Cornell University Law Library The Moak Collection PURCHASED FOR The School of Law of Cornell University And Presented February 14, 1893 IN nEHORY OF JUDGE DOUQLASS BOARDMAN, FIRST DEAN OF THE SCHOOL . By his Wife and Daugliter A. M. BOARDMAN and ELLEN D. WILLIAMS Cornell University Library KF 1380.T85 The law of coitimandatary and lim;tf,«'„pa'* .,.,,,.jimmimiiiiMi» Cornell University Library The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924019207822 THE LAW COMMANDATARY LIMITED PARTNERSHIP UNITED STATES. FRANCIS J.JROUBAT, OF THE BAK OF PHIL ADEIPHI A. Abbiamo intrapesa la presente operetta per dar qtialche maggior lume su questa materia da aitri non trattata, Don gi^ ai forensi piu scienziati e piii dotti, ma bensl agli studiosi della patria giurisprudenza, e a chiunque altro, cui possa sembrar utile questo lavoro per i suoi interessi, o per la sua istruzione.— Fierli. PHILADELPHIA: JAMES KAY, JUN. & BROTHER, 193 MARKET STREET. LAW BOOKSELLEBS AND FUBLISHEBS. 1853. Entered, according to the act of congress, in the year 1853, by James Eat, Juw. & Bkothek, in the ofEce of the clerk of the district coiirt of the United Statesin and for the eastern district of Pennsylrania. WM. S. YOUNGj PRINTEE. TO THE FRIEND AND COMPANION OF MY EAELT YOUTH AT AtMA MATEB, AND THEES THE FIESI SCHOLAR OF BIS CLASS, ROBERT J. WALKER, OF UlflSlBSIPFl : AT THE BAE, IN THE SENATE OF THE UNION, AND AT THE HEAD OF ITS TEEASUEY, EQUALLY AND GREATLY DISTINGUISHED AS A JURIST, A STATESMAN AND A PATEIOT; IN PaiTATE LIF£, THE AMIABLE GENTLEMAN AND HONODRABLE MAN: THIS WOEK IS INSCEIBED, BY THE AUTHOK. PREFACE. By the word commandatary, on the title page, I mean something more than limited partnership. The framers of the statute of New York, having invented the latter term, and it having heen echoed in those of the other states, I was forced to adopt it as the chief title of this book; neverthe- less, with reluctance, because "limited" is perhaps the least felicitous designation that could have been chosen. Such partnership is not limited, though the liability of bailors of capital to it, is limited. The prefix, eommandatary, expresses the trust that is reposed in the bailee partner, as well as the cha- racter of him whose money is invested, and also embraces the contract that arises between such firms and the agents whom they employ and pay with an interest in the profits. Thus the two species of commercial connexion, (implying a partner- ship inter se, but none personal for creditors against these lenders and agents,) as well as the more expanded system of European mandate partnerships, may be treated of under the term, and that task has been attempted in this treatise.^ The only work professedly and exclusively on the law of Commandatary, or Partnership with limited liability, which I have met with or know of, is one in the Italian language, published in Florence, in the year 1803, by Fibrli, a Tuscan ' This word conunandatary must not be confounded with " commmdatary," which, with "in commendam," are terms of ecclesiastical law, and may be found in all the English dictionaries. This fact ought to have weighed with the framers of the Civil Code of Louisiana as a decided objection against the use of their expression, partnership in commendam. Tl PREFACE. advocate. Its title page is as follows : — Delia Society chia- mata Accomandita e di Altre Materia Mercantili second© le Leggi e Statuti veglianti in Toscana trattato dell' Avocato Gregorio Fierli, Giureconsulto Fiorentino ; Firenze, 1803.^ Although in style diffuse, and somewhat declamatory, this little work is nevertheless learnedly written, and has been of service to me.^ ' A Treatise on Partnership called Accomandita, and on other Mercantile Matters, according-to the Laws and Statutes prevailing in Tuscany, by the Advocate Gregorio Fierli, a Florentine Jurist. It is in two thin duodecimo volumes, and large type, containing each about 170 pages. Much of the matter, however, is local, or applicable only to the dukedom of Tuscany, I first learned its existence in the able volumes of Mr. David Hoffman, on the Study of the Law, and procured it in January, 1839, in Florence, after some search. It appears to have escaped the attention of French law writers. " As a matter of curiosity to the profession in this country, I beg leave to introduce its Table of Contents here, with a translation in a parallel column : Capitolo I. Dell' Accomandita in generale. Capitolo II. Leggi e Statuti deUa Toscana sulle accomandite. Capitoio III. Deir Accomandita regolare e irre- golare. Capitolo IV. DeUe differenze che pasaano fra FAccomandita, e la vera e propria Societa. Capitolo V. Deir Aooomandante, e suoi obbli- ghi. Capitolo VI. Dell' Accomandatario, e suefaoolta. Capitolo VII. Deir Erezione dell' Accomandita. Chapter I. Of Limited Partnership in general. Chapter II. Laws and Statutes of Tuscany on Limited Partnerships. Chapter III. Of Begular and Irregular Limited Partnership. Chapter IV. Of the Dififerenoes between Limited and General Partnerships. Chapter V. Of the Special Partners and their Obligations. Chapter VI. Of the General Partners and their Powers. Chapter VII. Of the Creation of Limited Part- nerships. PREFACE. Vll It must not be inferred, however, that the system which this author has treated of is the one now prevailing in Tus- cany. The every where victorious emperor of France, having made out of this duchy a department or two of his new Capitolo VIII. Del Eegistro dell' Acoomandita. Capitolo IX. Delle Lettere Ciroolari chiamate ob- latorie, e delle Lettere ordinarie. Capitolo X. In quali casi gli Accomaudanti sono tenutl oltre la rata del proprio capl- tale. Capitolo XI. Delia ContinoTazione e RinnoTa- zione dell' Acoomandita. Capitolo XII. DeUo Soioglimento, e specialmente deUa disdetta doll' Accomandita. Capitolo XIII. Dello Straloio, del Saldo de' Conti, e della divisione degU Utili. Capitolo XIV. Del FalKmento, e Sindaoato. Capitolo XV. Del Concorso, e Prelazione dei Cre- ditor!. Capitolo XVI. Delle Concordie, e deUenostreLeg- gi sopra di esse. Capitolo XVII. Delle Eseouzioni Reali e Personali, e di alouni privelegj dei Mercanti Li- vornesi, e del Salvocondotto. Chapter VIII. Of the Registering of Limited Part- nerships. Chaptee IX. Of Circular Letters, called Ohla- tory, and of Ordinary Letters. Chapter X. Of the Liability of Special Partners beyond their portions of the capital paid in. Chapter XI. Of the Continuation and Renewal of Limited Partnerships. Chapter XII. Of the Dissolution and Conventional Close of Limited Partnerships. Chapter XIII. Of the Winding up, Liquidation of Accounts, and Division of the Profits. Chapter XIV. Of Bankruptcy and Assignment. Chapter XV. Of the Meeting and Preference of Creditors. Chapter XVI. Of Compositions, and of our Laws relating to the same. Chapter XVII. Of Real and Personal Executions, and of some Privileges of the Leg- horn Merchants, and of Safe-Con- ducts. VUl ^ PREFACE. empire, imposed upon it his Commercial Code of 1807, to the exclusion of all its old statutes and usages. Upon his downfall, says Saint Joseph, {Qoncordance of Commercial Codes, Introd. p. xiii.,) this code was there preserved and is still in vigor, having sustained no change save a few modi- fications required by local circumstances, or connected with a new organization of the judiciary. Another work of note to which I have been under obliga- tion is a treatise on the French Law of Partnership, by M. Troplong, an Associate Judge of the Court of Cassation, the highest judicial tribunal in France.' In this work, the sub- ject, de la Socilte en Commandite, as an important branch of the general law of partnership, receives a due though limited consideration at the hands of the eminent author. As, in his native country, this commentator on the code enjoys a reputation equal to that of a Stephen and Williams, in Eng- land, and a Kent and Story, in this country, I have not hesitated to borrow all that I could from his pages, and whatever dicta or opinion in such extracts the professional inquirer in the United States may deem apposite or perti- nent to our system, he may be assured that in the country of their author they are current as of high authority. Another work on Partnership, of equal pretensions to that of Troplong, and to which I am likewise under obligations, is the treatise of Delangle, one of the distinguished lawyers of the present bar of France. Perhaps the legislatures of those states of our common country that have endowed their constituents with the privi- lege of partnership with a limited liability, in the shape it now stands in, think they have conferred on them a boon. If so, they flatter themselves. That privilege, as it exists, compared with those which, at the present day, obtain in France, Italy, Belgium, and some German states, is a trifle. ' Du Contrat de Socifete Civile et Commerciale, ou Commentaire du Titre IX., du Livre III., du Code Civil, par M. Troplong, ConseiUer a la Cour de Cassation, membre de L'Institut; 2 Vols. 8vo., Paris, 1843. I believe that M. Troplong is now First President Judge of the Court of Appeal of Paris. PREFACE. IX It is the scheme of Commandite Partnership in Shares that at this time, in Europe, is accomplishing great purposes. The system, however elaborately got up in this country, called limited partnership, is nothing but the simple and small prac- tice of former centuries. The present advanced state of the mechanic arts and of the science of chemistry, the gigantic strides of mining, manufacturing and commercial enterprise, could not have been met without this expansion of the old contrivance, unless indeed charters of incorporation should have been more profusely granted by the governments. And even then, such charters would not have been appropriate for the management of some of the colossal commandite asso- ciations that now flourish in France and Belgium. In them, the hand and voice of the largely interested general partner are indispensable. But commandite society in shares to hearer has accomplished wonders, while the system of this country, as far as embraced in France, is confined to, comparatively speaking, small traders. In operating these results, the legitimist nobles of France, after the expulsion of Charles X., have not been, with their immense resources, idle actors. Disconnected from the go- vernment of the country by that event, and holding the Orleans dynasty at the head of it in contempt and aversion, they turned their attention to great industrial pursuits in the bosom of their respective departments. From that fact may be learned the secret of their vast power and influence as a mighty political party during the last twenty years of in- testine broils and agitation. Ricard, one of the remarkable French novelists of this era, thus makes one of his charac- ters, — the Marquis de Grands-Fonds, speak: "Like many of my coreligionists in politics, who are waiting for other times and a third restoration, I occupy myself with high in- dustrial interests. Industry exploited on a magnificent scale, is now a potent means for recruiting creatures and for taking a high stand in the country. Blessed be that first gentle- man who, after the infamies of 1830, conceived the idea of spurring the old nobility into these ways." Of that scheme of commandite partnership in shares — its X PREFACE. origin, its mechanism, and its practical working in Europe, I have conceived it a part of my task to give an account : May my countrymen therefrom become as much impressed with its grandeur and importance as I have been. Most as- suredly commandite partnership in shares is at the present day one of the most imposing features of the civil institu- tions of France, Italy, Belgium, and Holland. The case of De Beaune v. Roux, subsequently introduced and commented on, (post, p< 286, and 645,) will convey a slight idea what it has been doing for France in recent times. That concern, (a manufactory of large plate glass and mirrors,) was estab- lished with a capital of twelve millions of francs. The task of commenting our American statutes of limited partnership has not been an easy one; for they are com- posed, not merely out of European legislation, but also, in part, of the judicial interpretation consequent on that legis- lation. Many, indeed, on perusing those statutes, might suppose, that all difficulties and exigencies had been foreseen and provided for, and that little or nothing had been left to employ the skill of the book-maker. This very copiousness in the framing of these statutes is, in my judgment, a rea- son in favor of collateral commentary. Had the articles of the French code alone been adopted, the interpretation of them by French jurists would merely have been needed ; but as both code and interpretation have been mixed together in the construction of the actual system, (with the addition of certain guards and restraints imagined to be essential in American communities,) a condensation of foreign statutory and judicial law has been produced, that is as much open to criticism, and equally as suggestive of questions, as the original ground-work of the system ever could have been in any State of Europe. I do not,-however, wish to be con- sidered as disparaging or questioning the effisrt of our seve- ral American legislatures to make the system as complete as they could for their respective constituents. Perhaps the idea may have occurred to them, that the decisions and opinions of European tribunals and jurists on the system, were contained in languages that must make them sealed PRErACE, XI books for a majority of the legal profession in the United States. In that respect, I rejoice in having an opportunity of bringing before the American lawyer the reasonings and judgments of French jurists upon a subject that has never been examined by an English legal mind. In acuteness^ learning, logical skill, and nervousness of diction, they ■will be found equal to any of the British or American law writers of the present century. This essay has been many years, in a course of elabora- tion, on my hands. Delicate health compelled me, in 1846, to retire from practice; the same cause has prevented me since from devoting much continuous labor or thought to my manuscript. I trust that my brethren throughout the Union will allow this cause to excuse me with them for any errors or omissions they may discover. I have not had up to this day, more than the requisite bodily strength and mental energy, to prepare this work for, and to carry it through, the press. Nevertheless, I should be extremely grateful to the able editors of the various law reviews and journals throughout this country, for a frank 'and thorough exposition of my defects and mistakes. Those who may honor me by such notices will find upon examination, that the characteristic of many a writer on law, — infaeili multus, in difficili mutus, — is not mine. On the contrary, having, as I have elsewhere observed, been com- pelled to hew, as it were, from the quarry the stone requisite for my building, I have shirked from no difficulty and avoid- ed no question. Whatever, then, may be the value of the materials I have put together, or the merit of my labor, both materials and labor, it will be conceded, are fresh and original. In regard to the tone of my discussions, it will be sufficient to allege, that no advocate of law reform can be otherwise than iconoclastic. In an Appendix are collected all the American decisions I could find upon our statutes of limited partnership, to- gether_ with forms of deeds, and such other matter as I thought pertinent, in order that in this manual practitioners XU PREFACE. in the different States might have every thing at hand that could throw light upon their inquiries. The publisher having suggested to me that some persons might suppose that the forms of partnership articles I have 'thus introduced were more French than American, mj answer was, that in the hands of any intelligent draughts- man, (excluding, of course, the clauses as to shares of capi- tal,) they could easily be adapted to the needs of this coun- try. They want little more than our stereotyped begin- nings and conclusions. An explanation of the absence of certain matter from the appendixes referred to in the notes, will be found in the final section of this work. F. J. T. Philadelphia, January, 1853. TABLE OF CONTENTS. IV. VI. VII. VIII. IX. CHAPTER I. Introductory, II. Of English and French Partnerships, III. Of the Origin and Nature of Limited Partner- ships, Of the Formation of Limited Partnerships in the United States, . . - . Of the Renewal and Alteration of Limited Part- nerships, Of the Division of the Capital of Limited Part- nerships into Shares, .... Of the Real Estate of Limited Partnerships, Of the Employment in Limited Partnerships of Clerks, on Salaries with an Interest in Profits, Of the Management of Limited Partnerships, and of Remedies against General Partners, X. Of the Right of Special Partners to a Division of Profits, XI. Of Interference by Special Partners, XII. Of the Accountability and Liability of Gene- ral to Special Partners, XIII. Of Assignments of the Property of Limited Part- nerships, XIV. Of the Dissolution of Limited Partnerships, XV. Of Legal and Equitable Remedies against Spe cial Partners, XVI. Of the Form and Structure of Deeds of Li- mited Partnership, and their Interpretation, XVII. Concluding, Page. 1 17 84 45 113 135 167 183 242 291 312 354 384 438 481 508 5T7 XIV TABLE OF CONTENTS. APPENDIX No. I. EEPORTED DECISIONS. Andrewset al. ». Sohottetal., lOBarr, 47, .... 589 Bradbury et al. v. Smith, 21 Maine Rep. 117; with critical remarks, 597 Bowen «. ArgaL, 24 Wendell, 497, 604 Madison County Bank v. Gould et al., 5 Hill, 309, . . 614 Smith's Adm'x v. ArgaU et al., 6 HiU, 479, .... 619 MiUs V. Argall, 6 Paige, 577, 620 Argall V. Smith, 3 Denio, 435, ...... 626 Jonau V. Blanchard et al., 2 Rob., (Louisiana,) 513, . . 628 Lachomette v. Thomas, 5 Bob., 172, 636 " V. " 1 Louis. An. Rep., 120, ... 636 Marshall v. Lambeth et al., 7 Rob., 471, .... 637 Lizardi et al. v. Gossett, Ex'r, 1 Louis. An. Rep., 138, . . 641 Battaille v. Battaille, 6 Louis. An. Rep., 682, .... 644 Burckle v. Eokart et al., 1 Denio, 337, with critical remarks, 621 De Beaune v. Roux, Gaz. des Trib., Aug. 11th, 1852, . . 645 Morigeau v. Calandd, Sirey, Vol. of 1850, P. 2, p. 570, . 662 Haggerty et al. v. Taylor et al., 10 Paige, 261, . . . 662 Hutchinson v. M'Clure et al., Pennsylvanian, Dec. 21st, 1852, 662 APPENDIX No. II. OF STATUTES. Of Louisiana, (from the Civil Code,) . Florida, (to the 17th Section,) Georgia, (7th Section,) South Carolina, (24th and 26th Sections,) Connecticut, (10th and 11th Sections,) France, (from the Codes, with a Version,) 666 669 672 672 673 674 APPENDIX No. III. FORMS OF DEEDS OF COPARTNERSHIP. Form of Articles of Limited Partnership of the Old Species, . Form of Articles of Limited Partnership with its Capital di- vided into Nominative Shares, and Form of Certificate of Shares, ....... Special Form of Commencement of, . Form with Capital in Nominative Shares, with a Clerk inte- rested in Profits, and Form of Certificate of Shares, Form of Extracts, Registry and Publication in France, Final remarks on these Forms, .... 683 684 689 689 697 699 TABLE OF CASES CITED. TUE FIGVEEB KEFEU TO THE FACES. A. Abbott ads. Dana, 243 Adair v. Tke New River Com- pany, 505 Adams ads. Rowley, 175 Adley v. Whitstable Company, 507 Andrews ads. Pope, 404 Andrews etal.c.Schott, 65, 114,117, 248, 492, 522 Ardouin & Co. v. The Syndics of the Syrins St Boat Co., 161 Argall ads. Bowen, 493, 88, 91, 93, ' 391, 394 Argall ads. Mills, 391, 394, 507 Bufliim et aL ads. Seitz et al. Argall et al. ads. Smith's Admi- nistratrix, 495, 91 Armano, Piatti, e Tensini, in causa, 125 Astor V. Wells, 404 Atwood V. Small, 504 Ault V. Goodrich, 445 Auston ads. Rice, 30, 204 Avrottin ads. Despeohes, 340 B. Baldwin v. Lawrence, 504 Balmain v. Shore, 535 Battaille v. Battaille, 419 Bayley v. Merrel, 273, 274 Beard v. Webb, 70 Bernard ads. Coggs, 208 Bigelow ads. Holme's Ex'or, 314 Bissell ads. Turner, 30, 204 Blakey's Appeal, 387, 403 Blanchand ads. Jonau, 74 Bloxham v. Pell, 193 Boswell ads. Dry, 205 Bowen v. Argall, 493, 88, 91, 93, 39 1 394 Bradbury v. Coffin, 256, 276 Bradley v. White, 30, 204 Bradshaw ads, Custance, 175, 176 Breton et a,l. v. MontfouiUon et aL, 339, 564 Broom v. Broom, 174, 175 Brown ads. Frakes, 404 Buchan v. Sumner, 173 501, 604 Burke v. Winkle, 69 BurweU v. Mandeville's Ex'rs, 554 C. Cailleteau ads. Cayelan, 268 Carrington v. CantiUon, 506 Caiyer ads. Waugh, 192, 193, 194, 195 Cavelan v. Cailleteau, 268 Chappie V. Cadell, 630 Charrington v. Laing, 544 Chedworth (Lord) v. Edwards, 360, 361. 362 Chevret v. Baragnon et al. 565 Cockburn v. Thompson, 504, 506 Coffin ads. Bradbury, 256, 276 Coggs V. Bernard, 208 Coles V. Gumey, 506 Collins ads. Crawshay, 10 Const V. Harris, 546 XVI TABLE OF CASES CITED. PiOE. Cook V. CoUmgridge, 532 Cooke V. Eyre, 193 Cookson V. Cookson, 175, 176, 532 Freeman ads. Pasley, Page. 269 Copland v. Toulman, 376 Cox ads. M'Glensey, 453 Crawshay v. Collins, 10 Crawshay v. Maule, 536 Crowder v. Tinkler, 507 Cxistance v. Bradshaw, 175 ,176 D. Dagneaux v. Fourchon, 162 Dana v. Abbott, 243 Darwent v. Walton, 506 Daubert ads. St. Victor, 240 Davies ads. Selkrig, 175 Dawes ads. Hoare, 193 De Beaune v. Roux, 286 Despechers v. Avrottin, 340 Devaynes v. Noble, 376 175 28 Dowdall ads. Hallett, Dozier v. Edwards, 504 Dry V. Boswell, 205 Dumoulin ads. Lehagre et al., 332 Duval, Vanohuse et al. ads. Oppen- heim et al.. 82 E. Edwards ads. Lord Chedworth, 360, 361, 362 Elliott's Ex'ors ads. Philadelphia Loan Co., 483 England v. Curling, 545 Eyre ads. Cooke, 193 Farrar v. Beswick, 525 Fisher ads. Shubriok, Ex'ors of, 28 Fresoobaldi Guiseppe v. Antonio Quaratesi, 85 Fourchon ads, Dagneaux, 162 Frakes v. Brown, 404 Freelands v. Royal et al., 506 G. Garland, Ex parte, 534 Geddes ». Wallace, 546 Glassington v. Thwaites, 513 Goodman v. Whitcomb, 530 Goodrich ads. Ault, 445 Gould et al. ads. The Madison County Bank, 78, 80, 167, 260, 292, 295, 493, 496 Grace v. Smith, 193, 194 Green v. Tanner, 404 Guidon v. Robaon, 207 H. Haddock v. Thomlinson, 506 Haggerty et al. ». Taylor et al., 74, 274, 448, 507 Hallett V. Dowdall, 28 Hamper, Ex parte, 200, 225 Harvey v. Young, 273 Heath v. Sansom, 444 Hendron C. ads. Pellouin et al., 301 Herrington ads. Stover, 404 Hess et al. v. Werts, 28 Hildreth ads. Sands, 404 Hoare v. Dawes, 193 Hodgson ads. Kirk, 314 Holden v. M'Makin, 13 Holland v. King, 536 Horback v. Knox et al., 498 Holmes.' Ex'or v. Bigelow, 314 Hoy's Heirs v. M'Murry, 504 Hubbard v. Morgan, 96 Humphreys v. Hollis, 504 Hutchinson v. M'Clure et al., 662 Jackson v. Sedwick, 546 Jonau V. Blanchard, 74, 456 K. Kearsley ads. Morris, 174, 175 TABLE OF CASES CITED. XVll Faqb. 544 527 536 314 488 Kemble v. Farren, Kemble v. Kean, Kershaw ». Matthews, Kirk V. Hodgson, Knox at al. ads. Horback, L. Laohomette v. Thomas, 83, 91, 452 Lambeth et al. ads. Marshall, 451, 452 LangdaJe, Ex parte, 235, 236 Laville et al. v. Tours and Nantes Railway, Comp. of, 162 Lea's Appeal, 387 Lehagre et al. v. Dumoulin, 332 Leighton v. Wales, 544 Lincoln (Lady) ads. White, 361 Livingston v. Lynch, 314 Loomis ». Marshall, 204 Low t). Peers, 544 Lynch ads. Livingston, 314 M. Madison County Bank v. Gould et al., 78, 80, 167, 260, 292, 295, 493, 496 Marshall v. Colman, 523, 524 Ponton v. Dunn, Marshall ads. Loomis, 204 Pope v. Andrews, V.Lambeth etal., 451, 452 Fao« Morris v. Kearsley, 174, 175 Moripeau v. Calando, 662 Mumford v. MicoU, 314 Muzzy V. Whitney, 574 N. Natusch V. Irving, 521 Noble ads. Devaynes, 376 0. Oldaker v. Lavender, 531 Oppenheim et al. v. Duval, Vancluse, et al., 82 P. Pasley v. Freeman, 269 Peacock v. Peacock, 525 Pell ads. Bloxham, 193 Pellouin et al. v. Hendron, 30 1 Peyton, Ex parte, 506 Philadelphia Loan Co. v. El- liot's Ex'tors and Cragg, 483 Phillips V. PhiUips, 174, 175, 176, 177 Pigot V. Bayley, 536 Pitkin V. Pitkin, 534 536 404 Mechaiuos' and Tradesmen's In- surance Co. V. Spang, 498 Merrel ads. Bayley, 273, 274 Meux V. Maltby, 504, 505 MicoU oefe. Mumford, 314 Miller v. Craig, 514 Mills V. Argall, 391, 394, 507 M'Clure et al. ads. Hutchinson, 662 M'Glensey v. Cox, 453 M'Mackin ads. Holden, 13 M'Mioken ads. Smith, 283 Montfouillon et al. ads. Breton et al., 339, 564 Morgan ads. Hubbard, 96 Morris v. Coleman, 528 V. Harrison, 536 a2 Q. Quaratesi Antonio ads. Gniseppe FresQobaldi, 85 Kandall v. Randall, 175 Reynolds and Wife ads, Robin- son, 70 Reynolds v. Topham, 200 Rhea et al. v. Rhenner, 70 Rhenner ads. Rhea et al., 74 Rice V. Austin, 30, 204 Richardson, Ex parte, 534 Rigden v. Pierce, 532 Robinson v. Reynolds and Wife, 70 xvm TABLE OF CASES CITED. Page. Robson ads. Guidon, 207 Koux ads. De Beaune, 286 Rowley v. Adams, 175 S. Sands v. Hildreth, 404 Sansom ads. Heath, 444 Schaoklet and Clyde's Appeal, 586 Schott ads. Andrews et al., 65, 114, 117, 248, 342, 492, 522 Scott V. Mackintosh, 539 Seitz et al. v. Buffum et al., 501, 504 Selkrig v. Davies, 175 Sherwood ads. Smith, 207 Shubrick, Ex'rs of, v. Fisher, 28 Smith ads. Grace, 193, 194 Smith V. M'Mickin, 283 Smith V. Sherwood, 207 Smith's Administrator v. Argall et al., 495, 91 Stewart v. Forbes, 546 St. Victor V. Daubert, 240 Stevenson et al. ads. Ward, 489 Stover V. Herrington, 404 Sumner ads. Buohan, 173 Syndics of the Syrius St. Boat Co. ads. Ardouin & Co., 161 Spang et al. ads. Mechanics' & Tradesmen's Ins. Co., 498 Tanner ads. Greene, 404 Taylor et al. ads. Haggerty et al., 74, 274, 448, 507 Thomas ads. Lachomette, 83, 91, 463 Thompson v. Andrews, 534 V. Williamson, 525 Toomer ads. Union Bank, 404 Paoe. Topham ads. Reynolds, 204 ' Toulman ads. Copland, 376 Tours and Nantes Railway Com- pany ads. Laville et al., 162 Townsend v. Devaynes, 185 Turner v. Bissell, 30, 204 Twaddell's Estate, 258, 259 U. Union Bank v. Toomer, 404 W. Waggoner v. Gray's Adm., 504 Walker v. Woodward, 360 Walmsey v. Walmsey, 358, 360 Ward 0. Stevenson et al., 489 Waters v. Taylor, 540 Waugh ». Carver, 192, 193, 194, 195 Weale v. West Middlesex Water- works Company, 504 Webb ads. Beard, 70 Weld V. Bonham, 504 Wells ads. Astor, 404 Werts ads. Hess et al., 28 Weymouth ». Boyer, 506 White ads. Bradley, 30, 204 White V. Lady Lincoln, 361 Wightman v. Townroe, 534 Wilson V. Greenwood, 533 Winkle ads. Burke, 69 Winsor ads. Cutler, 204 Wolfersberger, Ex'rs of, ads. Worman et al., 400, 410 Woodward ads. Walker, 360 Worman et al. v. Ex'rs of Wol- fersberger, 400, 410 Worrell's Estate, 258 Young ads. Harvey, 273 TITLES AND EDITIONS FRENCH BOOKS AND AUTHORS CITED IN THIS "WORK. Bravard-Veyrieres. Manuel de Droit Commercial, 4«ie Edit., Paris, 1851. 1 vol. 8vo. Delangle. Commentaire sur les Societes Commerciales, 1843. 2 vols. 8vo. Paris. Delvincourt. Institutes de Droit Commercial FranQais, 2116 Edit., 2 vols. 8vo. Paris. Dictionnaire du Notariat, par une Societe de Jurisconsultes et de Notaires. 8 vols. 8to. Paris, 1836. Duranton. Cours de Droit Franpais suivant le Code Civil, 4m8 Edit., 1844. 22 vols. 8vo. Duvergier. Contrat de Societe, in 8vo. " Traite de Louage, 2 vols. 8vo. Paris. Fremery. Etudes de Droit Commercial. 1833, 8vo. Paris. Horson. Questions sur le Code de Commerce. 2 vols. 8vo. Jurisprudence et Style du Notaire, par Masse et Lherbette. 9 vols. 8vo. Paris, 1823, 1830. Malepeyre et Jourdain. Trait6 des Societes Commerciales. 1833, 1 vol. 8vo. Paris. Nouveau Formnlaire des Actes des Notaires. Paris, 1842, 1 vol. 8vo. Parfait Notaire, par Masse, 3 vols. 4to, 6me Edit. Paris, 1828. Pardessus. Courde Droit Commercial. 1842. 6 vols. 8 vo. Paris. Persil. Des Sopietes Commerciales, ou Commentaire sur les Societes en General. 1833. 1 vol. 8vo. De Saint-Joseph. Concordance entre les Codes de Commerce Etrangers et le Code de Commerce Frangais. 1851. 1 vol. 4to. Paris. Repertoire de la Jurisprudence du Notariat, par RoUand de Villargues, 2'ne Edit. 9 vols. 8vo. Paris. Troplong. (Title page copied in the Preface, p. viii.) 4to, 6nie Edit. Vinoens. Des Societes par Actions et des Banques en France. 1837. 1 vol. 8vo. Woloski. Des Societes par Actions, 1838. 1 Vol. 8vo. Paris. ERRATA. Page 409, last line, for 'solvency,' read 'insolvency,' and see the cause of this error explained in the note to p. 437. Page 479, last line of the text, for ' style,' read ' styli.' .Where 'mandatory' occurs, read 'mandatory.' THE LAW LIMITED PARTNERSHIP. CHAPTER I. INTEODUCTOET. § 1. To the capitalist or merchant who may throw his eye over the ensuing pages, with a view of learn- ing the risks to be dreaded, or the advantages to be derived, from adventuring his money in a limited part- nership, the writer would say. Do you know your in- tended general partner? Have you read his soul, and compassed the calibre of his mind? Disaster will be sure to attend you, if you fall into the hands of a man who is without a deep sense of probity, and without the judgment and talent adequate to manage your property for your mutual benefit. This form of asso- ciation with a general partner, recklessly grasping at fortune through another's resources, is, says Troplong, "the worst of combinations," and ruin is sure soon to reach it/ Such is the judgment of an experienced jurist writing in our own era; and such was that of ' Des SDoi6t6s, Vol. I., No, 451. 2 INTRODUCTORY. [CH. I. one wlio uttered this caution half a century ago. " Let him be careful," says Fierli/ "who is disposed to embark in such an association, to select, as the depo- sitaries of his money, persons of property and honesty, as well as of skiU in the business to be undertaken : choose those, likewise, if it be possible, wTio have some capital of their awn to wnite with the common interests. But be sure that they are persons who will lead a frugal and orderly life; who will not launch forth into luxurious and expensive ways, under the vain expec- tation of large gains; — who wUl keep in view the thousand vicissitudes that may wreck the most flatter- ing calculations ;^who will not be carried away by the example of individuals whom fortune has strangely and suddenly favoured in some bold experiment; and who wiU devote themselves faithfully to carrying out the legitimate objects of the contract of association." It is the usage, likewise, on the formation of large partnerships of this species, with the capital divided into shares, to insist that every general partner shall become the owner of a certain number of shares, which shall be pledged as security for their fidelity. " It is impossible," says the distinguished author now quoted from, "to be too strict in respect of this requirement; the majority of hmited partnerships that have failed, have been wrecked by naught but the fool-hardiness of their general partners."* § 2. With honest, able, and vigilant general part- ners, this form of association, in the opinion of Troplong, is superior to all others, in many respects. It has a government organized for the whole duration of its operations ; and a government, that, with the advan- ' Vol. I., Introd., p. 6-7. ' Troplong, Des Societes, No. 413, p. 383. CH. I.] CHOICE OF GENERAL PARTNERS. 3 tages of a partnership, unites those of untrammelled individual action. In all these circumstances it pos- sesses a marked advantage over corporate bodies, whose admioistrationis elective and changeable; whose action is constrained, and often embarrassed with disputes and oppositions, depending on majorities more or less enlightened ; and whose course is bound by forms that prevent rapidity of resolution, and forbid the adoption of expedients in critical emergencies." ' Des Sooietes, Vol. I., No. 450. The difference between the organization of a limited copartnership and incorporated company, established even for carrying on the same business, is, in regard to the management or direction, in nothing more striking, than in the characters of the general partners in the former, and the president and directors in the latter. In the one, the existence of the managing partners is interwoven with the existence of the contract of as- sociation. A general partner is a substantial party to the contrjict; and if, by any unforeseen event, his power as such should be' resisted or de- stroyed, the partnership must at the same time stop, or come to an end. In default of an express stipulation to the contrary, — he being a party to the covenant — ^the retirement or removal of a general partner dissolves a limited partnership. Not so in an incorporated partnership. There, person is nothing. The partners do not choose each other ; they may be ignorant of each other's existence. They constitute but a reunion of capitals for the increment thereof. The direction therefore need not have a permanent organization ; the persons composing it may, without inconvenience or danger, be changed. The directors are simply agents, and not partners, in view of law; revocabUity is of the essence of their creation. They may be changed every month; they have never been responsible as partners; the joint capital which they administer is alone responsible, no matter who they are, for the debts of the company. But, the connexion or identity of a general partner with the organiza- tion of a general partnership, is not, however, a chain or fetter upon the special partners which they cannot, in any contingency, sever or unloose. An abuse of confidence on his part, alleged and proved by the latter, in a court of justice, is sufficient to remove him; and should, in such case, the original oontr8ict have provided for a substitute, the partnership is not dissolved, in France, but the partners may proceed, according to the provisions of such contract, to choose and substitute another. 2 De- langle, Des Soojetes Comm. Nos. 425 — 428. 4 INTEODUCTORT. [CH. I. Hear, too, a recent and very able English writer, seeking the incorporation of limited habihty in part- nerships in England, upon the same topic.^ " In agri- cultural, in professional, literary, and artistic business, partnerships en commcmdits, are pecuHarly proper. In every other species of business they are equally appli- cable in reference to the supply of capital, without skill or superintendence. But since they would, per- haps, interfere somewhat with the freedom and promp- titude of volition, by reason of the rules which must to some extent be laid down for the governance of the concern, with the view to protect the interests of the commanditaries, or those who do not take an active part in the business, they are not applicable to business dependent on the turn of the market, to the same degree as private partnerships, where all the partners are habitually consulted, and any partner may act. On the other hand, the regularity induced by due ac- counting, is calculated to give a steadiness to business, and to enforce habits of prudence, the want of which is the great cause of failure among tradesmen generally. Moreover, they would enable many to obtain some share of the profits of business, without embarking in it all their time, and labour, and skill, which may be more profitably engaged in pursuits to which they are more adapted, and in which they may be more re- quired." Again, at (p. 83,) " For the ordinary range of supply, partnerships en commandite are highly suitable, and if extensively used would be nationally beneficial. The system would steady trade, and yet give to the public those opportunities for commercial enterprise, from the desire for which, it is hard to escape in a 1VT« YxriT CH. I.] SECEET PAETNEES. 