Opinion
No. 23771
Decided March 22, 1933.
Partnership — Unincorporated association for profit — Members united to raise and lend or invest money — Profits and losses shared — Board of managers acted as special agents — Not joint adventure or Massachusetts trust — Membership list to be filed with common pleas court clerk — Section 8099, General Code.
An unincorporated association for profit, was composed of members who united and associated themselves together for the purpose of raising money or putting funds into a common pool, to be loaned and invested in loans, or in discounting or buying promissory notes or other negotiable securities, whose membership consisted of those who at any time subscribed to the articles of association and contributed money to the common fund for investment, which contributions were designated as dues or deposits, whose members shared profits and losses and who, by their articles of association, appointed a board of managers who acted as special agents in managing the affairs of the company, instead of leaving each member as in an ordinary partnership to act as a general agent for the transaction of business in the ordinary way, whose officers were subject to removal under certain conditions and whose articles of association were subject to amendment by the members at a regular or special meeting called for that purpose. Held, that such association constituted a partnership. ( McFadden v. Leeka, 48 Ohio St. 513, approved and followed.)
ERROR to the Court of Appeals of Darke county.
This is a proceeding in error to reverse the Court of Appeals of Darke county. The original action was begun by E.A. Goubeaux, the receiver of the Citizens Loan Savings Association of Greenville, Ohio, against Ella S. Krickenberger, executrix of the estate of O.R. Krickenberger, deceased, and Ella S. Krickenberger, individually, and was an action whereby the plaintiff in error sought to recover a judgment on a promissory note, signed by O.R. Krickenberger, and to subject thereto certain securities in the hands of the defendants as collateral, and to engraft a trust upon a certain parcel of real estate belonging to one of the said defendants.
The question was raised in the case that the Citizens Loan Savings Association was a partnership and had failed to comply with Section 8099, General Code, requiring such partnership to file a complete list of the members thereof with the clerk of the common pleas court; and this question as to whether or not the Citizens Loan Savings Association of Greenville, Ohio, is a partnership is the sole question for determination, the other features of the case not being presented to this court.
The record discloses that the Citizens Loan Savings Association was organized on March 1, 1898. A determination of the question presented requires a rather detailed statement of the history of the association and a resume of the articles of association.
In the original articles of association, under Section I of Article II, the capital stock of the Citizens Loan Savings Association was $200,000, divided into shares of $250 each. Provision was made in the latter part of the articles of association for weekly payments upon subscription for capital stock, and for withdrawals from the organization upon thirty days notice and compliance with other conditions set out in Article XI.
The stockholders annually met and elected a board of managers, which board of managers apparently had complete control of all the business and elected the managing officers, consisting of president, vice president, secretary and treasurer.
However, prior to the time of the occurrences which are the basis of this lawsuit, there was a radical revision of the articles of association, which was still continued as an unincorporated association. All references to capital stock and subscriptions of stock were eliminated from the amended articles. These amended articles of association are as follows:
"Articles of Association of the Citizens Loan and Savings Association of Greenville, Ohio, Organized Tuesday, March 1, A.D. 1928.
"Articles of Association. (As Amended.) "OBJECT AND NAME. " Article I."Section I. We the subscribers hereto, hereby unite and associate ourselves together for the purpose of raising money, or putting funds in a common pool to be loaned and invested in loans, or in discounting or buying promissory notes, bonds or other negotiable securities.
"Section II. The business name of the association so formed shall be The Citizens Loan and Savings Association, and its place of business shall be in the city of Greenville, Ohio.
"CAPITAL. "Article II."Section I. The capital of the association shall consist of the cash funds (deposits) contributed for investment by the members.
"MEMBERSHIP. "Article III."Section I. Any person in his or her own right, or as trustee, or a corporation, may become a member of the association at any time by subscribing to these articles of association and contributing money to the common fund, for investment, which contributions are designated as dues or deposits.
"Section II. Each member shall have one vote on any deposit in any amount up to $250.00 and one additional vote for each $250.00 or major fraction thereof, more.
"Section III. Deposits may be made for benefit of minors, subject to order or control of parent, guardian or trustee.
"Section IV. Each member shall own such proportion of the common capital, or assets, as his deposit bears to the whole of the deposits.
"Section V. Persons borrowing from the association do not become members of the association thereby.
"Section VI. When a member withdraws all deposits to his credit such person thereupon ceases to be a member.
