a partnership, of which Henry Gibbs was a member at the time they deposited their money in this bank, and for all the debts and defalcations of which his estate is liable?

"The evidence offered by them shows that in September, 1873, a bank was opened at South Waverly, in this state; that it had over its door the name 'The Home Savings Bank;' that it organized by electing a board of directors and a president and cashier; that its capital stock was divided into shares of $100; that to each holder of stock it issued certificates of stock, saying upon their face that the bank was organized under act of the legislature of Pennsylvania; that its authorized capital was $100,000; that these certificates had on their back blank powers of attorney for transfer, and in all respects were in the form and style usually adopted by banks; (that these certificates when issued were signed by the president and cashier, and to some of them the seal was affixed;) (17) (that it had a seal, which was affixed to all cashier's checks;) (18) that said bank registered in the office of the auditor-general under section 1 of act of June 7, 1879; that it filed these separate reports in said office of its net earnings or income under the tenth section of said act; (that it also filed in said office at least six reports for publication, covering the four quarters of the year, in accordance with the requirements of the acts of April 16, 1850, and April 17, 1861;) (19) that it paid dividends to its stockholders; that it failed and passed into the hands of a receiver; that none of the certificates of stock, certificates of deposit, books of account with customers, bills, letters, checks or drafts bore upon their face the names of any member other than the president and cashier, and the person to whom addressed or issued; that the transfer of any stockholder's interest was at his own option, and neither such transfer, nor the death of any stockholder worked any change in the name or conduct of the business; that so slight was the effect upon the business of the death of Mr. Gibbs that a large amount of claims have been presented before the auditor for allowance for money deposited after his death, or deposited before and re-deposited and new certificates therefor issued after his death. (What is there in all this evidence from beginning of the business to the failure tending to prove a partnership? What in it all inconsistent with a corporate existence? Only one thing has been urged upon the auditor, and that is to be found in the form of the reports made by the bank to the auditor-general of its net earnings or income under section 10 of act of 1879; (20) and the position was taken that the provisions of this section only apply to unincorporated banks. While it is true that in the printed portion of these reports the word 'firm' is used instead of 'corporation,' yet, remembering that these printed forms were not made by the bank, but were sent to it from the auditor-general's office, and that they were made and returned under an act which is not applicable solely to unincorporated banks, but applies to those which are incorporated as well (and as at most was only the declaration of one member in the absence of and without the knowledge of any others, the auditor does not deem this single fact sufficient to overcome the preceding

evidence of incorporation, or, more accurately, to prove the partnership) (21).

"This comprises the affirmative evidence of the exceptants. It is supplemented by some of a negative character, showing that searches in the office of the recorder of deeds in this county have failed to find any record of this bank as a limited partnership; and that searches in the auditor-general's office have proved equally futile in finding any record of its incorporation. From these two negatives the auditor is urged to find an affirmative. In other words, as no record can be found showing this bank to have been a limited partnership or a corporation, it must have been a simple partnership.

"Upon the certificates issued to Mr. Gibbs each time he acquired stock in this bank, it declared it was organized under 'act of the legislature of Pennsylvania.' If this was true, a search among those local acts of the legislature which filled our pamphlet laws prior to 1874 might have been better rewarded.

"(But is it true that if this was not a corporation or a limited partnership, it follows necessarily that it was a common partnership? This has been urged with much force, and the auditor admits that he entertained that belief at the outset of this case; but from authority consulted, and reflection, he has come to a different conclusion. A partnership inter se can not result from any aggregation of negatives. The formation of such a partnership is a positive action and can not exist without an agreement of some kind among all its members.) (22) Parsons in his work on Partnership, in discussing who are liable as partners, says: 'The first thing to be remembered is that persons may be charged as partners of a firm, on either one or two perfectly distinct grounds; one of them is that the person actually is a partner, the other is that he has, with his own knowledge and consent, held forth as a partner to the person having a claim, or to the public generally.' (Upon which of these two distinct grounds can Mr. Gibbs be charged as a partner in this case? Certainly not upon the first, for no articles of partnership and no agreement to be partners, and no agreement of any kind existed between Mr. Gibbs and the other stockholders, and no person can be a partner in fact in a partnership having no existence. If, then, this estate is to be charged it must be upon the second ground above mentioned. But the evidence fails to show any holding forth of him as a partner by the bank or by himself. His name nowhere appears in any business transaction of the bank with others; he took no part in its management or control; he never held any official position therein; no one of these claimants knew that he was a stockholder therein at the time of depositing their money; the bank never represented to any one of them that it was a partnership, and none of them dealt with it as such, and the evidence does not show that Mr. Gibbs had any knowledge of the transactions between the bank and these claimants, or had a personal acquaintance with them. But, on the contrary, the weight of the evidence tends to show that this bank held itself out to the world and to Mr. Gibbs as a corporation and nothing else.) (23.)

