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THE BUSINESS TRUST

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THE SUPERIORITY OF THE DEVELOPED TRUST RELATION OVER THE STATUTE LAW CORPORATION
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By James A. Crotty, President, American Trust Company, Chicago.


Most of the Business public as well as a large number of legal fraternity have but a very limited knowledge, if any, of the numerous decided advantages obtainable for and experienced in the conduct of a business under the basic law as compared to the disadvantages and frief attendant upon the caring on of that same business under the statue law corporation form. Very few men realize that the common law Business Trust is the oldest method of transacting business on an organized basis that is known to civilization. Broad as this statement may be, it nevertheless is the truth. HISTORICAL The modern Business Trust is the outgrowth of a creation of the Chaldeansthe usewho handed it down to the Greeks. The Greeks handed it down to the Egyptians, they in turn to the Romans, and by the Romans to the Teutons. It received its highest form of development while in their hands until the principle was written into our own Federal Constitution. It was written into the English Law under what is know as the Statute of Uses. Application of the principle for the conduct of modern business in the United States for the past thirty years has brought it up to a very high state of perfection. Up to the advent of the close of the Civil War, American business does not record the general use of much else than the old type of partnership organization in the transaction of the business of the country. The United States at the close of the Civil War, like all other nations emerging from a war, found itself stronger than when it entered the conflict. Considerable of this strength was due to the fact that in the prosecution of the war, vast natural resources were not only discovered but had then been merely scratched upon their surface. Statesmen, economists and other public men then saw the necessity for the continued development of these resources in order to insure the maintenance of world supremacy which had just been attained and set about to accomplish the fostering of industry by legislation. The practicability of such a policy was discussed at length and resulted in the decision to extend special privileges for certain purposes to groups of individuals under corporate charter. It was first thought that a national corporation act by Congress would accomplish this but as the question of State sovereignty had just been contested in a bloody conflict of four years, It was deemed advisable to leave the enactment of corporate laws and for a period of about twenty years industry thrived under the protesting wing of these statues. CORPORATE OPPRESSION BY STATUTE But there came a change. Legislation commenced to make other laws. Laws favoring corporate organization were changed or repealed. Purposes for which incorporation was formerly

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allowed and encouraged were now conditionally or entirely denied. Many states even refused to permit corporations to hold real estate except by expensive special charter. Kentucky and Missouri regulated (?) the insurance companies out of their states. The taxes on corporate property were raised above the ratio for unincorporated property. As charters gave less and less rights and privileges, the more their cost was raised. Then came the fad of creating commissions to which legislatures delegated their regulative and punitive powers. California has now 63 of these commissions. In the late '80s it became obvious that a fatal mistake had been made in the failure to enact a national corporation law in the beginning. From the early '90s restrictive, regulatory and punitive legislation was enacted that was directed at corporations. Statutes of this nature became more numerous with each succeeding session of every legislature and even now the end is nowhere in sight. We therefore perceive the spectable of the parent (the legislature) strangulating its own child (the corporation) to a point beyond all hope of its recovery as an efficient agency of trade. The Saturday Evening Post in the issue of May 9th, 1914, had this to say: In this country, we have a government at war with business, not merely taxing and regulating but enforcing its own ideas as to how business should be organized. These ideas are mostly mere theory and are diametrically opposed to the tendency in business organization that springs from experience. The records of the Department of Justice show the extent of the government's war on business during the last six years and the bills now before Congress will provide newer and sharper weapons. As an example of the fast diminishing rights of corporations: there were pending in the Congress in the Summer of 1919, two pieces of restrictive industrial legislation known as Kenyon and Kendrick Bills, against which numerous prominent organizations placed themselves on record, among whom were: the Union League Club of Chicago, the Chicago Association of Commerce, the Industrial Club of Chicago, the National Live Stock Exchange, the Illinois Manufacturers' Association and the Chicago Board of Trade. A resolution of the Union League Club read in part: It is our opinion that the tendency toward restrictive legislation by Congress can have no other effect than to injure industry. The Chicago Association of Commerce passed another, which in part read: Regulatory or restrictive legislation of the character proposed in the so-called Kenyon and Kendrick Bills can have no other effect than to throttle, if not entirely destroy, the industry they are designed to correct. All of these industries against which this legislation was sought to be directed were established under the corporation form of organization. The question that naturally arises isis there a form of organization that will enable the contributing associations to combine their capital and have transferable shares, with limited liability of shareholders and trustees, continuity of existence notwithstanding the death of a member or change in ownership of shares, and the other substantial powers of corporations together with the freedom from the statutory restrictions, regulation and taxation imposed upon the corporation? The answer is yes. It is the Business Trust. A court of last resort has held that the Business Trust obtains for their associates the

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advantages belonging to corporations without the authority of any legislative act, and with the freedom from the restrictions and regulations imposed by law upon corporations. To a great many people this is something new and they need to be informed as to what a Business Trust is and wherein it differs from an incorporation. WHAT THE BUSINESS TRUST IS The Business Trust is a creation of individuals in the exercise of their natural right to contract, and without legislative sanction. Every individual has natural powers and civil rights. These he does not derive from the state any more than he does his existence, and consequently may lawfully make any contract or do any act which is not forbidden by law. A Declaration of Trust is the exercise of that right. Individuals do not have to ask permission from the state to form a Business Trust. The grant of a franchise, if it be a franchise, to a corporation to have transferable shares and issue stock with limited liability, or an like grant, does not deprive the citizens of his corresponding natural right to make such stipulations in the exercise of his right to contract; any more to make such stipulations in the exercise of his right to contract; any more so than the franchise of a corporation to be, could possibly deprive him of his right to exist. These natural rights of the individual were generally recognized and in common use long before the statute law corporation came into existence. The Federal Constitution provides that no law shall be passed by Congress or the legislatures impairing the obligation to contract, and this particular clause not only includes the right to make the contract, but as well the protection of it after it is made. The courts of last resort, both Federal and State, are uniform in holding the character of a Business Trust as being of the same order as that of testamentary and voluntary trusts. In other words; that the trust estate, whether created by will or voluntary agreement, is purely a creation of contract and governed by the laws of contract, a fundamental principle of which is that all persons of lawful age and capacity may enter into and carry out any lawful agreement without leave or hindrance from any source. This inalienable right is vouchsafed by the Federal as well as State Constitutions. It is under this guaranty that the Express Trust, as an agency of trade, has established its right to create and transact business anywhere and everywhere with freedom from all statutory exactions that may be imposed upon corporations. Corporations exist only by legislative creation and sanctionhence are subject to any requirement or restriction their creator may impose. The Supreme Court of the United States, in an unbroken line of decisions, holds that a pure Business Trust, created under the Common (basic) Law, is not a Company, Association, Joint Stock Company, Corporation, or Partnership, but a Trust Estate deriving its powers from the instrument (contract) of its creation, and governed by the rules of equity as construed and applied by courts of equity jurisdiction. SOME NOTABLE EXAMPLES Many representative lines of American business are now, and for many years have been, conducted under this form. A few of the better know are: Massachusetts Electric Companies,

