Chicago-Kent Law Review

Volume 38 | Issue 1 Article 2

April 1961

The Common Law of Business Trusts

Michael L. Weissman

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Michael L. Weissman, The Common Law of Business Trusts, 38 Chi.-Kent L. Rev. 11 (1961).
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 THE COMMON LAW OF BUSINESS TRUSTS

Michael L. Weissman*

A MASSACHUSETTS OR"BUSINESS TRUST" is a commercial enterprise

formed by a declaration of trust wherein property is con-
veyed to trustees to be held and managed by them for the benefit
of such persons as may, from time to time, be holders of trans-
ferable shares issued by the trustees and evidencing their bene-
ficial interests in the trust estate.' In a true business trust,
once the certificate holders have contributed money or conveyed
property to the trust, the money or property becomes subject to
the sole and exclusive control of the trustees.2 The trustees are
free to deal with the trust assets as they see fit subject only to
the limitations imposed upon them by the trust instrument.3
The business trust had its genesis in the Commonwealth of
Massachusetts as a result of the inability of entrepreneurs to se-
cure charters for the acquisition and development of real estate
without the prior consent of the Legislature. Although the usual
purpose of these associations was the holding of real estate, the
passage of time has witnessed their use in numerous other in-
dustrial and commercial ventures. Nonetheless, a distinguishing
feature of the business trust continues to be the fact that it is
wholly contractual in nature. 4 Unlike a corporation it is not de-
* B.S., 1954, Northwestern University; M.B.A., 1956, University of Pennsylvania,
Wharton School of Finance and Commerce; LL.B., 1958, Harvard Law School;
Fulbright Scholar, Faculty of Law, University of Sydney, Australia, 1958-9;
Assistant Professor of Business Law, Roosevelt University, 1959-1961; member of
the Bars of Illinois and District of Columbia; associate, Antonow and Fink,
Chicago, Illinois.
1 See, State Street Trust Co. v. Hall, 311 Mass, 299, 41 N. E. 2d 30 (1942).
2 Aaron, The Massachusetts Trust as Distinguished From Partnership, 12 Ill.
L. Rev. 482 (1918).
3 However, as is the case with any other form of trust, the trustee has a
fiduciary obligation to the beneficiaries or certificate holders. Violation of this
fiduciary obligation is grounds for complaint by the certificate holders. Kotimsky
v. Lubin, 62 F. Supp. 710 (E. D. Ill. 1945). But the honest exercise of discreti'mary
powers vested in the trustees cannot be challenged. Asher v. Teter, 314 Ill. App.
200, 40 N. E 2d 803 (1942).
4 Everberg, Advantages and Disadvantages of Common Law Trust Organizations,
50 Com. L. J. 4 (1945).
 CHICAGO-KENT LAW REVIEW

pendent upon the laws of a state for its existence and validity.5
From this fact it is readily discerned that a business trust is sub-
ject to only a minimum amount of state regulation-a factor
sharply differentiating it from a corporation.

Business trusts gained prominence during the 1920's as a

result of their apparent immunity from the federal income tax on
corporations." However, this special advantage soon was elimin-
ated 7 and, until quite recently, a business trust was taxed as a
corporation 8 under virtually all circumstances.' Public Law 86-
7790 approved by the Congress on September 14, 1960 once again
has focused attention on business trusts due, in large measure, to
the tax benefits" which may accrue from the operation of a so-
called real investment trust. The new legislation is intended to
bestow upon persons who invest in real property an advantage
comparable to that enjoyed by persons who pool their funds in
a regulated investment company. That is, if the statutory condi-