"But it is said Mr. Gibbs took dividends on his stock, and hence his estate is liable in this case. (As tending to discharge the burden. resting upon the claimants, to prove that this bank was a partnership instead of a corporation, the fact of the receipt of dividends does not go far;) (24) because the taking of dividends is as consistent with the corporate, as with the partnership relation.

"(Nor does this fact, standing alone and disconnected with any agreement between the stockholders, or any holding forth of Mr. Gibbs as a partner by the bank or by himself, or with any credit given to the bank by the claimants knowing Mr. Gibbs to be in any way connected therewith, make his estate liable) (25) in the opinion of the auditor. The old doctrine enunciated in Waugh v. Carver, 2 H. Bl. 235, that one taking a share of profits shall, by operation of law, be made liable to losses, upon the principle that, by taking at part of the profits, he takes from the creditors a part of that fund which is the proper security to them for the payment of their debts, is not the accepted law to-day in England, and, as the auditor thinks, is not in accordance with the weight of authority in this country: Edwards v. Tracy, 62 Pa. 380. (Profits can only exist after payment of all liabilities; and how any one who shares only in what may remain after all creditors are secured takes from them any security is not quite plain.) (26) This is especially true of the banking business. (Every man buying stock in a bank that is conducted upon usual and sound banking principles, as he has a right to expect it will be, knows that he will get no dividends, only such as may remain after all liabilities are deducted.) (27) When a person induces others to credit a firm upon the assurance or belief that he is a member thereof, his property should make good any loss thereby sustained by such creditor, whether such person receives any dividend or not; (but to hold one who puts money into a business and draws out no part of the principal, and but a small part of the interest, liable for all debts, should rest on better reason than that he has reduced the creditor's security. Mr. Gibbs' purchase of this stock and the receipt of dividends thereon, did nothing to lessen the amount these exceptants may, or have realized on their claims. He put in $6,000, and drew out $1,820, thereby making the fund for creditors $4,180 larger.) (28) That this fund was diverted or misappropriated, does not make him liable; it not having been done by him or by any agent of his, in fact or in law.

"It has been said in support of these claims that there must be a liability somewhere, that persons doing business in this state must do it subject to the liability either of incorporators, partners or individuals. Suppose this is admitted. Is there a want of all liability here? If this bank were solvent to-day, and these claimants brought suit against it as a corporation, what would prevent their recovery? (Having declared to the world for nearly eighteen years that it was a corporation, and having induced these parties to trust it as such, what court would now permit it to defend on the ground that it was not incorporated, and thereby allow it to benefit by its own fraud?

Clearly it would be estopped.) (29) Spahr v. Farmers' Bank, Carlisle, 94 Pa. 429, and authorities there cited. The inability of claimants to get their pay seems to result more from a want of ability than liability on the part of the bank; a want from which this estate has suffered in common with these parties.

"(The auditor is therefore of the opinion that the demand of the claimant is not sustained;) (30) and dismisses the exceptions, feeling satisfaction in the knowledge that his decision, if erroneous, can be corrected in a higher court. In coming to this conclusion the auditor has been influenced to some extent (he hopes not too far) by the opinion of Judge Martin of the supreme court of New York, and the many authorities cited by him in the case of the Merchants' National Bank of Binghamton, New York, v. Charles E. Pendleton et al.,1 which is attached to this report; which opinion has been recently affirmed by the court of appeals of the same state."

Exceptions among others to above findings in brackets were dismissed. Whereupon exceptant appealed.