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organized with a capital of $24,000,000, Associated Simmons Hardware Companies, of St. Louis, Mo, (the largest hardware company in the world), Stevenson Lumber Co, of Michigan, organized by Senator Stevenson, North American Pulp & Paper Co., Adams Express Company, Chicago Elevated Railroads, Chicago City Railway Co., Masonic Temple Building Trust, Central Manufacturing District (capital $50,000,000) of Chicago, Edwards Hines Lumber interests, Wachusett Realty Trust, Postal Telegraph Co., and numerous others. Men organize business to get something, privileges, freedom from personal liability, negotiable shares, continuous succession. This the Business Trust gives them. The Corporate Law DOES NOT, any more exempt partially, with increasing expense and with killing restrictions. What you WANT and WHAT YOU GET do not come together any more in the corporation. They do in the Business Trust. Fletcher, in his work on corporations, has this to say concerning the advantages of the Business Trust over the Corporation: 1. The doing of business upon the common law right of contract with freedom from all statutory exactions that may be imposed upon corporations, both foreign and domestic, as merely artificial persons. 2. The right of trustees to apply to courts for direction in the execution of their powers, whereby their acts are given legal certainty in advance of their commission. 3. The protection of cestuis que trustent in their dealings with trustees, their right to accountings and full information, without the right, however, of securing information for improper purposes. 4. The protection of creditors in following the trust fund and their right against trustees individually in cases of fraud. 5. The freedom with which the terms of a trust instrument may be framed for the conduct of a particular business and according to the lawful preference of its equitable owners. 6. Latitude in amendment of provisions of management, as experience may show is desirable. 7. The winding up of a business expeditiously and without resort to proceedings at law, with their consequent burden of delay and expense, under express provisions of the trust instrument, upon any termination of the trust. Neither time nor space are adequate here to dwell fully upon all of the features of a trust estate engaged in active business. However, the main points are touched upon in such manner as will enable the reader to become acquainted with and convinced of the fundamental facts relative to the claim of its superiority over the corporation as an agency of trade. The Business Trust is know variously as a Massachusetts Business Trust, Business Trust Estate, Common Law Trust, Express Trust, and Common Law Company, The following is a brief of the law on the subject. THE COMMON LAW COMPANY There has always existed in the Common Law of nations what is technically known as the common law trust relation, the conveying of property or things by one person or persons to another person or group of persons, to be held, used, managed, conveyed for the benefit and

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profit of still a third person or persons or for the benefit and profit of the party or parties conveying, together with these third parties. The right to create this relation lies in the right of contract, which is constitutionally guaranteed. This is distinguished from corporate rights and powers, which are legislatively derived rights and powers, not natural rights, not guaranteed by the Constitution. The domain of law that has grown up around the express trust relation through decades and centuries of interpretations by Courts of Equity, both here and in England, is peculiarly the realm of Equity. From the time of the Statue of Uses down, the Equity Courts of last resort both in England and this country have told Parliament and Congress and Legislatures that this domain of law lies without their power to restrict. Particularly with respect to the present form of the Common Law Company, both the courts of last resort in England and the United States have rendered decisions that indicate that any legislative act restricting business organizations, no matter how inclusive such act may be worded, will be interpreted to apply only to such business organizations that legislatures have created or have power to create, and cannot apply to business organizations which derive neither their power nor their existence from legislative enactment. A statute passed by an Act of Parliament of England in 1863, was intended apparently to include within its terms every form of organized human activity which language could imagine. In Smith vs. Anderson, 15 h. D 247, Court of appeals 1880, was rendered a decision which is now the established law of England. The Trust Deed provided for the purchase by Trustees of shares in the capital stock of eleven different sub-marine telegraph companies. The money was to be furnished by subscribers to whom transferable certificates were to be issued. It was held that this was a trust and not a company, association or partnership which had to be registered under the Companies Act 1863 (25 & 26 Vict. C 89, Sec. 4). That act provided that No company, association or partnership shall be formed for the purpose of carrying on any other business (that is to say, any business other than banking) that has for its object the acquisition of gain by this company, association or partnership, or by the individual members thereof unless it is registered. This conclusion was reached on the ground that there is a difference between a partnership where money was raised by the issue transferable certificates is to be held by trustees property so-called, and that the distinction between the two is defined in re Thomas 14 Q, B, Ch. D. 379, 383; and n re Faure Electric Acc. Co. 40 Ch. D. 141, 151, 152 (England). So also Williams vs. Milton, 215 Mass. 1. A statute, known as the excise or Corruption Tax Law, was passed by Congress including in specific terms all forms of business organizations, corporations, etc., organized under the laws of the States, Alaska, District of Columbia, or formed under the laws of the land. In Elliot vs. Freeman, 220 U.S. Sup. Ct. Rep, 178, the court determined that the language of the statute cannot be interpreted to include a Common Law Company, because