5 commercial community, and which is probably neces- sary to satisfy the gambling propensities of human nature, to afford the excitement of uncertainty, and grant relief from the dead level of certainty." § 3. That the privilege of establishing limited part- nerships has been needed in England, is evident, from the fact, that dormant or sleeping partners have been received into firms upon the principle of exemption from general liability, for the consideration of an in- vestment of capital in the joint business. In France and other countries of Europe, where the societe en commandite is recognised by law, a dormant partner is unknown and unneeded ; and this fravd upm the law, as it really is, in the judgment of the writer, is never perpetrated. Let us for a moment examine what a dormant partner is in reference to the trading community. He is a secret member of a firm ; enjoy- ing all the advantages of the position of a general partner, without his risk, and, for the secrecy which thus covers him with immunity, he merely contributes to the joint capital a limited sum, that may or may not, according to the secret pact, be destined to be swept away by bankruptcy, should misfortune over- whelm the concern. But in any event, if the pledged faith of the public partners be kept, and the secret re- main undivulged, his HabiHty can only be commensu- rate with the actual fund he has invested, although he may have already received part of it back in the guise of profits, during days of prosperity, and although his interference or counsels may have been the direct cause of the failure of the house. § 4. The only penalty imposed on the secret part- ner, upon detection in this attempt to deceive the trading community, is solidarity, as it is termed in the 6 INTEODUCTORT. [CH. I. technical language of the civil law, that is, liability to the extent of all his property for the entire debts of the firm; precisely the liability of a. special partner who has been culpable of an interference in the busir ness of the limited partnership of which he is a member. But, unlike the special partner who has been convicted of interference, there is a locus pcenitentice for him. He may retrieve his false step by withdrawing from the association and giving personal notice to the cor- respondents of the house, and notice in the newspapers to the public. From the time of such dissolution of his connexion with the firm, he is a released man; and for the debts of the firm, only up to that time, can be made liable. Not so with a limited partner under the statute. When once become responsible in solido by a violation of the statute, he must stay so ; revocare gradvm, from the edge of the abyss on which he may have lodged all his property, is impossible, if his fatal misstep have been betrayed by his associates, or dis- covered by their creditors. Again, a secret or dormant partner may, by written articles, stipulate with his associates for exemption from general liability; and such agreement, though void as to creditors, would be binding on them. But no pact of such a character could avail a limited partner. Articles of copartne]> ship, giving a secret right to a special partner to inter- fere, or promising him the personal liability of the ge- neral partner, in the event of discovery of his interfe- rence, would be held void, not only as against the pohcy of the statute, but as a fraud on its most vital principle and object.' " For authorities on the general doctrine above stated, as to dormant partners, see Bisset on Partnership, 7, 101, 120. in M'Kinlev and T.«r. CH. I.] SUBSTITUTES. 7 § 5. Such, then, is the tortuous and deceptive course encouraged by the common law of England, to obviate the want of a legislative enactment in favour of part- cure's Library of Law and Equity, Vol. IX. No. 1, and that head in any other treatise on the law of partnership. It is also said by the same able English writer, (London Law Review, No. XVII. p. 82,) before quoted, that " the objects of this form of partner- ship have been attained in England, or attempted to be obtained, partly by permanent advances in the shape of outstanding credit from the bankers; partly by loans of a permanent kind from houses with which the concerns have dealings; and partly by loans made by persons holding agencies or clerkships at a disproportionate salary; and by some other arrangements of a similar kind. All these methods operate as drains upon the resources of the concern, at unfavourable periods expose it to great risk, and operate to defraud those creditors whose relations with the concern are less intimate, and who have not, therefore, the means of watching its dealings, and stepping in to protect themselves by a timely withdrawal. The bankers, through whose hands all the transactions of the concern pass, have the earliest intimation of the state of the concern, and the instances are not rare , in which, by sudden withdrawal, they have brought fair concems to a stand, though generally they are re- strained by the fear of that conclusion, and of its tendency, like fire, to extend its ravages to other concems, and induce general panic or preva- lent distress. A chief danger of a modern panic rests here. Depositors are protected from the failure of banks by the numerous shareholders, and the restrictions upon their issues; but the necessity of doing business has engendered this dangerous system of credit by permanent advances, and introduced a new sort of calamity. In each of the instances of evasion above adverted to, the lender re- ceives the fuU rate of interest, whether the year be good or bad, besides imposing the severest terms in his other relations with the concern ; thus draining it when its resources are least available; whereas, in the partnership en commandite, where the commanditaire receives only a pro- portion of the profits, varying with the retums, the obligations do not press so severely in periods of pressure. Considered, therefore, as an arrangement of individual concern to the trader, it is by far the most be- neficial; to the capitalist creditor not l^gs so, for though in bad years he may receive less, he will be indemnified by the average returns; to other creditors it will not be less advantageous, but more; the resources of their debtor will not be so much perilled, as there will exist between them and the common debtor a class of creditors interested in sustaining him, and entitled to inspect his concerns, and enforce the proper keeping of accounts and other regularities, by which the prudences of business will 8 INTEODFCTOET. [CH. I. nerships, called Hmited in this country. Had sueh an enactment been made at the time that dormant asso- ciation first engaged the attention of the courts of Westminster Hall, it is most certain that they would have frowned it down; the probability is, that the doctrine would have been, a secret partner once liable, he should stay so until the whole firm should be dis- solved and wound up ; and that in case of bajikruptcy, no statute of limitations should protect the secret partner, except after six years from the time of the discovery of his fraud. § 6. Above aU, let not this spirit of the English dormant partner actuate or sway the capitalist in this country, who designs, as a special partner, to embark in a limited partnership. This would partake more of the character of dishonesty, as it would operate in fraud of the statute without the same shadow of ex- cuse. The special partner who, from the start, either through wilful ignorance of the behests and exigencies of the law, or through design, seeks and avails himself of every opportunity to act, command, or influence as a general partner, pursues a perilous course. Even though he go on undiscovered and is never betrayed, he sets an example to his general associates that can- not result in good. It must be an example peculiarly be incidentally promoted. Speculation and adventure have ceased to be fair or proper among the general class of traders ; they should be con- fined to the merchant. Hence the most undeviating regularity might be enforced without danger or hinderance to trade. The demands of a district may be ascertained by a very little labour and care, and it is the office of the tradesman to proportion his orders accordingly. The ruin- ously cheap prices, which cast every thing within the reach of every body, are paid for by national evil and national lossesi,, which bring the actual cost to a remunerative one, that prevents the public from having the article at a very cheap rate, while it fails to bring the remuneratioa CH. I.] PARTNERSHIP DEEDS. 9 demoralizing on them. How can he expect or exact fidelity to the law froin them, while he is daily vio- lating it? His example is one of unmitigated selfish- ness; a selfishness to which they are in a measure forced to minister; how can he calculate that they will not countervail this by some other course or ex- periment of selfishness, which, if unsuccessful, must result either in his loss or his exposure ? § 7. Practically, under the French code, as the writer has been informed by an eminent French law- yer, there is a difficulty in getting rid, on the part of limited partners, of general partners, who are dis- covered to be mismanaging or wasting the joint pro- perty. A case of this kind might occur with or with- out fraud. Violations by a general partner of the co- venants contained in the copartnership deed, would be fraudulent; while mere mismanagement might be unaccompanied with fraud, though equally as fatal to the interests of the creditors and the limited partners. The writer will endeavour to show in these pages that this difiiculty ought not to exist in our system in any state that possesses a court of chancery. § 8. In order to guard as far as possible against dif- ficulties of this kind, and to save the necessity of in- voking the aid of the 18th section, it would be prudent for every capitaHst, before embarking in a limited partnership, to insist upon the execution of general articles of copartnership. In these articles the rights, the duties, and the obhgations of the general partners, (if several,) between themselves, and between them and the pubhc, should be indicated and defined. Next, their obhgations and duties to the special partners, and the right of the latter to protect themselves, in case of evident delinquency on the part of one or more 10 INTEODUCTORT. [CH. I. of the general partners. Verbal understandings or agreements are dangerous, and ought never to be con- fided in. In the French system, specific written arti- cles are essential, and cannot be dispensed with. A creditor has a right to demand an inspection of these articles, and to refuse him would be to incur the in- tervention of a legal tribunal. The writer is aware that none of the American statutes require the previous execution of a copartnership deed between general and special partners. He is also aware that in copart- nerships at common law, many persons, — to quote the language of a modem author,' — "seeing that written articles of partnership are not in all cases perfectly efl&cient to prevent serious misunderstanding between partners, have come to the conclusion that they may be very nearly or altogether dispensed with." Lord Eldon was of a very difierent opinion; and repeatedly enforced the great importance, in particular, of clearly defining in written articles the course to be pursued in winding up the affairs of a partnership. In Oraw- shay V. Collins,^ his lordship said : " Nothing can be more mischievous to persons engaged in commercial transactions, than not to take care to settle by deed, when they enter into partnership, all the questions which may arise under the various cases that may probably occur every day, when those partnerships come to a conclusion." And again, in a further stage of the same case: "I cannot forbear intimating once more, that commercial men, when entering into part- nerships, should advert to the necessity of providing, ' Bisaet on Partn., 165, M'Kinley and Lescure's N. Library of Law and Equity, voL IX. p. 110. »2Russel, 341. CH. I.] PARTNERSHIP DEEDS. 11 by express covenants, in what manner the affairs of the partnership are to be wound up with reference to their respective interests, whenever there shall be what may be called — ^but what is not in effect — an end of the partnership. A partnership may expire by death, or by ef&uxion of time, or by notice, or by the bankruptcy of a partner; but in all these cases, though in a certain sense of the word expiration, a partner- ship does so expire in each and every of them, yet, in most instances, a partnership does not and cannot then expire to all purposes. In some, it may not expire for years after the period in which, in one sense of the words, we say it does expire; and it must depend upon the nature of the partnership, in what way it is to be carried on during the period in which it is to be wound up. If it expires by bankruptcy, there are introduced into it, as persons interested in the manner of winding it up, the assignees of the bankrupt. If it expires by death, there are introduced in like man- ner the executors of the deceased partner, who may be stated, though certainly not in a very correct use of the term, to be a sort of assignees of the deceased partner. When it expires by notice, it may happen, that in many cases the party who gave the notice may die long before the time arrives, when it may be said to be quite dissolved, and his executors may be- come partners in the concern. In short, in every species of dissolution which may take place, in differ- ent events, persons in the course of time may be in- troduced into the partnership, with reference to whom accounts must be settled, much in the same manner as it would have been necessary to have settled them with the original partners. It is, therefore, of the last importance, that all partnerships should subsist, if 12 INTRODUCTORY. [CH. I. possible, upon -written articles ; and that these written articles should lay down a clear rule, in what way the interests of the partners, in the different events that may occur, are to be disposed of. It is quite obvious, that, in some of the magnificent partnerships which are carried on in this country, if they were dissolved to morrow, there would be a necessity for knowing in each of them, what rules in equity were be applied to them, not during months, but during many years, unto, all the concerns of the partnership could be wound up. And when you come to consider, that, after the partnership is nominally ended, money may be sup- pHed by one partner and labour by another, I feel that I cannot possibly state too strongly the necessity of all commercial men shutting out the interference of this court, by laying down in their own articles what is to be done in their respective cases. "^ .§9. If, then, one of the greatest of English legal lu- minaries was, in his day, so earnest and emphatic in re- commending to the mercantile and trading community, the vital necessity of guarding against the vicissitudes of time and events, by entering into full and carefully framed articles of association, before embarking in any joint enterprise tolerated by the common law, how much more important does it become for the special partner, who, by the nature of a limited partnership, is occluded from opportunities of protecting himself in critical moments, and is more or less a stranger to the operations of the firm, to insist on the prior execution of such a deed of copartnership as shall secure him the immediate aid or protection of a court of chancery, when such aid or protection is needed; and shall, on ■ 2 Kussel, 312, 343. CH. I.] EOLDEN V. m'mAKIN. 13 the otber hand, in case of death, accident, or calamity, keep off the intervention of such a tribunal, when such . intervention might prove, through the delay and ex- pense incident to it, disastrous, if not entirely ruinous? Where the stipulations in such an instrument are copious, far-reaching, and wise, the prevention of wrong and the enforcement of right, may be generally accomphshed by the moral force emanating from the instrument. When this is ineffectual, how much easier cannot a court of equity interpose its powerful hand to arrest the evil, and to guard the interests of the injured? § 10. K it be necessary to cite from legal history any example of the calamity sure to follow from neg- lect to provide against fate in the formation of a pari> nership, by written articles, a most signal one could be exhibited in the case of Holden v. M'Mahin, decided at Philadelphia in the summer of 1847, by the court of Common Pleas sitting in equity.^ That was a case, which, from the magnitude of the interests involved in it, and the extraordinary pretensions of the sur- viving partner, not only attracted the attention of the profession, but painfully interested a portion of the pubUc mind. From the text of the report, particularly the judge's opinion, the following may be considered as a brief analysis of the merits of the case. In the year 1836, M'Makin and Holden purchased the stock, subscription list and good will of a weekly hterary newspaper in this city, called the Satwday Courier, each paying about $12,000 for his .moiety. This ■ This case ia reported in the first volume of ex-Judge Parsons's collec- tion of Equity Cases, p. 270. The writer regrets that the report of the Receiver was not also published, as a matter of curiosity, if not of utility. 14 INTEODUCTORT. [CH. I. paper, under the same title of the Saturday Courier, through the editorial ability of Holden, — M'Makin managing its financial department, — attained a sub- scription of 55,000 names, at two dollars a year, making the enormous annual income, if paid, [qvxid dubitatur,) of $110,000, without counting that which came from advertisements. In the midst of this tide of prosperity, in March, 1846, Holden suddenly died ; when his family, to their sorrow, discovered that the partnership had been formed without the execution of a deed of partnership, and were informed that the surviving partner claimed the whole establishment, merely accounting to them for one half of its matejial frame-work; that is, the type, ink, printing-presses, and for a half of the outstandiug credits, but denjdng their right to the good will of the hebdomadal, and the prospective benefit derivable from its high literary standing. The value of the material stock was sup- posed to amount to about ten or twelve thousand dol- lars; so that the half of this, with a half of the credits, would, after the payment of the partnership debts, constitute the patrimony of Holden's children; while the surviving partner would be left in the sole and undisturbed enjoyment of the other half, with the glittering prize of the subscription-list and the good will of the paper. It may be readily conceived that such a disastrous state of things could not, if there were any redress at law, be submitted to. So the law was appealed to; and the history of that litigation is to be found in the report of the case now under review. In delivering his opinion, the judge observed that there was considerable difficulty in the main question, but he determined it against the living partner. That there was any difficulty in the case, the writer takes CH. I.] PARTNERSHIP DEEDS. 15 this occasion to deny; he asserts too, that if there had been difficulty, the system of law and the administra- tion of justice, under which we were then living, as we yet are, would have been a curse instead of a pro- tection to the community ! But so, happily, the case was decided; and a compromise having been effected, no appeal was taken. But who can estimate the ex- pense of time, and labour, and money, the torture of mind, the agony of suspended hope, incurred and en- dured by each of the litigant parties, from the begin- ning to the end of the contest? There was great loss and no triumph for the victor : there was great loss and mortifying defeat for the vanquished. No one was benefited but the contending counsel and the re- ceiver appointed by the tribunal to take possession of and settle up the joint estate. After perusing the record of such disaster, what business men, on the eve of associating themselves in trade, can possibly hesi- tate to guard against all accidents and changes, by the preparation and execution of well digested and copious covenants? § 11. As publicity is a token of honesty and of a fair-dealing spirit, it would be advisable to have these articles recorded in the pubhc office. The statutes seem to attach much consequence to this matter of recording. They direct that the formation and re- newal of limited associations shall be recorded; and also changes caused by sales, assignments, decease, in- solvency, and testamentary donation. If, then, special partners be not afraid to have the private articles re- gistered in the office of the recorder of deeds, an im- portant bulwark will have been raised up in the event of catastrophes, or of asserted responsibility on then- part. 16 INTKODITCTOET. [CH. I. § 12. It may be advanced as a general rule, that no stipulation in articles so made public, could compro- mise a special partner with future creditors, unless it secured him an advantage, or afforded him a preroga- tive, in violation or in fraud of the statute, or in con- travention of its express provisions. § 13. The covenants that a special partner may enter into, or may exact from a general partner, with- out impinging upon the spirit or the policy of the sta- tute, win more or less be developed throughout these pages, particularly in the chapters on Interference, on Dissolution, and on the winding up of firms. Ne- vertheless, in order to mark the sense of importance to be attached to the framing of a partnership deed, and to facilitate persons desirous of becoming special partners in the effort to construct safe and uncompro- mising articles, the writer wiU attempt, in a closing chapter, to collect all the rules and principles on the subject, as well as the exceptional and forbidden sti- pulations; thus presenting, in a condensed view, a sort of chart of the channels through which special part- ners might securely navigate, and of the shoals and rocks that might wreck them on their passage. CH. II.] ENGLISH PABTNERSfflPS. 17 CHAPTER II. OF ENGLISH AND FRENCH PARTNERSHIPS. § 14. The law of England, as we have seen in the preceding chapter, does not admit of private partner- ships for trade, with a restricted responsibility of one or more partners towards the public. Nothing, more- over, is to be found in any of the old English books of jurisprudence, ia recommendation of such a species of association, (as far as the researches of the writer have extended,) unless what the treatise of Watson con- taius in reference to it,' can be so construed; — ^namely, an extract from Pothier on Obhgations, describing its nature and advantages. And the rule in England is now all controlling, that if a partner shares in ad- vantages, he must also, as regards the public, share in all disadvantages. The same writer says, that the law of that realm permits every species of mercantile association sanctioned by justice and sownd policy;'^ but all the members, known or secret, are invariably held liable as one individual, and that even where a person holds himself out as a member of a firm, though not so in fact, he is responsible as a partner.^ ' Law of Paltn. 2. 2 Ibid. 2. " Gow on Partnership, 26, 27, 2d Lond. Edit. But would not this doc- trine be absurd in a case where the jactitation was an idle one, and not intended to mislead or defraud 1 B 18 OF ENGLISH AND FEENCH PAETNEESHIPS. [CH. II. § 15. Neither has there been any legislation on the subject, though parKament has been for several years past engaged in inquiring into it.^ " Perhaps the Acts A very recent writer in England has broached the doctrine (in an ela- borate article in the London Law Magazine for February 1852, afterwards separately published,) that under the existing law of England an arrange- ment might be entered into by which, in effect, a person advancing capital to a trading concern might obtain a rate of interest proportioned to the trading profits of the concern : he postponing all right to repay- ment of the capital advanced by him until all other creditors should be satisfied. And basing this on the conclusion that the arrangement pro- posed by the writer constituted, in fact, not a contract of partnership, but a contract of debt. The report of a select committee of the House of Commons on the law of partnership, printed in the summer of 1851, recommends, "That power be given to lend money for periods not less than twelve months, at a rate of interest varying with the rate of profits in the business in which such money may be employed; the claim for repayment of such loans being postponed to that of all other creditors. That in such case the lender should not be liable beyond the sum advanced, and that pro- per and adequate regulations be laid down to prevent fraud." In the succeeding number of the same periodical, Mr. Begbie, the same able writer, thus adverts to this recommendation : " Or, in other words, it is now recommended and proposed to legalize effectively the precise arrangement which we recommended, and proved to be already legal in our last number. Now, though we do not go back from one foot of the ground we there occupied, yet we are ready to admit that the point is, on the decisions, so obscure and unsettled, that a legislative enactment on the subject seems highly desirable. Nothing is so timid as capital : and it would be vain to expect ready or general action on the authority of less than an act of parHament. This, however, is a boon which does not seem likely to be speedily granted." ■ On the 20th February, 1851, the House of Commons appointed a se- lect committee of fifteen, " to consider the Law of Partnership, and the expediency of facilitating the Limitation of Liability; with a view to en- courage useful enterprise, and the additional employment of labour." On the 8th of July succeeding, this committee reported a mass of most interesting evidence upon the subject taken before t^iem, together with their own views thereon. The entire report was shordy after printed and made public by order of the House. In the course of the ensuing pages, a somewhat liberal use will be made of the evidence : on the pre*^ sent occasion, a principal portion of the report will be presented. At p. VI., the Committee say:— "By the existing law, no person can advance CH. n.] ENGLISH PARTNERSHIPS. 19 of Parliament for the establishment of Joint Stock Companies," says the London Law Review, "may have operated to prevent any further expansion of the any capital to any undertaking, public or private, in the profits of which he is to participate, nor become partner or shareholder in any enterprise for profit, without becoming liable to the whole amount of his fortune, as expressed by a great legal authority, to his last shilling and his last acre. Such general and unlimited liability can be restricted to any given sum or share only by Special Act of Parliament or Charter from the Crown; neither of which is obtained without much difficulty, expense and delay, and in many cases cannot be obtained at all. The expense of a charter is umcdly 1,000?. It is contended, that however advantageous the law of unlimited liabi- lity of partners may be, as applied to the principal commercial transac- tions of this country, carried on for the most part by firms of few part- ners, that yet it would be of great advantage to the community to allow limited liability to be extended with greater facility to the shai'eholders in many useful enterprises, often promising at the same time public be- nefit and private profit, which are constantly called for by the increasing population and wants of our towns and populous districts; such as water works, gas works, roads, bridges, markets, piers, baths, wash-houses, workmen's lodging houses, reading rooms, clubs, and various other in- vestments of a like nature, chiefly confined to spots in the immediate vicinity of the subscribers. Large stores for the sale of provisions and other necessaries in populous districts, and supported by the combined capital of small shareholders, may be considered as belonging to the same kind of enterprise. Your Committee think it would be a subject of regret if cautious persons, of moderate capital and esteemed for their intelligence and probity in their several neighbourhoods, should be npw deterred from taking part in such undertakings by the heavy risk of unlimited liability ; yet such persons would in many instances be the best guides for their humbler and less experienced neighbours, and their names would afford security that the enterprise had been well considered, and was likely to be well conducted. Your Committee think that it would be desirable to remove any ob- stacles which may now prevent the middle and even the more thriving of the working classes from taking shares in such investments, under the sanction of and conjointly with their richer neighbours ; as thereby their self-respect is upheld, their industry and inteUigence encouraged, and an additional motive is given to them to preserve order and respect the laws of property. 20 OF ENGLISH AND FEENCH PARTNERSHIPS. [OH. II. general law of partnership. Associations formed under those acts differ from companies specially incorporated by act of parliament, in this, that they are liable to Your Committee would therefore recommend that under the supervi- sion of a competent authority, rules should be laid down and published for the guidance of persons applying for such charters, with requisite precautions to prevent fraud ; and on compliance with such rules, that charters should be granted. Security for compliance with such rules might be given and enforced at the quarter sessions, or before some other local tribunal of requisite authority. It might, in some cases, perhaps, be advisable that the liability of each shareholder under the charter should be double the amount of his share of the capital calculated to be necessary for the undertaking. Your Committee now proceed to consider the propriety of permitting the introduction of partnerships, on the principle of limited liability. Your Committee, considering the extent and importance of the pro- posed alteration in the law, are unwilling to proceed in such a matter without the greatest caution. They find that the best authorities are di- vided on the subject, and that it would require great care to devise the checks and safeguards against fraud, necessary to accompany such a general relaxation or change in the law. It seems also the opinion of the best-informed persons, that additional facilities are wanting to settle partnership disputes in accounts, and that some cheaper and simpler tribunal should be afibrded than the costly and tedious process of appli- cation to the Court of Chancery. On the whole, your Committee have come to the resolution, That the law of partnership, as at present existing, viewing its import- ance in reference to the commercial character and rapid increase of the population and property of the country, requires careful and immediate revision. They recommend, therefore, the appointment of a Commission, of adequate legal and commercial knowledge, to consider and prepare, not only a consolidation of the existing laws, but also to suggest such changes in the law as the altered condition of the country may require; especial attention being paid to the establishment of improved tribunals to decide claims by and against partners, in all partnership disputes; and also to the important and much controverted question of limited and unlimited liability of partners. It appears to your Committee that the uniform tendency of the valu- able evidence taken before them, is in favour of an increased stringency in bankruptcy laws, if such a relaxation of the law of partnership should take place. CH. n. ] ENGLISH PARTNERSHIPS. 21 the public to the full extent of their shares, and the terms of their existence depend not altogether upon provisions of special statutes made to apply to each Your Committee having considered the difficulties attending this wide subject, are further desirous of expressing their opinion in favour of such an alteration of the existing Usury Laws as may increase the facility of persons embarked or embarking in business, to obtain increased capital, an object which they conceive to be one of unmixed public advantage, provided it be not accompanied by undeserved or factitious credit. They therefore recommend, that power be given to lend money for periods not less than twelve months, at a rate of interest varying with the rate of profits in the business in which such money may be em- ployed; the claim for repayment of such loans being postponed to that of all other creditors: That, in such case, the lender should not be liable beyond the sum advanced; and that proper and adequate regulations be laid down to prevent fraud. Although your Committee have thought it their duty to confine their recommendations to the two points set forth in this report, viz. — 1. A greater facility in granting charters, under rules published and enforced by the proper authorities; 2. An easier mode of borrowing additional capital, without risk to the lender beyond the amount of the sum advanced ; — Yet they anticipate many improvements in the laws bearing on the varied enterprises and improvements of the country, from the labours of such a Commission as they recommend ; and think that a more matured consideration of this most important subject will be well purchased by a short delay necessary for tkis purpose. Your Committee would express their conviction that it is no less con- sistent with the spirit of recent legislation than conducive to the public advantage, and the promotion of legitimate trade, to relax any restraints which may now exist on the free action of individuals or application of capital, due regard being paid to the importance of preventing the ac- quirement of undue or undeserved credit, or giving encouragement to ignorant or reckless speculation." After this report had been made and published, the whole matter appears to have been virtually laid on the table, and there kept up to th& dissolution of parliament last summer. The only attempt to stir in it, as far as the writer knows, was made by the Chairman of the Committee, in June last, (1852,) as the following paragraphs cut firom a London, Journal of that month will show. "The LawJof Partnership. — Mr. Slaney called the attention of the Chancellor of the Exchequer to the recommendation of a committee on this subject in favour of establishing limited liability, and inquired whether 22 OF ESTGLISH AND FRENCH PARTNERSHIPS. [CH. II. case, but partly and chiefly upon the terms of their own convention or deed of partnership, governed or restricted by the general law relating to Joint Stock Companies. This law has failed hitherto from not making provision for such companies in their provi- sional state, and from not providing for companies which either wholly or partially failed to adopt the conditions of their existence imposed by statute.'" When, says the same Journal," "these legislative provisions shall have been supplied, they, like other companies incorporated by act of parliament, will be proper for aU cases where great capital is re- the government had any intention of issuing a commission to make further inquiries. The Chancellor of the Exchequer said the subject to which the hon. gentleman referred was undoubtedly one of the highest importance; but he considered that the great mass of information already obtained was sufficient either to guide the judgment of the house, or to form the basis of legislation." ■ • Nov. 1848, vol IX., p. 80. 