WATERS v. HARRIS

WATERS v. HARRIS. N. Y. Superior Court, General Term; December, 1891. 1. Partnership ; relation of special partner.] For failure to comply with the statutory requirements, the special partner of a limited partnership does not become a general partner, but only makes himself liable as a general partner to the creditors of the firm, the liability being in the nature of a statutory penalty. Notwithstanding such liability, therefore, as between the partners, all settlements must be made in conformity with the agreement for limited partnership. 2. Dissolution of a limited partnerships Although the special partner is liable as a general partner by reason of a neglect to observe the requirements of law relating to a limited partnership, the partnership may still be effectually dissolved in accordance with the provision of such law by the filing and publication of the required notice, 3. The same.] Where a special partner of a limited partnership in contemplation of dissolution, accepted, before the publication of the statutory notice of dissolution had "been completed, the ■' individual note of the general partner for the amount of his capital, payable at a future date, held, the note not having been paid, the special partner had not withdrawn his capital so as to work a dissolution of the limited partnership, thereby causing the partnership to become general. 4. Stiptdatíotis.J In an action to charge a special partner as-a general partner, it was stipulated in writing for all purposes of the action, that defendant was liable as a general partner for all engagements of the firm, and that plaintiff would consent to the admission of affidavits of publication of notice of dissolution of special partnership for four weeks prior to a certain date ; the date being prior to the date of the alleged partnership debt. Held, in view of the latter provision, the stipulation could not be regarded as admitting that the firm had any existence at the time debt was incurred. 5. Powers of partnersl] After dissolution a partner has no power to impose new obligations on the firm. Appeal from a judgment upon a verdict directed at the trial term in favor of the defendant. The action was brought by Winfield Waters against Siegmund Harris to recover on a note alleged to have been made by defendant and one Albert Hirsch as co-partners of the firm of “ Albert Hirsch ” and delivered to plaintiff’s assignors. The firm of Albert Hirsch had been formed as • a limited partnership with the defendant as a special partner. The parties to this action stipulated, however, as follows : 1. The defendant will admit on the trial hereof that for all the purposes of this action he is liable as a general partner for all the engagements of the firm of Albert Hirsch, composed of Albert Hirsch and Siegmund Harris. 2. The defendant will consent • to admission in evidence of the judgment roll in the suit of Edward W. Rathbun and others against said Albert Hirsch, as proof of the fact of judgment, and will admit that the judgment debtor is the same Albert Hirsch with whom said defendant, Siegmund Harris, was in partnership. And defendant will admit that said judgment has not been paid, and has been duly assigned by Rathbun & Company to plaintiff. 3. Plaintiff will consent to the admission in evidence of affidavits of publication of notice of dissolution of special partnership, with slips annexed, as proof of publication of such notice for four weeks prior to March 2, 1885. The note upon which the action was brought was given by Albert Hirsch to plaintiff’s assignor on May 28, 1885, nearly three months after the publication of notice of dissolution had been completed. The further facts are stated in the opinion. Wm. Geo. Oppenheim (Melville H. Regensburger, attorney) for apppellant. I. The plaintiff should have judgment because defendant stipulated that he was liable for all the engagements of the firm. II. The notice of dissolution was invalid. The special partnership, if it ever existed, was dissolved by the change of capital (Citing Beers v. Reynolds 11 N. Y. 97 ; section-12 Limited Partnership Act). III. Notice of dissolution -was not communicated to plaintiff’s assignors. IV. Notice that the co-partnership will dissolve is not sufficient notice of dissolution under the statute. Four weeks’ notice that.it has ceased of been dissolved must be given (Citing Beers v. Reynolds, 11 N. Y. 97 ; Van Jugen v. Whitman, 62 Id. 513; Durant v. Abendroth, 68 Id. 148). Charles C. Leeds, for respondent. I. Although it is a conceded fact that the defendant became liable as a general partner to creditors, nevertheless as between themselves the relation between the partners was that of a general and special partner (Citing Bates' Lim. Part. § 89; Lancaster v. Choate, 5 Allen 530, 539; Robinson v. McIntosh, 3 E. D. Smith 221; Durant v. Abendroth, 97 N. Y. 132, 144. II. The relation of general and special partner was effectually dissolved