5 The business trust has been characterized as the offspring of a union between
the unincorporated joint stock company and the trust. In an unincorporated
joint stock company the business is carried on by a board of directors or
executive committee elected periodically by the shareholders. The business assets
are often in the hands of trustees who hold title subject to the directions of the
board of directors or managers. Shareholders of an unincorporated joint stock
company are deemed to be the proprietors of the business and are liable as
principals in both tort and contract. Abolition of the board of directors or
managers and vesting the management directly in trustees results in a conversion
of an unincorporated joint stock company into a business trust. See, Magruder,
The Position of Shareholders in Business Trusts, 23 Harv. L. Rev. 423, 424-26
(1923).
6 Crocker v. Malley, 249 U. S. 223 (1919).
7 Morrissey v. Commissioner, 296 U. S. 344 (1935).
8 Section 7701(a) (3) of the Internal Revenue Code of 1954 defines the term
"corporation" to include associations, joint-stock companies and insurance com-
panies. The common form of business trust, with management vested exclusively
in the trustees, is usually said to be an "association" taxable as a corporation.
Helvering v. Coleman-Gilbert Associates, 296 U. S. 369 (1936) ; Swanson v. Com-
missioner, 296 U. S. 362 (1936) ; Sherman v. Commissioner, 146 F. 2d 219 (6th
Cir. 1945).
9 However, in Lewis & Co. v. Commissioner, 301 U. S. 385 (1937), it was held
that there is no association taxable as a corporation where there is only a
principal-agent relationship in the selling of land, where a trust Is adopted purely
as a means of making effective the sales of the agent under contract and where
the dities of the trustee are merely ministerial in nature.
10 Adding Sections 856-58 to Subchapter M of the Internal Revenue Code of
1954.
11 For a full discussion of the tax factors incident to the operation of a real
estate investment trust see, Roberts, Feder & Alpert, Congress Approves Real
Estate Investment Trust; Exacting Rules Made, 13 J. of Taxation 194 (1960).
 THE COMMON LAW OF BUSINESS TRUSTS

tions are satisfied the trust acts a a mere conduit and is not sub-
ject to taxation-the only tax imposed is that upon the holders
of the certificates of beneficial interest.
Undoubtedly, the new Sections of the Internal Revenue Code
will furnish a strong stimulant for the formation of business
trusts to hold and manage real estate. However, there is little
guidance in the new Sections as to the form in which the trust
shall be cast. Section 856(a) simply requires that the trust (1)
be managed by one or more trustees (2) that the beneficial owner-
ship be evidenced by transferable shares or transferable cer-
tificates of beneficial interest and (3) that the trust be otherwise
taxable as a domestic corporation.
The purpose of this paper is to examine in greater detail the
requirements for a valid common law trust 12 and to point to the
dangers which may inure in a declaration of trust which does not
conform to these requirements. Reference will also be made to
certain problems which may arise in the course of the operation of
a business trust.

PERSONAL LIABILITY OF BENEFICIAL OWNERS

The marketability of certificates of beneficial interest in real

estate investment trusts is certain to be affected by whether or
not ownership of such certificates carries with it personal liability
for debts contracted on behalf of the trust and for tort claims
asserted against the trust. In the ordinary trust, established for
non-commercial purposes, the beneficiaries have no personal lia-
bility in tort or in contract for claims brought by third parties.1 3
This stems from the fact that the beneficiaries are usually passive

12 Beyond the scope of this paper is the jurisprudence of Illinois land trusts.
For further information on such trusts see, Garrett, Legal Aspects of Land
Trusts, 35 Chi. B. Rec. 445 (1954); Turner, Some Legal Aspects of Beneficial
Interests Under Illinois Land Trusts, 39 Ill. L. Rev. 216 (1945); Hatfield, Per-
petuities In Land Trusts, 40 Ill. L. Rev. 84 (1945). Also beyond the bounds of
the present inquiry are such unrelated problems as the governing law of a trust.
In this connection, see, Scott, What Law Governs Trusts?, 99 Trusts & Es. 17
(1960) ; Capron, Situs of Trusts In Conflict of Laws, 93 Trust & Es. 878 (1954).
13 Zamis v. Hanson, 302 Ill. App. 404, 24 N. E. 2d 59 (1939).
 CHICAGO-KENT LAW REVIEW