2 Ibid. p. 81. But the subject has of late years awakened the attention and received the advocacy of some able writers in England. A work said to be the production of Dr. Shelton Mackenzie, was puWished in London, in 1848, with the title page of " Partnership en commandite, or Partnership with limited Liability, (according to the commercial practices of the Conti- nent of Europe and the United States of America,) for the Employment of Capital, the Circulation of Wages, and the revival of Home and Co- lonial Trade." It was reviewed in the London Law Review of Nov. 1848, in terms of praise and recommendation; and this form of partner- ship urged, as " an arrangement peculiarly necessary at that time for great numbers of commercial persons of the second class throughout the coun- try, for the advancement of business in new and backward places; for the improvement and extension of agriculture, for the extension of traffic in the colonies, and for meeting a desire for change in the shape of so- cialism and communism, by the introduction of a scheme of an inter- mediate character." Ibid., Art. V. p. 74. See also a chapter on the same subject in Mill's Political Economy. The London Law Magazine for May, 1852, also contains an able article reviewing the subject, and in favour of the introduction of the commandite principle into England. CH. II.] FRENCH PARTNERSHIPS. 23 quisite, and the concern does not involve much detail requiring the immediate direction or personal super- intendence of the principals, on account of the fluctu- ation of circumstances to which the detail is apphca- ble. When the detail is of regular and habitual re- currence, and admits of being reduced to routine, it may, by means of appropriate organization, be con- ducted with nearly the same advantages as by private partnership." § 16. In France, this species of association for trade has existed since the year 1673, under the denomina- tion of Societe en Conrnwundite, and no other. In all the treatises on French law which the writer has consulted, he has invariably found the title, Des Sodetes de Com- merce, subdivided into four different heads; the first treating of la societe en ivom collectif, sinailar to our ge- neral partnerships ; the second, la societe en comman- dite; the third, la societe anonyme, a restricted part- nership, and specially allowed by the government, having no general partner, and known not by the name of its members, but by the object for which it was instituted : such as La Societe de la Banque de Fra/nce;^ the fourth, la societe en jpartidpatioin, a part- ' The terms " anonymous partnership " would strictly, according to our English idiom, import partnerships without aiiy name at all ; the epithet arumymous, being invariably applied to charge a name concealed or non-existant. But in French jurisprudence, the term is used to denote a partnership wherein the names of the persons constituting it are withheld, and dealing with the public under a name significative of its functions. This form of partnership, which exists at the present day in great num- bers in France and Belgium, is precisely similar to the public incorpo- rated companies of this country, holding their charters from the legisla- ture. The partnership of the Bank of France is cited in the text above, as an example of the species, inasmuch as legal writers there so desig- 24 OF ENGLISH AND FRENCH PARTNERSHIPS. [CH. II. nersMp constituted for a single or any certain number and kind of operations, to be conducted in the name of one only, to whom alone the others are responsible according to the measure and terms of their compact. nate it; but it is in truth that and something more ; for, in the time of Louis Philippe, the legislature passed a law allowing the shares of the Bank to be immobilized; that is, enabling the holders, by causing their certificates to be recorded in a public Register, to obtain tor them the hen and other attributes of real estate. The great Marine, Fire, and Life Insurance Companiesof France, and most other European countries, now exist under the form and name of societes anonymes; also annuityj railway, bridge, and other companies established for purposes requiring immense capital and vast enterprise. It is therefore not a little surprising that a jurist as eminent as Lord Brougham should have uttered so great a, blunder on the nature of this form of partnership, as is indicated in his recent letter to the Committee of the House of Commons, appointed to consider the law of partnership, from which letter the following paragraphs are extracts. " I greatly question if the guards provided by the French law are suf- ficient to prevent the consequences of improvident management by the partner or partners who alone are liable generally and absolutely. The cornmanditairef (those who are liable only to the amount of their shares) ar« indeed prevented (as far as I recollect the- French law) from inter- fering directly, or even by proxy, in the concerns; and their names are not to appear in the firm, and the amount of their shares is registered, and thus open to inspection, so as to prevent credit from being improvi- dently given to the company. Nevertheless it seems difficult to suppose that their names will not become known to any who may not go to look at the register; and certainly the great check on imprudent speculation is removed, if any one who may be a man of straw, is answerable in so- Mum. I do not undertake to affirm that no sufficient checks and guEirds can be devised; I only state what occurs to me on those provided by the French law, which I perceive is adopted in the other countries that have the commandite. As for the societe anonyme, I hold that to be out of the question ; it is merely a small joint stock company. The commandite appears better adapted to a, community which has moderate mercantile capital and concerns than to ours, and would be more wanted as well as more safe in such a community." But the entire letter demonstrates how difficult it is for any one man, however great, to dissert and be oracular, de omni sdbUi. The whole of the foregomg extract is incorrect in fact and speculation, as to every thing that regards commaiiditary partnerships. CH. n.] FRENCH PARTNERSHIPS. 25 § 17. The second kind, (the one under our view,) has been introduced into the code of Louisiana, under the title of partnership in commendam, for the American part of the population, and sodete en commandite, for the French of that State.' " It was supposed," says the late Chancellor Kent, speaking many years ago, " to be well calculated to bring dormant capital into ac- tive and useful emplojnnent, and it has, accordingly, been authorized by statute in New York."^ " It is easy to perceive," says the same author, " that the provisions of the act have been taken, in most of the essential points, from the French regulations in the commercial code; and it is the first instance in the history of the legislation of New York, that the statute law of any other country than that of Great Britain, ' Civil Code of Louis., Art. 2810. This Code is published in French and English. (Vide post, App. No. 2, a note on this aubjeet to the Louisiana Statute, which is there printed in English.) That this portion of the code was originally composed in French and then translated, the writer has no doubt. Why the translator should have chosen the term ' in commendam,' as convertible with ' en commandite,^ is inconceivable, unless he wanted to show that he knew something more than French. For the old statutes of Marseilles and Genoa, from the monkish latinity of which the term is borrowed, provided for a very different scheme of limited partnership from that embodied in the commercial code of France, or the civil code of Louisiana. Neither of the two latter codes contains the sodetas in commendam. The great feature of the latter, much secrecy and Utile publioUy, is the reverse in the two former. Besides, the French part of the Louisiana system is evidently borrowed from the code of France. Between all the successive articles, the parallel articles in the Code de Commerce are quoted, with references to French jurists who have commented them ; and no citation of, or reference to, a Latin or Italian authority is made. But the late Mr. Chancellor Kent wrote in the third volume of his great work, that this form of psurtnership had been adopted in Louisiana under the title of m commendam, without no- licing the parallel French denomination of it ; and ever since, echo has been repeating the fact far and wide, and it has therefore now become, probably, one of indelible emblazonry. i ■ 3 Comm. 35. 26 OF ENGLISH AND FRENCH PARTNEKSHIPS. [CH. II. has been closely imitated and adopted.^ The same remarks may, in every respect, be now applied to the State of Pennsylvania; for her statute is in substance a copy of that of her neighbour and sister state ; and, as will be seen in the course of the ensuing pages, from illustrations derived from the French books, both are interwoven from or rather spun out of the written law of France and the arrets or decisions upon it, con- jointly. § 18. Before we proceed to an examination of these statutes, it will be appropriate to consider, first, how far a partial or restricted partnership might, under the common or general law, have been entered into before the enactment of them. In the first place, general partnerships were not confined to trades or commer- cial adventures, but might subsist between attorneys, conveyancers, physicians, farmers, artisans, or me- chanics, as well as between merchants or bankers. And if the object contemplated by persons associating themselves together as partners, did not contravene either the law of nature, or the municipal law of the country where they were established, they would be valid. In the next place, a partnership might be formed between individuals of these classes, or differ- ent classes, to be limited to a particular branch of business, without extending to all the concerns in which any member of the firm happened to be engaged, or it might be confined to a particular speculation or operation. Thus, two merchants might join in send- ing out a cargo of goods to a foreign country. As to this adventure, they would have all the rights and be subject to all the liabilities of partners ; but the relation ' 3 Comm. 36. CH. II.] COMMON LAW PARTNERSHIPS. 27 of copartnersliip between them would cease with, it, and would at no time extend to any of their other concerns. So, several might be interested in a chattel, and agree to manage it at their mutual expense, and for their rautual profit; and as to this, they would be partners. In like manner, if two persons, not partners in trade, should draw a bill of exchange payable to themselves or their order, they would be partners as to the transaction of the bill, but, in every other re- spect, they would continue perfectly distinct.^ But the essence of these partnerships, no matter how re- stricted their operations, or short their term, would be general responsibility as to all the transactions of the firm. And not only responsibility of the finn, but of any and every one of the firm, except, indeed, as to third persons having notice of the Hmited nature of the partnership.® They would have none of the fea- tures of the societe mumyme, because, in this country, such an association cannot exist without a charter of incorporation, divested of that inseparable concomi- tant of partnership, — universal responsibility. And, it is apprehended, the various associations for banking, trust, or insurance purposes in this or any other state, existing under a name indicative only of the object of their undertaking, without legislative sanction, can- not, by any device, exempt themselves fi:om this indi- vidual responsibility to the pubHc, however they might amongst themselves;' because the arrangement would be, pro tanto, an abrogation of the general law ' Gow on Partnership, 7, 2d London Edition. ' See 2 Johns. Rep. 300, 4 Id. 251; 4 Serg. & Rawle 366; Gow 58, 66, 2d Edition. ' See Gow on Partn., 18, 19, 2d London Edition. 28 OF ENGLISH AND FRENCH PARTNERSHIPS. [CH. II. of the land. Notice to the persons dealing with them of the pecuHar terms and restrictions of their articles of association could not have this effect; if it could, then hmited partnerships might have been established before the passage of the statute, by the simple act of advertisements in the gazettes, and signs, and hand- bills over and about their places of business.' Neither would these partial or restricted partnerships have any of the essence of the sodete en jpartidjpation ; be- cause, in such an association in France, the partici- pant who furnishes a certain sum, is to take no part in the conduct of the business; but the engagements and operations are to be contracted and undertaken in the name of him or them to whom that particular sum is paid; and the former remains, in regard to third persons, a stranger to these engagements and opera- ' The case of the Exhs of Skuhrick v. Fisher, 2 Desaus. 148, will illus- trate these positions and exemplify the uncompromising and inflexible material of the law of partnership. In the case of Hess et ah v. Werts, 4 Serg. & R. 356, Gibson^ J., speaking of a private banking association, says, " I see no reason to doubt but they may limit their responsibility by an explicit stipulation, made with the party with whom they contract, and clearly understood by him at the time." J6td. 361. But he says in ano- ther place, p. 362, "Private associations, attempting to arrogate to themselves the attributes of a corporation, are entitled to no indulgence." "An exemption from individual liability is the most substantial benefit derived from a charter; the having perpetual succession, ability to sue and be sued corporately, &c., are only matters of convenience that may be dispensed with." See the opinion of Mr. J. Duncan, Ibid. 365, 367. It, in the opinion of the writer, is stronger still on the point, that mere notice, that is, knowledge of the articles of association on the part of a customer or dealer, will not exclude individual responsibility. Where the " explicit stipulation " mentioned by the first named judge, is " made with the party " dealing with such a partnership, it is, of course, an in- stance of a compact governing the law, of which no one can complain. But the doctrine in England, at the present day, seems to difier from the above. See Law Mag. for Feb., 1852, Art. V., and for May, 1852, p. 276; HaUett v. DowdaM, Law J., (Q. B.) 98, in Error. CH. II.] SOCIETE EN PARTICIPATION. 29 tions. He is either unknown, or supposed to be un- known to those who deal with the firm, and he is only responsible to the partners who have conducted the business, for his share of the losses," and the latter are responsible over to the public. This species of part- nership is in France, however, subject to two rules which limit the irresponsibility of the participant. The one is, that he niust answer to the whole extent of the profits he may have derived from the concern, as well as of his ia vestment, in case of the failure of the managing partner : the second is, that the creditors can exercise the rights of the latter, and if the parti- cipant owe him, they can exact from such participant an account and payment.^ ' 6 Juris, et Style nership, merely by substituting some third person in their place, to whom they assign their shares. It is most devoutly to be hoped, out of regard to the busi- ness interests and commercial prosperity of the United States, that something like the . French system may be organized amongst us. All the best writers of France extol it highly as one of the vehicles by which CH. II.] FRENCH PAETNEESHIPS IN SHAEES. 33 the circle of trade, and mercantile and manufacturing activity is expanded and supported. " Every one," says Wolowsky,' " may have an interest in commerce, and trade, under such a system, for amounts small or large. The facility too of reahzation has thrown round this form of investment considerable attraction. We have seen large capitals thus drawn in the promptest and easiest way into the general industrial and com- mercial movement, and the adjunction of bailors of funds to responsible general partners, constitutes not a union of persons, but an ussodation of capitals, ana- logous to that of incorporated companies. In this manner has it come to pass that limited partnerships have become in reality so many incorporations, wherein the liability of the general partners stands in lieu of the authorization of government." § 24. He further observes : " To convey an idea of the immense service rendered by limited partnerships with capitals divided into shares thus transferable, it will suffice to say that calculations untinged with ex- aggeration, carry to above a thousand millions the capital engaged in this form of social business. A few years too have sufl&ced to bring about this truly colos- sal result, in spite of the cases of gross swindling and signal frauds that have marked the progress of the new combination of interests. But by these frauds it was not creditors who suffered, it was the shareholders themselves."^ ' Des Sooietes par Actions, p. 9. ^ Ibid. p. 7, 9, 13. Mr. Vinoens, (Des Soc. par Act. p. 17,) has fallen into a strange error respecting limited partnerships in this country. He says that " they are allowed in several of the United States, on condition that they are not to embreice banking or insurance operations, and that 34 OF THE ORIGIN AND NATURE OF [OH. III. CHAPTER III. OF THE ORIGIN AND NATURE OF LIMITED PARTNERSHIPS. § 25. The contract of association for pecuniary pro- fit called, in this country, Limited Partnership, has, as was seen ia the preceding chapter, a far different name in the countries in which it originated. It is not, at this day, a matter of certainty, whether to Provence and Languedoc in France, or Genoa in Italy, Europe is indebted for the framing and perfecting of this form of mercantile union of interests ; but it is very certain, that iu its origin, it was not looked on as & partnersJiija ; and that it has received a name which indicates that it was a blind and absolute trmt. Accomandita in the Italian language, and Commandite in the French, the present names of this commercial contract in the Euro- pean codes, are derived from a word signifying a trust, and the contract is yet but a species of depolit of the special partners are not to exceed five or six in number." He then pro- ceeds to say that "this latter provision is no more than what usage and the nature of things has established in France, as to ordinary ov pare li- mited partnerships." " But as to large undertakings," he continues, " ex- perience has shown that a numerous body of partners is essential, each contributing as much of his capital as he might conveniently, and that for such associations, rules different from those obtaining in the simple form became necessary." The entire subject of commandite partnership in shares will be noted in the sixth chapter of this work, at length. CH. III.] COMMANDITARY PARTNERSHIP, 35 money or goods, recommended and intrusted to ano- ther, for the purposes of traffic' § 26. It is true that the subject is treated of by wri- ters in Europe under the title of Partnership; but the person who is termed, in our system, the special part- ner, is not called a partner, at all, by jurists abroad. Neither is he a partner ; and the considering him as such, from the name, may be, as it has been, pro- ductive of error, in the United States. § 27. The word of origin, above alluded to, is of the latinity of the Roman law, as just seen; comm^ndare: signifjdng to deposit, to lend, to intrust a thing; and the noun aymmenda, (command,) was applied to all associations ia which capital was intrusted to indivi- duals : associations for maritime, manufacturing, com- mercial, agricultural, and mechanical purposes, were intended by it; and one of the earhest forms was that for the rearing and disposing of flocks and herds, {cmrtr mande de hestiaux}) ^' This contract of commande in ' Ansald. de Commer. et Mercat. Disc. 58, No. 58. 1 Fierli, dell' Accom., p. 9. This form and denomination of partnership contract appears to have been totally unknown in the jurisprudence of Rome ; seeing that the civil law makes use merely of the terms, Communio; Societas; iNSTiTORroM; {^Commission-House,') ExEKCiTOErcM, {Trading or Manvfacturing House,) wherever it treats of business or dealings regarding several persons asso- ciated for the division (according to their proportions of the joint invest- ments) of profit and loss. Ibid, P. 10. See also Savary's Parfait Negotiant, B. I., Ch. 1.; Riccard. Negoce d' Amsterdam; Tit. Societe en Commandite; Ulpian, in Lege, Com- mendare, D. 50, 16, 186, de Verborum Signijkatione. The words of Ulpian there are : Commendare nihil aliud est quam de- ponere. So Papinian, D. 16, 3, 34; . . . Quid est enim aliud com- mendare quam deponere. * Troplong des Societes, Vol. I., p. 355. Delauriere, vo. Soci6t6 en Commandite. Commendatum, et depositum idem sunt. Bartolus on the Law, 23, D. deposit. Cheptel became the term to express the contract for the Commande de Bestiaux. Troplong, vM supra. 36 OF THE OEIGESr AND NATURE OF [CH. III. general, was much in use in the middle ages," says the same writer, "not only in marine adventures, but also in commerce on land. A trader or saUor was trusted with a fond or venture of merchandise to traffic with in the ports at which the vessel might touch : or in cities in which fairs were held. The trader or navi- gator had a certain interest in the profits, and the hailar of the money or goods was never to be liable beyond this^ investment."^ Several eminent writers, amongst them Pardessus, have thought that at this period the commande was less a partnership than a contract of bailment; but Troplong differs from them, and contends, that even in the 13th century the notion of association was always connected with the contract, and that the capitahsts in it were called commendatari, o compamM, and the association, commanda, o companhia? But he observes, in another place, that the title of partnership can only be awarded to it with reserva- tions and capital restrictions; and that it is never to be regarded a regular and normal form of partnership.* He also quotes passages from Deluca, Casaregis, and Jorio, which seem to overthrow his prior ideas as to the subject. Thus, " Commandanies non sunt socii; neque in jure formali, negotii considerantur condomini; sed solum sunt paeticipes."* So, Jorio, author of the Code Ferdinand:^ "I commandanti non sono socii. • Troplong, des Societ. Vol. I., p. 356-57. Dncange, vo. Commande; Emerigon, t. 2, p. 398. 2 Troplong, ubi supra. J" P. 363, 364. « Casaregis, Disc. 29, No. 24, 38. " Commanditaiies are not partners, neither, in strict law, are they considered co-masters of the business; they are merely participants.'' So Jorio, the Italian writer, as above: " Com- manditaries are not partners, but participants only." * Troplong, ubi supra. CH. m.] COMMANDITARY PARTNERSHIP. 37 ma solamente participi." He also admits that ante- rior to the French ordonnance of 1673, the Itahan jurists alone furnish enlightened guides on the origin and nature of the contract/ and quotes the words of the reporter of the decisions of the Genoa Ruota, that a commanditary "per omnia socius non est" he is a partner merely of the capital and its desired increase, subject to being converted into a general partner by an infringement of the law." § 28, The old contract of Accomandita, in Italy, is said to exist, when A delivers his money or other pro- perty (o altra roba,) to B to trade or do with for the profit of both. Throughout the entire treatise of Fierli, this idea of money or other property, runs; and is applied to denote the legitimate fund contributed by the accomandante, or special partner, to the aeco- mandatario, or general partner. Monet/ alone was not thought to be exclusively the only legal or proper fund admissible in the founding of the association; but, wares, merchandise, real estate, and all stocks of goods and chattels generally, of a certain, precise, or ascer- tainable value, could be received and applied as money. § 29. This was and is the almost universal usage and custom, being founded in reason; as, for all purposes of trade, it is exactly the same thing whether money to buy goods, or the goods themselves, at a just valu- ation, be contributed. Therefore, at a just valuation and price previously agreed on in the articles of asso- ciation, the intended special partner may contribute the capital in a stock of goods suited to the projected ' P, 865. » P. 424. 38 OF THE ORIGIN AND NATURE OF, ETC. [CH. III. business.^ But he cannot so contribute any claim or credit that he possesses, no matter how clear or ad- mitted, or whether against the general or other special partners; as the basis of this form of association is the paying in of the capital; a basis that cannot be comphed with by equivalents or indirect ways.^ § 30. " In this species of association," says Fierh,' "the domiaion and jits fcyrmale of the business vests in the general partner, who possesses the mastership, the exclusive and entire use of the inoney or other property intrusted to him, and of the business committed to his care ; and the special partner is neither the master nor the joint possessor, but merely the creditor of the capital which he has contributed, — sharing, or to share, simply, in the gains or losses of the concern; and he is thus said to be interested through participation, and not through property." In support of this doctrine the learned author cites a variety of old continental authorities. Again, in ordinary partnerships, there is mutual confidence amongst the members, and one may bind the others : not so in limited partnerships ; the special partners cannot bind, and need not know each other. They merely know the general partner, who possesses the common and united confidence, and in respect of whom they stand just as the creditors pro- per, [semplid creditori,) and not as masters, or joint actors.^ Therefore, the accomodante does not, pro- perly speaidng, come under the denomination oi part- ner, but of simple participant, and in this sense, may consider himself a partner of the partner, but not of ' Dell' Accomandita, p. 31, 32, 45, 84. ^ Ibid. 84. ' Ibid. 84, 85. * 1 Fierli, p. 45, quoting Ansald. de Commer. Dis. 29, No. 2, Zanch, de Societ.j p. 1, o. 9, No. 56; and other writers.. CH. in,] MERCHANDISE CAPITALS. 39 the partnership.^ And, as a creditor, he has no claim until after the dissolution and liquidation of the con- cern, including of course the payment of the creditors proper ; not even where he is indebted to the concern. For, he cannot set off his contingent claim for capital against one of a precise and certain character.^ j § 31. The writer does not wish to be understood, from the foregoing quotations on the subject of a mer- chandise as well as money capital, ia Europe, as criti- cizing our statute for an omission, or as recommending a similar system for introduction; on the contrary, he thinks that the first legislation on the subject ought to have been, as it was, as simple and as clear of com- plicated machinery as possible. Fraud, or rather, fraudulent contrivances to elude the design of the statute, appear to have been sedulously guarded against. Nevertheless, frequent cases may occur wherein a capital ia goods might be put into a Hmited partner- ship, with as much advantage to the business com- munity, and with as Uttle danger of a fraudulent elusion of the general law of partnership, as a precise capital in money. § 32. For example, a merchant or trader, at an ad- vanced age, with a capital in goods worth fifty thousand dollars, wishes to retire from business. He has two clerks, each possessing five thousand dollars, who are anxious to enter into partnership with him. Not choosing to incur that risk, and not being willing to sell them his goods on credit, and to give them his customers and the good will of his business, for the merely legal interest allowed by the particular State ' 1 Fierli, p. 49, 57, in note. « Ibid., 83, 84. 40 OF THE ORIGIN AND NATURE OF, ETC. [CH. HI. in which he resides, he would be glad to form a limited partnership with them, on this basis of a goods capital. His stock is really worth $50,000, independently of the good will of his business ; but he cannot sell that stock for the same sum in cash, for every forced cash sale involves more or less of sacrifice. He has perfect confidence in the probity and capacity of his clerks ; and believes, that with such a partnership, he would reap at least ten per cent, on his investment, and that at the expiration of a few years, his general partners would have established enough business and credit to enable them to buy him out. What is there, in reason or expediency, to be objected to the formation of such a partnership? "Would it require much legislative machinery to guard against fraudulent contrivances in the institution of hmited partnerships based upon such a capital? § 33. The statute of the State of Florida, which, in this respect, is remarkably and advantageously dis- tinguished from those of other states authorizing limited partnerships, by a provision in the 8th section, allow- ing "properti/ to constitute a part of the stock." In such case it directs an appraisement of such property to be made by three qualified and sworn appraisers to be appoiated by a judge, and their report to go through all the formalities of recording and pubUcation.'^ It is true 'that the second section of this statute designates special partners as "persons who shall contribute a sjpedjic sum as capital to the common stock," and who are not to be liable "beyond the funds contributed by them to the capital ;" still, it is submitted, that the ' See this statute printed at length in the Appendix to this wDrk, (Ap- pendix No. 2.) CHAP, ni.] MEECHANDISE CAPITALS. 41 eightli section would be nugatory, if the above expres- sions in the second were to be construed as excluding every thing but cash as a legal contribution of capital by special partners. § 34. So, tbe statute of Louisiana allows special partners to contribute capital " either in property or money," to such partnerships, and directs that the written contract shall state not only the amount con- tributed by special partners, but " whether in goods, money, or how otherwise." It also declares that no special partner shall "withdraw the stock he has fur- nished, at a time when those to whom he has advanced it are in failing circumstances."^ § 35. The French Commercial Code, allowing the capital of limited as well as of chartered partnerships to be divided into shares, "appears," says a distin- guished modem legal writer upon the subject, "to have taken for granted that such capital would be contributed by all the shareholders in actual cash ; it has not provided for, but has not forbidden contribu- tions in other values. And there might be several spe- cies of material contributions forming the precise and necessary instruments of the partnership's business; such, too, as it would have to purchase on the very day of its formation, and with the very cash contri- buted and paid in by the special partners. Is it not then just as well that such instruments should be re- ceived in lieu of cash, as capital, after a bond fide and open valuation of them? The agreement by which such material capital is valued at a precise sum, an- swering to a certaia number of shares, may be clearly made between the general partners on one side, and ' See this etfttute, in Appendix, No. 2, 42 OF THE ORIGIN AND NATURE OF, ETC. [OH. HI. the special partners on the other. Such is the daily course in the formation of general partnerships, where- in all being indefinitely liable, it matters nothing to the public what may be the figure entered on the books as the value of such contributions. So, too, in limited partnerships; the general partners, being inde- finitely liable, have a greater interest in discussing and settling the value of such contributions, than third persons or future creditors. But it is not so as to chartered or incorporated companies. In them there is no general responsibility; there is nothing but the capital paid or to be paid in, and that ought to be in naught but cash or equivalents immediately converti- ble into cash."' § 36. Every one of our American statutes, then, with the exception of those of Florida and Louisiana, requires, in positive terms, that the contributions of special partners to the formation of the joint capital shall be in cash. This is not the usage in Europe. Under the usage of France, as just seen, a special part- ner may contribute goods, wares, merchandise, pro- perty; (subject of course to a previous inventory and valuation, made and agreed on % all the jpartners .-) and such contribution may be recorded as so much (in cash,) contributed in genere. So, "beyond aU doubt," say Malepeyre and Jourdain,® "the contri- ' Vincens, des Soci6tes par Actions, p. 43, 44. ^ Des Societ^s Commer. p. 142. This subject of material contributions to the capital in addition to cash, from special partners, is further illustrated in its practical workings, by the evidence of Mr. Lieber, before the Committee of the House of Com- mons on the 20th May, 1851, as follows: — " Will you state to the Committee one or two partnerships of this kind which have been applied to any particular business which has been carried out, either a manufacturing or commercial business, or any other CH. III.] MERCHANDISE CAPITALS. 