President & Directors of the Manhattan Co v. Laimbeer

Unless the courts below were right in holding that the filing of the certificate with the county clerk, in the absence of the recording thereof, was insufficient in .order to "form "a -limited partnership under the act, this judgment must be reversed, because there was undoubtedly evidence enough -in the case to go to the jury upon the question of fact whether

■ It is not necessary that the party handing the paper to the officer should see that he makes the proper indorsement or entry. A verdict was directed by the court in favor of the plaintiff in this action based upon the assumption that the failure of the county clerk to record the certificate provided for in the act, and which was to be filed and recorded in his office, prevented the formation of a limited partnership- and left the parties who attempted to form the partnership liable as general partners. Under this holding the defendant has been made liable to the extent of nearly $60,000, for debts incurred by the general partners after the special partner had done all that he could do to comply with the' terms of the statute, or in other words after the certificate required by the statute had been acknowledged, and after the necessary affidavit had been made and after they had both been filed in the office of the county clerk, and after, as matter of fact, the amount of money required to be contributed by the special partner had been paid in cash.

Under such circumstances to hold the defendant hable as a general partner for the failure of a public officer to do an act, the doing of which at any particular moment the defendant had no power to compel, works a very severe administration of the statute and is a construction not called for by the language when reasonably interpreted, and is contrary to what it seems to me is a fair public policy, as it makes one man liable for the default of another, and he a public officer over whose actions he has no immediate and efficient control.

It is said that this special partnership is a privilege granted, and is an exemption from the general liability of partners at

The earliest 'statute upon the subject of the formation of limited partnerships is that of the act of 1822. It may be well to compare the provisions of that act with the one enacted in the Revised Statutes for the purpose of seeing what if any change has been made by the latter act.

The important provisions contained in the act of 1822, in relation to the formation of such partnerships, are that before such a partnership can be formed there must be a certificate signed .by the partner containing (1.) name of the firm; (2.) the - names of all the general and all the special partners; (3.) amount of the capital furnished by the special partner; (4.) the period when the partnership is to commence and terminate. There is also to be an affidavit made by one or more of the general partners stating the actual payment in cash of the sum

From the time of the passage of this act of 1822, it remained substantially in that condition until the adoption of the Revised Statutes, when the act was recast. But in the Revised Statutes, although different language is used in many parts of it, yet the same general requirements are made for the formation of such a partnership. The certificate is to be made as provided for in the act of 1822, and the same information is to be given in it, with the addition that there is also to

In the matter of deeds and mortgages, it is constantly spoken of that such papers are recorded when left at the clerk’s office for such purpose; the theory of the law being that the record is made when delivered to the clerk for that purpose. The record is then considered to have been accomplished, and the physical act of transcribing the contents of the paper into a book, at length, is to be performed by the public officer; and it seems to me to be contrary to reason and to principle, to hold an individual bound to such grave liabilities, as this case is an example of, founded upon the failure of a public officer to do an act prescribed by the statute.

By this statute the certificate is to state, among other things, the period at which the partnership is to commence. If no such partnership can be deemed to be perfected until the certificate is not only filed, but absolutely recorded at length in a book by the county clerk, it would be impossible to state with truth or accuracy in the certificate this time of commencement. The parties may intend that the partnership shall commence the next day after the certificate is filed for record, but unless actually recorded before or by that day, according to this interpretation of the statute, the partnership does not commence and the certificate would be false.

In many counties of the state the clerk is largely behind in the matter of the actual, physical recording of papers left in his office therefor. In this very county where this court now sits, the clerk has been from one to three months behind hand,

All this difficulty is avoided by holding what it seems to me is the fair and plain intention of the legislature, viz., that when the parties have done all that they can do in the way of .complying with the terms and conditions of the limited partner-shin act, and when all that remains to be done is for a public officer (entrusted with the care and custody of the papers filed with him) to perform the duties placed upon him under the

It is said that the same reasoning would apply to the publication in the newspapers of the terms of the partnership as provided for by the act. But it seems to me an entirely different principle applies there. The duty of making the publication is cast upon the partners, and there is no obligation on the part of the publisher of the paper as there is on the part of the public officer to do anything. Again it is matter of private contract between the partners and the publishers of the newspaper, and in that way it is within the power of the partners to see to it that the publication is made within the time required in the statute, and that it correctly states the terms of such partnership. However, the effect of a failure to publish is not now before us.

