Case Name: Strang and others; Respondents, vs. Thomas, imp., Appellant
Court: Wisconsin Supreme Court
Jurisdiction: Wisconsin
Decision Date: 1902-06-19
Citations: 114 Wis. 599
Docket Number: 
Parties: Strang and others; Respondents, vs. Thomas, imp., Appellant.
Judges: 
Reporter: Wisconsin Reports
Volume: 114
Pages: 599–605

Head Matter:
Strang and others; Respondents, vs. Thomas, imp., Appellant.
May 13
June 19, 1902.
LimitecL partnership: Failure to comply with statutes: Liability of special partners: Transferee of interest: Winding-up action: Judgment: Apportionment of liability.
1. Where, in. violation of sec. 1716, Stats. 1898, the business of a limited partnership is transacted by directors elected by the special partners, the latter become liable to creditors as general partners.
2. Failure of a limited partnership to put up -the sign required by sec. 1713, Stats. 1898, renders the special partners liable to creditors as general partners.
3. Renewal or continuance of a limited partnership beyond the time originally fixed for its duration, without having such renewal certified, acknowledged, and recorded as required by sec. 1711, Stats. 1898, renders ’all the partners liable for all the debts of the original partnership.
4. One who purchased from the general partners an interest, representing a certain number of shares, in a limited partnership which had failed to conform to the requirements of secs. 1713, 1716, Stats. 1898, and who, at the expiration of the original agreement, signed an agreement for a continuance of the business for a certain time, without complying with see. 1711, was liable as a general partner for all the debts of the company, even though he did not know the actual facts and did not intend to become a general partner; and he cannot complain of a judgment holding him liable only for a proportionate share of such debts.
5. In an action to wind up the affairs of an invalid limited partnership, a judgment apportioning the indebtedness among the solvent members according to their holdings, giving them the right to call upon the insolvent ones for contribution at any future time, is not erroneous as against one of such solvent members.
6. Judgment was properly rendered in such case against such of the members as were within the reach of the process of the court, and against members who had purchased the interests of retiring members; and the omission therefrom of those who, before any of the debts existing at suspension were contracted, had sold their interests to solvent members against whom judgment was rendered, was not erroneous
Appeal from a judgment of the circuit court for Richland county: Qeoege OleiveeNtsoN, Circuit Judge.
Affirmed.
In 1890 the defendants J. B. and W. Brimer owned and operated a yarn and woolen mill in the town of Orion, in Richland county. They were desirous of doing business on a more extensive scale, but, not having the capital, they solicited residents of Richland Center to join in the organization of a company. The proposition met with favor, and at a meeting held April 12,1890, of the parties interested, articles of agreement were submitted and considered. At a later date in the same month the agreement was entered into, and officers and directors were elected. The written articles provided that the parties should become copartners in the business of manufacturing wool into yam and cloth. The Brimers were to be general partners, and furnish their machinery at the price of $3,500 as their share of the capital, and the others were to be special partners, contributing the sum of $4,000, eaóh holding interests, as specified in the agreement, according to the amount each contributed. The agreement provided for the election of a superintendent, and the special partners were to elect three directors; such special partners having one vote for each $100 contributed. The agreement made provisions for the manner in which the business was to be conducted, and specified that “the division of the profits or losses in conducting the business shall be equal, and in proportion with amount of stock held by each party.” It was to continue for five years. The attempt was to form a limited partnership under the statutes, but they failed to comply with several of its provisions. No sign, as required by sec. 1113, Stats. 1898, was put up, and the business was transacted largely by officers and directors elected by the members, instead of by the general partners. In January, 1891, they increased their capital to $10,000, and “shares” were thereafter issued to the members amounting to $2,300, so that the total amount paid in was $9,800. On January 22, 1891, E. P. Lawrence, who had contributed $200 to the original capital, sold his interest to the defendant A. L. Hatch. January 14, 1891, Isaac McO'ann sold his interest, amounting to $100, to the plaintiff J. W. Lybrand, and in March, 1891, Geo. Bennett sold his interest, amounting to $200, to the plaintiff W. H. Pier. On Eebruary 14, 1891, the Brimers transferred $1,000 of their interest to the defendant G. G. Thomas. At the meeting in January, 1891, it was voted to issue certificates of stock to the members for the interest each held, and certificates were so issued, including one for $1,000 to Thomas. The business was conducted for fire years, but was unprofitable. Tbe company was then $4,000 or $5,000 in debt. All tbe members knew that tbe business bad been unprofitable, but, in hopes that it might be made to pay, on May 1, 1895, all tbe members signed an agreement to continue tbe business for three years. Subsequently, tbe company borrowed more money. Business was continued for a time, and finally ceased. Attempts were made at various times to settle tbe affairs of tbe partnership, which failed. This action was commenced to wind up tbe affairs of tbe company, and a receiver was appointed. All of the creditors, and all of tbe original signers1, and such as subsequently came in, were made parties. Tbe court found tbe debts to be $9,787.38 and tbe net assets $1,843.30, tbe net indebtedness being $7,944.08. He also found that tbe partnership, from tbe beginning, was a general one, and all tbe members were liable for tbe indebtedness in proportion to tbe interest each bad in tbe business. Tbe defendants J. B. Brimer, W. Brimer, and H. T. Bailey were found to be insolvent. Judgment was entered against each of the other parties interested in tbe concern for bis proportionate share of tbe debts, according to bis interest therein, less the net assets, saving, to tbe parties who paid, tbe right to enforce contribution from tbe ones who were found to be insolvent. No judgment was entered against Bennett, McO'ann, or Lawrence. Tbe amount found due from tbe appellant, O. G. Thomas, was $1,168.20. All parties acquiesced in tbe judgment except Thomas, who brings this appeal.
