Lee v. Burnley

Opinion by Mk. Justice Dean, The plaintiff’s brought assumpsit against William Burnley, John E. Burnley, James Mallison, John S. Butterworth, Francis J. Butterworth and Mary B. Walker, as general partners trading as “ The Parkmount Mills Company, Limited.” Francis J. Butterworth and Mary B. Walker not having been served, the jury was not sworn as to them. The plaintiffs dealt in wool; defendants carried on, professedly, a limited partnership in the manufacture of woolen goods. There was no dispute as to the amount of plaintiff’s’ claim, as evidenced by two notes of the partnership. The defense was that they were not general partners and that the limited partnership was alone liable, and as a consequence, only the partnership assets were subject to seizure or appropriation in payment of plaintiffs’ debt. The reply was that in the formation of the limited partnership, the members had not conformed to and had violated the law authorizing and regulating such partnerships and that, therefore, they [62] were answerable to creditors as general partners. The court below submitted to the jury some disputed questions of fact; the verdict was for plaintiffs, and we now have this appeal by only two of defendants. Twenty-six errors are assigned; thirteen to rulings on offers of evidence, and a like number to the charge of the court. If there had been, properly, questions of disputed fact, the answering of which determined defendants’' liability, we think, some, at least, of these assignments would have merit; but, in our opinion, there was nothing for the consideration of the jury because, in law, on certain undisputed facts, defendants were answerable as general partners. Take these facts as shown in great part by the record evidence: The articles of association filed of record are dated July 22, 1897; the subscribers are those here sued; the capital stock is set forth as $60,000, all paid in as follows: The machinery, fixtures and stock valued at said sum, now in Parkmount mills, near Lenni, in the township of Middletown, Delaware county, contributed by the partners in proportion to the amounts subscribed by each; the term of the partnership was one year; then follow the usual stipulations for the government of the partnership, and then comes a schedule of the machinery, fixtures and stock of- the Parkmount Mills Company contributed as capital stock, with an itemized valuation aggregating the exact amount of the capital. The partnership was composed of exactly the same persons as were members of a former limited partnership, under the same name and same act of assembly, that of 1874, which had been organized June 80, 1896, to continue for one year, and whose term had expired June 30, 1897; not until July 22 following was this partnership formed; it was not a continuation of or extension of the term of the old one, but was a new organization. The financial condition of the old association, when its life ended by the express stipulations of its articles, was as follows: Total assets, $102,896.70 Total liabilities, 63,073.99 Leaving net assets, $39,822.71 Now, the members of the new partnership, who are the identical members of the old one, took their entire capital, $60,000, from the gross assets of the old one, leaving but $42,896.70 of old [63] assets wherewith to pay $63,073.99 of old debts. Yet these $60,000 of assets did not, under the law of their organization belong to the members of the new partnership to be used as capital in that organization. The old partnership expired by the ending of its term; its assets then became immediately subject to the just claims of its creditors; until the $63,073.99 of its debts were paid, or arrangements satisfactory to all the creditors were made for the disposition of them, it was, at least constructively, under the act, a fraud upon them to remove and divide among the partners $60,000 of the assets. And it is so held in Haslet v. Kent, 160 Pa. 85. This property thus taken, was still equitably subject to the claims of the old creditors; whether they had a remedy by which such claims could be enforced as against creditors of the new partnership, we need not inquire; one thing is clear, they had a remedy against the partners individually, for these partners disposed of to another concern, the very property which by the old certificate belonged to the old partnership creditors. These defendants contributed it as the capital of a new organization, without a word in the certificate to disclose its history, or the doubtful nature of their right to thus contribute it. Conscious of their moral obligation, if not a legal one, to the creditors of the old partnership, they undertook to discharge the old partnership liabilities out of the current income of the new one, and actually did pay $28,485.06, besides confessed judgments to old partnership creditors for about $17,000 more. As a consequence, after an existence of about eight months, the new partnership was insolvent. Hid the new certificate set forth the fact as required by the act ? It, in effect, avers that the machinery, stock and fixtures was their property absolutely, and that they turned it in as capital; but their title was not absolute, unless the property was surplus after payment of debts of the old partnership, or unless the old partnership creditors consented to the transfer; they took not a single step towards adjusting and closing up the business of the old partnership as the law points out; they simply divided the assets among themselves; and each appropriated to himself a large amount of what is set forth in the old certificate as capital of the old partnership; the new partnership undertook to make the creditors of the old one whole by paying its debts. In reality, the entire capital of the new part [64] nership consisted of the debts of the old one, of which not even a hint is given in the certificate for information of the new creditors. All our authorities have held the members of a limited partnership to a strict compliance with the letter and spirit of the act. In Haslet v. Kent, supra, in the certificate, the property was described as having been purchased by the partners from another company, subject to the payment of that company’s debts. It was held that this was not a contribution of a property within the meaning of the act; we said, speaking by the late Sierbett, C. J.: “ Unless we are willing to let the act of 1876 become a cover for fraud, and a snare for the unwary, we should adhere emphatically to what we have heretofore said, as to the scope and meaning of the act. As was said in Maloney v. Bruce, 94 Pa. 249, the property contributed was the equivalent of cash, and the plain object of the provision, requiring a schedule, was to enable creditors to ascertain precisely of what the property consisted and to judge of its value.” In the case before us, creditors had not, as in the case cited, even information, that the entire assets of the new partnership started with a debt equal to their value: Eliot v. Himrod, 108 Pa. 569; Hill v. Stetler, 127 Pa. 145. The able argument of the learned counsel for appellant proceeds upon a mistaken premise. He assumes, for the purpose of his argument, that the arrangement for paying the debts of the old firm might support a claim against the new one, but could not make the members of the new one liable as general partners, if they acted in good faith, and in the exercise of an honest business judgment as to what was best for the interests of all concerned. His conclusion correctly follows from his assumption. But the case does not turn on good faith or honest business judgment; we cannot read into the act any such liberal features. As is said in Eliot v. Himrod, supra, “ Each partner is liable unless saved by statute. If the partners have not complied with the statutory requisites, a limited partnership has not been formed.” Nothing is said in the statute about compliance in good faith or in good business judgment, but it is distinctly enjoined that the property shall be contributed according to its value. This was 'not done here, and therefore the judgment is affirmed.