It is true that in the general construction and interpretation of the statute in relation to limited partnerships, courts have inclined to exact a rigid performance of the substance of the statute from those desirous of availing themselves of its benefits. But in all the cases that my attention has been called to and in all that I have been able to find, where the individual has been held liable for a failure to comply with the terms of the statute, such liability has been based upon a failure to do that which the statute called upon the parties interested, or some of them, to do, and not upon the failure of a public officer to do an act which the statute provided that he should do. Thus in the case of Smith v. Argall ( 6 Hill, 479 ), the publication of the terms of the partnership made in one of the newspapers stated that the special partner had contributed $5,000, when in fact he had contributed only $2,000. It was not claimed that there was any fraud in the statement, but simply a mistake ; and as the law cast the duty upon the partners to make the publication, a failure to make it correctly rendered the defendant liable as a general partner. That case is again

In Van Ingen v. Whitman ( 62 N. Y. 513 ), the special partner did not as matter of fact contribute $30,000 in cash to the general fund as the certificate stated. There were certain assets which he owned in an old partnership, and he empowered one of the general partners to turn them into cash which was to be contributed as his payment and treated as cash, the firm being solvent. But this court held that that was not a compliance with the statute, which required that the payment should be made in cash. Here again the liability) rested upon a failure of the individual to do that which the statute required that he should do. It was his own act, or rather his own failure to act for which he was held responsible.

Then there is the case of Durant v. Abendroth ( 69 N. Y. 148 ). There the partnership .was to commence on the first of January, which happened to be Sunday. The articles of co-partnership. were drawn up and the certificate and affidavit made on the twenty-third of December, upon which day the special partner gave his check for the amount he was to contribute, dated the thirty-first of December, and the certificate and affidavit were immediately filed. The check was paid on the second of January, the first banking day of the new year, and the cash was thereby, paid into the partnership before one particle of business was done under its terms. This court, however, held that the affidavit was false when made because at that time payment in cash had not been made but a postdated check was given in lieu thereof, and after such check was paid no affidavit was made of the contribution in cash of the amount to be contributed by the special partner. Here again the defendant was held liable because of his own failure to fulfill and comply with the terms of the statute. He had ' full power to pay in cash at the time the affidavit was made, and if he failed it was his misfortune. I think it was a very .

A substantial compliance with the terms of the statute, even in the case of a limited partnership, has, upon one or two occasions been held sufficient. Thus in Bowen v. Argall ( 24 Wend. 496 ), a publication of the names of the partners was made in which the name of one partner was printed Argale instead of Argali, and the court held that in the absence of any evidence that anybody was misled by it the mistake was unimportant, and if there were any such evidence it would have been a fair question for the jury.

Again in Madison County Bank v. Gould ( 5 Hill, 309 ), the period of the commencement of the partnership was erroneously stated as November sixteenth instead of October sixteenth in the newspaper. In the absence of evidence that any one was injured that was also held to be an unimportant mistake, and that the statute was substantially complied with and the special partner not liable. Some cases in other states have been referred to on the argument in relation to the construction to be given to this act, but upon examination I do not see that very much light is thrown therefrom.

The case of Gray v. Gibson ( 6 Mich. 300 ), does not discuss the question at all. It assumes the fact to be as stated in the opinion and then decides some other question. That was a case where they attempted to prove a general partnership as between the plaintiffs themselves by proving an attempt to form a special partnership and a failure to record the certificate. The court held such facts did not prove that the plaintiffs were partners as between themselves. At the same time it assumed

The case of Hinckle v. Haymen ( 91 Ill. 96 ; affirming S. C. 1 Brad. Ill. R. 145), assxxmed that the failure of the clerk to record the certificate would not render the special liable as a general partner. In that case the certificate had been taken to the clerk’s office for the purpose of being filed and had then been withdrawn; and the court held it was not filed within the meaning of the act Those are the only cases outside of the state to which my attention has been called, and the only ones I'have foxxnd upon the subject One might be said to off-set the other and neither contributes anything toward a proper solution of the question in hand.