Errors assigned were (18-30) dismissal of exceptions, quoting them. Opinion by Mr. JUSTICE WILLIAMS, October 2, 1893.

This case involves substantially the same question that was heard and determined in Hallstead v. Coleman, 143 Pa. 354. The appellant seeks to charge the estate of Henry Gibbs with money deposited by him, as guardian, in the Home Savings Bank, located at South Waverly, on the theory that the bank was a general partnership and that the decedent was one of the partners. The appellees deny that the Home Savings Bank was a partnership, and assert that the decedent purchased shares of the stock in the bank, as and for the shares of the stock in an incorporated bank, and not otherwise. At this point it seems desirable to define the words over which this contest extends. First. What is a corporation? The several answers given by text writers may be reduced to the following formula: A corporation is an artificial person created by the law as the representative of those persons, natural or artificial, who contribute to, or become holders of shares in, the property entrusted to it for a common purpose. As it is the creature of positive law, its rights, powers and duties are prescribed by the law. Beyond the legitimate purposes which it was created to serve, and the lines of limitation the law has drawn around it, it is without power to act or capacity to take. Thus a banking corporation, while fully competent to do what is usual and necessary in its own business, may not own and operate a railroad or engage permanently in any other business than that for which it was created. It has neither the legal capacity, nor the right, to do so; and if it undertakes to go in any direction beyond its corporate powers its acts are ultra vires. The creation of a corporation is not within the power of the individuals who subscribe to its stock. It is exclusively the work of the law; and the best evidence to the existence of a corporation is the grant of corporate powers by the commonwealth.

Second. What is a corporation de facto? It is an apparent cor120 St. Rep. 891.

porate organization, asserted to be a corporation by its members and actually acting as such, but lacking the creative fiat of the law. In Taylor on Private Corporations, 145, it is said that a de facto corporation may exist "when a body of men are acting as a corporation under color of apparent organization, in pursuance of some charter or enabling act." Their organization may be imperfect, so that upon a quo warranto they could not show a sufficient compliance with the law to justify the exercise of corporate powers, but, as to parties dealling with them, and as to each other, they are estopped to deny that they are what they hold themselves out to be. In a recent case in Minnesota, Finnegan v. The Knights of Labor Building Association,1 it was held that a de facto corporation exists when these three things concur, viz.: A law under which the alleged corporation might be created; an attempt to organize under the law; an assumption and exercise of corporate powers under such attempted organization. In Church v. Pickett, 19 N. Y. 482, only two things were held necessary, viz: "The existence of a charter or law under which a corporation with the powers assumed might be lawfully created; and the user by the party to the suit of the rights claimed to be conferred by such a charter or law." Where there has been a substantial compliance with the law the corporation is, of course, de jure. Where there has been no substantial compliance, but there has been, nevertheless, an assumption and exercise of corporate powers in pursuance of an attempted organization, the alleged corporation is such de facto only. The Minnesota courts hold the correct rule, and three things are necessary to create the liability, a law or charter under which an organization de jure might be effected, an attempt to organize which falls so far short of the requirements of the law or charter as to be ineffectual, an assumption and exercise of corporate powers notwithstanding the failure to comply with the law or charter.

Third. What is a partnership? Perhaps the best definition is that given by Story: a relation created by a "contract between two or more persons to place their money, effects, labor, or skill, or some or all of them, in lawful commerce and divide the profits between them." Its foundation is a contract express or implied. It results from the act of the parties, not from the act of the law. Hedge's App., 63 Pa. 273, 17 Am. & Eng. Ency, of Law S29. See, also, 8 W. & S. 63; 16 Ohio 166; 14 Johns. 318; 49 Ill. 437. But as to third parties one may be held liable as a partner by implication of law arising upon his own acts, contrary even to his own intention. Thus the officers and acting members of a corporation de facto may be liable as partners if their conduct has led others to trust the concern upon that basis. 47 Conn. 443. But without a contract of partnership, or such acts and declarations as lead others to infer its existence and to extend credit on that basis, there is no foundation on which liability as a partner can rest. The best evidence of the existence of a partnership is the contract creating it. If proof of the contract is not within reach, its existence may be inferred from proof 1 Infra, p. 614.