Case ID: barb_42/html/0482-01.html
Source: Caselaw Access Project
Author: {"author": "Clerks, J. Sutherland, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Ward vs. Newell.
    In an action brought by a special partner in a limited partnership formed in New Jersey, under a law of that state precisely similar to our statute respecting limited partnerships, against the general partners, upon promissory notes given to him by them, the complaint alleged that the notes, being many months past due, an action was brought thereon, against the makers, in New Jersey, and a judgment recovered against them, for the amount of the notes, with interest, which remained in full force and effect, and unsatisfied, at the time the present action was commenced; which recovery was not traversed; and one of the general partners testified that, although at one time it was believed the firm was solvent, it was subsequently ascertained to be insolvent. Held that this was sufficient proof of insolvency or bankruptcy, according to the true spirit and meaning of the statute, so as to prevent the plaintiff’s recovery. And that the referee should have found that the firm was insolvent; a finding, impliedly or expressly, in favor of the solvency of the firm, being palpably against evidence. Sutherland, J. dissented.
    It seems that the provision of section 13 of our statute, and the corresponding provision in the New Jersey statute, relative to limited partnerships, prohibiting the use of the word “ company,” is not merely directory.
    Bnt to render a special partner liable as a general partner, for a violation of that provision, it must be shown that he participated in such violation intentionally.
    A PPEAL by the defendant from a judgment entered at a special term. The action was brought by the plaintiff upon certain promissory notes given to him for a good and valuable consideration by the defendants, who were the general partners in a copartnership firm in which the plaintiff was a special partner. The notes were made in the firm name. The action was tried before a referee, wrho reported in favor of the plaintiff.
    
      L. S. Chatjield, for the appellant.
    
      A. F. Smith, for the respondent.
   Clerks, J.

In White v. Hackett a special partner claimed to share the assets of the copartnership with other creditors, for advances made by him for the business of the firm, over and above the amount of capital he had contributed. The statute of this state, relating to limited partnerships,, expressly declares that in case of the insolvency or bankruptcy of a partnership, no special partner shall, under any circumstances, be allowed to claim as a creditor, until the claims of all the other creditors shall be satisfied. Of course, in the face of a provision so plain and so peremptory, nothing ■was left for the special term but to render judgment against the claimant. This judgment, by some unaccountable oversight or misapprehension, was reversed by the general term. (White v. Hackett, 24 Barb. 290.) The other creditors instantly appealed to the court of appeals; and, I need scarcely add, that the judgment of the general term was reversed, and that of the special term affirmed. (20 N. Y. Rep. 178.)

The case before us arises under a limited partnership formed in New Jersey under the laws of that state, which are precisely the same, with regard to this subject, as those of New York were at the time the indebtedness in White v. Hackett accrued. Indeed, the statute of New Jersey is an exact transcript of the provisions of the New York statute, and the 23d section of it is, word for word, the same as the corresponding section in the New York statute, to which I have referred, and from which I have above quoted. In the case before us, the referee finds that the plaintiff was a special partner; that in the formation of the partnership, the requirements of the law were strictly complied with, and that the notes, for which this action was brought, were given for a good and valuable consideration by the general partners, by their firm name, to the plaintiff, their special partner, and he decides that the plaintiff is entitled to judgment.

The only question that can arise in this case is, whether we can look into the whole case and ascertain whether the , firm was insolvent or bankrupt; because, if we can, and if we ascertain that it was, the 23d section of the statute unquestionably applies, and would defeat the plaintiff’s claim. The referee does not expressly find any thing upon this point. But the complaint alleges that the notes being many months due, an action was commenced against the general partners in the circuit court, holden at Newark, in and for the county of Essex and state of New Jersey, and that a judgment was recovered against them for the amount of the notes with interest, which remained in full force and effect and unsatisfied at the time this action was commenced in the state of New York. The defendant does not traverse the recovery of the New Jersey judgment. This, surely, is sufficient proof of insolvency or bankruptcy, according to the true spirit and meaning of the statute. Besides, J ones, the defendant, testifies that, although at one time it was believed the firm was solvent, it was subsequently ascertained to be insolvent. The referee, therefore, should have found that the firm was insolvent. Instead of this, he, in effect, though not in formal and express words, finds that it was solvent; for, otherwise, he could not legally have decided in favor of the plaintiff." Finding, impliedly or expressly, in favor of the solvency of the firm was palpably against evidence.

