any one who can enter into a contract, or make a will, or deal with legal title to property, may vest property in trustees. But, of course, this proposition is subject to the limitation set by public policy and by statute law. Trusts for combining corporations may be illegal as being the result of ultra vires acts by the corporations. New York and other States forbid trusts of real estate except in certain cases; and some States have abolished all trusts and uses except those which are established by will or deed.

But this is not all. It is not entirely clear whether trusts as forms of business organization will come under the law of trusts or not. It appears that in Massachusetts the trend of the decisions has been toward regarding voluntary associations with a trust agreement as a form of partnership. In some cases, however, they have been brought under the law of trusts. It seems not unlikely that in other jurisdictions, business trusts having agreements which limit liability and vest all property rights in the trustees would be regarded as quasi-corporations. A recent Massachusetts case suggests that in the determination of this point the emphasis will be laid upon "the substantial purposes of the enterprise" rather than upon these forms and agreements." 1

In addition to this element of uncertainty, there is the further fact that the public is inclined to be suspicious of any organization bearing the name "trust "; and even in Massachusetts, legislation restricting the use of simple business trusts has been proposed of late.

Trustees as Entrepreneurs. - How is the entrepreneur's function filled in the trust? What of the trustee's position as an entrepreneur? Under the common law, the situation is rather anomalous, being somewhat like that in a receivership.2 The trustee is neither a pure entrepreneur, nor a mere salaried employe. His risk is more like that of the entrepreneur, though it is modified by his right to reimbursment for losses incurred

1 Williams v. Boston, 208 Mass. 50. See Edwards v. Warner Linoline, etc. Works, 168 Mass. 566, for a case which indicates that the business trust might be dealt with by the courts as a corporation.

* See below, p. 336.

through acts performed in good faith. But his reward as trustee is in the nature of a stipulated commission, and he may not make a profit in his trustee capacity. His mixed status appears in the ownership of the trust property: The legal title is in the trustees; but in equity the beneficiaries are the owners, and the trustees are limited by the terms of the deed and by the principles of equity. Like the receiver, although to a less extent, the trustee is subject to considerable supervision by the courts. As modified by special agreements, the business trust is made to partake largely of the nature of a corporation, except that the trustees may always be more independent of the shareholders than are directors. Agreements often specifically divest the beneficiaries of all title in or to the trust property, deprive them of the right to an accounting, and bestow upon the trustees all the powers of corporation directors. As already noted, too, such agreements generally provide that neither the beneficiaries nor the trustees shall be personally responsible for the debts of the trust.

Social Point of View. Considered from a social standpoint, the business trust is so liable to abuse, and requires such safeguarding, that it may fairly be called a dangerous institution. It will be remembered that the idea of the trust developed from the need of a suitable agency to manage the estates of incompetent persons, not to conduct businesses for competent persons. We have seen that in its very origin the trust form savored of the evasion of law. It has appeared that the securities-holding form of trust has been used to evade corporation laws. In one case, the courts have held that "the originators of this scheme have endeavored to avail themselves of the advantages of a corporation, under an association as partners"; and again in Hussey v. Arnold, the Massachusetts court said:

"The agreement creating the trust has peculiar provisions. The object of it, apparently, was to obtain for the associates most of the advantages belonging to corporations, without the authority of any legislative act, and with freedom from the restrictions and regulations imposed by law upon corporations" (185 Mass. 203).

1 Tyrrell v. Washburn, 6 Allen (Mass.), 474.

While these cases were decided in a State whose policy is to recognize no forms intermediate between the partnership and the corporation, they throw light on the general significance of the trust as a form of business organization.

In order to give the utmost reasonable safety to the use of business trusts, in the interest both of investors and of the public, it would seem to be the part of wisdom (1) somewhat to limit the field available for them, and (2) to safeguard their form. Business trusts appear best adapted for the conduct of investments in real estate; and, to say the least, are not needed for ordinary manufacturing and mercantile business. Wherever used, the following restrictions should be adopted: Trusts should be limited to a reasonable term of years, say ten. They should be formed only by means of a written deed of trust accessible to all beneficiaries. The beneficiaries should not surrender all title to the trust property; and the deed should empower them to withdraw their property upon reasonable notice. The same policy which is applied to the control of the capitalization of corporations ought also to be applied to the trust.

In conclusion, it may be said that the essence of the matter lies in the fact that the trust institution originated in the need of an organization for administering the property of those who were incapable of attending to it themselves, and consequently it is not naturally adapted to the needs of active and intelligent investors. While the trust supplies a stable and enduring organization, as used in business it almost of necessity places in the directors (trustees) a discretion which is out of all proportion to their actual responsibility. It is not a safe form, viewed from the standpoint of society.

CHAPTER IX

COMBINATION ORGANIZATION IN GENERAL

THUS far we have examined organizations which may be called simple associations. In each of the forms discussed in the foregoing pages, the individual has been the constituent unit, and, in each case, the individuals as units have been simply and directly associated. Formally, at least, the natural persons who are the members have stood in an immediate relation to the direction of the management of the organization. The highest and most efficient form of organization by simple association is the corporation. Now, in just the same way that the powers of a single individual are limited in comparison with the powers of an association of individuals, so the powers of a simple association are more limited than those of larger and more complex aggregates. In political government, and especially in an immature and changing civilization, it would be deemed impossible to administer the affairs of a great continent directly, without the interposition of subordinate officials and local units having some discretionary powers; and, likewise, in business government, the extent of territory and amount of production that could be attended to by a simple direct association of business men is limited. If we call business "the market," we may conclude that with the growth of markets there would be a tendency to form larger business organizations, and that these larger organizations would necessarily be less simple and operate more indirectly. The natural thing to occur would be the combination of existing simple associations into large compound organizations.

Looking around us to-day, what do we see? On all sides we behold complex organizations which indirectly, through sub

ordinate and simpler forms, deal with markets which are sometimes world-wide in extent. Of course, independent simple associations, such as partnerships and uncombined corporations, continue to exist, just as the single-individual organization does; and, moreover, combinations were not unknown in earlier times; but a substantially accurate idea of the evolution of business organization will be gained if one thinks of a new cycle of development as opening about the time of the Civil War, or say 1870, and reaching a climax about 1898 - a cycle in which the constituent units more and more frequently became associations of individuals, and the resultant organizations were compound affairs or combinations. It may be said that artificial persons (corporations) more and more form the units of the later associations. For over a generation we have been growing more and more familiar with the rich terminology of combination. The columns of the press bristle with "combines," "trusts,' "associations," "pools," "consolidations," "rings," mergers," and what not. In the following chapter the object will be to straighten out this confusion of terms, to analyze the forces which gave rise to the new cycle in the evolution of business organization, and to prepare the way for later discussions by presenting some general principles of law as affecting combinations.

Classes of Combination Organization. — Few readers, or writers either, for that matter, discriminate carefully among the terms which indicate the various forms of combination; but there are as many different kinds of combination as there are kinds of simple association, and in dealing with these different kinds it will be found conducive to clear thought to apply the various terms according to their logical denotation and best usage.

To combine is simply to become one of the parts of a whole, and a combination is merely a union of persons to make a whole or group for the prosecution of some common purpose. The idea of purpose is not separable from the meaning of the word as used to indicate unions of men, for men hardly unite without a common object in view; and it is significant that even the dictionaries use the word "confederacy" in defining human

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