Metropolitan National Bank v. Palmer — 30 N.Y. St. Rep. 509

Majority

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The Metropolitan National Bank, App’lt, v. Mary E. Palmer et al., Executrices, Impl’d, Resp’ts.

(Supreme Court, General Term, First Department,

Filed March 14, 1890.)

Headnote

1. Partnership—Limited—Contribution of capital.

A contribution of capital by a special partner, through the intervention f a certified check, is valid.

2. Same—Good faith.

One of the other partners was indebted to the special partner, and after his contribution of capital a payment to the amount of his capital was made. It was denied that there was any agreement that such payment was conditional upon such contribution being made. Held, that if there was such an agreement, its existence was to be derived by inference from the conduct and acts of the parties, and it was the province of the jury to determine whether or not it should be deduced.

3. Same.

• A mere expectation that the capital of the new firm would be employed to purchase the stock of the preceding firm is not sufficient to deprive the former of its character and privileges as a limited partnership. To produce that effect there must have been an actual agreement to so employ it.

4. Same—Loans to preceding firm.

The special partner does not become personally liable for debts of the firm simply because mutual loans or accommodations have taken place between the new and old firms.

Appeal from a judgment recovered on trial at the circuit, and from an order denying a motion made upon the minutes for a new trial.

Joseph H. Ghoate and William G. Gulliver, for app’lt; John M Parsons, for resp’ts.

The action was brought to recover the amount unpaid on sixteen promissory notes made by the firm of John Paret & Co. in the latter part of the summer and during the fall of the year 1883, four of which were rejected at the trial as the notes of another firm. As the action was originally commenced it was against all the members of this firm, which failed in business near the close of the year 1883. The firm had then become insolvent and its property was attached and an assignment made of the residue for the benefit of its creditors. But while all the defendants in the action as it was commenced were members of the firm, the defendant Rufus Story resisted his liability on the ground that he became no more than a special partner in the firm and was not liable personally upon the notes. He died during the pendency of the action, and his executrices were made defendants in his place by a revival of so much of the action against them. A supplemental complaint was served after the order for the revival of the action, to which they served an answer reasserting the same defense which had been presented by the testator. And whether he became a special partner in the firm in good faith and by a compliance with the provisions of the statute relating to partnerships of this description, was the question upon which the action was tried and disposed of, The partnership was formed on the 3rd of January, 1882. And by the agreement,

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and the other instruments and papers executed at that time, and afterwards filed, and the publication made under the designation of the county cleric, it appears that the partnership was, in form at least, organized and created as the statute had provided that it might be. No such defect has been found in either of the instruments required to be made for this object, or in the publication of the notice given of the formation of the partnership, as rendered this partner liable for the debts of the firm.

• It was provided by the articles of partnership that the capital of the firm should amount to the sum of $150,000, $60,000 of which was to be contributed by the special partner, $75,000 by John Paret, one of the general partners, and $25,000 by the other three general partners. And as the facts were proved by the evidence, the special partner, Eufus Story, did contribute by his certified check the sum of $60,000, and the general partners contributed in like manner the sum of $55,000, the residue of the capital to be contributed by the partner, John Paret, being payable afterwards from time to time as it might be realized from his assets in a previous firm existing and carrying on business under the same name. It was objected at the trial, and on that ground an application was made for the direction of a verdict in the plaintiff’s favor, that the certified check contributed by Eufus Story for his $60,000 capital in the firm was not a compliance "with what the statute has declared to be necessary for the creation ■of a special or limited partnership. But there was no error in overruling this objection and denying the application so far as it was dependent upon it, for the reason that it has already been determined that the contribution of capital may be made by the special partner through the intervention of a valid certified check. Metropolitan Nat. Bank v. Sirret, 97 N. Y., 320 , 325 ; Lawrence v. Merrifield, 42 N. Y Supr. Ct., 36 ; affirmed, 73 N. Y., 590 ; Hogg v. Orgill, 34 Pa., 344 ; Metropolitan, etc., Bank v. Lloyd, 25 Hun, 101 .

What the statute has required is that the capital to be contributed by the special partner shall be paid in cash. And by the certified check of a solvent bank the capital is as completely subjected to the control and disposition of the firm as though the money were drawn upon it and it was in form paid over in cash. This check was so drawn and certified. For it appears by the stipulation which was made a part of the evidence upon the trial that Story kept his bank account in the Broadway National Bank of the city of New York, and had at the time on deposit to his credit a larger amount than this sum of $60,000, and that credit was not impaired until the actual payment of the check, which was made by the bank on the next day.

This check was delivered to the other members of- the firm, more especially to John Paret, who seems to have been the controlling member, on the day when the partnership agreement was made. And evidence was given tending to prove that it had been actually deposited in another bank to the credit of this firm about the hour of twelve o’clock on the 3d day of January, 1882.