43 bution of a special partner may consist of a secret of art or science communicated to the partnership, but not to be applied by himself or to be co-operated in by him in the daily application of it to the operations of the partnership. But the personal skill, science, or industry of a special partner cannot be contributed as a portion of the capital; because that would amount to an interference in the carrying on of the business. cases which you think would be fair examples?" — "Yes; for instance, I know a large establishment of a retail house which has been lately established in Paris; there are three or four partners who are very intel- ligent young men, knowing the business very well, and of good conduct; and having no capital they applied to different manufacturers for money, and they received a large capital from the manufacturers who advanced that money as commanditaires." "You said a ' retail house; ' what description of retail? " — " Silks.'' "Ladies' wear?"— "Yes." " Is that carried on beneficially?"—" It is." " Do the manufacturers supply capital in the form of goods, or advance a loan?" — ■" They are obliged to advance money and not at all goods," " And it is for a given period ? " — " Yes." " And they cannot retract it or withdraw it untU that period has ex- pired? " — " No, not without taking legal steps, or without a dissolution of the partnership being published." "That must be at the end of the period?" — '"It maybe before the end of the period, if the parties choose to do so." " But with complete publication?" — " Yes, with complete publication." "Are they exclusively manufacturers, or are there other parties be- sides manufacturers?" — "There are other parties; there are some manu- facturers; there are also people who are capitalists, who want to invest money." " What security is there that the capital is actually subscribed in mo- ney ? " — " There is no security but the personal security ; a man may pro- mise to give one thousand francs, for instance, as a comrrumditaire, and not be able to give it." " Then in point of fact they register that which they say they will pay^ and not that which they actually see is paid?" — "It is the sum pro- mised, and not the sum actually paid." " That is to say, it is not actually paid up ?" — " It may or may not be actually paid up, because it is not under the control of the public." Mi- nutes of Evid. p. 39, 40. 44 OF THE ORIGIN AND NATURE OF, ETC. [CH. III. The conduct of a partnersliip does not merely consist of acts purely administrative, but comprises likewise the material and intellectual workmanship that endows the joint industry with body and hfe. Therefore, the manufacturer of chemical products, (being a special partner,) who should be daily employed at the social place of business in the fabrication of such products, would render himself liable as a general partner. Nevertheless it is much to be desiderated that an ex- ception should be introduced by law in favour of science, and that it should be rendered practicable for savants, who are the discoverers of valuable processes, or the inventors of great mechanical adaptations, to superintend the employment of those processes and adaptations, and to aid with their experience, skill and learning, in the manual operations of the concern, exonerated from all fear and danger of becoming liable to creditors as general partners."^ ' The same writers observe, p. 142, 143, that in limited, more care should be exercised than in general partnerships, in distinguishing be- tween the cash contributions of special partners to the capital, and the advances they may have made or may make to the firm of money or credit; for as to the latter they are purely creditors, with a right of agtion therefor against the general partners, as extensive as that of any other creditors. So, as to stipulations in the original articles for advances, i. e. loans of credit or money to the firm by special partners beyond their investments: such stipulations would be perfectly valid, and might be enforced against them legally, if made in good faith. These stipulations too, migU he advertised and recorded, together with the other compo- nents in the formation of the partnership. Upon a call and a compli- ance with such stipulations on the part of special partners, they would, in the event of failure of the concern, come in, not as special partners, but as creditors, for all the money and credit thus lent and advanced ; and no creditors not possessed of a collateral pledge, could have any pri- ority or preference over them. CH. IV.] FORMATION IN THE UNITED STATES. 45 CHAP'tER IV. OF THE FORMATION OF LIMITED PARTNERSHIPS IN THE UNITED STATES. § 37. The earliest legislation on the subject, out of the state of Louisiana, (which, under its former foreign rulers, always permitted these contracts,) known to the writer, was in the state of New York, in the year 1822. The statute of that state establishing this form of copartnership, as at present existing ia its revised laws,^ was, in 1836, copied by the Legislature of Penn- sylvania, except, that in the first section, the benefits of it have been made to embrace agricultural, milling, and coal ta-ansportiag business, as well as mercantile, mechanical, and manufacturing pursuits. The system was adopted in Maryland in 1826 ; in Massachusetts, in 1835 ; in Rhode Island and New Jersey, ia 1837. But it is needless to enumerate the epoch of the in- troduction of it into particular states, as it may now be considered a portion of the pohcy of the commer- cial states of the Union. Maine, Vermont, Connecti- cut, South Carolina, Georgia, HUnois, Alabama, Flori- ' Vol. 1, p. 763, 4. The 19th section of this act omits the provisions at the end of the 19th section Of the New York Statute, for a criminal prosecution of fraud. But that of New Jersey, passed on the 9th of February, 1837, (Dig. Stat. p. 872,) is a literal transcript of the law of New York, from one end to the other. 46 OF THE FORMATION OF LIMITED PARTNERSHIPS [CH. IV. da, Mississippi, Indiana, Kentucky, Virginia, Michi- gan, and California, have by statute authorized limited partnerships;' and there can be little doubt that most of the remaining states will soon follow their enlight- ened example. § 38. The exception as to the right of banking and insuring is contained in the statutes of eleven of the states, and is omitted in those of three of them; viz., Khode Island, Indiana, and Alabama. The language of the first section of the Maryland act declares, that it shall not be construed, "to authorize such partner- ships for any banking purpose whatsoever, or for any business or concern connected with insurance." That this exclusion, (not merely in this but in the other statutes,) is unwise and impolitic, must be admitted by every unprejudiced examiner. For, it strikes at private banking and insurance as practised in Europe ; the most legitimate and meritorious banking; — bank- ing without the issue of a paper currency ; and private underwriting, where at least some of the parties are responsible for the whole of the losses.'' ' 3 Kent's Com. 36. lie Statute of Illinois in 1847 5 Virginia in 1849 ; Kentucky in 1850; California in J850. * There is a signal instance of an Insurance Company created as a limited partnership during the reign of Louis XIV. By an edict, of which Colbert, his prime minister, was author, dated in May, 1686, the company was constituted with thirty partners, of whom five were to be elected by a majority of votes as directors, or general partners. The names of all the partners were to be inscribed upon a tablet, and hung up in tlie chief office of the company. The capital stock was to be 300,000 livres, divided into 75 shares of 4000 livres each, payable in four equal instalments, the first cash; the second in four months; third in six; and the fourth in nine months from the issue. Notes to bearer were to be given for the credit instalm^ifts ; and on default in paying them, for- feiture of previous payments without any release to the delinquents from losses of the company, up to the day of default. The five directors to go CH. ly.] IN THE UNITED STATES. 47 § 39. That the statutes on limited partnership in the various states should be in substance identical, is perfectly natural; inasmuch as the common source, out of office at certain intervals and to be replaced by five others of the thirty. All the contracts, policies, notes, bonds or bills of the company to be executed by the five directors. But neither these directors nor the other partners were to be held liable in solido, (i. e. jointly) beyond the capital of 300,000 livres. Nevertheless, each was to be liable beyond that sum in the ratio of his several interest therein. And in the event of the reduction of the capital through losses, it vras to be restored by a contribution in cash from each partner in proportion to the amount of his shares ; vchich contribution each was constrained to pay by the penalty of expulsion, in case of refusal after eight days' notice, and forfeiture of what remained of his stock. The capital was wholly bound to the policies, and to no other joint obligations. The thirty shareholders, or a quorum, to meet every Tuesday, in which th«y might appoint clerks and agents, or dismiss liiem, and hear the minutes read, &c. On the 5th of January in every year, a dividend of all profits beyond the 300,000 livres. If no profits, but a loss thereon, an immediate taxation and levy pro rati upon each partner. At this same meeting, the company was to fix the price of shares ; and this valuation was to serve as the market rate of sale, ruA to he put Mghtr, and on the offer to seU by a partner, the company was to have the refusal, at that standard or any lower one he might elect. On the decease of any partner, his widow, heirs, personal representatives, or creditors, should be obliged to sell his shares within one year, at the rate of the last valuation, giving the company the refusai of them. Their interest in the profits and losses was to cease on the morrow of the part- ner's decease. The shares were declared personal property. Now, Troplong asserts that this was a limited partnership, because its statutes were less stringent than those of a general partnership, (in which every partner would be liable jfer the entire capital and debts,) and more so than those of a corporation, (in which no shareholder can lose beyond his stock.) But it strikes the writer that there is something more than this to stamp it as a commandite association; that is, 1st, the feature of five directors, who, -at all events, were general partners as to the twenty- five other members, and responsible as such, in case of misfeasance or malfeasance j and 2d, the rule that there could be no descent, bequest, inheritance, or representation of the stock in 'Case of death amongst the partners. Therefore, during the year ensuing the decease of one or more partners, their shares were i«i abeyance, but their personal repre- sentatives became special partners until the day after the death of the re- spective partners. The company was, it is said, organized with a grant of monopoly, and went into successful operation. Troplong, Des So- 48 OF THE FORMATION OF LIMITED FARTN"ERSHIPS, [CH. IV. the commercial code of France, the work of the jurists of the Empire, has been largely borrowed from by them all. That this may be evident to every inqui- ciet6s, Vol. I., No. 397, p. 375. Its style was, however, anonymous, Com- pagnie G6nerale des Assurances Ae France, en la Ville de Paris. It re- quires but the going of one step further to make this a perfectly legal partnership in the United States, without the aid of any statute law, or charter; and that is, for the thirty to resolve to brave joint and several liability as to the public, for private articles such as these would most surely bind the partners inter se, and their respective heirs, personal re- presentatives, assignees, and private creditors. The report of the Committee of the House of Commons contains the opinion of Mr. Phillimore on the subject of banking under this statute. J, 6. PhiUimore, Esq., Barrister at law, examined May 13, 1851. " From your knowledge of the law as it at present exists in France, supposing this Committee were to recommend the adoption in this country of any such law, can you suggest any improvements which you think would be desirable'?" — " I would take the French law as it stands in the code of Louisiana by Livingston, taking care of course that there shonld be as much publicity as possible. If I suggested any alteration, it would only be with regard to greater publicity." "Then you do not recommend that any restriction should be applied, either to the nature of the undertaking, or to the amount subscribed?" — " No ; I do not mean to say that some undertakings may not be suggested possibly, to which one would not wish to apply the law ; but at present I, am not aware of any." " You would therefore recommend that the law en commandite should be always applicable to any subject and by anynumber of persons, and that it should go on concurrently with the present law of partnership V — " With regard to banking, one might be disposed to say that it should not apply ; but 1 confess I say that in deference to what I know to be the opinion of others, rather than upon my own judgment. But 1 am so ill qualified to speak upon a mere commercial subject, that I should pay great de- ference to their opinion." "If limited liability is assumed to prevent improper speculation, ought it not most particularly to be applied to banking?"—"! recommend it, but I do not state my own opinion, as to banking being an exception,, so much as the opinion of others who are better qualified than myself to form a judgment. Besides, I must disclaim the notion that the chief ob- ject of the law is to prevent improper speculation, which no lavp can pre- vent. I think the law en commandite might be safely applied to bank- ing." — Minutes ofEviderwe, p. 15, 16. Leone Levi, Esq., another of the witnesses examined by the same com- CH. rv.] FOR BANKING AND INSURANCE. 49 rer, the provisions of the code on this subject have been introduced into the Appendix : both the Trench text and translation, with a view of the doctrine of capitals divided into shares. mittee (author of an extensive treatise in English, upon concoidance between the commercial codes of the world,) on the same day, stated upon this subject the following important facts. Examined by the chair- man:^ "Can you state any instances in Italy where it is applied beneficially and usefully?" — " In my native town there are banking houses and com- mercial houses which have carried on large enterprises very profitably, and have worked exceedingly well. The profit in a banking house may be five per cent., and such partnerships en commandite have realized 9 and 10 per cent., with an enlarged influence and regular business. I know instances, also, in which commercial men having long been estab- lished in business, and acquired a respectable reputation, having lost their capital, have succeeded in getting up a partnership en commandite, and have been successful." " You mean that persons of intelligence, and having experience in com- mercial matters, when they are without much capital themselves, are able to make that experience and ability available for the benefit of others, by being in many instances the managers of such partnerships, with some small capital subscribed by their friends and others?" — "Yes, I know of clerks, for instance, who, having been with their principals for some time, by their industry and perseverance have succeeded in getting up such partnerships en commandite. The principal has subscribed a certain sum, and in a short time others have followed, and they have become respectable merchants." " Will you mention some of the employments in which such capital has been occupied ; I think you said merchandise?" — " I think banking in those places works better than merchandise." " You do not mean banking with the issuing of bills, do you?" — "No ; I mean discounts." " Sending money ?" — "Yes ; and exchanging bills from one place to an- other." " You say the principle of partnerships en commandite, works more fa- vourably with regard to banking houses, than with regard to houses en- gaged in general trade ?" — "Yes; not banking as here, by issuing notes, but exchanging and discounting bills." (Minutes of Evidence, p. 17, 18.) So, another wimess, Mr. T. C. Lietch, a solicitor of large practice and experience in banking concerns, stated his opinion before the committee on the 19th June, 1851, as follows: — D • 50 OF THE FORMATION OF LIMITED PAETNERSHIPS [CH. W. § 40. It would be a .work of supererogation to bring the statutes of all the states that have adopted Limited partnerships into the compass of these pages, except " The difficulty of inspection in a banking company must be known to the honourable member; in a joint stock banking company it is totally impossible fox the shareholders to exercise an effectual oversight." " Is not that fault inherent in the system, rather than in the law of part- nership?" — "The law of limited liability might be introduced into the joint stock banking system with very great public advantage." " How would it operate V — "In the first place, by supplying a sufficient amount of capital to enable the company to carry on a legitimate busi- ness, and by not allowing beyond that an unlimited amount of liability to other outside creditors, so as to induce them to give reckless credit upon the responsibility of the share list." " You do not think it would give any additional stimulus to activity of inspection and watchfulness on the peirt of the shareholders?" — "Yes, I think it would." "How?" — "I think the class ofpersons who would become shareholders in banking companies with limited liability would be a different class from those that become partners in banking companies with unlimited liability; the latter system, as regards the prudent man, has a tendency to confine the persons being shareholders to the more speculative class ofpersons." " Does not that answer go a long way to confirm the impression that the fault in the case you have instanced was rather on the part of the share- holders than on the part of the law?" — "I think the fault is more on the part of the law than on the part of the shareholders, for this reason, that that business in particular, and probably it is the case with aU. other joint stock concerns, does not afford any thing in the nature of an entire and sufficient oversight on the part of those not actually personally engaged in the management. The law, then, by compelling all those persons not concerned in the management to be responsible to their last shilling, has a tendency, I think, to drive cautious people away from those companies. The law certainly produces the result of driving away persons of capital, who will not run the risk of its loss by becoming partners. Even the short experience we have had of these companies has already shown what lamentable results follow from the unUmited liability of shareholders who have no control over the management of the companies, and con- sequently I think the tendency to withdraw from such concerns will go on increasing from day to day, and that we shall not find persons of sub- stance and caution so willing to enter into joint stock companies, and certainly not into joint stock banks with unlimited liability, as they would have been 20 years ago." (Minutes, p. 139, 140.) CH. IT.] FOR BANKING AND INSURANCE. 51 for the sake of reference. The text of the statute of any of them, would answer for the purpose of the commentator; but as one or two of them must be se- Lastly, J. M. Ludlow, Esq., af the Chancery Bar, -who communicated his views in writing to the committee; in reply to certain queries, thus indites his opinion upon the same matter: — "I do not, I own, see reason for excluding banking or insurance companies from a measure of this description. As respects banking, limited liability is the legal status of that establishment whic)i we are bound to consider the most secure in this country, and the model of all others, viz., the Bank of England. As respects insurance companies, the liability of the copartners is limited already in practice, as regards the great billk of their transactions, by special contract with the assured in their policies; and such a practice has not, that I am aware, proved detrimental to the reputation of this class of establishments for stability and success." But, after all, the qaestifln is not ene of opinion, but of common sense and common justice. What right has a democratic legislature in this country to restrict limited liability to certain classes of enterprise, and to interdict it as to banking and insurance ? If by banking is meant the power to issue bills as money, then it is very possible to understand the merit of the interdiction. But, by this use of the word banking, a ban appears to be set upon the exercise of the discounting and exchange business by limited partnerships, one of the honestest and moat beneficial of money employments. If a proof of this were wanting, none more convincing than that furnished by the Comptoib National D'Escompte of Paris could be furnished. This noble institution, the friend of the ar- tisan and mechanic, is the offspring of a democratic revolution. It was authorized by the provisional government of 1848, to get rid of the tyranny of the Bank of France. This gigantic monopoly requiring three signatures upon all the paper it would discount, tradesmen had to resort with their notes to private bankers, to whom they had to pay from one to three per cent, more for the money than was paid by those bankers to the Bank, for merely lending their signatures. The National Compter is satisfied with two signatures, and lends money as cheap as the mammoth bank. It issues no paper money, and is therefore on principle the honestest of all banks. Its operations for the last twelve months, ending the 28th July last, were the discounting of 267,184 domestic notes and bills, amounting to 167 millions of francs, and of foreign bills to the value of six and a half millions. (^Siede, August 2-ith, 1852.) Again, as to in- surance. What right or reason is there for making this form of contract, in a republican country, the subject of chartered monopolies? Why allow limited liability to one set of men, who, as Mr. Brewster very truly 52 OF THE FORMATION OF LIMITED PARTNERSHIPS. [CH. W. lected as a substratum whereon to build, that of New- York, the earliest in date, and that of Pennsylvania, which followed it as a model, and the two that seem most fully elaborated, shall be taken for the uses of this work. Nevertheless, wherever any peculiarity, variation, amplification or limitation, may be per- ceived iu the statute of any other state, the same shall be fully noted and remarked on. § 41. "Without further preface, then, the writer will introduce the statutes of Pennsylvania, in a body, in their chronological order, and will then consider them separately, in the order of their sections, that being as convenient as any other. It is also the same method adopted by Toulher, Troplong, Delangle, and other eminent commentators on the Napoleon code; their commentaries being upon the articles, (which corre- spond to our sections,) in the order of their consecutive numbers. § 42. The statutes of Pennsylvania, (for there are several,) are as follow: — Act of March 21st, 1836,^ relative to Limited Partnerships. Sec. 1. Limited partnerships for the transaction of any agricultural, mercantile, mechanical, mining, and transporting of coal, or manufacturing business, within this state, may be formed by two or more persons, upon observes in his recent work on the Philosophy of Human Nature, (p. 27 1,) get up these companies for the purpose of giving arm-chair offices to broken down and bankrupt merchants, and deny it to another set, simply because they are too high-minded to intrigue for an act of incorporation, and prefer offering the guarantee of unlimited liability in the persons of their managing partners? ' Pamph. Laws, p. 143. Stroud k Brightly's Dig. 922. CH. IV.] STATUTE OF PENNSYLVANIA OF 1836. 53 the terms, with, the rights and powers, and subject to the conditions and liabilities herein prescribed; but the provisions of this act shall not be construed to au- thorize any such partnership for the purpose of bank- ing or making insurance. Sec. 2. Such partnerships may consist of one or more persons, who shall be called general partners, and who shall be jointly and severally responsible as general partners now are by law, and of one or more persons who shall contribute, in actual cash payments, a spe- cific sum as capital to the common stock, who shall be called special partners, and who shall not be liable for the debts of the partnership beyond the fund so con- tributed by him or them to the capital. Sec. 3. The general partners only shall be autho- rized to transact business and sign for the partnership, and to bind the same. Sec. 4. The persons desirous of forming such part- nership shall make and severally sign a certificate, which shall contain: — I. The name or firm under which such partnership is to be conducted. II. The general nature of the business intended to Hbe transacted. III. The names of all the general and special part- ners interested therein, distinguishing which are ge- neral and which are special partners, and their respec- tive places of residence. IV. The amount of capital which each special part- ner shall have contributed to the common stock. V. The period at which the partnership is to com- mence, and the period at which it will terminate. Sec. 5. The certificate shall be acknowledged by the several persons signing the same, in the manner. 54 OF THE FORMATION OF LIMITED PARTNERSHIPS. [CH. IV. and before the same persons, that deeds are now ac- knowledged, and the said acknowledgment shall be certified in the same manner as the acknowledgment of deeds are now certified. Seo. 6. The certificate so acknowledged and certi- fied, shall be recorded and filed in the ofl&ce of the re- corder of deeds of the proper county, in which the principal place of business of the partnership shall be situated, and shall also be recorded by him at large, in a book to be kept for that purpose open to public inspection. If the partnership shall have places of business situated in different counties, a transcript of the certificate and of the acknowledgment thereof, duly certified by the recorder in whose office it shall be filed, and under his official seal, shall be filed and re- corded in like manner in the ofl&ce of the recorder of every such county. Seo. 7. At the time of filing the original certificate, with the evidence of the acknowledgment thereof, as before directed, an affidavit of one or more of the ge- neral partners shall also be filed in the same office, stating the sums specified in the certificate to have been contributed by each of the special partners to the common stock, and to have been actually, and in good faith, paid in cash. Sec. 8. No such partnership shall be deemed to have been formed until a certificate shall have been made, acknowledged, and 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 partner- ship shall be liable for all the engagements thereof, as general partners. Sec. 9. The partners shall publish the terms of the CH. IV.] STATUTE OF PENNSYLVANIA OF 1836. 55 partnership, when registered, for at least six weeks immediately after such registry, in two newspapers, to be designated by the recorder of deeds of the county in which such registry shall be made, and to be pub- lished in the county or counties in which their busi- ness shall be carried on; and if such publication be not made, the partnership shall be deemed general. Sec. 10. Afl&davits of the publication of such notice by the printers of the newspapers in which the same shall be published may be filed with the recorder, di- recting the same, and shall be evidence of the facts thereiQ contained. Sec. 11. Every renewal or continuance of such partnership beyond the time originally fixed for its duration, shall be certified, acknowledged, and re- corded, and an affidavit of a general partner be made and filed, and notice be given in the manner herein required for its original formation, and every such partnership which shall be otherwise renewed or con- tinued, shall be deemed a general partnership. Sec. 12. Every alteration which shall be made in the names of the partners, in the nature of the busi- ness, or in the capital or shares thereof, or in any other matter specified in the original certificate, shall be deemed a dissolution of the partnership, and every such partnership which shall in any manner be carried on after any such alteration shall have been made, shall be deemed a general partnership, unless renewed as a special partnership, according to the provisions of the last section. Sec. 13. The business of the partnership shall be conducted under a :firm, in which the names of the general partnership only shall be inserted, without the addition of the word " Company," or any other 56 OF THE FORMATION OF LIMITED PARTNERSHIPS. [CH. IV. general term, and if the name of any special partner shall be used in such firm, with his privity, he shall be deemed a general partner. Seo. 14. Suits in relation to the business of the partnership may be brought and conducted by and against the general partners, in the same manner as if there were no special partners. Sec. 15. No part of the sum which any special partner shall have contributed to the capital stock, shall be liable for any debts previously contracted by the general partners, nor shall any part of such sum be withdrawn by him, or paid or transferred to him in the shape of dividends, profits, or otherwise, at any time during the continuance of the partnership ; but any partner may annually receive lawful interest on the sum so contributed by him, if the payment of such interest shall not reduce the original amount of such capital, and if after the payment of such interest any profits shall remain to be divided, he may also re- ceive his portion of such profits. Sec. 16. If it shall appear that by the pajnnent of interest or profits to any special partner, the priginal capital has been reduced, the partner receiving the same shall be bound to restore the amount necessary to make good his share of capital, with interest. Sec. 17. a special partner may, from time to time, examine into the state and progress of the partnership concerns, and may advise as to their management, but he shall not transact any business on account of the partnership, nor be employed for that purpose as agent, attorney, or otherwise; if he shall interfere con- trary to these provisions, he shall be deemed a gene- ral partner. Sec. 18. The general partners shall be liable to ac- GH. IT.] STATTJTE OF PENNSTLVAISTA OF 1836. 57 count to each other and to the special partners, for the management of their concern, both in law and equity, as other partners now are by law. Sec. 19. Every partner who shall be guilty of any fraud in the affairs of the partnership, shall be hable civilly to the party injured, to the extent of his damage.^ ' Sec. 20. Every sale, assignment, or transfer of any of the property or effects of such partnership, made by such partnership when insolvent, or in contempla- tion of insolvency, or after or in contemplation of the insolvency of any partner, with the intent of giving a preference to any creditor of such partnership or ia- solvent partner over other creditors of such partner- ship, and every judgment confessed, lien created, or security given by any such partner under the hke cir- cumstances and with the like intent, shall be void as against the creditors of the partnership. Sec. 21. Every such sale, assignment, or transfer of any of the property or effects of the general or special partner made by such general or special part- ner when insolvent, or in contemplation of insol- vency, or after or in , contemplation of the insolvency of the partnership, with the intent of giving to any creditor of his own or of the partnership a preference over creditors of the partnership, and every judgment confessed, hen created, or security given by any such partner under the like circumstances and with the like intent, shall be void as against the creditors of the partnership. ' " And shall also be liable to an indictment for a misdemeanor, punish- able by fine or imprisonment, or both, in the discretion of the court by which he shall be triedj" is the additional provision of the New York statute to this section. 58 OF THE FORMATION OF LIMITED PAETNERSHIPS. [CH. IV. Sec. 22. Every special partner who shall violate any provision of the last two preceding sections, or who shall concur in or assent to any such violation by the partnership, or by any individual partner, shall be liable as a general partner? Sec. 23. In case of the insolvency or bankruptcy of the partnership, no special partner shall, under any circumstances, be allowed to claim as a creditor, until the claims of all the other creditors of the partnership shall be satisfied. Sec. 24. No dissolution of such partnership by the acts of 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 recorder's ofiice 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. Resolution of 16th April, 1838.^ Sec. 1. A general partner in any limited partner- ship may, with the assent in writing of his partner, by deed duly acknowledged and recorded, or by^last will and testament in writing, seU, assign, dispose of, or bequeath his interest in such limited partnership ; and when such general partner dies without having dis- posed of his interest in such limited partnership, his administrator or executor may, in hke manner, sell, assign, and transfer his interest therein, for the benefit of his estate ; and on every such sale, transfer, or be- quest, a corresponding alteration shall be made in the ' Pamph. Laws, p. 691. Stroud's Dig. 923. dE. IV.] STATUTE OF PENNSYLVANIA OF 1838. 