Case Name: CHANDLER H. LOOMIS v. JOSEPH B. HOYT, ET AL.
Court: New York Superior Court
Jurisdiction: New York
Decision Date: 1885-06-19
Citations: 20 Jones & S. 287
Docket Number: 
Parties: CHANDLER H. LOOMIS v. JOSEPH B. HOYT, ET AL.
Judges: 
Reporter: Reports of cases argued and determined in the Superior Court of the city of New York
Volume: 52
Pages: 287–296

Head Matter:
CHANDLER H. LOOMIS v. JOSEPH B. HOYT, ET AL.
Special partnership—statutory requirements as to—when liable as general partners.—Pleading— When complaint need not allege special part/ner-
An affidavit that the special capital of a limited partnership has been actually and in good faith paid in, and in cash, is false, and no limited partnership is formed, and ail the parties are liable as general partners, where it appears that the special partners drew their checks for the amount of the special capital, and the same were deposited to the credit of the new firm, which thereupon drew and delivered its checks for like amounts in favor of said special partners; it further appearing that these checks were given to pay money due them from a former partnership which the same parties had endeavored to form, but failed, because no affidavit of payment of special capital had ever been made or filed.
Where the assumed limited partnership carries on the business of commission merchants in New York county, and such is stated to be its business in the certificate there filed, and it is also engaged in the business of tanning leather in another county, no copy of the above certificate being filed in said county, no limited partnership is formed, and the parties are liable as general partners.
In an action in which it is sought to charge all the parties assuming to form a special partnership as general partners, by reason of their failure to comply with the statutory requirements, .the complaint need not be in terms founded on the statute, and an allegation therein of general partnership is sufficient, and admits proof of failure to comply with such requirements, though the answer be a general denial.
Before Sedgwick, Oh, J., and Freedman, J.
Decided June 19, 1885.
Action on a promissory note. At the trial, a verdict was directed in favor of the plaintiff, and defendants’ exceptions were ordered to be heard in the first instance at the general term.
The facts appear in the opinion.
Clarence W. Francis, and Hamilton Odell, for plaintiff:
I. Upon the proofs, a plain fraud was perpetrated in the formation of this alleged special partnership. Every cent contributed by the special partners as capital, was immediately withdrawn by them, not on account of any indebtedness due to them from the partnership, but in payment of indebtedness said to be due to them from an old general partnership which, for several years prior thereto, had existed between these defendants.
II. The regular and proper course was for the plaintiff to charge defendants in the complaint as general partners (Stone v. De Puga, 4 Sand. 681; Sharpe v. Hutchinson, 49 Super. Ct. 50). A cause of action is not created dr given against a special partner by the statute, by the making and filing of a false affidavit, but a strict compliance with the provisions of the statute by those who seek to avail of its benefits, is a condition precedent to any restriction upon the liability for the firm debts of the so-called special partners. Therefore, the action should be in form against all the partners as general partners, and the restricted liability under the statute should be matter of defense-(Haviland v. Chace, 39 Barb. 283 ; Bell v. Merrifield, 28 Hun, 222 ; R. S. title 1, of Limited Partnership, § 8). The Pennsylvania statute provides (in the very language of our own) : “If auy false statement be made in such certificate or affidavit, all the persons interested in such partnership shall be liable for all the engagements thereof as general partners.” See Andrews v. Schote (10 Barr, 51); Vandike v. Rosskam (67 Pa. 333). The Massachusetts statute provides that—“If a false statement shall be made in such certificate, all the parties shall be liable as general partners.” See Pierce v. Bryant (5 Allen, 91).