recipients of the sums distributed to them by the trustees. Inso-

far as a business trust is concerned, the matter assumes a some-
what different complexion. Holders of the certificates of benefi-
cial interest in a business trust often demand a more active role
in the administration of trust business. And attorneys who draft
such declarations of trust commonly grant to the certificate hold-
ers rights equivalent to those enjoyed by shareholders in a cor-
poration. The question then becomes how great may be the powers
exercised by the certificate holders without exposing them to the
prospect of unlimited personal liability.
There is general agreement that if substantial control over
the trustees or over the trust business is reserved to the certificate
holders they will be held individually liable for debts of the trust
on the theory they are partners rather than beneficiaries of a
trust. 4 But there is a large measure of disagreement as to how
great the dominion reserved to the certificate holders may be
before partnership liability devolves upon the beneficiaries of the
trust. 5
The kinds of powers which are often vested in the trust
beneficiaries and which have been the source of controversy are:
(1) those permitting the removal of trustees without cause, (2)
those permitting the filling of vacancies among the trustees, (3)
those permitting the election of trustees annually or upon the
expiration of their regular terms of office, (4) those permitting
the alteration or amendment of the declaration of trust, (5)
those permitting the termination of the association, and (6) a
combination of these powers.' 6
A review of the Massachusetts cases, even at this date, re-
veals that the law in that Commonwealth has not been fully
14 Commercial Casualty Ins. Co. v. Pearce, 320 Ill. App. 221, 50 N. E. 2d 434
(1943); In Re Estate of Conover, 295 Ill. App. 443, 14 N. E. 2d 980 (1938);
Goldwater v. Oltman, 210 Cal. 408, 292 P. 624 (1930) ; Belts v. Hackathorn, 159
Ark. 621, 252 S. W. 602 (1923); Darling v. Buddy, 318 Mo. 784, 1 S. W. 2d 163
(1927); 12 C. J. S. #1 (4) at P. 814 (1938).
15 Magruder, supra, note 5, at p. 4.30; Note, Business Trusts: Liability of Share-
holders, 18 Calif. L. Rev. 438 (1930).
16 Jeanblanc, Business Trusts-Personal Liability of Trustees and Beneficiaries,
25 Ill. B. J. 112 (1936).
 THE COMMON LAW OF BUSINESS TRUSTS

crystallized on the question of what powers may be reserved to

certificate holders without subjecting them to personal liability.
Perhaps the confusion flows from the fact that these judicial in-
quiries have arisen in the midst of a reservation of a multiplicity
of these powers and there has been little opportunity to deal
with any one of them in isolation.
Nonetheless, it has been held that where the trust instrument
fails to provide for meetings of certificate holders, vests manage-
ment of the trust estate exclusively in trustees and simply permits
the beneficial owners to consent to an alteration, amendment or
termination of the trust indenture, there is a true business trust.17
Moreover, where the trustees had the sole and unrestricted power
to hold, manage and dispose of the trust estate, the mere reserva-
tion of a power to remove the trustees by majority vote of the
certificate holders was said to be insufficient to convert the associa-
tion into a partnership.'" But a purported business trust has
been held to be a partnership where the certificate holders, by two-
thirds vote, had power to remove the trustees at any time with-
out assigning cause, to fill vacancies among the trustees, to
terminate the trust and, by majority vote, to amend the declaration
of trust or alter, amend or repeal the by-laws. 9 If the beneficial
owners are given power to direct the sale of the trust property
and terminate the trust thereby, as well as the right, by three-
fourths vote, to remove trustees and fill vacancies, however
created, a partnership relationship will result.2 0 In short, the
trend of the Massachusetts decision is to classify a supposed busi-
ness trust as a partnership, with the attendant unlimited personal
liability of the certificate holders, when the latter enjoy the right
of arbitrary removal of the trustees at any time in conjunction
with other significant powers such as alteration or amendment of
the trust indenture or termination of the association. 21
17 Williams v. Inhabitants of Milton, 215 Mass. 1, 102 N. E. 355 (1913).
18 Downey Co. v. Whistler, 284 -Mass. 461, 188 N. E. 243 (1933).
19 Frost v. Thompson, 219 Mass. 360, 106 N. E. 1009 (1914).
20 Howe v. Chrnielski, 237 Mass. 532, 130 N. E. 56 (1921). See also, Priestley v.
Treasurer and Receiver General, 230 Mass. 452, 120 N. E. 100 (1918).
21 See Commissioner of Corporations & Taxation v. City of Springfield, 321
Mass. 31, 71 N. E. 2d 593 (1947) in which the certificate holders voted annually
 CHICAGO-KBNT LAW REVIEW