59 name or firm under which the business of such part- nership is conducted, and the same shall be forthwith acknowledged, certified, recorded, and pubUshed, in the same manner as is provided by law in the case of the original formation of the partnership. Sec. 2. A special partner, with the assent of his partner in writing, first had and obtained, may sell or assign his interest in a limited partnership, without causing thereby a dissolution of the partnership. Sec. 3. The insolvency of any special partner shall not cause a dissolution of the Hmited partnership, but his interest therein shall be sold by his assignees for the benefit of his creditors. Sec. 4. When any special partner shall die, with- out having disposed of his interest in the limited part- nership, his executor or administrator may either con- tinue his interest therein for its unexpired term, for the benefit of his estate, or may sell the same at pubhc a>uction under the direction of the Orphans' Court of the county in which the principal place of business of such partnership may be, in the same manner as the estates of intestates are now by law sold; testamentary dispositions, in writing, of the interest of special part- ners may also be made : the decease of special part- ners shall not dissolve such limited partnership, unless, by the agreement between the parties, it is provided that such decease shall have that effect. Sec. 5. Every alteration in such limited partner- ship, according to the provisions of this resolve, shall be notified to the general partner, and shall be duly acknowledged, certified and recorded, as in the case of the original formation of such partnership. 60 of the formation of limitfd partneeships. [ch. iv. Act of 14:Th April, 1851.' Sec. 13. From and after the 10th day of August next, all persons who are now doing business in a partnership capacity in this Commonwealth, shall file or cause to be filed in the office of the Prothonotary in the county or counties where the said partnership is carried on, the names and location of the members of such partnership, with the style and name of the same ; and as often as any change of members in said partnership shall take place, the same shall be certified by the members of such new partnership as aforesaid ; and in default or neglect of such partnership so to do, they shall not be permitted, in any suits or actions against them in any Court, or before any justice of the peace or alderman in this Commonwealth, to plead any misnomer or the omission of the name of any member of the partnership, or the inclusion of the names of persons not members of said partnership. Sec. 14. Hereafter, where two or more persons may be desirous of entering into any business whatever, in a partnership capacity, they shall, before they engage or enter into any such business as aforesaid, comply with and be subject to all the proyisions and restric- tions iu the next preceding section of this Act. Such is the entire legislation of Pennsylvania on the subject of Partnership. § 43. It occurs to the writer, that, before proceeding to a consideration of the provisions of these statutes in detail, a preliminary review of their general cha- racter and merits, both alone, and ia comparison with ' Paraph. Laws, 615. Stroud & Brightly's Dig. 1383. CH. rv.] STATUTE OF PENNSYLVAOTA OF 1851. 61 the cognate system in Europe, would be here appro- priate. § 44. The first observation, then, which he ventures to submit, after an earnest reflection of years upon these statutes, is, that as a system, they are eminently de- fective. It may with truth be said, that the legisla- ture which enacted them, in attempting to accompHsh what was just, fitting, and plenary, have ia fact ac- compHshed too much, and, therefore, too little. They have borrowed from a foreign nation, in a foreign tongue, a system, which, they have thought, after a sort of adapted version or traduction, they might throw, broadcast, amongst American judges, for ad- ministration. Judges, be it said too, (with, however, the utmost respect and deference,) only conversant with the common law, or perhaps, in addition, but in a much less degree, with the Roman Civil Law ; un- acquainted, for the most part, with the languages of modem Europe, and with Httle or no taste for the study of European codes or jurisprudence. What could be expected to flow from functionaries thus taken by surprise, but confused and apocryphal in- terpretation ? We have seen, so far at least, in the decisions which have been pronounced by those judges, in cases emanating from those statutes, that the standards of judgment resorted to have always been of common law affinity. Dwarris on Statutes has fur- nished rules for the construction of sections ; and au- thorities from Enghsh Common Law and Equity reports, cited in illustration of them. But it has never apparently occurred to those judges, that perhaps the French and Itahans have their Dwarris on Statutes ; that they have their general maxims, (or ApTwrismes de Droit,) their decisions, [arrets de trihwnaux;) and 62 OF THE FORMATION OF LIMITED PAETNERSHIPS. [CH. IT. their doctrine of legists and jurists. No blame can attach to the judiciary for this ; but much can to the legislators who devised and framed the novel system.' §45. No doubt this judiciary, or such members of it whose task it may hereafter be to construe these statutes, are able and learned expounders of the sci- ence with which their early and constant studies have made them famihar; that of the common and written law of their own country. No doubt, too, that if the legislature had borrowed a system of commercial asso- ciation from England, that had been as long at har- monious work in that kingdom, as the societe en com- mandite has been in France, they would have found able and competent expositors of it in the judges of the various United States ; but they had no right to suppose those judges famiUar with the Napoleon Code, or with the judgments of the Court of Cassation in illustration of it, or with commentaries on its text of Merlin, Delvincourt, Duranton, Boulay Paty, Duver- gier, Troplong, Delangle, and other luminaries of the French bench and bar of the 19th century. In 1836, the legislature of Pennsylvania thought its project of enactment on this species of partnership complete, and so passed it. In 1838, it found its work to be incomplete, and therefore amended it by the four sec- tions of the Resolution of that year. The latter enact- ment demonstrates but little more acquaintance with the genius of the system than that which presided over the formation of the law of 1836.® Now, would ' Of course these remarks do not apply to the judiciary of the State of Louisiana. All the decisions of the Supreme Court of that State, which the author has met with, upon commandite questions, are in consonance and harmony with the European system, and are most ably adjudged. * The writer chanced to be in Harrisburg during the session of the CH. rS^.] COMPARISON WITH FRENCH SYSTEM. 63 it not have been wiser to have debated the propriety of introducing the system precisely as it existed, and was then working in France ? K so, the whole ex- tent of the new statute could have been worded in this formula : — " The law of partnership with a limited liabiUty, as it is authorized in France by its Commer- cial Code, under the title of Societe en Commandite, is henceforth the law of this State." Certainly, this would have given us a complete system ready made ; and the bar and bench here, would have been forced to recur to the French law for the text and exposition of it. Would we now be better off had that course been taken ? The writer has no hesitation in advancing the opinion, that, had it been taken, we should be much better off. He sustains that opinion by the following views : §46. Either the present system of the Societe en legislature of 1836, and was present in the House of Representatives when this bill was up for consideration. It was under the care of a member from the city of Philadelphia, who, although " a prosperous gentleman," and certainly a very courteous and intelligent one, had been long a ladies' shoemaker, and was consequently incapable, by previous studies and habits, as the writer submits, to codify a project of the sort with comprehensive skill. But, with a transcript of the New York sta- tute merely to defend and carry through, he was just as competent as any of his colleagues, for the nonce. At the time and on the occasion above referred to, a member from the country ventured to attack and criticise one of the sections, certainly in no very cognoscent way. "Oh, you don't understand," was the instant interpellation of the city champion of the bill ; and the fact being so, he was assisted in the cry by others, until it became a chorus which effectually doubled down the assailant. From that moment, such was the quiet and uninterrupted progress of the several sections through the usual ordeal, that the writer began to suspect, that " don't understand," or rather the fear of getting uUm crepidas, was a potent settler of quips and objections on the part of members ; and he has ever been convinced that had not an experiment and a model, on a grand scale, been furnished by the soi-disant Empire State, the State of Pennsylvania would then neither have originated nor adopted the system. 64 OF THE FOKMATION OF LIMITED PARTNERSHIPS. [CH. IV. Commandite in France — and it is the same now as it ex- isted in the time of Napoleon, — in 1822, when the New York Statute was promulgated, was the best system, or it was not. If it were the best, it ought to have been adopted in this country exactly as it existed; if it were not the best, a better one should have been projected. Instead of that, what has been done ? An imitation of it, in an English dress, with just such changes in the fashion of that dress, as have made it a bad imitation; and, unless the bench and bars of the States that have adopted it may, and will, resolve to give it the right shape and configuration, just such changes as will either render it impracticable, or make it a long enduring source of harassment and anxiety to the capitalists who may choose to venture under its provisions. § 47. "What was the Societe en Commandite in France from the reign of Louis XIV. to the foun- dation of the French empire ; and what is it, as it now dates, from the Commercial Code of the Emperor ? A descriptive answer to these two questions will show what has been gained or lost by the introduction here of the Anglicized imitation above mentioned. § 48. In 1673, French commercial law — ^which up to that date had for the most part been embodied out of loans from Italy, — received at the hand of Louis XIV. the celebrated ordonna7ice of that year, " one of the noblest monuments of the creative genius of that great king." In this ordonnance, partnership en com- mandite was invested with the character and insignia of regular and real partnership, and was distinguished from other forms of partnership. But an agreement for it was not required to be pubhcly registered, a prac- tice that gave rise to frauds, inasmuch as the secret CH. IV.] COMMANDITARY PAETNEESHIP. 65 special partner might, by purchasing the silence of his general associate, come forward after a failure, and claim as a creditor for money lent. Neither were the special partners condemned to inaction; on the con- trary, they might aid, if they chose, in conducting the joint business. And the firm had no social style; each member acted separately, under his own name, and could not bind his associates, although acting for their benefit. " This organization," says Troplong, from whose pages the preceding account has been con- densed,^ "resembles in nothing the commanditary part- nership of the Code of Commerce. During the dis- cussions on this portion of the code in the Council of State, M. Merlin declared against the use of a part- nership style; and insisted, that the business should be conducted under the name of a single general part- ner; contending, that if a single general partner were allowed to add ' Company' to his signature, this would be the badge of a general partnership, and would an- nounce to the pubhc the reverse of what was the fact, viz., that there was a special partner. But his col- leagues contended, that, as it would be required to re- gister the agreement publicly, wiihout, however, the names of the special partners, A. B., a general partner, who had one or more special partners, might sign, A. B. & Company; for this was a formula understood by the pubhc, with which they were famUiar, and the precise sense of which had been fixed by long usage. And this doctrine was sanctioned by the 23d article of the Code of Commerce,^ now in full vigour. We > Des Societds, Vol. I., Nos. 378 to 394; p. 354, 370. ^ Ibid. Nos. 399,400; p. 377, 379. It will rather surprise those con- cerned in Andrews v. Schott, 10 Barr's Rep. 47, to learn, that at this day 66 OF THE FORMATION OF LIMITED PAETNERSHIPS. [CH. IV. have here," continues the same author, "partnership, with limited liabiUty, largely and strongly developed. Not only is required of it a social signature, — dif- fering in this respect from the practice of the mid- dle ages, — ^but permission is extended to it to divide its capital into shares, so as thereby to attract towards it large masses of dormant funds. Further, it may either combine itself with a general partnership al- ready organized, or proceed alone under a single gene- ral partner, with a social style that reveals to the pub- lic an association of capital with labour, in the cause of trade and commerce. But, differently from the usage and law anterior to the 19th century prevailing in Italy and France, limited partnerships must now be published, both where they consist wholly of mer- chants, and where they are composed of merchants and of capitalists not merchants, or acquainted with trade. The names of the special partners are Tiot pub- lished in the open registry, but the amount of capital contributed by them must be ; and whether merchants or not, they must not interfere. The ancient law had long been seeking a combination of this nature, but in vain ; acknowledging continually the insufficiency of its own scheme." " Nothing is simpler than the idea of the Code of Commerce; it is the egg of Chris- topher Columbus."' Again, "Such is the eclectic organization which the Code has imposed upon this kind of partnership: without adopting any exclu- sive system, it has borrowed a httle from all, there- by constructing a system, neither wholly new, nor even, the formulary of A. B. If Co. is in use in the limited partnerships of France, and of Europe generally. » Des Societes, Nos. 401, 402, 403, 404; p. 379, 380. CH. IV.] COMMANDITART PARTNERSHIP. 67 wholly old, but combining all the advantages of ante- rior theories disengaged of their inconveniences."^ " It is a system, thanks to this same commercial code, that is still flourishing in the hands of our merchants, our shippers, our traders and manufacturers. It preserves also its scheme of share-capitals, with certificates to bearer or nominative, — a scheme dear to commerce and trade, from the wealth thereby drawn into circu- lation, and added to the public fortunes. For my part, convinced as I am that our law of civil and mer- cantile partnership is the valued fruit of long expe- rience, an experience ripened by the most decisive tests and trials, by the most varied and ingenious prac- tical combinations ; that its formulas are the embodi- ment of all that the past has bequeathed us of facts great in economy and in industry, — I profess a deep faith in its wisdom; and, although I may descry in it some secondary faults, I shall not give way to clamour for change more retrograde than progressive, but I shall content myself with the right of appeal to juris- prudence for reUef, in all those cases wherein it may be requisite to remedy vicious outlines and discordant features."^ § 49. Without going here into the mechanism of this system, as established in France by the commer- cial code, it may be well to observe, that it is there wholly regulated by a few articles, so brief and precise, that the statutes of New York and of Pennsylvania are verbose beside them. The lengthy sections in these statutes, intended to guard creditors against fraudulent bankruptcies, preferences, and assignments, ought, as will be universally conceded, to form part of the general legal polity of the state, and applicable ■ Des Societes No. 406, p. 480. ' Ibid. Preface, p. xoix., c. 68 OF THE FORMATION OF LIMITED PARTNEBSHIPS. [CH. IV. to all such acts, no matter whether perpetrated by individuals or associations. Probably, too, such is the spirit of jurisprudence in most if not all of the several States of this Union. The section as to dissolutions is not only verbose, but, as it contains no sanction for enforcement, seems to be inefficient as a guard in be- half of creditors or special partners.' § 50. Let us now commence our review of the seve- ral sections. The first two are as follow : — 1. Limited partnerships for the transaction of any agricultural, mercantile, mechanical, mining, and trans- porting of coal, or manufacturing business, within this state, may be formed by two or more persons, upon the terms, with the rights and powers, and subject to the conditions and liabiUties herein prescribed. But the provisions of this act shall not be construed to au- thorize any such partnership for the purpose of bank- ing or making insurance. 2. Such partnerships may consist of one or more persons, who shall be called general partners, and who shall be jointly and severally responsible as general ' The statute of California, authorizing limited partnerships, {Ch. 55, p. 148, 150,) passed on the 4th of April, 1850, contains but thirteen sections, in which are admirably condensed the whole of the twenty-four sections of our own law, and that of New York. The eighth section in particular, respecting a division of profits and reduction of capital, em- bodies the substance of the 15th and 16th of ours; and instead of directly authorizing the payment of interest to special partners, declares that "no division of interest or profits, shall be made so as to reduce the capital stock below the sum stated in the certificate." The 9th section, which is a brief one, merely prohibits, in case of failure and assignment, any preferences to favoured creditors, and thus expresses the substance of the 20th, 21st, and 22d sections of our statute, which, in an amplified and laborious manner, aim at the same object. In a word, the act passed on the Pacific Ocean shows more artistic skill in the conformation of it than any drawn in the Adantic States, except that of the State of Florida. CH. IV.] SECTIONS I. AND II. OF OUR STATUTE. 69 partners now are by law, and of one or more persons who shall contribute, in actual cash payments, a spe- cific sum as capital to the common stock, who shall be called special partners, and who shall not be liable for the debts of the partnership beyond the fund so contributed by him or them to the capital. § 51. A question might arise with some, whether the words "Mm or them" in the latter part of the se- cond section did not exclude women from the benefit of the law; particularly, as other succeeding sections speak of the special partner as a man : thus, in the 13th section, and in the 15th, 16th, 17th and 21st sec- tions, the pronoun Tie or his, in reference to a special partner, is exclusively used. But if it could for a mo- ment be supposed, that any court of justice in this state exists, capable of putting so narrow an interpretation upon this law, it would be necessarily embarrassed by the clauses in the 1st and 2nd sections, allowing Limit- ed partnerships to be " formed by two or more persons" and providing that they " may consist of one or more persona " as general partners ; " and of one or more •persons who shall contribute in actual cash, &c., who shall be called special partners." The word "them," moreover, in the last line of the. 2nd section, certainly embraces females in cases where there are to be seve- ral special partners. § 52. If it were not intended to make such an ex- clusion, then single women and feme sole traders might become special partners. That is, married women left in trade by their husbands, who go to sea, may, it seems, since the decision of the case of Burhe v. Wm- Me,^ enter in Pennsylvania into articles of copartne]> ' 2 Serg. & Rawle, 189. 70 OP THE FORMATION OF LIMITED PARTNERSHIPS. [CH. IV. ship vffider seal, if the contract be with a view to be- nefit their trade, or to maintain themselves and their children. It would seem, too, says CoUyer,' that by the custom of London, a feme covert trading separately from her husband, may be a partner.^ But she could not there become a partner by contract under seal.' But under the rules of the common law, other mar- ried women cannot sustain the character of partners, because they are legally incapable of entering into the contract of partnership; and although, in England, they are not unfrequently entitled to shares in bank- ing houses and other mercantile concerns, under posi- tive covenants, yet, where this happens, their husbands are entitled to such shares, and become partners in their stead.* ' Law of Part., p. 7. » He cites for this, Bohun, Priv. Lond., 187; Beard v. Webb, 2 B. & P. 93. » See 2 Serg. & Rawle, 191, 192. * Collyer, 7. The general English doctrine, in reference to married Women, seems to be, that when the wife is left by the husband; has traded as a, feme sole, and has obtained credit as such, she ought to be liable for her debts ; and the law is the same, whether the husband is banished for his crimes, or has voluntarily abandoned the wife. Mhea et al v. Rhenner, I Pet. S. C. U'. S. Rep. 105. No temporary absence of a husband, or a separate maintenance, or living apart, of the wife, will enable the latter to sue, or subject her to be sued alone. Robinson v. Reynolds and Wife, 1 Aik. 174. But where the husband is accounted in law, civiliter mortuus, as where he is exiled, banished for life, or has abjured the realm, the wife may sue or be sued, as a feme sole. lb. So, too, where the husband, being an alien, has never resided in the government. lb. As to married women in general, there can be no doubt that in Penn- sylvania, since the Acts of 1848 and 1851. they may not only be special partners, but general ones too, in firms established under the law of 1836. Indeed, their rights, to property in this state, have been placed by legis- lation upon a basis so liberal, during the last four years, as to be in per- CH. IT.] MARRIED VOMEN. 71 §53. In Italy, women maybe the general parlr ners of this species of copartnership;' a fortiori, there- fore, may they be special partners. feet contrast with the long night of oppression that weighed upon them anteriorly. The provisions of the Act of 1848 are as follow : — 1. Sec. 6. Every species of property, real, personal or mixed, owned by any single woman, shall continue to be her property, as fully after her marriage as before ; and all such property, which shall accrue to any married woman during coverture, by will, descent, conveyance, or other- wise, shall be owned, used and enjoyed by such married woman as her own separate property; and the said property, whether owned by her before marriage, or which shall accrue to her afterwards, shall not be sub- ject to levy and execution for the debts and liabilities of her husband, nor shall such property be sold, conveyed, mortgaged, transferred, or in any manner encumbered by her husband, without her written consent first had and obtained, and duly acknowledged before one of the judges of the courts of Common Pleas of this Commonwealth, that such consent was not the result of coercion on the part of her said husband, but that the same was voluntarily given and of her own free will: Provided, That her husband shall not be liable for her debts contracted before marriage ; Fromded, That nothing in this act shall be construed to protect the pro- perty of any such married woman from liability for debts contracted by herself, or in her name by any person authorized so to do, or from levy and execution on any judgment that may be recovered against a hus- band for the torts of the wife, and in such cases execution shall be first had against the property of the wife. [See 1 Jones, 272. 1 Harris, 480. 3 Am. L. J. 138. 1 Pars. Cos. 489. 1 Am. L. J. 387. 1 Wh. Dig. 925.] And to the aid of this section comes the 20th of the Act of 1850, de- claring that its true intent and meaning is, that the real estate of any married woman in this Commonwealth shall not be subject to execution for any debt against her husband, on account of any interest he may have, or may have had, therein, as tenant by the curtesy; but the same shall be exempt fi'om levy and sale for such debt, during her life. The succeeding sections of the Act of 1S48 then proceed to invest married women with the following important privileges, and to subject them to the following liabilities : — Sec. 7. Any married woman may dispose, by her last will and tes- tament, of her separate property, real, personal or mixed, whether the same accrues to her before or during coverture : Provided, That said last will and testament be executed in the presence of two or more witnesses, neither of whom shall be her husband. Sjbc. 8. In all cases where debts may be contracted for necessaries for ' 1 Fierli, p. 60. 72 OF THE FORMATION OF LIMITED PARTNERSHIPS. [CH. IT. § 54. It has been decided in Louisiana, that a fe- male minor may become a special partner, if emanci- pated by her natural guardians. And where the father the support and maintenance of the family of any married woman, it shall be lawful for the creditor, in such case, to institute suit against the husband and wife for the price of such necessaries, and after obtaining a judgment, have an execution against the husband alone ; and if no pro- perty of the said husband be found, the officer executing the said writ shall so return, and thereupon an alias execution may be Issued, which may be levied upon and satisfied out of the separate property of the wife, secured to her under the provisions of the first section of this act : Provided, That judgment shall not be rendered against the wife, in such joint action, unless it shall have been proved that the debt sued for in such action was contracted by the wife, or incurred for articles necessary for the support of the family of the said husband and wife. Sec. 9. When Einy married woman, possessed of separate personal property as aforesaid, shall die intestate, her husband shall be first en- tided to letters of administration on her estate, which said estate shall be distributed as follows: — ^If such married woman shall leave no children, nor the descendants of such living, the husband shall be entitled to such personal estate absolutely; if such married woman shall leave a child or children living, her personal estate shall be divided amongst the husband and such child or children, share and share alike : if any such child or children being dead, shall have left issue, such issue shall be entitled to the share of the parent. The 10th and concluding section on the subject then provides, that the real estate of married women shall upon their decease, descend and vest under the general intestate law of the State ; and " that nothing con- tained in this act shall be taken to deprive the husband of his ri^t as tenant by curtesy." The whole of this 10th section is badly worded and obscure; but the final portion, as above contained between inverted commas, is, unless it was intended to cut the throat of the entire statute, a stupid blunder. How can a curtesy estate be thus preserved to a husband, compatibly with the previous right given to the wife, to sell, convey, give, and de- vise her whole real estate ? If it had been said that " nothing in this section," instead of "in this act," shall be deemed to take away the curtesy, then the latter estate might, by judicial construction, be limited to intestacies; but as the phraseology now stands, nothing seems ab- solutely secured to married women but the right of disposing of their personal property. The next legislation on the subject was the act of April 25th, 1850, and again in aid of the act of 1848; providing, that married women therein CH. IT.] MARRIED WOMEN. 73 and natural tutor had advanced capital for such a minor to enter into a limited partnership, and had by a notarial act constituted her a special partner therein, protected, in want of trustees, should have them appointed by the Com- mon Pleas of the county wherein they were domiciled at their mar- riages; and also providing, that they might declare trusts of their pro- perty in favour of their children. And still further, that all suits for the recovery of any such property, might be brought in the names of such married women and of their husbands to the use of their wives, and that judgments therein should be for the exclusive use of the latter. Now, the question arising under this legislation of 1850 is, whether it amounts to a cure of the difficulty suggested above, as to the 10th sec- tion of the act of 1848, in relation to the sweeping effect of the curtesy tenure therein declared. Lastly, the act of the 15th April, 1851, provides for money transactions between husband and wife in the following effectual and decisive way : Sec. 22. It shall be lawful for married women to loan to their hus- bands moneys being of their separate estate, and to take in security therefor a judgment or mortgage against the estate of the husband in the name of a third person, who shall act as trustee for such married wo- man; and any such security taken bona fide to secure such loan or mo- neys received by the husband from the proceeds of the real or personal estate of the wife, shall be as good and valid in law against the estate of the husband, as though the same had been invested by a trustee appoint- ed by the court, f^""^ ^^^ foregoing statute at length, see Stroud and Brightly's Dig. 1364—1366.] The whole of the preceding legislation, though meaning benevolence and protection to married women, as thus constructed, explained and patched up, is but an involved, lame and unscientific piece of work. The introducing into it the old and inconvenient machinery of trustees, is not the least foolish part of it. The trustee tenure is an invention of English equity to get rid of a black-letter barbarism, and ought never to have been made necessary in this free and untrammelled country. Why, to guard a wife's property against her husband, expose her to be cheated by a trustee ? Would it not have been manlier, and infinitely wiser, to have declared, like the European codes, that in reference to property, husbands and wives should be considered as single; and that they might deal together with property bona, fide their own, just as they might with third persons, except that all contracts between themselves should be immediately acknowledged and publicly recorded? Under the act of 1851, as above quoted, a married woman may, through a trustee, undoubtedly invest her money in her husbands business, either as a special or general partner, (but, of course, without security,) 74 OF THE FORMATION OF LIMITED PARTNERSHIPS. [CH. rV. it was held by the Supreme Court that this amounted to an emancipation, and that she was bound as such for all her commercial acts.^ § 55. By the French law, the clerks of merchants are not permitted to enter into the business of their em- ployers as special partners, either by an investment of cash or of their skill and labour valued at a precise sum." Our act extends to any person or persons, but its sub- sequent provisions would operate to annul the contract of clerkship, or to render the clerk liable, in solido, should he continue, when so received, to act as clerk. § 56. In every limited partnership, there must b6 at least one general partner, to be answerable, accord- ing to the common law, to the pubhc for all the debts and engagements of the . company. But though there need be but one general partner, the number of spe- cial partners is unlimited. Let us now take up the 3d section. Sec. 3. The general partners only shall be autho- rized to transact business, and sign for the partnership and to bind the same. § 57. A case of limited partnership recently came before the court of chancery of New York,^ in which the various members of the firm, general and special, appear to have been completely mixed up, very much, liable, in the former capacity, to be plundered by him, and in the latter by her trustee. If there had been no instances in this Commonwealth of women having been robbed by their trustees, we might not marvel at this mistake of our legislature. Is it impossible for common lawyers to learn, that if women, covert or not, are protected by law, they can take care of their property as well as trustees? They can and do, in Europe. ' Jonau 1). Blanchard et al., 2 Robin. Louis. Rep., 513, See this case reported post, in Appendix No. 1. 'PardesBus, No. 1030. ' Haggerty and others v. Taylor and others, 10 Paige, 261. CH. IV.] SECTION III. OF OUR STATUTE. 75 as it strikes the writer, ia opposition to the spirit not only of the foregoing section, but of several others of the statute. The partnership in question was formed in the summer of 1834, between the four executors of the will of H. Booraem, deceased, as the special part- ners, and T. L. Booraem and F. L. Clark, two of svxih executors, in their private capacities, and J. B. Rath- bone, as general partners ; and the four executors, as such special partners, contributed, by the direction of their testator, the sum of $40,000. The partnership expired on the 1st of January, 1837, by its own limi- tation, without any apparent disaster, but was conti- nued by the general partners, who gave notes in the name of the firm, and who failed in April, 1837. The holders of the notes given after the expiration of the limited partnership, sought by a bill to have a receiver of the insolvent assets appointed, and to be allowed to receive a rateable portion of them as creditors of the firm.