Durant v. Abendroth (97 N. Y. 132), is distinguishable from this case. In his discussion of the questions involved there, Judge Rapallo uses this language, which, it is claimed, sustains the objection taken by the defendants in this case : “Notwithstanding the erroneous statement in the affidavit as to the payment of the capital, the partnership was in form a limited partnership, and subject to all the rules applicable to such partnerships. If it had undertaken to make an assignment with preferences, such assignment could not have been sustained on the ground of the violation of the statute. That violation could be taken advantage of only by creditors, and its consequence simply was to give them recourse against the special partner personally, as if he had been a general partner. ” The partnership, the judge said, was a limited partnership in form. So it was, but not in fact. Having attempted to- avail themselves of the privileges of the statute, and having held themselves out to all the world as a special partnership, and induced the public to deal with them in that character, the defendants were estopped to deny that such a partnership existed ; they could not. make an assignment giving preferences, after having-obtained credit on the assurance that the partnership, assets were secured by the statute to an equal distribution ' among all the creditors. That is the point of the decision,, and it goes no further.
II. The timited partnership was not formed, and the defendants were hable to be sued as general partners, because no transcript of the certificate, etc., was filed in the office of the clerk of the county of Cattaraugus, where George Palen & Go. carried on a portion of their business (,Statute as to Limited Partnerships, § 6). The certificate in this case declares that “ the general nature of the business (of George Palen & Co.), to be transacted, is the hide, leather, oil and commission business in the city of New York.” The testimony of George Palen is that the firm from its beginning was also engaged in the business of tanning leather at Limestone, in the county of Cattaraugus, and at Elmira, in the county of Chemung. The certificate of the clerk of Cattaraugus county shows {Code, § 921), that no transcript of the certificate of formation of this limited partnership was ever filed or recorded in his office. Therefore, such partnership cannot “be deemed to have been formed, ” but George Palen & Co. were a general partnership for all purposes. There is as much reason why the general nature of the contemplated business of a limited partnership should be truthfully announced as there is why the amount of its special capital should be. Both enter into the question of the amount of credit to which the partnership is entitled. Parties dealing with the firm and giving it credit, or asked to give it credit, are entitled to know to what hazards the capital of the concern is exposed; and it is very plain that there is a wide difference in the matter of risk, between manufacturing and vending. A man who claim's a restricted liability under a statute must keep within it. He cannot publish that he is going to transact a particular business in a particular plane, and then branch out into a different business in a different place, and still claim exemption from a general liability.
Arnoux, Ritch & Woodford, William H. Arnoux, of counsel for defendants:
I.. If the pleader, when drawing his complaint, intended to prove that a special partnership had been formed, and that the special partner had become liable as a general partner by reason of any act that made him so liable, he failed to comply with the provisions of the Code requiring the complaint to state the facts upon which he expected to recover. In Sharp v. Hutchinson (49 Super. Ct. 50), the court, in deciding the case, prefaced its ruling with the following observations and questions which are applicable to the case at bar: “If, in this action, the defendant had not in the answer set up the existence of the limited partnership, it might have per haps been necessary to determine whether an allegation of general partnership is supported by proof that the certificate or affidavit, filed under the statute, to form a limited partnership, was false. One question would be: does the negativing the assertions of the certificate or affidavit tend to show that such facts as are essential to co-partnership had an existence ? Or, does it tend only to show the liability of a partner under the statute ? Another question would be: if it tend to show only the latter, must not the special facts, which, under the statute, create the liability, be pleaded ?”
Stone v. De Puga (4 Sand. 681), is not an authority which can avail the plaintiff in this case. It was decided under the law as it stood prior to the amendment of 1851, and holds and was bound to hold, under that system of practice, that the various acts which it was claimed would have made De Puga, under the statute, liable as a general partner must be pleaded, but that the pleading, where it was to be inserted, was the reply instead of the complaint. Under the law as it stood in 1851, it may have been enough to allege some of the facts in the- reply, but under the law as it has been since 1852, the complaint must state every fact which the plaintiff must prove to enable him to maintain his suit, and which the defendant has a right to controvert in his answer. The Code requires of a plaintiff that his complaint shall contain a plain and concise statement of the facts constituting each cause of action. The plaintiff was permitted to prove each and every fact contained in his complaint. That was all he could be permitted to prove against defendant’s objection (Allen v. Patterson, 7 N. Y. 478 ; Mann v. Morewood, 5 Sand. 557 ; Lienan v. Lincoln, 2 Duer, 670 ; Adams v. Mayor, 4 Ib. 295 ; Hilsen v. Tibby, 44 Super. Ct. 12 ; Moak's Van Santvoort's Pleading, 163 ; Cook v. Warren, 88 N. Y. 40 ; Wright v. Hooker, 10 Ib. 59 ; Hudson v. Swan, 83 Ib. 552 ; Southwick v. First National Bank, 84 Ib. 428 ; Fuller v. Lewis, 3 Abb. Pr. 383 ; Sandford v. Drew, 3 Duer, 632).
