by the trustees for their benefit. They had no right to manage it themselves, nor to instruct the trustees how to manage it for them. As was said by C. Allen, J., in Mayo v. Moritz, 151 Mass. 481, 484, 24 N. E. 1083: "The scrip holders are cestuis que trust, and are entitled to their share of the avails of the property when the same is sold," and that is all to which they were entitled. In Mayo v. Moritz the scrip holders had a common interest in the trust fund, in the same sense that the members of a class of life tenants and the members of a class of remaindermen (among whom the income of a trust fund and the corpus are to be distributed respectively) have a common interest. But in Mayo v. Moritz there was no association among the certificate holders, just as there is no association, although a common interest, among the life tenants or the remaindermen, in an ordinary trust. For a decision in this commonwealth somewhat like Mayo v. Moritz, ubi supra, see Hussey v. Arnold, 185 Mass. 202, 70 N. E. 87. See also, in this connection, Makin v. Savings Inst., 23 Me. 350, 41 Am. Dec. 349; Burt v. Lathrop, 52 Mich. 106, 17 N. W. 716.' 215 Mass. 8, 9.

"See also Hussey v. Arnold, 185 Mass. 202, 70 N. E. 87; Re Associated Trust (D. C.) 222 Fed. 1012; Crocker v. Malley, 249 U. S. 223, 63 L. ed. 573, 2 A. L. R. 1601, 39 Sup. Ct. Rep. 270; Cox v. Hickman, 8 H. L. Cas. 268, 11 Eng. Reprint, 431, 9 C. B. N. S. 47, 142 Eng. Reprint, 19, 30 L. J. C. P. N. S. 125, 7 Jur, N. S. 165, 8 Week. Rep. 754, 19 Eng. Rul. Cas. 323; Smith v. Anderson, L. R. 15 Ch. Div. 247, 50 L. J. Ch. N. S. 39, 43 L. T. N. S. 329, 29 Week. Rep. 21; Crowther v. Thorley, 50 L. T. N. S. 43, 32 Week. Rep. 330, 48 J. P. 292; Re Siddall, L. R. 29 Ch. Div. 1, 54 L. J. Ch. N. S. 682, 52 L. T. N. S. 114, 33 Week. Rep. 509; Re Thomas, L. R. 14 Q. B. Div. 379, 54 L. J. Q. B. N. S. 336, 51 L. T. N. S. 602, 33 Week. Rep. 583; Re Faure Electric Accumulator Co., L. R. 40 Ch. Div. 141, 58 L. J. Ch. N. S. 48, 59 L. T. N. S. 918, 37 Week. Rep. 116, 1 Megone, 99; Wrightington,

Unincorporated Asso. p. 49; Chandler, Express Trusts under Common Law, p. 19.

"Following the rule of the authorities, it is clear that the shareholders herein cannot be regarded as partners. They had surrendered proprietorship in the property to the trustees, and have no control over it or of the business done by the company, and neither can they be held liable upon any contract or obligation of the trustees. The latter act as proprietors and principals, and conduct the business, free from the control of the shareholders, and may make and change investments whenever they deem best, and make or withhold dividends in their discretion. They do not take orders or directions from shareholders and are in no sense the agents of the shareholders. While stock is issued to shareholders, the shares give no right except to furnish a basis for the division of profits, and for a distribution of the property and funds when the trust is concluded. The stock measures the voting strength of shareholders when trustees are elected, but the fact that they choose trustees with the powers conferred by the declaration of trust is not such control as to make the trustees their agents, or give the shareholders the character of partners. It follows that the state charter board was not warranted in denying the application of the plaintiff upon the ground that it was a partnership.

"It does not follow, however, that the plaintiff as organized is entitled to a permit to sell its stock and securities, even if it is found to be solvent, its assets substantial and sufficient, and its plan of business such as would be fair and equitable towards investors. To meet the requirements of our law the company must bring itself within the rules applicable to corporations and conform to the regulations imposed by statute on corporations. The Constitution expressly provides that 'the term corporations, as used in this article, shall include all associations and joint stock companies having powers and privileges not possessed by individuals or

partnerships; and all corporations may sue and be sued in their corporate names.' Const. art. 12, 6."

