In re Assignment of the Mill Work & Mantel Co.

Opinion by Willard, J., When the association, known and doing business as the Mill Work and Mantel Company, Limited, made its assignment for the benefit of creditors, it was either a general partnership or a joint stock company under the act of June 2, 1874 and its supplements. The written assignment was sufficient to pass its property as a joint stock company (created under the provisions of said act and its supplements) to the assignee. If it was a general partnership, the assignment executed by two of the partners was also sufficient to pass the property of the general partnership to the assignee unless the other partners positively dissented therefrom. The first proposition is sustained by a fair construction of the instrument itself and the act of assembly, and the second by Hodenpuhl v. Hines, 160 Pa. 466. In Pennsylvania, prior to the act of 1874, joint stock companies were declared to be general partnerships: Babb v. Reed, 5 Rawle, 151; Kramer v. Arthurs, 7 Pa. 165; Hedge’s Appeal, 63 Pa. 273. By the act of June 2, 1874, entitled “An act — 131 — authorizing the formation of partnership associations, in which the capital subscribed shall alone be responsible for the debts of the association, except under certain circumstances,” ample provision is made for carrying on legitimate business by three or more persons without incurring any liability beyond the capital stock subscribed. While this act was intended to benefit those who wished to engage in a common business enterprise by a combination of capital, it was not intended as a cloak for fraud, falsehood or deception. Our Supreme Court, from the passage of the act to the present time in frequent adjudications, has held parties availing themselves of its provisions to a strict compliance with its terms. Evasions and subterfuges have been discountenanced, bona fide associations sustained, and the rights of persons dealing with these organizations rigidly protected. On March 12, 1892, George A. Gebhart, the appellant, and seven others associated with him, signed, sealed and acknowledged articles of association in conformity with the act of 1874, which articles were duly recorded. In the statement so signed and acknowledged they set forth, among other things, that the amount of their capital stock subscribed was $4,000; that $3,000 thereof had actually been paid into the association at the time the statement was made, and that the balance was to be paid on or before July 1, 1892. The auditor found as matter of fact upon what appears to be sufficient testimony taken from the books of the association that the statement as to the amount paid in, to wit, $3,000, was false when made, and that only $750 had actually been paid in at the time the statement was made. The auditor also found as matter of fact that no subscription list book was kept by the association as required by the act. The second section of the act provides among other things as follows: “ and the said court or judge may compel the production of the books of the association, showing the names of the members thereof and the amount of the capital remaining to be paid upon their respective subscriptions .... and the said association shall be and it is hereby required to keep a subscription list book for that purpose and the same shall be open to inspection by the creditors and members of the association at all reasonable times.” Under this provision of the statute there can be no question as to what — 132 — constitutes a subscription list book, and it is evident from the facts found that no such book was ever kept by the association to which the appellant belonged. He and the appellants in the other cases argued with it as one appeal, claim that the association was a valid association organized under the statute and that as members thereof they are entitled to its protection. Under the facts found by the auditor we must hold that they were general partners. Their statement was materially untrue when filed, and they never kept a subscription list book. That which was an essential requisite as to the amount of capital paid in was formally stated in the recorded articles, but the facts show that it was falsely asserted. Under the authorities in Pennsylvania we must hold that the association was never legally organized in pursuance of the act of assembly, and under the facts found by the auditor we do not hesitate to declare its members general partners. The reasons for our so holding have been stated and reiterated in Eliot v. Himrod, 108 Pa. 569; Hill v. Stetler, 127 Pa. 145; Sheble v. Strong, 128 Pa. 315; Gearing v. Carroll, 151 Pa. 79; Haslet v. Kent, 160 Pa. 85; Bank v. Creveling, Miles & Co., 177 Pa. 270. These authorities ought to be a sufficient guide to those who deem it advisable to unite their capital in conducting a business under the statute in question. It is unnecessary to discuss the effect of appellant’s judgments against the Mill Work & Mantel Company, Limited, or the attachments in execution issued thereon. The judgments were obtained against a copartnership, limited, which to their knowledge never had a legal existence, and the attachment in execution served upon the assignee of the general partnership as garnishee, could not become a lien upon or be entitled to • take any of the moneys in his hands. It is said by the appellant’s counsel in their paper-book under the second subdivision of their printed argument: “ That the assignment of the Mill Work & Mantel Company, Limited, which company in any view of the case was acting as a de facto, and we contend as a de jure, partnership association, limited, purporting on its face to be the assignment of a partnership association limited, the appellants, as creditors thereof, were within its express terms as cestuis que trust, and it was not — 133 — competent, either for the other creditors claiming under the same trust, or for the auditor distributing the funds of the trust, to attack or question the express terms of the trust by virtue of which only could any of the creditors claim a part in the distribution.” A complete answer to this proposition is found in the language of Mr. Justice Tkttnkey in Eliot v. Himrod, supra, where it is said: “ 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 de 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 in a collateral suit: Sphar v. Farmers’ Bank, 94 Pa. 