But whether such allegations should be pleaded in the complaint, as these authorities hold, or whether in the reply, as laid down in Stone v. De Puga, is wholly immaterial. The essential fact in all cases being that somewhere, and at some time, the allegations necessary to allow the admission of the requisite proof must be pleaded. Plere they were not pleaded, and therefore could not be offered in evidence.
Who could imagine what court could learn from these ■ pleadings, that the plaintiff intended to try a question relating to a special partnership ? Nay, more, who can tell what question on that subject the court did try % Was it a return of the moneys contributed ? Was it a failure to file a certificate in the county where defendants had a tannery ? It is possible to raise numberless questions on this issue if allowed.
Even if the defendants were pro hao vice, general partners, such partnership liability, under the circumstances of this case, arose, not out of a contract between the partners, but out of a statutory liability, and therefore the allegation of partnership was not a statement of fact, but a conclusion of law, and the facts leading to that conclusion should have been pleaded. The evidence offered was objected to for want of such plea. Plaintiff had an opportunity to amend his plea, and he refused.
III. Whether the complaint be sufficient or otherwise, the evidence fails to establish the allegation that the defendants are partners, and therefore as such jointly liable to-the plaintiff on the promissory note sued on.
The complaint sgts forth that the defendants were co-partners—that is, general partners ; the ■ proof offered tended to show that by reason of defect in the formation of the special partnership, the defendant was liable as a general partner. The statute draws a distinction between the failure to take the formal steps to form- a limited partnership, and the falsity of the allegations in such formal proceedings. In the former case, no limited part-, nership is formed, and the parties' are general'partners. In the latter case, a limited partnership to all the intents and purposes is formed, except as to exemption from liability for debts of the firm. Thus, in the case of Durant v. Abendroth (91N. Y. 132), the court has clearly defined the limit to the violation of the provisions of the statute. Applying that decision to this case, it is apparent that no amount of proof of erroneous statement in the affidavit as to any of the facts therein contained could make the partnership in question a general partnership, or enable it to make a general assignment with preferences. If this position is a correct, logical deduction from the statute, and upon the decision above cited, then the evidence received by the court was not sufficient to fasten upon the defendant the liability of a general partner.

Opinion:
By the Court.—Freedman, J.
The action is based on a promissory note, dated October 30, 1882, and made and indorsed by the firm of George Palen & Co., and the complaint charges the defendants with having been the partners who composed that firm. The several answers of the defendants served, either consisted of, or amounted to, a general denial. At the trial, the defendants offered no evidence, and rested their rights upon plaintiff's case.
It appeared that on December 31, 1881, the several defendants executed a certificate, whereby they assumed to form a limited partnership. The defendants Knight and George E. Palen were named as general partners. The defendants Hoyt, Ladew, Fayerweather and Jane E. Palen were named as special partners. Each special partner was to contribute the sum of $50,000 towards the capital of the partnership, and each of them did, on the day named, pay in a check for that amount. These checks were deposited in the Mechanics' Bank, to the credit of the firm of George Palen &. Co., and thereupon the said firm at once drew its four checks against this deposit, each for the sum of $50,000, in favor of the four special partners respectively. The firm of George Palen <& Co., thus assumed to have been formed, was not at all indebted at the time to either of the said special partners, but the checks were given to pay them money that was due to them from a former partnership.
As regards such former partnership, it appeared that on November 1, 1876, these same six parties had assumed to form a limited partnership under the statute, which was to terminate on January 1, 1882, but that they had failed to accomplish the purpose, because' no affidavit of the payment of the special capital had ever been made or filed as required' by the statute (1 Edm. R. S. 716, § 7 and 8).
