Court Opinion

ID: 8826156
Source: CourtListenerOpinion
Date Created: 2022-11-26 15:47:35.44005+00
Date Added: 2024-06-11T17:04:47.344146
License: Public Domain

EVAN A. EVANS, Circuit Judge
(dissenting). In view of the large sums involved, I feel justified in setting forth somewhat fully my reasons for this dissent.
The District Judge, after hearing the evidence, found that petitioners were general partners of the firm of Marcuse & Co., against whom ' a petition in bankruptcy had been filed. The order of reference thereupon made to determine the solvency of the partnership as enlarged, petitioners now seek to review and revise. Only questions of law are therefore presented. In re Hoyne, Bankrupt (C. C. A.) 277 Fed. 668. On this record we can consider but one question: Is there any evidence to support the conclusion of the District Judge?
The District Judge failed to make specific findings of fact, but we must assume that such findings as were essential or might be necessary to support his conclusions were by him found in favor of respondents. His conclusion that petitioners were general partners makes such a position unavoidable.
Respondents urge that there was oral evidence tending to ’show that the written agreement of the parties was but a cover to the real understanding ; that, in order to prevent the enforcement of the liability arising out of a general partnership, the parties executed a written agreement which on its face purported to be a limited partnership. Finding that such a partnership could not transact business on the New York Stock Exchange, a new agreement was executed, for the purpose of deceiving the New York Stock Exchange, and with the further object of preventing any detection of the real status of the parties in case an enforcement of the partnership liability was later attempted by any creditor of the firm. If there is any evidence in the record to support the position of the respondents, we must accept it as established. In re Hoyne, Bankrupt, supra. Nor are respondents limited upon this inquiry to direct evidence. Their position may find support in the inferences fairly deducible from the established facts.
Respondents, however, do not rely solely upon this contention, but assert in addition that, should we conclude, in executing the agreement under consideration, the parties intended the formation of a limited partnership only, nevertheless petitioners occupy the status of general partners in the partnership, because limited partnerships to conduct a brokerage business were not authorized in the state of Illinois. My reasons for dissenting will be confined to this contention only. Briefly it may be said that the parties to this agreement on July 2, 1917, and continuously thereafter to a date subsequent to these bankruptcy proceedings, associated themselves together for the conduct of a brokerage business, wherein each party contributed toward the common capital, and wherein the profits were divided according to the contribution. The status ot the parties to the contract, then, must necessarily have been that of (a) limited partners; (b) general partners; or (c) creditors.
By a process of elimination we can readily exclude any finding that petitioners were creditors. All of the evidence points to the denial of the relationship of debtor and creditor. It is not urged in this court, except inferentially. The parties never intended to create such a re*942lationship. The definite period during which the agreement was to remain in force, viz. five years, tends to disprove such a status. In the agreement we find the parties provide:
“Tbe said parties above named bave agreed to become co-partners in business and by these presents agree to be partners to one another under the name and style of Marcuse & Co.”
Also:
“The net profits of said business shall be divided among the partners thereto in manner as follows: * * * All the balance of said net profits of said business shall be divided among all of the parties hereto, except the said Morris, in the proportions in which they have contributed to the capital or capital stock of said firm.”
The so-called trust agreement executed by Hecht and Finn recognizes the relation of the petitioners to Marcuse and Morris as being that of partners by saying:
“Whereas, under the terms and provisions of said articles of agreement, reference to which is hereby made, the undersigned, said Frank A. Hecht and said Joseph M. Finn, by reason of their relation to said firm as special partners, are, and will from time to time become, entitled to certain payments and distributions of the copartnership assets and the income, interest, and profits of and upon said assets.”
In the partnership agreement the so-called special partners were authorized to name auditors of the business of said copartnership, who were authorized to examine the books and might certify in writing that the business was not being conducted in a “safe, conservative, and judicious manner,” or that the general partners were “not properly managing the business,” in which case a dissolution of the partnership was authorized at the option of the special partners. The control of the business by the so-called special partners is indicative of a partnership and the provision for the dissolution _of the firm confirms the conclusion that petitioners were not simply creditors.