In this state some cages have been decided by the Sxxpreme Court which are somewhat analogous to the one now under ‘discussion. By the statute every chattel mortgage, under the circumstances therein named, is absolutely void as against the creditors of the mortgagor and subsequent purchasers and moi’tgagees in good faith unless the mortgage or a true copy thereof be filed as directed in the act. It is made the duty of the clerks of towns in whose office chattel mortgages are required by the act to be filed, to pi’ovide proper books in which the names shall be entered in alphabetical order, of the parties to every moi’tgage and also to indorse them on the back and to enter the- nuxnber in a separate column in the books in which the mox’tgages shall be entered. Tet in the cases of Bishop v. Cook ( 13 Barb. 326 ), Dodge v. Potter (18 id. 193), and Dikeman v. Puckhafer (1 Abb. N. S. 32), it was held that the failure of the clerk to do these things did not affect the rights of the mortgagee as he had done all that he could do when he delivered the mortgage to the clerk to be filed, and that he ought not to be held liable for the default of the clerk, a public officer, over whose acts he had no control. The cases are not precisely similar to the one under consideration, and yet the principle of ñon-liability for the default of a public officer under circumstances somewhat similar is' announced and I think cox’rectly maintained.

The case is entirely unlike the one under consideration. The very life of the system of recording titles and incumbrances thereon depends upon the fact of the record itself being a sufficient source of information for a subsequent bona fide purchaser or incumbrancer, and unless such were the case it would be practically useless to have a record. A mortgagee knows this and hence is responsible for the truth of the record, as it must be assumed he knows its contents, and knowing it, still allows others to deal with the property on the faith of the correctness of such record. He might fairly be said to be estopped from denying the correctness of the record, on the principle applicable to an estoppel in pais.

The case is peculiar and stands on principles which call for such a decision at the peril of otherwise losing most of the benefits to be derived from a record of titles or incumbrances. It will be noticed the mortgagee is not liable for a failure of the clerk to record at all, but only for a false record. He can easily call the attention of the clerk to the mistake, and it may be instantly remedied; but in the case at bar the partners cannot, as I have shown, compel an immediate record of the certificate. It seems to me the principle of holding an individual responsible for a default of a public officer, should not be extended to a case such as is under consideration here. But I think that this court has decided the principles involved in this case in accordance with the views which I take of this statute. I refer to the case of Veeder v. Mudgett ( 95 N. Y. 295 ). That case arose by reason of an attempt to enforce the liability of the defendants under the general manufacturing act of 1848. Chapter 40, section 10 of that act provided, that “ all the stockholders of every company incorporated under

The eleventh section of said act reads as follows : “ The president and a majority of the trustees, within thirty days after the payment of the last installment of the capital stock so fixed and limited by the company, shall make a certificate, stating the amount of the capital so fixed and paid in, * * * and they shall, within the said thirty days, record the same in the office of the county clerk of the county wherein the business of the said company is carried on.”

The company in which the defendants were stockholders in that case. was incorporated by the filing of a certificate February 8, 1868, in the Monroe county clerk’s office, and on the 31st of March, 1868, in the office of the secretary of state. The capital was stated as $200,000. There was an attempt made to increase the capital stock and certain stock was issued; but the facts concerning the same are not material here. The first and only certificate ever made in regard to the payment of the capital was made January 13, 1873, and that certified that the capital stock was fixed and limited at $300,000, and that the whole amount was paid in before January 1, 1870. This was found to be untrue as to the $300,000, but true as to the $200,000 of the capital. The certificate thus signed by the president and trustees of the company was delivered at the Monroe county clerk’s office January 13, 1873, for record; but by the default of the clerk it was not recorded until June 22, 1880, after the commencement of the action against the defendants. The indebtedness of the corporation in which

■ The learned judge who delivered the opinion of the General Term in the case, attempts to make a distinction in principle in these two cases. He says “The omission to file and record a certificate of the payment of the capital stock in pursuance of section 11 of the act, did not couch the question of corporate fife. The corporation existed whether the certificate was or was not filed. The omission to file and record the paper, affected the continuance of the stockholders’ liability determined by a previous section of the act.” It is plain, of

