Spalding v. Black

The opinion of the court was delivered by Brewer, J.: This was an action brought by the plaintiff in the court below, against the defendants, for the recovery of damages" for the unlawful conversion by defendants of certain goods and chattels of plaintiff, a description of which is set forth in his petition therein. The second count or defense by the defendants, set up in their answer to plaintiff’s cause of action, is substantially as follows: “For a second and further defense to said action, defendants say, that on or about the 26th day of September, 1874, the said Hugh M. Spalding and one George W. Craue made an agreement, and reduced the same to the form of a certificate in writing, to enter into and form a limited partnership, which should 'on the first day of October, 1874, commence the business of stationers, printers and binders, and dealers in blank books and legal forms of every description, and that the said limited partnei’ship should terminate on the first day of January, 1880; which said certificate was duly acknowledged by the said Hugh M. Spalding and George W. Crane on the day of the date thereof; and on the 30th day of September, 1874, the said certificate was verified by the said George W. Crane, filed for record in the office of the county clerk of said county of Shawnee, and by said clerk duly recorded ; that by the terms of said contract the said George W. Crane Avas constituted the general partner of said limited partnership, and the said Hugh M. Spalding the limited partner thereof. “A certified copy of said certificate, Avith the exception therein named, is hereto attached and marked £M,’ and made part of this answer. “Defendants say that the goods and chattels described in exhibits A, B, C, D, referred to in said certificate, are the same goods and chattels referred to and set forth in exhibit A, made a part of plaintiff’s amended petition. And defendants further say,- that on or about the first day of October, 1874, the said Hugh M. Spalding and George W. Crane, [61] partners in and as such limited partnership, did commence, and until the commission of the supposed grievances set forth in the amended petition, did continue, to carry on said business in the city of Topeka, in said county, in the name of said general partner, George W. Crane; and that on or about the time stated in the amended petition, the defendant S. P. Wade, as sheriff of said county, holding an execution issued out of this court in the case of Joseph Black and Clarence A. Black, partners as Joseph Black & Son, against the said George W. Crane, at the instance and request of the said Joseph Black & Son, levied the same on the said goods and chattels as the property of the said George W. Crane, and thereupon proceeded to sell said goods and chattels, under levy and by virtue of said execution and levy; and that said levy and sale are the seizing, taking, and carrying-away of said goods and chattels complained of in said amended petition. “ Wherefore, defendants say that the said Hugh M. Spalding cannot maintain this action, and that the said George W. Crane is a necessary party thereto.” To the said second defense of defendants’ answer, plaintiff filed a general demurrer, that the same did not state facts sufficient to constitute a defense to plaintiff’s cause of action, which demurrer was by the court overruled, to' which action of the court the plaintiff at the time duly excepted, and to reverse which he prosecutes his petition in error herein. Two questions are presented: First, May Hugh M. Spalding, the special partner, maintain this action ? and second, If he may, is George W. Crane, the - general partner, a necessary party? The first question involves a construction of the statute concerning limited .partnerships. (Gen. Stat., p. 601.) The following are the important provisions of the statute bearing upon this question : Such a partnership may consist of one or more persons who shall be responsible for all debts of the partnership, who" are called “general partners;” and of one or more persons who shall contribute a specific amount of capital, and shall not be liable for debts beyond the amount contributed, who shall be called “special partners;” (§2.) The general partners only shall be authorized to transact [62] business,'to sign for the partnership, and to bind the same; (§3.) The business shall be carried on in the name of the general partners only, without any words of addition; (§ 14.) A special partner “shall not transact any business on account of the partnership, nor be employed for that purpose as agent, attorney, or otherwise;” (§ 16.) “Actions respecting the business of such partnership may be prosecuted by and against the general partners only, in the same manner as if there were no special partners;” (§ 19.) “In all cases not otherwise provided for in this act, the members of limited partnerships shall be subject to all the liabilities and entitled to all the rights of general partners;” (§21.) The purpose of this statute was to induce capitalists to engage in mercantile business, by securing to them a limited liability, and relieving them from the peril attending all partnerships by the common law, of losing not only all specially invested in the business, but also their entire property. Provision should of course be made in such a statute to furnish due protection to the public dealing with such a partnership, that, so far as possible, no one should be misled in the credit to be given to it. Nothing was specially necessary as between the partners, for the parties to a private contract