State St. Trust Co. v. Hall

CourtUnited States State Supreme Judicial Court of Massachusetts
Citation41 N.E.2d 30,311 Mass. 299
PartiesSTATE STREET TRUST CO. et al. v. HALL et al.
Decision Date01 April 1942

311 Mass. 299
41 N.E.2d 30

HALL et al.

Supreme Judicial Court of Massachusetts, Suffolk.

April 1, 1942.

Suit by the State Street Trust Company and others against John L. Hall, and others, trustees, to obtain an accounting and distribution of trust property. From an interlocutory decree sustaining demurrers, and from final decree dismissing the bill, the plaintiffs appeal.


[41 N.E.2d 31]

Appeal from Superior Court, Suffolk County; Greenhalge, Judge.

Before FIELD, C. J., and QUA, DOLAN, and RONAN, JJ.

S. H. Batchelder and A. Gardner, both of Boston, for plaintiffs.

R. R. Elliott, G. V. Mottla, C. P. Curtis, Jr., and N. B. Vanderhoof, all of Boston, for defendants.

RONAN, Justice.

This is a bill in equity by the holders of certificates of shares of the Shearer Realty Trust, created by a declaration of trust dated October 1, 1912, against the trustees of the said trust and the holders of the remaining shares, to obtain an accounting and a distribution of the trust property. The plaintiffs allege that they had given notice on June 1, 1940, to the other shareholders that the trust was dissolved and requested the trustees to distribute the property among the shareholders. The bill has been amended praying for a dissolution of the trust. The plaintiffs aver that the income from the property now

[41 N.E.2d 32]

held by the trustees would be increased if Federal income taxes and other avoidable expense were eliminated by the dissolution of the trust and by the management of the real estate by the present shareholders as tenants in common. The plaintiffs appealed from an interlocutory decree sustaining demurrers filed by some of the defendants, and from a final decree dismissing the bill which was entered after a hearing upon the facts alleged and admitted in the answers filed by the remaining defendants.

In accordance with the declaration of trust the title to the trust property, which consists of a large mercantile building and a garage in Boston and considerable cash and securities, is held by trustees. The beneficial interest is divided into seventy-two hundred shares, each representing $100 paid in. The cerificates of shares expressly provide that ‘By acceptance of this certificate the holder accepts and becomes bound by the terms of said Declaration of Trust.’ No title or estate in the property held by the trustees is to vest in the shareholders during the continuance of the trust, and the sole interest of a shareholder is the obligation of the trustees to hold, manage and dispose of the property and to account for its income and the proceeds. The trust is to terminate twenty years after the death of two named persons. The death of the last one occurred on February 16, 1936, and consequently the trust, unless terminated by vote of the shareholders or by the trustees in accordance with its provisions will not by its terms end before February, 1956. The trustees are empowered at any time in their discretion to liquidate the trust, and they are to wind up the trust whenever directed to do so by a writing or a vote of shareholders representing three-fourths of the outstanding shares. It is provided that the death of a shareholder shall not terminate the trust nor entitle his legal representatives to take any action for partition or winding up the trust, but they shall succeed to all rights of the decedent. The shareholders may require the trustees to call meetings at which the shareholders may vote; they may instruct, remove and replace the trustees and may amend the trust. The trustees are subject to the direction and control of the shareholders. This form of a business trust has for many purposes been regarded as a partnership and some of the principles of the law governing partnerships have been applied to them. Frost v. Thompson, 219 Mass. 360, 106 N.E. 1009;Howe v. Chmielinski, 237 Mass. 532, 130 N.E. 56;Neville v. Gifford, 242 Mass. 124, 136 N.E. 160;Flint v. Godman, 247 Mass. 463, 142 N.E. 256;Cohen v. Ziskind, 290 Mass. 282, 195 N.E. 346;First National Bank of New Bedford v. Chartier, 305 Mass. 316, 25 N.E.2d 733.

The plaintiffs contend that at common law and under the uniform partnership act, G.L.,Ter.Ed., c. 108A, they have the right to dissolve this trust by giving notice to this effect to the remaining shareholders. Section 31(2) of this chapter provides for dissolution by notice and, if this section is applicable, the dissolution of the trust has been accomplished. The plaintiffs rely upon the general rule that one cannot be required to remain a member of a partnership, and that he may dissolve the firm before the time fixed for its termination without liability unless he does so without adequate cause. Karrick v. Hannaman, 168 U.S. 328, 18 S.Ct. 135, 42 L.Ed. 484;Lapenta v. Lettieri, 72 Conn. 377, 44 A. 730,77 Am.St.Rep. 315;Monroe v. Conner, 15 Me. 178, 32 Am.Dec. 148;Terry v. Carter, 25 Miss. 168;Bagley v. Smith, 10 N.Y. 489, 6 Seld. 489,61 Am.Dec. 756;Cahill v. Haff, 248 N.Y. 377, 162 N.E. 288; Jacob C. Slemmer's Appeal, 58 Pa. 168, 176,98 Am.Dec. 255. See Dunham v. Gillis, 8 Mass. 462;Capen v. Barrows, 1 Gray 376;Jewett v. Brooks, 134 Mass. 505, 506.

