Hemphill v. Orloff

• Decision Date: 03 May 1927
• Docket Number: No. 97.,97.
• Parties: HEMPHILL v. ORLOFF.
• Court: Michigan Supreme Court

238 Mich. 508

213 N.W. 867

HEMPHILL

v.ORLOFF.

No. 97.

Supreme Court of Michigan.

May 3, 1927.

Error to Circuit Court, Wayne County; John G. Stone, Judge.

Action by Claude L. Hemphill against Julia Stott Orloff. Judgment for defendant, and plaintiff brings error. Affirmed.

Argued before the Entire Bench.Stevenson, Butzel, Eaman & Long, of Detroit (Charles A. Wagner, and Campbell, Bulkley & Ledyard, all of Detroit, of counsel), for appellant.

Butzel, Levin & Winston, of Detroit (Isadore Levin, of Detroit, of counsel), for appellee.

FELLOWS, J.

This action is brought on a note given by defendant, a married woman, to the Commercial Investment Trust, of which plaintiff is vice president. No question of bona fide purchaser is involved, as the note was transferred to him for the purpose of bringing suit. Before taking up the case itself a preliminary question should be disposed of. Both parties asked without reservation for a directed verdict. Defendant's counsel insists that this amounted to a request, that, the trial court find the facts. We recognize this as being the rule in the federal courts, but it is not the rule of this court. Both parties having asked for a directed verdict in the court below, neither may insist here that the case should have gone to the jury. The rule of this court is thus tersely stated by Mr. Justice Clark in Hannan Real Estate Exchange v. Davis, 213 N. W. 61 (handed down herewith):

‘If court's decision, both parties having requested directed verdict, is right in law, and supported by substantial evidence, the judgment must be affirmed.’

The defenses insisted that the Commercial Investment Trust was a foreign corporation within the meaning of our Constitution and statutes, and as it had not complied with the provisions of section 9063 et seq., C. L. 1915, which were in force when the transaction here involved took place, it could not maintain this action. The defense of coverture was also insisted upon. Both defenses were sustained by the trial judge, and a verdict for defendant was directed. We shall only consider the first question.

The Commercial Investment Trust belongs to that class of entities (Forgan v. Mackie, 232 Mich. 476, 205 N. W. 600), frequently referred to as ‘Massachusetts trusts' and sometimes called ‘common-law trusts.’ Its lengthy articles of association denominated, ‘Agreement and Declaration of Trust,’ which need not be set out in full, cover 18 pages of the record. It will suffice briefly to state some of its provisions. The name under which it shall do business is fixed, and it may have a common seal; seven trustees manage the business; they are elected at annual meetings of the stockholders. The business is primarily that of dealing in commercial paper; later in the instrument the trustees are empowered to buy and sell both real estate and personal property; the trustees elect a president, vice president, secretary, and treasurer; they may make by-laws and meet monthly; they are given broad powers and are made masters of the entity and its property; they may charge it by entering into contracts, but the stockholders are not liable for any of their contracts; the trustees may deal in its shares; annual meetings of the stockholders with notice thereof to shareholders are provided for; the shareholders are given ‘certificates of interest,’ which are transferable; death of a shareholder or trustee does not affect the entity, and the shares are personal property and go to the representatives of deceased shareholders; the shareholders have no title to the property of the trust. The trustees may make distributions, and the entity comes to an end on the death of the survivor of seven named persons.

Doubtless entities such as the Commercial Investment Trust receive their name through the fact that for over a century common-law trusts of a commercial character have not been uncommon in Massachusetts. It has been said that this arose from the fact that prior to 1912 corporations were not permitted to be organized for the purpose of dealing in real estate. In many instances they were family affairs and handled the properties of estate for heirs who desired them held in common. The courts of that state have recognized them and have divided them into two classes, those which were pure trusts and those which were partnerships. Williams v. Milton, 215 Mass. 1, 102 N. E. 355, where many of the cases are collected. Mr. Cook, author of Cook on Corporations, in an article appearing in 9 American Bar Association Journal, 763 (1923), upon the subject of ‘The Mysterious Massachusetts Trusts' doubts the soundness of this classification and distinction, and in Thompson v. Schmitt, 115 Tex. 53, 274 S. W. 554, it was said by Justice Greenwood speaking for the court in a case involving a Massachusetts trust:

‘Despite the contrary view of eminent courts of other jurisdictions, we cannot allow the mere matter of an express delegation to certain members of a voluntary commercial association of exclusive control over the common property to convert into a trust what would otherwise be universally considered a joint-stock company with the members subject to the liabilities of partners.’