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said companies derive neither their rights nor their existence from legislative enactment. So much for the foundation of Common Law Company, upon this common law trust relation as a skeleton, some of the country's greatest organization experts (note the name of Richard Olney among the signatures of the Massachusetts Electric Companies. Richard Olnay was one time Attorney General of the United States, later Secretary of State of the United States, and still later was appointed by President Wilson first Governor of the Federal Reserve Board under the new banking law, a position he did not accept although the appointment ranks in importance with a seat on the bench of the Supreme Court of the United States.) upon the Common Law Company. Particularly note, that following the older law of trustee and cestui trust, the Courts of Equity, between boards of trustees and shareholders of ommon Law Companies, ACTUALLY ENFORCE the relation,--the relation that SHOULD HAVE EXISTED between director and shareholder of a statutory corporation. Not depending upon legislative enactment for existence and privileges, the restrictive, regulative, double taxing laws applied to legislatively-formed organization, do not apply to Common Law Companies any more than they do to an individual. A Common Law Company is not a co-partnership. Lindley in Partnership, Vol. 1, p. 1, states that an exact definition of partnership at common law is impossible. In a partnership, the partners stand towards that enterprise in the relationship of coproprieters. It is evidenced by their power to control the operations of the enterprise through their control of the trustees to account (Weaver vs. Fisher, 110, 111, 146; Hayes vs. Hall, 188 Mass. 510), and to charge him with the cosnequences of dishonesty or neglect (Barker vs. Barker, 14 Wis. 131), and cause his removal for the one offence or the other (Scott vs. Rand, 118 Mass. 215.) If the trustees act as principles and are free from the control of the certificate holders, a trust is created; but if they are subject to the control of the certificate holders, it is a partnership, Williams vs. Milton, 215 Mass. 1, Frost vs. Thompson, 219 Mass. 360. Associations for profit with transferable shares (i.e., Common Law Companies), hold a position between corporations and partnerships. In re The Ass. Trust, 222 Fed. 1012 Mass. Spottswood vs. Morris, 12 Idaho 36; Hussack vs. Development Ass. 224 Ill. 274; Cox vs. Bodfish, 35 Me. 302; Cincinnati Co. vs. Citizens Bank, 11 Ohio, Dec. 50; Tenney vs. N.E. Protective Union, 37 Vt. 64. Common Law Companies have all the rights of individuals in business, plus the advantages usually belonging to corporations, and with only the restrictions applying to individuals. They are peculiarly under the jurisdiction of the Courts of Equity. Oar vs. Norton, 139 Mass. 250; Wemyss vs. White, 159 Mass. 484; Howe vs. Moore, 174

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Mass. 491; Hussey vs. Arnold, 185 Mass. 202. A Common Law Company is created by Articles of Agreement and Declaration of Trust made by the original shareholders themselves; and they can mould it and give it any shape they choose, and may provide for the appointment of successors to the first trustees upon such terms as they may chose to impose Richert vs Missouri, Oct, 251, Ill. 238; Moore vs. Trael, 116 Mo. 383; Lake vs. Brown, 116 Ill. 83; Howard vs. Tracey, 116 Mo. 631; Shaw vs. Paine 12 Allen, 293. Trustees can fill board in case of resignation, disqualification, or other cause. Not necessary to have meetings of shareholder. Can call special meeting of shareholders for removal of trustee. Articles of Agreement are valid and binding at Common Law regardless of statute. Spraker vs. Platt. 145 N. Y. 440. The shareholder's right is purely an equitable rightthe right to have the property managed and controlled for his own and his assign's benefit by the board of trustees. The certificate evidencing his equitable interest is merely written evidence of the existence and measure of his equity, and as such is not taxable. Hussey vs. Arnold, 185 Mass. 202. Shares cannot be taxed to the owner. They represent an undivided interest in the net assets of the association. Headley vs. Co. Com. 105 Mass. 519; must be assessed in the town of its principle place of business. Ricker vs. Am. L. & T. Co. 140, Mass. 346; Willams vs. Boston, 208 Mass. 47. The shareholder is not personally liable for the debt of the company. Hussey vs. Arnold, 185 Mass. 202; Williams vs. City of Boston 215 Mass. 1; Wells-Stone Co. vs. Grover, 7 N. D. 460; 75 N. W. 914; Industrial Co vs. Texas 31 Ros. Cit. App. 375. If the Declaration of Trust is properly drawn, there is no personal liability of shareholders, as there is no parnership oblications. It is a Trust Estate, and not a co-parnership. Mayo vs. Mority, 151 Mass. 481. The nature of the association gives notice of the limitation of its members. Volger vs. Ray 131 Mass. 439. When the actual trust relation has been created, the trustee is not at all the agent of shareholders. Wells-Stone Merc vs. Grovers Supra. The trustees are personally liable for the debts of the company ordinarily, but they may stipulate that they shall not be, and such stipulationwhich is included in all Common Law Companies' articlesis effective to free the trustee from personal liability. Shoe & Leather National Bk. vs. Dix, 125 Mass. 148; Glenn vs. Allison, 58 Md 527; Smith vs. Ayer, 101 U. S. 320; Wodrow vs. Weed, 154 Pa. 307; Mason vs. Pomeroy, 151 Mass. 184; Bank of Topeka vs. Eaton, 100 Fed. 8; Aff. 107 Fed. 1003; Hotchin vs. Kent, 8 Mich. 526. Cases supra also show the method of creditors following the company property through the trustees' right of indemnity. Fogg vs. Blair, 133 U. S. 534.

