Eliot v. Himrod

• Decision Date: 13 April 1885
• Citation: 108 Pa. 569
• Parties: Eliot <I>versus</I> Himrod et al.
• Court: Pennsylvania Supreme Court

108 Pa. 569

Eliot versus Himrod et al.

Supreme Court of Pennsylvania.

February 3, 1885.

April 13, 1885.

February 3d, 1885.

Before MERCUR, C. J., PAXSON, TRUNKEY, STERRETT, GREEN and CLARK, JJ. GORDON, J., absent

ERROR to the Court of Common Pleas of Erie county: Of January Term, 1885, No. 49.

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John C. Brady and Theo. A. Lamb, for the plaintiff in error.— The defendants in this case are seeking exemption from liability to which they would be subject at common law. To succeed, they must not only produce the Act of Assembly under which they claim exemption, but they must show that they have complied strictly with its provisions. Such has been the ruling of this and other courts: Maloney v. Bruce, 13 Norris, 249; Andrews v. Schott, 10 Barr, 47; Vandike v. Rosskam 17 P. F. S., 330; Pierce v. Bryant, 5 Allen, 91; In re Disston File Co., 8 W. N. C., 58.

The Act authorizing such partnerships limited invests them with some of the incidents of a corporation, but does not make them corporations. The Act of June 7th, 1879, sec. 7 (P. L. 116) reads, "any corporation, company or limited partnership." The defendants filed a false certificate, which is equivalent to none, hence not a compliance with the law, hence they never became a limited association: Keystone Boot & Shoe Co. Limited v. Schoellkof & Sons, 11 W. N. C., 132; Haviland v. Chace, 39 Barb., 285. The result is they are general partners. Haviland v. Chace, supra: Andrews v. Schott, 10 Barr, 47; Pierce v. Bryant, 5 Allen, 91; Richardson v. Hogg, 2 Wright, 153; Vandike v. Rosskam, 17 P. F. S., 333.

There was no evidence showing that the plaintiff entered into any special agreement with the defendants to look to them as a limited association only; indeed there was no such allegation. In the absence of a special contract the presumption is that the contract was made in reference to the legal rights of the parties: Andrews v. Schott, 10 Barr, 55, 56.

It is equally clear that the plaintiff's acts do not estop him from showing the truth: Patterson v. Lytle, 11 Pa. St., 53; Eldred v. Hazlet, 33 Pa. St., 307; Bigelow on Estoppel, page 480. The ruling of the court, therefore, is clearly erroneous.

John P. Vincent and George A. Allen, for defendants in error. S. A. Davenport, P. P.—The fallacy of the argument of plaintiff in error consists in assuming that the same rules apply to "partnership associations," formed under the Act of June 2d, 1874, as apply to special partnership formed under the Act of March 21st, 1836, when said Acts are in no respect similar, and were not enacted for similar, but entirely diverse purposes. The Act of 1874 is not a supplement to the Act of 1836, but is an independent Act by its very title, created for the purpose of enabling citizens of the state to form partnership associations, in which, "the capital subscribed shall alone be responsible for the debts of the association, except under certain circumstances," and those exceptions are specifically stated in the Act, and are as follows:

1. "The omission of the word `limited' in the use of the name of the partnership association, shall render each and every person participant in such omission, or knowingly acquiescing therein, liable for any indebtedness, damage or liability arising therefrom."

2. "No debt shall be contracted or liability incurred for said association, except by one or more of said managers, and no liabilities in an amount exceeding $500, except against the person incurring it, shall bind the said association, unless reduced to writing and signed by at least two managers."

The large wealth of these defendants at the time this partnership was organized negatives the idea of fraud; it was organized in view of the then pending legislation, and defendants made payments on subscription in contemplation of a limited association, if such a one was authorized. After the passage of the Act of June 2d, 1874, an association under that Act was formed, and the payments made by the defendants were by agreement treated as if paid on their actual subscription to the capital of that association. This association was organized before the Act of May 1st, 1876, was passed, which required property to be inventoried and appraised when paid in on subscription to capital, and inasmuch as the money had been actually invested in the plant and materials required by the association to carry on the intended business, the parties thought they had a right to treat it as cash.

Unless the parties to this organization can be impeached of a fraudulent intent in organizing this association, the organization must be recognized as legal, and subject only to the liabilities imposed by the law under which it came into existence.

The rule is that organizations erected under the forms of law and having an existence de facto, are during the term of their actual existence, organizations de jure; Campbell v. Commonwealth, 15 Norris, 344; Gartside Coal Co. v. Maxwell, 22 F. R., 197.

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...