First National Bank v. Whitney

By the Court Johnson, J. The principal question for consideration in this case is, whether the defendant, Elisha D. Whitney, became liable, as a general partner of the firm of “ T. B. Whitney & Cohalen,” for the debt in question. He was a special partner, under the statute respecting limited partnerships. The partnership was formed on the 1st of May, 1867, and was, by the terms of the agreement, to continue for the term of three years, but might be dissolved on six months’ notice. The general partners were Thomas B. Whitney and John Cohalen. About the 6th of May, 1868, without giving the required notice, the entire capital and stock in trade of the partnership were sold, assigned and transferred to the defendant, Elisha Ü. Whitney, the special partner, who from that time continued and earned on the same business, at the same place, in his own name, leaving the demand in question unpaid. The assignment and transfer embraced both the real and personal property of the partnership. The partnership was not insolvent at the time of the assignment, but had abundant means for the payment of all its debts. The general partners became insolvent upon the making of the assignment, and have so continued since. These facts are undisputed in the case, or are rendered entirely clear by the evidence. Partnerships of [38] this description are authorized and regulated by statute, and a special partner therein cannot be made liable as a general partner in the business of the concern, unless he has been guilty of violating some provision of the statute which may render him so liable. (1 R. S., 764.) I do not see how, upon the facts of the case, the special partner can be made- liable as for a violation of sections twenty and twenty-one of this statute. Section twenty-two declares that every special partner who shall violate any provision of either of these sections, or concur in or assent to any such violation, by the partnership or by any individual partner, shall be liable as a general partner. The sale and assignment in question do not seem to have been made with any view or intention of giving any preference to any creditor, either of the partnership or of any individual partner, over any one. There was no insolvency of' the partnership, or, so far as appears, contemplated insolvency ; and, although the general partners became insolvent upon making the assignment, and probably made it in contemplation of becoming insolvent, yet it does not appear to have been done with the intent of giving any creditor: of the partnership, or of either of the partners, preference over partnership creditors. The .object of the sale and assignment seems to have been to avoid the payment of the demand in question, and some others of like character, and defeat their enforcement and collection altogether from assets abundantly sufficient for the payment and satisfaction of all claims and demands against such partnership. This is wholly different from the intention specified in sections twenty and twenty-one. Section seventeen of this statute provides, in regard to the extent to which a special partner. may interfere in the business concerns and operations of the partnership, or participate therein. He may examine into their condition and progress, and advise as to their management. He may loan it money, and advance and pay money for it, and take and hold choses in action belonging to the partnership [39] to secure its payment. He may also become surety for the partnership, and have the same rights and remedies as any other • creditor might have in such cases. He may also negotiate sales, purchases, and other business for the partnership, subject to the approval of a general partner, but not as agent or attorney of the partnership. The section then provides, “ if he shall interfere contrary to these provisions, he shall be deemed a general partner.” Here it is manifest, beyond dispute or contradiction, that the special partner did interfere, “ contrary to these provisions ” of section seventeen. He put an end to the business of the partnership, and took title to the entire property and effects there of, real and personal, to himself, and took its business and carried it on in his own name and for his own exclusive benefit. If this is not an interference with the concerns and business of a partnership, by a special partner, it is difficult to conceive what would be interference. It was an act which not only terminated the existence of the partnership, but divested the general partners of all title to the partnership property and effects, and transferred it to another, to wit, himself. ■ The defendants’ counsel insists that, even if this is to be regarded as interference, contrary to the provisions of the section, the effect would be only to render the special partner liable as general partner for transactions of the partnership occurring after such interference, and that the provision of the section should be so construed. But such a construction would be inconsistent both with the language and the manifest intention of the provision. “ He shall be deemed a general partner,” is the language of the provision, if he interferes “ contrary to these provisionsthat is, beyond, or in a manner different from, what he is there authorized to do. The,unau-. tliorized act or interference operates to convert him from a special into a general partner. It fastens that legal character or status upon him, and takes the other away. He is “ to be deemed,” in law, by reason of such interference, a general and not a special partner of that partnership; not of a new partner [40] ship, bufc of that one, from the beginning. This was the construction given to the provision in The Madison County Bank v. Gould (5 Hill, 309, 313), and it is, manifestly, the only true and consistent one. In a case of this kind, there are no transactions of the partnership, after the unlawful interference, to which the provision could be made applicable. The partnership is terminated by such interference. The plain design and intention were, to deprive the special partner of the shield and protection of his special character, as a penalty for his unauthorized acts. This view, if correct, disposes of the case upon the merits. Any other construction would place creditors of limited partnerships wholly at the mercy of the special partner. If the partnership is solvent, upon the construction contended for by the defendants’ counsel all the special partner has to do to defeat the just claims of the creditors of the partnership is to buy the property and take the business from the hands of the general partners. If the general partners are rendered irresponsible by the sale and transfer, the creditors are deprived of their remedy. The law will never sanction such injustice, and the statute was evidently intended to guard against it and prevent it. The judge at the circuit was, therefore, clearly right in directing the jury to find a verdict in favor of the plaintiff, upon the undisputed facts of the case. There is no merit in the objection that the plaintiff did not show a valid title to the note. It was indorsed in the name of the "payee, and by her authority. It was not in her handwriting, nor did the person who wrote her name add his own as her agent. But that is not necessary to a valid transfer. It is enough that the person signing the name of the payee has authority to do so. (Chitty on Bills, 37, 38 ; Pentz v. Stanton, 10 Wend., 271.) There was no charge to the jury; and all the questions raised upon requests and refusals to charge are of no consequence. The judge directed a verdict; and the only question upon that is, whether there was any question for the jury upon the plain facts of the case. [41] The case was properly disposed of, and a new trial must be denied, and judgment ordered on the verdict. Judgment affirmed.