Levy v. Nellis

• Decision Date: 23 March 1936
• Docket Number: Gen. No. 38713.
• Parties: LEVY v. NELLIS ET AL.
• Court: United States Appellate Court of Illinois

284 Ill.App. 228

1 N.E.2d 251

LEVY

v.NELLIS ET AL.

Gen. No. 38713.

Appellate Court of Illinois, First District, First Division.

March 23, 1936.

Appeal from Circuit Court, Cook County; John Prystalski, Judge.

Suit by Virginia Kaufman Levy against F. E. Nellis and others. From an order dismissing the complaint, plaintiff appeals.

Affirmed.

Arnold Seeder, of Chicago, for appellant.

Pritzker & Pritzker, of Chicago (Richard Weinberger, of Chicago, of counsel), for appellees.

McSURELY, Presiding Justice.

April 10, 1926, defendants entered into a trust agreement purporting to create the South Water Market Improvement Association. This appeal presents the question whether this created a valid common–law trust or a partnership. The trial court held for the common–law trust, and plaintiff appeals.

Plaintiff filed her complaint in chancery against F. E. Nellis, C. R. Godding, J. W. Shafton, and Harry Snyder, as trustees of the South Water Market Improvement Association, and also against certain other named defendants, who were subscribers to the trust agreement. The plaintiff sought recovery upon three promissory notes on which there was an unpaid balance of $12,950; they were signed “Harry Snyder, F. E. Nellis, J. W. Shafton, C. R. Godding––As trustees under an instrument dated at Chicago, Illinois, April 10, 1926, creating the South Water Market Improvement Association, and not individually.” Edmund Kaufman, the payee in the notes, died, and plaintiff received them as part of her distributive share of his estate.

Plaintiff asked for judgment against the makers of the notes as partners, that the trustees be directed to call upon those subscribers who have failed to pay their subscriptions in full for the payment of the balance of their subscriptions; that a receiver be appointed to take over the assets of the trust. Plaintiff asked the court to hold that the trust agreement did not create a valid common–law trust but created a partnership, and asked for judgment against all of the defendants for the amount due.

Defendants filed motions to dismiss the complaint, asserting among other things that the agreement did not create a partnership but did create a common–law trust. The trial court held with defendants on this point and dismissed the complaint as to the defendants making the motion. Plaintiff appeals from this order.

The trust agreement is too lengthy to be quoted in full in this opinion. It recites that the South Water Market District, Chicago, Ill., has been organized by a large number of commission merchants with businesses in the district, and that the subscribers to the agreement are interested in promoting the success of the district and generally in developing it, and for these purposes the subscribers covenanted and agreed to and with each other that certain parties appointed as trustees shall attempt to collect all moneys subscribed under the agreement and that all such moneys and all other property held by the trustees shall become a part of this trust, to be held by the trustees as joint tenants.

It was further provided that the trustees shall have full power and authority (a) to purchase, sell, exchange, or lease any of the building units located in the district; (b) to purchase, sell, or exchange, or perform any contracts with reference to the acquisition or disposition of any of said units; (c) to loan any and all moneys belonging to the trustees in furtherance of the purposes of the trust; (d) to borrow any moneys for the same purposes; (e) to dispose of any businesses located in the district; (f) to alter or operate any of the units in the district; (g) to mortgage any real or personal property; (h) to exchange, lease, or mortgage, or dispose of any rights in any property or businesses in the discretion of the trustees; (i) to have all powers and authority requisite or helpful in generally promoting the development of the district and the businesses therein conducted, and to have the same power and authority in connection with any property in the hands of the trustees as they would have if they were the joint owners of the property free and clear of this trust.

Neither the trustees nor any of the beneficiaries shall be personally liable for any moneys borrowed or for any other liabilities incurred or assumed by the trustees or beneficiaries unless they shall have expressly undertaken to become so liable, and all persons dealing with the trustees shall look only to the property of the trust for the payment of their claims. It was provided that every instrument to which the trustees should be parties on account of which any liability may be created against the trustees shall substantially express this provision. The trustees were empowered to rent offices and hire help, also to settle and compound any claims made against the trustees; the trustees were to be paid no salary for their services as trustees. There was quite a detailed provision as to the manner in which the trustees should handle the finances of the trust; it provided that the beneficiaries in the trust shall have no rights “of possession, management or control of the trust estate” nor any property rights in any of the property forming part of the trust estate; the rights of the beneficiaries should be solely against and through the trustees, who shall be the absolute representatives of all subscribers or beneficiaries. There were provisions for meetings of the trustees, who may make such by–laws and other rules as they may deem proper.

There was a provision for meetings of the subscribers or beneficiaries, to be held on the third Monday of February in each year; special meetings might be called upon three days' written notice. There seems to be no provision as to what the beneficiaries might do at these meetings.

The trustees should hold office for a period of five years from the date of their appointment, but during the period of any vacancy in the office of trustee a majority of the remaining trustees may take any action authorized, and any such vacancy may be filled for the unexpired term by a majority vote of the remaining trustees; any vacancy in the office of trustee by reason of the expiration of the terms of such trustee shall be filled by appointment by a majority in amount of the holders of the beneficial certificates. The trust terminated March 1, 1942. The terms of the trust agreement might be amended by vote of two–thirds in amount of the holders of the certificates of beneficial interest, and such amendment shall be binding upon the beneficiaries and upon the trustees, and also upon third parties whose rights accrue after such amendment.

In the opinion in Schumann–Heink v. Folsom, 328 Ill. 321, 159 N.E. 250, 58 A.L.R. 485, is a comprehensive discussion of common–law trusts and their differences from a partnership. The opinion notes that a partnership is a contract of mutual agency, each partner acting as a principal in his own behalf and as agent for his copartner; that where, under the declaration of trust, the unit holders retain control over the trustees and have authority to control the management of the business, the partnership relation exists. On the other hand, where the declaration of trust gives the trustees full control in the management of the business of the trust and the certificate holders are not associated in carrying on the business and have no control over the trustees, then there is no partnership.

Many decisions are cited in which the courts have attempted to determine what degree of control remaining in the beneficiaries or certificate holders rendered the organization a partnership. Among these cases are Frost v. Thompson, 219 Mass. 360, 106 N.E. 1009;Neville v. Gifford, 242 Mass. 124, 136 N.E. 160;Whitman v. Porter, 107 Mass. 522;Liquid Carbonic Co. v. Sullivan, 103 Okl. 78, 229 P. 561;Haskell v....