White v. Eiseman — 35 N.Y. St. Rep. 468

Majority

p. 468

Ralph H. White et al., Plff’s, v. Samuel Eiseman et al., D ef'ts.

(Supreme Court, General Term, First Department,

Filed December 29, 1890.)

Headnote

1. Partnership—'Limited—Affidavit.

The truth of the statement in the affidavit as to .payment by the special partners of the sum speeifled in the certificate filed on the formation of a special partnership is to he determined as of the time when the affidavit was actually verified by the general partner who made it, and not with reference to the time when it was filed in the county clerk’s office.

2. Same.

Where such affidavit was false when made, the special partners are liable for the engagements of the firm, although the payments specified were made before the affidavit was filed with the county clerk.

(Barrett, J., dissents.)

Exceptions ordered to be heard in the first instance at general term, after the direction of a verdict in favor of the plaintiffs.

A. Blumenstiel, for defts; Charles Austin McMahon, for pl’ffs.

Section 7 of the title of the Bevised Statutes relating to limited partnerships, requires that at the time of filing the original certificate an affidavit of one or more of the general partners shall also be filed in the office of the county clerk, stating that the sums specified in the certificate to have been contributed by each of of -the special partners to the common stock have been actually and in good faith paid in cash.

The next section, § 8, is in the following words: “ 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. ”

The question in the present case is whether the defendants Eiseman are liable as general partners in the firm of Spencer & Perkins by reason of the fact that a false statement was made in the statutory. affidavit.

The affidavit was made by Sidney S..Spencer,.one of the general partners in the firm, and was sworn to in the county of Bensselaer on the 3rd of August, 1886. The certificate, which appears to have been executed and acknowledged by all the partners on the same day, specified $10,000 as the sum contributed by the special partners Samuel Eiseman and Moses L. Eiseman to the common stock. The affidavit stated “that the sum specified in said certificate to have been contributed by the special partners to the common stock has been actually and in good faith paid in cash.” As.a matter of fact, however, no cash payment of the contribution of the special partners had actually been made at the time this affidavit was verified, nor was any cash payment thereof actually made at any time on the 3rd day of August, 1886. A check for $10,000 on the Pacific Bank, payable to the order of Spencer & Perkins, was drawn bv the defendants in the city of New York on August 3rd, 1886, and delivered to Sidney S. Spencer,

p. 469

the general partner who made the affidavit. The check was uncertified, but was certified 'on the following day, the 4th, and was deposited to the credit of the partnership a day later, on the 5th, in the city of Troy, at two o’clock in the afternoon. The certificate and affidavit were filed and recorded in the office of the county clerk of Eensselaer county on the same afternoon at a quarter to five o’clock. The check was paid in the due course of business on the 6th of August, 1886, to the Troy Bank, in which it had been deposited.

Upon these facts the plaintiffs insist that the defendants Eiseman are liable as general partners, because at the time the affidavit of the general partner was made it was not true as therein stated that the contribution of the special partners had been paid in cash; while the defendants contend that inasmuch as the check had been certified and deposited in the bank account of the firm before the certificate and affidavit were filed, the statement contained in the affidavit must be regarded as true, because the affidavit is to be deemed to speak, not from the time when it was verified, but from the time when it was placed on file in the office of the county clerk.

The defendants in support of their position cite the various decisions holding that a substantial compliance with the terms of the statute concerning limited partnerships is all that will be insisted upon by-the courts; that mere defects of form may be overlooked and disregarded and that the provisions of the act should not be too strictly construed. There is no occasion to question the correctness of any of these propositions in the slightest degree in the case before us. Here, if there has been any failure to comply with the requirements of the statute at all, it is a failure in a matter of substance. The truthfulness of the statutory affidavit is made by the very terms of the law itself essential to the valid constitution of a limited partnership, so that the only test which it is necessary to apply is a reference to the facts to ascertain whether they accord with the statements in the affidavit In the present case it'-is plain that they do not, if the affidavit is to be construed as speaking with reference to the existing state of things at the time when the general partner , swore to it On that day there had been no act by or in behalf of the special partners which amounted to a completed cash payment ,of their contribution to the capital, on any theory.

