p. 193ited. Between the parties to a contract or an agreement of limited partnership the contract determines their relations, rights and liabilities, and all settlements must be in conformity to it. If by reason of failure to comply with the statute, or because of violation of the statute, the partnership becomes general as to parties dealing with them, yet as between the parties or partners themselves their relations are fixed by the contract, and (as in this ease) the partnership is a special or limited one.
Before Freedman P. J., McAdam and Gildersleeve, JJ.Decided January 11, 1892.Appeal from judgment on verdict directed in favor of the defendant, and from an order denying a motion for a new trial.
Melville H. Regensburger, attorney, and William G. Oppenheim of counsel, for appellant, argued :—
I. The goods having been sold to the firm of “ Albert Hirsch,” and the defendant having stipulated that he was liable for all the engagements of the firm of “ Albert Hirsch,” the plaintiff should have had judgment.
II. The notice of dissolution was invalid, the special partnership, if it ever existed, was dissolved February 28, 1885, by the change in the capital. Beers v. Reynolds, 11 N. Y., 97 ; § 12 of the Limited Partnership Act.IH. Even if the defendant desired for some reason best known to himself to dissove whatever relation existed between him and Hirsch, under their special partnership, that notice was hot communicated to plaintiff’s assignors, and it stands conceded that as to the plaintiff, the defendant was always a general partner and never a special partner.IV. The Limited Partnership Act provides : Sec. 25. “ No dissolution of such partnership by the acts
p. 194of 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.” The section undoubtedly gives persons dealing with the firm four weeks’ notice after the dissolution, and is not intended that the partnership shall continue and the dissolution shall be “ in futuro." The intent of the statute is plain, the business must cease, four weeks’ notice that it has ceased or been dissolved must be given, and a notice that the copartnership will dissolve is not a notice under the Statute of Dissolution; for that enables the copartnership to go on to the very date of the future dissolution contracting debts. The statute intends that four weeks’ notice must elapse after a dissolution in order to effect a valid, dissolution. In the case -of Beers v. Reynolds, 11 N. Y., 97 , the firm was dissolved April 17, 1848. On the 23d day of April, 1848, after the dissolution, Beers sold goods to the firm. The prohibited acts of the partners, under this statute, even if not done with any intention to do wrong, nevertheless bring them within the letter and spirit of the statute. Van Ingen v. Whitman, 62 N. Y., 513 ; Durant v. Abendroth, 68 Ib., 148.Charles C. Leeds, attorney and of counsel, for respondent, argued:—
I. The defendants, Siegmund Harris and Albert Hirsch, undertook to form and renew a limited partnership pursuant to the statute. It is a conceded fact in the case, that for some reason not fully disclosed in the case, the defendant Harris became liable as a general partner to creditors. Nevertheless, as between them
p. 195selves, the relation of Hirsch and Harris was that of general and special partner. (a.) The relation of the parties to a contract of 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. Bates Lim. Part., § 89. (b.) As between the parties (to an agreement of limited partnership) all their settlements must be in conformity with it. Lancaster v. Choate, 5 Allen, 530 , (539). (c.) If there has been a non-compliance with the statute by a failure to pay his capital in cash by a special partner he does not become a general partner. Robinson v. MacIntosh, 3 E. D. Smith, 221, (233-234). (d.) Notwithstanding the erroneous statement in the affidavit as to the payment of the capital the partnership was, in form, a limited partnership and subject to ah the rules applicable to such partnership. Durant, Jr., v. Abendroth, 97 N. Y., 132 , (144).II. The only partnership relation that at any time existed between the defendant Harris and Albert Hirsch was that of general and special partner, and this relation was finally and effectually dissolved and ended nearly three months before the liability sued on was incurred, (a.) Defendant’s counsel produced and read in evidence the agreement of dissolution, as filed and recorded, and also, under the stipulation, the printed notice and proofs of publication. The only objections made by plaintiff were, first, that it (the notice) was of the dissolution of the special partnership and not a dissolution of any general partnership between the parties; and, second, that the notice of a dissolution to take effect at a future day is not a compliance with the statute. As to the first, we remark that the only partnership between these parties was, as already shown, a limited one, and it was that that was to be dissolved. Obviously there
