CHAPTER I NATURE AND LEGAL STATUS OF TRUST COMPANIES The economic structure of modern society is made up of five groups of agencies: (1) stuff changing agencies, such as the agricultural industry, chemical industries, etc.; (2) form changing agencies, such as manufacturing industries, packing, canning, etc.; (3) place changing agencies, such as steamships, railroads, automobiles, delivery vehicles, communication facilities, etc.; (4) time changing agencies, such as refrigeration, greenhouses, etc., (the time change element is involved in other agencies, such as rapid transportation); and finally (5) agencies for performing services in connection with ownership and exchange, such as brokers, retailers, banks, insurance companies, etc.1 It is this last group of agencies that includes the institution commonly referred to as the trust company. Its services are largely connected with the ownership of property, although it sometimes involves exchange of property. Broadly interpreted, the functions of this economic agent-the trust company-may be summarized under the following headings: Economic functions 1. Conservator of private property. 2.-Clearing house of equities or equity subdivider. 4. Stabilizer of enterprise. Social functions 1.-Conservator of human beings. 2.-Promoter of social tranquillity. 3.-Conservator of family tranquillity. 1 Cf. Fetter F. A., Economic Principles, Chapters 9-10. Political functions 1.-Aid to public credit. 2.-Aid in the administration of tax laws and the collection of taxes. 3.-Promoter of tax reforms. An attempt will be made to answer the question, How is it that the trust company exercises these important functions? First will be given a formal analysis by definition, description and classification of the detailed services performed by the trust company, and when that is done these services will be viewed synthetically and interpreted in the light of economic, social, and political considerations. Definition. A trust company is a corporation, created by a sovereign state, and empowered thereby to perform specified fiduciary services which it would be lawful for a natural person to perform.1 A trust company, therefore, may be described briefly as a corporate fiduciary. To examine further the definition, it is to be noted: First, that a trust company is a corporation, and is thus a body consisting of three or more natural persons empowered by law to act as an individual and continued by a succession of members. In the case of trust companies the usual number of natural persons required is from five to seven or more. Rhode Island and a few other states require as high as fifteen or more. Second, that it is created by a sovereign state, and this usually means a particular state of the United States, not state in the generic sense. But in the District of Columbia trust companies are incorporated by the federal government. Third, that (in addition to the normal and usual corporate powers implied by the definition) it is empowered by the state to perform any specified fiduciary service which it would be lawful for a natural person to perform. The Trust Company a Corporation. As a corporation, the trust company has the normal and usual powers of corporations 1See Bibliography under "Definition of Trust Company," infra, pp. 518-9. in general. It is "continued by a succession of members" and hence does not die. It has the characteristic of immortality. This does not mean, however, that it has perpetual succession of members. In most state constitutions it is provided that no corporation shall be granted a perpetual charter. But there is no difficulty in having the corporate charter renewed providing the company obeys the law of the state in which it is incorporated, and does not perform ultra vires acts. In addition, the trust company as a corporation has individuality in the sight of the law, it is a persona ficta-a person created by law which can sue and be sued, plead and be impleaded. It is thus responsible before the law for its acts. The Trust Company Created by a State. Each state of the United States has its own laws covering the creation and supervision of trust companies within that state. Corporations can only be created by legislative act, either by special charter or by the compliance with general laws framed for their organization. For the most part, the power to create corporations comes under the domain of state sovereignty, but the federal government has power to create corporations, "public or private, whenever they become an appropriate means of exercising any of the constitutional powers of the general government, or of facilitating its lawful operations in the states or territories.” 2 The incorporation of trust companies is provided for in some states in the general corporation law of the state. In other states, there is a special "Trust Company Law" or Act providing for the incorporation of trust companies. If a trust company 'Thus in the Trust Company Law of the State of New Jersey, under section 6 entitled "Powers" it says: "In addition to the general powers conferred by the ‘Act concerning corporations' (Revision of 1896), so far as the same are not inconsistent with this act, every trust company hereafter organized, . . . shall have power:" Italics supplied. Potter, Law of Corporations, p. 7; United States Trust Co. v. Brady, 20 Barb. 122; Penn. R. R. Co. v. Canal Commissioners, 21 Pa. St. 9; Franklin Bridge Co. v. Wood, 14 Ga. 80. This power has been exercised by the federal government in the cases of the first and second United States banks, the national banks and the federal reserve banks. should desire to be incorporated in a state which has no such provision, either in the general corporation law or in a special trust company law, it would be necessary for the legislature of that state to pass a law granting a charter to the trust company in question. Yet it has been held that a corporation may be organized with power to act as a trustee under general statutes authorizing incorporation "for any lawful purpose." This would be so, following the common-law doctrine that it is lawful for a corporation to accept trusts.2 However, with the development of corporation law in the United States all corporate powers must be specifically granted except those generally implied to be a part of corporate existence. 1 A trust company which obtains its charter under the general corporation laws of a state or under a trust company incorporation law is said to have a "general charter," or a charter "under general corporation law"; whereas if it is necessary for a law to be enacted specifically for the purpose of creating a particular trust company, that trust company is said to have a "special charter." All of the states of the United States now have special provisions in their laws for general incorporation of trust companies although in Texas the trust company law still does not include provision for allowing trust companies to act as executor. Even Alaska has a trust company law. In a number of the states such legislation is of quite recent date, as the following brief tabulation indicates: 3 1 Sears, A Treatise on Trust Company Law, p. 47. 2 The earlier doctrine was that a corporation could not act in a fiduciary capacity, either because “it is a dead body" in which “a confidence cannot be put" or because the process of the court of Chancery could not issue against it. Fulmerston v. Steward (1554) Plowden, p. 103; Croft v. Howel (1578) Plowden, p. 538. But in 1744 the chancellor said that "nothing was clearer than that corporations might be trustees" in the case of Attorney-General v. Landerfield, 9 Mod. 286; and since that time numerous cases have upheld that statement. Green v. Rutherforth, 1 Ves. 462, 467; Vidal v. Girard, 2 How. 127, 187; Bell Co. v. Alexander, 22 Tex. 350. Cf. Ames, Cases on the Law of Trusts, p. 216, and notes 3 and 4; and Holdsworth, History of English Law, Vol. IX, p. 52. 3 Compiled from returns of questionnaire sent by the author to State Bank Departments of the various states, July, 1926, and from correspond ence. |