Case Name: GEORGE v. CARPENTER et al.
Court: New York Supreme Court, General Term
Jurisdiction: New York
Decision Date: 1893-11-17
Citations: 25 N.Y.S. 1086
Docket Number: 
Parties: GEORGE v. CARPENTER et al.
Judges: 
Reporter: West's New York Supplement
Volume: 25
Pages: 1086–1089

Head Matter:
GEORGE v. CARPENTER et al.
(Supreme Court, General Term, First Department.
November 17, 1893.)
Limited Partnership—Withdrawal op Funds by Special Partner.
Where a special partner, at the end of the period for which the partnership is formed, leaves all his capital and all the assets of the firm in the hands of the general partners on their agreement to pay him the amount of his interest in the firm, which they fail to do, he does not thereby withdraw his capital from the firm, within the meaning of 1 Rev. St. p. 766, § 15, so as to render him liable for firm debts.
Appeal from judgment on report of referee.
Action by Ella D. George against Josephine E. Carpenter, Henry A. Boot, and Frederick H. Hatzel, as executors of Franklin E. James, deceased. The complaint was dismissed on the merits, and plaintiff appeals.
Affirmed.
This action is for the recovery from the representatives of a deceased special partner of a debt due from his firm to the plaintiff. On the 3d day of February, 1885, Charles H. George, Wilson H. George, and Franklin E. James duly formed, pursuant to the statutes of this state, a limited partnership, under the name of C. H. George & Co., (known in this litigation as “No. 1,”) which was to begin February 4, 1885, and terminate November 13, 1887.
Charles H. George contributed to the capital....................$48,000
Wilson H. George contributed to the capital.................... 5,000
Franklin E. James contributed to the capital.................... 50,000
Total capital............................................$103,000
Charles H. and Wilson H. George were the general partners, and James was a special partner. The firm conducted the business which it was formed to carry on from February 4, 1885, to November' 13, 1887, when it expired by the lapse of time fixed for its duration. At the last date mentioned, a new firm was formed by the general partners of the old firm, under the name of C. H. George & Co., (known in this litigation as “No. 2,”) for the purpose of carrying on the same business, which was to continue from November 13, 1887, to January 1, 1889. On the 13th of November, 1887, the limited partnership was indebted to the plaintiff, who was the wife of Charles H. George, in the sum of $7,472.14, which is unpaid, and is the only unpaid debt of the firm. November 13, 1887, the three partners agreed to the following statement of the old firm's assets and liabilities, which was entered on its books:
Assets.
Stock and fixtures..........................................$111,451 15
W. H. George, Cap. a/c..................................... 11,108 02
Outstanding a/cs, collectible................................ 45,771 23
Cash balance forward...................................... 4,327 28
$172,658 28
Liabilities.
F. B. James, Cap. a/c.................. §57,732 76
C. H. George, Cap. a/cs................ 34,972 25
Ella D. George, loan a/c................ $ 7,472 14
James, Briggs & H., a/c................ 39,762 79 47,234 93
Kent due to date.......................................... 4,000 00
Bills payable......................................§ 7,220 51
Outstanding a/cs to pay......................... 21,497 83 28,718 34
$172,658 28
The stock and fixtures of the old firm, valued at $111,451.15, and the amount due from Wilson H. George, $11,108.62, were assigned and transferred to the new firm, which two items amounted to $122,559.77. The new firm credited, on its books, James with the amount of his interest in the old firm, $57,493.32, which is a reduction of $239.44 from the amount appearing by the statement to be his due, (why this discount was made does not appear,) and Charles H. George with $34,972.25, and C. H. George & Co. (No. l) with $30,094.20, which three items amount to $122,559.77, and equal the value of the stock and fixtures and the amount due from Wilson H. George to firm No. 1. At the time of the termination of the limited partnership, James received no money nor property. November 5, 1888, Wilson H. George died insolvent, and June 14, 1889, Charles H. George died insolvent, leaving a will, which was probated, and of which the plaintiff, his widow, is the executrix. July 30, 1890, Franklin E. James verified and presented to the plaintiff, as executrix of the estate of her husband^ the following account:
The Estate of Charles H. George, Deceased, to Franklin E. James, Dr.
1st. To balance due Franklin E. James from O. ,H. George, February 4th, 1885........................................... $ 1,087 66
Interest thereon from Feb. 4th, 1885, to June 14, 1889.... 284 60
2nd. To balance due Franklin E. James from Charles H. George, Nov. 14th, 1887............ $54,242 63
Interest on same from Nov. 14th, 1887, to June 14th, 1889, nineteen months, at six per cent..... 5,153 05 59,395 68
3rd. To balance due Franklin E. James from C. H. George, Nov. 12th, 1887....................... $39,692 47
To interest on same at six per cent, from Nov. 12th, 1887, to June 14th, 1889........................ 3,784 02 43,476 49
$104,244 43
Before the presentation of this account, James had become the sole owner of the amount credited to James, Briggs & H. in the statement of liabilities, and the balance due thereon is included in the foregoing claim. December 16, 1890, James died, leaving a will, which was duly probated, and letters testamentary were issued thereon to the defendants. In May, 1890, the plaintiff, as executrix of her husband’s estate, paid to the defendants $52,000 on the above claim, and received a release of all claims and demands due from her husband’s estate to the estate represented by the defendants. This action was begun November 4, 1891.
