Roberts v. Aberdeen-Southern Pines Syndicate

CoNNOR, J. The burden of proof on the third issue submitted to the jury at the trial of this action, was on the plaintiff. The court instructed the jury that if they should find the facts to be as all the evidence tended to show, they should answer this issue “No.” Plaintiff duly excepted to this instruction, and on her appeal to this Court contends that her assignment of error based on this exception should be sustained. The only question to be decided on this appeal is whether or not there was error in this instruction. Plaintiff contends that under the provisions of the Declaration and Indenture of Trust, by which the Aberdeen-Southern Pines Syndicate was created, the owners of certificates of interest issued by said syndicate as evidence of their investments in the trust fund of said syndicate, are joint adventurers, and are liable as partners for debts incurred by the trustees for and in behalf of the syndicate; she contends that the Aberdeen-Southern Pines Syndicate is in law a partnership and not a common-law trust, notwithstanding the express declaration in the Declaration and Indenture of Trust by which the said syndicate was created to *383 that effect. If this contention is well founded, then the defendants referred to in the third issue, upon all the evidence are liable on the note held by the plaintiff, nothing else appearing, ’and there was error in the instruction, as contended by plaintiff. The defendants referred to in the third issue contend, on the other hand, that they are not partners, but merely cestuis que trustent, for that the Aberdeen-Southern Pines Syndicate, created by the Declaration and Indenture of Trust offered in evidence by the plaintiff, is not a partnership, but a common-law trust, such as is recognized in the State of Massachusetts, and therefore called a Massachusetts trust. They contend further that, even if it shall be held as a, matter of law, that in the absence of a statute in this State recognizing a common-law or Massachusetts trust, as a valid business organization, distinguishable from a partnership or from a corporation, said syndicate is a partnership, and that said defendants are partners and therefore liable to creditors of said syndicate, generally, they are not liable in this action to the plaintiff, for the reason that she loaned the money now due to her on said note, to the said syndicate, with knowledge, both actual and constructive, that it is expressly provided in the Declaration and Indenture of Trust by which the said syndicate was created, that said syndicate is a trust, and not a partnership, and that “no owner of any certificate or beneficial interest therein shall he personally liable for any debts, covenants, demands or contracts of any kind, or torts of the syndicate beyond the payment in full of the amount for which his certificate of beneficial interest was issued.” If the latter contention is well founded, it will not be necessary for us to discuss or to decide the question involved in the former contention. We have no authoritative decision of this Court upon the question as to whether a business organization such as the Aberdeen-Southern Pines Syndicate is a common-law trust or a partnership. It is admittedly not a corporation, for although it has some of the characteristics of a corporation, it was not organized under or pursuant to the law of this State or of any other State, 'as a corporation. The courts in other jurisdictions are not in accord in their decisions of this question. The syndicate has some of the characteristics of a partnership, and many courts hold that similar business organizations are partnerships, with the result that trustees and owners of beneficial interests therein are liable as partners, for debts contracted in carrying on its business, notwithstanding provisions for their exemption from personal liability. See annotation, “Massachusetts or Business Trust,” 58 A. L. R., p. 518. The annotator says: “It may he well to remark here that while some of the recent decisions seem to tend toward clearing up, at least in some jurisdictions, certain legal points as to the form of business organization commonly *384 known as the ‘Massachusetts Trust/ other courts indicate, by the care with which they express their views on the particular narrow points involved, that they are still far from clear as to the status of this hybrid form of organization, or as to the extent to which it should be allowed to develop.” One of the tests sometimes, but