Common Law Companies are not subject to any tax that a corporation is subject to as a corporation. Only the same tax as individuals. Elliot vs. Freeman, 220 U.S. 178; People ex Darrow vs. Coleman, 118 N. Y. 157; Anthony vs. Casewell, 15 R. I. 159; Burroughs vs. Marshall, 36 Pa. 397; Williams vs. Boston, 208 Mass. 497. 212 LAWYER AND BANKER

A corporation has no existence outside of the State which creates it. Corporations do business in other than their own home state merely by sufferance. Augusta vs. Earle, 38 U. S. 519. Common Law Companies, on the other hand, do business in any and all states as a constitutional right, and no state can interfere with it. Boby vs. Smith, 131 Ind. 342; Shir vs. Lafayette, 52 Fed. 857; Farmer's L. & T. Co. vs. Chicago R. Co. 27 Fed. 146. A shareholder (cestui quo trust) is not prohibited from occupying the position of trustees for his own benefit. Nellis vs. Richard, 133 Cal. 160; Burbach vs. Burbach, 217 Ill. 547; Sony vs. Palmer, N. J. Eq. 1; Robinson vs. DeBrulateur, 188 N. Y. 301. Especially is this so when he is one of several trustees. Rogers vs. Rogers, 111 N. Y. 288; Or when he is trustee for himself and others. Woodward vs. James 115 N. Y. 345; Boiles vs. St. Co. 27 N. J. 308; Burbach, 217 Ill. 547. Further, if the trust has once been created by the separation of the legal and equitable titles or estates in different persons, it will not be destroyed by the appointment of the beneficiary himself as successor to the original trustee. Losey vs. Stanley, 147 N. Y. 660; Rogers vs. Rogers, 111 N. Y. 228. Whoever has the power of appointment of trustees, the Court of Equity has jurisdictional control of the exercise of power, so far at least as to prevent an abuse of discretion. (Note the great advantage of this feature over a corporation.) Bailey vs. Bailey, 2 Del. Ch. 95; Orr vs. Yates, 209 Ill. 222; Butler vs. Taggert, 27 Ky. L. Rep. 708; March vs. Romare, 116 Fed. 355. Should the parties empowered fail or refuse to appoint trustees, a Court of Equity, by its general inherent power over trusts, has power to appoint if necessary. It is a settled rule of equity that no trust shall fail for want of a trustee. Blackeny vs. Deboies 187 Ala. 627; Tatjo vs. Swassy, 111 Cal. 628; Treats app. 30 Conn. 113; Grifith vs. State, 2 Del. Ch. 421; Bruswell vs. Downs, 11 Fla. 62; Harris vs. Brown, 124 Ga. 310; Bennett vs. Bennet, 217 Ky. 434; in re Freeman 146 La. 38; Roche vs. George, 93 Ky. 609; Herrick vs. Low, 103 Mo. 363; Dodge vs. Dodge, 109 Md. 191; Hayward vs. Spalding, 75 N. H 92; Adams vs. adams, 21 Wal. 185; Dockin vs. Brunt, L. R. 6 Eq. 506. The Court of Equity may even, through its own officers and agents, execute the trust. Cases Supra. Compensation of trustees and officers may be fixed in the articles. Bowker vs. Pierce, 130 Mass. 262; Ladd vs. Piggot, 215 Mo. 361; Briscoe vs. State, 23 Ark. 493; Jarrett vs. Johnson, 215 Ill. 112. One of the advantages of the Common Law Company is the right of trustees to apply to a Court of Equity for instruction in the execution of their trust. Diggs vs. Fidelity, 112 Md. 50; Hoagland vs. Cooper, 65 N. J. Eq. 407; Mersman vs. Mersman, 136 Mo. 244. A corporation to issue bonds gets the best legal opinion obtainable as to legality, and at times even this option proves wrong and the bonds are either never issued or afterwards fall on the market. A Common Law Company can apply to a Court of Equity for instruction in a like case, and the question of legality is definitely settled in advance of issue. Diggs vs. Fidelity 122 Md. 50; Thorn vs. Debruteil, 179 N. Y. 64. After a review of the law as laid down in the cases cited THE BUSINESS TRUST 213

above, a reference to the forms accompanying, and to the forms of the Common Law Companies already doing businesses, will show with what consummate skill the old established law has been adapted to this engine for modern up-to0date business: the Common Law Company. The later decision will also demonstrate with what apparent relief the courts themselves turn to this new solution of the almost inextricable muddle into which careless legislation has plunged the corporate form of business organization. THE RIGHT OF INTERSTATE COMMERCE In British Ruling Cases, Volume 6, page 782 we find: The defendants were a foreign corporation carrying on business in Sweden as manufacturers. They employed as their sole agents in the United Kingdom a firm in London who also acted as agents for other firms and carried on business as merchants on their own account. The agents had no authority generally to enter into contracts on behalf of the defendants, but they obtained orders and submitted them to the defendants for their approval. On being notified by the defendants that they had accepted the orders, the agents signed contracts with the purchasers as agents for the defendants. The goods were shipped direct from the defendants in Sweden to the purchasers. The agents in some cases received payment in London from the purchasers and remitted the amount to the defendants less their agreed commission. HELD, that that defendants were not carrying on their business at the agents' office in London so as to be resident at a place within the jurisdiction, and that service of a writ on the agents at their office was, therefore, not a good service on the defendants. Grant vs. Anderson (1892) 1 Q. B. 108, 61, L. J. Q. B. N. S. 107, 66 L. T. N. S. 79, followed. NOTEMay a foreign corporation having an agent to solicit business or to receive and transmit orders be deemed to carry on business within the jurisdiction. In order to avoid blurring the outlines of the present discussion, this note cites only decisions involving the state of facts indicated by its title, and does not include cases which consider the question whether a foreign corporation having an agent with authority to enter into contracts r to complete sales in its behalf, or consigning goods to factors or other sales agents selling on their own account, may be regarded as doing business within jurisdiction. As to whether transactions pursuant to agreement with local dealers to sell product of foreign corporation within state constitute doing business therein, see note in 44 L. R. A. (N. 8.) 1094. As to whether establishing an agency to handle a corporation's product within a state constitutes doing business therein, see note in 18 L. R. A. (N. S.) 142. As to whether the sale by a foreign corporation of goods stored in the state is interstate business, see note in 18 L. R. A. (N. S.) 134. The practice of some courts to treat the question: What constitutes doing business? As an undivisible one, overlooking the fact that the phrase does not and cannot have a uniform and unvarying meaning, but is governed largely by the connection and in view of the object of the 214 LAWYER AND BANKER statutes under construction,and the necessity of explaining their decisions,has led to the

