Case Name: HILL, KEISER & CO. v. S. N. STETLER, ET AL.
Court: Supreme Court of Pennsylvania
Jurisdiction: Pennsylvania
Decision Date: 1888-04-02
Citations: 127 Pa. 145
Docket Number: No. 58
Parties: HILL, KEISER & CO. v. S. N. STETLER, ET AL.
Judges: Argued before Gordon, C. J., Paxson, Stebbett, Gbeen and Williams, JJ.
Reporter: Pennsylvania State Reports
Volume: 127
Pages: 145–164

Head Matter:
HILL, KEISER & CO. v. S. N. STETLER, ET AL.
EBBOB TO THE COURT OF COMMON PLEAS OB’ LACKAWANNA COUNTY.
Argued February 23, 1888
Decided April 2, 1888.
Re-argued February 25, 1889
Affirmed May 29,1889.
[To be reported.]
1. Where the recorded statement oía limited partnership organized under the act oí June 2,1874, P. L. 271, set out that the total amount of capital was $25,000 “ payable in lawful money on the execution hereof,” but the association began business with no part of its capital paid in, and opened and kept no subscription list book, its organization was not in compliance with the requirements of the act and the members were liable as general partners.
2. Persons who subscribe but do not contribute, and who by failing to keep a “ subscription list book,” as required by the act, withhold from the public the means of knowing the amount of capital within reach, are not within the protection of the act, but are liable individually as general partners, including a member subsequently coming in affeeted with notice of the defective organization.
3. While it is not necessary that the entire capital should be paid in, before a limited partnership may begin business, yet it has no right to begin until some part of its capital subscribed has been actually paid; its statement should show when and in what amounts the subscriptions are to be paid, and the subscription list book required should thereafter show the payment or non-payment of the instalments as they fall due.
Argued before Gordon, C. J., Paxson, Stebbett, Gbeen and Williams, JJ.
Re-argued before Paxson, C. J., Stebbett, Gbeen, Clark, Williams, McCollum and Mitchell, JJ.
No. 58 January Term 1888, Sup. Ct.; court below, No. 212 October Term 1885, C. P.
On July 8, 1885, Hill, Reiser & Co., Limited, brought assumpsit against S. N. Stetler, E. L. Fuller, R. W. Archbald and Theodore Strong, doing business as The Amity Coal Company, Limited, to recover tlie sum of 0410.82 with interest, the price and value of furniture sold and delivered by the plaintiffs to tlie defendants at their request. The defendants pleaded, non assumpsit, and one of them, Mr. Strong, filed an affidavit of defence denying general partnership and alleging that The Amity Coal Company, Limited, was an association organized under the act of June 2, 1874, P. L. 271, by statement duly recorded.
At the trial on April 4, 1887, the plaintiffs put in evidence the statement of association of S. N. Stetler, E. L. Fuller and R. W. Archbald, dated June 18, 1883, acknowledged June 18, 1883, recorded June 20, 1883. The certificate or statement was drawn in due form, executed by the persons named, and contained the following paragraphs :
“ 2. The total amount of the capital of the said association is twenty-five thousand dollars ($25,000), payable in lawful money upon the execution hereof.
“3. The amount of said capital subscribed for by each of the said parties is as follows, to wit: the said Samuel N. Stetler subscribes for eight thousand dollars ($8,000), the said Edward L. Fuller subscribes for eight thousand dollars ($8,000), and the-said Robert W. Archbald subscribes for nine thousand dollars ($9,000.)
“ 4. The business to be conducted by the said association is the owning and leasing of mines and coal lands, and the mining, preparing, shipping, buying, vending, and marketing of anthracite coal, together with all matters incident thereto.
“ 5. The business of the said association is principally to be conducted in the township of Lackawanna, county of Lackawanna, Pennsylvania.
“6. The name of said association is “ The Amity Coal Company, Limited,” and the contemplated duration thereof is twenty years.”