The case is quite unlike the case of In re Hoyne, Bankrupt, recently decided by this court, where the parties designated themselves and treated themselves as debtors and creditors. The oral testimony of certain witnesses likewise recognized all of the parties as partners and nothing else. A finding that petitioners were not creditors, which the court necessarily made when it found them partners, must then not only be accepted on this petition to review and revise, but, it may be added, was the only finding that could be fairly reached from this record. Not being creditors, the parties were either members of a limited partnership or members of a general partnership.
The law of Illinois, where the contract was executed and where the business of the partnership was to be conducted, must define petitioners’ status. The Uniform Partnership Act covers both limited and general partnerships and was in force at the time this contract went into effect. It is idle to discuss the history of the passage of this act. Whether it received the Governor’s signature or became effective by operation of. law, whether it had long been in effect or not, are questions apart and disassociated from the question of construction. The Uniform Partnership Act represents the law of partnership, *943and so far as applicable must govern the contract of the parties. In passing, it might be observed that, but for the existence of the Uniform Partnership Act, the contention that petitioners were general partners because of the authority of the special partners and the provision for control of the business through the auditors might be quite as potent as the argument respondents now urge.
The parties’ rights and their liabilities are fixed by the terms of the Uniform Partnership Act, however, and our inquiry must be directed to the effect -of the act upon the agreement, and this in turn becomes a question of statutory construction. Unquestionably it was the intention of the Legislature to enlarge the usefulness of the limited partnership as an instrument in the conduct of business. To accomplish this intention, then, courts should give the act a liberal construction.
It is equally certain that, because of the danger of great loss through its use in certain fields of industry, the Legislature denied its use to those who wished to engage in the banking, insurance, railroad, or brokerage business. This manifest intent, clearly expressed in section 3, must likewise find expression in the construction of the statute. There is no authority to conduct business under the Uniform Limited Partnership Act, except for the legitimate purposes therein described. Section 3 (chapter 106a, § 47) reads:
“A limited partnership may carry on any business which a partnership without limited partners may carry on, except banking, insurance, brokerage and the operation of railroads.”
It is not necessary to inquire into the reasons for excepting these four businesses; but, if ground for the exception in section 3 be required, neither imagination nor speculation need be awakened to suggest the motive and the purpose back of the legislation. The facts in the present case furnish a most persuasive argument in favor of the wisdom of the legislation that denied to those 'who would engage in the banking, the insurance, the railroad, or the brokerage business the right to do so through a limited partnership. Notwithstanding the express language of the exception in this section, the construction and the effect of which are not open to question, a conclusion has been reached that sanctions and gives legality to a course of dealing the authority for which is expressly denied.
But petitioners seek to avoid the effect of section 3 by referring to section 11 of the act, which reads:
“A person who has contributed to the capital of a business conducted by a person or partnership erroneously believing that he has become a limited partner in a limited partnership, is not, by reason of his exercise of the rights of a limited partner, a general partner with the person or in the partnership carrying on the business, or bound by the obligations of such person or partnership: Provided that on ascertaining the mistake he promptly renounces his interest in the profits of the business, or other compensation by way of income.”
Passing for the moment the two issues raised by respondents in reference to this section, denial of any renunciation by certain of the petitioners and failure of all of them to renounce during the life of the partnership, and taking up at once the construction and effect of this section 11, it is' apparent that we are confronted with a question of *944statutory construction, concerning which the rules applicable are well recognized. For example, the entire act must be read, and effect given to each section, if possible. If full effect cannot be given to the language of each section, then the overlapping sections must be read together and reconciled.
The Limited Partnership Act is readily analyzed. By its first section the term “limited partnership” is defined. Section 2 provides the steps which must be taken by any two or more persons desirous of forming a limited partnership. Section 3 defines the businesses which may be carried on by limited partnerships. The other sections deal with the rights and liabilities and powers of partners who organize under this act. In other words, section 11 was written with section 3 as its background. The words “limited partnership” obviously meant a partnership organized under this act, a partnership for the purpose of conducting a business authorized under this act. “Limited partnership” referred to lawful associations, not to those organized in defiance of the statute. (The relief authorized by section 11 was limited to those cases where bona fide attempts to organize limited partnerships under the provisions of the act had been made.
