Durant v. Abendroth — 41 N.Y. Super. Ct. 53

Majority

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CHARLES W. DURANT, Plaintiff, v. WILLIAM P. ABENDROTH, Defendant.

Before Speir and Sanford, JJ.

Decided March 20, 1876.

Headnote

PARTNERSHIP, LIMITED, UNDER THE REVISED STATUTES.

I. Oebtificate and affidavit, when not sufficient.

1. Truth. If the matters which the statute requires to be contained in the certificate and affidavit are stated therein untruly, a limited partnership will not be formed, and he who sought to confine his liability to that of a special, will become liable as a general, partner.

(a) Truth is an essential requisite.

2. Cash, tjntbue statement as to payment of.

1. A statement in the certificate that the special partner has contributed ten thousand dollars in cash, and a statement in the accompanying affidavit that the sum specified in the certificate to have been contributed by a special partner, has been actually and in good faith paid in cash, are both untrue, where the only payment was by a cheek given at the time the certificate was signed and the affidavit made, but dated several days ahead.

(a) Such check is not equivalent to a payment in cash on the day when it was given. That it was in fact paid on the day of its date, and before the future day fixed by the certificate for the commencement of the partnership, does not alter the case.

(1) Uhdeb such a oebtificate so suppobted, he WHO SOUGHT TO BE A SPECIAL PABTNEB BECOMES LIABLE AS A GENEBAL PABTNEB.

H. Statute, fob whose pbotection it was intended.

1. Wholly for the benefit and protection of him who seeks to relieve himself of liability as general partner.

(a) Not at all for the benefit or protection of those dealing with him or the partnership.

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Exceptions heard in the first instance at general term.

This action was tried before Hon. John Sedgwick, and a jury, on the twenty-first day of October, 1875, when, by the order and direction of the court, made under objection and exception duly taken, a verdict for six thousand and twenty-four dollars and sixty-seven cents was rendered in favor of plaintiff. The judge directed the defendant’s exceptions to be heard, in the first instance, at general term, and suspended judgment in the meantime.

The action is brought to recover of the three defendants, as copartners under the firm name of Griffith & Wundram, the amount of two promissory notes, conceded to have been made by that firm. Abendroth alone defends, claiming that the partnership is “limited” ; that he is a “special partner” ; and that he is, therefore, exempt from liability, except to the extent of his contribution to the capital stock paid in when the partnership was formed.

It appeared in evidence that a certificate for the formation of a limited partnership was filed in the county clerk’s office, by the defendants, on December 23, 1870.

That certificate stated, among other things, “that said copartnership is to commence on the first dajr of January, 1871, and is to terminate at the expiration of five years thereafter, and on the first day of January, 1876.” That “John Griffith and George W. Wundram, who reside in the city, county, and State of Hew York, are the general partners, and William P. Abendroth, who resides in the town of Eye, county of Westchester, and State of Hew York, is the special partner, and has contributed the sum of ten thousand dollars in cash, as the capital to be used in said business.” It is dated December 23,1870, is signed by all

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three defendants, and was acknowledged by all of them before a notary on that day.

There was annexed to, and filed with the certificate, an affidavit, dated December 23, 1870, and sworn to on that day, before the same notary, by Griffith and Wundram, each swearing that “the sum specified in. said certificate to have been contributed by the special partner, as the capital stock of said firm, has been actually and in good faith paid in cash.”

Annexed to the certificate and affidavit was the county clerk’s order, filed and recorded December 23, 1870, directing that the terms of this partnership be published in the New York Leader, and the New York Atlas, two papers published in the city and county of New York.

The New York Leader, and the New York Atlas, were published weekly in the city of New York, on Saturday of each week, and the terms of the limited copartnership of Griffith & Wundram were published in such papers for six consecutive weeks, the first publication being on Saturday, December 31, 1870.

The twenty-third day of December, 1870, fell on a Friday, and the twenty-fourth and thirty-first days of December, 1870, were Saturdays.

Abendroth, called as a witness on behalf of the plaintiff, testified that the papers were signed December 23, 1870, and that his contribution to the capital of the firm was made on that day, by his check, dated December 31, 1870, which was paid, as soon as it went to bank, on January 2, 1871.

The question presented is, whether, upon the facts o£ the case, Abendroth is liable as a general partner for the debts of the firm.

