The Home Lumber Company v. Hopkins

• Decision Date: 07 February 1920
• Docket Number: 22,761
• Parties: THE HOME LUMBER COMPANY, a Trust Estate, and J. K. STANLAND, W. C. LOWREY, D. C. DONAHUE, as Trustees of the said Trust Estate, Plaintiffs, v. RICHARD J. HOPKINS et al., as THE STATE CHARTER BOARD OF THE STATE OF KANSAS, Defendants
• Court: Kansas Supreme Court

190 P. 601

107 Kan. 153

THE HOME LUMBER COMPANY, a Trust Estate, and J. K. STANLAND, W. C. LOWREY, D. C. DONAHUE, as Trustees of the said Trust Estate, Plaintiffs, v. RICHARD J. HOPKINS et al., as THE STATE CHARTER BOARD OF THE STATE OF KANSAS, Defendants

No. 22,761

Supreme Court of Kansas

February 7, 1920

Decided January, 1920.

Original proceeding in mandamus.

Writ denied.

SYLLABUS

SYLLABUS BY THE COURT.

1. DECLARATION OF TRUST--Agreement Created a Trust--Not a Partnership. An agreement and declaration of trust provided for the transfer of property to trustees who were given power to issue negotiable certificates to shareholders, carry on a general business, invest and reinvest the funds of the estate at will, pay dividends at their discretion and make proportionate distribution of the assets among the shareholders at the end of twenty years. The shareholders had no authority to instruct or direct the trustees and had no control, either as individuals or in association, except to elect the trustees, and no personal liability could arise against them upon any contract, obligation or action entered into or taken by the trustees, and persons dealing with the trustees could only look to the trust estate for satisfaction. Held, that the agreement created a trust and not a partnership and that the shareholders cannot be held individually liable for the obligations of the trust.

2. SAME--Unincorporated Company--Application for Permission to Sell Stock--Must Conform to Regulations Imposed by Statute on Corporations. The trust, although an unincorporated company is deemed to be a corporation within the meaning of section 6 of article 12 of the state constitution, since the agreement under which the company is organized gives it powers and privileges not possessed by individuals or partnerships, and therefore it can only sell securities and stock within the state by conforming to the regulations imposed by statute upon corporations.

Bennett R. Wheeler, S. M. Brewster, and John L. Hunt, all of Topeka, for the plaintiffs.

Richard J. Hopkins, attorney-general, and Maurice McNeill, assistant attorney-general, for the defendants.

Johnston, C. J. Dawson, J. dissenting.

OPINION

JOHNSTON, C. J.:

This proceeding was brought by the plaintiff to compel the state charter board to consider its application for permission to sell its stock and securities within the state, and to find and determine whether the plaintiff had complied with the statutes of the state and is entitled to dispose of securities and stock in Kansas. The plaintiff, an unincorporated association, submitted its agreement or declaration of trust under which it was organized, and its plan of operations, to the charter board, with a request that it be permitted to sell its stock and securities within the state. That tribunal concluded that the agreement created a partnership and was not such an organization as was entitled to sell securities and stock in Kansas, because the agreement created partnership liabilities and the plan of business was inequitable and unfair. The board therefore declined to investigate or consider the solvency of the company, whether its plan of business was otherwise honest and fair to investors, its advertising matter free from deception, and whether or not a reasonable value had been placed upon the assets of the company which was offered in exchange for property and securities. Having determined that each shareholder became liable as a partner and that the business of the sale of its securities and stock was to be conducted upon a plan regarded to be unfair and inequitable, the board deemed it unnecessary to proceed further with the investigation.

