Paul v. Paul

Opinion by

Mr. Justice Frazer,

Levi M. Paul, one of the defendants, conducted with George Heebner a partnership business in the City of Pottsville for the sale of musical instruments. This partnership was dissolved in 1895 and Paul engaged in the same business in the same city on his individual account which he continued until January 13, 1903, at which time plaintiff, Howard I. Paul, alleges a partnership agreement was made orally between him and defendants, Levi M. Paul, his father, and Sarah K. Paul, his sister. On May 31, 1904, the parties named filed in the office of the prothonotary of the county in which they were doing .business, a certificate to the effect that on January 19, 1903, they entered into a copartnership for the sale of music and musical instruments, under the name of Levi M. Paul & Company, and stated their respective interests in the firm to be Levi M. Paul one-fifth, Sarah K. Paul two-fifths, and Howard I. Paul two-fifths. The business was continued under that name until August, 1917, when a disagreement arose and plaintiff demanded his interest in the firm, and, upon his right to share in the firm property being denied by defendants, the present bill was filed asking that the partnership be dissolved and an accounting ordered. Defendants denied the existence of the partnership and averred plaintiff was merely an employee and that the certificate filed by plaintiff and defendants in the prothonotary’s office was “for the purpose of protecting the property of Levi M. Paul from the possible liability for the debts of Heebner & Paul.” The court below found as a fact that a partnership was not intended in good faith to be formed between the parties, and that plaintiff was aware he was without actual interest in the business or its assets, and at no time asserted an interest until August, 1917, following a dispute which arose between him and his father. The court found the purpose disclosed by the defense was fraudulent and defendants were estopped from asserting their claim and from denying the partnership, and that to permit such defense would allow defendants to benefit by setting up their fraud in avoidance of their contract. A decree was accordingly entered directing an accounting.

We find no substantial dispute as to the facts of the case and the conclusion of the chancellor that a bona fide partnership was not entered into by the parties is in favor of appellants, consequently we need only consider the soundness of his conclusion that defendants were estopped from denying the partnership relation, as set forth in the certificate filed pursuant to statutory provision, and evidenced by other acts and conduct indicating the existence of a partnership, where it is conceded the purpose was to deceive creditors of one of the defendants.

A voluntary conveyance made or contract entered into for the purpose of defrauding creditors, though void as to them, is binding upon the parties. This rule is based upon the theory that the contract being for an illegal purpose, the law will leave the parties where it finds them and as between themselves they will not be permitted to set up their fraudulent act to avoid their obligations under its terms: Jackson v. Thompson, 222 Pa. 232; Mars Nat. Bank v. Hughes, 256 Pa. 75; Italian Cooperative Bkg. Assn. v. La Spada, 58 Pa. Superior Ct. 576. In applying this rule the test is, as was stated in the early case of Swan v. Scott, 11 S. & R. 155, whether the plaintiff required the aid of an illegal transaction to establish his case, and if he cannot prove his case without showing he has broken the law or participated in a fraudulent transaction, the court will not assist him. See also Bredin’s App., 92 Pa. 241, 246; Monongahela Nat. Bank v. First Nat. Bank of California, 226 Pa. 270, 276. The rule applied in this case operates to prevent defendants from setting up as a defense the fact that the stipulation was filed of record for an illegal purpose: Sturgeon v. Apollo Oil & Gas Co., 203 Pa. 369.

The decree of the court below directing defendants to account is affirmed. Costs of this appeal to be paid by appellant.