•The defendants cite Durant v. Abendroth, 69 N. Y., 148 , and the Metropolitan Bank v. Sirret, 97 N. Y., 325 , as authorities to the effect that the giving of a certified check is equivalent to a payment in cash; but whether that be so or not, no one pretends that the giving of an uncertified check by the special partners to the. general partners constitutes the cash- payment which the statute prescribes. The question upon which the case at bar, therefore, turns is simply this: Is the truth of the statement contained in the affidavit to be determined as of the time when the affidavit was filed with the county clerk, or with reference to the time when the affidavit was actually verified by the general partner who made it?

Concurrence

p. 470

So far as the certificate is concerned, it has been held to be sufficient that it shall be true at the time of filing and recording it. Ropes v. Colgate, 17 Abb. N. C., 136 . It may well be that this unverified instrument can properly be signed before the events of which it is intended to be evidence have actually come to pass, so long as the signers are actuated by the intent that it shall not be used in any manner until the statements which it contains actually accord with the facts. Under such circumstances, until the certificate is placed in the hands of the county clerk to be filed and recorded, it is like a deed in escrow. But I do not see how any such view can possibly be taken of the affidavit. An affidavit must be true when it is made, or it can never be true at all. The subsequent occurrence of the events therein stated to have happened cannot make the' statement true that they had already happened at the time the affiant swore to'it. In other words, affidavits cannot be made in escrow, because the affiant hopes or believes that what he swears to will afterwards come true. To tolerate or sanction the doctrine that an affidavit speaks only from the time when it is used, instead of from the time when it is made, would be to encourage careless swearing and perjury.

I see no room for doubt in this case that the statement contained in the affidavit of the general partner was false, and therefore rendered the special partners liable for the engagements of the firm. It is my opinion, therefore, that the exceptions in behalf of the defendants Eiseman should be overruled, and that the plaintiffs should have judgment upon the verdipt

I concur in the conclusion reached by Mr, Justice Bartlett in this case. The statute in respect to the formation of limited partnerships exempts the special partners from the ordinary personal liability of a partner if certain requirements of the statute are complied with, one of which is the making and filing of an affidavit that the special capital has been actually paid in cash; now, as I understand it, an affidavit false when made always remains false, and the subsequent appearing of the event sworn to does not make it true.

An affidavit cannot be made and delivered to be held in escrow, to become an affidavit if the events sworn to as having taken place, but which have not in fact happened, do at some future time occur, otherwise to be null and void. The requirements of the statute are simple enough and easily followed. If the special partner thinks they are otherwise, he need not embark in the adventure. The hardships referred to by Mr. Justice Barrett seem to me to be more imaginary than real, and if following the plain requirements of the statute is deemed impossible, nobody is bound to incur any risk, as no one is required to seek the shelter of the statute. ■

I am unable to concur with my brother Bartlett in this case. It seems to me that the strict letter of the statute should not be applied against a special partner where every essential has been complied with. Here the special part

Dissent

p. 471

ner’s certified check for the amount of his contribution to the capital was actually on deposit in the firm’s bank at the time when the certificate and affidavit were filed. Every statement containéd in these papers wa's true at the moment of such filing. If this affidavit, just as it stood verbatim et literatim, had been reverified a moment before the filing, it is not pretended that the special partner would have been liable. A special partner cannot make this affidavit. That must be done by one or more of the general partners. If the affidavit is false, the special partner is nevertheless liable. Thus the burden is put upon him to see to it that a truthful affidavit is filed. If here the special partner had read the affidavit at the moment of filing, he would have seen that the exact truth was stated therein. Yet he is sought to be held because he did not happen to observe the precise date of the jurat. Upon this construction of the statute, even lynx-eyed observation of the date of the jurat would not always avail the special partner. For, as a matter of fact, the affidavit might have been sworn to upon the very day when the cash was actually paid in, but yet a few hours before 'such payment. Such a claim, if allowed, would sacrifice substance to form, and if pursued with regard to the statute, generally, would ruin innocent people upon pure technicalities. In my judgment, the false statement contemplated by the statute, whether made in the certificate or in the affidavit, is a statement which, when it meets the eye of the public, is in any particular misleading. “ The object of the statute,” said Folger, J., in Van Ingen v. Whitman, 62 N. Y., 520 , “ is, by the payment into the capital of a specified sum in cash, to give reasonable security to the portion of the public likely to deal with the partnership; and to insure the payment of that sum, thus, it requires the affidavit that the payment thereof has been thus made before the partnership can start as a limited one. The statement of the amount of the cash payment is required so that the public may guage thereby the extent of its dealings with the firm. The affidavit is called for, that the public may have reliance upon the existence op the fact of payment."

