Hedge & Horn's Appeal

The opinion of the court was delivered, January 3d 1870, by A&new, J. — This is a bill in equity, setting forth a partnership, or voluntary association, actually formed, for the purpose of procuring land and boring for oil. The plaintiff, as a partner or member of the association, claims an account, and payment by the delinquent members of the sums alleged to be owing to the company. The principal question raised is, therefore, whether the defendants who appealed were members of the partnership, otherwise they are not liable to account under this bill. It is not an action by the association, against a subscriber for his subscription. If the appellants never became partners, the bill ought to have been dismissed, as to them. The appellants, while admitting that they signed a subscription paper (then being carried around for the purpose of forming a company), for two shares, of $50 each, and not at $125 a share, totally deny their membership as partners, averring that, after writing their names on the subscription paper, they never took any part in the formation of the company, were not informed of any meeting to organize, and never acted with the company as members thereof. This answer was not denied, by replication or otherwise, and the ease went to a master, who seems to have acted also in the capacity of examiner, in taking the testimony. The court did not find the fact of partnership, or decree an account, but the whole thing seenis to have come up on the report of the master, upon the testimony had before him. This was very irregular, but it is unnecessary to decide the case on thi3 ground. Indeed, after a hearing on the merits, without exception in the court below, to the formal defects, as was the case here, we might disregard the irregularity, under the law regulating appeals to this court in equity cases. The Act of 21st April 1846, Purd. 406, pi. 41, declares that appeals in equity from the Common Pleas shall he “ in the same manner and upon the same terms as appeals are allowed from the Orphans’ Court.” By the Act of [277] 14th July 1857, Purd. 402, pi. 11, conferring on the several courts of Common Pleas the additional equity powers vested in the Court of Common Pleas and District Court of Philadelphia, the appeal is directed to be upon the same terms and conditions as provided for appeals from those courts. The appeal from the Common Pleas of Philadelphia is directed to be upon the same terms, and with the same regulations provided for appeals from the Orphans’ Court: Purd. 405, pi. 35. Upon decrees from the Orphans’ Court, the Act of 14th April 1835 provides that the Supreme Court shall “ hear and determine the same, as to right and justice may belong, and refer the same to auditors, when, in their discretion, they may think properand the Act of 16th June 1836 directs the Supreme Court, on appeals from the Orphans’ Court, “ to hear, try and determine the merits of such cases, and to decree according to the justice and equity thereof:” Purd. 769, pi. 50, 51. This brings us at once to the master’s report. The master finds, as to these appellants, and it is the utmost the facts reported can prove, that each of them “subscribed for two shares of stock, in the ‘Keystone Oil Company,’ of the value of $125 each, and that he has not paid any portion thereof.” The master, after stating the denial in the appellants’ answer, to wit, that they never took part in the formation of the company, and never acted as members of it, finds, as a fact, that there is no testimony that they ever did participate in any meeting of the company, but the evidence is plenary that the company was formed, and that a formal organization took place on the-28th of April 1865. In no part of his report does he state as a fact, or any fact indicating that the appellants became members of the company, or did acts of participation. From the subscription for shares alone, and the fact that the appellants gave no notice that they withdrew from the association, the master draws his conclusion that they were partners, or members, and reports against them for the non-payment of their subscriptions. The whole case is narrowed down, therefore, to the question, whether a subscription to shares of an unincorporated joint stock association, without more, constitutes the subscriber a member- of the association, or partner liable to all the duties and responsibilities of a member. Upon this question we differ from the master, and court below, upon principle and authority. A joint stock company, such as this is, differs, in some respects, from an ordinary partnership. It is defined to be “ a partnership whereof the capital is. divided, or agreed to be divided, into shares, and so as to be transferable without the express consent of all the copartners.” This definition, taken from the statute of 8 & 9 Viet, e. 110, is said by Mr. Parsons, in his work on Contracts, c. 11, p. 144, to be applicable to such companies in this country. He further states, as the result of the authorities, upon the effect of [278] becoming a subscriber to an intended company, as regards the creation of a partnership between the members, that an application for shares, and payment of the first deposit, did not suffice to constitute one a partner, where he had not interfered in the concern ; and that the insertion of his name by the secretary of the company, in a book containing a list of the members, was not holding himself out to the public as a partner; and this, on the ground that such person does not thereby acquire a right to share in the profits. So, on the other hand, if the subscriber interpose and act as a member, or director, or attend meetings, or accept office, or otherwise give himself out as a member, he will make himself liable, even though there be some want of the necessary formalities, or acts of a party to make him legally a member: 1 Parsons on Contracts 145. Mr. Collyer, in his work on Partnership, p. 626, says, as to what constitutes an actual partner in a joint stock company: that in this, more than in any other .kind of partnership, a variety of acts are done before the partnership is actually commenced; notices are published, prospectuses are distributed, meetings held, officers chosen, deposits paid, scrip receipts given, long before the business is commenced, or the deed of settlement is executed. Many acts are necessarily done before the full number of intended shareholders are made up. Hence the mere subscription for stock, and payment of a deposit, and the doing of acts which merely exhibit an intention to become members, do not alone constitute them partners. Thus far, the contract is merely executory, and it becomes executed and the relation is established only when they evidence the fact by acts of participation. This, it seems to me, is founded upon good reason, and can stand well in principle. A partnership is founded in the voluntary contract of the parties, as distinguished from a mere community of interest, which by operation of law may arise in various ways; and hence, says Mr. Story, in his work on Partnership, § 5, it is an established principle of the common law, that a partnership can commence only by the voluntary contract of the parties. Now, what is a subscription to shares for the purpose of forming a joint association, to prosecute any work or matter of business ? When the first subscriber signs his name, he is unquestionably not a partner, for there is no other on the paper ; when the second subscribes, the partnership is not formed, for it is expected that others will subscribe. When the whole number of shares contemplated have been subscribed, the relation of partnership still is not formed, for until the subscribers enter upon their project nothing is done to effectuate their common purpose. The subscription is but an act, or declaration of the intention of the subscriber to become a partner, and is executory only. The thing itself yet remains to be done. Now, the meeting of some, or of many of the subscribers, to organize their company, and [279] enter into the actual relation of members to it, binds none but those that meet. They can speak only for themselves, for not yet being partners, they cannot exercise their power of partners, to bind others as partners. It is just at this point the error of the master begins. Because other subscribers met and formed a company, he draws the conclusion that all the subscribers not expressly dissenting, were bound. But this was not so, for the subscribers who met were not yet partners, and could not therefore bind those who did not meet. It needed the voluntary consent of the absent subscribers to the contract of partnership, to make them partners. This they never gave, by word or deed, and consequently they never became partners. If these views need any confirmation from our own authorities, they will be found in the following cases, where, though the very point is not ruled, its underlying principle is: Phipps v. Jones, 8 Harris 260; P. & Con. Railroad Co. v. Graham, 12 Casey 77; Strasburg Railroad Co. v. Echternacht, 9 Harris 220; Rice v. Shuman, 7 Wright 37; Edinboro Academy v. Robinson, 1 Wright 210. Upon the whole case, we are of opinion that no partnership relation existed between the appellants and the other subscribers, and therefore that the bill must be dismissed, as to the appellants; but without any prejudice to the right at law of the company to sue for and recover, upon the "contract of subscription of the appellants, if any such right exists. Bill dismissed without prejudice, and at the costs of the plaintiff in the bill.