^ § 58. We have in this case an instance of a part- nership consisting of three general and four special partners, but not of seven individuals, inasmuch as two of the general partners consisted of two of the spe- cial partners. In point of fact, there were but five members of the finn, two of whom served in a two- fold capacity. The only circumstance existing that presented the shadow of a reason for keeping the asso- ciation out of conflict with the law, was that the spe- cial partners were all trustees, representing the same cestui que trust. Ought that circumstance to have made any difference? No question was made, nor ' See this case more fully stated, post, in the chapter on dissolutions of limited partnerships; post. Chap. XIV. 76 OF THE FORMATION OF LIMITED PARTNERSHIPS. [CH. IT. point taken, before the court, in the case cited, as to this position of the limited partners, and whether a matter for common law or equity jurisdiction, it is not now necessary to discuss. § 59 . It was not necessary, for aught that appears, in order to carry out the intention of the testator, that the f(mr executors should have acted as special part- ners. The two who wished to be general partners might have renounced. If, however, the will required the junction of the whole four, a proper discharge of their duties, as trustees of the $40,000 invested, would interfere with the character of general partners as- sumed by two of them. There being in fact but two special partners and three general partners, left the former in a minority in all cases in which it became their duty to advise as to the management of the con- cern. The two special partners, who were also gene- ral ones, either ceased ex vi contractus to be special partners, or they were constantly interfering with the business, in violation of the provisions of the statute. If a man can, by his will, for the benefit of his family, make trustees limited partners, who may also in the same firm act as general ones, there seems no good reason why the members of his family should not have the right to do the same thing directly, and at the same time be general partners; nor why the same man should not, during his life, appoint four trustees to in- vest his money, as limited partners, and at the same time act as general partners. In that case, he would, by the mere risking of a certain sum, be enabled to control the partnership, and to have the benefit of their operations to the full extent of their credit. Suppose the whole four executors had chosen to become the general partners, without associating any one else with CH, IV.] SECTION IV. OF OUR STATUTE. them? There would have been no greater violation of principle in this case than in the actual one. Should the other two special partners have become lia- ble, either for entering into this contract, or for any interference with the firm, did they become liable per- sonally, or as trustees ? And, if as trustees, would the estate of the testator be responsible to the creditors through proceedings against them, or in any other way ? Many other difficulties will suggest themselves to the professional inquirer, upon perusing the statute, in the way of an association on the plan of that formed by the parties in the case referred to, more, perhaps, than can be got over. It seems evident that the third section intends only general partners, who are not special partners ia any way ; neither in a fiduciary capacity, nor in an individual one. § 60. Sec. 4. The persons desirous of forming such partnership shall make and severally sign a certifi- cate, which shall contain — I. The name or firm under which such partnership is to be conducted. II. The general nature of the business intended to be transacted. III. The names of all the general and special part- ners interested therein, distinguishing which are gene- ral, and which are special partners, and their respect- ive places of residence. IV. The amount of capital which each special part- ner shall have contributed to the common stock. V. The period at which the partnership is to com- mence, and the period at which it will terminate. The following form of certificate will fully comply with the requisitions of the preceding section : We, the undersigned, jointly and severally, certify 78 OF THE FORMATION OF LIMITED PAETNERSHIPS. [CH. 17. and declare that we constitute all the members of a firm, the name of which and that under which said partnership is to be conducted, is, A. B. & C. D. That the general nature of the business intended to be transacted by us is {That of House Carpenters, — Ship Builders, (fee, (fee, — The Receiving, Storing, and Selling of Goods on Commission, — The Exporting and Imparting of Qoods generally, in our own or chartered vessels, &c., &c.) That the general partners in the said firm, are, A. B., residing at No. — South Street, in the city of Philadelphia, C. D., residing, &c., in the said city; and the special partners are, E. F., residing, &c., and G. H., residing, &c. That the amount of capital which the said E. F. has contribu- ted to the common stock is, dollars, and the amount of capital also so contributed by the said G. H. is, dollars, and that the said sums have by them been actually, and in good faith, paid in cash. That the said partnership is to commence on the day of A. D., 1852, and that it will terminate on the day of A. D., 1860. § 61. In an action brought to charge the special as well as the general partner, on a note endorsed by the latter in the name of the firm, it appeared that in the published terms of the partnership, the period of its commencement was stated to be the 16th of Novem- ber, 1837, whereas in the original certificate, the time specified was the 16th of October, 1837; it was held by the Supreme Court of New York, that, unless the error were intentional, or the endorsement were made before the time mentioned in the pubhshed terms, the special partners were not liable.^ ' The Madison Comity Bank v. Gould et al., 5 Hill's Rep. 309, City oe County of Philadelphia, CH. IV".] SECTION V. OF OUE STATUTE. 79 § 62. Sec. 5. The certificate shall be acknowledged by the several persons signing the same, in the man- ner, and before the same persons, that deeds are now acknowledged; and the said acknowledgments shall be certified in the same manner as the acknowledg- ments of deeds are now certified. § 63. The following might be a form of acknowledg- ment under this section ■} ^'} On this day of A. D. 1852, before me, the subscriber, an Alderman of the City of Philadelphia, personally appeared A. B., C. D., E. P., and G. H., the general and special partners named in the foregoing certificate, and who have signed the same, and severally acknowledged the same to be their act and deed,jand desired that as such, it may be recorded according to law. Witness my hand and seal, the day and year afore- said. J. J. K. (Seal.) Alderman. § 64. In all the states except Louisiana, general re- sponsibility would be entailed on the special partners by falsehood in respect of the asserted payment of the capital stipulated by the latter. Indeed, it seems that they are Hable for one another, and that each must see that his associates do actually pay in their several shares. The 7th section of the act of the > This and any other form draughted by the author, is not offered as a precedent for adoption in practice ; but is intended by him merely to illustrate the principle of the statute. He presumes that the forms ac- tually in use may be readily got at the Recorder's office. 80 OF THE FORMATION OF LIMITED PARTNERSHIPS. [CH. IV. State of Maryland, makes it perjury in the general partner to swear falsely as to the pajnuent of the re- spective investments, and also requires each special partner " to make and file in the same manner, an affi- davit of the amount of money advanced and actually paid into said partnership fund, by himself;" but the section does not go on to declare that false swearing by the special partners shall be punishable as per- jury, as it declares in the case of the general partners. The acts of the two first mentioned states say nothing about perjury : how their silence in this respect is to operate, is open to judicial construction. In the case of The Madison Gmmiy Bank v. Qould^ it was contend- ed that the affidavit of the general partners must be met by the testimony of two witnesses, and that the jury must be prepared to convict him of perjury, be- fore they could find a verdict for creditors in an action embracing the special partners, on the allegation of the non-payment of their quotas of the capital. But the court said, that such a rule would open a wide door for the commission of fraud, and would impose an in- tolerable hardship upon creditors. § 65. A question has been discussed and variously decided in France, that could not arise under th^ sta- tutes of this country, except under that of Louisiana. It is, whether a special partner, who never did, in point of fact, pay in his share of the capital, can be compelled to do so by the creditors directly, after the firm has become bankrupt? The Cour Eoyale of Paris de- cided in 1833, and again in 1841, this question in the negative. But according to Bousquet,^ it was held ' 24 Wendell, 309, 316. » Diet, de Droit, 2d. vol. p. 667. It is a principle, that the bearers of CH. IV.] SECTIONS IV. AND V. 81 otherwise in Cassation, at Paris, ia February, 1844. The reasoning quoted by him for the affirmative, is as follows : — " Third persons who deal with the firm are supposed to rely on, not only the personal good faith of the several partners, but also on the amount of the actual capital declared to have been paid in. The contract on the part of the limited partners, for whom all interference is interdicted, involves an authority from them to the general partners, to bind them to third persons to the extent of the funds which they have paid in, or which they ought to have paid in. Third persons trusting the firm, ought to have the whole firm bound to them; that is, the general part- ners indefinitely, and the special partners to the ex- tent of their investment; and the obhgation, thus limited in favor of the latter, necessarily impUes a tight and consequently, a remedy on behalf of such third persons. Now, as the bankruptcy of the firm puts an end to the ministry of the general partner, the action to compel the paying in of the sums stipulated by the special partners must necessarily accrue to the creditors, or to their legal representatives, to wit, the assignees of the firm, or the sjTidics in bankruptcy." But as long as the firm holds a legal existence, as long as it is neither dissolved in pais nor in law, so long must the creditors look to the general partner alone.' § 66. This principle (of a direct action by creditors against special partners, who have not paid up the whole of their contributions of capital,) has been shares in a limited partnership are held as special partners in regard to third persons, and subject to the direct action of creditors after a failure of the company. [In Cassation, Feb. 28th, 1844. ReQueil Gen. de Sirey, P. I. p. 692, Tol. of 1844.] ' Id. Ibid. F 82 OF THE FORMATION OF LIMITED PARTNERSHIPS. [CH. IT. established in a very recent case in Cassation at Paris.^ The partnership had failed, and the creditors had com- promised with the general partner, as to the assets in his hands; yet this was held not to adeem the right of action against the special partners, for the balance of their stipulated investments. This was a limited part- nership with a capital of six millions of francs in shares, for the establishment of Flax and Hemp Spinning Factories, upon a new principle. It failed in September, 1848, with subscriptions to the amount of 2,500,000 francs unpaid by the special partners. The creditors abandoned the assets in the hands of the general partners, (two in number,) taking their per- sonal responsibihty in lieu of the assets, and sued the special partners for the balance of subscriptions, which they recovered.* § 67. And they are so held, even where by par- ticular agreement and covenants between them and the general partner, it has been stipulated that they shall only be considered as simple lenders of money, and certain shares in the company have been specially de- livered to them, as collateral security. In the event of the bankruptcy of the company, therefore, the bearers of such shares, who allege themselves lenders of money to the company, cannot come in with other creditors for a portion of the assets.^ In this case, a certain limited partnership, (the Sirius .Steam- Boat Company of the Rhone,) had increased their ' Oppenheira et al. v. Duval, Vancluse et al., 30th July, 1851. Sirey, P. 1, p. 696. * The case is reported more at length in the volume of Sirey for 1850, Part 2, p. 638, before the Court of Appeal, of Paris, and therein decided on the 6th December, 1850. » In Cassation, 8th March, 1848 ; (Ibid.) vol. of 1848, P. 1st, p. 446. CH. IV.] SECTIONS IV. AND V. 83 capital of 1,050,000 francs, (divided into 210 shares of 5000 francs each,) to 2,045,000 francs. The whole of the shares had not been subscribed, and the last emission had not been taken up. In 1841, the com- pany authorized their general partner to borrow 245,000 francs, on the pledge of 51 of these shares, from the plaintiflfs, who accordingly issued them to the latter, that is, to them by name or bearer. In 1842, the company having failed, the pl«,intiflfe presented themselves as creditors of the company, and claimed a pro rata part of the assets ; but they were excluded by the syndics, and this decision was sustained by this court, (on appeal from the court of Lyons,) Monsieur Portalis presiding. And it was said by the court, inter alia, that the 38th article of the Commercial Code, in permitting the capital of such companies to be divided into shares, intended that this should be done without derogating from the other rules established for the regulation of Umited partnerships, and that any persons becoming parties to such shares, should be held to the full payment up of their respective amounts. § 68. The earliest doctrine of the French tribunals was also maintained by the Supreme Court of Lou- isiana in 1843;' but that court in 1846, reviewed their opinion ; and in the same case, which came up upon a second appeal, decided that a partner in commendam is hable directly to the creditors of the firm for any amount of capital he was bound to contribute, or for any amount thereof, he may have inopportunely withdrawn.^ In the course of his judgment, the Chief Justice observes, that the court "will prevent the cre- ' Lachoroette v. Thomas, 5 Rob. Eep. 172. * S. C. 1 Louis. An. Rep. 120. 84 or THE FORMATION OP LIMITED PARTNERSHIPS. [CH. IT. ditors from obtaining any undue preference over each other, and in all cases carry into effect the principle of law, which makes the commendam fund a common pledge for the creditors of the partnership." Section VI. § 69. The certificate so acknowledged and certified, shall be recorded and filed in the office of the Recorder of Deeds of the proper county, in which the principal place of business of the partnership shall be situated, and shall also be recorded by him at large, in a book to be kept for that purpose open to pubUc inspection. If the partnership shall have places of business situ- ated in different counties, a transcript of the certificate, and of the acknowledgment thereof, duly certified by the recorder in whose office it shall be filed, and under his official seal, shall be filed and recorded in hke manner, in the office of the recorder of every such county. Section VII. At the time of fiUng the original certificate with the CAddence of the acknowledgment thereof, as before directed, an affidavit of one or more of the general partners shall also be filed in the same office, stating the sums specified in the certificate to have been con- tributed by each of the special partners, to the common stock, and to have been actually, and in good faith, paid in cash. § 70. The affidavit so required may be thus: — A. B., one of the general partners in the above de- scribed firm, being duly sworn (or affirmed,) according to law, deposes that the sums specified in the fore- going certificate have been contributed by each of the CH. IV.] SECTIONS VI. AND VII. 85 said special partners to the common stock, and have been actually, and in good faith, paid in cash. Sworn and subscribed, &c. § 71. Touching the matter of the registering, in other words, the creation, of a Hmited partnership, under the old law of Tuscany, Fierli cites an ancient case which he terms, " The celebrated cause of the Flo- rentine limited partnership, before the Auditor Carlo Bizzarrini, August 15th, 1705, (Guiseppe Frescobaldi, Merchant, vs. Antonio Quaratesi, Merchant,) reported in the Tesoro Ombrosiano, Tom. 1, Dec. 15, c. 16," and which, he says, involves the question whether a defect in or omission of the registry would make the special liable as general partners, where it had been expressly stipulated in the partnership articles that the j&rm was to be carried on in a foreign country, and was to have foreign special partners, and that none of the special partners were to be held liable beyond their investments. That the auditor Bizzarrini with the other judges, considering the statute of Tuscany, which only grants the privilege of such a partnership upon the two conditions of registry and non-interference, decided that on the facts, and the case before them, the home special partners were entitled to the action restituire in mtegrv/m; to protect them from the hazard of loss and general Hability which might be superin- duced by the omission in the registry; i. e., they were entitled to recover back their investments, and with- draw from the concern, thereby, so far as their contri- butions constituted the capital, dissolving it.' But ' This effect resembles the French doctrine oi nullity, a remedy allowed partners in a similar contingency. By the 2821st act of the civil code 86 OF THE FORMATION OF LIMITED PARTNERSHIPS. [CH. IV. the auditor Seratti, on the other hand, in his vote of partial dissent, (voto di scissura parziale,) contended, that the special partners had no need of restitution vn integrum, seeing that they could never be held liable m solido towards creditors in such a case ; because the latter, in their action, would have to produce the articles of copartnership, in which would appear the stipulation that the special partners were not to be held liable beyond their investment in the capital, and that relying, as they would have to do, upon those articles, as the foundation of their cause, there would result therefrom an express confirmation of the said stipu- lation. If, further, there should be foreign creditors, and likewise foreign special partners, there would en- sue, perhaps, a mixed case not embraced in the star tute. But, upon a fair interpretation of the statute, he undertook to infer that from an omission of (del) the registry, did not flow, as a necessary consequence, in favor of creditors, a liability of special partners as general.^ § 72. The learned Tuscan author then proceeds to say : " Although, for an omission of the registry of a limited partnership, our tribunals have sometimes granted to special partners the remedy of restitution m integrum,, the grounds moving them thereto must be weighty and extraordinarily just. In fact, all the requisites concerned in the above quoted Florentine case in favor of the special partners, to justify the conceding to them a restitution m vntegnim; to wit, the serious lesion to which they might be exposed of Louisiana, special partners may withdraw their investments, if an im- proper use of their names be made by the general partners. ' 1 Fierli, d. 96—98. CH. W.J SECTION vm. 87 to the whole extent of their fortunes ; the apparent cruelty of construing the statute so as to make an omission of the registry penal beyond the amount of their contributions to the capital; the fact that any further penalty was not therein expressly provided; or perhaps the statute did not contain limitations for effecting a registry; or perhaps it did not derogate from a covenant that there was to be no loss beyond the capital contributed, or from the disposition of com- mon reason in favour of special partners; or perhaps did not embrace the case of a limited partnership, with branches out of the state, or of foreign and home special partners concerned alike."' § 73. He lays it down, however, that if in Tuscany, a limited partnership be carried on that has not been registered in the prescribed terms and forms according to the statute, there is no doubt but that the special partners become Uable to creditors for all the debts of the firm,^ and in a note' he quotes a case in which they were so held liable, although the general part- ners had traded under the firm of Mcmcesco Cosmo Mcmajuti & Sons, without the addition of the word Compcmy. SECHOiir VIII. § 74. No such partnership shall be deemed to have been formed until a certificate shall have been^ made, acknowledged, and filed and recorded, nor until ian 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 part- » 1 Fierli, p. 99. » Ibid,, p. lOQ » rhiH . nntfi (^^.\ n. 103 : dficided in Julv". 1801. 1 Fierli, p. 99. » lt>ia,, p. lOU. Ibid., note (11,) p. 103; decided in July, 1801. 88 OF THE FORMATION OF LIMITED PARTNERSHIPS. [CH. IV. nership shall be liable for all the engagements thereof as general partners. Section IX. The partners shall publish the terms of the part- nership when registered, for at least six weeks im- mediately after such registry, in two newspapers, to be designated by the recorder of deeds of the county in which such registry shall be made, and to be pub- lished in the county or counties in which their business shall be carried on, and if such publication be not made, the partnership shall be deemed general. Section X. Affidavits of the pubhcation of such notice by the printers of the newspapers in which the same shall be published, may be filed with the recorder directing the same, and shall be evidence of the facts therein contained. § 75. In the case of Bowen v Argall,^ the Supreme Court of New York held that in the publication of the certificate of the terms of a limited partnership, a mistake in the names of the partners would not vi- tiate the publication, if unintentional, or not calculated to mislead. Thus the notice in the newspaper was, "that David C. Argale 'and William Argale, both of the City of New York, had entered into the partner- ship. It did not mention their place of residence more particularly, nor their place of business at all. The notice was signed David C. Argale and William Argale. It did not contain the name of Argall, (the true name) at all, nor was it shown that they were • 24 WendeU, 497. CH. IV.] SECTIONS VIII., IX., AND X. 89 known to the public by both names." " The object of the notice," say the court, "is that the public may be informed not merely of the terms, but of the parties to the contract of partnership. Their names alone would doubtless satisfy the word and spirit of the section, provided they be truly given. In this instance they are not, but names very nearly the same, with the city of their residence, are given as a substitute. The Christian names are correct ; and the mistake doubtless arose from the printer's mistaking the final L in the manuscript surnames, for an E, and thus being led to print the surnames so as to give a slightly different sound. It is extremely difficult to imagine how the public could be misled by names so very nearly the true ones, accompanied with the superaddition otf re- sidence. Undoubtedly the true question is, whether the mistake was under the circumstances calculated to mislead. In a case of doubt, the question should be put to the jury under the circumstances* In this case, however, I apprehend it was unnecessary. I think it furnished a case for presuming that no one was misled, at least till the contrary was shown."^ § 76. It will be observed, that no objection having been made to the form of the notice, for insufficiency in the description of the remdenjoe, the court seem to as- sume that the residence was legally set forth, and to in- voke the description of the residence in aid of the al- leged defect of misnomer. But ought not that excep- tion to have been taken ? Can the name of a city con- taining several hundred thousand inhabitants, alone given as the residence, be otherwise than a vague, un- certain, and informal description? It would not do > 2.4 WendeU, 502, 3. 90 OF THE FORMATION OF LIMITED PARTNERSHIPS. [CB. IT. in a notice of bail, or in any other notice of surety, where by law the residence of the party was expressly required to be specified. Further, a too vague or in- complete indication of the residence of the partners, coupled with an imperfect publication of their names, would certainly aggravate the objection that must arise to the vaUdity of the notice. If the language of Mr. Justice Cowen, who delivered the opinion of the court in the foregoing case, be scanned, it will be seen that the difficulty had for a moment crossed his mind, as he observed that the notice in the newspaper did not mention the place of residence of the partners, "more particularly, nor their place of business at all."^ § 77. This section also requires that "the partners shall publish the terms of the partnership, when re- gistered, for at least six weeks, immediately after such registry, in two newspapers;" as to which, the Su- preme Court of New York, in Bawenv. Argall, above referred to, have held that "the statute does not mean to speak of tim£ or days immediately following the registry, but of the six weeks immediately after/' and that " a publication in the first week immediately ensuing the registry, duly followed up by a repetition for the next five weeks, would seem to satisfy it in this respect." In the case cited, the publication had been made mthin three days after the registry, which was determined to be a compliance with the require- ment of the law. § 78. So, it was held in the same case, that it is complied with, if the publication be made in the news- papers designated, once a week for six successive weeks. The court said, that "the statute counts by »-24 Wendell, 501. CH. IV.] SECTION'S Vm., IX., AND 2. 91 weeks, taking one day, no matter which, if according to the common course of weekly publication, in each week. Thus the full term of 42 days and more were made out in this case. One publication in each six consecutive weeks of seven days each, the first publi- cation being within the first seven days after the registry, satisfies the statute in respect to time of pub- lication." " By mentioning weeks, the statute has an obvious reference to hebdomadal pubhcations, which are those in prevalent practice, when considered in respect to the whole state."^ §, 79. Under the Civil Code of Louisiana, the con- tract for the creation of a partnership in commendam is required to be recorded within six days from its exe- cution in the recorder of mortgages' office : it has been held by the Supreme Court of that state, that this pro- vision is directory only ; and that an omission to re- cord within that period wiU not subject the special partner absolutely to the responsibilities of an ordinary partner; but only so long as the creation shall remain unrecorded. As soon as registered, his responsibility will cease as such, and creditors contracting with the firm from that day, will have no claim on him, beyond his investment.** § 80. The special partner in the firm of Bowen & Argall, mentioned in the case immediately above quo- ted from, was attacked subsequently, by another cre- ditor, upon another ground, and successfully, too, as appears from the report of the case,^ which we shall proceed to notice. It was assumpsit brought by the ' Bowen v. Argall, 24 Wendell, 602. ' Lachomette v. Thomas, 5 Rob. Rep. 172. . » Smith's Administratrix v. Argall et al., 6 Hill's Rep. 479. 92 OF THE FORMATION OF LIMITED PAETNEESHIPS. [CH. IT. plaintiff as administratrix of John G. Smitii, deceased, for goods sold and delivered to the defendants by her intestate. The cause was tried at the New York Cir- cuit, in December, 1842, and the jury found a special verdict, stating the following facts : — On the 31st of August, 1835, the defendants made and signed the certificate required by statute, to constitute them spe- cial partners, under the name of David G. Argall. The certificate stated, among other things, that Wil- liam Argall, the special partner, had contributed the sum of two thousand dollars capital to the common stock. Notice of the terms of the partnership was pubhshed in the New York Times,- and in the Eve- ning Post; but the notice in the latter paper, by a mis- take of the printer, stated the sum contributed by W. Argall to be j^«e instead of two thousand dollars. The verdict stated that the plaintiff's intestate was not a subscriber for the Evening Post ; that no evidence was offered by or on behalf of the plaintiff, to show that the intestate had ever seen or heard of the same ; and that the copy of the notice which was left for publica- tion at the ofl6.ce of the Evening Post was correct, the sum therein set forth being two thousand dollars. The verdict further stated that the goods in question were sold and delivered to the firm of David G. Argall. § 81. The opinion of the court, delivered by Beard- SLET, J., was as follows : "According to the certificate made by the partners, William Argall contributed two thousand dollars and no more, but in one of the notices required to be published, and which was published in the Evening Post, it was stated that he had contribu- ted ^«e thousand dollars as such partner. This mis- take in the notice, for it was a mere mistake, is relied upon as decisive evidence to charge William as a ge- CH. IT.] SECTIONS VIII., IX., AND X. 93 neral partner, and that is the point to be deter- mined. "In order to form a limited partnership, with the rights and exemptions secured to that condition by the statute, a proper certificate must be made, acknow- ledged, filed, and recorded, as the statute directs; and an affidavit that the special partner has actually paid in his capital in cash, must also be filed. These acts were done in this iastance, and therefore the partner- ship was duly formed. But the statute also provides that the partners shall pubHsh the terms of the part- nership, when registered, for at least six weeks, im- mediately after such registry, in two newspapers, &c.; and it declares, that if such pubHcation be not made, the partnership shall be deemed general. " The statute authorizing limited partnerships must be substantially complied with, or those who as- sociate under it will be Hable as general partners,^ Defects of mere form may be overlooked and disre- garded, but those of substance cannot. The. statute is rigorous in its terms, and those who claim its benefits must show a substantial conformity to its require- ments. That the amount contributed by the special partner is an essential part of the terms of the part- nership, can hardly admit of a question. It is a vital element iu determining the responsibility of the firm, and in fixing its credit. The object of the notice is pubHcity; that all who deal with the partnership may know the names of the persons composing it, and, so far as respects the special partners, the extent of its capital actually paid in. It is made the business and duty of the partners, and they are bound at their ' Bowen v. Argall, 24 Wend. 496. 94 OF THE FORMATION OF LIMITED PARTNERSHIPS. [CH. W. peril not only to see that all the necessary papers are filed and recorded, but also that correct notices are published. In this instance, the mistake in the notice was one of substance, and could not fail to mislead those who relied upon it. ' The terms of the partner- ship' were not, as they should have been, truly pub- lished; and the statute declares, as a consequence, the partnership shall be deemed general. This is a con- clusion of law, which follows from the defective notice found by the jury, and the consequence is not averted by their finding the additional facts, that the deceased ' was not a subscriber to the Evening Post,' and that ' no evidence was ofiered by, or on beha,lf of, the plain- tifi" to show that the intestate had ever seen or heard of the same.' These, of themselves, are wholly im- material, and do not show, if that could be essential, that the deceased was not, in fact, misled by the no- tice. In the absence of absolute notice on the part of the deceased that the true sum was two thousand and not five thousand dollars, his rights are to be deter- mined by the sufficiency or insufficiency of the pubh- cation, under the statute. The partners rely upon the statute for protection, and they must show a com- pliance with what it requires. This they have failed to do, and the plaintiff" is entitled to judgment on the verdict." § 82. In framing a syllabusof this case, the reporter has thus stated his first proposition : — " In the forma- tion of a limited partnership, the requirements of the statue must be substantially complied with ; but de- fects of mere form may be overiooked." Per Beards- let, J. The writer cannot find any such proposition (toti- dem verbis) in the opinion delivered by the learned CH. IV.] SECTiaNS VIII., IX., AND X. 95 judge. Neither does it appear to be justified by the language used; neither would it be consonant with the spirit of the statute for any court or judge to lay down the doctrine, in absolute terms, that "defects of form may be overlooked in all cases arising under this statute, in which form may have been disre- garded or unobserved." In some particulars, form is of the essence of the statute. There is a vagueness, too, in the use of such terms as fofrm, and svhstance, that deprives any general rule, founded on them, of practical utUity. What is mere form, and what sub- stance, will, after all, be questions that can only be solved in each case as it arises; solved, too, according to the greater or less learning and enlargement of mind of the judges called on to decide. In the case above quoted, we find that the court did not hold the special partner liable because he had not complied suhstantially with the requisitions of the statute, but because he had not complied with them at all, in one essential particular. And the true ground of their decision appears to be, the necessity of guarding against a fraud of the law. In no respect is the poUcy of the law more likely to be evaded or violated than in the matter of the capital to be contributed by the special partners; and, in order to guard against any such eva- sion, truth in the advertisements ought in all cases to be strictisdmi juris. Allegations and proof, that the creditor complaining did not take or did not see the par- ticular gazette, and could not therefore have been mis- led, are of the most fallacious character; besides, the question ought not to be, whether any particular credi- tor has or has not been injured by the omission showa, but whether the trading community may not have been deceived or imposed upon. The writer admits :that 96 OF THE FORMATION OF LIMITED PARTNERSHIPS. [CH. IT. the words used by the learned judge are nearly the same as those used by the reporter in frammg his syl- labus, but the slight difference between his language and the reporter's makes the greatest distinction in the world between the doctrine of the decision and that predicated of it by the reporter. § 83. There is a decision cited by the late Chancel- lor Kent^ in a note, and without any comment or effort at connexion with his text, that " a special partner must at his peril see that the law is complied with in all its essentials, or he will be liable as a general part- ner." In the absence of any report of the case, the writer has to observe that if the above syllabus be a true condensation of the points decided, never was there a judgment pronounced more completely in con- flict with the policy of the statute and the true prin- ciples of common sense and equity. It would be quite enough to declare that a special partner must, at his peril, (that is, of his capital invested,) see that the law is complied with by the general partners, and re- cording clerk; but to go the enormous distance further, and say that he would also become responsible for all the debts of the firm, in addition, would be to visit on him a vengeance utterly at war with the object, de- sign and nature of this form of partnership in the country of its birth. These were to tempt the capi- tahs^ into trade, not with snares and forfeitures, but with protections and merely salutary terms and con- ditions. And in this country, sharp as the legisla- tion on the subject appears, it certainly does not seek to establish limited partnership as an experiment, but as a policy, advantageous to trade and commerce. ' Hubbard v. Morgan, U, S. District Court, N. Y,, May, 1839, 3 Com. 36. CH. IV.] SECTIONS IX. AND X. OF OUE STATUTE, 97 The experiment had been elsewhere tried successfully; here, it was wished to ingraft it on our system, and reap its benefits. Would, not the doctrine of the New York decision be a perpetual trap for special partners? § 84. The fonn of publication contemplated by the 9th section is not set forth, but the letter and spirit of the provision will be abundantly satisfied by a pub- lication in the terms of the certificate. Whether less will answer, it is hard to say. The words of this sec- tion are, that, "the partners shall publish the terms of the partnership when registered : "—it is conceived, that "the terms" of the partnership are all contained in the certificate. At all events, whatever be the pre- cise frame of the advertisement, it is evident that it must substantially communicate to the public all the facts required to be specified in the certificate. § 85. The form of the afiidavit of publication by the printers of the newspapers in which such adver- tisement is inserted, as required by the 10th section, is of great importance; inasmuch as it is to be e"vi- denee, when filed with the recorder, of the facts con- tained in it. It will be observed that it is not obhga- tory on the partners to produce and file such afl&davits, but they may prove the fact of the advertisement in the way required by the general rules of the law of evidence. This section has, therefore, evidently been introduced for the convenience of the partners ; and a compliance with the enactment will certainly save them much trouble in the event of litigation growing out of their concerns. The following form of afiidavit will answer : J. K., Printer of the Gazette, of Philadelphia, being duly sworn, deposes that a notice of copartner- 98 OF THE FORMATION OF LIMITED PARTNERSHIPS. [CH. ly. ship under the act of assembly relative to limited part- nerships, was published daily in the said gazette for six weeks, by A. B. and C. D., merchants, of which the following is a just and true copy. [^Bere annex a copy of the advertisement cut out of one of the papersJ] Sworn and subscribed before ) -r t^ me, this day of, &c., 1852. J § 86. A limited partnership may, therefore, be created under this and similar statutes in the several states that have enacted them by conforming to the require- ments of the sections just considered, without ani/pre- vwus partnership deed. But not so is it permitted in Prance. For the 39th article of the Commercial Code prescribes, that limited partnerships shall be con- structed by written articles signed by all the partners, in conforming, as to the form of the articles, to the provisions of article 1325 of the CivU Code. The substance of this latter article is, that writings are of the essence of commercial partnerships, and cannot be supplied by parol testimony, such, even, as letters, cor- respondence, or acknowledgments of the parties.