Ward v. Newell

Clerks, J.

In White v. Hackett a special partner claimed to share the assets of the copartnership with other creditors, for advances made by him for the business of the firm, over and above the amount of capital he had contributed. The statute of this state, relating to limited partnerships,, expressly declares that in case of the insolvency or bankruptcy of a partnership, no special partner shall, under any circumstances, be allowed to claim as a creditor, until the claims of all the other creditors shall be satisfied.^(a) Of course, in the face of a provision so plain and so peremptory, nothing ■was left for the special term but to render judgment against the claimant. This judgment, by some unaccountable oversight or misapprehension, was reversed by the general term. (White v. Hackett, 24 Barb. 290.) The other creditors instantly appealed to the court of appeals; and, I need scarcely add, that the judgment of the general term was reversed, and that of the special term affirmed. (20 N. Y. Rep. 178.)

The case before us arises under a limited partnership formed in New Jersey under the laws of that state, which are precisely the same, with regard to this subject, as those of New York were at the time the indebtedness in White v. Hackett accrued. Indeed, the statute of New Jersey is an exact transcript of the provisions of the New York statute, and the 23d section of it is, word for word, the same as the corresponding section in the New York statute, to which I have referred, and from which I have above quoted. In the case before us, the referee finds that the plaintiff was a special partner; that in the formation of the partnership, the requirements of the law were strictly complied with, and that the notes, for which this action was brought, were given for a good and valuable consideration by the general partners, by their firm name, to the plaintiff, their special partner, and he decides that the plaintiff is entitled to judgment.

The only question that can arise in this case is, whether we can look into the whole case and ascertain whether the , firm was insolvent or bankrupt; because, if we can, and if we ascertain that it was, the 23d section of the statute unquestionably applies, and would defeat the plaintiff’s claim. The referee does not expressly find any thing upon this point. But the complaint alleges that the notes being many months due, an action was commenced against the general partners in the circuit court, holden at Newark, in and for the county of Essex and state of New Jersey, and that a judgment was recovered against them for the amount of the notes with interest, which remained in full force and effect and unsatisfied at the time this action was commenced in the state of New York. The defendant does not traverse the recovery of the New Jersey judgment. This, surely, is sufficient proof of insolvency or bankruptcy, according to the true spirit and meaning of the statute. Besides, J ones, the defendant, testifies that, although at one time it was believed the firm was solvent, it was subsequently ascertained to be insolvent. The referee, therefore, should have found that the firm was insolvent. Instead of this, he, in effect, though not in formal and express words, finds that it was solvent; for, otherwise, he could not legally have decided in favor of the plaintiff." Finding, impliedly or expressly, in favor of the solvency of the firm was palpably against evidence.

With regard to the title of the firm, it appears that they employed the title of Darius E. J ones & Company. This, no doubt, is in violation of the 13th section of both the New Jersey and New York statutes. • I am inclined to think that the provision of this section is not merely directory.- To be sure, it does not say, if such title is used, that the special partner shall be deemed a general partner. But, in The Madison County Bank v. Gould and others, (5 Hill, 309,) it was held that the intentional violation of the statute by the special partners will have the effect of deeming them general partners. The violation of the statute committed by the special partner in the case to which I have referred, was the withdrawal of a part of the capital, which he had contributed, and, together with the general partners, purchasing with it real estate and taking a conveyance of it to all the partners, general and special. This was a violation of section 15. This section, however, does not say expressly, any more than the 13th section, that the consequence of violating what it prescribes shajl be that the special partner shall be deemed a general partner; yet such is the effect given to it in The Madison County Bank v. Gould. The court, however, held that every violation of the statute must be shown to have been intentional on the part of the special partner. In the case under consideration, no proof was given to show that the plaintiff intentionally participated in violating the sec- ' tian requiring that the business shall be conducted in the names of the general partners, without • the addition of the word “company.” The judgment, however, should be reversed on the other grounds, a new trial ordered, and costs to abide event.

. Leonard, P. J. concurred.

(a) 1 R. S. 2d ed. 756, § 23.