In re Rasmussen

MAYER, Circuit Judge (after stating the facts as above). At the outset is presented,-a curious question of practice. «The order did not amend the adjudication, but held that the petition and proceedings other than adjudication should be amended by adding Firth’s name as a general partner. Such an order is a proceeding in bankruptcy, and reviewable, if at all, by petition to revise. Bankruptcy Act, § 24b (Comp. St. § 9608). As the court, by its order, found as a fact that Firth did not act in good faith, and had full knowledge of the dummy transaction, and as we cannot review the facts on petition to revise, no question of law would be presented. If, however, we were to' dismiss the petition to revise, the order below would preclude Firth from contesting in the District Court the holding that he was a general partner. His resistance against adjudication would be Confined to the question of insolvency, as the act of bankruptcy was plain, and apparently, also, he has no defense against insolvency of the firm. Thus there would be an adjudication, from [863] which he would appeal (section 25a [Comp. St. § 9609]), and then we could examine the facts as well as the law. We must therefore deal with the situation practically and escape the maze of technicality. It would, of course, involve unnecessary time, labor, and expense to have two reviews when one will do. We have concluded, therefore, to treat this as an appeal. We agree with the conclusions of the special master as to the facts. The case was peculiarly of the kind where it is highly important to see and hear the witnesses in order to determine the credit which is to be given to testimony. The vital fact which the master found was that Firth had no knowledge of the plan hy which Rasmussen carried out the scheme and that Firth acted throughout in complete good faith. Section 94 of the New York Partnership Law (Consol. Laws, c. 39, re-enacted by Laws 1919, c. 408) provides: “Sec. 94. Effect of False Statements or Failure to Publish Terms. If any false statement be made in any such certificate or affidavit, made either upon the formation or renewal or continuance or increase of capital of such partnership, or if any such certificate or notice is not so published, or if such partnership be renewed or continued in any other manner, the persons interested therein shall all be liable as general partners.” The question, then, is whether the affidavit which was filed under section 91 of the Partnership Law contained a false statement. We may start with Webster v. Lanum, 137 Fed. 376, 70 C. C. A. 56, upon which authority the master relied. The District Judge was of opinion that the case at bar differed from Webster v. Tanum, supra, “in the vital fact that Firth did not borrow nor was he given $50,000 by the general partners, or by any third person.” In this we think the District Judge erred. The cash was actually paid by Firth, and, so far as he was concerned, was paid in good faith. As a New York statute is involved, we look primarily to the decisions of the New York Court of Appeals, to ascertain whether that court has differed with this court in the construction of the statute here under consideration. It is unnecessary to review the many cases on the subject, because they have been considered either in Webster v. Lanum, supra, or in Crehan v. Megargel, 234 N. Y. 67, 136 N. E. 296, the latest case on the subject in the New York Court of Appeals. While reversing on some points, the court in the Crehan Case said: “The object of that statute and its predecessors in enactment was to provide for a combination of capital and skill and to enable those who had the former to contribute it to a partnership without other liability than loss of their investment, so long as they complied with the statute and refrained from exercising the powers and privileges of general partners. The interest of a creditor like the plaintiff is that the special capital shall be honestly and fully contributed as provided by the statute, and he has no legal or direct interest in the identity of the special partner, so long as he contributes his capital and observes all of the requirements of the statute. White v. Eiseman, 134 N. Y. 101; Webster v. Lanum, 137 Fed. 376. We fail to see how he is interested in the fact that the special partner has borrowed the capital which he contributes or has received it under some .other form of arrangement even less compelling upon him than a loan, so long as the arrangement does not result in a violation or evasion of the statute and of the requirement that the special capital shall be contributed and that the special partner shall not assume the status of a general partner.” [864] It must be remembered that the statute does not require any affidavit or certificate from the special partner, and that it is fully satisfied if the statement is true that the contribution of the special partner has been actually and in good faith paid in cash. All the cases hold that it is immaterial from whom the special partner obtains the money which he contributes, unless, of course, he obtains it with knowledge from general partnership funds of a then existing general partnership. There is nothing in the statute which requires the special partner to follow the disposition of the cash contribution made by him. When, therefore, Firth handed over to the new firm of Rasmussen & Co. Ryan’s certified check for $50,000, indorsed by Firth, his duty under the statute was ended. We are therefore of opinion that the District Court erred in refusing to sustain the special master’s report, on the ground that there was a false statement under section 94 of the Partnership Raw. . Other questions covered by the special master’s report and satisfactorily dealt with by him are not discussed in the opinion of the District Judge — presumably because, having disposed of the question referred to supra, he thought it was unnecessary to consider other questions. We think the recommendations of the special master that the motion be denied should have been sustained in all respects. Order reversed, with costs.