Covers the Massachusetts Trust Act of 1959 and the Securities Act of Washington

Gose, J. Gordon

English

UW Law Digital Commons (University of Washington)

Washington Law Review Volume 34 Number 3 Washington Legislation—1959 9-1-1959 Corporation Law J. Gordon Gose University of Washington School of Law Follow this and additional works at: https://digitalcommons.law.uw.edu/wlr  Part of the Business Organizations Law Commons Recommended Citation J. G. Gose, Washington Legislation, Corporation Law, 34 Wash. L. Rev. & St. B.J. 305 (1959). Available at: https://digitalcommons.law.uw.edu/wlr/vol34/iss3/4 This Washington Legislation is brought to you for free and open access by the Law Reviews and Journals at UW Law Digital Commons. It has been accepted for inclusion in Washington Law Review by an authorized editor of UW Law Digital Commons. For more information, please contact cnyberg@uw.edu. 9]WASHINGTON LEGISLATION-1959allow the libraries to retain such publications in order to circulatethem among the historians, sociologists and lawyers of tomorrow, inorder to show them what the censors of today have kept from ourinquiring minds.ROBERT L. FLETCHERCORPORATION LAWThe Massachusetts Trust Act of 1959. Chapter 220, Session Lawsof Washington of 1959 is designed to legalize in the State of Washing-ton the type of business associations known as a "MassachusettsTrust" or "Business Trust." This type of business association employsthe trust relation for the purpose of conducting a business. Money orproperty or both are transferred to trustees under a trust instrumentauthorizing them to use such assets to carry on a business for the benefitof the contributors and their successors in interest. Since the bene-ficiaries of a trust are not liable for the acts of the trustees, thebeneficiaries achieve the same limited liability as corporate share-holders have, if trust law applies to the relationship. Beneficial inter-ests are made freely transferable like corporate shares. The trusteesare liable for their acts, but have a right of reimbursement from thetrust assets for any obligations properly incurred by them. In practicethe trustees endeavor to obtain from third parties with whom they dealan agreement that such parties will not hold the trustees personallyliable, but will look only to the trust assets.This type of organization, as its name implies, was first largelypopularized in Massachusetts. It was developed as a substitute forthe corporate form of doing business and in its earlier history wasused to achieve exemption from some of the restraints of corporatelaw. In recent years state and federal legislation has been enacted todeprive the Massachusetts Trust of most, if not all, of those exemp-tions. Consequently, the motivation for organizing business trustshas largely disappeared.While the Massachusetts Trust received quite general legal accept-ance, such was not the case in the State of Washington. In State ex rel.Range v. Hinkle and State ex rel. Colvin v. Paine,2 the WashingtonSupreme Court held that a "Massachusetts Trust" was a corporationwithin the meaning of article XII, section 5 of the state constitution1 125 Wash. 581, 219 Pac. 41 (1923).2 137 Wash. 566, 243 Pac. 2, 247 Pac. 476 (1926), Annot., 46 A.L.R. 165.1959]WASHINGTON LAW REVIEWand was illegal because not formed under state laws relating to cor-porations. Several other decisions8 held the illegality of such anorganization could be raised only by the state in a direct action andthat in private litigation the status of the Massachusetts Trust wouldbe generally respected. Nevertheless, such an organization remainedin the insecure position of being subject to attack in an action broughtby the state.The 1959 act is undoubtedly designed to avoid this consequence ofthe Range and Colvin cases. It provides in quite general terms thatsuch organizations are legal and shall be governed by the "applicable"provisions of the corporation statute. The act is brief and lacking indetails. It is questionable whether provisions of such a general char-acter will meet the objections of the Range and Colvin cases. However,since those cases were primarily concerned with apparent attempts toavoid taxes, fees, and state controls, and since the act purports to sub-ject business trusts to at least some such burdens, the courts may holdthat the objections of those cases have been met.To accomplish this result, however, it may be necessary to applycorporation law quite broadly to Massachusetts Trusts. Section 4 ofthe act provides that any Massachusetts trust "shall be subject to suchapplicable provisions of law.., with respect to... corporations...as relate to the issuance of securities, filing of required statements orreports, service of process, general grants of power to act, right tosue and be sued, limitation of individual liability of shareholders, rightsto acquire, mortgage, sell, lease, operate and otherwise to deal in realand personal property, and other applicable rights and duties existingunder the common law and statutes of this state in a manner similar tothose applicable" to corporations. Just how this very general languagewill be interpreted cannot be predicted. If essentially the entire bodyof corporate law is applied to Massachusetts Trusts, the Range andColvin cases will be dearly inapplicable, but there will obviously re-main no conceivable advantage in having a Massachusetts Trust ratherthan a corporation. No distinction would remain other than theartificial designation of the character of the organization. On theother hand, if the "applicable" provisions of corporate law are sub-stantialy less than the total body of such law, avoidance of the Rangeand Colvin cases becomes doubtful and the dividing line betweenJ esseph v. Carroll, 126 Wash. 661, 219 Pac. 429 (1923) ; Denny v. Cascade Plati-num Co., 133 Wash. 436, 232 Pac. 409 (1925) ; Elsom v. Tefft, 140 Wash. 586, 250 Pac.346 (1926) ; Haynes v. Central Business Property Co., 140 Wash. 596, 249 Pac. 1057(1926); Thomle v. Soundview Pulp Co., 181 Wash. 1, 42 P.2d 19 (1935).