"PAYMENT OF DUES. "Article IV."Section I. Each member may deposit funds to his credit at any time to be entered upon an appropriate pass-book by the secretary at the time.
"Section II. The board of managers may authorize the secretary to receive special deposits of lump sums subject to a fixed rate of dividend, as the board may determine, but in no case to exceed 6 per cent. per annum. Such depositors become members.
"Section III. Membership and pass-book accounts and special deposits may be transferred or assigned, in writing, subject to approval of the secretary, and become valid when so approved and entered on the records of the association.
"Section IV. Pass-book and special deposits may be pledged to the association for loans on such terms as the board of managers may fix.
"Section V. Joint deposits may be made payable to, or withdrawable by, the survivor.
"(REPEALED.) "Article V. "OFFICERS. "Article VI."Section I. The business of The Citizens Loan and Savings Association shall be managed, controlled and conducted by a board of managers, composed of seven members, to be elected on the first Tuesday of March of each year from among the members. There shall be a president, vice-president, secretary and treasurer of said association who shall be elected by said board of managers. There shall be an executive committee, consisting of the president and two other persons to be selected by the said board from its number, who shall serve for one year until their successors are elected and qualified.
"Section II. The president shall preside at all meetings of the board, and on the order of the board, and in the name of the association, cancel all mortgages held by said association which have been paid or satisfied. And the said president or secretary are authorized and empowered, in the name of the association on the order of said board of managers, to execute promissory notes for money borrowed by the said association. This section is subject to the provisions of Section 5 of this article.
Section III. The secretary shall keep the minutes of the actions and proceedings of the board of managers, sign all warrants drawn on the treasurer for the payment of money, and sign in the name of the association all cancellations of mortgages and all notes for the payment of money borrowed. The secretary shall receive all money paid to the association on dues or installments, interest, or otherwise, and receive and hold all securities of the association. He shall keep an accurate account of the same, and pay the same to the treasurer, charging said officer for the same. And said secretary shall keep an accurate account with each member of said association, and with all other persons doing business with said association. He shall give bond, with security approved by the said board of managers, for the faithful accounting and paying over, according to the provisions of these articles of association, of all money received by him as such secretary, and for the faithful performance of his duties as such secretary, in favor of the association, in such sums as the board of managers from time to time shall direct and require. He shall attend at the office of the secretary and receive the payment of dues and other money due the association. This section is subject to the provisions of Section 5 of this
article. "Section IV. The treasurer shall be the custodian of the funds of the association, and shall keep a full and accurate account of all money received and disbursed by him, and shall deposit the funds of the same in such bank or banks as the board of managers shall direct. He shall give bond with sureties approved by the board of managers, in such sum as the said board shall require, for the faithful accounting and paying over of all moneys that shall come into his hands as treasurer, and for the faithful performance of the duties of said office. He shall pay out the money of said association only on the warrant of the secretary.
"Section V. The executive committee shall organize by electing one of its members president and one secretary. All applications for loans, or for discount of securities, shall be made to said committee, which committee is fully empowered and authorized to take final action in the matter of all such applications in all cases where the amount to be loaned or invested does not exceed five hundred dollars. No loan or investment in excess of said sum shall be made until the same is sanctioned and approved by the board of managers. In cases where the committee is given the right of final action, upon report in writing of action by the same in favor of an investment or loan, and the amount involved does not exceed five hundred dollars, secretary may draw a warrant in the name of the association for the amount invested.
"POWER TO BORROW MONEY. "Article VII."Section I. The board of managers, when in their judgment it would be to the interest of the association, may borrow money and cause the note of the association to be executed in favor of the lender, but the amount of money borrowed at any one time shall not exceed 20% of deposits.
"ATTORNEY. "Article VIII."Section I. The board of managers shall, each year after organization, appoint some suitable attorney for the association.
"MEETINGS OF MEMBERS. "Article IX."Section I. There shall be an annual meeting of the members of the association on the first Tuesday in March of each year for the election of a board of managers, and such other business as the members may desire to transact. At such meeting members present in person, or by proxy in writing, representing 10 per cent. of the deposits shall constitute a quorum for the transaction of business. Election of members of board of managers shall be by ballot. Should there be a tie vote for one or more members the same shall be decided by lot by the president of the meeting.