could always arrange their rights and liabilities inter sese. Protection to the public was sought in two ways — by public advertisement and record, and by excluding the special partner from all apparent connection with the business of the partnership. In this way no one would be misled by appearances; and he who sought actual knowledge would find it in the public records and press. This would seem to furnish adequate protection in all ordinary cases. Pursuing the policy of excluding the special partner from active participation in the management of the partnership affairs, §19 provides that suits by and against the partnership may be in the name of the general partners only. Some argument may be drawn from the use of the word “may” in this, as contra63 distinguished from “shall” in the other sections, that exclusion from participation in the ordinary management of the partnership business is positive and obligatory, while the omission of his name in litigation as plaintiff or defendant is permissive and a matter of choice. While a decision of this question is not necessary in this case, and we do not therefore definitely commit ourselves to either side of it, we may say that it seems in harmony with the general policy of the act to exclude the name of the special partner from litigation concerning its business. The business being carried on in the name of the general partners, any relief the firm may seek in the courts may well be sought in the same name, and as relief against the partnership extends, so far as the special partner is concerned, to only his interest in the partnership, it is unnecessary to join him personally as a defendant. A judgment against the partnership reaches to the full extent of his liability. Conceding then, for this case, that when the partnership as a partnership is entitled to relief it must be sought in the name of the general partner, this provision touches no individual rights of either the general or special partner, although such rights grow out of the partnership relation. For any individual wrongs, the injured partner may seek relief by an action in his own name. Thus, a special partner may maintain an action in his own name against the general partner for a dissolution of the partnership and the appointment of a receiver, under the same circumstances and for the same reasons that one general partner could against another. The relief sought is for his individual rights, though those rights spring out of the partnership relation. The limitation of the statute is only to actions respecting the business of the partnership, i. e., actions to enforce claims due the partnership, to recover its property, to defend against claims against it, etc. These are actions respecting its business, and to these alone the provision extends. Now the case at bar is an action to enforce individual rights. The plaintiff alleges that his property has been un- [64] lawfully taken from him, and he asks damages therefor. The petition discloses no partnership, asserts individual title, and seeks exclusive damages. True, the answer alleges that the property taken was partnership property. But, if notwithstanding this fact, an individual general partner would have rights which he might assert by separate action, equally so has an individual special partner. And this brings us to the second question — Was the general partner a necessary party? And the question may thus be stated: If an officer, having an execution against one member of an ordinary partnership, levy upon property of the partnership, and sell the whole property instead of the execution debtor’s interest therein, is he liable in an action of trespass brought by the other partners? And the authorities, with great unanimity, say that he is; and that to this action the execution debtor is not a necessary party. Many vexed and unsettled questions cluster around the subjection of a partner’s interest in the partnership, to the payment of his individual debts. May the officer sell the debtor’s moiety of the property, or simply his interest in the partnership? May he take possession of the entire property, and exclude the possession of the other partners? May they have injunction to restrain the sale until an accounting and settlement of partnership affairs? Into a discussion of these questions, it is unnecessary for us to enter. It is clear that the sale works a disso- lution of the partnership as to the property sold. (Story on Part., §§311, 312.) And where the officer sells the whole, when entitled to sell only the interest of the execution debtor, the other owners may treat him as a trespasser ab initio, and maintain their individual action against him. Such an action is not by the partnership, or respecting the partnership business, but is by the individual partners, and respecting their individual rights. Melville v. Brown, 15 Mass. 82; Waddell v. Cook, 2 Hill (N. Y.) 49; Walker v. Fitts, 24 Pick. 194; Smyth v. Tankersley, 20 Ala. 212; Sheperd v. Shelton, 34 Ala. 652; Bates v. James, 3 Duer, 45; Moulton v. Robinson, 7 Foster, 550; White v. Brooks, 43 N. H. 402; [65] Edgar v. Caldwell, Morris (Iowa), 434; Neary v. Cahill, 20 Ill. 214; White v. Morton, 22 Vt. 15; Frisbee v. Langworthy, 11 Wis.378; Collyer on Part., § 822; Herman on Ex., § 358. We close the opinion here, not desii'ing that the decision shall go beyond the immediate points noticed, and actually necessary for the disposition of the case. The judgment will be reversed, and the case remanded with instructions to sustain the de'murrer to said second count of the answer. All the Justices concurring.