Student Kobe Murray, aged 19, was also cleared of the 24-year-old's manslaughter as, after five hours deliberation, the jury unanimously concluded that he acted unintentionally.
Mr Passey died after being stabbed on the dancefloor of the Chicago's nightclub in Stourbridge.
His family reacted with shock to the decision at Birmingham Crown Court.
In tears outside the court, his father Adrian Passey called the verdict ‘disgusting’.
The defendant, of The Broadway, Dudley, reeled back in disbelief in the dock as the foreman announced he was a free man.
Mr Murray's father broke down and wept as the verdict was delivered.
Judge Julian Goose, QC, said: “In the end the jury made their decision. They have made it clear and there is nothing further that needs to be said."
Mr Passey’s mother, Gillian Taylor, of Netherton, said: “It’s a joke. I’m so disappointed in the justice system. This will open the floodgates for others to go out with knives.”
Close family friend Jason Connon, speaking on behalf of the family, said: “We’re shocked, numb, and in total disbelief that this verdict has come back.
“This completely sends out the wrong message about carrying knives.
"In bringing back this verdict the jury has endorsed people being allowed to carry knives and use them with no consequences.
“Kobe Murray admitted using the knife and stabbing Ryan so hard it fractured his chest plate and entered his heart, and now he has walked free. There are no words.”
Company director Mr Connon, a neighbour of the Passeys, said they now faced a difficult time.
“We just can’t believe what has happened. This has hit Ade and Gill hard. How do we move forward after a verdict like this?”
Mr Passey, from Quarry Bank, who had played for the youth team at Stourbridge FC, was stabbed at the club in the Ryemarket in Stourbridge town centre around 1am on August 6 last year.
A sea of floral tributes were left outside the nightclub in the aftermath of his death, which sent shockwaves through the town and led to calls to tackle knife crime.