The right of the testator to be exonerated from liability by the delivery and deposit of this check to the firm was further rc

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sisted on the ground that it was not given in good faith, and not intended to be retained as a part of the capital of the firm. And if that fact had been established by the evidence to the satisfaction of the jury, then undoubtedly the plaintiff in the action was entitled to recover. For both the statute, and the authorities following it, explicitly require that the capital of the special partner shall be in good faith contributed to the firm. And whether it was so contributed or not was submitted by the court as a matter of fact to the jury. The evidence proved the fact to be that other firms had preceded this firm, in which John Paret had been the controlling partner. And the firm immediately preceding this firm was formed by himself and another person as the sole partners. Previous to that time the firms with which he was identified as a partner were special or limited partnerships. And, as they were changed from time to time, the property and stock of the preceding firm was purchased and acquired by its successor. And after the firm in controversy was formed, a like purchase of the stock and fixtures of the immediately preceding firm was made by it. And in that purchase at least the sum of $110,000 contributed to the firm now in suit was paid by it to its immediate predecessor. A large residue of the purchase price, which amounted in all to the sum of $240,000, or upwards, was left unpaid, but made payable from time to time by the firm now in suit. This immediately preceding firm was then at least in precarious circumstances, if not positively insolvent. But it is stated in the testimony of the witness Paret, read upon the trial, not to have been so considered by him, for the reason that, with its other assets, consisting of cash and bills receivable, and accounts due from customers, a large amount was outstanding, exceeding its liability by the sum of $111,561.53. But as these demands to a large extent finally proved to be uncollectible, this balance substantially failed to be realized.

At the time when this certified check was contributed by Story to the capital of the firm, John Paret, who was his son-in-law, was indebted to him in the sum of $75,000 for money which had been loaned. And this immediately preceding firm was also in like manner indebted to the extent of $30,000. And these moneys are stated to have gone into the business of that firm. After the contribution to the capital of this final firm was made in the manner already stated, and the purchase had been made by it of the stock of its immediate predecessor, the check given for that purpose was deposited to the credit of the preceding firm in the Metropolitan Bank. And a check was drawn upon that bank in favor of the partner, John Paret, for the sum of $90,000, which is stated to have been given to repay to this partner the sum of $50,000 on his capital account, and to the extent of the balance of $40,000 to have been a loan to him. Upon the deposit of this check a further check was drawn by himself in favor of Story for the sum of $60,000, which went into the account of Story and was paid by the bank on which it was drawn. And on this state of the facts the position was taken in behalf of the plaintiff that the $60,000 contributed by the certified check of

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Story to the capital of the firm was not intended to remain in that firm, but was intended to be repaid, and was in fact repaid in this manner to Mr. Story. But evidence was given which tended to controvert the correctness of this position. For it was testified by the partner, John Paret, that the $60,000 contributed by Story was never withdrawn from the firm, but that it remained as a part of its capital and in its business until it failed, and was in that manner lost. He was interrogated as to whether an agreement was not in fact made between himself and Story, that in case Story contributed the $60,000 as special capital to the partnership that it should be returned in this manner, or substantially in this manner, to him. But he denied the existence of any agreement or understanding of that description, and testified that Story had applied to him for the payment of the entire sum of $75,000; and that he had finally agreed that he would pay to Story the sum of $60,000 of this amount, but that payment of the amount was not conditional upon Story contributing the sum of $60,000 to the capital of the partnership. And his testimony was to the effect that he could, by means of loans, have paid Story this sum of $60,000 independently of the contribution of a like amount by the latter to the capital of the firm.

There was, it is true, substantial ground for an inference that Story was to be relieved for the contribution to be made by him to the capital of the firm by the payment to him afterwards of this sum of money. But neither the proof, nor the facts.established by it, was so conclusive as to justify the court in withdrawing this subject from the consideration of the jury. These contemporaneous transactions were denied to have been the result of any agreement whatever connecting the one with the other. And if there were such an agreement or understanding, its existence was to be derived by way of inference from the conduct and acts of the parties. And where the inquiry involves such an inference, it has been considered the province of the jury, and not of the court, to decide whether or not it should be deduced. And that was the view maintained under somewhat similar circumstances in the -case of the Metropolitan Nat'l Bank v. Sirret, supra, and also in that of President, etc., v. Phillips, 109 N. Y., 383 ; 16 N. Y. State Rep., 199. The jury might very well have found differently from what they did upon this evidence. But whether they should do so, or render the verdict that they did, was strictly within their province .as the law has been sanctioned and followed.

