State Street Trust Co. v. Hall
| Decision Date | 01 April 1942 |
| Citation | 41 N.E.2d 30,311 Mass. 299 |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
| Parties | STATE STREET TRUST COMPANY & others v. JOHN L. HALL& others. |
January 8, 1942.
Present: FIELD, C.
J., QUA, DOLAN & RONAN, JJ.
Trust, Business trust, Massachusetts trust. Partnership, What constitutes. Uniform Partnership Act.
A Massachusetts real estate trust existing under a declaration of trust providing that the shares should be freely transferable, that a transferee should succeed to the rights of the transferor that the property should be held and managed by the trustees and the shareholders should have no title or estate therein during the continuance of the trust, that death of a shareholder should not terminate the trust nor entitle his successor to seek partition of the trust property, that the trustees should be subject to removal, direction and control by the shareholders, and that the trust should not terminate until a specified time unless by action of three fourths of the shareholders or by the trustees in their discretion, was not so far of the nature of a partnership as to entitle the holders of a minority of the shares to dissolve the trust at will either at common law or under the provisions of the uniform partnership act, where they did not contend that there had been mismanagement by the trustees or that the trust was insolvent.
BILL IN EQUITY filed in the Superior Court on October 2, 1940, and afterwards amended, by holders of twenty-four hundred of the seventy-two hundred shares of the Shearer Realty Trust.
The suit was heard by Greenhalge, J.
S. H. Batchelder (A.
Gardner with him,) for the plaintiffs.
R. R. Elliott, (G.
V. Mottla with him,) for the defendants Downs and another.
C. P. Curtis, Jr., for the defendant Hall, & N.
B. Vanderhoof, guardian ad litem, were present but neither argued nor submitted a brief.
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 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 certificates 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 . Howe v. Chmielinski, 237 Mass. 532 . Neville v. Gifford, 242 Mass. 124. Flint v. Codman, 247 Mass. 463 . Cohen v. Ziskind, 290 Mass. 282 . First National Bank of New Bedford v. Chartier, 305 Mass. 316 .
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 the 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. Lapenta v. Lettieri, 72 Conn. 377. Munroe v. Conner, 15 Maine, 178. Terry v. Carter, 25 Miss. 168. Bagley v. Smith, 6 Seld. 489. Cahill v. Haff, 248 N.Y. 377. Jacob C. Slemmer's Appeal, 58 Penn. St. 168, 176. 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 differences 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. In re J. H. P.
Davis & Co. 30 F.2d 937. Lucas v. Extension Oil Co. 47 F.2d 65. Harris v. United States, 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 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 no 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. Hawkes v. First National Bank of Greenfield, 264 Mass. 545 . Wolbach v. Commissioner of Corporations & Taxation, 268 Mass. 365 . 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 provisions. [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. Morrissey v. Commissioner of Internal Revenue, 296 U.S. 344, 360.
Indeed, this very trust now under consideration is taxed as a corporation upon...
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