bringing together in this not two distinct questions: First, Whether the solicitation of business of taking orders subject to acceptance constitutes doing business in the jurisdiction within the meaning of the statutes imposing license fees or requiring foreign corporations doing business within the jurisdiction to meet certain other requirements; and second: Whether such circumstance give the corporation such a constructive presence within the jurisdiction as to render it suable there. As subjecting corporation to statutory requirements. Unfortunately for the superficial reader, many of the decisions which hold that the solicitation of business and taking orders by foreign corporations through agents does not subject such corporation to statutory requirements imposed upon foreign corporations doing business within the jurisdiction; couch the conclusion in the phraseology that such course of dealing does not constitute doing business within the state, when what is meant is that the transactions in question, being incidental to interstate commerce, are protected by the commerce clause from the operation of such statutes. That this is the reason is demonstrated, not only by the course of reasoning in many of the decisions, but by the circumstances that where the requirement in question is not regarded as restrictive of interstate commerce, or the case has been taken out of the scope of the commerce clause by the operation of the Wilson Act, the taking of orders for goods subject to approval of the corporation at its home office has been held to be doing business within the state notwithstanding it is also interstate commerce. The exemption of foreign corporations merely soliciting business within the state from the operation of the statutes of the kind in question may be perhaps put upon the ground other than that such solicitation is an incident of interstate commerce; since it may be fairly said to be not doing business at all, but to be simply an effort to secure business to be done elsewhere. The taking of orders by traveling salesman (Intertwined Trust Co vs. A. Leschin & Sons Rope C. (1907) 41 Colo. 299, 92 Pac. 727, 14 Ann. Cas. 261; Belle City Mfg. Co. vs. Frizzle (1905) 11 Idaho 1; 81 Pac; Lehigh Portland Cement Co. vs. McLean (1910) Ill. 326, 137 Am. St. Rep 322, N. E. 248; March-Davis Cycle Mfg. Co. vs. Sirobridge Lithography Co. (1898) 79 Ill. App. 683; Havens & G. Co. vs. Diamond (1900) 93 Ill. App. 557; Pressed Radiator Co. vs. Hughes (1910) 155 Ill. App. 80; American Sales Book Co. vs. Wemple (1912) 162 Ill. App. 639; Ajax-Grieb Rubber Co. vs. Gray (1913) 179 Ill. App. 377; Frank Prox Co. vs. Bryan (1914) 185 Ill. App 322; West Coast Timber Co. vs. East St. Louis Pub. Co. (1914) 190 Ill. App. 581; Mutual Mfg. Co. vs. Alpaugh (1910) 174 Ind. 381, 91 N. E. 504: rehearing denied in (1910) 174 Ind. 387, N. E. 113; Com. vs. Hogan, M. & T (1903) 25 Ky. L. Rep. 41, 74 S. W. 737; Coit & Co. vs. Sutton (1894) 102 Mich. 324, 25 L. R. A. 819, 4 Inters. Com. Rep. 768, 60 N. W. 690; Moline Plow Co. vs. Wilkinson (1905) 104 Mich. 57, 62 N. W. 1119: M.I. Wilcox Cordage & Supply Co. vs. Mosher, (1897) 114 Mich. 64, 72 N. W. 117; Rock Island Plow Co. vs. Peterson (1904) 93 Minn. 356, 101 N. W. 616; American Bridge Co. vs. Honstain (1910) 113 Minn. 16, 128 N. W. 1914; S. A. Maxwell & Co. vs. Edens (1896) 65 Mo. App. 483; Greenbriar Distillery Co. vs. Van Frank (1910) 147 Mo. App. 204, 126 S. W. 222; F. N. Ellis Lumber Co. vs. John (1911) 152 Mo. App. 516, 133 S. W. 633: Low vs. Davy (1912) 83 N. J. L. 540, 83 Atl. 869; Droege vs. Aherns & Co. Mfg. Co. (1900) 163 N. Y. 466, 57 N. E. 747; Murphy Varnish THE BUSINESS TRUST 215

Co. vs. Connel (1894) 10 Misc. 553, 32 N. Y. Supp. 492; Rallapoosa Lumber Co. vs.