p. 196was no need of dissolution of a general partnership that never existed. As we have already seen, the rules applicable to limited partnerships apply between the parties, and these rules relate as Weil to dissolution as to formation, or any other matter concerning the partnership or its affairs. Plaintiff’s assignors also understood the relation between those parties to be that of limited partners. Charles H. Bond, one of the firm of E. W. Bathbun & Co., testified: “ I believed at the time of the sale that Siegmund Harris was a member of the special partnership firm consisting of Albert Hirsch and Siegmund Harris.” As to the second objection, we remark, the notice is sufficient. It is a notice in the present tense of a dissolution of the existing firm, and the mere insertion of a statement of the time when by law it could become effectual amounts to nothing; it was unnecessary and may be regarded as surplusage. The law would accomplish that without any such statement. No form of notice is prescribed by the statute. There was a full four weeks’ publication of the notice before the debt sued on was contracted, and the note on which it is sought to hold this defendant was the note of Albert Hirsch individually. (5.) Even if we accept the evidence of plaintiff’s assignors that they supposed Harris to be a partner and that Hirsch represented that there had been no change in his firm, this could not make Harris liable. Assuming the representation to have been made there is no pretense that Harris authorized it or was present when it was made. In point of fact the partnership had been dissolved nearly three months before the transaction, and no such representation could affect Harris. If this were a case where there had been a course of prior dealings between the parties there might be something in the point, but the case is destitute of any evidence showing other transactions between Hirsch and plaintiff’s assignors.III. The fact that promissory notes were given by the
p. 197general to the special partner in repayment of his special capital was not such an alteration as worked a dissolution. The notes were dated February 28, 1885, but their due dates do not appear. It does appear, however, that they were not paid. The giving of notes payable in the future by the general to the special partner for the purchase of his interest in the firm on agreeing to dissolve, is not, before they are paid, a change, but, at most, an executory agreement or promise never carried out. Lachaise v. Marks, 4 E. D. Smith, 610, 623.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; Affd. 131 U. S. Supreme Ct. R., 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.
p. 198Bates, in his work on limited partnership (Sec. 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 copartnership, 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, 3885, 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 (January 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 in his points, that the relation 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.
p. 199There 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 or to 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 case 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
p. 200is difficult, therefore, to find any legal basis for a claim against Harris arising out of such a transaction. Upon 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 copartner, even though to close up a past transaction. Palmer v. Dodge, 4 Ohio St., 36 ; Bank v. Lyman, 5 Mass., 57 ; Long v. Story, 10 Mo., 630 ; Woodford v. Dorwin, 3 Vt., 88 ; Mygatt v. Bell, 41 Ala., 233 ; Hall v. Lanning, 91 U. S., 160 ; Haddock v. Crocheron, 32 Tex., 276 ; Napier v. Catron, 2 Hump., 530; National Bank v. Newton, 1 Hill, 572 ; Lansing v. Gaine, 2 Johns., 300 ; Sanford v. Mickles, 4 Ib., 224; Hackley v. Patrick, 3 Ib., 528; Walden v. Sherburne, 15 Ib., 409; Mitchell v. Ostrom, 2 Hill, 520 ; Lusk v. Smith, 8 Barb., 570 ; Van Keuren v. Parmelee, 2 N. Y., 525 ; Gale v. Miller, 1 Lans., 451 . This, upon the ground that after 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., 524 ; Mutual S. Bk. v. Euslin, 37 Mo., 453 ; Lusk v. Smith, supra; Hurst v. Hill, 63 Am. Decis., 705; Cunningham v. Bragg, 38 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. Cower, J., says : “ This is the making of a new contract hy 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
p. 201dissolution 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 he 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 not 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 any one 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., concurred.