Hemphill v. Orloff

• Decision Date: 04 June 1928
• Docket Number: No. 343,343
• Citation: 277 U.S. 537,48 S.Ct. 577,72 L.Ed. 978
• Parties: HEMPHILL v. ORLOFF
• Court: U.S. Supreme Court

277 U.S. 537

48 S.Ct. 577

72 L.Ed. 978

HEMPHILL

v ORLOFF.

No. 343.

Argued March 7 and 8, 1928.

Decided June 4, 1928.

Messrs. Charles A. Wagner and Thomas G. Long, both of Detroit, Mich., for plaintiff in error.

[Argument of Counsel from pages 538-542 intentionally omitted] Mr. Isadore Levin, of Detroit, Mich., for defendant in error.

Mr. Justice McREYNOLDS delivered the opinion of the Court.

Plaintiff in error, vice president of the payee and acting for it, sued Mrs. Orloff, in the circuit court, Wayne county, Michigan, on her promissory note, payable to the Commercial Investment Trust, or order, executed at Detroit, Mich., July 22, 1921. She defended upon the ground, among others, that the payee was a foreign corporation within the meaning of the Michigan statutes; that it had not complied therewith, and, consequently could not maintain the action. Both the trial and Supreme Court of the state sustained this defense.

Relevant provisions of the statutes follow (Compiled Laws Mich. 1915):

'Sec. 9063. It shall be unlawful for any corporation organized under the laws of any state of the United States, except the state of Michigan, or of any foreign country, to carry on its business in this state, until it shall have procured from the secretary of state of this state a certificate of authority for that purpose. * * *'

'Sec. 9068. No foreign corporation, subject to the provisions of this act, shall be capable of making a valid contract in this state until it shall have fully complied with the requirements of this act, and at the time holds an unrevoked certificate to that effect from the secretary of state.'

'Sec. 9071. The term 'corporations' as used in this act shall be construed to include all associations, partnership associations and jointstock companies having any of the powers or privileges of corporations, not possessed by individuals or partnerships, under whatever term or designation they may be defined and known in the state where organized.'

The Commercial Investment Trust-hereinafter the Trust-is of the class commonly known as 'Massachusetts trusts' or 'common-law trusts.' The following statement sufficiently indicates the general features of the lengthy 'agreement and declaration of trust' under which it was organized at Boston, Mass., March 29, 1915.

The business of the association shall be conducted under the name specified for the trustees in their collective capacity-the Commercial Investment Trust. They may adopt another. Seven are designated; their successors shall be elected for terms of two years at annual shareholders' meetings, each share being entitled to one vote, which may be cast by proxy.

Wide powers are granted to the trustees to buy and sell stocks, bonds, negotiable securities, personal and real property, to loan money, etc., and generally to manage and conduct the trust as fully as if they were the absolute owners of the estate; also they shall have power, but without obligation on their part, to execute any and all instruments and to do any and all things not inconsistent with the provisions hereof, the execution or performance of which they may deem expedient. They may appoint and define the duties of officers and agents. 'But the trustees shall not have any power or authority to borrow money on the credit or on behalf of the shareholders or to make any contract on their behalf for repayment of any money raised by mortgage, pledge, charge or other incumbrances in pursuance of the provisions hereof, or to make any contract or incur any liability whatever on behalf of the shareholders or binding them personally.'

'Trustees shall hold the legal title to, and have the absolute and exclusive control of, all property at any time belonging to this trust subject only to the specific limitations herein contained; they shall have the absolute control, management and disposition thereof.'

'The death or resignation of the trustees, or any of them, shall not operate to annul the trust or to revoke any existing agency created pursuant to the terms of this instrument.'

'Every note, bond, contract, instrument, certificate, share or undertaking and every other act or thing whatsoever executed or done by the trustees or any of them in connection with the trust hereby created, shall be conclusively taken to have been executed or done only in their or his capacity of trustee or trustees under this agreement and such trustee or trustees shall not be personally liable thereon.'

The trustees and shareholders are exempted from personal liability.¹

Shareholders' meetings shall be held annually for the purpose of electing trustees. Interest in the estate shall be evidenced solely by certificates for participation shares, to be regarded as personal property. A shareholder's death shall not operate to determine the trust nor entitle the decedent's representative to an accounting or to take action in the courts or elsewhere, against the trustees. Shareholders shall have no title in the trust property or right to call for partition, division, or accounting. The trustees shall have no power to call upon shareholders for any sum of money or assessment whatever, except such as they may agree to pay.

'The trustees, may, from time to time, distribute to the shareholders such receipts or other parts of the trust estate as they shall determine. The amount and conditions of such payments shall be determined by the trustees.'

'For any of the purposes of the trust the number of shares may, from time to time, be increased or reduced by the trustees. In case the number of shares is increased, the additional shares shall be issued and disposed of upon such terms and in such manner as the trustees may determine.'

The trust shall continue until the death of the last survivor of seven named individuals.

Concerning voluntary associations, chapter 182, Gen. Laws Massachusetts 1921 (volume 2, p. 2077), provides:

'Sec. 2. The trustees of an association shall file a copy of the written instrument or declaration of trust creating it with the commissioner and with the clerk of every town where such association has a usual place of business. * * *'

'Sec. 6. An association may be sued in an action at law for debts and other obligations or liabilities contracted or incurred by the trustees, or by the duly authorized agents of such trustees, or by any duly authorized officer of the association, in the performance of their respective duties under such written instruments or declarations of trusts, and for any damages to persons or property resulting from the negligence of such trustees, agents or officers acting in the performance of their respective duties, and its property shall be subject to attachment and execution in like manner as if it were a corporation, and service of process upon one of the trustees shall be sufficient.' Gen. Acts Mass. 1916, c. 184.

The Massachusetts courts give effect to agreements like the one here described, recognize the entity of associations organized thereunder, and hold both trustees and shareholders exempt from personal liability. See Hussey v. Arnold, 185 Mass. 202, 70 N. E. 87; Williams v. Milton, 215 Mass. 1, 102 N. E. 355, and cases cited; Frost v. Thompson, 219 Mass. 360, 106 N. E. 1009.

It was held by the court below that the Trust must be regarded as a corporation within intendment of the Michigan statutes which could not lawfully carry on local business within the state or make valid contracts in connection therewith without having complied with prescribed requirements. There was no attempt to comply therewith.

Plaintiff in error insists that, as construed by the Supreme Court, the statutes of Michigan deny to the trustees, collectively called 'Commercial Investment Trust,' the benefits of section 2, article 4 of the Constitution:

'The citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States.'

Also that ...