311 Mass. 299 | Mass. | 1942
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
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.
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. 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.
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
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.
Business organizations formed by declarations of trust, whereby property is conveyed to trustees to be held and
The first decision of this court relative to the rights of a holder of transferable shares in one of these trust organizations was rendered in 1827 in Alvord v. Smith, 5 Pick. 232. Various aspects of these trusts have been before this court and a great body of law has been established in respect to them, yet the right of a shareholder to secure a dissolution of the trust before the time fixed for its termination for reasons similar to those alleged in this bill has not been adjudicated by this court. It is significant that the ques
The nature of the business upon which the trust was to embark made it necessary, in the opinion of those who created it, that the business career of the trust should extend over a number of years. It would take a considerable period of time to acquire a site, erect a large mercantile building, secure tenants, and put the business in full operation. The fact that the trust would in all probability continue in active management and control of its property for several years might facilitate the financing of the project. Permanency of the plan might be attractive not only to banks lending money to the trust but also to those who invest in realty shares. No one investing in shares would contemplate that the existence of the trust depended upon the pleasure or fancy of anyone who might hold a few shares, especially where, as here, the terms of the trust were flexible enough to permit its termination if a situation developed that would call for such action by the trustees or by the prescribed number of shareholders. As a matter of reason the existence of any power in the holder of a few shares to dissolve the trust is utterly inconsistent with the stability of the plan devised by the trust for the conduct of its business.
The origin, measure and extent of the rights of a shareholder in this business trust are determined in the first instance by his certificate of the shares, and this, in turn, depends upon the provisions of the declaration of trust. The certificates did not impose any obligation upon the
No action has been taken by the trustees or by the prescribed number of shareholders to dissolve the trust and wind up its affairs, and the certificates held by the plaintiffs gave them no right at the time they gave notice or subsequently thereto to share in the distribution of the trust property, which they are attempting to do by effecting a
The declaration of trust does not in terms forbid a single shareholder having less than three fourths of the shares dissolving the trust. One of the dominant purposes of the trust was to assure its continuance for a long period of years unless sooner terminated in accordance with its terms. The existence of the trust was placed on a ground unaffected by those vicissitudes, such as death and withdrawal of partners, that usually bring an end to the firm. It fairly appears as a necessary implication of the declaration of trust that the owner of less than three fourths of the shares has no authority to dissolve the trust. The plaintiffs, as minority shareholders, were under an implied obligation not to prevent the normal functioning of the organization for the period fixed by the instrument of trust for its duration. Phillips v. Blatchford, 137 Mass. 510. Proctor v. Union Coal Co. 243 Mass. 428. Pittsfield & North Adams Railroad v. Boston & Albany Railroad, 260 Mass. 390. Boston & Providence Railroad v. Old Colony Railroad, 269 Mass. 190. Eastern Massachusetts Street Railway v. Union Street Railway, 269 Mass. 329. McNally v. Schell, 293 Mass. 356.
It has been generally held, when the question has arisen in other jurisdictions, that a shareholder is not entitled at will to effect a dissolution of a business trust merely by virtue of his ownership of shares. Hossack v. Ottawa Development Association, 244 Ill. 274. Whitaker v. Scherrer, 313 Ill. 473. Aronson v. Olsen, 348 Ill. 26. Oklahoma
Of course, we do not intimate that, if a trust is being mismanaged in such a way that it is likely that a serious impairment of its assets will result, with consequent damage to its creditors and shareholders, or if the trust is insolvent, or if a situation is disclosed that requires the appointment of a receiver, a court of equity will not grant appropriate relief. The bill presents no such case. Milbank v. J. C. Littlefield, Inc. 310 Mass. 55. Bryan v. Welch, 74 Fed. (2d) 964.
The plaintiffs direct attention to statements in Horgan v. Morgan, 233 Mass. 381, and in First National Bank of New Bedford v. Chartier, 305 Mass. 316, that the rights and obligations of the shareholders were to be determined by the “rules of law applicable to ordinary partnerships.” These statements were made in proceedings brought by creditors, the first an action at law and the second a suit which in its essence was an action at law. The question calling for decision in this case was not presented in either of the cases cited, and the words quoted, which appear in those two decisions, cannot be wrested from their context and extended to the determinatio'n of an issue entirely different from that which the court had in mind in rendering those decisions. Swan v. Justices of the Superior Court, 222 Mass. 542. Eaton v. Walker, 244 Mass. 23. Blumenthal v. Blumenthal, 303 Mass. 275.
The plaintiffs have no right at common law to secure a dissolution of the trust, but they conténd that they have such right under the uniform partnership act, G. L. (Ter. Ed.) c. 108A.