[Voi- 34WASHINGTON LEGISLATION-1959"applicable" and inapplicable provisions becomes uncertain. Obvi-ously the act invites litigation.An effort to avoid problems of judicial construction is indicated bythe statutory provision purporting to authorize the Secretary of State,the Director of Licenses, the state Tax Commission and the CountyAuditor of the county in which the principal place of business islocated "to prescribe binding rules and regulations applicable" to thetrust. The rather startling generality of this provision will in turndoubtless require the same interpretation as the other parts of thestatute.The uncertainties which exist in the statute will probably discourageits general use. It may strengthen the position of Massachusetts Trustswhich happen to be already operating in the state, if such exist. Sofar as new organizations are concerned, anyone proceeding under thestatute must face, on the one hand, the decisions in the Range andColvin cases, and on the other, the alternate possibilities that he hascreated either (1) something essentially in the nature of a Massachu-setts Trust with the minimum adaptations necessary to avoid theRange and Colvin cases, (2) a corporation under the guise of a trust,or (3) a form of hybrid association, part trust and part corporation,with the relative proportions of trust and corporation law quite un-predictable.Securities Act of Washington. Chapter 282 of the Laws of Wash-ington of 1959 is a quite lengthy and comprehensive act, dealing withthe issuance and sale of investment securities and the registration andcontrol of investment brokers, dealers, salesmen and advisers.The act is patterned on the Uniform Securities Act drafted by theNational Conference of Commissioners on Uniform State Laws. Infact, by far the greater part of the act follows the Uniform Act ver-batim. The act is designed to supersede the so-called Blue Sky Law,RCW Title 21.Because of its much more highly detailed provisions and morecomprehensive coverage, the act should be far more effective than theearlier law. It is anticipated it will give to purchasers of investmentsecurities much greater protection as to intra-state transactions whichare exempt from federal regulation. Space does not permit a detailedanalysis of this lengthy and complex statute. The following generalcomments touch a few of the significant features. In order to beeligible for a "public offering," securities must be registered under the1959]WASHINGTON LAW REVIEWact. Three different procedures, known as registration by notification,registration by co-ordination, and registration by qualification, areprovided for. All of these are fundamentally patterned upon the phi-losophy of the Federal Securities Act of 1933 which requires disclosureof pertinent facts as a condition precedent to a public offering. Thestate does not purport to pass upon the merits of the securities, butrather to assure that all required relevant information is available tothe investor.Administration of the act is vested in the Director of Licenses whois to be assisted by an advisory committee to be appointed by theDirector.In addition to requiring disclosure, the act prohibits fraudulent andmisleading practices, requires registration of brokers, dealers, sales-men, and investment advisers, and creates certain statutory civilremedies. The act also contains detailed provisions exempting certainsecurities and certain transactions from the scope of the law.In view of the adoption of this detailed and technical act, it behoovesmembers of the Bar who represent clients contemplating a "publicoffering of securities" to familiarize themselves with the provisions ofthe statute. By way of admonition, the phrase "public offering" is notsusceptible of precise definition, but the federal courts in interpretingthis phrase in the Federal Securities Act of 1933 have in marginal casesshown a distinct disposition to hold that the offering is "public" and,therefore, within the scope of the act. In case of doubt, it will beadvisable to examine the federal interpretations before determiningthat an offering is not public and, consequently, not covered by the act.J. GoRDoN GosECRIMINAL LAWChapter 229-Washington's Anti-Shoplifting Statute. The exactannual amount actually deprived this nation's store owners by shop-lifters is, quite realistically, impossible to know. Yet, by almost anystandard, estimates reveal that the dollar-value sums are staggering.One author concludes that the total national loss in 1948 was over$246,106,000.00, and a more conservative source estimates this nation'saverage annual shoplifting loss is somewhat in excess of $100,000,-000.00.2 On the state level, it is reported that $12,500,000.00 is takenI Comment, 62 YALE L. J. 788 (1953) n. 5.2 Wall Street Journal, Oct. 31, 1956; cited in Comment, 19 MD. L. Rxv. 28 (1959)n. 3.[VoL. 34

Corporation Law

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Corporation Law

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