Holbert (1896) 5 App. Div. 559, 39 N. Y. Supp. 432; American Broom & Brush Co. vs. Addickes (1896) 19 Misc. 36, 42 N. Y. Supp. 871; National Knitting Co. vs. Brenner (1897) 20 Misc. 125, 35 N. Y. Supp. 714; Vaughn Mach. Co. vs. Lighthouse (1901) 64 App. Div. 138, 71 N. Y. Supp. 799; Cummer Lumber Co. vs. Associated Mfgrs. Mut. F. Ins. Corp. (1901) 67 App. Div. J51, 73 N. Y. Supp. 668, affirmed without opinion in (1903) 175 N. Y. 633, 6 N. E. 1105; Jones vs. Keeler (1903) 40 Misc. 221, 81 N. Y. Supp. 648; Crocker Aldridge (1906) 112 App. Dic. 803, 99 N. Y. Supp. 463; L. C. Page Co. vs. Sherwood (1910) 65 Misc. 543, 120 N. Y. Supp. 837, (1911) 146 App. Div. 618, 131 N. Y. Supp. 322 Reversing (1910) 125 N. Y. Supp. 1100; Osborne Co. vs. Walter (1915) 155 N. Y. Supp. 434; Toledo Commercial Co. vs. V. J. Howard & Co. (1896) 55 Ohio St. 217, 45 N. E. 197; M. D. Wells Co. vs. V. J. Howard & Co. (1914) Okla. 151, Pac. 618; Hollister vs. National Cash Register Co. (1916) Okla. 154 Pac. 1157; Bertin & Leoporti vs. Mattison (1914) 69 Or. 470, 139; Pac. 330; Vermont Farm Mach. Co. vs. Hall (1916) Or. 156 Pa. 1073; W. B. Mershon Co. vs. Pottsville Lumber Co. (1895) 187 Pa. 12 67 Am. St. Rep. 560, 40 Alt. 1019; Blakesley Mfg. Co. (1896) 12 Pa. Co. Ct. 553, affirmed in (1897) 5 Pa. Super. Ct. 184; Hall's Safe Co. vs. Walenk (1910) 42 Pa. Super Ct. 576; DeWitt vs. Berger Mfg. Co. (1904) Tex. Civ. App. 81 S. W. 334; Erwin vs. Dupont Nemours Powder Co. (1913) Tex. Civ. App. 156 S. W. 1097; Maury-Cole Co. vs. Lockhart Grocery Co. (1915) Tex. Civ. App. 176, S. E. 664; Davis & R. Bldg. & Mfg. Co. vs. Dix (1874) 64 Fed. 406; Brumer vs. Kansas Moline Plow Co. (1909) 93 C. C. A. 504, 168 Fed. 218, affirming (1907) 7 Ind. Terr. 506, 104 S. W. 816; Culbert vs. McCall Co. (1911) 40 N. B. 385. Central re Goulds Mfg. Co. (1894) 14 Pa. C. Ct. 179 (Local Agents) N. B. Inderieden Co. vs. J. C. Johnson Co. (1910) 112 Minn. 469 128 N. W. 570; Harvard Co. vs. Wicht (1904) 99 App. Div. 507, 91 N. Y. Supp. 48; Rundle Spence Mfg. Co. vs. GainsBorough Contr. Co. (1910) 123 N. Y Supp. 585; Fruit Despatch Co. vs. Wood (1914) 42 Okla. 79, 140 Pac. 1138; Spider Lake Saw Mill & Lumber Co. vs. Geisel (1908) 19 Pa. Dist. R. 959; Blakeslee Mfg. Co. vs. Hilton (1897) 5 Pa. Super. Ct. 184 (dictum) Federal Glass Co. vs. Lorentz (1913) 49 Pa. Super. Ct. 585; Wagner vs. J. & G. Meakin (1899) 33 C. C. A. 577, U. S. App. 475, 92 Fed. 76; Kirvin vs. Virginia-Carolina Chemical Co. (1906) 76 C. C. A . 173, 145 Fed. 288, 7 Ann. Cas. 219; Smith & Co. vs. Dickinson (1914) 81 Washington 465, 145 Pac. 1133, a shipping agent; Thomas Mfg. Co. vs. Thede (1914) 186 Ill. App. 284, or brokers; Sleepy Eye Mill Co. vs. harman (1913) 184 Ill. App 308; Chase Engine & Mfg. Co. vs. Vromania Apratment C. (1911) 154 Me. App. 139, 133 S. W. 684; Corn Product Mfg. Co. vs. Western Candy & B. Supply Co. (1911) 156 Me. App. 110, 135 S. W. 985; Dinuba Farmers' Union Packing Co. vs. J. M. Anderson Grocer Co. (1916) 193 Mo. App. 236, 182 S. W. 1036; Fresno Home Packing Co. vs. Turle & Skidmore (1908) 60 Misc. 79 111 N. Y. Supp. 839 affirmed without opinion in (1909) 132 App. Div. 930, 117 N. Y. Supp. 1134; Acorn Brass Co. vs. Rutenberg (1911) 147 App. Div. 533; 132 N. Y. Supp. 600; Filmer Bros. Co. vs. Singer (1914) 149 N. Y. Supp. 904, Lederworks vs. Capitelli (1915) 92 Misc. 260. 155 N. Y. Supp 651 McBath vs. Jones Cotton Co. (1906) 79 C. C. A. 203, 149 Fed. 383, or commission merchants (Waller 216 LAWYER AND BANER

vs. Rothsfield (1901) 36 Misc. 177, 73 N. Y. Supp. (141) subject to the approval of the corporation at its home office, and filled by shipments made from without the state, have for the reason above stated, been held not to be doing business within the state, so as to subject the corporation to the requirements imposed by statute upon foreign corporations doing business within the state. The mere fact that a foreign corporation has an agent in the state, and that the agent has an office, does not have the effect to establish that the corporation is doing business within the state. (Pressed Radiator Co. vs. Hughes (1910) 155 Ill. App. 80; J. B. Inderrieden Co. vs. J. C. Johnson (1910) 112 Minn. 469, 128, N. W. 570; Vaughn Mach. Co. vs. Lighthouse (1901) 64 App. Div. 138, 71 N. Y. Supp. 839, affirmed without opinion I 132 App. Div. 930, 179 N. Y. Supp. 1134; L. C. Page Co. vs. Sherwood (1910) 65 Misc. 543, 120 N. Y. Supp. 837; Acorn Brass Mfg. Co. vs. Rutenberg (1911) 147 App. Div 533, 132 N. Y. Supp. 600); nor does the fact that the corporation itself maintains a local office for the solicitation of business (System Co vs. Advertisers' Cyclopedia Co. (1910) 121 N. Y. Supp. 611), or for the taking of orders, which are transmitted to the state of the corporation and there filled, and the goods thence shipped (Spider Lake Saw Mill Co. vs. Goesel (1908) 19 Pa. Dist. R. 959; M.E. Smith & Co. vs. Dickenson (1914) 81 Wash. 465, Pac. 1133). So, the fact that an office is maintained in the state as headquarters for its salesmen, the expense of the maintenance of which, including rent, is charged to the salesmen, is immaterial. American Arts Works vs. Chicago Picture Frame Works (1914) 184 Ill. App. 502, affirmed in (1914) 204 Ill. 610, 106 N. E. 440. It is immaterial that the name of the corporation appears in both the telephone and city directories, together with that ot the agent as it representative, where, this is only incidental to the transaction of interstate business M. E. Smith Co. vs Dickenson (1914) 81 Wash. 465, 142 Pac. 1133; or that the lease of the telephone was made in the name of both the corporation and the agent, Grimer Bros. vs. Singer (1914) 149 N. Y. Supp. 904. Providing an agent with an office as a convenient place for supervising, solicitors of orders for sale, and as a kind of base for advertising, while a circumstance to be considered with other pertinent facts, will not alone determine the nature of the corporations business. Vermont Farm Machine Co. vs. Hall (1916)or 156 Pac. 1073. But a corporation which requires its general agent in the state to maintain an office under and in the name of the company, the expense of maintaining which is to be paid by him out of his commission, may be considered as doing business within the state notwithstanding the orders obtained by the agent, provided that they are subject to the acceptance of the company at its home office. American Cash Register Co. vs. Griswold (1911) 143 App. Div. 907, 128 N. Y. Supp. 206, reversing (1910) 68 Misc. 379, 129 N. Y. 723, 100 N. E. 1124. A foreign corporation having no place of business, no office, and no stock of goods, and which simply consigns goods to merchants for sale, the contracts for sale being subjet to the approval of the corporation in another state, is not doing business within the sate within the meaning of the statute requiring foreign corporations doing business within the state to file a certificate. Chase-Hackley Piano Co. vs. Griffin (1914) 149 N. Y. Supp. 998. A contract signed in Michigan by the parties (one of them is a foreign corporation THE BUSINESS TRUST 217