The proof therefore showed that, though the form was gone through with on December 31, 1881, of paying in the special capital, the money was not paid in by the special partners with any intent that it should be devoted to the business of the new firm, or be subject to its obligations or risks. It was not, therefore, a case of misappropriation of the special capital by the general partners, but of an immediate withdrawal, of the special capital by the joint act of the generals and specials, for the sole benefit of the specials, and in pursuance of a premeditated and carefully prepared plan. Consequently, the affidavit made by George Palen on December 31, 1881, to the effect that the special capital had been actually and in good faith paid in, and in cash, was false.
The further fact appeared that George Palen & Co. were engaged in business as commission merchants in the city of New York, and also in the business of tanning leather in the county of Cattaraugus, and that no copy of the certificate of December 31, 1881, had ever been filed or recorded in that county, as required by the sixth section of the statute.
Upon these facts there can be no doubt that the defendants failed to accomplish their purpose of forming a limited partnership, and that under section 8 of the statute, they are all liable in a proper action for all the engagements of their firm as general partners.
The defendants contend, however, and most of their exceptions to the admission of evidence, and all their exceptions to the refusal of the court to dismiss the complaint, were taken upon the theory that they are not liable in the action as brought, because the complaint should have been in terms founded upon the statute.
The contention is clearly not well founded, so far as the defendants are concerned who were 'confessedly general partners ; and as to those who claim to have been special partners, the point may be deemed to have been decided against them in this court in Stone v. De Puga (4 Sandf. 681). That the state of the Code then in force, which made a reply to new matter in the answer necessary, if it was to be controverted, does not affect the question under the Code of Civil Procedure, has been held in Sharp v. Hutchinson (49 Super. Ct. 50), Nor can it make any difference in the case at bar, that the defendants interposed a general denial, pure and simple, unaccompanied by a plea of special partnership. If a plaintiff may declare upon a particular cause of action, his right so to proceed can not be wiped out by the nature of defendant's answer. In the present case, the cause of action has not been created or given by statute against the defendants who claim to have been special partners. They intended to, and in fact did enter into a partnership. If, in doing so, they had strictly complied with the provisions of the statute, which are conditions precedent, they might claim certain benefits under the statute. Having failed to do so, and yet having participated in the partnership business, they cannot claim the said benefits, but are hable to third persons as in case of a partnership at common law. Section 8 of the statute expressly says, that in such a case no limited partnership shall be deemed to have been formed, and that all the persons interested in such partnership shall be liable for all the engagements thereof as general partners. This is a mere re-enactment of the common law doctrine upon the subject. The question seems to have been carefully considered by the supreme court in Haviland v. Chace (39 Barb. 283). The head-note accurately states the point decided, viz : " If the provisions of the statute are not complied with, the limited partnership is not formed, and if a false affidavit in respect to the payment in cash of the sums alleged to have been contributed by the special partners is filed, all the partners will be liable for all the engagements of th'e partnership as general partners."
The claim of surprise advanced by the defendants, is equally untenable. In point of fact, no motion was made at the trial on any such ground. As to cases which may hereafter arise, it is sufficient to point out that, whenever it shall be satisfactorily shown that a defendant has been surprised, the court may, and no doubt will, upon such terms as may be just, grant an adjournment. As a general rule of pleading, a plaintiff is bound only to set forth the ultimate facts which constitute his cause of action, viz : a partnership, and if, thereupon, the defendant claims that he was only a partner of a particular kind, and as such exempt from liability under the statute, the burden is upon him to show that he earned his exemption by a full and fair compliance with the provisions of the statute. In this there is no hardship, for the matters upon which his exemption depends, are matters peculiarly within his own knowledge.
Upon a careful examination of the whole case, it fully appears that none of the exceptions taken by the defendants is tenable.
The exceptions of the defendants should be overruled, and judgment ordered upon the verdict in favor of the plaintiff, with costs.
Sedgwick, Oh. J., concurred.