Then the plaintiffs, under exception noted for the defendants, showed by an examination of Fuller and Stetler, called as on cross-examination, that the defendants had no subscription list book, and neither of the defendants had ever signed any subscription list other than the articles of association; that none of the capital was paid in when the articles were recorded; that not all of the capital was ever paid in; that on November 17, 1883, defendant Strong bought of the company ten shares of stock which had been set aside for Thomas D. Davis, who did not take them, for which ten shares Strong paid $1,000 into the treasury of the company, and that on Decern ber 15, 1883, Strong was elected a member of the company; that when he was elected, Strong inquired whether the stock was paid up or not, and “ we informed him we expected or intended to pay all stock whenever it became necessary, — the stock that was unpaid.” It was also shown that on November 24, 1884, Strong was elected one of the managers of the company, and paid other sums on his stock. The plaintiffs then proved that the bill of goods for which suit was brought was sold to the defendants between January 8, and February 17, 1885, when all of the defendants were members of the company, and rested.
Thereupon the defendants moved for judgment of nonsuit assigning the following reasons:
1. That the parties sued were associated as The Amity Coal Company, Limited, an organization organized under the act of 1874, by statement duly signed, acknowledged and recorded, as required by the act of assembly, and that such statement has not been shown to be untrue in any particular; and further, that the statement is all that is required by the act of assembly to protect the associates from being sued as general partners.
2. That the claim in suit, according to the testimony of the plaintiff, was not charged to The Amity Coal Company, Limited, but to The Amity Coal Company; and that all the books of the plaintiff in evidence show that fact, that the partnership to whom the goods were charged was not the partnership against which this suit was brought.
8. That if upon the face of the statement as filed and recorded, any inference is to be drawn, the stock subscribed had actually then been paid. That Theodore Strong, who afterwards purchased and had no knowledge to the contrary, was a bona fide purchaser of the stock of this association, and as such should be protected in his purchase, and could not be held as a general partner under any claim of a false statement of which he had no knowledge at the time he purchased his stock. That Theodore Strong, E. L. Fuller, S. N. Stetler, and It. W. Archbald, being all sued as partners forming one partnership under the name of The Amity Coal Company, Limited, if no recovery could be had against Theodore Strong, no recovery could be had in this suit against the other persons named as defendants.
The court, Hand, P. J., allowed the defendants’ motion and entered judgment of nonsuit, with leave to the plaintiffs to move, etc.
The motion having been argued, the court, Hand, P. J., on J uly 9, 1887, filed the following opinion and order :
Rule to show cause why judgment of compulsory nonsuit shall not be stricken off, 1. As to Theodore Strong one of defendants ; 2. As to the other defendants.
The presentation of this case was not made with that care and orderly arrangement of evidence and the law which the court have the right to expect on the part of counsel and which usually characterizes the learned counsel engaged in the case. In the confusion of questions and evidence we are however enabled to state the following which covers all the points raised by the counsel for the plaintiffs, viz.: that the defendants are each and all personally liable as members of a general partnership: 1. Because the certificate which they filed under the act of June 2, 1874, was false, because the capital stock had not been paid in when the certificate was recorded, and 2. Because they kept no subscription list book as provided in the last clause of § 2 of the act.
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The sole question for disposition in the case is, whether, as sought by the plaintiffs, a verdict and judgment on the evidence could be entered against these defendants as individuals. No verdict was asked against the association by name, and no amendment was asked to strike out the individual names and proceed against the association, with leave subsequently to ask for execution against individual stockholders as provided by the act. It is a question partly of the construction of the act on the merits of this controversy, and partly of practice.