We would not dispute the soundness of this principle or its pertinency if we were dealing with an ordinary partnership. We cannot ignore the difference between an ordinary partnership and a business trust of the kind in question. To do so would be to shut our eyes to realities. Neither can we label this trust as nothing more or less than the usual type of partnership and deal with it entirely upon that basis. Guy v. Donald, 203 U.S. 399, 405, 406, 27 S.Ct. 63, 51 L.Ed. 245; In re J. H. P. Davis & Co., D.C., 30 F.2d 937;Lucas v. Extension Oil Co., 5 Cir., 47 F.2d 65;Harris v. United States, D.C., 51 F.2d 382; 23 Columbia Law Review, 423.

An inherent quality of an ordinary partnership is that its membership is limited to those who are selected by mutual consent on account of their ability, integrity and other personal qualifications to join together in conducting a commercial undertaking. Freedom of choice of those who are to compose the partnership is the right

[41 N.E.2d 33]

of each of those who are contemplating the formation of the firm, and after it has been organized a similar freedom exists in determining the admission of new members. Kingman v. Spurr, 7 Pick. 235;Marlett v. Jackman, 3 Allen 287. That element is entirely lacking in this business trust. There is not restriction upon the transfer of the shares, and one may withdraw by the sale of his shares and the purchaser will succeed to his rights. Membership in this commercial venture depended entirely upon the ownership of the shares rather than on the choice of associates.

The existence of a particular firm ordinarily depends upon the continuance of the same persons and no others as associates in the business. Identity of its membership determines the duration of the firm. The death of a partner usually dissolves the firm. Wellman v. North, 256 Mass. 496, 152 N.E. 886;Hawkes v. First National Bank of Greenfield, 264 Mass. 545, 163 N.E. 249, 61 A.L.R. 1408;Wolbach v. Commissioner of Corporations & Taxation, 268 Mass. 365, 167 N.E. 677. That is not the situation here. The declaration of trust in this case expressly provides that the death of a shareholder shall not terminate the trust, and that the personal representatives or assigns of the decedent shall succeed to the rights of the decedent as a shareholder. It further provides that those acquiring the rights of a decedent shareholder shall not be entitled to bring proceedings for a partition of the trust property or to wind up the trust.

Not only does this trust differ in its essential features from an ordinary partnership, but it possesses many of the attributes that are characteristic of a corporation. Title to property in one case is held by the corporation and in the other by trustees; centralized management is effected in one by a board of directors and in the other by trustees; the continuity of both the corporation and the trust is uninterrupted by the death of a stockholder or shareholder; the transfer of beneficial interests in both is readily and easily accomplished by the transfer of the shares and the shareholders in each seek limited personal liability. The sum total of these distinctive features of a business trust has brought trusts into such close resemblance to corporations that they have been frequently considered as corporations, sometimes by virtue of constitutional or statutory provisions and sometimes without such provision. 1 The resemblance has been held to be sufficient to warrant legislation classifying them with corporations for some purposes. Burk-Waggoner Oil Association v. Hopkins, 269 U.S. 110, 114, 46 S.Ct. 48, 70 L.Ed. 183;Morrissey v. Commissioner of Internal Revenue, 296 U.S. 344, 360, 56 S.Ct. 289, 80 L.Ed. 263.

Indeed, this very trust now under consideration is taxed as a corporation upon its income under an act of Congress similar to that referred to in the case last cited, and to avoid the expense of such taxes seems to be the principal reason alleged in the bill for the dissolution of the trust. The plaintiffs do not contend that this trust cannot be considered as a corporation for the imposition of these Federal taxes. The plaintiffs doing business under a declaration of trust in partnership form cannot insist that the nature of their organization be determined apart from the instrument of trust by which it was created and maintained.

[41 N.E.2d 34]

Business organizations formed by declarations of trust, whereby property is conveyed to trustees to be held and managed by them for the benefit of such persons as may from time to time be holders of transferable shares issued by the trustees and evidencing their beneficial interest in the trust property, have been recognized for many years as a common and lawful method of transacting business in this...

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    • 19 de maio de 1980 has not led the Massachusetts courts to treat the entity as a partnership for all purposes. See State Street Trust Co. v. Hall, 311 Mass. 299, 41 N.E.2d 30 (1942), in which it was held that the partnership nature of a real estate trust did not give minority shareholders the right to d......
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