not universally, applied by the courts in determining whether a business organization such as the Aberdeen-Southern Pines Syndicate is a partnership or a common-law trust, is whether the owners of beneficial interests therein have or do not have control of the business for the conduct of which the organization was created. This in Schumann-Heink v. Folsom, 328 Ill., 321, 159 N. E., 250, 58 A. L. R., 485, it is said: “Where, under the declaration of trust, the unit holders retain control over the trustees, and have authority to control the management of the business, the partnership relation exists. Frost v. Thompson, 219 Mass., 360, 106 N. E., 1009; Hart v. Seymour, 147 Ill., 598, 35 N. E., 246; Dunn, Business Trusts, secs. 140 et seq. On the other hand, where the declaration of trust gives the trustees full control in the management of the business of the trust, and the certificate holders are not associated in carrying on the business, and have no control over the trustees, then there is no liability as partners. Smith v. Anderson, L. R., 15, ch. div. 247, C. A.; Williams v. Milton, 215 Mass., 1, 102 N. E., 355; Mayo v. Moritz, 151 Mass., 481, 24 N. E., 1083; Rhode Island Hospital Trust Co. v. Copeland, 39 R. I., 193, 98 Atl., 273; Bills v. Hackathorn, 159 Ark., 621, 31 A. L. R., 847, 252 S. W., 602; H. Kramer & Co. v. Cummings, 225 Ill. App., 26; Home Lumber Co. v. Hopkins, 107 Kan., 153, 10 A. L. R., 879, 190 Pac., 601. If the above test should be applied to the Aberdeen-Southern Pines Syndicate, in order to determine whether the said syndicate is a partnership or a common-law trust, we should hold that said syndicate is not a partnership, but a common-law trust, for by the provisions of the Declaration and Indenture of Trust, by which the said syndicate was created, the owners of beneficial interests therein have no control of the management of the business of the syndicate. Whether in that event, we should further hold that in the absence of statutory recognition in this State of the common-law or Massachusetts trust, such a trust is unlawful as contrary to public policy, is not necessarily presented on this record. We, therefore, do not discuss or decide this question, which is discussed in the brief filed in this Court for appellant. AH the evidence offered at the trial of this action tended to show that plaintiff, at the time she agreed to lend the sum of $10,250 to the Aberdeen-Southern Pines Syndicate, and at the time she accepted the note sued on as security for said loan, had full knowledge, both actual and constructive, of the provisions in the Declaration 'and Indenture of *385 Trust, by wbicb said syndicate was created, expressly exempting tbe owners of certificates of beneficial interests in said syndicate from personal liability for tbe debts of tbe syndicate. If tbe jury found tbe facts to be as tbis evidence tended to show, plaintiff is estopped from contending tbat defendants referred to in tbe third issue are liable and bound for tbe payment of tbe note beld by ber. There was therefore no error in tbe instruction of tbe court with respect to tbe third issue. In Heink v. Folsom, 328 Ill., 321, 159 N. E., 250, 58 A. L. R., 485, it is said: “It is not against public policy to make an agreement with a creditor tbat be shall, in case of default in payment, look exclusively to a particular fund for bis reimbursement.” Even where a business organization such as tbe Aberdeen-Southern Pines Syndicate is beld to be a partnership, -as in Texas, it is also beld tbat tbe owner of a certificate of interest in such organization, is not personally liable to a creditor who extended credit to tbe organization with knowledge tbat such owner was expressly exempted from personal liability by tbe provisions of tbe instrument by wbicb tbe organization was created. See Shelton v. Montoya Oil & Gas Co., 292 S. W., 165; Farmers State Bank & Trust Co. v. Gorman Home Refinery, 3 S. W. (2d), 65. In McCarthy v. Parker, 243 Mass., 465, 138 N. E., 8, it was beld tbat even assuming tbat tbe shareholders of -a, business trust were partners as to creditors not contracting to look solely to tbe trust property, and tbat as such they were personally liable to creditors generally, a creditor who knew tbat tbe declaration, by wbicb tbe trust was created, expressly exempted tbe shareholders from such liability, could look only to tbe trust property for payment of bis debt. He could not bold the shareholders personally liable for bis debt. Tbe judgment is affirmed. We find No error.