In regard to the merits the whole controversy turns upon whether the statement filed of record was a false statement. The alleged falsity of the statement turns wholly upon the construction to be placed on the words in clause 2 of the statement relating to the capital, viz.: “ payable in lawful money upon the execution hereof.” It is alleged that with this clause in the statement, the actual non-payment of the capital at the time it was recorded, made the statement false, and the whole proceeding or attempt under the act of 1874 a nullity so far as that act is concerned, and constituted the joint stock company, ever after that, a general partnership. On the other hand, it is asserted that there is no false statement; that the true and natural meaning of the words in law is, that the language fixed a time when the capital was due, and payment could be enforced both as among the subscribers and with creditors.
Before we proceed to a consideration of the act itself, which is involved in the range the argument has taken, we first construe the clause in question. It will be observed that section 2 states that “ the total amount of the capital of said association is §25,000, payable in lawful money upon the execution hereof.” In section 3 each member “subscribes for eight thousand ” (or his amount) “ dollars,” and the evidence shows the statement filed is the subscription. The act does not require a payment at the time of subscribing; it requires a “subscribing and contributing” capital at some time. It leaves the matter of “ when and how ” the capital shall bo “ paid ” to be fixed in the statement filed. It makes provision for the collecting of unpaid subscriptions on the basis of the integrity of the organization, as an organization, in § 2 of the act. Such being the case, we apprehend, that no other construction is to be put upon the words “payable on the execution hereof,” than would be put upon the same words in articles of agreement, or a mortgage, or deed. It was never understood in an agreement or deed that “payable on the execution hereof” signified that the amount was actually paid by such execution, or was an acquittance to the vendee or grantee of such payment. It has no other significance than that the sum is “to be paid” on that event or day, and is no evidence of a fact accomplished. The statute requires that it shall be stated when the capital is “to be paid,” nor does the word “payable ” stand in any sense equivalent to “ paid.” Its legal meaning is that the amount becomes thereby due and its payment can be enforced.
We can see no falsehood practiced on any person by the recording of the certificate without the payment of the money. Ordinarily the execution of an instrument of writing signifies the whole act by which the instrument becomes of force, its signature and delivery, or if a recording is essential to its existence and validity, also its being recorded. Be this as it may, in this case the act of assembly does not contemplate that the statement filed is evidence of when or how much of the capital stock is actually paid. That must be ascertained by the book or books kept by the association which are required for that purpose. One of the reasons, undoubtedly, why the law did not require the subscriptions to be paid up, in order to make the association valid, was that the capital might not be needed at once. No wrong would thereby be done to creditors, because they could ascertain how much was paid. In the case at ■bar, payment by Strong was made before the plaintiffs sold any goods to the association, and before, so far as this case appears, any business was transacted.
It may be assumed without question that when all the requisites of the act of 1874 are complied with, and the statement contains truthfully those requisites, that a joint stock company with limited liability is formed, and that general liability is not incurred except under the provisions of the statute. This the statute expressly provides for. These requisites are, (1) that three or more persons shall sign and acknowledge duly a statement in writing; (2) which shall set forth the full names of such persons; (3) the amount of capital of such association subscribed for by each; (4) the total amount of capital and when and how to be paid; (5) the character of the business to be conducted, and the location of the same; (6) the name of the association with the word “ limited ” added thereto, as part of the same; (7) the contemplated duration of said association, which shall not exceed in any case twenty years; (8) the names of the officers selected in conformity with the provisions of the act. All these requisites are literally and strictly fulfilled in this charter. The statement is duly signed and acknowledged by three persons, their full names are set out, the amount of the capital is $25,000. Stetler subscribes for $8,000, Fuller, $8,000, and Archbald, $9,000. The capital is payable on the execution thereof, the business is clearly stated, the name is The Amity Coal Company, Limited, its business is to be conducted in the township of Lackawanna, in the county of Lackawanna, Pennsylvania, its duration is twenty years, and its officers are the three persons who form the association.
