CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE SEVENTH CIRCUIT.
Mr. Justice BUTLER delivered the opinion of the Court.
On March 11 and 12, 1920, creditors filed petitions in bankruptcy against Marcuse & Company, and a receiver was appointed. The bankruptcy court found that the firm was composed of Marcuse, Morris, Hecht, Finn, Vette, Zuncker, Regensteiner, Clement Studebaker, Jr. and George M. Studebaker, and sent the case to the referee, directing findings of fact as to insolvency. The case was taken to the Circuit Court of Appeals on petition to review and revise that finding and order. That court eliminated from the order the names of all except Marcuse and Morris. 281 Fed. 928. This Court granted a writ of certiorari on petition of creditors. 260 U.S. 712. The question for decision is whether any of the persons named, other than Marcuse and Morris, are liable as general partners.
Marcuse had been a member, and Morris had been an employee, of the firm of Von Frantzius & Company, brokers, at Chicago, which suspended business because of the death of Von Frantzius. In April, 1917, settlement of he estate of Von Frantzius was pending in Probate Court. Proceedings in bankruptcy were pending against Von Frantizius & Company. There were many creditors of the firm, and it was indebted in large amounts to the respondents other than Vette and Zuncker. Marcuse desired to organize a new brokerage firm to carry on business in the place formerly occupied by his old firm. It was proposed that a limited partnership be formed under the Illinois Limited Partnership Act of 1874, and to that end, a form of agreement was prepared, and line originals were signed by Marcuse, Morris, Hecht, Finn, Vette, Zuncker, Regensteiner and Hoffman (in his own name, but in fact representing the Studebaker interest).
In advance of the consummation of this agreement, Marcuse was to arrange with creditors of the firm that the assets of the Von Frantzius estate be turned over to him, as trustee, on his giving bond and making certain payments for the protection of the administrators. He was to obtain assignments of the claims of creditors, in consideration of trust certificates issued by him containing his agreement to pay off the creditors who did not accept such certificates, to organize a new partnership, to turn over the assets to the new firm for liquidation in the usual course of its business for account of the certificate holders, and, out of profits accruing to him as a member of the new firm, to pay any deficiency remaining after liquidation of the assets. This arrangement had not been completed at the time of the signing of the partnership agreement. The signed agreements were placed in escrow not to be delivered until conclusion of arrangements for the delivery to Marcuse of all
the assets of Von Frantzius, excepting an amount to indemnify against claims of non-assenting creditors, and to pay the expenses of administration, and until dismissal of the bankruptcy proceedings.
The proposed agreement provided for a limited copartnership under the name of Marcuse & Company, to commence business on April 2, 1917, and to continue for five years. Marcuse and Morris were to be general partners. The other signers were to be limited partners. Marcuse was to contribute a membership in the New York Stock Exchange, in addition to cash and other property. Morris was to contribute $10,000. Contributions were to be made by the limited partners as follows: Hecht $25,000, Finn $31,500, Vette $30,000, Zuncker $25,000, Regensteiner $28,500, and Hoffman (in fact the Studebaker interest) $50,000, -- amounting in all to $190,000. The general partners were to devote all their time to the business and were permitted to draw specified sums each year to be charged to expenses. Each partner, general and limited, was to have six per cent. on capital contributed by him. Morris was to have ten per cent. of the net profits. There was to be paid to Marcuse twenty-five per cent. of the net profits, to be used by him to pay off his trust certificates covering the debts of Von Frantzius & Company. The rest was to be divided among the partners, except Morris, in the proportions in which they had contributed capital.
Shortly after the deposit in escrow, Marcuse learned that the New York Stock Exchange would not admit to membership a firm having more than two limited partners, but would not object to a firm having only two limited partners who were not engaged in other business. This was reported to the others, and the matter of consummating the proposed partnership agreement was dropped.
But Marcuse did not abandon the idea of organizing a new firm, and, after conferences and lapse of some time,
another limited partnership agreement for a firm of the same name was prepared conformably to the Act of 1874. Marcuse, Morris, Hecht and Finn were the parties to the new agreement. It was dated -- as was the former -- April 2, 1917, and was signed June 30 of that year. Marcuse and Morris were general partners and agreed to contribute capital as in the proposed former agreement. Hecht and Finn were named as limited partners, and each agreed to contribute $95,000. The liability of each was expressly limited to the amount contributed by him. The term ...