Fifth Ave. Bank v. Colgate

• Decision Date: 03 June 1890
• Citation: 24 N.E. 799,120 N.Y. 381
• Parties: FIFTH AVE. BANK v. COLGATE. IMPORTERS' & TRADERS' BANK OF NEW YORK v. SAME.
• Court: New York Court of Appeals Court of Appeals

120 N.Y. 381

24 N.E. 799

FIFTH AVE. BANK

v.COLGATE.

IMPORTERS' & TRADERS' BANK OF NEW YORK

v.SAME.

Court of Appeals of New York,

Second Division.

June 3, 1890

Appeals from judgments of the general term of the superior court of the city of New York overruling defendant's exceptions, and directing judgments for the plaintiffs.

The first action was brought upon two promissory notes made by Humphrey & Co. in October and December, 1882, amounting to $11,958.57. The second action was brought upon six promissory notes amde by Humphrey & Co. in September 1882, amounting to $35,882.16. The alleged defense of the defendant Colgate was that he was a special partner of the firm of which the other defendants, Theodore F. Humphrey, James Humphrey, and Correl Humphrey, were general partners. This firm was formed for a term commencing on March 11, 1874, and terminating February 28, 1877; and Colgate, as special partner, contributed to it $100,000. At its termination, it was renewed or continued for a further term ending on February 28, 1882; and on February 18, 1882, a certificate was made by all the parties to it, and an affidavit by one of the general partners, for the further renewal or continuance of the partnership until February 28, 1885. In February, 1883, the firm failed, and made an assignment for the benefit of its creditors. The last-mentioned certificate contained the following provision: ‘ Fourth. The amount of capital which the said James B. Colgate, the said special partner, heretofore contributed to the common stock of the said copartnership is the sum of one hundred thousand dollars ($100,000) in cash; and the said capital stock of the said special partner remains in the said limited partnership wholly unimpaired, and the said amount, namely, one hundred thousand dollars, ($100,000,) has been contributed by the said special partner to the common stock of the renewed and continued partnership.’ And the accompanying affidavit of the general partner stated ‘that the sum of one hundred thousand dollars specified in the said certificate to have been contributed by James B. Colgate, the special partner therein named, as capital to the common stock of the said partnership, has been heretofore actually and in good faith paid in cash as capital to the common stock of the said copartnership, and remains in the said limited partnership wholly unimpaired; and the said amount, namely, one hundred thousand dollars, has been contributed by the said special partner to the common stock of the renewed and continued partnership.’ The defendant Colgate alone defended. The plaintiffs recovered.

William Allen Butler, for appellant.

John E. Parsons, for respondents.

BRADLEY, J., ( after stating the facts as above.)