"VACANCIES. "Article X."Section I. All vacancies in the board of managers shall be filled by said board until the next annual meeting of the members.
"WITHDRAWALS. "Article XI."Section I. Any member, after having paid dues for one year or more, shall have the right, on 30 days written notice to the secretary, to withdraw his or her share from the association, and as soon as the money is on hand shall receive the dues or installments paid therein, together with the earnings passed to the credit thereof, less, and after deducting the proportionate share of the loss and expense chargeable thereto; and any member who has paid his or her dues or installments for less than one year, may withdraw his or her stock without earning on thirty days' notice, and upon this being done the membership for such persons shall cease.
"EARNINGS PASSED TO MEMBERS. "Article XII."Section I. On the third Tuesday of January of each year the board of managers shall ascertain the gross expense and the total losses of the past year ending December 31st and shall order the said expenses paid, and shall, if there be gains, set apart five per cent. of the net gains, if there be so much, for a surplus fund, and after deducting the said expenses and losses and the said surplus, the said board shall cause the secretary to pass to the credit of each member's account its due and proportionate share of the earnings; provided, that whenever the said surplus shall amount to fifteen per cent. of the assets of said association, the said board of managers may omit setting apart any surplus, so long as the said surplus amounts to fifteen per cent. of the assets of the said association.
"MEETINGS OF THE BOARD. "Article XIII."Section I. The board of managers shall meet on the first Tuesday of each month, and there shall be called meetings on the call of the president, secretary, or any two members of the board.
"(REPEALED.) "Article XIV. "AMENDMENT OF ARTICLES. "Article XV."Section I. These articles of association may be amended at any regular meeting of the members, or a special meeting called for such purpose. The board of managers may submit amendments at any meeting of the members; vote on such amendments to be by ballot and the same number present as provided by Article IX shall constitute a quorum and a majority of the votes cast shall be sufficient for adoption.
"SALARIES OF OFFICERS. "Article XVI."Section I. The secretary and treasurer of said board shall receive such salary as the board of managers from time to time shall fix, and the board of managers may allow the members the sum of $5.00 each for regular or called meetings, not to exceed over 12 meetings in one year.
"REMOVAL OF OFFICERS. "Article XVII."Section I. Any officer of the association may be removed from office for any gross misconduct, or any neglect of duty in office, by a majority vote of the members at any regular meeting, or at a special meeting held for such purpose, the same to be called by the president or any three members, on proper written charges being filed with the secretary. Notice of such special meeting shall be given as provided in Section I of Article XV. But no officer shall be put on trial until he has been served with a copy of the said charges at least five days, and given reasonable notice and time and place for such trial. The association and the officer charged may be represented by counsel. All votes at such meetings on any question shall be by ballot, and a canvass thereof had, and the result announced in compliance with Section 1 of Article IX of these articles.
"BY-LAWS. "Article XVIII."Section I. The board of managers shall adopt such by-laws as are necessary for the management of the business of the association, not inconsistent with these articles.
"DISSOLUTION. "Article XIX."Section I. This association may be dissolved and the affairs thereof closed up at any annual meeting of the members, or at a special meeting called for such purpose, by members representing ten per cent. of the deposits, or at a meeting called by the board of managers; due notice of any such special meeting to be given by the secretary by mail to each member. If a resolution to dissolve the association be adopted by a majority of all the members, a fiscal committee of three members of the association shall be appointed to collect the assets and convert the same into money and make distribution of the same among the members."
This association continued to do business at a profit up until February, 1930, and in September, 1930, this receiver was appointed for the association.
The matter came on for hearing before the court of common pleas, and upon this question as to whether or not the association was a partnership the common pleas court held that such association was a partnership, and required the plaintiff association to cause a list of its depositors as of the time of the filing of the suit to be filed in the office of the clerk of the courts before it should become entitled to any judgment or decree in the case.
The receiver on behalf of the Citizens Loan Savings Association prosecuted an appeal to the Court of Appeals, which also held that the association was a partnership and required that the association should cause the list of its members or depositors to be filed with the clerk preliminary to the recovery of any judgment or decree in this cause against the original defendants.
Error is now prosecuted to this court by the receiver of the association, seeking a determination of the sole question as to what is the status of the Citizens Loan Savings Association.
Messrs. Billingsley Manix, for plaintiff in error. Mr. Herman F. Krickenberger and Messrs. Murphy Staley, for defendants in error.