^ Fur- ther; it is not only necessary that the contract of partnership should have been thus written and exe- cuted by the parties; another formality, equally im- portant, must follow it, according to the 42d article of the Commercial Code; which is, the delivering to the greffe (clerk,) of the Tribunal of Commerce of the dis- trict in which the place of the firm's business is to be located, an extract from the contract of copartner- ship, within two weeks from its date, to be by him 1 Troplong des SocUt^s, No. 226. CH. rv.] SECTIONS IX. AND X. OF OUR STATUTE. 99 registered of record, and posted for three months in the court house. And so in each locaUty where the house may design to have branches.' This extract is precisely the certificate and proof prescribed by our statutes, with the recording in the public ofiice. It therefore appears, that we commence the creation of a limited copartnership exactly at the second relay of the French route ; leaving the first, which, as the pre- paratory one, is certainly the most vital, totally unle- gislated for, and abandoned to the discretion or fore- sight of the parties. § 87. Independently of this extract, thus registered and posted in hand-bills, it is further decreed that within the same delay of two weeks, and under the ssime jpenalty, (which penalty shall be subsequently ex- plained,) there must be an advertisement of it at length in the legal intelligencers, (afiiches judiciaires,) and also in a commercial gazette of the district in which the place of business is established. And further, " this advertisement is equally necessary both for this act, creative of the partnership, that is, the extract and registry, and also for the changes sub- sequently introduced into particular sections." Besides this, the name and number of the gazette containing this advertisement, is to be recorded within three months of its date, under pain of nullity} § 88. The extract thus delivered to the clerk of the court must, for the establishment of a limited partner^ ship, contain : Firstly. The Christian and surnames, business and residence of each general partner. The reason of this is, says Troplong, that they who are to be solely ' 1 Troplong des Societes, No. 231, ' Ibid. No. 232. 100 OF THK FORMATION OF LIMITED PARTNERSHIPS. [CH. IT. and jointly liable for all the debts, may be thoroughly known to those who have the greatest interest to know them; their future creditors. Secondly. The business style, or name of the firm. Thirdly. The designation of such as are to be alone authorized to manage, direct, buy, or sign, for the part- nership. This, in France, is an indispensable part of the extract. Fourthly. The day on which the partnership is to begia and end. Fifthly. The amount of capital contributed by each special partner. Sixthly. The extract must be signed by all the general partners. § 89. But the extract need not contain the names of the special partners. It is sufficient if it designate the amount of capital (valeurs,) contributed, or to be con- tributed by them. " The reason of this provision," (so different, it will at once be perceived, from the law of this country,) " is very simple," says Troplong. " Spe- cial partners are not indefinitely responsible. They risk nothing but a certain amount of capital, and are not liable beyond it. It thence becomes useless to present their names to the gaze of third persons; frequently, indeed, such needless exposure would have kept capital out of limited partnerships ; for many fathers of families, magistrates, functionaries, freeholders, and professional men, only go into them on the faith of this condition, not to be published."* Further: — The extract need not designate the capital introduced by the general partners. Their property, if they possess any, adds nothing to the material strength, (forces,) which > 1 Troplong des Soci6tes, No. 234. CH. IF.] SECTIOKS IX. AND X. OP OUR STATUTE. 101 the general partners offer the public, by way of gua- rantee; inasmuch as such property is, under the general law, already a pledge to the public for their indefinite liabiUty.'^ § 90. It thus appear^, that the extract must, as with us, state the name of the firm, the general part- ners and managers upon whom is to concentrate the action in solido of creditors; the date of the creation, and the period of termination of the partnership ; the capital contributed by each special partner; but need only be signed by the general partners. The special partners need not siga it, for the reasons just stated, whether the capital be divided into shares or not; it is only the general partners who are to certify to the extract, the chief vehicle of pubhcity.'"* § 91. Nevertheless, upon the showing of the learned author, from whom we are quoting, there has been a great diversity of opinion upon this subject of publicity of limited partnerships, and the nature and extent of the extract. From the ordinance of 1673, to the day of the promulgation of the Code of Commerce, in France, the question, whether any publication, except that of the names of the general partners, ought to be made, was much discussed. It was contended by the Chamber of Commerce of Normandy, that the public was interested i/n no hnawledge of limited pati/n&rships, ex- cept in the single case offailwre or hwhhrwptcy ; and that this case could be well provided for by compelling the general partners to declare the whole constitution of the firm, with the names of the special partners, to ■ 1 Tioplong des Societes, No. 235; citing Faidessus, Tom. 4, 10, ]!032. • Ibid. No. 237. 102 OF THE FORMATION OF LIMITED PARTNEESHIPS. [CH. IT. the creditors, under the penalty of fine and imprison- ment/ § 92. The Code of Commerce, says Troplong, per- ceived the danger of too much clandestinity in the con- struction of these associations ; and its measures to pre- vent it were wise and energetic. A plan at once simple and thorough, though unthbught of before the Code, was adopted in it, which harmonizes the pubU- city required by credit with the secrecy due to the consideration of persons. That is, the capital of the limited partners shaU be known, as a pledge to the public, but their persons shall be kept out of view; and the general partners, who have assumed indefinite and entire responsibility, shall alone figure in the pub- lished extract.^ § 93. The social style or name, as declared in the extract, must be of the names of all the general part- ners, with the words, "and company," annexed, to show that there are other partners. These other part- ners are the special ones, whom creditors, when they have claims against them, as such, may easily learn the names of.' Nobody else has any business with their names; for, as we shall now see, the great pe- nalty of general liabUity is not visited upon special partners with half the liberality that it is in this country. § 94. In the French Code, the "penal sanction," for neglect iu complying with these formalities, is not, as with us, decreeing the whole of the partners as gene- ral, but imposing the taint or vice of nullity upon the " 1 Troplong des Societes, No. 237. » Ibid. No. 238. 3 Troplong, vol. 2, No. 828. CH. IV.] DOCTRINE OF NULLITY. 103 partnership, in regard of those interested in it, but not in regard of the public.^ § 95. Now, what is this nullity, — ^its extent, its na- ture, — for whose interest is it to prevail? Who can enforce it, and can it be cured? What is its effect upon past transactions, whenever enforced? § 96. As regulated by the 42d article of the Code, the pain of nullity, for a breach of the law in the pub- lication of a limited partnership, is in the hands of the partners, to be by them at any time enforced against the firm, and they cannot be esh/pped by agreement amongst each other, or by acts tantamount to a rati- fication for a valuable consideration. The partners are thus armed against each other, with the view of forcing them to a right publication and registry of the terms of association; but they cannot plead this nulli- ty against third persons.^ § 97. In regard to the question of cwre, or estoj^el, as to this nullity, which the French jurists call a co- vering wp, there is much diversity of opinion. Par- dessus, Malepeyre and Jourdaia, and Persil, main- taia that it may be cured; and Horson, that it can- not. And the decisions are contradictory.^ But in 1839, the Court of Cassation decided in a case, in which the petitioning partner was met by a proof of facts amounting to an estoppel, that the formality of publication and registry was, in its nature, of public order; and its omission could not be cured by proof that the contract of copartnership had afterwards been carried out. In this case, the breach had been ' Troplong, Vol. 1, No. 239. The doctrine of nullity also prevails in Louisiana. » Ibid. No. 240. « Ibid. No. 241. 104 OF THE FORMATION OF LIMITED PAUTNERSHIPS. [CH. IF. the omission to record the name and number of the Gazette in which the certificate had been published within three months from its date. And in this opi- nion Mr. Troplong concurs ; and says that the court did right to take the question out of the doctrine of ratifications and voluntary confirmations; a doctrine that falsified the letter and blunted the spirit of the law.^ § 98. But a partnership,, so nullified, nevertheless would remain one for a fair winding up; and the ar- ticles would bind the partners towards each other and their creditors, until its consummation. The dis- solving partners shall none of them be allowed to gaiin by the mdlity which they have invoked upon their contract of association. If the rule were otherwise, says Troplong,. the providon of the code which was devised to counteract fraudulent schenung, would ope- rate to promote it. For this reason, a limited part- nership so nullified by the law, would still have tJie right to he wawnd vipas a limited partnership; and it would be a jwMdal m&vrmty to attempt to charge this as a general partnership, or to hold the special partner Imble hey&nd his contributiam to the capital.^ §99. So, creditors of a separate partner, informed of a breach, could provoke this decree of nullity against the firm, in order thereby to detach the pro- perty of their debtor from it. So those creditors might set up the nullity in bar of the preference of the creditors of the firm. As between such creditors, the contest about the effect of the nnllity would be legitimate.^ §100. Such then is the practical manner of creating ' Troplong, Vol. I, No. 248. » Ibid. No. 849. 'Ibid. No. 251, CH. IV.] DOCTRINE OF NULLITY. 105 a limited partnership, as described in the pages of the eminent judge from which it has been almost literally translated. The professional reader here will see at once how very different it is from that prescribed in seventeen States of this Union, in several essential particulars. First ; there must be a previous written agreement of copartnership. Second; the formalities' of creation and renewal are to be performed by the general partners alone, while the special partners are allowed to remain undisclosed. Third; the partnership style has "company" at the end of it. Fourth; the penalty of nullity is substituted in all those cases in which general liabiHty is imposed on special partners, in this country, except in that of immixtiony or interference in the management, as to which both systems perfectly agree. § 101. Now the writer would inquire, whether such vital differences are not sufficient to awaken the at- tention of lawgivers on this side of the Atlantic, and induce them to deliberate whether they have not so fettered the system as to render it practically danger- ous to embark therein ? Why so much rigor against special partners here ? Or rather, why so very much more than in Prance? To the eye of the author of this work, every statute of limited partnership in this country is framed as if capitalists were exceptions from the mass of citizens, and were viewed as a baaad of rogues who would lose no opportunity to take ad- vantage of the community, or to defraud the law. Aeeording to the scale of penal sanctions that is meted out to special partners, dormant partners at common law ought to be viewed in theory as pickpockets; and 106 or THE FOEMATIOK OF LIMITED PARTNERSHIPS. [CH. IV. when discovered, (from the mere rarity and difficulty of discovery,) be prosecuted as such, and their gains snatched from them as unholy. If there were any warrant for this severity against special partners, in the experience of countries which have tested the sys- tem for centuries, the plea would be dififerent; but the reverse is the case. It is not the contributor of capital who is dangerous, or treated as dangerous, in France and Italy. If he interfere in the management, in an evil hour, he makes himself the slave of all who know the fact; and who may levy black mail on him for keeping the secret. He is therefore not likely to interfere, and the law is triumphant. Why, then, have carried severity here, so much further than in France, and why sought to fix the special partner with general liability for acts not always even within his control? Viewing the general tone and spirit of our statutes, the query may well be put, whether they do not decree unHmited liabihty on the special partner for acts, which, if he were to prevent. Tie would he held liahle as for acts of interference ? § 102. But this proposition, if true, (and the truth of it is partially discussed in the next section,) is not the only solecism inherent in the American steftutes; there is another still more glaring, and which seems self-evident. It is this : — The converting every limited partnership into a general one, ipso facto, on a viola- tion of the provisions of the statutes (other than that against interference,) is the imposing of a great for- feiture at a time when nobody may be injured, or can complain; — neither the public, nor creditors, nor partners. It is, further, the imposing of a forfeiture upon only a portion of the partners, viz.: the special partiiers, — when the general partners may have been CH. IT.] rORFEITURE UNDER OFR STATUTES. 107 wholly, or at least equally, in the fault, and who, particularly in the event of insolvency, escape with a profit. It is also the imposing of a forfeiture, when the partnership may be solvent and prosperous, in favor oi future creditors at a remote future period, and against special partners who were not perhaps inte- rested in the firm at the time of the breach of the statute. In other words, the doom is pronounced to-day, and the execution of it, against innocent per- sons, in favor of other persons having no equitable right to the profit of so great a punishment, may be deferred until to-day five, or ten, or twenty years. All these absurd consequences are obviated by the French sanction of "nuUity," as above explained. § 103. There are seven of these causes of forfeiture prescribed in our statutes. Let us test the proposition advanced at the end of § 101, by them. The first forfeiture of the kind is pronounced in the 8th section; for "awy false statement made in such certificate or affidavit," on the creation of the partner- ship, "all the persons interested" therein shall be liable as general partners. Here the whole load of punish- ment is hurled upon the special partners alone, to the exclusive profit of the general partners. The second is in the 9th section, for an omission to pubHsh the terms of partnership for six weeks in two Gazettes. The third is in the 11th section, on failure to pur- sue the same formaUties upon a reotewal of the firm. The fourth is in the 12th section, for altering the partnership, and then carrying it on, without having renewed it according to the 11th section. It is here particularly, that special partners cannot intervene to learn facts and to apply the remedy, without ex- posing themselves to the charge of interference. 108 OF THE FORMATION OF LIMITED PARTNERSHIPS. [CH. IV. The fifth is m the 13th section, " If the name of any- special partner is used in the firm with Ms privity." H this provision be not absurd, it is at all events a trap allowed to be set to catch special partners. The sixth is in the 17th section, for interference, whie^i is the only legitimate ground for the forfeiture. The seventh is in the 22d section, for concurring in assignments of the partnership property giving a pre- ference to one creditor over another. This last pro- vision is another trap afforded to creditors or general partners to be by them set to catch special partners. It appears absurd to talk of concurring in or assenting to preferences on their part, when they have no voice, control, or mastery in the matter, and when the whole power of action and possession of stock is in the hands of the general partners. § 104. Having disposed of the subject of the forma- tion of a limited partnership in reference to the com- munity at large, it remains to consider that of the creation of it as between the partners themselves. § 105. Of course it is not to be presumed that at this day, any prudent man would embark in such an asso- ciation, without a previous well settled written con- tract.^ Neither at common law, however, nor under any statute, need any copartnership be created in this country, by a written agreement; the acts and words of the parties to it are alone sufficient for that purpose;" and where nothing has been said about the profits, it is presumed that they are to be shared equally.' But, as we have seen, in France, the 39th article of the Commercial Code requires partnerships to be CAd- ' Vide ante, Ch. I., ? 10, the conseq^uences of neglect. » CoUyer on Parta^iship, 3. » Idem, 114—115, 84. CH.iy.] DEEDS OF LIMITED PAETNEESHIP. 109 deuced by writings executed under the hands of the parties;' and, in the latter respect, in conformity' with the provisions of the Civil Code, article 1325. Ac- cording to that article, partnership agreements con- taining synallagmatic or bi-lateral stipulations, con- tracts of two parts, should consist of as many originals as there are parties distinct in interest. The court of Cassation, in an arret of the 20th of December, 1830, decaded, that two counterparts of a contract for a limit- ed partnership, would suffice; one for the general, and the other for the limited, partners ; and that each partner signing was not required to have or produce an instrument belonging solely to himself.® § 106. The partners having settled their g,greement in writing, should be careful that it contain nothing im- pinging on the statute, or giving rights to the limited partners that might render them hable in solido. No written contract of partnership, when executed, should present evidence of stipulations incompatible with the statute, or in fraud of its policy. Upon this subject the French books contain several decisions of the Court of Cassation, which may be briefly mentioned here. Thus, it is held, that the contract must be so embodied, as to show at least one general partner; and, if there be but one, the partnership name must be his. And, should the instrument show none but limited partners, those would be reputed and held as the general part- ners who had allowed their names to be used as such, or who had reserved the right of conducting the affairs of the company, or who had even merely taken a part in them. Thus, articles of limited partnership stipu- lated, that "the limited partners would contribute the ■ Ante, § 86 ; p. 98. » 3 Bousquet, Diet, de Droit, 666. 110 OF THE FORMATION OF LIMITED PARTNERSHIPS. [CH. IV. sum therein agreed on, as such, and that they should not in any event be called on for any other or a larger sum. — The name of the firm was set up as, J. G. D. & Co. — A second contract was afterwards made with additional special partners, into which variations from the first were introduced. J. G. D. therein appeared simply as a limited partner, although it was stipulated that the old partnership name should be continued. To satisfy the inflexible rule that there must always be at least one general partner in all such firms, J. G. D. was decreed to be such partner.' But although the real general partner be quahfied in the ai'ticles as only a special partner, it must not be thence inferred that the same character is to be attached to the real limited partners, and that the partnership was a limited one but in name. In such a case the real facts must be ascertained; and such of the members as have not, either in the written contract, or by participation in the affairs of the company, brought themselves before the community as general agents, must be declared and quahfied as pure cammanditaries? It was ad- judged against the Sieur L., the director of the Terri- torial Bank, (the owners or shareholders of which con- cern were described in the articles as all limited part- ners,)— that he was a general partner, as it appeared that he had really managed and conducted the affairs of the company, even though his name did not appear in their commercial or business designation.^ And, even where there exists a responsible general partner, regularly quahfied as such, with several limited part- ners, if the articles stipulate that the latter shall ad- • Paris, 8 Prairial, year X; Sirey, vol. II., part 2d, p. 192. ' Id. Ibid. = In Cassation, Sirey, vol. V., part 2d, p. 676. CH. IV.] DEEDS OF LIMITED PARTNERSHIP. Ill minister and carry on the business, with the right of discussion and voting at the meetings, such a clause, being inconsistent with the nature of a hmited part- nership, converts it at once into a general partnership, '.and renders every partner responsible for all the liabi- lities of the firm.^ So, where the articles clothe the limited partners with the custody of the funds of the company.® § 107. So, according to the old Italian doctrine, where there are several special partners, they form but one party in the articles of association, while the general partner constitutes the other. The former may, in- deed, consider themselves as copartners, quoad their interests in the firm, but quoad the general partner, only as creditor-capitalists, and participants.^ But each special partner, assuming a two-fold character, {reduplicando la propria persona,) may at one and the same time be a creditor-capitalist, and also a creditor proper for goods sold and delivered to the firm; and in the latter capacity, he enjoys all the rights and re- medies of other creditors,* Should one of the special partners be indebted to another special partner for money advanced to enable him to complete his share of the capital stipulated, the lender would have no » In Cass., Sirey, Vol. III., part 1st, p. 274. ' Paris, 16th May, 1808, Sirey, Vol. VIII., part 2d, p. 223. The pre- ceding French cases appear to have arisen out of attempts to evade the public registry law of limited partnership, by provisions in the private ar- ticles. But it is evident that such questions could not occur in this country; inasmuch as our statutes are all so strict and minute in regard to the ftaming of the certificate, its registry, and publication, that any intentional violation of its terms would at once be detected, and the entire common law doctrine of general liability would at once be let in. ' 1 Fierli, p. 50 ; quoting Florentine decisions. * Ibid. 112 OF THE FORMATIOK OP LIMITED PARTNERSHIPS. [CH. IV. claim or lien on the firm, but merely a personal action against his debtor.^ § 108. There are two conditions'binding on the special partner, in this species of association, which cannot be evaded; the one is, that he should, in point of fact, pay up the whole capital he has stipulated to contri- bute, directly, and not by equivalents; the other is, that when paid, he should leave it where it is, and not attempt to withdraw it, directly or indirectly. Any attempt at an evasion of these conditions would be treated as a fraud on the creditors and a violation of the public faith of merchants.** And the creditors would have a remedy to compel the special partner to complete his stipulated share of the capital, if not paid up, as also to restore it, if in any respect withdrawn.' According to the early ItaUan law on this subject, it is the indispensable duty of the special partner to re- &ain from burdening {aggra/oare) the firm in any shape, and from prejudicing it with its customers or pairons, under the penalty of liability to damages.* No special partner could insure (cissicurare) his capi- tal, or the increase of it, as that would leave a species of copartnership with head out of danger [a capo salvo,) a form proscribed and rejected by all laws.^ ' 1 Fierli, 58, Note 6. ^ Ibid. p. 51. ^ ibid. 52. 4 Ibid. 52— 54. ^ Ibid. 52. But this doctrine, as regards special partners, would ap- pear, at this day, both absurd and unreasonable, supposing they could find any insurance company that would take such a risk. CH. y.] EENEWALS AND ALTERATIONS. 113 CHAPTER V. OF RENEWALS AND ALTERATIONS OF LIMITED PARTNERSHIPS. § 109. This matter is provided for in the eleventh and twelfth sections. The eleventh is as foUows : Section XI. Every renewal or continuance of such partnership beyond the time originally fixed for its duration, shall be certified, acknowledged, and recorded, and an affi- davit of a general partner be made and filed, and no- tice be given in the manner herein required for its original formation, and every such partnership which shaU be otherwise renewed or continued, shall be deemed a general partnership. § 110. It seems hardly necessary to oflfer any re- marks upon the foregoing section of the law in the way of explanation, though much might be said in the way of criticism. Where it is intended to continue the association exactly as it was before, the same forms may be adopted precisely as if there never had been any previous company; but if any words be intro- duced in addition, showing that it is a renewed Urm, they would not of course vitiate the documents, or su- perinduce general responsibility in the special partner. The last clause of this section is very largely, indeed very loosely, worded. It imposes a severe penalty for H 114 OF RENEWALS OP LIMITED PARTNERSHIPS. [CH. T. acting "otlierwise" than is prescribed in the section, and will necessarily require an enlightened and hberal construction, at the hands of the judiciary, in favor of trade, whenever it may come up for consideration : — a construction not only based upon a comparison of the several sections of the statute, and an appreciation of its letter and spirit, but also upon an appreciation of the mass of foreign decisions and commentary ap- pertaining to its subject matter. § 111. The preceding remarks were written several years before the case of Andrews v. Schott, decided by the Supreme Court of Pennsylvania in February, 1849,^ involving the subject of the renewal of a hmited part- nership, came into existence. That decision, and in- deed all of those pronounced upon the statutes for the establishment of limited partnerships throughout the Union, which have come to the knowledge of the writer, seem to have been elaborated without an allu- sion even to the jurisprudence of France or Italy; in- deed, without an idea that the texts of those statutes had been passed upon judicially by lawyers quite as great as any England or America had ever produced; — the writer means by such lawyers as framed Napo- leon's great code, and afterwards occupied the benches of the courts of Appeal and of Cassation, under the Emperor, the Bourbons, and Louis PhiUppe; without too the least note that jurists such as Pardessus, Du- ranton, Duvergier, Delangle, and Troplong, had illus- trated the commercial part of the code by their great commentaries. Had these judicial and text authori- ties been known to the court, how different must have been the spirit of their judgment in the case at ' 10 Barr's Rep. 47; S. C. more fully reported in Appendix No. 1, post. CH. v.] CASE OF ANDREWS V. SCHOTT. 115 Philadelphia. That they were not so known, was less the fault of the tribunal than of the counsel for the special partner in the court below. The judgment in Andrews v. Schott was, in the opinion of the writer, wrong from beginning to end.^ • § 112. It is to be observed, first, that the result of this case was, that the special partner — Joseph C Harris — not only lost his whole investment of $10,000, but was mulcted in solido for the debts of the firm. Further, this disastrous result was so visited on him, without allowing him the chance of a trial on import- ant facts which he averred on the record, and on which he solicited a trial. His object was to show that he had committed no intentional error; that there had been no fraud or collusion; nor contempt of the star tute; and that the creditor suing had sustained no injury by any act of his. Such a result, so ruinous and vexatious, ought not, it must be admitted, have been allowed to flow, lightly, without caution, and without regret.^ Yet because in his affidavit of defence he could only swear that the creditor trusted the general partners only, knowing him to be a special partner, and he could not swear that there was a special con- ' It affords him no gratification to assert, or to be obliged to demon- strate, this : he has a high personal regard and respect both for the able and distinguished judge who delivered the opinion of the Court, and for the learned men who sat with him during the argument. And, should the criticism of their judgment appearing in these pages cause him oi them a moment's annoyance, it would prove a source of regret to the writer, should he learn the fact, that he had ever penned it. ^ The writer will take for granted that those who do him the honor to peruse these remarks, are acquainted with the case of Andrews v. Schott ; if not, as without such pre-knowledge they would not under- stand him, and for the benefit of practitioners in States remote from Pennsylvania, a full report of it has been introduced into his first Ap- pendix. 116 OF RENEWALS OF LIMITED PAKTNEESHIPS. [CH. Y. tract on the part of the creditor not to look to him, he was deprived of the chance of aU defence in the court below, and of aU redress in the court above. The court of error was wrong in coining to this conclusion as to both the questions involved : as to that of the renewal of the firm, and that as to the addition of the word "Company" to the name of the first general partner. § 113. It is to be observed next, that this immola- tion of the special partner to the sacredness of the statute was not and did not occur in a contest between him and the creditors in mass of the first firm; nor be- tween him and those in mass of the second; but solely in one between him and a creditor or creditors of the second finn, who, it was sworn, had trusted wholly to the general partners of the second firm : yet it is declared in the judgment pronounced,' that "from the 1st April, 1844, when the first partnership expired by its own limitation, until the 16th April, 1844, the partnership was general : " — ^thus without any ground of fact or law asserting a general partnership, and ex- posing the special partner to be sued by all the credi- tors of the first firm, supposing it to have been insol- vent. The legal truth certainly is, that when a spe- cial partnership has expired by its own limitation, it has expired in toto and is dissolved; and "the interval of fifteen days, in which the parties were, if partners at all, general partners," (as is asserted by the learned judge on the same page of the report,) is an imaginary interval; is an interval no where to be found in the law of the case; and was only supposed to have ex- isted, and inferred from the peculiar language and « At page 53 of the report in Barr. CH. v.] CASE OP ANDREWS V. SCHOTT. 