(Held: That the form of organization was not that of a partnership, but a trust, that persons buying the shares would not become individually liable as partners and the State Charter Board should inquire into the solvency of the plaintiff, the sufficiency of its assets, etc., and if found to measure up to the requirements of the statute in that regard, a (blue sky) permit should be issued by the board permitting plaintiff to sell its shares and securities.)

(Note: The law as developed from early times by courts of equity permits the legal title of property to be in one person or group of persons for the benefit of, or in trust for, another or others. The practice is familiar and common. The court of equity enforces the trust.

Owing to restrictions upon activities of corporations, and greater tax burdens to be carried by corporations, the organization of business companies as "trusts" rather than as corporations has been of recent years greatly advocated. A considerable number of companies have been so formed and numerous cases have come into the courts on a variety of questions. The greatest danger to be avoided is to prevent partnership liability among the beneficiaries or shareholders. It is held that if the beneficiaries retain control of the business, with right to direct its activities, depose the trustees, etc., the concern is a partnership, but if the legal title and control is passed over to the trustees, then there is a "pure trust" and the beneficiaries are not liable as partners. This is the test applied in the above case.

Needless to say, the law is not entirely settled on this point. In the following paragraphs the nature of the Massachusetts Trust is further developed.)

(2) Advantages Over Corporate Form of Organization as a Business Trust.

a.

No charter fees due state. As the trust is not a corporation, it exists without a charter, and by virtue of the trust instrument. Hence the fees required in the corporation act are not applicable.

b. No franchise tax, capital stock tax, etc. For the same reasons these do not apply.

c. Corporation income tax law not applicable. If the Massachusetts Trust is a true trust the income tax payable by corporations or associations does not apply.

d. The foreign corporation laws do not apply. A trustee being a citizen may under the Federal Constitution go freely from state to state enjoying the immunities of the citizens of the several states. Not only do the foreign corporation acts not apply, but there are constitutional objections to extending them to apply to trustees.

e. No charter restrictions. The question of limitation of power by the charter cannot arise.

f. No annual franchise fees, reports due state, etc.

(3) Disadvantages of Organization as Business Trust.

(Note: If there were no hampering restrictions and unjust incidence of tax and fees upon corporations, it seems that those who do not wish to transact business as sole proprietors or as partners would do so as incorporators. The corporation, being a business unit, legally disassociated from its members, furnishes the ideal organization.

Disadvantages of putting the business in the hands of trustees are suggested as follows:

(a) Danger of partnership liability by reason of improper drafting of trust agreement. This disadvantage is of course surmountable, but the feeling that it has not been surmounted may exist.

(b) Liability of trustees. The trustees are personally liable to an unlimited extent unless in their contracts they stipulate for limitation of liability to the extent of the trust estate. This may be accomplished by use of a stereotyped provision in connection with the execution of the contract. Tort liability may be covered by insurance.

(c) Less simplicity in organization, less control over the trustees, novelty of idea, and questions of technical character, are suggested as disadvantages.)

CHAPTER 101

NON STOCK CORPORATIONS

§§ 787 to 790. (Corporations, Secs. 161-164.)

(No cases.)

CHAPTER 102

"BLUE SKY" LEGISLATION

(Note: So called "blue sky laws" or laws regulating the sale of securities are of recent origin, and far from uniform in their detail. They are for the purpose of lessening fraud in the sale of securities. They provide for a public machinery to inquire into the details of a proposed flotation, and require a permit or license as a condition precedent to the sale of the securities involved.

These laws have been held constitutional by the United States Supreme Court. In Merrick v. N. W. Halsey & Co., 242 U. S. 568, 61 L. Ed. 498, the Court said:

"We think the statute under review is within the power of the state. It burdens honest business, it is true, but burdens it only that, under its forms, dishonest business may not be done. This manifestly cannot be accomplished by mere declaration; there must be conditions imposed and provision made for their performance. Expense may thereby be caused and inconvenience, but to arrest the power of the state by such considerations would make it impotent to discharge its functions." In this decision the Court upheld the Michigan Act.

In the main, these acts are aimed at requiring some proof of the merits of speculative or not established securities. Thus securities that have been duly listed on established exchanges may be exempted from the operation of the act; for there is little