which signed by its agent) which stipulated that it shall not be valid until approved in Ohio, a contract made in Michigan within the statute invalidating contracts made by foreign corporations which have not filed their articles and paid a franchise tax. Holder vs. Aultman M. & T. Co. (1989) 169 U. S. 81, 42 L. ed. 669, 18 Sup. Ct. rep. 269. Receiving subscriptions to a newspaper published in another state by a corporation, or collecting the money therefor, is not doing business within the state within the meaning of the constitutional provision prohibiting foreign corporations from doing any business in the state to have a known place of business and an authorized agent within, and to file a certified copy of their articles of incorporation with the Secretary of State. Mertins vs. Hubbel Pub. Co. (1914) 190 Ala. 311, 67 So. 275. The acts of the agent of a foreign corporation in soliciting advertisements within the state subject to the approval of the corporation do not constitute doing business within the state within the meaning of a statute regulating the admission of foreign corporations to do business. Journal Printing Co. vs. Inter-Ocean Newspaper Co. (1909) 77 N. J. L. 253, 72 Atl. 47; American Contractor Pub. Co. vs. Baggs (19040 91 N. Y. Supp. 73; System Co vs. Advertisers' Cyclopedia Co. (1910) 121 N. Y. Supp. 611; American Contractor Pub. Co. vs. Noocenti (1913) 13 N. Y. Supp. 853. On the other hand in Saxony Mills vs. Wagner (1909) 94 Miss. 233, 25 L. R. A. (N. S.) 834, 136 Am. St. Rep. 575, 47 So. 899, 19 Ann. Cas. 199, it was held, apparently upon the authority of the cases which held that under similar circumstances a corporation cannot be considered as doing business within the state within the meaning of the statutes imposing certain requirements upon foreign corporations doing business within the state, that a corporation cannot be said to be doing business within the state, that a corporation cannot be said to be doing business within the state from the mere fact that it sells goods there through the efforts of traveling salesmen, so as to bring it within the jurisdiction of state courts. An in Williams Grace Co. vs. Henry Martin Mach. Co. (1909) 98 C. C. A. 167, 174 Fed. 131, it was held, largely upon the authority of the same class of cases, that a foreign corporation soliciting orders within the state, to be submitted to it for approval, was not doing business within the state within the meaning of a statute providing for the service or process upon corporations by delivery thereof to their agents. A foreign corporation which, at the solicitation of a broker, had furnished him with prices on its goods, and which has made sales through him to be delivered on board cars at the factory at a price made by him by adding his commission to the quoted prices is not doing business within the state so as to give local courts jurisdiction of an action against it. Doe vs. Springfield Boiler & Mfg Co. (1900 44 C. C. A. 128, 105 Fed. 684. It has been held that the fact the corporation maintains an office within the state, in charge of a salaried sales agent who takes his orders for goods to be accepted and filled by the corporation at its home office, does not constitute a doing business within the state so as to subject the corporation to the jurisdiction of the local courts. Case vs. Smith, L. & C. (1907) 152 Fed. 730; N. K. Fairbanks & Co. Cincinnati, N. O. & T. P. R. Co. (1892) 4 C. C. A. 403, 9 U. S. App. 312, 54 Fed 420. 218 LAWYER AND BANKER