In Illinois there was some doubt as to the validity of busi-

ness trusts" until the celebrated case of Schumann-Heink v. Fol-
som.2 3 Moreover, there was an early misconception as to the true
test to be applied in passing upon the validity of common law
trusts the court stating that the actual exercise of reserved powers
in the certificate holders was determinative2 4 rather than the
reservation of such powers in the declaration of trust. At the
present time, however, Illinois follows the generally accepted
approach 5 and judicial inquiry is directed to the terms of the
indenture. In addition, Illinois jurisprudence has recognized that
although the terms of the trust instrument may be ineffective to
immunize certificate holders in a business trust or joint stock com-
pany from liability to third persons, such terms do control the
rights of the certificate holders inter se. 6 .

Although clearly significant in its definitive exposition of the

nature of business trusts, Schumann-Heink v. Folsom sheds little
light on the matter of what rights may be saved to the certificate
holders. In that case, the trustees themselves had authority to
increase the number of trustees, to fill any vacancies among the
trustees for whatever cause, to promulgate rules and regulations

upon trustees and could effect a termination of the trust but lacked power to
remove the trustees at will. The association was held to be a true business trust
rather than a partnership.
22 Greene v. The People, 150 Ill. 513 (1894) (quo warranto proceeding in which
it is not clear that the court is discussing a business trust). See especially,
Guthmann v. Adco Dry Storage Battery Co., 232 Ill. 327, 332 (1924), wherein the
court said: "there is doubt in the mind of this court as to whether the so called
'Massachusetts Trust' is legal in the State of Illinois."
23 328 Ill. 321, 159 N. E. 250 (1927).
24.in Hart v. Seymour, 147 Ill. 598, 35 N. E. 246 (1893) the precise question
presented was whether or not the trust was executed and the trustees divested
of their legal title under the Statute of Uses. Finding that the trustees had
active duties in the management of trust business, it was concluded that there was
no divestiture. Furthermore, it should be noted that the trust agreement gave the
beneficial owners power to remove trustees at will, to fill vacancies however
caused, to appoint successor trustees and, at regular meetings, to direct the
activities of the trustees. The opinion has been expressed that had IHTart v.
Seymour arisen after the decision in Williams v. Inhabitants of Milton, supra,
note 17, a different result would have been reached. Judah, Possible Partnership
Liability Under The Business Trust, 17 Ill. L. Rev. 77, 88 (1922). Contra:
Hildebrand, The Massachusetts Trust, 1 Tex. L. Rev. 127, 146 (1923).
25 Anno., Massachusetts Or Business Trusts, 156 A. L. R. 22, 114 (194-5).
26 Hossack v. Ottawa Development Assn., 244 II. 274, 91 N. E. 439 (1910);
Hunter v. Winter, 268 Ill. App. 487 (1932).
 THE COMMON LAW OF BUSINESS TRUSTS

for the administration of the trust assets and to fix their own
compensation as well as that of any officers or employees of the
trust. No rights were possessed by the beneficial owners other
than the passive rights to receive dividends, declared at the dis-
cretion of the trustees, and to their proportionate share of the
27
trust estate on winding up.

Where the beneficial owners retained control over the trustees

in the actual management of the trust business, little difficulty was
encountered in declaring the said owners to be partners. And in
an instance in which the purported members of a business trust
annually elected five of their number to be a managing committee
which managing committee controlled the trustees (who possessed
little more than bare legal title to the trust assets) in carrying
on the affairs of the trust, a partnership was said to have been
created.2
3'
Levy v. Nellis30 and Commercial Casualty Ins. Co. v. Pearce
are the leading Illinois cases in which guidance may be sought
as to the extent of the powers which may be conferred upon the
certificate holders in a business trust. In Levy v. Nellis the
beneficiaries of the trust were granted power, by a two-thirds vote,
to amend the trust agreement and, by a majority vote, to elect
trustees at five year intervals. Interim vacancies among the
trustees, however, were to be filled by a majority vote of the
remaining trustees. Reviewing the amount of control reserved
to the certificate holders the court held that a true business trust
had been created. No special significance was attached to the fact

