Guthrie’s appeal.
Opinion,
Mr. Justice McCollum:
In 1866 a copartnership was formed under the name of the Pittsburgh Savings Bank, for the purpose of transacting a banking business at Pittsburgh, Pa. The capital was fixed at [502]*502$800,000, and divided into shares of $100 each. A purchaser of one or more of these shares became a member of the partnership, and was called a stockholder. The management of the bank was committed to a board of directors, a president, vice-president, and a treasurer or cashier. It was stipulated in the partnership articles that if any stockholder desired to sell his stock, he must first offer it to the board of directors at a stated price, and, if it was not taken by the board, he was at liberty to dispose of it to whom he pleased. By another provision in these articles, all stockholders were “individually bound to make good to all depositors the amount of their deposits.” When a member sold his stock, it was transferred to his vendee on a book called the “ Stock Ledger,” but the business-was conducted' as before. By this transfer the purchaser acquired the rights and incurred the liabilities of a partner. These, as affected by the partnership articles, will be presently considered. In August, 1878, the bank, being unable to meet its engagements, closed its doors ; and subsequently a bill was filed by one of the partners for a dissolution, an account, and a receiver. The parties to this bill were stockholders when the bank ceased to transact business. A receiver was appointed, and he now has in his hands a fund produced by a sale of the partnership property. The appellant contends that the claims he holds as trustee are-entitled to participate in this fund. It is admitted that these claims, with one exception, represent debts of the partnership as it existed prior to August 25, 1876, when the last transfer of stock was made. The members of the partnership who retired from it on or before that day concede their liability for debts contracted while they were stockholders, but allege that, as between them and the partnership which continued the business, they are sureties. The appellant is their trustee. He bought these claims at their request, and with their money. As their representative, he is on no higher ground than the creditors from whom he purchased. •
The learned auditor, being of opinion that the fund belonged to the partnership as it existed after August 25,1876, and was primarily applicable to the payment of its debts, refused to award any portion of it to these claims. In explanation .and vindication of this refusal, he said: “ The fund belongs exclusively to the parties to the present bill in equity, they being [503]*503the membership of the bank at its suspension. The bank, being but a partnership, changed upon each transfer of stock from an old to a new copartnership, and with such change of the rights of the various members, also the rights of creditors changed. Although, in appearance, the bank remained in all respects the same, yet in law their claims against the old firm .could not have been collected from the new. The incoming partner was as little bound for the payment of the old debt as the old creditors were bound to look to him for payment. Each successive firm was liable for the payment of its own debts, and the assets of each firm, while kept intact, belonged first to the creditors of such firm ; but, when these assets became the property of a succeeding firm, its creditors had the sole right thereto, and the old creditors had to look to the individuals who composed the old firm for payment.” In support of these conclusions, he cited and relied on Doner v. Stauffer, 1. P. & W. 198; Snodgrass’s App., 13 Pa. 471; Baker’s App., 21 Pa. 76; York Co. Bank’s App., 32 Pa. 446; Frow’s Est., 73 Pa. 459; Clark v. Wilson, 19 Pa. 414; Bullitt v. M. E. Church, 26 Pa. 110; Clarke’s App., 107 Pa. 436; Scull’s App., 115 Pa. 148.
The contention of "the appellant is not so much with the principles announced by the auditor, as with their application to the case in hand. He claims that under these partnership articles, and in view of the manner in which the business of the bank was conducted and its accounts were kept, the retirement of an old stockholder and the introduction of a new one did not work a dissolution of the company, but that it remained, and the incoming partner became liable for all its debts.
