Court Opinion

ID: 6246834
Source: CourtListenerOpinion
Date Created: 2022-02-17 21:02:01.256546+00
Date Added: 2024-06-11T08:59:18.910194
License: Public Domain

Opinion by
Mr. Justice Dean,
In July, 1894, George A. Sturgeon, the plaintiff, with L. T. Yoder and S. W. Vandersaal, two of the defendants, formed a limited partnership, under the actiof 1874 and its supplements, for the purpose of leasing and operating oil and gas territory. The name of the partnership was that of “ Apollo Oil and Gas Company,” the other defendant to this suit. The capital stock, was $1,000, divided into ten shares of $100, of which Yoder and Vandersaal subscribed for four each, and Sturgeon two. The $1,000 was borrowed from the West Penn Gas Company, a corporation, the stock of which was owned and controlled by Yoder and Vandersaal. The money borrowed was repaid from the funds of the Apollo Oil & Gas Company, Limited. Both the loan and the repayment were made under the direction of Yoder and Vandersaal. Sturgeon, personally, paid no part of his subscription to the capital stock. The partnership was prosperous and continued in business down to November 17, 1899, a period of more than five years, when it sold out all the partnership assets to the American Natural Gas Company for $30,000. There was, also, at the same time, an unexpended balance in the treasury approximating $1,400. Yoder and Vandersaal took the whole of the $30,000 and divided it between them, and further, refused to share with Sturgeon the unexpended balance.
Thereupon Sturgeon filed this bill. It avers the partnership ; the number of shares and par value of capital stock; how capital was paid in; that the board of managers was made up of the three partners, Yoder president, Vandersaal treasurer and Sturgeon secretary; that the same board by re-election continued during the business life of the partnership; that the company, as also Yoder and Vandersaal, refused to pay to Sturgeon any share of the proceeds of sale or of the unexpended balance. The plaintiff prayed that the defendants be directed to pay to him one fifth of the $30,000, with interest, also one *373fifth of the unexpended balance, an account of which last was prayed; also that the partnership be dissolved and a receiver appointed.
All three of the defendants filed answers; all admitted the formation of the partnership, the nominal division of the capital stock and that it was paid for by Yoder and Vandersaal by a loan to them of the West Penn Gas Company, which company they practically owned. They denied, positively, that Sturgeon had or was to have any real interest in the partnership, and averred that at his suggestion, he was nominally made a partner because the law required that not less than three should join in the original recorded articles of the association; that by the original understanding and agreement with Sturgeon, he was to have no interest in the partnership, nor was he to contribute to the capital stock; that the two shares nominally his, belonged to Yoder and Vandersaal, and were paid for by them ; that Sturgeon was merely counsel and secretary for the company at an annual salary of $50.00.
On the bill and answers the issue hinged, first, on the question of fact, was plaintiff really a partner ? On the face of the papers he clearly was. The court below, in addition to what appeared from the writings, heard the oral evidence of all three ostensible partners. Their statements on the main question were almost flatly contradictory. There is no substantial dispute as to how the entire subscription to the capital stock was paid. It was loaned by the Penn Gas Company to Yoder and Vandersaal for that purpose; they controlled the lender as owners of its stock, and the borrower, too, as owners of at least four fifths of its shares, and the loan was repaid out of the funds of the borrower.
The testimony of Sturgeon is, that just before the organization of the partnership, Vandersaal came to him at his office and they talked over the formation of the partnership; that on his, Sturgeon’s, saying he had no money, Vandersaal said, “ That does not matter, I will put it in for you; ” that after this Vandersaal told him he had put the money in for him.
Soon afterwards, the partnership was formed under the act of June 2,1874. The articles set out that the capital is $1,000, that Vandersaal and Yoder have each subscribed for $400, and Sturgeon for $200, and all three subscribe the articles and *374acknowledge them before a notary; then on July 31, 1894, they were duly recorded in the recorder’s office for Allegheny county.
This is not a case where the averments of the bill are unsupported except by the affidavit of the complainant; they are supported, also, by every writing in the business, from the solemn official acknowledgment of the articles, down to the last minute on the partnership records before the sale. The affidavits and oral testimony of both Vandersaal and Yoder contradict the record, and their own explicit declarations in the acknowledgment in the articles of association. The fact, that Sturgeon did not reach into his pocket, take out $200, and pay it to the treasurer of the Apollo Oil & Gas Company, is not very material in view of the fact, that the whole capital was borrowed from the West Penn Gas Company, and then repaid out of the earnings of the Apollo Company. So far as we can see, there was no violation of law in failure to pay the capital stock by any one of the subscribers in this transaction. Besides, the testimony of Vandersaal is wholly inconsistent with his testimony in a hearing in a former case, Farrer and Tafts v. Hukill et al., so inconsistent, that it almost necessarily discredited his testimony in this case. We think the court below, on the testimony before it, “properly found the fact to be that Sturgeon was really a member of the partnership to the extent of one-fifth interest, and to that extent was entitled to share in the purchase money and in the unexpended balance.
But apart from the fact found, the defendants cannot avail themselves of a plea, that the partnership was unlawful. The act of assembly requires that the number of partners shall not be less than three; they explicitly declared in the recorded articles that there were three, Sturgeon being one ; this declaration they reiterated for five years; they cannot now be heard to say there were but, two ; that Sturgeon never was a partner; not only was it a fraud upon the law but on the public for five years to represent him as a partner. Any violation of the limited partnership act of 1874 would have imposed upon each partner the liability of a general partner; Sturgeon could not have escaped, as to creditors and the public such liability, by alleging he was a mere straw partner. He held himself out, and Vandersaal and Yoder held him out, as an actual partner, and *375the law would have regarded him as such. The principle enunciated in Rowley’s Appeal, 115 Pa. 150, is directly in point here, as the court below held. The fact, that in that case stockholders in a corporation sought for their own advantage to allege a violation of law, makes no difference in the application of the principle. Both stockholders in corporations and shareholders in limited partnerships organize or associate under the law, because of the special privileges such organizations give them and the special immunity from unlimited liability. Their organizations must, therefore, be made in good faith in obedience to the law. In the case cited our Brother Mitchell, then sitting in the common pleas, used this language :
“ This defense, if true, was a plain fraud on the law. If the fact as now alleged by the respondents had been truly set forth in their application, the governor would not have granted them a charter. By joining in' an application which set forth the complainant and others as corporators according to law, the respondents estopped themselves from contesting the truth of that fact.”
This was affirmed by the Supreme Court.
The objections to the form of the decree are without merit. What we have said covers all the other assignments of error; they are overruled, and the decree of the court below is affirmed.