The paramount question involved in this case is: What species of entity is the Citizens Loan Savings Association of Greenville, Ohio?
Concededly it is not a corporation, nor an individual, but by whatever name it be called it was organized for profit. Was it a joint association or joint adventure, or voluntary association, or possibly a so-called "Massachusetts trust," or business trust, with exclusive control of the property in the trustees or managers? The defendant in error contends that the Citizens Loan Savings Association is a partnership.
Over half a century ago this court determined, in Harvey v. Childs and Potter, 28 Ohio St. 319, 22 Am. Rep., 387, that the following is a test of partnership: "Participation in the profits of a business, though cogent evidence of a partnership, is not necessarily decisive of the question. The evidence must show that the persons taking the profits, shared them as principals in a joint business, in which each has an express or implied authority to bind the other." This case has been followed many times in this state and is cited with approval in many other jurisdictions. We are not, therefore, disposed to depart from that rule.
In Southern Ohio Public Service Co. v. Public Utilities Commission, 115 Ohio St. 405, 154 N.E. 365, the rule of Harvey v. Childs and Potter, supra, was followed and approved; and it was held in that case that where certain individuals operate motorbusses along a state highway, who have, for the greater efficiency of the service as well as their common good, agreed upon a joint schedule, employed a common manager, shared certain expenses, and agreed upon a division of profits, they did not necessarily constitute a partnership unless the evidence also showed that such individuals so taking the profits shared them not only as principals in a joint business, but that each had an express or implied authority to bind the other as principal and agent. There being nothing in the record to show that the relation of principal and agent to each other existed among the bus operators, nor power to bind each other in the scope of the common business, it was held that they were not a partnership. The facts in that case are essentially different from those in the instant case.
In this case the Citizens Loan Savings Association has brought itself squarely within the law determined in the case of McFadden v. Leeka, 48 Ohio St. 513, 28 N.E. 874. An examination of the first paragraph of the syllabus of that case shows the similarity between the organization therein involved and the one in the instant case: "An unincorporated association was formed under a specific name, for the purpose of erecting a building and carrying on the business of slaughtering hogs. The capital stock was fixed at $10,000 (afterwards increased), consisting of one thousand shares, of ten dollars each. All the original, but none of the increased stock, was subscribed or guaranteed, and the company was then organized with the adoption of a constitution and by-laws. The officers of the company consisted of five directors, a president, secretary and treasurer. The constitution made it the duty of the directors to have charge of the business of the company, to carry out the objects for which it was organized, and to see that the interests of the stockholders and company were protected; but, by one of the by-laws, the directors were forbidden to adopt plans of buildings, or make contracts, or create indebtedness, beyond the available capital of the company. By the constitution, each stockholder was to have one vote for each share of stock, and the shares were made transferable on the books of the company. The by-laws provided for the holding of regular meetings, and the calling of extra meetings of the stockholders. Held: That the association was a copartnership."
Our attention is called to the fact that in the McFadden case no reference is made to the case of Harvey v. Childs and Potter. This is not important, as an examination of the record in the McFadden case, also the briefs of eminent counsel presenting that case, as found in the files of this court, discloses the fact that both sides conceded that the organization in question was to be regarded in law as a partnership, and the controversy was largely as to the liability of the partners as among themselves, growing out of an unauthorized increased indebtedness and the attempt by the directors to compel contribution to pay such unauthorized indebtedness from the nonassenting members. The principles of Harvey v. Childs and Potter are recognized in the opinion, as noted hereafter. The syllabus, as above quoted, states the law as to the character of such an association, and we are bound thereby.
Under the articles of association of the Citizens Loan Savings Association of Greenville, the subscribers thereto agreed to unite for the purpose of contributing money to a common fund, to be loaned and invested for profit, in discounting or buying promissory notes, bonds, or other negotiable securities.
By Article VI the board of managers, comprised of seven members, was given power to carry on the business of the Citizens Loan Savings Association, permitting it to manage, control, and conduct the affairs of the association, but subject to the power of removal for misconduct, etc., and further subject to the amendment of the articles of association by the members at a regular or special meeting called for that purpose, which amendments might strip the managers of all authority whatsoever.