It is a well-settled rule that an incoming partner is not liable for debts contracted by a firm before he entered it. He may become liable for them by his contract with the retiring partner, but the party who alleges such liability must prove the agreement which created it: Kountz v. Holthouse, 85 Pa. 235. The purchase of stock in an unincorporated bank, and a continuance of the business, without any separation of past from future effects and liabilities or discrimination between past and future profits, will not render the purchaser liable for the antecedent debts of the bank. The payment by the bank, after he became a member of it, of interest on such debts, is insufficient to [504]*504charge him with an assumption of them: Shamburg v. Ruggies, 83 Pa. 148. In such a bank the stockholders have the rights and responsibilities of, and in their relation to the public and each other are general partners: Shamburg v. Abbott, 112 Pa. 6. If, therefore, the principles which govern ordinary partnerships do not apply in the present case, it is because of some provisions in the partnership articles which change the rights and liabilities of the partners, and deprive the retirement of an old partner, and the introduction of a new one, of the usual effect of such action. These articles allow a stockholder to sell his stock, if he is not indebted to the bank on indorsements or otherwise; require that the transfer of it shall be made on the books of the company, and that he shall first offer it to the board of directors, at a stated price. Article 27 is in the words following: “ All stockholders are hereby individually bound to make good to all depositors the amount of their deposits.” In this article, and the regulations and conditions affecting the sale of stock, the appellant claims there is an undertaking by the firm and incoming partners to pay the prior indebtedness of the firm, and to exonerate the retiring partners from it.
We are unable to discover in the restrictions on the sale of stock any engagement by the incoming partner to become liable for the antecedent debts of the firm, and we cannot construe article 27 as imposing on him such a liability. If it had been the purpose of the partnership to attach such a result to a change of membership, it should have been clearly expressed. We think article 27 refers to deposits made with the firm of which the stockholder is a member, and that it has no application to deposits made with a preceding or subsequent firm. Thus read and understood, it is intelligible and in accord with well-established principles.
In Clarke’s App., 107 Pa. 436, the parties now represented by the appellant filed a bill in equity against the stockholders of the Pittsburgh Savings Bank, and alleged that said bank was a copartnership, formed under articles of agreement which provided for sales and transfers of stock and allowed any partner to sell his interest in the partnership at any time, and that the assignee of such interest succeeded to the rights and liabilities of the assignor; “ that when any partner sold his interest, and the same was transferred upon the books of the firm to the pur[505]
Free access — add to your briefcase to read the full text and ask questions with AI
Guthrie’s appeal.
Opinion,
Mr. Justice McCollum:
In 1866 a copartnership was formed under the name of the Pittsburgh Savings Bank, for the purpose of transacting a banking business at Pittsburgh, Pa. The capital was fixed at [502]*502$800,000, and divided into shares of $100 each. A purchaser of one or more of these shares became a member of the partnership, and was called a stockholder. The management of the bank was committed to a board of directors, a president, vice-president, and a treasurer or cashier. It was stipulated in the partnership articles that if any stockholder desired to sell his stock, he must first offer it to the board of directors at a stated price, and, if it was not taken by the board, he was at liberty to dispose of it to whom he pleased. By another provision in these articles, all stockholders were “individually bound to make good to all depositors the amount of their deposits.” When a member sold his stock, it was transferred to his vendee on a book called the “ Stock Ledger,” but the business-was conducted' as before. By this transfer the purchaser acquired the rights and incurred the liabilities of a partner. These, as affected by the partnership articles, will be presently considered. In August, 1878, the bank, being unable to meet its engagements, closed its doors ; and subsequently a bill was filed by one of the partners for a dissolution, an account, and a receiver. The parties to this bill were stockholders when the bank ceased to transact business. A receiver was appointed, and he now has in his hands a fund produced by a sale of the partnership property. The appellant contends that the claims he holds as trustee are-entitled to participate in this fund. It is admitted that these claims, with one exception, represent debts of the partnership as it existed prior to August 25, 1876, when the last transfer of stock was made. The members of the partnership who retired from it on or before that day concede their liability for debts contracted while they were stockholders, but allege that, as between them and the partnership which continued the business, they are sureties. The appellant is their trustee. He bought these claims at their request, and with their money. As their representative, he is on no higher ground than the creditors from whom he purchased. •
The learned auditor, being of opinion that the fund belonged to the partnership as it existed after August 25,1876, and was primarily applicable to the payment of its debts, refused to award any portion of it to these claims. In explanation .and vindication of this refusal, he said: “ The fund belongs exclusively to the parties to the present bill in equity, they being [503]*503the membership of the bank at its suspension. The bank, being but a partnership, changed upon each transfer of stock from an old to a new copartnership, and with such change of the rights of the various members, also the rights of creditors changed. Although, in appearance, the bank remained in all respects the same, yet in law their claims against the old firm .could not have been collected from the new. The incoming partner was as little bound for the payment of the old debt as the old creditors were bound to look to him for payment. Each successive firm was liable for the payment of its own debts, and the assets of each firm, while kept intact, belonged first to the creditors of such firm ; but, when these assets became the property of a succeeding firm, its creditors had the sole right thereto, and the old creditors had to look to the individuals who composed the old firm for payment.” In support of these conclusions, he cited and relied on Doner v. Stauffer, 1. P. & W. 198; Snodgrass’s App., 13 Pa. 471; Baker’s App., 21 Pa. 76; York Co. Bank’s App., 32 Pa. 446; Frow’s Est., 73 Pa. 459; Clark v. Wilson, 19 Pa. 414; Bullitt v. M. E. Church, 26 Pa. 110; Clarke’s App., 107 Pa. 436; Scull’s App., 115 Pa. 148.
