State v. Hinkle

• Decision Date: 04 October 1923
• Docket Number: 18080.
• Citation: 219 P. 41,126 Wash. 581
• Parties: STATE ex rel. RANCE et al. v. HINKLE.
• Court: Washington Supreme Court

219 P. 41

126 Wash. 581

STATE ex rel. RANCE et al. v. HINKLE.

No. 18080.

Supreme Court of Washington, En Banc.

October 4, 1923

Suit by the State, on the relation of J. W. Range and others, as trustees, doing business as Securities Sales Syndicate against J. Grant Hinkle, as Secretary of State, for a writ of mandate requiring defendant to file an application for a permit to sell securities. Petition denied, and action dismissed.

Pierce Lonergan, of Seattle, for plaintiffs.

John H Dunbar and R. G. Sharpe, both of Olympia, for defendant.

PEMBERTON J.

Plaintiffs as trustees of the Securities Sales Syndicate, endeavored to file an application with defendant, the secretary of state for a permit to sell its securities, certificates of stock or beneficial interests under chapter 69, Session Laws of 1923, entitled:

'An act providing for the regulation and supervision of the issuance and sale of certain securities, as the same are herein defined, to prevent fraud in the sale thereof, and providing penalties, and making an appropriation.'

The defendant refused to file the application, and this action is instituted to secure a writ of mandate requiring defendant to receive and file the same.

Plaintiffs claim that the Securities Sales Syndicate is neither a copartnership nor a corporation, but what is known as a common-law business trust, and that the secretary of state should issue to it a permit to issue and dispose of its securities under section 6 of chapter 69, supra, and contend that their declaration of trust is a copy of the declaration of trust of the Massachusetts Realty Company, which was held to be a trust and not a corporation by the Supreme Court of the United States in the case of Crocker v. Malley, 249 U.S. 223, 39 S.Ct. 270, 63 L.Ed. 573, 2 A. L. R. 1601, and that the essence of the trust is that the trustees shall hold the property in fee simple, with absolute power of management, control, and disposition during the life of the trust, and shall distribute the property to the beneficiaries identified by the certificates of shares in proportion to their holdings at the time of the dissolution of the trust. The case of Crocker v. Malley, supra, arose over the question as to whether or not a common-law trust was exempt from paying an income tax under the laws of the United States, the law exempting trusts from the payment of the tax. The court held that the business trust did not come under the provision of the statute fixing an income tax on 'every corporation, joint-stock company or association * * * organized in the United States, no matter how created.'

It is the contention of defendant that the laws of this state prohibit the operation of a common-law trust, and that the plaintiffs are proposing to do a trust company business without complying with the law applicable to trust companies.

Section 5 of article 12 of the state Constitution, relating to corporations other than municipal, provides:

'The term 'corporations,' as used in this article shall be construed to include all associations and joint stock companies having any powers or privileges of corporations not possessed by individuals or partnerships, and all corporations shall have the right to sue and shall be subject to be sued in all courts in like cases as natural persons.'

The question then arises whether or not this common-law trust is an 'association having powers and privileges of corporations not possessed by individuals and partnerships.' The declaration of trust of the Securities Sales Syndicate consists of six typewritten pages of single space, and we will refer to some of the provisions showing the similarity of this association to that of corporations in general without setting forth the entire declaration. The declaration of trust provides that the trustees shall not be personally liable for their own acts, and that a certificate holder shall not be liable for the acts of the other certificate holders or of the trustees. This is a privilege not enjoyed by individuals or partnerships. The joint property is held during the existence of the trust agreement free from the rules of tenancy in common, and the organization is not dissolved by the death of a certificate holder or trustee. Individuals do not possess this privilege and power. The interest of the cestui que trustent is represented by a negotiable certificate assignable without the consent of the other share holders. This privilege is not enjoyed by a copartnership. This organization acts through the majority of its trustees, while each member of a copartnership participates in its management. The association has the power as an association to make by-laws, to have a common seal, to sue and be sued, and to receive and to grant, to purchase and hold lands and chattels in the names of the trustees, with perpetual succession. These powers are in their nature corporate powers, and not enjoyed by partnerships. The declaration of trust provides that the trust shall exist during the life of its present trustees, and for 21 years thereafter, and cannot be terminated by the certificate holders.

Under constitutional provisions similar to section 5, article 12 supra, it is almost uniformly held that joint-stock companies and limited partnerships...