The generally, although not universally accepted, view seems to be that the mere solicitation of business within a state, unconnected with a sale or local performance of contract obligations, does not give the corporation presence within the state for the purpose of service of process. Thus, a railroad company not having any line in the state is not be reason of its employment of an agent whose business it is to solicit passenger and freight traffic, and its maintenance of an office with clerical assistance for its use, doing business within the state and as such liable to suits therein, North Wisconsin Cattle Co. vs, Oregon short Line R. Co. (1908) 105 Minn. 198, 117 N. W. 381. And see also to the same effect, Earle vs. Chesapeake & Co. R. Co. (1908) 127 Fed 234; Maxwell vs. Atchinson T. & S. F. R. Co. (1888) 34 Fed. 286; Booz vs. Texas & P. R. Co. (1911) 250 Ill. 376, App. 242. Soliciting through its district freight and passenger agent in Philadelphia, freight and passenger traffic fr a railroad company incorporated in Iowa and having its eastern terminal at Chicago, is not doing business within the eastern district of Pennsylvania in such a sense that process can be served upon the corporation there. Green vs. Chicago B. & Q. R. R. Co. (1907) 805 U. S. 530, 51 L. Ed. 916, 27 Sup. Ct. Rep. 593. The act of a railroad company in constituting agents with no power or authority to bind it, but simply to solicit traffic for it, is not doing business within a constitutional provision of fixing the venue of suits against a foreign corporation in any country where it is doing business by service of process upon an agent anywhere in the state or within a statutory provision fixing the venue in any country in which it does business by agent. Abraham Bros. vs. Southern Railroad Co. (1906) 149 Ala. 547, 42 So. 837. In Berger vs. Penna. R. R. Co. (1906) 27 R. I. 583, 9 E. R. A. (N. 8.) 1214, 65 Atl. 261, 8 Ann. Cas. 941, it was held that a foreign railroad company having no transportation line within a state is not doing business there within the meaning of the statues providing for service process on a foreign corporation doing business within the state by serving its agent by maintaining within the state an agency to solicit shippers to direct a local carrier to whom property is delivered for transportation to bill it over the line of such foreign corporations. The court, as authority for so holding, cited a number of cases in which it has been held that the mere solicitation of business by agents of a foreign corporation to the requirements of the statutes prescribing the conditions upon which foreign corporations may do business; and also said: It cannot be said that a corporation which is merely soliciting contracts to begin and continue entirely out of this state is doing business in the state. If it were so, every corporation located outside this state which should insert in a Rhode Island newspaper an advertisement of its business would cme equally within the purview of the act. In Arrow Lumber & Shingle Co. vs. Union P. R. Co. (1909) 53 Wash, 629 Pac. 650, it was held that a railroad company neither owning nor operating any railway line within the sate, having within the state a representative known and advertised as its general agent but who was in fact in the employ of and paid by the initial carriers by whom all freight contracts and tickets were issued and to who money collected for tickets was remitted, was not doing business within the state so as to subject them to suit there.
THE BUSINESS TRUST 219

Where the local statute providing that any foreign corporation found doing business in the state shall be subject to suit there to the same extent that corporations of the state sare by the laws thereof liable to be sued, so far as it relates to any transactions had, in part or in whole within the state or any cause of action arising there, but not otherwise, defines doing business within the state as having any transaction with persons or having any transaction concerning any property situated in this state through any agency whatever a foreign railroad corporation having no lines within the state is not brought within the jurisdiction of the local court by service of process upon a traffic solicitor in a suit upon a cause of action not arising within the state nor out of any transaction had in whole or in part within the state. Atlantic Coast Line R. Co.vs. Richardson (1908) 121 Tenn. 448, 117 S. W. 496. The court said: That these corporations were, in a sense doing business in this state through their traveling soliciting agents, is true; and service upon the latter in all cases falling therein Secs. 1 and 2 of the Act of 1887, which we are considering, would probably bring them into our courts But the vice in the proposition is found in the facts alleged in the pleas, and shown in the evidence, put the case outside the provisions of the statute, as we have already undertaken to establish Hence, it is that, as the cause of action did not arise from any transaction with persons or concerning property situated in this state service on these agents did not give the circuit court jurisdiction of the cause.

TAXATION
That the earnings of a Common Law Business Trust are not subject to corporation excess profit taxes has been judicially determined by the U. S. Supreme Court, in a decision rendered on the 17th day of Marh 1919, in the case of Crocker et al, Trustees, vs John F. Malley, Collector of Intrenal Revenue. This case holds that the total profits are divided pro rata among the sharehoders, and each shareholder then becomes individually liable to the government for the percentage due by way of income, as provided by the law regulating taxes upon incomes. To illustrate: A corporation having $500,000 to divide among its stockholders is required to pay the government approximately 60% or $300,000 thereof, before declaring a dividend, leaving but $200,000 for its stockholders, whilst, if a Common Law Business Trust has the same amount for distribution, the whole $500,000 is divided among the shareholders in the first instance, and the government collets from them such percentage of their individual incomes as has been fixed by law. It will also appear to even the layman that the Common Law Business Trust is better grounded and protected by the law as laid down by the many courts of last resort and more secure in the law than the modern statutory corporation; and that the Common Law Business Trust has all the power, rights, safe-guards and advantages and not of the limitations, hindrances and disadvantages of the modern statutory corporations; and that the Common Law Business Trust has stepped in at this most opportune time to take the place of the statutory corporation in the way of a good reliable and substantial business body that has all the advantage of security reliablity and usefulness required by the present day 220 LAWYER AND BANKER

business organizations, and that it surely fills that long-felt want in the business world at this particular time. A PROFESSIONAL WORD A recognized authority on corporation law says: Well drawn modern Express Trusts avoid no legal obligations, much less do they evade any. If perverted, they should of course, be restrained. They avoid needless business obstacles; they require no arbitrary fixed capitalization; they can dispense with the deceptive fiction of a par value, a fiction that the New York State Bar Association is reported to have endorsed, 'as a tool of many rascals and the honest servant of no man'; they promote sound administration; they stimulate a mercantile intercourse, and they secure a higher standard of efficiency through active trustees, than is generally attained through the usual perfunctory often irresponsible, dummy, corporate directors who fall to direct and who when called to account in court are admonished that the high criterion of a trusteeship should be their canon of conduct rather than that of a shifty directorate. Express Trustees, regulated by equitable principles and practices furnish some of the highest models for administration. Corporations under the state laws invite and are responsible for the greatest business scandal in our history.. As for the equitable laws, that regulate trusts and trustees, they are a well formed system which Mr. Justice Story pronounced as even more symmetrical in the United States than the original system in England. Neither lawyers nor laymen can ignore experience or truth. It is the substantiality of the trust principle, based upon personal responsibility and efficiency, that has so recommended it over loose, evasive corporate laws found from the Atlantic to the Pacific.
The Federal Constitution protects trustees as 'citizens' as that word is used in the Constitution. Corporations do not have the privileges and immunities of citizens. Corporations cannot enter as expressed declaration of trust, as natural personsare 'citizens' in the fullest sense of the word under the Constitution, and, as natural persons possessed of both state and national citizenship are 'entitled to all privileges and immunities of citizens of the several states..'. (See Federal Constitution, Article 4, Section 2.)

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VOLUME 15 1922
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SOUTHERN BENCH AND BAR REVIEW


CHARLES E. GEORGE Editor