The contention of "the appellant is not so much with the principles announced by the auditor, as with their application to the case in hand. He claims that under these partnership articles, and in view of the manner in which the business of the bank was conducted and its accounts were kept, the retirement of an old stockholder and the introduction of a new one did not work a dissolution of the company, but that it remained, and the incoming partner became liable for all its debts.
It is a well-settled rule that an incoming partner is not liable for debts contracted by a firm before he entered it. He may become liable for them by his contract with the retiring partner, but the party who alleges such liability must prove the agreement which created it: Kountz v. Holthouse, 85 Pa. 235. The purchase of stock in an unincorporated bank, and a continuance of the business, without any separation of past from future effects and liabilities or discrimination between past and future profits, will not render the purchaser liable for the antecedent debts of the bank. The payment by the bank, after he became a member of it, of interest on such debts, is insufficient to [504]*504charge him with an assumption of them: Shamburg v. Ruggies, 83 Pa. 148. In such a bank the stockholders have the rights and responsibilities of, and in their relation to the public and each other are general partners: Shamburg v. Abbott, 112 Pa. 6. If, therefore, the principles which govern ordinary partnerships do not apply in the present case, it is because of some provisions in the partnership articles which change the rights and liabilities of the partners, and deprive the retirement of an old partner, and the introduction of a new one, of the usual effect of such action. These articles allow a stockholder to sell his stock, if he is not indebted to the bank on indorsements or otherwise; require that the transfer of it shall be made on the books of the company, and that he shall first offer it to the board of directors, at a stated price. Article 27 is in the words following: “ All stockholders are hereby individually bound to make good to all depositors the amount of their deposits.” In this article, and the regulations and conditions affecting the sale of stock, the appellant claims there is an undertaking by the firm and incoming partners to pay the prior indebtedness of the firm, and to exonerate the retiring partners from it.
We are unable to discover in the restrictions on the sale of stock any engagement by the incoming partner to become liable for the antecedent debts of the firm, and we cannot construe article 27 as imposing on him such a liability. If it had been the purpose of the partnership to attach such a result to a change of membership, it should have been clearly expressed. We think article 27 refers to deposits made with the firm of which the stockholder is a member, and that it has no application to deposits made with a preceding or subsequent firm. Thus read and understood, it is intelligible and in accord with well-established principles.