before the liability sued on was incurred. III. The fact that promissory notes were given by the general to the special partner in repayment of his special capital was not such an alteration as worked a dissolution (Citing Lachaise v. Marks, 4 E. D. Smith 610). IV. The stipulation did not admit that note sued on was made at the time when a partnership existed. See note on p. 45 of this vol. 4 U. S. (8th ed.) p. 2496 §24 provides: “No dissolution of such ■ partnership by the acts of the parties shall take place previous to the time specified in the certificate of its formation, or in the certificate of its renewal, until a notice of such dissolution shall have been filed and recorded in the clerk’s office in which the original certificate was recorded, and published once in each week for four weeks in a newspaper printed in each of the counties where the partnership may have places of business, and in the State paper.” [MAJORITY — McAdam, J.] McAdam, J. The effect of the dissolution of a partnership is to put an end to the authority of the one partner to bind the other. The partnership existing between the defendant and Albert Hirsch was dissolved March 2, 1885, and the debt now attempted to be enforced against the defendant was contracted by Hirsch, May 28, 1885, nearly three months after the dissolution. Hirsch and Harris formed a limited partnership pursuant to the statute, Hirsch being the general and Harris the special ■ partner, and the dissolution was of such a partnership. The theory of the plaintiff’s action is that for some failure to comply with the statutory requirements, Harris became a general partner. But this is not a correct statement of the law. For neglect to observe the essential requirements of the law relating to limited partnerships, the special may make himself liable as a general partner to creditors of the firm, the liability being in the nature of a statutory penalty (Van Dolsen v. Abendroth, 1 City Ct. R. 469; aff’d, 131 U. S. 66 ; Durant v. Abendroth, 97 N. Y. 132). As between the parties themselves, the contract of partnership determines their relations, rights and liabilities, and as between parties to an agreement of limited partnership, all settlements must be in conformity with it (Lancaster v. Choate, 5 Allen, 530, 539). Bates, in his work on limited partnership (§ 89), says, “ The relation of the parties to a limited partnership which by reason of failure to comply with the statute, is never formed, or because of violation of the statute becomes general, is between the parties themselves, fixed by the contract, and as to one another the partnership is special.’’ And in Robinson v. McIntosh (3 E. D. Smith, 221), it was held, that where parties take all the usual steps to form a limited co-partnership, excepting in some particular, the neglect whereof renders the special partner liable as a general partner, he does not thereby become an active, but may be regarded as a dormant partner, in such a sense as warrants the general partner to assign the partnership effects to a trustee, for the benefit of creditors. On January 28, 1885, Hirsch and Harris executed an agreement, providing that the limited partnership existing between them be dissolved, the dissolution’to become effectual as soon as the publication required by law was completed. On the same day (Jan. 28,1885),Hirsch gave Harris ■three notes, each for $5,000, as a re-payment of his contribution of special capital, which notes have never been paid. The publication of the notice of dissolution contemplated by the agreement, and required by law, was completed on March 2, 1885, so that the partnership relations between Hirsch and Harris were effectually terminated on that day. The plaintiff claims on his points, that the relations terminated January 28, 1885, by the withdrawal by Harris of his capital, and that the partnership, after that, became general. Harris withdrew nothing. He received the promise of Hirsch to return him $15,000, at a future date, but the promise was never performed, and the unperformed promise of Hirsch is neither a withdrawal, return or payment of special capital contributed. There was a full four weeks’ publication of the notice of dissolution before the debt sued on was contracted, and the note on which it is sought to hold the defendant was the note of Albert Hirsch, individually. . If this were a case where there had been a course of prior dealings between the parties, the question of the necessity of actual notice of dissolution might have arisen, but the absence of that feature renders a discussion of' it unnecessary. There is no question of equitable estoppel in the case, because it does not appear that Harris did any act or thing after the dissolution, which made him liable as a partner to the plaintiff orto third persons generally. At the trial, to obviate proof of the defects alleged in the formation of the limited partnership, .which would have made Harris liable as a