27Attention is drawn to the fact that in Schumann-Heink v. Folsom, the

question before the court was the liability of the trustees as partners. Neverthe-
less, the case should stand as clear authority for the immunity from individual
liability of the certificate holders under similar factual conditions.
28 Weissbrodt v. H. W. Elmore & Co., 262 Ill. App. 1 (1931).
29 In re Estate of Conover, supra, note 14. The facts of this case reveal an
association bearing a close resemblance to an unincorporated joint stock company.
It is submitted that although the promissory note on which the claim was based
described the association as a co-partnership, the better rationale on which to have
based a finding of personal liability of the decedent was that an unincorporated
joint stock company had been formed.
30 284 Ill. App. 228, 1 N. E. 2d 251 (1936).
11 320 Ill. App. 221, 50 N. E. 2d 434 (1943).
 CHICAGO-KENT LAW REVIEW

that the beneficial owners could periodically elect trustees. 32 And

in Commercial Casualty Ins. Co. v. Pearce a business trust was
declared valid even though certain persons occupied the dual status
of trustee and certificate holder.3 3 No powers of any consequence
had been delegated to the beneficiaries.
Thus, in Illinois the law relating to business trusts is not
sufficiently explicit to provide a complete guidepost to the scope
of the authority which may be vested in certificate holders. Levy
v. Nellis clearly permits the beneficiaries of such a trust to have
power to elect the trustees at stated intervals and to amend the
trust instrument. Assuming that the Illinois courts will, as in the
past, adhere closely to the Massachusetts decisions it seems advis-
able to refrain from coupling the power to alter, amend or termi-
nate the declaration of trust or to elect trustees from time to time
with the power to remove the trustees at will.3 4 Moreover, the
greater the cumulation of powers in the beneficiaries the greater
becomes the danger of exposure to unlimited personal liability.

32 Among the authorities which the court cited was Reichert v. Missouri &
Illinois Coal Co., 231 Inl. 238, 244, 83 N. E. 166 (1907), wherein the court stated:
"One who creates a trust has a right to provide a method for filling vacancies and
for appointing successor trustees."
33 Of course, if all the parties interested in the trust are both trustees and
certificate holders and there are no independent trustees the legal and equitable
estates merge and there is no trust. Thulin, A Survey of The Business Trust,
16 Ill. L. Rev. 369, 374-75 (1922).
34 See Warren, Corporate Advantages Without Incorporation 402 (1929). It
has been said that beneficiaries of a business trust should have immunity from
unlimited personal liability even though they are able to: (1) fill vacancies
among the trustees, (2) elect trustees from time to time. (3) remove trustees at
will, (4) alter or amend the trust indenture, or (5) terminate the trust. Magruder,
supra, note 5, at p. 443. Other writers exhibit a wide area of disagreement on this
matter. A rather conservative view is expressed in Judah, supra, note 24, at p.
95 where it is stated that the certificate holders may only have the power to
consent to the filling of vacancies among trustees or the making of amendments
to the trust agreement and that said consent should be given individually rather
than at a meeting. In Hildebrand, The Massachusetts Trust, 1 Tex. L. Rev. 127,
153 (1923) it is submitted that the certificate holders may have authority to
terminate the trust or to amend it from time to time. Perhaps the most con-
servative point of view is expressed in Brown, Common Law Trusts as Business
Enterprises, 3 Ind. L. J. 595, 602 (1928), wherein it is said that the beneficial
owners should have no authority to fill vacancies among the trustees and should
not hold meetings. And in Everberg, supra, note 4, at p. 4 it is agreed that the
beneficiaries may be given power to elect trustees at stated intervals. On the
latter point see, Home Lumber Co. v. State Charter Board, 107 Kan. 153, 190 P.
601 (1920), recognizing that such authority may be vested in the certificate holders.
 THE COMMON LAW OF BUSINESS TRUSTS