In Clarke’s App., 107 Pa. 436, the parties now represented by the appellant filed a bill in equity against the stockholders of the Pittsburgh Savings Bank, and alleged that said bank was a copartnership, formed under articles of agreement which provided for sales and transfers of stock and allowed any partner to sell his interest in the partnership at any time, and that the assignee of such interest succeeded to the rights and liabilities of the assignor; “ that when any partner sold his interest, and the same was transferred upon the books of the firm to the pur[505]*505chaser, the remaining partners and said purchaser were bound to exonerate him from all debts then or thereafter contracted, and to apply the assets of the firm, so far as required, to the payment of the then existing liabilities; ” and that the plaintiffs were partners in said firm, but had sold their interests therein at various dates subsequent to January 1, 1872, and the same were transferred upon the books of the firm to the purchasers thereof. They further averred that, by reason of the default of the defendants, they had been compelled to pay claims for deposits made while they were partners, and for deposits subsequently made by old customers who had not been notified of the sale of their interests. They prayed for an account, and a decree that the defendants reimburse them for the payments so made. Their bill was dismissed on the ground that their appropriate remedy was an action at law, on the agreement set forth in it. In delivering the opinion of this court, Mr. Justice Paxson said: “ The only question here is one of jurisdiction.....We have merely the case of a partner who has sold his interest in the firm, with an agreement that he shall be exonerated from all the firm debts, present and future, who has been compelled to pay certain debts of the firm, and who files a bill claiming to be reimbursed for such payment.” The appellant draws from this language, which is merely descriptive of the case presented in the plaintiffs’ bill, the erroneous inference that the partnership articles were construed by this court in accordance with his present contention. The only question raised and considered was, not whether the claim of the plaintiffs was correctly stated in their bill, but whether a court of equity had jurisdiction of it. Mr. Justice Stebrett’s reference in Shamburg v. Abbott, 112 Pa. 6, to the partnership articles in Clarke’s Appeal, is not descriptive of an adjudication which interpreted those articles, but of the claim on which the question of jurisdiction was decided.
We agree with the auditor and court below that claims against the Pittsburgh Savings Bank for deposits made prior to August 25, 1876, cannot participate in this fund, to the exclusion of, or pro rata with, claims for deposits made after that date.
It is alleged that the claim of the city of Pittsburgh, transferred to the appellant in trust as aforesaid, represents a debt [506]*506contracted by the bank after the last change in the membership of the firm. The amount of this claim is $41,530.16. The city brought suit upon it in 1878, and included as defendants therein all who, at any time, held stock in the bank. This suit by agreement of the parties was sent to a referee, before whom it was pending at the time of the audit. The parties now represented hy the appellant bought the claim for $17,092.63. It is contended that the monthly balances in the account between the city and the bank, from June 1, 1876, to December 31, 1877, show that the claim is for deposits made by the city after August 25, 1876. The balance on the 1st of August, 1876, was $45,534.24, and on the 1st of September following, $204,196.72. It is not alleged that the September balance represented deposits made after August 25th, or that the August balance was paid before that day. It is a fair inference from these balances that the amount due the city on the day the last transfer of stock was made, was greater than the amount due on the 31st of December, 1877. ' The former was a debt of the old partnership, and it may well be doubted whether the old partners, who were bound for it, can successfully claim that the latter, which is the final balance in an account which was continuous from June 1, 1876, to December 31, 1877, is a liability of the new firm. But we do not pass on this question now, as there is nothing upon the record to show that it was •raised before the auditor, and we cannot say that all the evidence necessary for its proper determination is before us.
The auditor was of opinion that he had no jurisdiction of this claim, because a suit upon it was pending before a referee. The reference of a suit deprives the court in which it is pending of all power over it while the agreement to refer is in force. The court can regain original jurisdiction of it only by setting aside the agreement. It cannot, while the suit is before the referee, pass upon the validity of the claim involved in it, because the parties have cast that duty on a tribunal of their own creation, and what the court may not, in this particular, do- directly, it cannot authorize its auditor to do. We think, therefore, that the auditor was right in refusing to take cognizance of this claim, and, as he was not asked to set aside any portion of the fund to await the decision of the referee, we need not consider his duty in such case.
[507]*507The objection to the order enlarging the powers of the auditor is without merit. It rests upon a bare irregularity, and the appellant has no standing to contest it.
Decree affirmed, and appeal dismissed, at the cost of the appellant.
BINDLEY’S APPEAL.
Mr. Justice McCollum :
In Guthrie’s Appeal, No. 168 October Term 1889, we decided that the portion of this judgment held by Guthrie in trust for former partners could not take any part of the fund. This appellant, as to his portion of the judgment, is in no better position. Guthrie’s Appeal is decisive of the question raised here.
Decree affirmed, and appeal dismissed, at the cost of the appellant.