That the statute should receive a reasonable construction was held by the court of appeals in President v. Laimbeer, 108 N. Y., 582 ; 13 N. Y. State Rep., 869. In that case, Peckham, J., speaking of the plaintiff’s contention that the statute must be strictly construed, and all its provisions fully and even technically complied with before exemption from general liability can be claimed, observed :

“Acts providing for the formation of a limited partnership should receive a reasonable construction, not such as to make its formation almost impossible, and .not such that where the slightest and most innocent (and to third persons entirely harmless) deviation from the strictest construction that can be given to a statute shall work results to the special partner of possibly a most disastrous and utterly ruinous nature, including liability for enormous debts incurred by the general partners where the credit given was not in the least based upon any liability of the special partner greater than the capital he. had contributed.”

p. 472

In Durant v. Abendroth, 69 N. Y., 148 , the certificate and affidavit were actually filed on the 23d of December, 1870, and the partnership did not commence until the first day of the following January, nor was the capital actually paid in until the 2d of January. Both the certificate and affidavit, therefore, were untrue at the time when they were filed, but even with reference to that state of facts, Peckham J., in the Laimbeer case, supra, said:

“ I think it was a very stern and technical application of the statute, because confessedly, before one particle of business was transacted by the firm, and on the earliest possible day after the commencement of the term of partnership at which it could be done, the check was paid and the cash contributed by the special partner to th e general fund. It does not seem to me as if the principle of that case should be extended.”

The Laimbeer case seems to be a distinct authority against a. technical construction of the statute, especially in non-essentials, and in favor of the sufficiency of a substantial compliance with its terms.

I see no distinction in principle between the present case and Ropes v. Colgate, 17 Abb. N. C., 136 . In that case Justice Brown said that: “ What is required of parties desirous of availing themselves of the privileges conferred by the statute in question, is a substantial compliance with its terms. Of what importance is it whether the capital contributed by the special partner is paid in a few minutes before or a few minutes after the certificate is signed, so long as it is paid' in good faith before the partnership comes into existence? In my judgment, if, at the moment the partnership is formed by the act of filing the certificate, all its statements are true, there isboth- a .substantial and a literal compliance with the statute, and the special partner is not liablé to the creditors of the firm.'-”'

The statute in this respect makes no distinction between the certificate -and the affidavit If either is false, the. specified consequences follow. In one case there is a false statement, in the other a false oath. If either tends to thwart the statute, mislead the public 'or induce any one to rely upon a fact .which .does not exist at the moment of filing of the papers, the liability of general partoer'follows. It"is not' until- that, moment.that the partnership becomes complete' and it is not. until that moment that the affidavit becomes material. It is not' a - question of the criminal law, nor yet"-of moral obliquity. It is simply a question- of a statement placed on file for the inspection and advice of persons about to deal with the firm.

What difference can-it possibly make to such persons-whether the truthful facts placed before them on the files were sworn to on the day of filing' or ,tbe day before ? On the day when the check was cashed or 'the day before? Where, then, the special capital has been paid in, in cash, prior to the filing of .the certificate and affidavit, and these documents, so state,'everything, essential or substantial has been done. To hold a special partner liable under these circumstances is simply to. fine him the debts of the firm, not because of his own perjury, but because of an

p. 473

anticipatory statement made by another person technically inaccurate at the time it was verified, but true when used pursuant to the requirements of the law, and which could not possibly have .affected any person who ever had dealings with the firm.

I think the exceptions should be sustained and a new trial ■ordered.

Exceptions overruled, and judgment ordered for plaintiffs on ■ verdict.