F. W. Burnham> for tbe appellant.
For tbe respondents there was a brief by K. W. Eastland and Jones & Stevens, and oral argument by Burr W. Jones.

Opinion:
BaRdeeet, J.
This action is one in equity to settle up tbe affairs of a defunct partnership. Tbe original purpose evidently was to form a limited partnership under the statutes, but the scheme adopted was contrary to the statute, in that-it allowed the business to be controlled by directors chosen by the limited partners. Stats. 1898, sec. 1716. The company failed to post the notice required by see. 1713, and neglected other requirements not necessary to be mentioned.' Such partnerships exist only by virtue of the statute, and unless there is substantial conformity to its requirements the-special partners become liable to creditors as general partners. See Lancaster v. Choate, 5 Allen, 530; Durant v. Abendroth, 69 N. Y. 148, 97 N. Y. 132; Waters v. Harris, 17 N. Y. Supp. 370, 28 Abb. N. G. 192; Vandike v. Bosskam, 67 Pa. St. 330.
At the expiration of the time limited by the original agreement they agreed upon a renewal, but failed to comply with the requirements of sec. 1711 by failing to have such renewal certified, acknowledged, and recorded, and by failing to-give the proper notice. The obligations of the parties in such case are thus stated in Troubat, Lim. Partn. § 337:
"On the renewal of a limited partnership after the expiration of the former one, or before such expiration, or upon the formation of a new partnership, special partners who carry the capital of the first concern into the newly formed one-render themselves liable in solido for all the debts of the original partnership. And this obligation is indivisible; it involves all the partners in the same liability. It will make-no difference that the capital of the prior partnership has been converted into shares destined for the second one, even with the intention to assign those shares to- the creditors for the purpose of satisfying them."
But it is said the appellant did not know the actual facts,, and did not intend to become a general partner. That may be granted, and still he may not escape liability. In February, 1891, he purchased from the Brimers an interest in the business, which, according to their agreement, represented ten shares in the concern. It was his duty to ascertain what he was purchasing and what obligations he assumed by becoming a member. lie held bis interest until tbe original agreement expired. In May, 1895, witb knowledge tbat tbe business bad been unprofitable, be signed an agreement to continue tbe business for three years. Tbe business was continued at a loss, and be now seeks to escape the responsibility of contribution because be did not intend to make himself liable. If tbe business bad been profitable, no doubt be would have accepted bis share of profits without objection, and could legally have demanded it. Tbe situation being reversed, be must accept tbe consequences. All of tbe indebtedness found due at tbe final wind-up was incurred after be became a member of tbe company, and was incurred in a bona -fide attempt to carry on tbe business to a profitable issue. Claiming, as be did, tbe right to a proportionate share in tbe profits had any been realized, be ought not to complain when called upon to share losses on tbe same basis. As a general partner be was liable, with the other members, for all the debts of the company; so the fact that tbe court only held him liable for a proportionate share is really more favorable than be was strictly entitled to.
Tbe apportionment of indebtedness among the members who were solvent, according to their holdings, was fully justified. The creditors who were not members had a technical right to collect against any or all of tbe members of the company, but they are not here complaining. Tbe judgment adjudges the equities of tbe members according to tbe original agreement, and gives tbe solvent ones tbe right to call upon tbe insolvent members for contribution at any future time. We do not think it open to criticism in tbat regard.
Tbe appellant further complains that no judgment was .given against Bennett, Lawrence, and McCann. These men signed the original agreement, but sold their interests before any of tbe debts that were in existence at the date of the final suspension of business had been contracted. They sold to men who are included in the list of solvent members, and against wbom judgment was rendered. Moreover, Bennett and McCann were nonresidents when'the suit was begun. Judgment was properly rendered against such of the members as were within the reach of the process of the court, and against members who purchased the interests of the retiring members. We see no ground for disturbing the judgment.
By {he Court. — The judgment is affirmed.