Most of the argument in this case has been drawn from the decisions which relate to special partnerships, in which some of the partners are general and one or more are simply special. The associations organized under the act of 1874 are an entirely distinct class of, organized bodies. This is stated in the elementary works on partnership, and the decisions of our own courts. A limited liability is attempted to be secured to all the members and it is secured by fair, explicit and strict provisions, and in a way which when complied with not only protects the members, but protects all creditors who choose to avail themselves of the knowledge which the law and the books of the association give them of such associations. When the members are within the protection of the act, then it should be held as a shield to them, and creditors and members should be required to conform to the act in seeking these remedies at law. We have seen that this organization in its inception did comply with the act of assembly. The plaintiff, however, in commencing this action assumed, on the mere fact of non-payment of their subscriptions by Stetler, Fuller and Archbald, at the time stipulated and before the statement was recorded, that the whole organization was absolutely void as a limited liability association, both as regards themselves and Strong, who came in subsequently. The act itself pointed out clearly and equitably to all parties concerned, their mode of procedure for non-payment of the capital stock or subscription. They could have sued the association, recovered their verdict and judgment, and then on motion and a rule in case they failed against the association, they could have had their execution against the individuals for the non-payment of subscriptions or any part remaining unpaid. Their whole assumption, in this part of their case, rests on the false foundation that the mere non-payment of the subscription at the time stipulated, avoided the association and made a general partnership. This false foundation giving way, their whole superstructure falls with it. It is true that an attempt to form such a joint stock company, or a corporation, which contains a fatal defect, would avoid all proceedings under it and make the stockholders or members general partners ; it is also true that when a special or limited liability is set up as a defence, that the statute must be strictly followed which creates the limited liability; but when virtue is once given to an organization under the statute, and its integrity is untainted by technical or formal defects, then the limited liability is secured and remains, unless it is lost by a subsequent violation contemplated by the law itself. This general doctrine of special partnerships is clearly and emphatically laid down as a part of this act of 1874, and we shall discover by.an examination of the cases that so far as this act has come under construction by our higher court, the remedies have been pursued under the act of 1874, in every case where there was a substantial compliance in the organization.
' This plaintiff sues the individual partners in the first instance. Section 2 of the act, expressly provides that “the members shall not be liable under any judgment, decree or order which shall be obtained against such association, or for any debt or engagement of such company, further or otherwise than is hereinafter provided.” What is further or otherwise-provided? 1. The collection of the unpaid subscriptions, to the extent of the portions respectively not paid up, and provision is made for the execution. And in order that the extent of the unpaid subscriptions may be ascertained, the court has full power to compel the production of books. And a “ subscription list book ” is required to be kept, of which we shall have something further to say. 2. The omission of the word “limited” makes each member participant in such omission liable personally. Section 3, act of May 1, 1876, P. L. 89, which is supplementary to the original act, and now part of it, provides that such association shall be sued in its association name.
It will therefore be discovered that it is a logical legal conclusion that for the remedy here sought, viz.: the payment of a debt by an individual member because of the non-payment of his subscription, the act gives a full and complete remedy by suit against the association and then by execution, first, against it, and (if not successful) then by execution against the individual for so much of his subscription as is unpaid. No action can be maintained against the stockholders in the first instance, one or all; it not only is not provided for, but it thoroughly ousts the legal remedy provided. It also conflicts with the equity of that legal remedy, because the members may have paid in in unequal proportions. In the present action the evidence shows a full payment of stock by Strong, a large payment by Stetler, and possibly up to a certain date, none by the two others. A verdict and judgment in this action would be against Strong for the whole debt as well as against Stetler. It is perhaps to be regretted that the plaintiff did not ash to amend and save time by taking judgment against the association, but that is not now before us.
We state the general propositions of law which seem to us to govern in associations of this kind. Where there is a totally defective organization never instinct with life under the statute, the members may bo sued in the first instance as a general partnership. When the association is once legally created, the remedies must be pursued as provided by the statute, when for non-payment of subscription, first against the association and then against the individual stockholders in default.