PERSONAL LIABILITY OF TRUSTEES

Trustees of a business trust are personally liable in tort 5 and

in contract 36 for obligations incurred in the administration of trust
business. The rationale of this rule is that the trustees are not
acting simply as agents for the certificate holders but as principals
who are administering the trust property in accordance with the
terms of the trust instrument.
Since liability of this magnitude will be of great significance
to those who are called upon to act as trustees of real estate invest-
ment trusts, a discussion of the means by which the trustees may
limit their liability is in order. Although it is difficult to limit tort
liability,3 7 it is feasible to eliminate the personal liability of the
trustees with respect to contracts.3
In Hunter v. Winter, 9 the filing of the declaration of the
trust in the office of the County Recorder was held to be ineffective
to absolve the trustees of their personal liability on a lease nego-
tiated on behalf of the trust. Moreover, a signature "as trustee"
is deemed to be merely descriptio personae 0 and the underlying
obligation remains that of the trustee personally.4 ' On the other
hand it is universally recognized that the trustees may eliminate
their personal liability by stipulating in the contract that they
shall not be personally responsible and that the other contracting
party shall look solely to the trust assets for satisfaction of his
352 Scott, Trusts #274 (1.939) at p. 1540; Sleeper v. Park, 232 Mass. 292,
122 N. E. 315 (1919).
36 Taylor v. Davis, 110 U. S. 330 (1883) ; Austin v. Parker, 317 Ill. 348, 148
N. E. 19 (1925).
37HRIdebrand, Liability of The Trustees, Property and Shareholders of a
Massachusetts Trust, 2 Tex. L. Rev. 139, 145 (1924).
35 It has been held in Illinois that a single trustee who contracts on behalf of
the trust and is not shown to have had authority to bind his co-trustees is
solely liable on the obligation. Uihlein v. Budd, 252 Ill. App. 487 (1929).
39 Supra, note 26.
40 White, Trustee's Avoidance of Personal Liability On Contracts, 3 Temple L.
Q. 117, 131 (1929). Contra, Thulin, supra, note 33, at p. 374.
41 Austin v. Parker, supra, note 36. But in Barkhausen v. Continental Illinois
National Bank, 3 Ill. 2d 254, 120 N. E. 2d 649 (1954) rev'g. 351 Ill. App. 388, 115
N. E. 2d 553 (1953), It was concluded that a signature "as trustee" raises an
ambiguity explicable by parol evidence which may indicate the extent of the
liability intended to be created.
 CHICAGO-KENT LAW REVIEW

claim.42 Even though there is support for the proposition that the
agreement absolving the trustee of personal liability may be oral
or even implied from the surrounding circumstances, 43 a judicious
trustee would be ill-advised to settle for less than an express
stipulation in a written contract.
The Illinois cases seem to be in conflict on the question of
whether personal liability attaches to the trustees where the other
contracting party has full knowledge of the character of the trust
and the trust indenture purports to save the trustees from indi-
vidual liability.4 4 In H. Kramer & Co. v. Cummings, 45 such knowl-
edge on the part of the other contracting party limited the recov-
ery exclusively to the assets of the trust. But subsequent cases
cast doubt on this rule and require an express stipulation in the
contract before the trustees can successfully assert their exemption
46
from personal liability.
Unquestionably, the best course for the trustees of a business
trust to pursue in saving themselves from personal liability on
contracts is to insert a term in the contract negating their own
responsibility and insisting that the other contracting party look
only to the trust corpus. So far as tort liability is concerned,
perhaps the best procedure to safeguard the trustees is to draft
the trust indenture with a provision empowering the trustees to
obtain insurance against tort claims. 47 Even in the absence of
such a clause, however, the trustees would possess an equitable
right of reimbursement out of the trust assets and from the bene-
48
ficiaries themselves in the event the trust estate is insufficient.
42 Schumann-Heink v. Folsom, 328 Ill. 321, 159 N. E. 250 (1927); Carpenter
v. Elmer R. Sly Co., 109 Cal. App. 539, 239 P. 162 (1930) ; Jessup v. Smith, 223
N. Y. 203, 119 N. E. 403 (1918). Note, Business Trusts-Trustee's Personal Lia-
bility on Contracts-Methods of Avoiding, 18 Minn. L. Rev. 860, 864 (1934).
43 Mitchell v. Whitlock, 121 N. C. 166, 28 S. E. 292 (1897).
44 Note, Associations-Massachusetts Trusts-Personal Liability of Trustees on
Contracts, 36 Mich. L. Rev. 1184, 1186 (1938).
45225 Ill. App. 26 (1922).
46 Reconstruction Finance Corporation v. Goldberg, 143 F. 2d 752 (7th Cir.
1944), cert. den., 323 U. S. 733 (1944), rehear, den., 323 U. S. 814 (1944) ; Review
Printing & Stationery Co. v. McCoy, 291 Ill. App. 524, 10 N. E. 2d 506 (1937). To
the same effect see, Carr v. Leahy, 217 Mass. 438, 105 N. E. 445 (1914).
47 Hildebrand, supra, note 37.
48 Symmonds, Business Trusts, 15 Marq. L. Rev. 211, 215-16 (1931). For further
discussion of the trustee's right of reimbursement see, Stone, Theory of Liability
of Trust Estates, 22 Col. L. Rev. 527 (1922) ; Scott, Liabilities in the Administra-
tion of Trusts, 28 Harv. L. Rev. 725 (1915).
 THE COMMON LAW OF BUSINESS TRUSTS

