10 Sadler 90 | Pa. | 1888
Opinion,
The defendants are sued as partners. They claim the immunity from liability as individuals which the act of 1874 confers on persons associating themselves in a joint stock or limited partnership association, alleging that they have fully complied with its provisions. This is the question on which the plaintiffs’ right to recover depends. The court below held that the organization of the Amity Coal Company, Limited, had been in full compliance with the provisions of the statute, and that
The act of 1874 provides that when persons “ desire to form a partnership association for the purpose of conducting any lawful business.....by subscribing and contributing capital thereto, which capital shall alone be liable for the debts of such association,” they shall make and subscribe to a statement in writing, in which they shall set forth among other things the full names of the persons so associating themselves together ; “ the amount of capital stock of said association subscribed by each; the total amount of capital and when and how to be paid.” In § 2 it is provided, that the members of the association shall not be individually liable for any debt of the association until the joint property has first been exhausted, and then only to the extent to which they may be indebted upon their subscriptions to the capital stock. To the end that the subscribers may be protected and their liability kept within the prescribed limits, no execution can issue against them until an order has been made by the court in which the judgment is entered, or a law judge thereof, on notice to the person to be affected, and after full hearing, fixing the amount due upon his subscription and awarding the writ. In order that this question may be disposed of correctly, the act requires every such association to keep a “subscription list book” that may be produced in court, and that shall be “open to inspection by the creditors and members of the association at all reasonable times.”
The Amity Coal Company, Limited, was organized by three persons, viz.: Stetler, Fuller, and Archbald, who subscribed and acknowledged the statement in due form. This statement set out the following facts for the information of the public: “ The amount of the capital stock of said association is twenty-five thousand dollars payable in lawful money on the execution hereof.” The persons subscribing to the stock and the amount subscribed by each was stated as follows: “ The said Samuel N. Stetler subscribes for eight thousand dollars, said Edward
In saying this we do not impute an intention to defraud, or reflect upon the motives of the gentlemen by whom the Amity Coal Company was organized. They may have supposed themselves to be complying with the provisions of the act. Our
We do not hold it necessary to a valid organization that the entire subscribed capital should be paid into the treasury before an association can begin business. The act of 1874 contemplates the possibility of unpaid balances and provides a, method by which creditors may reach tliem; but we do hold that an association lias no right to enter upon business until some part of tbe subscribed capital has been actually paid. The statement should show when and in what amounts the subscriptions are to be paid, and the subscription list book should thereafter show tbe payment or the failure to pay tbe instalments falling due after tbe recording of the statement, so that members and creditors may see at any time the exact situation of the association. These are the terms upon which the statute promises individual immunity from the debts of tbe concern, and they must be complied with fairly and honestly. Where persons seek the benefits of an act of assembly they must take them upon the terms which the act prescribes, or not at all. In Malony v. Bruce, 94 Pa. 252, Paxson, J., said: “ If parties seek to have all the advantages of a partnership and
Under the limited partnership act of 1836, the same rule was repeatedly held: Richardson v. Hogg, 38 Pa. 153 ; Guillou v. Peterson, 89 Pa. 163. The recent case of the Appeal of the Hite Natural Gas Co., Limited, 118 Pa. 436, is very nearly in point. In the recorded statement, Hite’s subscription for $80,000 of the capital stock was stated to be paid by the transfer to the company of the right of way for the pipe line, etc., when in fact the right of way had not been procured. Tins was a false statement as to a material fact affecting the capital of the company, and it was held that it rendered the subscribers liable to creditors as partners.
But it is urged that Mr. Strong, who was not a subscriber to the stock, paid fully and fairly for the interest which he subsequently bought in the association, and that he ought not to be held liable for the misrepresentations of the original subscribers. The organization took place on June 18, 1883. On the 17th of November following, Mr. Strong purchased ten shares and paid one thousand dollars, their par value, into the treasury. He did not purchase from one of the subscribers who held the entire stock, and pay to him for his shares, but he paid to the treasurer. He had notice therefore that the stock then issued to him had never been paid for. If he had made inquiry, as he was bound to do, into the manner in which the association had been organized, and whether the act of 1874 had been complied with in good faith, he would have learned the facts; and he is chargeable with notice of all that such an inquiry would have disclosed. He then had notice in law, if not in fact, that not one dollar had ever been paid by the subscribers, either at the execution of the statement or at any intermediate date, and that the association was without money or property with which to conduct business or pay .its liabilities. With this notice he purchased an interest in the association and subsequently became one of its managers.