The purpose of the uniform partnership act was to establish the general principles of law applicable to partnerships and to have these principles adopted in the various States. The act must be given full play in its own field but it must not be construed to extend beyond its own proper boundaries and to change previously existing law which has been' settled in other branches of our civil jurisprudence. The
It would require clear and apt language in this act to manifest a legislative intent that the rights of shareholders between themselves, in a business trust in the partnership form, should be so strongly emphasized to be that of partners as to preclude any consideration of settled principles of trust and property law which have been deemed pertinent in ascertaining the rights of a beneficiary under an express trust, especially upon his right to terminate the trust. See Russell v. Grinnell, 105 Mass. 425; Sears v. Choate, 146 Mass. 395; Claflin v. Claflin, 149 Mass. 19; Young v. Snow, 167 Mass. 287; Dunn v. Dobson, 198 Mass. 142; McLaughlin v. Greene, 198 Mass. 153; Phipps v. Bosson, 244 Mass. 361; Devine v. Deckrow, 299 Mass. 28; Jensen v. Hugh Evans & Co. 18 Cal. (2d) 290; Whitaker v. Scherrer, 313 Ill. 473; Schumann-Heink v. Folsom, 328 Ill. 321; Wineinger v. Farmers’ & Stockmen’s Loan & Investment Association, 278 S. W. (Tex. Civ. App.) 932; Haynes v. Central Business Property Co. 140 Wash. 596. Also see Peterson v. Hopson, 306 Mass. 597, 611; 2 Bogert, Trusts, § 304; 16 Fletcher, Cyc. Corp. § 8091; 8 Thompson, Corporations (3d ed.) § 6759; Warren, Corporate Advantages without Incorporation, 353.
The scope of the act is to be determined by its provisions. By § 6 thereof a partnership is defined as an association of two or more persons to carry on as coowners a business for profit; by § 9 each partner is an agent of the partnership as to the partnership business; by § 10 one partner has certain rights to bind the others by a conveyance of the real estate; by §§ 11, 12 and 13 admissions by a partner and knowledge or notice to a partner are chargeable to the firm, and the partners are liable for wrongs committed by another partner in the course of the business of the firm; by § 18, subject to any agreement between the partners, all partners have equal rights of management, no one may become a member of the firm without the consent of all
The uniform partnership act has been cited by this court in only two cases where a business trust was involved. In McCarthy v. Parker, 243 Mass. 465, § 9 of the act was cited in conjunction with two decisions in support of the proposition that one dealing with the agent of a partnership who knows that the authority of the agent is limited cannot hold the partners for an act of the agent beyond the scope of his authority. This was the application of a general principle of the law of agency and not one that was peculiar to the law of partnership. The result of the decision would have been the same if the section had not been cited. The decision rested upon the common law and not upon the uniform partnership act. The services for which the plaintiff in that case sought to» recover were performed years before the act became effective and the substantive rights of the parties which were created by the common law could not be affected by subsequent legislation. In Downey Co. v. Whistler, 284 Mass. 461, the plaintiff contended that § 17 made the trustees liable as partners for the acts of the preceding trustees, but the court pointed out that the organization was a pure trust and not a partnership and, consequently, the contention was not sound. The court did not
The plaintiffs direct attention to a statement in Ricker v. American Loan & Trust Co. 140 Mass. 346, 348, that “There is no intermediate form of organization between a corporation and a partnership like the joint stock companies of England and of some of the United States known to the laws of this Commonwealth.” Compare Oliver v. Liverpool & London Life & Fire Ins. Co. 100 Mass. 531; S. C. sub nomine Liverpool Ins. Co. v. Massachusetts, 10 Wall. 566; Guy v. Donald, 203 U. S. 399, 405, 406. The court was there concerned with a question of general classification, while the issue here discussed is one of construction of the unifortn partnership act. Accordingly, the decision in that case is •not contrary to anything here decided.
We are of opinion that the plaintiffs show no right at common law or under the uniform partnership act to dissolve the trust nor any other ground for relief.
Interlocutory decree affirmed.
Final decree affirmed with costs.
Hecht v. Malley, 265 U. S. 144. Burk-Waggoner Oil Association v. Hopkins, 269 U. S. 110. Hemphill v. Orloff, 277 U. S. 537. Morrissey v. Commissioner of Internal Revenue, 296 U. S. 344. Swanson v. Commissioner of Internal Revenue, 296 U. S. 362. Helvering v. Combs, 296 U. S. 365. Helvering v. Coleman-Gilbert Associates, 296 U. S. 369. In re Associated Trust, 222 Fed. 1012. Malley v. Bowditch, 259 Fed. 809. In re Tidewater Coal Exchange, 280 Fed. 638. Gallagher v. Hannigan, 5 Fed. (2d) 171; certiorari denied, 269 U. S. 573. Reilly v. Clyne, 27 Ariz. 432. In re Girard, 186 Cal. 718. Wagner v. Kelso, 195 Iowa, 959. Hamilton v. Young, 116 Kans. 128. King v. Commonwealth, 197 Ky. 128. People v. Clum, 213 Mich. 651. Hibbs v. Brown, 190 N. Y. 167. State v. Paine, 137 Wash. 566. See Opinion of the Justices, 196 Mass. 603; Kennedy v. Hodges, 215 Mass. 112; Coolidge v. Old Colony Trust Co. 259 Mass. 515; Goodhue v. State Street Trust Co. 267 Mass. 28, 34.