In regard to the claim made that there was no “ subscription list book” kept, If this be true, which the plaintiffs have not shown, the act does not make the absence of that a cause of individual liability. The purpose (“for that purpose”) for which that book is to be kept is to aid the court to ascertain the truth in regard to the unpaid subscriptions. It was assumed on the argument by counsel that that book meant an original subscription by sign manual; the term does not so signify. From the evidence, Fuller testified that they considered their original subscription in connection with the stock Ledger, which he said “ showed the transaction,” made a subscription list book. From it he gave the whole data of subscribers’ stock and payments. The book was not formally put in evidence and we have its character only from Fuller’s testimony. We do not say that a separate book, perhaps made out by the secretary, and styled technically “ a subscription list book,” would not be the best mode of meeting this requirement, but the plaintiff has not clearly shown that this provision was not substantially complied with. Even if the other members were deficient in this respect, Strong is in no way chargeable with such neglect.
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In the case at bar every requisite of the act is complied with; the sole delinquency, which is a fact outside of the statement filed, and one contemplated by the act of assembly, is expressly provided for by the act of assembly. So far as this plaintiff is concerned, he has suffered no injury which is not expressly provided for under the act; lie shows no inquiry nor state of facts, which upon inquiry would not have furnished the exact information, as the evidence discloses, contemplated by the act, and upon which he has his legal remedy, as well by pursuing the remedy provided by the act as by a ■suit against defendants as general partners.
We have deemed it important to enter upon the question of practice in this case, because the act of assembly is new in our commonwealth, and when properly understood one of great benefit both to members and creditors and the public at large. The act is taken mainly from English statutes on the same subject, and the decisions in the English courts, so far as we have been able to examine them, clearly point out the mode of practice and the remedies, as we have stated in the foregoing opinion and as are foreshadowed in the few cases which have arisen in this country. The law relating to this class of associations is distinctive, as already intimated, and they are classified as joint stock companies, both in English and American digests and opinions.
We are satisfied upon the evidence in this case that the proper remedy is first against the association by name, and then, on proper evidence, by application to the court against the individuals, for execution of the judgment after failure to recover from the association. If this is correct, no verdict could have been taken against any of the individual members, and the nonsuit was properly entered.
The rule to take off nonsuit as to Theodore Strong is discharged. Also the rule as to the other defendants, Stetler, Archbald and Fuller is discharged. Exceptions.
Thereupon the plaintiffs took this writ, assigning for error:
1. The order entering the judgment of nonsuit; and 2, the order discharging the rule to show cause why the judgment of nonsuit should not be vacated.
Mr. Everett Warren and Mr. Frederick W. Gunster (with them Mr. Edward N. Willard), for the plaintiffs in error:
1. The act of June 2, 1874, P. L. 271, requires that in the statement signed and acknowledged shall be set forth, inter alia, “the amount of capital of said association subscribed for by each,” and “ the character of the business to be conducted and the location of the same.” The subscription is an act necessary to raise the capital, and the statement is a declaration to the world that the preliminary act has been performed, and that the capital, whether in cash or otherwise, has been subscribed for. Kone of the $25,000 capital had been subscribed for, and starting, as the defendants did, without any subscription, they gave their association a name but no location. The statement was false, because in their preliminary arrangements, $1,000 of the contemplated capital had been allotted to a Mr. Davis; Mr. Davis had not subscribed for it, and did not even sign the articles or statement, which is now treated as the subscription list; and not a dollar of the capital was paid in at the time of the execution of the statement, nor until the purchase of the stock by Mr. Strong.