It is not easy to see upon what principle he can be said to stand on better ground than his associates. He bought into an association organized in disregard of the aet of 1874, doing business without a capital and as a matter of speculative adventure. It was an empty shell, a sham; and Mr. Strong’s
Judgment reversed, and venire facias de novo awarded.
On May 14, 1888, a re-argument of the foregoing cause was ordered on motion of the defendants.
Mr. Bvere.lt Warren and Mr. J. Vaughan Darling (with them Mr. Bdward N. Willard and- Mr. Charles S. Welles'), for the plaintiffs in error.
Mr. W. H. Jessup and Mr. John Gr. Johnson (with them Mr. JE. B. Sturgess and Mr. William Strong), for the defendants in error.
Opinion,
The persons composing a partnership may agree with each other to invest a certain fixed sum each in the common venture, and no more. Such an agreement may limit the interest of each in the property and profits of the firm, but it will not limit the liability of any for the firm debts. Each member will be liable individually for the entire indebtedness of the firm. The act of 1874 was passed to relieve against the risk and inconvenience attending general partnerships, by providing a mode by which individuals might invest a fixed sum in a business enterprise, without liability to loss beyond the sum so invested. The method provided is the creation of a new artificial person to be called a joint stock association, having some of tlie characteristics of a partnership and some of a corporation.
The process by which this new organization is brought into business existence is plainly laid down in the statute. Three or more persons may agree to form such an association. They must put their agreement in writing, in the form not of a contract with each other, but of a certificate for the information of the public. This must bp signed by every member of the asso
In the case of business corporations, the certificate that at least ten per cent of the subscribed capital has been paid in goes to the governor, and he then issues letters-patent, which impart life to the corporation. In the case of joint stock associations, the members are trusted by the law to certify directly to the public without the intervening agency of the governor, and thus to give life to their own creature. Under such circumstances the courts should require absolute good faith and an honest compliance with the law from those who claim exemption from individual liability as members of a joint stock association. If no capital has "been put into the concern, no actual cash with which to begin business, it has no right to begin business. The subscribers have no right to record the certificate, and to do so is a fraud upon the law and a fraud upon the public. We do not say that the entire capital must be paid down. The law does not say so, but seems to contemplate a payment by instalments. What we do say is, that un
This was substantially said when this ease was before us one year ago. A fresh examination of the subject, aided by an elaborate re-argument, lias not persuaded us that we were in error in the views then expressed.
Turning now to the facts of this case, they seem to leave us no alternative under the salutary rule laid down. This certificate when prepared put the capital stock at twenty-five thousand dollars. It gave the names of the subscribers and tbe amount of stock subscribed by each. In obedience to the statutory requirement to state when and how the subscribed stock was to be paid, it stated, “to be paid on the execution hereof.” Now the first thing to he done was to execute the certificate. After that was done, it was to be acknowledged as an assurance of its truth; then it was to be recorded as the certificate of those signing it, made to tbe public, that its provisions bad been complied with. The recording of tbe certificate was therefore a distinct affirmance that tbe capital to be paid on its execution had been paid, and that the association was entitled to the credit which its capital should command. The fact was, however, that neither of the stockholders paid one cent on the execution of the certificate, nor at its acknowledgment, nor when it was recorded, nor yet when they began business in the name of the association.
It is useless to argue that such conduct is a compliance with the requirements of the act. It is a palpable disregard of the act of 1874, and of the requirements of business bonesfcy.
We speak of tbe facts as they appear upon this record. The case goes back for a new trial. If upon sucb trial, with attention directed to this point, a different showing is made and the facts necessary to a legal organization are made to appear,
The order heretofore made reversing the judgment of the court below remains in full force.