Norwood & Coggeshall, attorneys, and of counsel for plaintiff, on the question decided by the court urged:

I. (a) The defendants attempted to form a

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limited partnership pursuant to the statute, 1 B. 8 . part II. chap. IV. tit. 1, p. 763, original paging. (5) The plaintiff claims that the certificate made by this defendant Abendroth and his partners Griffith and Wundrum, and by them dated, executed, acknowledged, and filed on December 23, 1870, was false in that it stated that the special partner had contributed the sum of ten thousand dollars in cash, whereas, in point of fact, this capital was not contributed any earlier than December 31, if it was cash even then. The question is simply whether or not that statement in the certificate was true or false within the meaning of section 8. Was the statement true ? Certainly not; and it was therefore a false statement. The provisions of the general statute of Massachusetts are the same as our own (Gen. St. Mass. chap. 55), and it has been there held that the requisitions of the statute must be strictly complied with. The parties are required to certify to that which has been done, not to that which is executory (Pierce v. Bryant, 87 Mass. [5 Allen] 91 ; Argall v. Smith, 3 Denio, 435 ; Lancaster v. Choate, 87 Mass. 568 ; Haggerty v. Foster, 103 Id. 17; Vandik v. Rorsaw, 67 Penn. 330 ; Richardson v. Hogg, 38 Id. 153 ; Hogg v. Orgill, 34 Id. see particularly p. 352 : Hubbard v. Morgan, cited 3 Kent's Com. 36, note a ; In the matter of King, 5 Benedict's Dist. Ct. Repts. 453 ; 7 American Law Review, 177).

II. It is unnecessary to show any mala fides in making the certificate. Parties are bound to know the truth, and they can not be permitted to say that they acted in good faith in certifying to that which was in fact false (Pierce v. Bryant, ante ; Haggerty v. Foster, ante).

III. It is quite immaterial that it does not appear that loss or injury has been sustained by any one in consequence of the failure to comply with the requisitions of the law (Pierce v. Bryant, ante).

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IV. Not only was the certificate false, bnt the affidavit reiterated the false statement. All that has been urged upon the points, ante, and the authorities cited, apply to the affidavit as well as to the certificate (Haviland v. Chase, 39 Barb. 273 ).

V. (a) The defendants on the trial cited the case of Madison County Bank v. Gould ( 5 Hill, 309 ). (b) And the case of Lachaise v. Marks (4 E. D. Smith, 610). These cases are not applicable to the one at bar.

Amherst Wight, Jr., attorney for defendant Abendroth, and John A. Mapes, of counsel, upon the question decided by the court, urged :

I. The payment of the special capital, in the manner shown by the testimony, was a substantial and sufficient compliance with the terms of the statute, and did not constitute the defendant Abendroth a general partner. 1. The payment was actually made before the partnership went into effect by the terms of the certificate, the check being dated December 31, 1870, and paid on presentation, while the partnership was to commence January 1, 1871. For the purposes of this appeal it must be assumed, that the check was given December 83, 1870, the evidence on this point being conflicting, and the justice ordering a verdict, without submitting this question to the jury. 8. While the law requires that where rights and interests of creditors are imperiled, the statute should be strictly construed, it applies a more beneficent rule to cases where creditors interests are in no respects endangered ; and in such cases holds parties to a substantial compliance with the law only. For illustrations of this rule, the following cases are referred to: Brown & Argall, 24 Wend. 496 ; Madison Co. Bank v. Gould, 5 Hill, 309 ; Johnson v. McDonald, 8 Abb. 290 ; Levy v. Lock, 47 How. 394 ; Piper v. Poppenhausen, 43 N. Y. 73 ; Lachaise

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v. Marks, 4 E. D. Smith, 624; see also Lacharnette v. Thomas, 5 Rob. (La.) Rep. 172.

II. Ho untrue statement, affecting the special partner, can be predicated of the certificate, as registered, or of the affidavit accompanying the same. Such certificate was executed in advance of the time when it was to take effect. Ho special partner pays in his capital until the papers are executed. To do so would be both unnecessary and dangerous, and yet the certificate always recites that the special partner “has contributed,” &c. This is like the acknowledgment of payment in a deed—always literally untrue when signed, and yet generally made true when it takes effect. So, in this case, the certificate was made true when it took effect, to wit: January 1, 1871. There was no necessity for filing or registering this certificate until that date, and it does not appear that Abendroth knew either of its previous registry, or that the general partner had appended an affidavit thereto, on December 23. As bearing on this point, see Ward v. Newell, 42 Barb. 482 ; Madison Co. Bank v. Gould, above cited, 5 Hill, 309 .

III. The statute authorizing the formation of “limited partnerships” should be construed according to the rule universally laid down by the courts of this State, that statutes must be expounded according to their meaning and not according to the letter, that the intention of the legislature in enacting the statute must be ascertained, and the real intention should prevail over the literal rendering of the statute. This rule is laid down and applied in numerous cases, of which only the following are cited : People v. N. Y. Central R. R., 13 N. Y. 78 ; Holmes v. Carley, 31 Id. 289 ; Chase v. N. Y. Central R. R., 26 Id. 523; People v. Draper, 15 Id. 532; N. Y. & Harlem R. R. v. Kip, 46 Id. 546 ; Smith v. The People, 47 Id. 330. 1. There can be no doubt that the intention of the legislature,

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in enacting the statute authorizing the formation of limited partnerships, was to invite and encourage the use of capital in commercial, mercantile, and manufacturing enterprises by restricting the liability of special partners to the amount of capital invested by them, upon their compliance with certain provisions of the statute, intended mainly to give notice to creditors of the conditions of the partnership. 2. To subject special partners to full liability for debts on account of a mere technical defect in the papers forming the partnership, when the spirit and substance of the law are observed, would be to defeat the intention of the statute, by deterring rather than encouraging capitalists, to avail themselves of its provisions. 3. All that can be reasonably required is that the creditors as well as the special partner, shall be protected by a substantial compliance with the spirit and intent of the law. If this be done, the law will not impose a severe penalty for the mere violation of the letter of the statute. As bearing on this, see Murray v. Central R. R. Co. (3 Abb. Ct. of App. 339).