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 granted 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.” No part of the fund for distribution could be successfully claimed by the appellants except on the theory that before the assignment the property from which the fund was derived was that of a legally organized copartnership association, limited. In this contest the creditors have the same right to show want of compliance with the terms of the statute as though they were proceeding by action against the members as general partners. — 134 — The appellants had the right to show compliance with the terms of the statute in the organization and management of the copartnership association, limited, in support of their claims. The parties were all heard before the auditor, and upon satisfactory evidence he has found that appellants did not comply with the statute and are therefore general partners, and the exceptions to his report were overruled by the court below and his report absolutely confirmed. We have said that the written assignment executed by two of the members of the general partnership in the absence of positive dissent on the part of any of the other partners, was sufficient to vest the title to the partnership property in the assignee. The auditor has found that there was no such dissent. In Hodenpuhl v. Hines, supra, in Iris conclusions of law it was said by Abchbald, P. J., “ (8) As a general rule one member of a general partnership cannot make an assignment for the benefit of creditors without the authority or consent of the other members of the firm; but if such an assignment be made by one partner it will be good as against subsequent execution creditors of the firm, unless the other partner or partners dissent therefrom.” “ (10) The question in this issue is one of title, and the assignment by Mr. DeGontard to the plaintiffs was sufficient to transfer the title of the firm to the property in dispute, unless Dr. Reynolds, the other partner, positively dissented therefrom, which he is'not shown to have done.” In a per curiam opinion affirming this case it was said “ the learned judge of the court below, who sat without a jury in this case, has disposed of the questions of fact and of law with discrimination and ability. We affirm the judgment upon his opinion.” In Kramer’s Appeal, No. 17, February term, 1897, in this court, it appears that Kramer purchased the interest of Jesse D. Snyder, an original member, and by virtue of an election by the board of managers on June 5,1893, he became a member and a manager. This was in strict compliance with the 4th section of the act. The contention that this change of membership required an amended statement to be filed of record is without foundation; the statute does not require it. It further appears that about April 5,1892, David M. Reeder — 135 — paid in $500 to the capital stock and was thereupon elected a new member. This was an increase of the capital stock trained in the original statement and should have been accomplished by an amendment which appears never to have been filed. Reeder subsequently sold his interest to Samuel H. Follmer, the appellant in No. 20, February term, 1897, in this court. The auditor does not find that Follmer was. formally elected as a member, but finds that he was present at meetings of the association, participated therein and was recognized by the other members as a-member in the management and conduct of the business. Recognizing the rule applied in Hill v. Stetler, supra, to a member of the Amity Coal Company, Limited, by purchase of shares subsequent to its organization, we must hold Kramer and Follmer general partners with the other appellants. It appears from the auditor’s report that at the time of the assignment there was due and owing to creditors of the copartnership, not including the claims of the appellants, the sum of $17,009.28. Treating the appellants as general partners it needs no citation of authorities to establish the proposition that they were entitled to no part of the fund for distribution until all the claims against the general partnership were fully satisfied and paid, and as the general creditors received only 28.84 per cent from the fund for distribution, upon their respective claims, it is unnecessary to pursue the subject further. The appellants entered into a business venture and sought immunity from liability by association as a copartnership association, limited, under the statute of Pennsylvania in such case made and provided. They did not comply with its terms, and by virtue of such noncompliance they became general partners, and must be so regarded in the disposition of these appeals. To award any part of the fund for distribution to the appellants to the detriment of the just claims of their creditors would be a palpable disregard of the rules of justice and equity, to the protection of which the creditors are entitled. The able report of the learned auditor and the decree of the court on the exceptions thereto properly disposed of all the questions at issue. The specifications of error are all overruled. The decree of the court below is affirmed and the appeal in this case dismissed at the cost of the appellant.