The question presented is whether the defendant Colgate, as a special partner in a limited partnership, had protection against liability. Without the aid of the statute upon the subject, there was no relief for him against the responsibilities of a general partner; and, to render it available as an exemption from liability, compliance with the provisions of the statute was essential in the formation of the limited partnership, and in its renewal or continuance. The view of the trial court upon the evidence was that it was legally and regularly formed, and the contribution of $100,000 by Colgate duly made, which afforded to him the rights of a special partner, and that the first renewal was effectual, but that the statement in the certificate for the further continuance made in February, 1882, to the effect that the special capital remained wholly unimpaired, was false, inasmuch as the firm was then insolvent, and for that reason the defendant was liable as a general partner. If the solvency of the firm was essential to a renewal or continuance of the limited partnership, and to the exemption of the special partner from liability as a general partner, or if it was necessary for that purpose to embrace in the certificate statement truly made of the then actual condition of such capital, the recovery must be sustained. The conclusion was fairly required that the firm was then insolvent in fact, although it did not so appear by the books of the firm, or by any information which the special partner had obtained from the balance-sheets furnished him, or otherwise. The question becomes one of construction of the statute, which provides that the certificate of formation shall contain (1) the name of the firm under which such partnership is to be conducted; (2) the general nature of the business intended to be transacted; (3) the names of all the general and special partners interested therein, distinguishing which are general and which are special partners, and their respective places of residence; (4) the amount of capital which each special partner shall have contributed to the common stock; (5) the period at which the partnership is to commence, and the period at which it will terminate. 1 Rev. St. p. 764, § 4. The certificate shall be acknowledged, certified, filed, and recorded. Id. § 6. And with it shall be filed an affidavit of one of the general partners, stating that the sums specified in the certificate to have been contributed by each of the special partners to the common stock have been actually, and in good faith, paid in cash. Id. p. 765, § 7. And it is further provided that ‘no such partnership shall be deemed to have been formed until a certificate shall have been made, acknowledged, filed, and recorded, nor until an affidavit shall have been filed as above directed; and, if any false statement be made in such certificate or affidavit, all the persons interested in such partnership shall be liable for all the engagements thereof as general partners.’ Id. § 8. Then follows provision for publication of notice. Id. § 9. Thus far the provisions of the statute apparently have relation to the formation of a limited partnership. It is further provided that ‘every renewal or continuance of such partnership beyond the time originally fixed for its duration shall be certified, acknowledged, and recorded, and an affidavit of a general partner be made and filed, and notice given in the manner herein required for its original formation; and every such partnership which shall be otherwise renewed or continued shall be deemed a general partnership.’ Id. § 11. This is the only provision for the renewal or continuance, and in it must be found whatever is essential to the extension of the existence of the partnership beyond the period originally given to it. The evidence of the renewal or continuance must be furnished in the same manner as that of its formation. The same formality must be observed. And, because the lastmentioned section does not contain within itself the requisites of the certificate and affidavit, reference must be had to sections 4 and 7, in which appears the manner of the formation, so far as relates to the certificate and affidavit. The provisions there must be followed in the renewal or continuance. The only thing essential to be considered here has relation to the special capital. It is provided in section 4 that the certificate shall contain a statement of the amount of capital which the special partner shall have contributed and in section 7 that it shall appear by the affidavit that the amount so specified in the certificate has been actually, and in good faith, paid in cash.

The inquiry arises whether the statement in the certificate and affidavit, or in either of them, that the special capital remained unimpaired, was essential to the renewal or continuance of the limited partnership, or whether, in fact, such condition of the capital was necessary to effectually accomplish it. It is not so expressed in the terms of the statute, nor is it necessarily within its import. The manner in which the renewal is to be represented is that required to form the partnership originally. The evidence of the latter is in the certificate, affidavit, and proof of publication of notice, all of record. The original certificate states the amount of capital which has been contributed by the special partner to the common stock, and the affidavit declares that the amount so certified has been in good faith paid in cash. The repetition of those statements in the certificate and affidavit of renewal or continuance would in that respect seem to be a literal compliance with the statute, at least in form. In that sense the manner of doing it was the same as or like that provided for the creation of the partnership; and, in that view, no statement of the condition of the capital at the time of renewal or continuance would be deemed essential. But it is contended on the part of the plaintiffs that something must appear in the papers required for the continuance to show that the capital is then unimpaired, else the requirement of the certificate and affidavit is in that respect useless, and can serve no beneficial purpose by way of information to the then and future creditors of the firm, or those dealing with it. The purpose of this provision of the statute is not that a new partnership be created, but that one already existing may be continued; that its life may, at the option of the partners, be prolonged. No new capital is to be contributed by the special partner. His right and relation as such, so far as they are dependent upon capital, are supported by the contribution made by him in the outset. There may be reasons for the denial of the right to renew or continue the partnership unless the capital remains intact, and unless the evidence of it be furnished by the record required to be made of the renewal, and the contrary may not be wholly without the claim of rational contention. But which view has the support of the better reason, or would be productive of the better rule applicable to it under all circumtances, is not now the subject of consideration further than it may have a bearing upon the question of...