By the statute under which this partnership was formed it was necessary to comply with its provisions that an affidavit should be made by at least one of the general partners, and filed with the ■other papers, stating that the sums specified in the certificate to have been contributed by the special partner had been actually •and in good faith paid in cash. 2 R. S., 6th ed., 1154, § 7. Such an affidavit, sworn to on the 3d of January, 1882, by John Paret, the controlling general partner, was made and filed with the other papers. But it was insisted in further support of the application ■of the plaintiff for the direction of a verdict in its favor, that this affidavit was untruthful, and that it was made before the special

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capital had, in fact, been contributed. And as the evidence of the witness, John Paret, was first given, it directly tended to prove that it was made previous to the time when the check for the special capital was placed at the disposal of the firm.

But this was afterwards corrected by the witness stating that but one paper was signed before the check was received and deposited, which was the articles of agreement, and that it was after that when the other papers which were executed were in fact completed. This affidavit was one of those papers. And if the witness was right in his final testimony upon this subject, the affidavit was not made prior to the time when the check was received and the deposit of it had been made. There was other evidence from the other partners which had a tendency to discredit the final statement of this witness. But it was still uncertain and indefinite as to the fact, and that left it to be an inquiry proper only for the jury to make. And it was submitted to them by the court as favorably to the case of the plaintiff as the law and the evidence allowed that to be done. And their verdict as to this fact has been so far supported by the proof as to render it the duty of the court to sustain it. For it certainly cannot be inferred in this state of the proof that the affidavit which was made on the day when the special capital was in this manner contributed was made prior to the time when the check was in fact delivered to the other members of the firm by Mr. Story and actually deposited by them. The inference on the contrary which the jury adopted seems to have been well supported. For this business was transacted in the office of Mr. George W. Parsons, an experienced lawyer, where all the parties to it were present. And it cannot reasonably be supposed that he would have permitted the affidavit to have been made before it could truthfully be taken by this general partner.

At the time when the checks forming the capital of the firm were deposited, another check drawn by the firm for the sum, as it would seem by the evidence, of $120,000, was presented to the bank in which the deposits were made and certified by it. And this check was returned at once to the office of Mr. Parsons and there, or soon, afterwards used in making the payment which was made on the purchase of the stock of the preceding firm. And from these facts it might, not without reason, have been inferred by the jury that it was agreed that this use of the capital of the new firm should be made in purchasing the stock and fixtures of the immediately preceding firm. And if that agreement had been made prior to the formation of the last firm, then this firm would have been a general and not a limited partnership, for its effect substantially would have been to have made its capital the stock and fixtures of the preceding firm. But the further evidence in the case failed to prove the existence of any agreement to this effect It was, according to the evidence given by the witnesses, anticipated or expected that the new firm would purchase the stock of the immediately preceding firm. But nothing was stated to have taken place creating any agreement or understanding to that effect

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And this, as well as the other .inquiries, was accordingly left in such a condition as to bring it within the proper province of the jury. A mere expectation that the capital of the final firm would be employed to purchase the stock of the preceding firm would not be sufficient to deprive the former of its character and privileges as a limited partnership. For if at the time the capital was so received, as the proof showed it to have been contributed, there-was no actual agreement or understanding that it should be used or employed in this manner, the firm would be at liberty, when it-was received, to use its capital either in this or any other direction, as it should appear to be judicious or warranted by the circumstances. And if it was left at liberty so to use the contributed capital, then it could not be held as a matter or law that the-attempt to form the limited partnership was unlawful. But the-inquiry would be one for the jury to settle, as the law was construed and applied in the case of Metropolitan Nat'l Bank v. Sirret, supra.

After the formation of this partnership, loans of money were made by it to the preceding firm, and by the latter, also, to this firm. And upon these facts it was urged at the trial that there had been a change in the business which the final firm was designed to carry on. But no change in that business appears to have taken place. It was the clothing business, and it continued to be carried on down to the time when the property of the firm was attached. Beyond that, the making or existence of these loans was not brought to the knowledge or attention of Mr. Story at any time. And the law has not provided that he should become subject to a personal liability for the debts of the firm simply because mutual loans or accommodations of this description should, in this manner, have taken place.

It appears by the evidence that interest had been paid to Mr. Story upon his capital. And in July, 1883, John Paret brought the fact to his knowledge that the capital of -the firm had become-, impaired, and, as a consequence, he could not draw interest upon his capital, but should replace it. And the witness states that either upon that day, or within a day or two, he gave him a check for the amount, and. in that manner it was restored to the firm.

There were exceptions taken to the decisions of the court on the admissibility of certain items of evidence. But they have-not been presented as supporting the appeals. And an examination of the portions of the case to which they refer results in the conclusion that they afford no reason for disturbing the judgment.

. As the case was presented by the evidence, it depended upon the disposition of what were questions of fact, and they were very clearly presented by the court to the jury. It is scarcely possible-that there could have been any misunderstanding on their part as to the controlling inquiries to be considered and decided. There was sufficient evidence concerning each of them for the jury to act upon. And their verdict should now be held conclusive, as to the rights and obligations of these parties. Both the judgment and the order should be affirmed.

Yan Brunt, P. J., and Brady, J., concur.