The learned judge at General Term also says that “ it is quite

On a line with the decision in the Veeder case although prior in point of time, is that of Cameron v. Seaman ( 69 N. Y. 396 ), which involved the proper construction of section. 12 of the manufacturing act of 1848. The trustees had signed a report within the twenty days from the first of January, but. it was not filed in the clerk’s office until January twenty-second nor published until January twenty-fourth, and the contention, was that both should have been done within the twenty-days and for such neglect it was claimed the trustees were liable. This court held otherwise, and said per Andrews, J.: “ If the publication and filing must be also made within the twenty days in order to protect the trustees from personal liability, very serious burdens might be imposed upon them without their fa/ult. The neglect of a newspaper to publish the report, although it was furnished for publication within the twenty days and in due time for its insertion in its regular issue, would not protect the trustees against the statute liability. They

I see no reason whatever for establishing a different rule in regard to the formation of limited partnerships, for the purpose of terminating the liability of the individual as a general ■ partner from that which is held in relation to manufacturing corporations for the purpose of terminating the individual liability of stockholders.

The judgment should be reversed and a new trial granted.

(dissenting). The court having refused to submit the case to the jury, all intendments must be for the appellant; . and he must be considered as having done all that the statute required of him up to and including the act of depositing with the county clerk the papers w„hich, under the provisions of the law, were to be filed in his office. The appellant’s counsel contends that after depositing with that officer the •certificate of the formation of the limited partnership and the affidavit of the payment of the sum contributed as special •capital, the party, seeking to avail himself of the provisions of the statute in question, has done all that is required of him and that he cannot in fact file them, nor can he record the •certificate, the performance of those acts being a duty devolved by law upon the county clerk. It is claimed that the precise point upon which our judgment is thus asked is without precedent in this state. It may be that the words of the statute, to which counsel particularly directs our attention, have not precisely received judicial exposition; but the controlling principles for the construction of the statute have been sufficiently laid down to support the views we shall express, if its plain reading were not sufficient for that purpose.

The statute, upon the construction of which appellant’s case must succeed or fail, after stating for what purposes a limited partnership may be formed and the contents of the certificate which the persons proposing to enter that relation shall make, in its sixth section, requires that “the certificate * * *

Obviously our consideration of these provisions of the law is confined to the force and effect to be given to the language-of the eighth section, and to the extent to which we shall literally interpret the expressions of the legislature. The= words themselves are plain and unambiguous, and the language does not seem to be lacking in strength. It is argued for the appellant that because of the omission in the revision of the statutes of a provision of the act of 1822 (Chap. 244-Laws of 1822, from which act the different sections of the title of the Revised Statutes referred to, with one exception and with some variations, were originally taken), making it. the duty of all the partners to see that the requirements of the act are complied with, the failure of the county clerk to perform the duty of recording the certificate, which is cast upon him by virtue of his office and by direction of the statute, should not prejudice the party availing himself of its provisions ; inasmuch as what had previously been made a duty of the party was by the legislature dispensed with in the revision of the statutes. It is insisted that this omission indicates an intent to change the law. The provisions of the act of 1822' are, in the sixth section, that “ before any partnership under this act shall be carried into effect, the name or firm under which the same is to be conducted and the names of all the general and special partners interested therein, distinguishing them and their places of residence, shall be registered in a.

The seventh section required the registry to designate certain other facts relating to the proposed limited partnership. The eighth section made it “the duty of all the partners interested in any such partnership to see that the requirements of the sixth, seventh, eighth and twelfth sections of the act are complied with,” and further provided that “ in case the same shall be neglected or a false registry be made, all the parties interested in such partnership shall be liable for all the engagements thereof as general partners.”

The twelfth section provided “ that the registry required' by this. act shall not be made by the clerk of the county, or be considered valid, unless all the partners general and special * * * shall make and sign a certificate or declaration * * * containing the statements required by the sixth and seventh sections of this act, which shall be filed of record in the said clerk’s office.” It will be observed that while in the revision of the statutes the certificate itself must be recorded at large in a book kept for that purpose, in the act of 1822 the corresponding book was to register the composition, terms and conditions of the partnership, and the certificate was to be filed as the clerk’s warrant for making the registry. Hone the less, however, the provision was explicit that the registry must be made before any partnership under the act could be carried into effect. The provision in the eighth section of the act of 1822, making it the duty of all the partners to see that the requirements of the law were complied with, did not impair the force of the previous language, which made the registration a condition, upon the strict performance of which the existence of the limited partnership was to depend. At most, the provision of the eighth section was declaratory, and added nothing to the effect of the failure to register the matters mentioned. It imposed no penalty as such. It simply declared the effect of the neglect of a compliance with the provisions of the act. It was wholly unnecessary to the objects of that