True, it was a broad power, delegated by the members who associated themselves together for the purpose indicated, authorizing the managers to act as their agents in the premises. The members shared the losses and also participated in the profits, if any. Thereby, within the scope of the purposes of the association, the members, by delegating this power to their board of managers, created a relationship which complies with the requisite elements necessary to make up a partnership, under the decisions of this court and within the scope of the objects and purposes of the association.
As to whether or not this is a joint adventure, we are not disposed to so regard it. The principal difference between a partnership and a joint adventure is that the former is generally used to characterize a general continuing joint adventure, while the latter designates a single joint venture, consisting of one transaction. The purposes in the instant case were so continuing as to indicate a partnership rather than a joint adventure.
The so-called "Massachusetts trust" is a form of business organization consisting of an arrangement whereby property is conveyed to trustees in accordance with an instrument of trust, to be held and managed for the benefit of such persons as may from time to time be holders of transferable certificates entitling holders to share ratably in income of the property, and, on termination of the trust, in the proceeds. Hecht et al., Trustees, v. Malley, 265 U.S. 144, 44 S. Ct., 462, 68 L.Ed., 949.
If the trustees of such a trust are free from the control of the certificate holders, a trust is created; but if they are to be subject to the control of the stockholders or shareholders, or substantially so, as if such trustees are but managing agents, the arrangement constitutes a partnership, regardless of whether the stockholders actually exercised the authority vested in them by the agreement.
In this case the certificate holders, or shareholders, or depositors, or members, by whatever name called, are principals, and the board of trustees, or managers, are their mere managing agents. The ultimate power of control is given to the certificate holders in the articles of association.
By Article XV the articles of association may be amended at any regular meeting of the members or a special meeting called for such purpose.
By Article XVII any officer of the association may be removed from office for any gross misconduct or any neglect of duty in office, by the majority vote of the members, at any regular meeting or at a special meeting held for such purpose, etc.
Thus it was within the power of the shareholders, or depositors, or members, to so amend the articles of association that the trust should terminate forthwith and the managers be powerless and the trust come to an end. It is evident that the power of control of the management is ultimately in the certificate holders, or depositors, or members, and may at any time be exercised by them, notwithstanding any opposition the trustees or managers might offer. The creative instrument so binds together the shareholders, or depositors, or members, that the ultimate control is in their hands.
In speaking of "Massachusetts trusts" the editors of American Law Reports, in volume 7, at page 613, have placed this editorial note: "It seems to be almost universally conceded, at least in the absence of prohibitory or controlling statute, that business trusts of the character known as 'Massachusetts trusts,' and which in the great majority of the cases are in fact nothing more than common-law partnerships, or joint stock companies or associations formed or organized in the nature of a trust, with the capital dividend [divided] into certificates or shares and usually represented by stock, to carry on a business for profit and in the interest and for the benefit of the certificate or share holders, — are, generally speaking, legal and valid."
However, the exact nature of this organization has been determined, so far as Ohio is concerned, by McFadden v. Leeka, supra. In the language of Dickman, J., at page 526: "The unincorporated association known as The Union Pork-house Company, is to be regarded as merely a copartnership, and subject to the rules governing that branch of the law. It did not lose its real nature as a partnership because certain of its members were constituted directors, and its members were called stockholders, and a constitution and by-laws were adopted, and the number of its members was large. It might be deemed expedient to appoint directors to act as the special agents for managing the affairs of the company, instead of leaving each member, as in an ordinary partnership, to act as a general agent for the transaction of business in the ordinary way. The company, too, might be a partnership, although its capital stock be divided into shares, which, by the articles of association, are made transferable on the books of the company. The constitution and by-laws adopted by the shareholders are analogous to articles of copartnership, and are of equal binding force in fixing the relations of the share-holders to each other, and in shaping and governing the business of the company."
Upon the authority of McFadden v. Leeka, supra, we find that the Citizens Loan Savings Association of Greenville, Ohio, was a partnership, and that the principles of the McFadden case control the instant case, and that such case is not in conflict with the principles declared in Harvey v. Childs and Potter, supra, and Southern Ohio Public Service Co. v. Public Utililies Commission, supra. The plaintiff, under Section 11260, General Code, is entitled to maintain this action. Compliance with Section 8104, General Code, may be had after the commencement of the action.
The judgment of the Court of Appeals is therefore affirmed.
Judgment affirmed.
WEYGANDT, C.J., ALLEEN, STEPHENSON, JONES and MATTHIAS, JJ., concur.
KINKADE, J., not participating.