Eliot v. Himrod

108 Pa. 569, 1885 Pa. LEXIS 356

• Court: Supreme Court of Pennsylvania
• Decided: April 13, 1885
• Status: Published

Opinion

Mr. Justice Trunkey

delivered the opinion of the court, April 13th, 1885.

• This action is against the defendants as partners for recovery of the amount of two notes given for money borrowed for use of the firm. In 1873, the defendants, together with John W. Hammond, late deceased, associated for the manufacture of boots and shoes, 'each agreeing to put a stipulated sum into the capital; and they contemplated procuring a charter of incorporation. More than three fourths of the money so agreed to be put in, was paid, nearly all of which was expended in the erection of a building and the purchase of tools and machinery. The business was commenced in February 1874, and continued until January, 1879.

To defeat recovery, the defendants allege that they formed a partnership association under the Act of June 2d, 1874, and the statement was recorded on September 29th, 1874, at which date the word “ Limited ” was added to the name of the firm. This statement sets forth that forty thousand dollars of the capital was paid in cash, and also the amount subscribed for and paid by each partner. “ In fact, no cash was paid, but the property and assets of the Keystone Boot and Shoe Company, although not formally assigned or transferred, was treated by the partners as transferred to, and as cash paid in, on the formation of the Keystone Boot and Shoe Company Limited.” What said property and assets were worth does not appear, but the fact is probably immaterial, for the question is not one of good faith on the part of the members.

What change was actually effected by the attempt of the partners to shield themselves by the statutory provision that their capital which they had already put into the firm should alone be liable for the debts of the association ? The word “Limited” was added to the firm name. No cash was added to the capital. Nor was a subscription-list book kept — there was no subscription. The business went on as before, care, being taken to exhibit the new name. At that time the statute did not provide that the partners might contribute to the capital in real or personal property, and no certificate was afterwards recorded to bring the association within the supplementary Act of May 1st, 1876. Then, the inquiry is whether the members of a partnership, already engaged in business, by recording a statement in due form, showing that each partner has subscribed for and paid in cash a certain sum, none of which was subscribed for or paid, are protected from individual liability for the debts of the association subsequently contracted.

The Act of 1874 has little resemblance to the Act of 1836, which authorized the formation of limited partnerships which may consist of one or more general partners, and one or more special partners. It is far less stringent in its terms, and has no provision for general and special partners. The recorded statement must show the full names of the partners, with the amount of capital subscribed for by each, and when and how to be paid. Thus, the public are informed of the strength of the association, and creditors of the amount of capital paid or to be paid by the members. An execution, in some circum-' stances, may be directed against members for satisfaction of a debt of the association. It is plain that the statute demands a true statement of the capital, and that prior to the Act of 1876 the capital was to be paid in cash; since, it may be contributed in real or personal property. “If parties seek to have all the advantages of a partnership, and yet limit their liabilities as to creditors, they must comply strictly with the Act ”: Maloney v. Bruce, 94 Pa. St., 249. In that case and in the case of Keystone Boot and Shoe Company Limited v. Schoellkopf’s Sons, 11 W. N. C., 132, judgments were obtained against the respective associations, and the members had no protection against executions for the full amount of their respective subscriptions, if the same were necessary for satisfaction.

Upon the most liberal interpretation of the statute the defendants are liable as general partners. There was no substantial compliance with its chief requisite. They all participated in the making of the statement and the subsequent; conduct of the business. True, they had not been long engaged in the business, and at its beginning intended to procure a charter for a corporation, but the fact remains that the business they had begun was continued. General partners, by recording a statement in due form, false with respect to subscription and payment of capital, are not within the statute which, on certain terms, abrogates the common law rule that he who contracts to contribute capital and share in the profits of a firm, shall be liable for its debts. Each partner is liable, unless saved by statute. If the partners have not complied with the statutory requisites, a limited partnership association has not been formed. Where there is no record of a proper statement, there is no statutory association. Where the chief requisite in the recorded statement is false, the partners who misstated the fact have no shield against the rale at common law respecting their liability for debts. The recorded statement is not made conclusive evidence of the formation of a limited association. If such was the intendment it would be plainly expressed. Were it so, what corild be a stronger sanction and encouragement of fraud ? In that case, without publication or affidavit, upon a false representation placed on record, persons could embark in business with expectation of profit and without fear of loss. The statute prescribes no mode of correction where the apparently complete statement is untrue. No remedy can be more simple and conservative of the rights of all parties than a trial in due course of law. The creditor sues the members; they set up their recorded statement in defence; the plaintiff establishes, if he can, that the statement is untrue in an essential point; and then, if that fact be found, the defence falls.

The defendants contend the rule applicable to corporations should be applied in this case, namely, that in a suit brought upon an evidence of debt, either by or against a corporation cle facto, the corporate existence and ability to contract cannot be questioned. When a charter of incorporation has been actually granted and certain persons are in possession and enjoyment of the rights thereby conferred, though the charter might be declared void by the court in a proper proceeding, its validity cannot be determined iu a collateral suit: Spahr v. Farmers’ Bank, 94 Pa. St., 429. The formation of a limited partnership association is materially different from the creation of a corporation. Such association is treated in the statute as a partnership which, upon the performance of certain acts, shall possess specified rights and immunities. In contemplation that the association may consist of many members, for convenience it is clothed with many of the features and powers of a corporation, such as the right to sue and be sued, grant and receive, in the association name. But no man can purchase the interest of a member and participate in the subsequent business, unless by a vote of. a majority of the members in number and value of their interests. No charter is grantéd to the persons who record their statement. When they are sued for debt and claim immunity founded on such statement, it is competent for the plaintiff either to point to a fatal defect on its face, or to prove that an essential requisite, though formally stated,' is falsely stated.

It is unnecessary to note the numerous assignments of error seriatim. They are only sustained so far as inconsistent with this opinion. Some of them -present points that are not essential to the disposition of this case. Upon the-facts found the plaintiff is entitled to recover the amount of the notes in suit,

Judgment reversed, and now, upon the facts found by the court below, judgment is entered for the plaintiff for six thousand one hundred and seventy-four dollars, ($6,174.70.)