Sheble v. Strong , 128 Pa. 315 ( 1889 )

Opinion,

Mr. Justice Sterrett:

In 1879, the defendants and others named in the suihmons attempted to organize a limited partnership association, under the act of 1874 and supplement, in the name of “The Pittston Knitting Company, Limited.” Their articles of association or statement, as executed and recorded by them, fixed the capital at $25,000, of which $15,050 was payable in money, and the balance, $9,950, in machinery contributed by two of the subscribers, residents of New York. In some respects the statement conformed to the requirements of the act, but no schedule, description, or valuation of the machinery was made. The only reference thereto is in article 3d of the statement, as follows:

“The subscriptions of Daniel M. Stimson for $4,000, and Frances C. Stimson, $2,000, were made and have been paid in machinery valued and accepted for said amounts in manner as aforesaid. The subscription of Daniel M. Stimson, for $3,950, was also made and is payable in machinery to be valued and accepted in manner as aforesaid, but upon condition that no certificate for or other evidence of this share of the capital stock shall be issued to the said Daniel M. Stimson until the said machinery shall have been fully paid for and the lien of the vendors fully satisfied.”

The plaintiffs, Sheble & Hill, brought suit against the “Pittston Knitting Company, Limited,” for material furnished by them to the company, and in due course obtained judgment, on which they were unable to realize anything. They then brought this action against the defendants and others who composed the company, claiming to hold them liable as general partners, on the ground that in attempting to organize themselves into a limited partnership association they had neglected to comply with the provisions of the act. As disclosed by the affidavits, the grounds of defence are: (1) That defendant^ were a limited partnership association in which the capital alone was liable for the debts, and they were not individually liable; (2) That in addition to the notice contained in their statement, the plaintiffs had actual notice of the character and kind of machinery; (3) That plaintiffs were estopped from proceeding with their action for the reason that they had proceeded against the “Pittston Knitting Company, Limited,” and obtained judgment against it; (4) That prior to the bringing of this suit, some of the members of the company had died, and some had moved away, and others had become insolvent.

The last-mentioned ground of defence is so clearly destitute of merit that it may be dismissed without further notice. As has been fully shown by the learned president of the Common Pleas, the first and second grounds of defence are also untenable. Assuming that the subscriptions to the capital stock are certified according to the fact, it is very clear that the statement is fatally defective in that it does not contain such a detailed description and valuation of the machinery as the supplement of 1876 requires : Maloney v. Bruce, 94 Pa. 249. As was said in that case the property contributed was intended as the equivalent of a cash capital, and the plain object of the provision in the supplementary act, requiring a schedule, was to enable the creditors to ascertain precisely of what the property consisted and to judge of its value. If parties seek to enjoy the advantages of a partnership and yet limit their liability as to creditors, they must comply strictly with the provisions of the act. The question is not one of good faith on the part of the defendants, or of notice to creditors, but whether, in their attempt to form a limited partnership, they conformed to the law. If they did not, their attempt was abortive, and it is no defence that creditors had actual knowledge of the facts required to be set out in the recorded statement. The averment in the affidavit of defence that plaintiffs had actual knowledge of the extent and nature of the capital of the association, and gave credit to it on the basis of a liability limited to such capital, is therefore insufficient. The immediate context shows that defendants do not mean by that averment to allege that there was any express contract between them and plaintiffs, whereby the liability of the former was limited to the capital stock subscribed as set forth in the statement.

All our cases on the subject sustain the position that a strict compliance with the statutory requirements is essential to the formation of a limited partnership. Where there is no record of such a statement as the statute requires, there is no statutory association. When immunity from liability is claimed under the provisions of the act, it is competent for the plaintiff, either to point out a fatal defect on the face of the recorded statement, or to prove that an essential requisite, though formally stated, is falsely asserted: Eliot v. Himrod, 108 Pa. 569; Hill v. Stetler, 127 Pa. 145.

The main ground of defence and the one on which the affidavit was adjudged sufficient is, that the plaintiffs having proceeded to judgment and execution against the “Pittston Knitting Company, Limited,” in the mode pointed out by the act of assembly, are estopped from proceeding against defendants as general partners.

The defendants themselves are not in a position to complain. They attempted as we have seen, to form a limited partnership, but failing to comply with the provisions of the act, they were not entitled to claim its benefits. Plaintiffs had a right to sue them as a limited partnership association in the mode pointed out by the act, because they held themselves out as such association, and upon failure to recover their debt by execution against the association, they might have had execution against the non-paying members, if any there were, for the amount of their unpaid subscriptions; or, as they did in this suit, they had a right to treat the attempt of defendants to form a limited partnership as a nullity and proceed against them as general partners. The actions are not the same either in form or effect. In the one, the association is made defendant, without naming the individuals who compose it, and service of process is made on one of the officers, who are agents of the members only to the extent of their interest in the association. In the other, the persons who compose the general partnership are joined as defendants, and if liable at all as partners, each is liable for the entire debt, and not merely to the extent of his interest in the partnership, provided all are served with process or voluntarily appear. The measure of liability in each, respectively, is different. In the one, it is general; in the other, it is limited to the property of the association, which of course includes unpaid stock due by individual members. For the same reasons the actions are not inconsistent.

The defence under consideration is in the nature of a plea of former recovery. Considering it in that light it was incumbent on the defendants to show not only that the parties to both actions were the same, but that the questions to be aid judicated were raised and determined in the former suit. A former judgment is not conclusive of anything that was not directly decided by it, or was not material to the decision. Before such effect can be given to it in another suit, it must appear either from the records or aliunde that it must have rested on the same question or questions that are sought to be raised in the second action: Tams v. Lewis, 42 Pa. 410; Schriver v. Eckenrode, 87 Pa. 215. Conceding for argument sake, that the debt sued for is the same, in both cases, and that the present defendants are of those who constituted the association that held itself out as a limited partnership, it is nevertheless true that the question of liability, as general partners,. was not in any manner involved in the first suit, while in the present action that is the main question. We are therefore of opinion that the learned judge erred in not holding that the affidavit of defence was insufficient.

Record remitted to the court below with direction to enter judgment against defendants for the amount claimed by plaintiffs, unless other legal or equitable cause be shown to said court why such judgment should not be entered.