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9 A.B.A. J. 763 (1923)
Mysterious Massachusetts Trusts

handle is hein.journals/abaj9 and id is 810 raw text is: THE MYSTERIOUS MASSACHUSETTS TRUSTS Legal History Involved in Determining Their Character-With Exception of a Few Which Are Trusteeships, They Are on the Whole Simply the Old Common Law Unincorpo- rated Business Associations, Occupying Position Midway Between Corporations and Partnerships-Points of Resemblance By WILLIAM W. CooK Of the New York City Bar ERY much the same question is asked of the Massachusetts Trusts as was asked of Ulysses some three thousand years ago. Who art thou of the sons of men; and whence? The answer in- volves some legal history. Unincorporated associations have existed for cen- turies in England and have grown up with corpora- tions and partnerships. They are really an offshoot from both. A partnership agreement may be framed in any way the partners wish and it was easy to borrow from corporations the idea of shares and the transferability of the same without dissolving the partnership. As a result unincorporated associations became a class by themselves. They differ from a partnership in that, as the supreme court of Illinois says: The transferabil- ity of the shares makes such an association different, not merely in magnitude but in other ways, from ordi- nary partnerships, because the association is not based upon mutual trust and confidence in the skill, knowl- edge and integrity of the other partners. The sale of shares by a member, the shares being transferable, is not a dissolution and the death of a member is not a dissolution.' They differ from a corporation in that they have no charters and cannot sue or be sued or hold title to real estate in the association's name, and the shareholders are liable for the debts. At first they were denounced by the English courts as illegal in having transferable shares of stock,2 but Judge Lindley says,3 an unincorporated company with transferable shares will not be held illegal at common law unless it can be shown to be of a dangerous and mischievous character, tending to the grievance of her majesty's subjects. The legality at common law of such companies may therefore be considered as finally established. They are of two kinds, those not for profit and those for profit. Those not for profit include many so- cial, benevolent and mutual aid organizations; clubs (now generally incorporated) ; exchanges and building associations. As a yule the members are not liable for the debts, the relation being one of agency and not partnership. For instance, the members of a pilot asso- ciation are not liable for the negligence of one of their number ;4 nor the members of a club for its debts,5 nor the members of a political organization for its obli- 1. Hosack v. Ottawa Development Assoc., 244 Ill., 274, 291, 292 (1910). 2. See People v. eVemple, 117 N. Y. 136 (1889). at pp. 144, 145. 3. Company Law, 5th ed.,.. 132. See also Phillips v. Blatchford. 137 Mass. 510 (1884) where Judge Oliver Wendell Holmes, Jr. (now of the supreme court of the United States) said: It is too late to con- tend that partnerships with transferable shares are illegal in this com monwealth. They have been recognized as lawful by the court, from Alvord v. Smith, 5 Pick. 232, to Gleason v. McKay, 134 M&s. 419. Even if the question were a new one, we should come to the same result. The grounds upon which they were formerly said to be illegal in England. apart from statute, have been abandoned in modern times. 4. Guy v. Donald, 203 U. S. 899 (1906). 5. Wise v. Perpetual, etc., Co. (1903) A. C. 189. gations except those necessary to preserve its existence.6 An unincorporated union may be sued as an entity for its torts7 These non-profit associations, however, are not the subject of this article. Associations for profit (of which Massachusetts Trusts are a species, as will be shown later) have a great variety of articles of association, prescribing their objects, procedure, officers, rights of members, etc. In different jurisdictions they have developed in different ways, particularly in England, New York and Massa- chusetts, and it will add clearness to describe hriefly their history in those three jurisdictions. In England they led a stormy existence. They were denounced for issuing transferable -shares, thereby usurping a corporate franchise, and because they engaged in floating speculative and fraudulent projects, and because they could not be sued without all the members being joined as defendants. Accord- ingly in 1719,8 the Bubble Act declared them to be pub- lic nuisances and their acts were declared to for ever be deemed to be illegal and void. That Act is said to have been passed at the instance of the South Sea Com- pany, the biggest bubble of them all. The Act soon became a dead letter and the trading associations kept on growing. They were preferred to a corporation by the English because if the adventurers applied to the Crown for a charter, and succeeded, it became a corpo- ration, and the members were rendered irresoonsible for its debts. What was wanted for trade was a so- ciety, which might sue and be sued like a corporation, while its members remained personally liable for its debts. This probably was to obtain credit and was accomplished by the Act of 182510 In the same year the Bubble Act was repealed. In 1854 an English court said: These Companies, being consonant with the wants -of a growing and wealthy community, have forced their way into existence, whether fostered by the law or opposed to it. In 1862, however, a more drastic law was enacted and all such companies or asso- ciations were and still are prohibited absolutely in England by Act of Parliament,2 where the com- pany, association, or partnership consists of more than twenty persons formed for the purpose of carry- ing on business and are not registered. Then arose the question of what constituted carrying on business and in the celebrated case, Smith v. Anderson, in 1880,13 the court held that the prohibition applied to an organization for performing a succession of acts 6. Siff v. Forbes, 135 N. Y. App. Div. t9 (1909). 7. United Mine Workers v. Coronado Coal Co., 259 U. S.- S44 (1922). 8. 6 Geo. I, c. 18. 9. Eney. Brit., 9th Ed., Vol. VI, p. 221, under Company. See also Lindley on Companies, 9th Ed., Introductory, pp. 8, 4. 10. 6 Geo. Iv, c. 91, § 2. 11. Greenwood's Case, 8 De G. M. & G., 459, 477 (1854). 12. 25 and 26 Viet. c. 89, if 1 (2), 4, re-enacted in 1908, se* 8 Edw. 7, c. 69. 18. (1880) 15 Ch. D. 247, overruling Sykes v. Beadon (1879), 11 Ch. D. 170.

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