Thomson's Estate , 153 Pa. 332 ( 1893 )

Lavinia F. Thomson’s Appeal.

Opinion by

Mb,. Justice Williams,

Trade consists so largely in the purchase and sale, or exchange, of raw materials or manufactured products that the word naturally suggests personal chattels as the commodity dealt in. But real estate may become an article of trade to be bought and sold like any other commodity. When this is done by an individual in his own name his purchases have all the ordinary incidents connected with the ownership of land. When it is done by a copartnership the artificial person owns the land as it would own the stock of goods bought for a firm, and the interest of the individual partners is in the net profits made in the business. For this reason a purchaser of the interest of one partner, in a firm of which he is a member, takes no part of the partnership property in kind, but only the proportionate share in the fund or property remaining after the business is closed and settled: Seibert v. Seibert, 1 Brewster, 531. And a purchaser at sheriff’s sale stands on no higher ground. One who buys at sheriff’s sale the interest of a partner buys only a right to require an account and a distributive share in the surplus, if there be any: Smith v. Emerson, 43 Pa. 456. The commodity in which the partnership deals does not increase or diminish the rights of the members, or affect the rules to which we have referred; but real estate held as partnership property is to be treated in the same manner as personal property is treated: Moderwell v. Mullison, 21 Pa. 257.

An unincorporated joint stock company organized to trade in land is essentially a partnership, and lands held by such association are not subject to judgment or levy and sale at the suit of a separate creditor of one of the members: Kramer v. Arthurs, 7 Pa. 165. Oliver’s Estate, 136 Pa. 43, dealt with such an association, and we there held that the several shares of the members of the association did not represent land as such but an interest in the venture; and that a dividend declared out of the proceeds of sales made by the association was to be regarded as profit made in the business conducted by the association, so long as the capital stock remained unimpaired. The rule laid down in that case is a sound one. Its application is not to be confined to cases which present all the facts, and in the same mariner, as were found in that ease. On the other hand it is a rule of general application, where a trading company, whether incorporated or unincorporated, engages in the business of buying and selling land for profit just as well as where the commodity dealt in is dry goods, or agricultural implements or live stock. The company owps its stock in trade. The members are entitled to share in the profits of the business while it lasts, and to a share in what is left after dissolution and payment of debts. The profits are income. A division of assets after dissolution is a return of capital, at least to the extent of the original investment.

In the case now before us the auditing judge found as a fact that the Dennison Land Company was “an unincorporated association and therefore a copartnership.” The sole object of the association was to buy land in large tracts, lay out streets and lots upon it, and sell the lots at such prices as to yield large profits on the venture. The titles were not made to the members of the association as tenants in common, but to the trustees who conducted by themselves or agents the business of making sales, executing and delivering deeds to purchasers, collecting purchase money, and doing such acts on behalf of their principal, the land company, as the nature of the business required. They rendered an account at stated or other intervals to the association of their receipts and disburse ments, and from the moneys made from sales or rents dividends were from time to time declared and paid. The evidence shows that the capital orginally invested has not been impaired. These dividends therefore represent the profits realized from the business done by the association in the line of trade for which it was organized and in which it has been engaged. As between the life tenant and the remainder-man the money so realized is income derived from the investment made in the capital of the unincorporated association, bearing the name of the Dennison Land Company. The capital itself belongs to the remainder-man, but the income cannot be distinguished from that-derived from an investment in ground rents or interest-bearing bonds.

The cases cited by the court below in support of a different doctrine do not do so. In Vinton’s Ap., 99 Pa. 434, the fund in controversy was produced by a sale of part of the franchises of a gas company which was clearly not income but part of the capital. Hubley’s Ap., 41 Leg. Int. 66, was the case of an increase in the value of a trust investment, not of income from it. Here we have an investment in an association organized to deal in land as a commodity. We have profits resulting from the business done. These are ascertained and divided among the shareholders without any impairment of principal. The ease is therefore within the rule laid down in Olivers Appeal, and as to this item the decree of the court below is reversed.

The only other question relates to the premium at which the option to subscribe to the stock of the J efferson and Clear-field railroad was sold.

Mr. Thomson was a holder of stock in the Bell’s Gap Railroad Company. This company owned a short line of road, tributary to the Pennsylvania Railroad, which was doing a prosperous business. It needed an extension, reaching further into the coal fields of that region. The plan devised for securing it was to organize a new company, called the Jefferson and Clearfield Railroad Company, with a capital stock sufficient to build the road. Having done this the projectors mortgaged their unbuilt line for another sum sufficient to build it; and issued bonds bearing six per cent interest, and guaranteed by the Bell’s Gap Company, for the amount secured by the mortgage.

These bonds the stockholders in the Bell’s Gap Company were permitted to take at par in proportion to their holdings in that company, and the capital stock of the new company was thrown in as a bonus to those who subscribed for the bonds. This privilege to get a dollar in a guaranteed bond with a dollar in stock, for every dollar in money advanced, was a valuable one and sold for a premium. What is the character of this premium ? It does not represent money earned by the Bell’s Gap Railroad. It is not a profit or income growing out of the capital represented by Mr. Thomson’s shares of stock in that road. It is rather an opportunity to invest mouey in a new enterprise which originated with the stockholders in the Bell’s Gap Road, and which they limited to themselves. The whole arrangement was a gross violation of law, but it promised to bring gain to those who held the privilege of subscribing, and this promise or prospect was what gave value to the privilege. It was not money in hand but in the prospective, for if the new road could survive under its double load, the bondholders would have a good six per cent investment for tbeir money, and they would also have the value that the stock might reach without paying anything for it. This gain when realized by the subscribers to the bonds of the Clearfield and Jefferson road is not income from the stock of the Bell’s Gap, nor is the price at which the prospect of realizing it was sold.

The decree of the court below should be modified so as to award the dividends from the Dennison Land Company to the life tenant. The other exceptions are dismissed.

Roberts’s Appeal.

Mr. Justice Williams,

Opinion by February 27, 1893:

This appeal is ñ-om the same decree just considered in the appeal of Lavinia F. Thomson. The questions raised are substantially covered by the opinion filed in that case, and for the reasons there given the decree of the court below is affirmed.