The adoption of the so-called ‘Blue Sky Laws' by a majority of the states stimulated the creation of Massachusetts trusts. They had a mushroom growth, and trustees under them doubtless invested large amounts of the trust funds of their cestuis que trustent in enterprises which were of doubtful stability and entered fields of investment, as we shall presently show, before untrodden by trustees have due regard for the safety of the investment of trust funds. It was doubtless thought by their promoters that a plan had been devised which would circumvent these legislative enactments. This court was practically the pioneer in holding that such attempt was unsuccessful. People v. Clum, 213 Mich. 651, 182 N. W. 136, 15 A. L. R. 253. This case has been followed and cited in numerous cases to some of which we shall presently refer.

One of these should be here noted. In King v. Commonwealth, 197 Ky. 128, 246 S. W. 162, 27 A. L. R. 1159, it was said:

‘Hence, it seems to us too plain for argument that the definition of an investment company literally and necessarily includes a common-law trust, the distinguishing features of which are too well understood to require explanation, even though in this state they have not been so frequently encountered as they would be in the immediate future if appellant's contention should be upheld by this court in the face of the unanimous opinion of many courts that have rejected it as unsound in construing almost identical language in similar statutes [citing the Clum and other Cases].’

Numerous cases are cited by plaintiff's counsel dealing with interstate commerce, but we do not think they are applicable. The trust was dealing in negotiable notes secured by chattel mortgages. The notes were evidence of the indebtedness, and the chattel mortgages were contracts securing a lien on the property covered. In Nathan v. Louisiana, 8 How. 73, 12 L. Ed. 992, the state had imposed a brokerage tax of $250 upon Nathan, who dealt solely in foreign exchange. He insisted that such tax was one upon commerce and beyond the power of the state to levy. His contention was dismissed, the court saying:

‘A bill of exchange is neither an export nor an import. It is not transmitted through the ordinary channels of commerce, but through the mail. It is a note merely ordering the payment of money, which may be negotiated by indorsement, and the liability of the names that are on it depends upon certain acts to be done by the holder, when it becomes payable. * * * Now the individual who uses his money and credit in buying and selling bills of exchange, and who thereby realizes a profit, may be taxed by a state in proportion to his income, as other persons are taxed, or in the form of a license. He is not engaged in commerce, but in supplying an instrument of commerce. He is less connected with it than the shipbuilder, without whose labor foreign commerce could not be carried on.’

This was followed in Paul v. Virginia, 8 Wall. 168, 19 L. Ed. 357, where the right to regulate insurance companies and their contracts of insurance was involved. The court, speaking through Mr. Justice Field, said:

‘These contracts are not articles of commerce in any proper meaning of the word. They are not subjects of trade and barter offered in the market as something having an existence and value independent of the parties to them. They are not commodities to be shipped or forwarded from one state to another, and then put up for sale. They are like other personal contracts between parties which are completed by their signature and the transfer of the consideration. Such contracts are not interstate transactions, though the parties may be domiciled in different states.’

It is thought by some that the Lottery Case, 188 U. S. 321, 23 S. Ct. 321, 47 L. Ed. 492, overruled or modified these holdings, but Mr. Justice Harlan, who wrote the majority opinion, somewhat circumscribed the holding by the use of the words we have italicized. He said:

‘We come then to inquire whether there is any solid foundation upon which to rest the contention that Congress may not regulate the carrying of lottery tickets from one state to another, at least by corporations or companies whose business it is, for hire, to carry tangible property from one state to another.’

And in concluding the opinion, he said:

‘We decide nothing more in the present case than that lottery tickets are subjects of traffic among those who choose to sell or buy them; that the carriage of such tickets by independent carriers from one state to another is therefore interstate commerce; that under its power to regulate commerce among the several states Congress-subject to the limitations imposed by the Constitution upon the exercise of the powers granted-has plenary...