general partner, it was stipulated that for all the purposes of the action, he was liable, as a general partner for the engagements of the firm. Not that he was a general partner, but liable as such by force of the statutory provisions. ■ Nor did the stipulation admit that the firm had any existence at the time the contract was made. Indeed, that point was contested and left open to be determined, for as part of the same stipulation, the plaintiff consented to the admission in evidence of the affidavits of publication of the notice of dissolution of the special partnership, as proof of the publication of such notice for four weeks prior to March 2, 1885 ; so that the stipulation must be taken in its entirety. Thus we have the cáse of parties who took the'usual steps to form a limited partnership, except in some technical particular, the neglect whereof might have rendered the special partner' liable to third persons as a. general partner, and a dissolution of such partnership on March 2,1885, consummated in strict accordance with the statutory requirements. The debt in suit was contracted by Hirsch in his own name, May 28, .1885, at a time when there was no partnership with Harris in existence. It is difficult, therefore, to find any legal basis for a claim against Harris, arising out of such a transaction. Upon a dissolution of a firm, the agency of each partner for the other is revoked, except to the extent of closing up past transactions, and even in that respect his powers are limited, and he can enter into no new obligations in the name of his co-partner, even though to close up a past transaction (Palmer v. Dodge, 4 Ohio St. 21, 36; Long v. Story, 10 Mo. 636; Woodford v. Dorwin, 3 Vt. 82, 88; Myatts v. Bell, 41 Ala. 222, 233 ; Hall v. Lanning, 91 U. S. 160; Haddock v. Crocheron, 32 Tex. 276; Napier v. Catron, 2 Hump. 534; National Bank v. Norton, 1 Hill, 572 ; Lansing v. Gaine, 2 Johns. 300; Sanford v. Nickles, 4 Id. 224; Hackley v. Patrick, 3 Id. 537; Walden v. Sherburne, 15 Id. 409; Mitchell v. Ostrom, 2 Hill 520; Lusk v. Smith, 8 Barb. 570; Van Keuren v. Parmelee, 2 N. Y. 525). This upon the ground that after the dissolution a partner has not, without special authority, power to"impose new obligations upon the firm, nor to vary the form and character of those already existing (Woodworth v. Downer, 13 Vt. 522; Mutual Savings. Inst. v. Enslin, 37 Mo. 453 ; Lusk v. Smith, 8 Barb. 570,578; Hurst v. Hill, 63 Am. Decis. 705 ; Cunningham v. Bragg, 37 Ala. 436). After dissolution, one partner cannot sign the firm name to a note, even to pay an old debt (Lockwood v. Comstock, 4 McLean, 383; White v. Tudor, 76 Am. Decis. 126; Hurst v. Hill, supra), and such a note does not discharge the old debt (Perrin v. Keene, 19 Me. 355). In National Bank v. Norton (1 Hill 572), it was held that one partner after dissolution cannot bind his co-partners even by the renewal of a partnership note. Cowen, J., says: “ This is the máking of a new contract by one for all the partners, after his authority is revoked. During the continuance of the partnership he is entitled to act for all, as their general agent. On dissolution he ceases to hold that character, and must be considered as a mere joint debtor. This leaves to him the power of payment in respect to debts due from the firm, but with slight exception,if any, nothing more.” This would seem to be so on principle aside from authority, for as Lord Kenyon says, (in Abel v. Sutton, 3 Esp. 108): “ the moment the partnership ceases the partners become distinct persons ; they are tenants in common of the partnership property undisposed of from that period; and if they send any securities which did belong to the partnership into the world after such dissolution, all must join in doing so.” The question was again considered in Morrison v. Perry (11 Hun, 33), wherein it appeared that upon the dissolution of a partnership, caused by the sale by one partner of all his interest therein to the other, the latter executed a promissory note in the firm’s name, for a then existing indebtedness, and gave it to a creditor ignorant of the dissolution of the firm. It was held that the surviving partner had no authority to execute the note, and that the retiring partner was not liable thereon, though liable on the original cause of action, if that had been sued upon. In the present case, there was no firm in existence when the obligation sued upon was contracted, and it became and was enforceable only against Hirsch, the person who made the note. It was made in his name, bound him alone, and was not intended to bind anyone else. There is no sound principle of law or morality that requires Mr. Harris, the defendant, to pay the debt in question. It was in no sense his obligation, and the trial judge properly directed a verdict in favor of the defendant. It follows that the judgment and order appealed from must be affirmed with costs. Freedman, P. J. and Gildersleeve, J., concur.