The exemption from general liability for partnership debts, accorded to special partners, by the act. entitled “ Of limited partnerships ” (2 R. S. part II. ch. IV. title 1), depends upon a strict compliance with those requirements of the statute which prescribe the steps to be taken by persons desirous of forming such partnerships.

In according such exemption the statute is in derogation of common right, and the immunities, for which it provides, depend upon the performance of precedent conditions. It must therefore be strictly construed (Argall v. Smith, 3 Den. 435 ).

Among the conditions prescribed are: (1) The making, signing, and filing of a duly acknowledged certificate, containing, among other things, a statement of

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the amount of capital which each special partner shall have contributed to the common stock. (2) The filing, concurrently with such certificate, of an affidavit made by one or more of the general partners, to the effect that the sums specified in the certificate to have been contributed by each of the special partners, have been, actually and in good faith, paid in cash.

By these conditions, limited liability depends, not upon payment either before or after the date fixed for the commencement of the partnership, but upon the filing of a true certificate and affidavit showing such payment to have been made. “Ho such partnership shall be deemed to have been formed” until a certificate and affidavit “ shall have been filed as above directed.” Moreover, the act in express terms provides that if any false statement be made, either in certificate or affidavit, all the persons interested in such partnership shall be liable as general partner’s.

The obvious intent, as well as the clear and unambiguous language of the statute, requires that payment, in cash, by each special, partner, of the amount of his contribution to the capital stock, shall precede the signing and acknowledgment of the certificate. How otherwise can a certificate be made, which “shall contain” a true statement of the amount of capital which each special partner “ shall have contributed 1 ” The filing of a true certificate and affidavit is not a mere matter of form. It is the substantive requirement of the statute, upon which the privilege of limited liability depends. Of course, payment must be made, as required, since, otherwise, no certificate or affidavit showing payment to have been made would be true ; but exemption depends not merely upon payment, but upon the filing of a true certificate and affidavit of payment.

In the present case, no such certificate and affidavit were ever filed.

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The certificate and affidavit which were made and filed, were regular in form, and ostensibly complied with the requirements of the statute. But they were not true. They contained false statements. The special capital stated therein to have been actually paid, in cash, had not been so paid. A check, dated a week or more ahead, is not cash, and the signing and delivering of such a check is not an actual payment, in cash.

Argument in support of a proposition so plain seems out of place. What can not be controverted, need not be demonstrated. The result is inevitable. No limited partnership can be deemed to have been formed. No exemption was secured. All interested in the partnership remained liable for all the engagements thereof, as general partners.

It is insisted that the subsequent payment of the check, on January 2, when it went into bank, was a substantial compliance with the statute; that such payment had relation back to the date of the certificate and affidavit; or, that the certificate and affidavit then became operative and took effect; that the plaintiff has been in no way prejudiced or misled; and that the statute was intended as much for the protection of the special partner, as for that of those dealing with him. I think it was intended wholly for the benefit and protection of the special partner, and not at all for the protection of those dealing with him. They had all the protection they needed at common law. He sought exemption from common law liability. The statute accorded it, on certain specified conditions. He. failed to comply with them. He was not misled, nor is he prejudiced. The liability of general partners is not imposed as a penalty ; a contingent statutory exemption is accorded to special partners as a privilege. The spirit of the statute is in no wise at variance with its letter. It demands the truth. To' construe it in such

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wise as to dispense with the truth would be tantamount to a repeal of its plain provisions. The distinction between truth and falsehood can not be obliterated by construction. If an affidavit be false when made, no subsequent performance of the act which it declares to have already been performed, can make it true ; and no amount of casuistry can justify an adjudication which shall accord to falsehood the immunities which legislation has reserved exclusively for truth.

I hold that the partnership of the defendants was general and not limited, for the reason that false statements were made in the certificate and affidavit.

It is, therefore, unnecessary to consider the irregularity in publishing the terms of the partnership, to , which our attention has been directed.

A construction of the statute which would accord immunity to the defendant, under the circumstances, already discussed, would be sufficiently liberal to tolerate a much more serious infraction of its requirements than that which is involved in the publication as made.

Judgment is ordered for the plaintiff, upon the verdict, with costs.

Speir, J., concurred.

Cases cited

Scranton v. Clark 39 Barb. 273 N.Y. Sup. Ct. 1863-02-09 p. 57
Ward v. Newell 42 Barb. 482 N.Y. Gen. Term 1864-02-01 p. 58
People v. New-York Central Railroad 13 N. Y. 78 N.Y. p. 58