The enactment was intended to relax the common law rule only upon well defined and prescribed conditions, and is for the benefit and protection of the special partner; but like many other statutes in derogation of the common law, its provisions are to be construed strictly and should not be extended beyond their express words or clear import. (McClusky v. Cromwell, 11 N. Y. 593 -601.) In the construction of statutes, effect is to be given to the intention of the legislature and the object of the enactment, with the necessary qualification, that the intention must be such as the legislature have used fit words to express. (Potter’s Dwarris on Statutes, 192.) And in Maxwell’s work on the Interpretation of Statutes (page 4), it is well said “ when once the intention is plain, it is not the province of the court to scan its wisdom or policy. Its duty is not to make the law reasonable, but to expound it as it stands, according to the real sense of the words.” Or as Judge Denio said of legislative acts in People v. Board of Supervisors of New York ( 16 N. Y. 432 ), “ it is by the written language that their sense is to be ascertained.”

I think the object of the statute we are considering is plainly expressed in apt words to convey the legislative intent. A certificate stating the composition, duration, terms and conditions of the proposed limited partnership shall be recorded at large in a book kept for that purpose, open to the inspection of all whose interest it may" be to acquaint themselves with such facts. And when, after providing for the making and recording of such a certificate, the legislature say: “Ho such partnership shall be deemed to have been formed until a certificate shall have been made, acknowledged, filed and recorded, or until an affidavit shall have been filed,” their plain intent is unmistakable that the recording of the certificate, as well as the filing of the affidavit, should precede as facts a legal existence of the limited partnership and a legal exemption

In Madison County Bank v. Gould ( 5 Hill, 309 ), Judge Bkonson held that partners “ are all alike answerable to third persons for the debts of the firm, unless a limited partnership .was formed * * * in the manner prescribed by the statute.” In Van Ingen v. Whitman ( 62 N. Y. 513 ), Judge For gee says of this statute, that it “ does not set out to deal with motives, but with acts and their results, and it guards the

In re Merrill (12 Blatchf. Cir. Ct. Rep. 221), a case arising-under our statute, Judge Woodbuef says, “we are bound by the statute and the parties cannot claim under the statute, which derogates from the general rule of law, without showing a strict compliance with the statute.”

In Haviland v. Chace ( 39 Barb. 283 ) Judge Peckham in a well considered opinion held that “ in the statute under consideration the mode and manner in which a person may become a special partner are carefully pointed out, and it is. obviously the general purpose of the statute to make such person a general partner if he fail to comply with those provisions. In fact it would seem to follow as a matter of course that such person would be a general partner if he failed to-comply with the provisions that make him a special partner, though no express declaration to that effect were contained in the statute. It is onl/y ly force of the statute that his liability is limited.” And see Argall v. Smith ( 3 Denio, 435 ); and Bell v. Merrifield ( 28 Hun, 219 , 222).

The appellant’s position is not helped by reference to decisions under the- manufacturing act of 1848. Section 10 of' that act provides that “ all stockholders of every company incorporated under this act shall be severally individually hable to the creditors of the company, in which they are stockholders, until the whole amount of capital fixed and limited by such company shall have" been paid in and a certificate thereof shall have been made and recorded, as prescribed in the following section,” The following section requires that “the-president and a majority of the trustees, within thirty days ” shall “record” in the county clerk’s office a certificate stating-the amount of the capital fixed and paid in.

The distinctions between the two acts are very obvious. Under the statute relating to the formation of limited partnerships the partnership is not “ deemed to have been formed until the certificate shall have been made, acknowledged, filed and

Lord Mansfield said “ there is a known distinction between circumstances which are of the essence of a thing required to be done by an act of parliament and clauses merely directory.” (Rex v. Loxdale, 1 Burr. 447.)

The opinion of the court in Veeder v. Mudgett ( 95 N. Y. 295 ), arising as it does under the manufacturing act, is therefore inapplicable and it becomes unnecessary to consider. the various views which led the majority of the members of the •court to decide as they did.

We think no legal error was committed in refusing to .submit the case to the jury, and that the judgment should be •affirmed.

All concur for reversal except Rttger, Oh. J., and Gray, J., •dissenting.

Judgment reversed.