Argued before VAN BRUNT, P. J., and FOLLETT and PARKER, JJ.
Burnett & Whitney, (Edward B. Whitney, of counsel,) for appellant.
Bangs, Stetson, Tracy & MacVeagh, (Charles MacVeagh, of counsel,) for respondents.

Opinion:
FOLLETT, J.
The plaintiff seeks to recover on two grounds: (1) That defendants' testator withdrew his capital stock, in violation of 1 Eev. St. p. 706, § 15, which provides:
"No part of the sum which any special partner shall have contributed to the capital stock, shall be withdrawn by him, or paid or transferred to him, in the shape of dividends, profits or otherwise at any time during the continuance of the partnership."
(2) That defendants' testator was allowed to claim as a creditor, in violation of 1 Rev. St. p. 767, § 23, as amended by, chapter 414 of the Laws of 1857, which provides:
"In case of the insolvency or bankruptcy of the partnership, no special partner shall, except for claims contracted pursuant to section 17, under any circumstances, be allowed to claim as a creditor, until the claims of all the other creditors of the partnership shall be satisfied."
Section 17, referred to in section 23, provides:
"He [a special partner] may also loan money to, and advance and pay money for the partnership, and may take and hold the notes, drafts, acceptances and bonds of or belonging to the partnership, as security for the repayment of such moneys and interest, and may use and lend his name and credit as security for the partnership in any business thereof, and shall have the same rights and remedies in these respects as any other creditoT might have."
The referee found, on conflicting evidence, that the limited partnership was solvent on the 13th day of November, 1887, which finding we affirm.
The evidence shows that Charles H. George and Wilson H. George, the general partners of the limited partnership, undertook the duty of settling the affairs of the firm, and that they proceeded so far as to pay off all its debts, except the one owing to the plaintiff. It is asserted that in case a limited partnership expires, and the special partner withdraws, leaving all of his capital and all of the firm assets in the hands of the general partners, upon their agreement to pay to him the amount of his interest in the firm as settled and agreed upon, which they never do, it amounts to a "withdrawal of capital," within the meaning of section 15, above quoted. This proposition cannot be sustained. Under the statute, the general partners are required to manage the affairs of the firm, and when the special partner, at the termination of the period for which the partnership is formed, leaves all of his capital and all the assets of the firm in the hands of his solvent general partners, and takes their joint promise to pay him his interest in the firm, which they never pay, that does not amount to a withdrawal of capital or of assets, within the meaning of the section. This precise question was decided in Lachaise v. Marks, 4 E. D. Smith, 610. In that case a limited partnership had existed under the name of Lord & Brown, but, before the expiration of the time limited for its duration, the special partner sold to the general partners all of his interest in the firm, and entered into an agreement dissolving it. Notice of the dissolution was filed, recorded, and published, as required by statute. The general partners assumed to pay all of the liabilities of the firm, and gave to the special partner their notes for $17,000 for his interest, signed "Lord & Brown," which was the name of a new general partnership organized to carry on the same business. It was held that the giving of the notes did not amount to a withdrawal of any part of the capital or assets of the firm. The judgment at general term, in the case cited, was written by the late Judge Woodruff, in which all of his associates concurred, and it has never been questioned. In tlie case at bar the promise, by the new firm, to pay to the withdrawing special partner the amount of his interest in the limited partnership, did not withdraw any assets from it, nor did it create any obligation against it. The assets of the old firm were left in the custody of the general partners, subject to the claims of the creditors, and the liability created was against Charles H. George and Wilson H. George. The old firm was most effectually dissolved—First, by the lapse of time during which it was to continue and the agreement of the partners; and, afterwards, November 5, 1888, by the death of Wilson H. George, one of the general partners. Nor have the provisions of section 23 above quoted been violated. Neither the special partner nor his representatives have been allowed any claim against the limited partnership or its assets. The claim presented and compromised was against the estate of Charles H. George, who became liable, by virtue of his promise to pay the sum found due to the special partner, and there is not the slightest evidence that the funds wherewith this compromise was effected were derived, in part or in whole, from the assets of the limited partnership, and the referee has not found that the limited partnership had not sufficient funds on hand at the date of the death of Charles H. George to pay the claim of this plaintiff, nor was any attempt made to establish such a proposition. It is found that Charles H. George was insolvent when he died, which is not equivalent to finding that the limited partnership was then insolvent, which could not be shown without ascertaining whether it had sufficient assets on hand to pay its only liability, the plaintiff's claim. On this branch of the case the referee found:
"Twenty-Second. That the entire amount of the capital invested by Franklin E. James in the special partnership remains in the hands or under the control of Charles H. George and Wilson H. George, jointly, or of Charles H. George, solely, from November 13, 1887, to June 4, 1889."
We assume that the date June 4, 1889, is a misprint for June 14, 1889,—the date of the death of Charles H. George. The judgment should be affirmed, with costs. All concur.