The first and principal question presented for determination is whether the company as organized constitutes a partnership. If the shareholders are not partners liable for the debts of the company, and the business contemplated is not contrary to law or public policy, it was the duty of the charter board to investigate and determine the merits of the plaintiff's application. The agreement is a declaration of trust in which parties transfer to trustees certain property interests, and for the purpose of defining the interest of each subscriber in the estate, the trustees were to issue negotiable certificates of shares to the extent of 150,000, each of the value of $ 1, and which they might if they deemed it expedient, increase to 1,000,000 shares. They engaged to use the property and proceeds of the shares sold in a general manufacturing, mercantile, or commercial business, in any and all of its branches; to buy, sell, hypothecate or otherwise deal in bonds and stock, debentures, notes and all forms of obligations of corporations, countries, states, counties, and municipalities or persons. In fact they were authorized to buy, sell and deal in all kinds of property and to carry on all kinds of business not inconsistent with law. It was stipulated that the trustees should not be less than three nor more than five in number, to be elected annually by the shareholders at their meetings, and vacancies in the number of trustees are to be filled by the remaining trustees.

In respect to the functions, obligations and liabilities of the trustees, it is provided:

"The trustees shall hold the legal title to all property at any time belonging to the trust, and shall have and exercise the exclusive management and control of the same; they shall assume all contracts for, and obligations and liabilities in connection with or growing out of the property assigned to them by the subscriber and mentioned in the schedule filed with the trustees, also, in the management of the same; and to the extent of the value of such property and business, but not personally, shall agree to hold the subscribed and any persons associated with and acting with him, harmless, and indemnified from and against any loss, cost, expense or liability upon, or by reason of, or in connection with any contract, obligation or liability; they may adopt and use a common seal with such designs as they, in their discretion, may deem best suited to disclose the purposes of the company; they may collect, sue for, receive and receipt for all monies at any time due to said trust; they may employ counsel to begin, prosecute, defend or settle suits at law, in equity or otherwise; with the consent of all the trustees given at a meeting called for that purpose, but not otherwise, unless the general power shall at any time be delegated by a full board meeting to any one particular individual member or members, in writing; they may borrow money for the purposes incidental to the proper management and like manner as they may deem best, to secure said loans; and they shall incur no debt or loan liability except such as may be incidental to the proper management of the property held by them and the other proper carrying out of the purposes of their trust.

"In addition to the shares to be originally issued to the subscribed as hereinbefore provided, the trustees shall issue and sell at public or private sale, upon such terms and for such prices as they may deem expedient, such additional shares as may be necessary to provide funds to carry on and accomplish the purposes hereinbefore mentioned and set forth. The total amount to be issued by said trustees shall not in any event exceed one million (1,000,000) shares. The trustees may accept property or services in lieu of cash for the shares issued by them, and they shall be the sole judges of the value of said services or property.

"So far as strangers to this trust are concerned, a resolution of the trustees authorizing a particular act to be done, shall be conclusive evidence in favor of such strangers that such act is within the powers of the trustees, and no purchaser from the trustees or on loaning money to the trustees, shall be bound to see the application of the purchase money or other consideration paid or delivered by or from said purchaser or loaner to or for said trustee."

Other provisions in the agreement are to the effect that the trustees may make, amend, and repeal by-laws, may elect officers and appoint agents and fix their compensation, may pay themselves such compensation as they deem to be reasonable, and they shall not be liable for errors of judgment and shall pay only such dividends as they deem advisable, the amount of such dividends to be left wholly to their discretion. The trust is to continue not longer than twenty years and when ended the trustees are to wind up its affairs, liquidate its assets and distribute the same among the holders of the shares according to the number of shares held by each. It was also provided that the death of a shareholder should not determine the trust nor entitle the legal representatives of such shareholder to an accounting or to take any action in any court or elsewhere against the trustees, but that the regular representatives of the deceased shareholder should succeed to the rights of the decedent. There were further provisions that:

"The ownership of shares hereunder shall not entitle the shareholders of any title in or to the trust property whatsoever or right to call for a partition or division of same, or for an accounting, or for any voice or control whatsoever of the trust property, or of the management of said property or business connected therewith by the trustees.

"The trustees shall have no power to bind the shareholders personally, and the subscriber and his assigns and all persons and corporations extending credit to, contracting with, or having any claim against the trustees shall look only to the funds and property of the trust for payment under such contract or claim, or for the payment of any debt damage, judgment...