HEMPHILL v. ORLOFF(1928)
[277 U.S. 537, 538] Messrs. Charles A. Wagner and Thomas G. Long, both of Detroit, Mich., for plaintiff in error.
[277 U.S. 537, 543] Mr. Isadore Levin, of Detroit, Mich., for defendant in error.
Mr. Justice McREYNOLDS delivered the opinion of the Court.
Plaintiff in error, vice president of the payee and acting for it, sued Mrs. Orloff, in the circuit court, Wayne county, Michigan, on her promissory note, payable to the Commercial Investment Trust, or order, executed at Detroit, Mich., July 22, 1921. She defended upon the ground, among others, that the payee was a foreign corporation within the meaning of the Michigan statutes; that it had not complied therewith, and, consequently could not maintain the action. Both [277 U.S. 537, 544] the trial and Supreme Court of the state sustained this defense.
Relevant provisions of the statutes follow (Compiled Laws Mich. 1915):
The Commercial Investment Trust-hereinafter the Trust-is of the class commonly known as 'Massachusetts trusts' or 'common-law trusts.' The following statement sufficiently indicates the general features of the lengthy 'agreement and declaration of trust' under which it was organized at Boston, Mass., March 29, 1915
The business of the association shall be conducted under the name specified for the trustees in their collective capacity-the Commercial Investment Trust. They may adopt another. Seven are designated; their successors shall be elected for terms of two years at annual shareholders' meetings, each share being entitled to one vote, which may be cast by proxy.
[277 U.S. 537, 545] Wide powers are granted to the trustees to buy and sell stocks, bonds, negotiable securities, personal and real property, to loan money, etc ., and generally to manage and conduct the trust as fully as if they were the absolute owners of the estate; also they shall have power, but without obligation on their part, to execute any and all instruments and to do any and all things not inconsistent with the provisions hereof, the execution or performance of which they may deem expedient. They may appoint and define the duties of officers and agents. 'But the trustees shall not have any power or authority to borrow money on the credit or on behalf of the shareholders or to make any contract on their behalf for repayment of any money raised by mortgage, pledge, charge or other incumbrances in pursuance of the provisions hereof, or to make any contract or incur any liability whatever on behalf of the shareholders or binding them personally.'
[277 U.S. 537, 546] The trustees and shareholders are exempted from personal liability. 1
Shareholders' meetings shall be held annually for the purpose of electing trustees. Interest in the estate shall be evidenced solely by certificates for participation shares, to be regarded as personal property. A shareholder's death shall not operate to determine the trust nor entitle the decedent's representative to an accounting or to take action in the courts or elsewhere, against the trustees. Shareholders shall have no title in the trust property or right to call for partition, division, or accounting. The [277 U.S. 537, 547] trustees shall have no power to call upon shareholders for any sum of money or assessment whatever, except such as they may agree to pay.
The trust shall continue until the death of the last survivor of seven named individuals.
Concerning voluntary associations, chapter 182, Gen. Laws Massachusetts 1921 (volume 2, p. 2077), provides:
It was held by the court below that the Trust must be regarded as a corporation within intendment of the Michigan statutes which could not lawfully carry on local business within the state or make valid contracts in connection therewith without having complied with prescribed requirements. There was no attempt to comply therewith.
Plaintiff in error insists that, as construed by the Supreme Court, the statutes of Michigan deny to the trustees, collectively called 'Commercial Investment Trust,' the benefits of section 2, article 4 of the Constitution:
Also that they deprive the trustees of property without due process of law contrary to the Fourteenth Amendment and restrain interstate commerce.
