing and selling automobiles, trucks, and tractors, was held not to have been an unlawful one, "however il considered it may have been," in Palmer v. Taylor (1925) 168 Ark. 127, 269 S. W. 996. |