2. With due submission to the court below, we submit that the question is not what the act in question makes a cause of individual liability; but, have the defendants done what the law required them to do, in order that they might not be individually liable. The act says they shall keep a subscription list book. The court below held that they need not. But, as Mr. Justice Paxson said in Maloney v. Bruce, 94 Pa. 252, “If parties seek to have all the advantages of a partnership, and yet limit their liability as to creditors, they must comply strictly with the act.” This principle applies to limited partnerships under the act of 1886 and its supplements: Andrews v. Schott, 10 Pa. 47 ; Richardson v. Hogg, 38 Pa. 153 ; Vandike v. Rosskam, 67 Pa. 330 ; Guillou v. Peterson, 89 Pa. 163 ; Metropolitan N. Bank v. Gruber, 14 W. N. 12 ; Conrow v. Gravenstine, 17 W. N. 204 ; and equally to limited partnerships under the act of 1874 and its supplements: Maloney v. Bruce, 94 Pa. 252 ; Bement v. Brick Machine Co., 5 W. N. 58 ; Keystone Boot & Shoe Co. v. Schoellkopf s Sons, 11 W. N. 132 ; Pears v. Barnes, 1 Cent. R. 569 ; Eliot v. Himrod, 108 Pa. 569 ; Hite N. Gas Co.’s App., 118 Pa. 436.
3. Recording the articles of association was a declaration to the world that the capital had been paid in in cash. Parties dealing with defendants had a right to' conclude it was paid. When Fuller, Stetler and Archbald filed their articles, they further stated to the commercial world that they had each sub scribed for so many shares of the Amity Coal Company, when as a matter of fact they had not then subscribed for a cent, and never afterward subscribed for a single share; neither they, nor Theodore Strong, who afterwards entered the concern. They invited credit on a capital of $25,000, when in fact they had no capital at all, and thus became guilty of a fraud of the grossest kind: Haviland v. Chase, 39 Barb. 285 ; Eliot v. Himrod, 108 Pa. 569 ; Pears v. Barnes, 1 Cent. R. 569 ; Richardson v. Hogg, 38 Pa. 153.
Mr. W. H. Jessup (with him Mr. E. B. Sturges), for the defendants in error:
The principal objection to the statement is that it is false. We admit that if it is false in any essential particular, it will afford no protection. But wherein is the falsity alleged ? It seems too plain for argument that an obligation “ payable upon the execution hereof,” is one making the debt due immediately after the same is delivered. In the articles, the clause means simply that the amount is presently due from the subscriber after he has affixed his name thereto. Was there any capital subscribed for ? Each of the three persons associating certifies for himself and the others to a present subscription for the full amount of the capital. This statement, when filed, made a valid legal organization, and for all debts contracted by the organization, it alone could be sued. And under § 2 of the act, the only remedy was by suit against the association, and after judgment and execution returned nulla bona, then by rule on the defaulting stockholder to show cause why execution should not issue against him for the amount unpaid upon his subscription : Lauder v. Tillia, 117 Pa. 305.

Opinion:
Opinion,
Mr. Justice Williams:
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 only remedy of the plaintiffs was by action against the association and then against the stockholders severally for the amount unpaid upon their stock subscriptions. A compulsory nonsuit was accordingly entered against the plaintiffs which the court declined to take off, and this action of the court is the error assigned.
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 L. Fuller subscribes .for eight thousand dollars, and the said Robert W. Archbald subscribes for nine thousand dollars." The business to be done by the association is stated to be "the owning and leasing of mines and coal lands, and the mining, preparing, shipping, buying, and marketing of anthracite coal, together with all matters incident thereto." This statement followed the act of assembly, and as to its form was entirely regular, but the proofs show that not one dollar was paid by either of the subscribers to the stock. It was nevertheless recorded, and the Amity Coal Company, Limited, entered upon its business career without a farthing in its treasury or an article of property in the world. This was not a compliance in good faith with the requirements of the act of 1874. The purpose of that act was to foster legitimate and honest undertakings where capital was " subscribed and contributed " by persons desiring to engage in business, and not to bring into life a brood of associations without capital, without a treasury, and possibly without a solvent subscriber. But this association was not merely an empty shell, for its statement was misleading and deceptive. It provided for a capital of §25,000, which was made payable on the execution of the statement. It was subscribed and acknowledged and then regularly recorded, without the payment of a dollar of the subscribed capital. The only source of information, besides the statement which the law provides for, is the " subscription list book " which all such associations are required to keep, but which this one never opened. The fair import of the language of the statement that the subscribed capital was payable " on the execution hereof," is that it was to be paid down; and the subsequent recording of the statement is an assertion that the subscribers-have performed their promise and paid their subscriptions into the treasury. To enter upon business with the credit which the possession of a paid-up capital of §25,000 would give the association, when in fact nothing had been paid, either in money or property, was an evasion of the law and a fraud upon the public.