With regard to the title of the firm, it appears that they employed the title of Darius E. J ones & Company. This, no doubt, is in violation of the 13th section of both the New Jersey and New York statutes. • I am inclined to think that the provision of this section is not merely directory.- To be sure, it does not say, if such title is used, that the special partner shall be deemed a general partner. But, in The Madison County Bank v. Gould and others, (5 Hill, 309,) it was held that the intentional violation of the statute by the special partners will have the effect of deeming them general partners. The violation of the statute committed by the special partner in the case to which I have referred, was the withdrawal of a part of the capital, which he had contributed, and, together with the general partners, purchasing with it real estate and taking a conveyance of it to all the partners, general and special. This was a violation of section 15. This section, however, does not say expressly, any more than the 13th section, that the consequence of violating what it prescribes shajl be that the special partner shall be deemed a general partner; yet such is the effect given to it in The Madison County Bank v. Gould. The court, however, held that every violation of the statute must be shown to have been intentional on the part of the special partner. In the case under consideration, no proof was given to show that the plaintiff intentionally participated in violating the sec- ' tian requiring that the business shall be conducted in the names of the general partners, without • the addition of the word “company.” The judgment, however, should be reversed on the other grounds, a new trial ordered, and costs to abide event.

. Leonard, P. J. concurred.

Sutherland, J.

(dissenting.) The act of the legislature of New Jersey was proved as a fact, and found as a fact by the referee. He also found, that the plaintiffs and the defendants, in pursuance of the provisions of the act, made and executed a certificate for the formation of a limited partnership ; that the certificate was duly acknowledged; the affidavit required by the act duly made; that the certificate and affidavit were duly filed in the office of the clerk of the proper county; that they were recorded by the clerk as required by law; and that the terms of the partnership were published in the mantier required by law. It results from these findings of fact that the special partnership was duly formed; and the referee further found as a fact that, in pursuance of the terms of the certificate, the defendants were the general partners of said firm, and the plaintiff the special partner. I am inclined to think that the defendant’s exception, at the end of the case, is too general to authorize him to question any or either of the findings of fact, but, if otherwise, the findings appear to me to be authorized by the evidence.

In adopting the firm name of Darius B. J ones & Co., for the limited partnershijD, the directory provision of section 13 of the act was disregarded; but as the name of the plaintiff, the special partner,, was not used, such irregularity in the firm name did not make him a general partner under that section. I do not see how this irregularity affects any question in this case.

The only material question presented by the appeal is, I think, whether the plaintiff, having been a special partner when the notes were given, could bring an action at law upon the notes, against the defendants, the general partners; whether a special partner, upon loaning to, or paying money for, the general partners as a firm, outside of and beyond the amount to be contributed by him as capital, as a special partner, becomes a creditor of the firm, and has the rights of a creditor, the same as if he were a stranger. .Upon principle, I can not see why he does not. He is a partner only as to the specific sum contributed by him as capital. There is sufficient authority, I think, for holding that he may be such creditor, and may bring an action against the firm. (See Troubat’s Law of Limited Partnership, §§ 307, 320.)

[New York General Term,

February 1, 1864

The case of White v. Hackett, (24 Barb. 290,) it seems, was reversed in the court of appeals, (20 N. Y. Rep. 178;) but I do not see that there are properly in the case any questions growing out of the alleged insolvency of the limited partnership. There is no finding of the referee, nor was there any request for him to find, on that subject. There are no objections on the pleadings to raise the question, or an issue, as to the solvency or insolvency of the firm.

The judgment, I think, should be "affirmed, with costs.

Judgment reversed, and new trial granted.

Leonard, Clerlce and Suifterland, Justices.] 
      
       1 R. S. 2d ed. 756, § 23.