It is settled doctrine that a corporation organized under the laws of one state may not carry on local business within another without the latter's permission, either express or implied. A corporation is not a mere collection of individuals capable of claiming all benefits assured them by section 2, article 4, of the Constitution. Bank of Augusta v. Earle, 13 Pet. 519, 584, 586, 587; Paul v. Virginia, 8 Wall. 168; Western Turf Association v. Greenberg, 204 U.S. 359, 363 , 27 S. Ct. 384. See, also, Slaughter House Cases, 16 Wall. 36, 77. In the first of the causes just cited, Chief Justice Taney, for the court said:
Obviously the trust here involved, is a creature of local law which demands the privilege of carrying on business in Michigan as an association-an entity-clothed with peculiar rights and privileges under a deed of settlement undertaking to exempt all of the associates from personal liability. As in the case of a corporation and for the same general reasons it cannot rely upon rights guaranteed to the individuals.
Whether a given association is called a corporation, partnership, or trust, is not the essential factor in determining the powers of a state concerning it. The real nature of the organization must be considered. If clothed with the ordinary functions and attributes of a corporation, it is subject to similar treatment. This was distinctly pointed out in Oliver v. The Liverpool & London Life & Fire Ins. Co., 100 Mass. 531, affirmed here sub nom. Liverpool Ins. Co. v. Massachusetts, 10 Wall. 566. See, also, Flint v. Stone-Tracy Co., 220 U.S. 107, 162 , 31 S. Ct. 342, Ann. Cas. 1912B, 1312; Hecht v. Malley, 265 U.S. 144 , 44 S. Ct. 462; Burk-Waggoner Oil Ass'n v. Hopkins, 269 U.S. 110 , 46 S. Ct. 48; Hamilton v. Young, 116 Kan. 128, 225 P. 1045, 35 A. L. R. 496; Weber Engine Co. v. Alter, 120 Kan. 557, 245 P. 143, 46 A. L. R. 158; State v. Hinkle, 126 Wash. 581, 219 P. 41; State v. Paine, 137 Wash. 566, 243 P. 2, 247 P. 476.
Upon the facts disclosed, the court below held the Trust was carrying on the business of dealing in negotiable notes within the state of Michigan, and we find no reason for rejecting that conclusion. Such business is not interstate commerce. Nathan v. Louisiana, 8 How. 73; Paul v. Vir- [277 U.S. 537, 551] ginia, 8 Wall. 168; Hatch v. Reardon, 204 U.S. 152, 162 , 27 S. Ct. 188, 9 Ann. Cas. 736; Blumenstock Bros. v. Curtis Pub. Co., 252 U.S. 436, 443 , 40 S. Ct. 385.
What we have already said shows plainly enough the insubstantial nature of the suggestion that the questioned statutes deprive the Trust, its trustees or members, of property without due process of law.
The judgment of the court below must be affirmed.
[ Footnote 1 ] 'No recourse shall at any time be had under or upon any note, bond, contract, instrument, certificate, undertaking, obligation, covenant, or agreement issued or executed by the trustees under or pursuant to the terms of this agreement or in managing the trust estate, or by the executive committee or any member thereof, or by any officer or agent of the trustees, or by reason of anything done or omitted to be done by them or any of them against the trustees individually or against the members of the committee or against any such officer or agent or against any shareholder, or the holder of any other security issued by the trustees, either directly or indirectly, by legal or equitable proceeding, or by virtue of any suit or otherwise, except only to compel the proper application or distribution of the trust estate, it being expressly understood and agreed that this agreement and all obligations and instruments executed thereunder are executed pursuant hereto by the trustees and any acts done or omitted to be done by them are solely the obligations, instruments, acts and omissions of or in (folio 204) respect of the trust estate and that all the obligations, instruments, liabilities, covenants and agreements, acts and omissions of the trustees as trustees shall be enforced against and be satisfied out of the trust estate only, or such part thereof as shall, under the terms and provisions of this agreement, be liable for or chargeable therewith, and all personal and individual liability of the trustees, except as above stated, and of the members of the executive committee, and all officers and agents, and of the shareholders and all beneficiaries of the trust, are hereby expressly waived and negatived. The trustees and their agents are not authorized to contract any debt or do anything which will charge the shareholders or bind them personally.'
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