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 business is not with their motives, but with what they did; and our inquiry is whether this association was organized in accordance with the fair interpretation of the act of 1874. The act provides for the protection from personal liability of those who "subscribe and contribute " a capital to be employed in any lawful business. The "capital" is staked upon the success of the business, but because the amount of the capital appears upon the statement on record and the "subscription list book " on the desk of the association, all who have occasion to deal with it may know the amount of actual capital within reach, and determine to what extent the association is entitled to credit. But persons who subscribe yet never contribute, and who, by failing to keep a " subscription list book," withhold from the public all means of knowing the truth, cannot be within the protection of the act. They really put nothing into the enterprise except the credit of a capital that is actually withheld. They mislead the public and induce confidence to which they are not entitled. In other words, the credit they obtain rests not upon a subscribed and contributed capital, but upon a fraudulent appearance of sucb capital in tbeir statement.
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 jet limit their liability as to creditors, they must comply strictly with the act."
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 position is tlie same as if lie bad bought into any other insolvent firm. He did not become liable for debts contracted before he became a member, but for debts contracted afterwards, ho and his associates are liable as partners. Mr. Strong's honest payment for his interest cannot cure the vice which infected this association from its organization, or relieve him from the legal consequences of his connection with an insolvent firm.
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,
Mr. Justice Williams :
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 ciation, and, as a further assurance of its truth, it must be acknowledged by them. It must set out, among other things, the names of the persons uniting in the enterprise, and the name by which the new artificial person is to be known; the total capital subscribed and the amount subscribed by each member, and a statement showing when and how it is to be paid. When the certificate has been prepared, signed and acknowledged, and when the payment of capital into the treasury has been made in accordance with its terms, the preliminary work of organization is completed, and the association is ready to he called into life by the organic act, the recording of the certificate. This gives it existence and a name in the business world. Thenceforward the promoters cease to act as individuals or as partners in the common business, but through and in the name and upon the credit of the joint stock association. When the association enters upon its business life, it should have in its treasury the capital, or so much thereof as the recorded certificate endows it with at the outset; and the balance remaining unpaid, in accordance with the terms of the certificate, should appear upon the stock subscription book provided for by the act, so that a creditor or. any one interested to know could determine whether and to what extent the new business agency was entitled to credit.
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 til some part of tbe capital lias been paid in conformity with die certificate, the recording of the certificate is not authorized by the law, and can give no business life to the limp and empty framework of the association. In analogy to the business corporations of tbe state, ten per cent of tbe subscribed capital would seem to be the minimum amount to be actually provided for and paid into tbe treasury before tbe recording of tbe certificate, which, as we have already said, should show the times of subscription truly, and should be complied with fully and honestly before it goes upon the record.
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 ease may be taken out from the operation of the rule ; but, on the facts before us, we hold that the subscribers to the stock in this association, by reason of their disregard of the law under which they attempted to organize, acquired no rights under it, but became liable as general partners for all the debts contracted in the name of the association. Nor do we see our way clear to relieve one who bought an interest in the concern months afterward and honestly put his money into its business. Like one buying into an ordinary mercantile partnership, he was bound to inquire into the organization and condition of the concern in which he was about to invest his money.
The order heretofore made reversing the judgment of the court below remains in full force.
Mr. Chief Justice Paxson and Mr. Justice Mitchell dissent.