The force of this conclusion is strengthened by sections 30 and 31 of the act (chapter 106a, §§ 74, 75). In the former section the Legislature used the heading “Existing Limited Partnerships,” while in section 31 a further reference is made to “existing limited partnerships.” “Limited partnerships,” as distinguished from .“existing limited partnerships,” must refer to those organized under this act. We can hardly attribute to the Legislature an attempt to give the same term different meanings in the same act.
Again, speaking of the partnership, the Legislature in section 11 referred to “the partnership carrying on the business,” etc. What business could the Legislature have referred to other than a lawful business, a business for the conduct of' which a partnership could be lawfully organized? In this same section 11 we find a reference to “the rights of a limited pártner.” Section 10 (chapter 106á, § 54), the preceding section, is entitled “Rights of a Limited Partner.” Can it be that the Legislature was at one moment referring to limited partnerships organized under and by virtue .of this act, and to the rights and liabilities of limited partnérs as defined by this act, and was in the same sentence including limited partnerships organized in defiance of the'act? Moreover, there could be no'erroneous belief that the Uniform Limited Partnership Act had been complied with, for. the parties were not only ignorant of the existence of the law, but in their agreement they expressly stated that they were endeavoring to organize under the law of 1874, which was expressly repealed by the later en-' actment.
Reference to the General Partnership Act cannot in my opinion help the petitioners. It is true that section 7 of the Partnership Act provides that “persons who are not partners as to each other are not partners as to third persons,” but section 6 of the same act, also provides: '
*945“Tills act shall apply to limited partnerships, except in so far as the statutes relating to such partnerships are inconsistent herewith.”
Section 3 of the Limited Partnership Act necessarily destroys the test applied by section 7 of the General Partnership Act in so far as it deals with those engaged in the brokerage business. A general partnership is defined by the act as “an association of two or more persons to carry on as co-owners a business for profit.” Since two or more persons cannot conduct the brokerage business through a limited partnership, it follows that, when such persons engage in the brokerage business as co-owners for profit, they are necessarily general partners.
But, could I agree that section 11 applied to limited partnerships organized under these circumstances and for a purpose forbidden by the act, I would still find myself unable to agree that as to all petitioners there was a renunciation such as is required by section 6 to relieve them of the liability of general partners. To renounce means “to reject deliberately; to disown; to disavow; to disclaim.” Ordinarily it involves personal action knowingly done, or, to quote from Black’s Law Dictionary, “it implies an affirmative act of disclaimer or disavowal.”
In the present case Hecht and Finn, after adjudication in bankruptcy and with enormous liability as general partners facing themselves and others, attempted to repay to the partnership the profits previously drawn by the petitioners. As to the petitioners other than Hecht and Finn, such repayment could not be a renunciation, unless such parties either ratified or authorized such repayment. The record shows that the petitioners other than Hecht and Finn not only failed to ratify or authorize such repayment, but when requested to do so, and prior to such tender, refused to authorize Hecht and Finn to make any such payment for them, or to be bound by the trustees’ action in case such repayment was made. The evidence on this issue is clear and unequivocal; but, if it were doubtful or uncertain, we would, on this petition to review and revise, be required to assume that petitioners other than Hecht and Finn did not renounce their interest in the profits promptly after discovering they were not limited partners.
It is not necessary in this dissenting opinion to consider the status of Clement Studebaker, Jr., and George M. Studebaker. Their position is somewhat different from that of the other petitioners. Whether that difference would be sufficient to relieve them from the liability of general partners I need not discuss. Since this is a minority opinion, and since the majority of the court are of the opinion that none of the petitioners were general partners, it is not necessary to consider or discuss the evidence which furnishes the basis for the contention that these two petitioners were not general partners with Marcuse and Morris.