Walkenshaw v. Perzel , 4 Rob. 426 ( 1866 )

Robertson, C. J.

The death of the special partner (Schlucher) in the limited partnership in question, must undoubtedly have been the main cause of the embarrassment of the establishment it was designed to carry on. It is evident that on the starting such enterprise, and down to the time of his death, he made the advances he did, believing it to be profitable, and that he was amply secured. He knew that he had agreed to leave his capital in it until the end of the limited partnership, and also to give credit on his advances for the purchase of the ground on which the manufactory stood, for the same time; and yet he advanced in addition a large amount of the funds of the firm of which the plaintiffs are members, up to within a few months of his death, and they have made advances since. He does not appear to have taken any steps to collect the amount due for such advances, or while he lived to have lost confidence in the undertaking. Whether the moneys due the plaintiffs are in danger from the insolvency of such firm, is the question before me.

Merely borrowing money however much, for partnership purposes, even of a special partner, or enlarging the means of carrying on a business, does not come within the prohibition of the statute. (N. Y. Sess. Laws 1857, ch. 414, §2, and 1858, ch. 289 ; 3 R. S. 5th ed,. 63, § 12.) Alterations in the names of the general partners, the nature of the business, or capital or shares contributed by special partners in a limited partnership, under the penalty of making it general. Loans by special partners, upon securities or otherwise, are expressly permitted. (Laws of 1857 ; Id. § 3 ; 3 R. S. 5th ed. 64, § 17.)

The partnership in this case, therefore, remained a limited one to the time of the death of the special partner, and if insolvent within the meaning of the statute (1 R. S. 766, § 20), any creditor at large is entitled to have its affairs wound up, and its assets distributed "pro rata among those of its creditors who have not obtained a specific lien (Jones agt. Lansing, 7 Paige’s Rep. 583). -

It is essential, however, before taking away the control of the assets of a limited partnership from members of the firm on the ground of insolvency, to ascertain .whether all who have an interest in their retention of such control, are before the court as parties. The estate of the deceased special partner (Mr. Schlucher), has two separate claims upon, and one interest, in the assets of such partnership. He is represented only by the plaintiffs as to his interest in the claims of the firm of which they are members, as his survivors. As to his individual claim, his executors represent him, and he is also represented by them as to any interest the estate may have in carrying on the partnership. But as the two last interests may conflict, it is for such executors to determine, with or without the sanction of the court, whether it is most for the interest of the estate they represent to continue the partnership, or urge their claim for money lent. The provision of the Bevised Statutes as to suing the general partners, or their being sued alone, (1 R. S. 766, § 14), does not apply to such an action. The words of the statute are “ in relation to the business of the partnership,” and refer merely to claims by or against them as a partnership. It would be manifestly unjust to deprive the special partner of the. right of being heard on the question of breaking up the partnership. Such executors, therefore, ought to have been made parties to the action, and as they may represent conflicting interests of the testator as to carrying on the partnership business, or destroying it, and enforcipg the claim of their testator for advances, they should most properly be defendants. Of course, if they decide without the sanction of the court, which policy to pursue, they may be responsible to- the next of kin or legatees of their testator, for any indiscretion in the matter. There is also another strong reason why they should be made parties, irrespective of any question of insolvency. Their testator covenanted that the partnership should continue, and the capital put in by him remain in it for several years. Such covenants are frequently introduced in partnership articles for an enterprise of a similar kind (Story on Part. § 199); and in general partnerships it has been held that executors are hable to damages for withdrawal of a testator’s capital, or may be compelled specifically to perform his covenant by allowing it to remain. (Story an Part. § 196; Coll, on Part. § 119 ; Balmam agt. Shore, 9 Ves. Rep. 500 ; Crawshay agt. Maule, 1 Swanst. Rep. 495, 510; Pearce agt. Chamberlain, 2 Ves. Rep. 33 ; Gratz agt. Bayard, 11 Serg. & Rawl. Rep. 41.) But in such cases, the executor, if he received the profits as legal owner of the capital invested, might be made hable for the contract entered into by such partnership. And a mere omission to give notice of a dissent, where the executors are vested with a discrection, may make them partners (Coll, on Part. § 232). But the amendment of the law in 1857 (ch. 414, § 2), requires, in order to prevent the dissolution of a limited partnership by the death of any of the partners, not only a specification in the articles of partnership that in such event the partnership shall continue, but also the assent of “the hems or legal representatives” of the partner dying. In which event it provides that the “ heirs or legal representatives ” of such parties “ may succeed ” to his partnership rights, and “ continue the business,” the same as if “ he had remained alive.” This, I apprehend, requires some positive act of assent, by heirs or legal representatives (meaning of course by hems, as in all other cases, “ next of kin ” or legatees, as there may or may not be a will), and not mere silent acquiesence. Since it seems no more than right that persons subsequently dealing with the partnership should know whether the representatives of a deceased special partner elect to dissolve the partnership and become mere creditors, or carry it on. It does not appe'ar in tin’s case whether the executors of the special partner have or not assented. Them action in the supreme court may have been on other grounds; at all events, it seems the injunction in it was once dissolved, although liberty was given to renew.

But as the defect of parties may possibly be remediable. by continuing the injunction until they could be added, it becomes necessary to consider the question of insolvency. ■Upon this, as I have already suggested, it may be assumed that Mr. Schlucher, who was joint owner with the plaintiffs of their present claim, did not seem up to the time of his death, nor did they in the advances they made afienuards, suspect insolvency. A large establishment like that in question, consisting of extensive buildings and grounds, valuable machinery, materials, raw and worked up, an established name, and with prosperous business, as sworn to by Mr. Coleman, may be broken up and sold in fragments, so as to realize but little, and yet if allowed to go on may clear off its liabilities. In such case the appointment of a new trustee in the shape of a receiver in place of the defendant, who is also a trustee, and not charged directly with any such misconduct as even in the case of an ordinary partnership would authorize a dissolution, should be based only on the clearest evidence of insolvency.

It is true that “insolvency,” and “ inability to pay,” are synonymous, but solvency does not mean ability to pay at all times, under all circumstances, and everywhere on demand, nor does it require that a person should have in his possession the amount of money necessary to pay all claims against him. Difficulty in paying particular demands is not insolvency (Cutler agt. Sanger, 2 H. J. R. 467).

The definition in Herrick agt. Borst (4 Hill’s Rep. 650), that solvent means one who has “ his property in such a situation that all his debts may be collected out of it by legal process,” is much more exact. Even if this perhaps might on a strict construction, require the court to determine the problem whether within the time of notifying a sale on execution,' the money could not be raised on such property, by sale or otherwise. The evidence in this case falls short of it. In this case, if the partnership can be continued, if not insolvent, the claims of Mr. Schlueher’s estate are not due", except $45,000, until 1870 ; and there are only $24,400 more, including those of the plaintiffs, who may be destroying their deceased partner’s interest to the extent of over fifty thousand dollars, to collect a claim of not six thousand. This makes a present debt of nearly seventy thousand dollars, while taking Mr. Coleman’s estimate, the factory over and above the mortgage, the machinery and goods on hand, exceed in value one hundred thousand dollars. I therefore do not find the insolvency so clearly made out as to warrant any interference.

The motion to continue the injunction and for a receiver, must, therefore, he denied, with ten dollars costs, without prejudice to the plaintiffs’ right to renew the motion on making the executors of Mr. Schlucher parties, and on affidavits showing insolvency more clearly, or the dissent of such executors from carrying on such partnership.