PROBLEMS IN THE ADMINISTRATION OF BUSINESS TRUSTS

Although Illinois recognizes the right of a business trust to

transact business under an adopted trade name, 49 the trust cannot
sue or be sued 5° under such a name. Therefore, in Illinois, unlike
some other jurisdictions, 51 the proper parties for purposes of suit
are the trustees of the business trust.
As is true of other kinds of trusts, the trustees of a common
law trust occupy a fiduciary relationship towards the benefici-
aries52 and must remain aloof from any fraud or self-dealing. In
addition, they may not effectively bind the trust by a contract
which is in excess of their powers under the trust indenture."
If the trustees have authority to amend the trust agreement upon
the consent of the certificate holders, any information which ac-
companies the solicitation of such consent must be a full disclosure
of all relevant facts and, without such full disclosure, the consent
54
so obtained is void.
Absent any authority in the trust instrument, the trustees lack
the right to appoint an agent for the beneficial owners. 5 But if
the trustees have power to appoint successor trustees upon notice
to the certificate holders, appointments made without such notice
are valid, the requirements as to notice being merely informa-
tional in nature.5" Finally, if the trustees are attempting to solicit
support for the sale of the trust assets, it is a breach of trust for
them to refuse a demand of a certificate holder, who opposes the
proposal, for a list of other certificate holders. 7
49 Remington v. Krenn & Dato, 289 ill. App. 548, 7 N. E. 2d 618 (1937).
50 Vischer v. Dow Jones & Co., 325 Ill. App. 104, 59 N. E. 2d 884 (1945);
Guthmann v. Adco Dry Storage Battery Co., supra, note 22.
51 American R. Exp. Co. v. Asher, 218 Ky. 172, 291 S. W. 21 (1927); Wagoner
Oil & Gas Co. v. Marlow, 137 Okla. 116, 278 P. 294 (1929).
52 By way of contrast, it has been held that one certificate holder has no fiduciary
duty to his co-holders. Krensky v. DeSwarte, 335 Ill. App. 435, 82 N. E. 2d 168
(1948).
53 Sykes v. Parker, 250 Ill. App. 299 (1928).
54 Shapiro v. Chicago Title & Trust Co., 328 Ill. App. 650, 66 N. E. 2d 731
(1946) (real estate liquidation trust).
55 Hines v. United States, 90 F. 2d 957 (7th Cir. 1937); cert. den., 302 U. S.
756 (1937).
56 860 Lake Shore Drive Trust v. Gerber, 19 11. App. 2d 1, 153 N. E. 2d 253
(1958).
57 Wallace v. Malooly, 4 Ill. 2d 86, 122 N. E. 2d 275 (1954) (real estate
liquidation trust).