117 structure of the second certificate set out at page 48. But by the statute and the law, the special partner was protected at the expiration of the first firm as well as any of the creditors, and as a creditor; for by law he then became a creditor to the fuU amount of his investment, after satisfaction of the former.^ By any thing that appears in the record or in the report, the special partner stood safe as such, until the re- newal, as it was called, and continuance of the first firm on the 16th of April, 1844. The interval of fifteen days spoken of may, for aught that appears in the report, have been employed in winding up and liquidating the first firm; and it would have been a fair presumption of law, as none of its creditors in- tervened, that it was not only solvent, but had been liquidated and closed, with the $10,000 of the special partner safe and forthcoming. Certainly, no presump- tion of law against him, such as was made by the court, was either justifiable or called for. Indeed, when the fact is weighed, that a second general part- ner came into the renewed firm, probably bringing with him more or less capital, talent, and influence, it is difficult to resist the conclusion, that the investment of the special partner in the first firm did continue in esse and in specie. • If the special partners transfer the capital of the firm to a new part- nership, they become liable for all the debts of the first partnership. This was decided in Paris by an arret of the 10th May, 1843. (Bousquet's Nouy. Diet, de Droit, p. 667.) And the liability so incurred is indivisible; fixing, consecjuently, each special partner, in solido for all the debts. Neither would they be exonerated by the fact that they had converted the capital so transferred into shares of the second partnership, with the intention of assigning lijoge shares to the creditors of the first for the pur- pose of satisfying them. But who are to make the complaint? Why the creditors of the first firm, to be sure, and not those of the sepond, as was the case m Andrews v. Schott. 118 OF EENETrALS OF LIMITED PARTNEESHIPS. [CH. T. § 114. Is it possible to suppose that the new general partner would have come into the renewal, unless satisfied fully on this matter? If this view of the case be correct, then the argumentative allegation in the affidavit of defence became a matter of form, per- fectly within the control of the court, at least so far as to induce it to order the cause to a trial in the court below. But it was said that the special partner had not averred in his affidavit " a special contract." This point of a special contract appears to the writer to have been a sort of crotchet with the court. Surely a special partner must possess the legal right to show, that a creditor never meant to hold him liable, without being forced to prove a special contract. But a spe- cial contract with whom ? Was he to have averred a special contract between the general partners and the creditor, or between himself and the creditor, or between the whole three parties ? It strikes the writer that in no one of these contingencies can it be ima- gined, an agreement, express or imphed, could be en- terred into at the inception of a commercial transac- tion, not to sue the special partner, but to look solely to the firm. Even so far, then, going into the merits of the case, does it appear to the writer, that Mr. Harris was entitled to a trial at nisi prius. § 115. But there was a fatal defect in the renewal of the firm, it was asserted, as set forth in the affi- davit of defence and second certificate, in this; — that the special partner had not alleged the payment of $10,000 in cash, into the new concern. Let us see how this was. In the affidavit of defence, his allegations were these: — 1. He had not mfer/erecZ. 2. He "had comphed with all the terms and conditions of the law," annexing copies of the certificates as to both firms. CH. v.] CASE OF ANDEEWS V. SCHOTT. 119 3. He had paid $10,000 in cash, and had never re- ceived any thing in return from the first firm. 4. The said $10,000 "therefore, actually remained in the said firm as part of its capital at the tune it was renewed, as mentioned in the second certificate." 5. The affi- davit of Andrews, that the said $10,000 "had been actually and in good faith paid in cash." If all this could not induce a court of justice to allow an investigation before a jury, under this statute, in order to give a hmited partner the chance of warding off the greatest of its penalties, it is difficult to resist the in- ference, that they regarded a special partner as a sort of scape-goat, doomed to bear the consequences of the follies, misfortunes, or false calculations of the general partners and creditors in all their transactions of bar- gain and sale. Both courts suffered the affidavit of the general partner annexed to that of the special partner, that $10,000 was actually paid in cash, to be treated as a nullity, because he had not further de- clared — ^that the first firm had been Uquidated, — its debts satisfied, — the $10,000 of the special partner remained intact, — had been paid over to him, — and had been by him refunded into the new concern. But all that, the writer contends, was substantially implied in the two documents, taking them together; and the probability is, it could have been all proved at the trial, if a trial had been vouchsafed. Although somewhat argumentative, the matter of these affidavits would have been necessarily stated in a precise and legal form in the defendant's pleadings, and the issue presented to the court and jury would have been a fair and honest one. § 116. But to decide this cause against the special partner, on the issue stated in the opinion of the court, 120 OF RENEWALS OP LIMITED PARTNEESHIPS. [CH. V. was what never could have been contemplated by the first legislators on the scheme of Hmited partnerships. To maintain it, the court was obhged to beg a variety of questions, all to the prejudice of the special part^ ner, when the presumption on them from the record was all in his favor. Thus, at page 54 of the report, the judge lays it down: — 1. That a limited partnerr ship renewed under the statute is the same partnership. 2. That a limited partnership renewed with additional general partners is a new partnership; when, most clearly, both by the letter and the spirit of the statute, every renewal constitutes a new partnership. 3. That the first firm had debts, which the $10,000 were pledged to pay. 4. That it was impossible to say whether it had come out solvent until an account was taken. 5. That for aught that appeared, the second firm might have had no capital whatever. " Instead of part, no- thing was paid to the second firm, inasmuch as the first payment was liable for the debts of the first part- nership. Th>e fmlwre to 'pay in actual cash was matter of substance, which could not fail to mislead persons dealing with the firm."^ § 117. Instead of thus straining every nerve to su- perinduce general responsibility upon an unfortimat© special partner, who has lost the whole of his invest- ment without having in the least conduced to the ruin of the firm, foreign tribunals have endeavored to shield him from the rapacious rage of disappointed creditors, at least by affording him the benefit of every fair legal intendment and implication. It is only in cases of the so much abhorred interference, wherein special partners are so prone, nay often as by fatality « 10 Barr, 55. GH. v.] CASE OF ANDREWS T. SCHOTT. 121 impelled to sin, that foreign conrts of justice are un- relenting and implacable. Aware that abstention, on the part of the limited partner, is of the essence of the invention of this mode of joint trading association, and that laxity in guarding against it by the judicial would destroy the aim of the legislative authority in establishing the law, they have uniformly refused quarter to the special partner convicted of interfe- rence. Yet even in such cases, so great is the sympa- thy of the legal power for trespassing special partners who have lost their stake in the ruin of the general partners, that if there be a door of escape possible for them, without impingement on the sacred principle, it will not in Europe be closed against them in the uncompromising manner in which it was done in the Supreme Court of Pennsylvania. This it will be the task of the writer to demonstrate in the chapter on Interference. § 118. There was another question in this cause, of equal importance with that above discussed, which was also decided against the special partner upon the same record, viz.: that the first general partner having on the renewal associated with him a second general partner, the renewed firm was published and carried on under the style of Henry W. Andrews & Co. — This was such a violation of the 13th section of the statute as drew down upon the special partner the penalty of general liability. This being a question that apper- tains to another head of this essay :^that of the management by the general partners of the joint con- cerns, will be discussed in a future chapter.^ It may be well, however, to remark here, that the court were, ' Vide post, Chap. IX. 122 OF RENEWALS OF LIMITED PARTNERSHIPS. [CH. Y. in the writer's opinion, quite as wrong in their con- clusions on this question as they were on the other.' § 119. The twelfth section further provides for renewals as follows : — _ Section XII. Every alteration which shall be made in the names of the partners, in the nature of the business, or in the capital or shares thereof, or in any other matter spe- cified in the original certificate, shall be deemed a dissolution of the partnership, and every such part- nership which shall in any manner be carried on after any such alteration shall have been made, shall be deemed a general partnership, unless renewed as a special partnership according to the provisions of the last section. It cannot of course be the intention of this section, that an alteration made without the knowledge or consent of the special partner should expose him to the ^consequence of being treated as a general partner; for, as the general partners are to have the sole ma^ nagement of the business of the association, it can only ' It may perhaps appear to some, that the writer has been too free in his review of the decision in Pennsylvania, with exception and objection, that decision being now the law of his own State. In answer to this, he asks permission to say, that he has been reflecting more or less ever since the promulgation of the judgment in 1849 upon its doctrines; that he has studied and scanned it in the most impartial spirit, never having had any private interest in either question, or in any question under the statute; and having, during that period, constantly felt great respect and deference for the Court, and regretted that he was obliged to differ from them ; — yet he cannot, now that he has assumed the work of comment- ing on it and publishing his comments, see any tenable ground for the decision, either in the argument of the counsel for the defendant in error or the reasoning of the judge who delivered me opniion of the court. ~CH. v.] SECTIONS XI. AND XII. OF OUR STATUTE. 123 be incumbent on the special partner, the moment he discovers any aberratidn from the legitimate ends of the business as declared in the certificate, to protest against the same in writing and by advertisement, and always to disclaim any agency or participation in the change. In some cases, in order to avoid being fatally compromised with third persons, as a general partner, he would have to recur to chancery for an injunction against the special partners. § 120. We will now close this chapter with some observations on the general doctrine as to the forms and publicity of renewals, borrowed from a French legist. § 121. It is not only in reference to the formation of limited partnerships, and to that of all commercial associations, that legislation has wished to impose and attach the conditions and guards of publicity; but also, first, upon all important changes in the orgar nization of a partnership ; as, its dissolution before the stipulated period ; the retirement of a partner by name ; the adoption of a new social style; the modification of certain covenants fixing the position of the parties : secondly, the continuation of a partnership beyond the term originally stipulated.' Therefore it is, that these sections of the statute, borrowed from the 46th article of the French code of commerce, prescribe that all such changes shall undergo the formaUties laid down, under the penalty, in case of omission, as to the special partners, of general liability. Without such precautions, it has been well observed, "partners might demolish, piece-meal, the primitive foundation of their association; and the public, which might be ' Troplong des Societ^s, Vol. 1, No. 254. 124 OF RENEWALS OP LIMITED PARTNERSHIPS. [CH. V. dealing with them, would have all the time but the effigy of a guarantee in a pretended reality."^ § 122. The tacit continuation of a partnership, after the expiration of it by stipulated hmitation, is termed in the foreign law a prorogation. It is not permitted in the Napoleon code, except under the pain of nullity, in any partnership ; that is, a partner may at any time take advantage of this nullity to break up the concern, and have an instant liquidation.^ A continued partnership is not a new one; it is the same, with modifications in the extent of its duration, changed by the will of the partners. The word pro- rogation is synonjnnous with eontmuation, and excludes all idea of intermission. A partnership prorogued beyond the original limitation of it in the articles pre- serves its integrity exactly as would one in whose ar- ticles it was stipulated that the decease of a partner should not dissolve it, but that it should go on with his heirs or be conducted by the surviving partners.^ Although this doctrine of nullity would not obtain with us, but the partners would be bound inter se, by their new agreement, a limited partnership must be renewed with almost the same formalities as those ob- served at its institution, under the penalty of being treated as a general partnership if continued without doing so. § 123. Under the old law of Tuscany the renewal of a hmited partnership would have required a new registry; but a continuation would not, (as in the case of the withdrawal or death of a special partner;) and if a limited partnership, that had been regularly re- ' Troplongdes SocUtfis, Vol. I., No. 254. • Ibid. Vol. II., No. 9 13. » Ibid. No. 915. CH. v.] SECTIONS XI. AND XII. OF OUR STATUTE. 125 gistered, had expired, in the articles whereof it was agreed, that it should be renewed with the same co- venants and conditions, the special partners would not have been held responsible in solido in the interval, where it does not appear that there were new pacts,^ or new partners.** § 124. In iregard to the continuation of a limited partnership after it was dissolved by the death of the only general partner, Fierli quotes an old Florentine decision that appears to the writer to have stretched principle beyond its utmost tenacity in favor of spe- cial partners ; but which shows the evident leaning and sjonpathy on the part of the judiciary for that class of such concerns. The case was this,^ literally rendered :— -A limited partnership was regularly regis- tered in its inception between Piatti and Tensini as special partners, and Guiseppe Armanno as general partner. One of the special partners, (Giovanni An- drea Tensini) died, and after him, the general partner, Armanno. The business of the firm was then carried on by the son of the general partner, (Nicolo Armanno,) with Piatti, the surviving special partner. It was con- tended on the part of the creditors of the firm that it had been dissolved by the death of the general partner and of Tensini, the special partner, and that it had afterwards been renewed between Piatti the special partner and Nicolo Armanno, without having been registered as it ought to have been. But the court said that the prosecution of the business did not amount ' Fierli, Vol. I., p. 101. " Ibid, note 13, p. 104. ' Coram Auditorem Luci in caus4 Armanno, Piatti, e Tensini ; nel Te- soro Ombrosiano, Tom. IV., Dec. 16, of June 10th, 1667; Ibid. p. 103-4, note 12. 126 OF RENEWALS OF LIMITED PARTNERSHIPS. [CH. T. to a renewal of the firm, but was merely a continua- tion of it, and that having been legally registered in the beginning, there was no need of a new registry. And the decision before quoted,' before the auditor Bizzarrini, in 1705, is said to have been mainly in- fluenced by the preceding one, and to have induced the judges to screen the special partner from further loss than his cash contribution to the capital. § 125. How is an expired limited partnership to be renewed ? Upon this subject the able work of Delangle furnishes us a satisfactory commentary, in the follow- ing paragraphs : — " We are now brought to the appreciation of a fact of some frequency in practice. After the expiration of a partnership in commandite, another is formed between the same parties, upon the same conditions, and often, too, notwithstanding the express language of the arti- cles that the social capital is to consist of a precise sum of money; each of the int^ested parties fulfils his obligation in transferring, from the partnership that is ended to that which begins, his original invest- ment. But would creditors, should the new firm be unsuccessful, have the legal right to take advantage of this contract, brought to light in order to force the special partners to pay in cash the amount of their investments? " We are here compelled to distinguish : If at the moment of dissolution of the prior partnership its affairs were prosperous, and the setthng up of its books and accounts demonstrated that the share of each partner in the net assets to be divided was fully equal to the amount of his investment, third persons ' Supra § 71, p. 85-86. CH. v.] SECTIONS XI. AND XII. OF OUR STATUTE, 127 would have nothing further to claim. What matters it whether a special partner contributes to the renewed company cash or values of certain realization ? A sum of money that may be recovered without delay or dif- ficulty, is surely equivalent to cash. Even a failure to recover would not avail creditors, if it proceeded from the neghgence or the indulgence of the general partner; as, for example, from the fact, that instead of urging payment at the maturity of the credit, he had given time to the debtor, who afterwards became in- solvent. A commanditary is only once responsible for the reality of his contribution. "But if, on the other hand, the affairs of the firm are embarrassed, and the liquidation of it shows nothing but danger and loss, no extent of good faith in the special partners, not even the fact that they were brought into the renewed partnership upon the single inducement that there was no new capital to be contributed, would exonerate them. For, in transfer- ring their investment in the first to the second part- nership, they would in reality have contributed no- thing. Creditors have ever the right to prove that the contract rendered public has not been sincerely executed. " There is but one case in which the strictness of this principle can be relaxed : if it could be proved that a special partner only consented to the renewal of the partnership upon the exhibition of inventories, from which it necessarily resulted that his investment was undiminished, and that consequently he would have no new sacrifice to make ; the transfer of this in- vestment to the renewed firm sufficing for his exone- ration ; proof ulteriorly acquired that the partnership was insolvent on the day of its dissolution, would not 128 OF RENEWALS OF LIMITED PARTNERSHIPS. [GH. V. justify creditors in exacting from him the payment of a new contribution. The special partner would, in this case, be protected by his good faith. He cannot be made the victim of the fraud practised on him. It was upon the express condition that he should have nothing further to advance, and after the examination of inventories and accounts presented to him as true and honest, showing that this condition could with certainty be compUed with, that he went into the new partnership. What justice could there be in holding him responsible for a fraud that he never sus- pected? A decision of the Court of Cassation, affirm- ing a judgment of the Koyal Court of Lyons, embody- ing these principles, wSs pronounced on the 19th of June, 1834."! § 126. "In another decision of the same court, (of the 14th Feb., 1838,) it was held, where a special partner had paid in his contribution to the general partner, by the transfer of a good and sufficient money claim which he had upon a third person; and the debtor, instead of paying it, set-off against his debt a similar amount due to him from the general partner, that the special partner had not paid in his contribu- tion, and was bound to make it good. The fact is, that arrangements of this nature cannot be treated as equivalent to cash contributions, unless there have been a real payment into the joint exchequer of the share due by the special partner. The question for third persons is, not to ascertain whether a general partner were or were not a debtor, and whether ma1> ters were honestly settled, but whether there has been a real pajnnent; for creditors are entitled to claim • Des Sooietes Comm., Vol. L, Nos. 303-307. CH. v.] SECTIONS XI. AND XII. OF OUR STATUTE. 129 that the amount of capital agreed on in the articles shall have been paid in. Were it otherwise, a limited partnership might be formed with a capital nominally large, but without a dollar actually in the treasury; the whole amount being reduced to a claim upon the general partner. But the joint funds can never be allowed to degenerate iato a fiction, and courts of jus- tice will set their faces against every secret arrange- ment not designed for and not resulting in the positive realization of the joint capital."^ § 127. Another case, decided iu 1842 by the same high court, and reported by Mr. Delangle himself, he having taken part in it in his ofl&cial capacity, is, although quoted by the learned author in illustration of another principle, still more in point in the matter of payment of contributions by special partners, dis- cussed in the preceding sections. The case was this : — A hmited partnership was formed in 1839 at Lyons, under the name of Berard & Company. Berard, its founder and general partner, was a man without cha- racter or fortune, and his articles were but a snare to catch the credulous. Nevertheless he contrived to dispose of shares to a considerable amount. But scarcely had the concern been organized, when two of the shareholders commenced proceedings for its dissolution, on the ground of fraud and malversation. The case was argued, and the court held it under con- sideration. Before they were prepared with a deci- sion, Berard became alarmed, and proposed a compro- mise ; he offered to return the instalments paid in. ' Des Soci^t^s Comm., Vol. I., No. 308. It is questionable with the author -whether this decision and this reasoning of Mr. Delangle does not militate with the principles he sets forth above. I 130 RENEWALS OF LIMITED PARTNERSHIPS. [CH. V. and to release tte subscribers from all future obliga- tions. These terms were accepted, and the agreement was immediately executed. A few weeks thereafter he absconded, leaving an enormous deficit. The cre- ditors who had petitioned for the declaration of bank- ruptcy, demanded pajonent; the assignees summoned the shareholders who had not yet completed the pay- ment of their subscriptions, including those who had compromised with the defaulting general partner, to pay up ; upon their refusal, the Royal Court of Lyons adjudged and decreed that they should refund what had been returned to them, and should pay in the remaining instalments, upon the following grounds : That the contract of association between the gene- ral and special partners, could not be rescinded by the act of the former alone. That the compromise was no bar to creditors, or to the other partners, because it had not been on behalf af, or in the interest of the partnership. That this act of the general partner did not bind the firm, having been entered into on his own perso- nal responsibility, and for the promotion of his indi- vidual interests. The Court of Cassation, (on the 12thof April, 1842,) after argument, affirmed this judgment, adopting and repeating the doctrine of the court below. And the distinction relied upon was perfectly correct and just.' ' At the time of this decision, M. Delangle was Procureur du Roi (At- :omey General,) and was attached to this, the highest court of error. He says, "the court affirmed the judgment on my conclusiom." There is a singular custom at the French bar, which permits the Attorney General, 3T a substitute, (a deputy Attorney General, appointed by the government,) to interfere in the argument of civU causes in all the appellate courts, md, after the respective counsel of the parties have concluded, to sum CH. v.] SECTIONS XI. AND XII. OF OUR STATUTE. 131 § 128. Now this case, except in the fact that it in- volved a partnership with capital in shares, payable by the special partners ia periodic instalments, is one that might readUy occur in any state of this country that has introduced the system : and a principal point ha. it appears to the writer's eye to be, that a special partner having once publicly become bound to contri- bute a certain amount of capital to ihe partnership, or rather, haviag by the publication and registry of it, professed that he had contributed a certain sum in cash, cannot, by any transaction, compromise, or ar- rangement with the general partner, either before, at the time of, or subsequent to the legal organization of the firm, exonerate himself, or be released from the payment of such contribution, or get it back from the partnership, until the concern shall have been closed and the creditors all satisfied. It is true that Mr. Delangle does not so treat the authority, or cite it in support of such a point, having employed it under another head merely to show that a general partner had no power "to compound, compromise, or agree," except on behalf of and in the interests of the firm ; and that even where the articles gave him such a power, it would not be construed to extend to the alien- ation, pledge, or disposal of the partnership assets for his own private purposes. Yet, though it is an autho- up to the court upon aU the points and merits of the case, just as if he had been specially retained and paid. This argument, which is generally a warm and energetic one, on behalf of one party or th^ other, is caEed the condusums of this public functionary. The judges on the bench listen to it with respectful attention, and, although not bound, are doubt- less often influenced, if not controlled by it. In England or the United States, such an officer would think he had quite enough to do to attend to his own business ! 132 RENEWALS OF LIMITED PARTNERSHIPS. [CH. V. rity on these latter points, it does not the less come m aid of the principle, that a special partner, having once stipulated with the public for cash, cannot change his contract by any management with the general partner. § 129. The doctrine of Mr. Delangle has been in every respect confirmed by a decision in Cassation, pronounced three years after the publication of his work, growing out of a very curious case. It was the case of creditors who became special partners in the reconstruction of a partnership which had failed, owing them large sums, — ^they contributing, not cash, but the dividends accruing to them out of the assets of the first concern, and releasing for the balance of their credits. This second partnership having also failed, it was held that its assignees, (who had sued those creditors for a farther contribution as special partners,) might have appraisers appointed to ascertain whether the real amount agreed to be contributed had been ef- fectually obtained from those dividends, and to report a deficit, if any, for which the defendants should be liable.^ § 130. Can an incorporated company be engrafted upon a limited partnership? This question is not, however, whether the legislature of any state is po- tential to declare an association organized under the statute authorizing partnerships, with general and spe- cial partners, a chartered company, with all the rights, privileges, and immunities, under the original articles of association, that it might have had if publicly in- corporated in the first instance. If, as we have seen • SeiUiere et al. v. Chevret et al., June 25th, 1846 ; Dalloz, vol. of 1846, P. 1. p. 316. Mr. Dalloz, the reporter, quotes in a note the text of De- langle, and expressly says that his doctrine is borne out by this decision. CH. v.] SECTIONS XI. AND XII. OF OUR STATUTE. 133 them do, legislatures can galvanise insolvent corpora- tions into a new existence, by sanctioning their repu- diation of honest debts, and authorizing them to post- pone the pa3nnent of bonds due, say, in 1850, to the year 1870 ; no doubt they can transfuse, with the same magic wand, any one form of copartnership into ano- ther. But the question is put as to the tribunals of justice, whether judges, learned and conscientious, can recognise the resolution of the one form of society into the other, after the charter of incorporation shall have been obtained? This question has been exa- mined by Vincens,' and discussed in the following terms: — "Impatient to commence social operations, and under the apprehension of having to wait long for a pubHc authorization, or upon this pretext, we have seen certain compames assume the provisional form of a partnership in commandite, and afterwards petition to have it converted into an incorporated body. Such grafting of the one upon the other is impracticable. But, allege the petitioners, we shall stiU continue the same partners, with the same capital, credits, and debts; nothing is changed, nothiag is to change, ex- cept our style or denomination. But there is more to change. Those who were before indefinitely re- sponsible, will cease to be so. It is contended, that this responsibiUty will only be changed as to the fu- ture, and will remain as to the past. But in the course of an uniaterrupted conduct of a joint business, how is it possible to designate where the past has ended and the present begun? To mark the boundaries be- tween the habiHty of the old and the new association : ' Des Soc. par Actions, p. 50 — 53. 134 RENEWALS OF LIMITED PARTNERSHIPS. [CH. Y. the general partners disappear by disposing of their shares, the guarantees of the first creditors are scattered or depreciated, by being mixed up with the acts of the new concern. But, much oftener, the new company discharges the debts of the old one with the funds of new shareholders, and thus the responsibility of the former general partners is shirked off, at the expense and by the sacrifice of the money of the latter. There- fore the two forms of partnership are not interchange- able. There must be a solution of continuity; the limited partnership must first be wound up and set- tled. The capital of an incorporated company can- not be allowed to consist of the gross property of an anterior unliquidated partnership ; of a compHcation of debits and credits, coupled with a hope that the lat- ter wiU exceed the former. An incorporated company should begin business with a capital that owes nothing, and not one that depends upon accounts to be settled. In a word, it should be without predecessors, and its business should be as new as itself. The ruinous con- sequences of such a confusion of things, are not, un- fortunately, imaginary in France ; we have seen ex- amples of certain companies thus organized anew, abusing the rights of their shareholders, and sacrificing their interests." CH. YI.] DIVISION OF CAPITAL IN SHARES. 135 CHAPTER VI. OF THE DIVISION OF THE CAPITAL OP LIMITED PARTNER- SHIPS INTO SHAKES. "A SPECIAL partner, with the assent of his partner, in writing, first had and obtained, may sell or assign his interest in a limited partnership, without causing thereby a dissolution of the partnership."^ 1 Resolution of April 16th, 1838, Sec. 2d; Stroud and Brightly's Dig., 923 — 924. Ante, p. 52. The writer has not discovered any similar provision in the legislation of any other state than Pennsylvania. It may perhaps strike some professional minds, that the writer should have invoked the entire Resolution to the aid of this opinion. But the other sections are very obscure, and it is not easy to ascertain the drift of them. The first, for example, provides as follows :— " A general partner in any limited partnership may, with the assent in writing of his partner, by deed duly acknowledged and recorded, or by last will and testament in writing, sell, assign, dispose of, or bequeath his interest in such limited partnership; and when such general partner dies without having disposed of his interest in such limited partnership, his administrator or executor may, in like manner, sell, assign, and transfer his interest therein, for the benefit of his estate; and on every such sale, transfer, or bequest, a corresponding alteration shall be made in the name or firm imder which the business of such partnership is con- ducted, and the same shall be forthwith acknowledged, certified, recorded, and published, in the same manner as is provided by law in the case of the original formation of the partnership." Now, what partner is it whose assent is required f Is it a general or special partner, or all the partners ? Is such assent necessary to the va- lidity of a last will, disposing of his interest? Is it necessary for an ad- ministrator to have such assent? As a general rule, the death of the general partners would dissolve the firm, as the special ones might not choose to allow their capital to be managed by substitutes. Undoubtedly, in any event, the special partners have the chief and greater interest in 136 OF THE DIVISION OF CAPITAL IN SHARES. [CH. yi. § 131. Such is the supplementary privilege, in refe- rence to special partners, which the legislature of Pennsylvania thought proper, two years after the enactment of the general statute, to create. In the opinion of the writer, this provision, together with the aid of the other sections of the same law, affords per- mission to the entire firm to divide the stock iato shares. It is true, that the law only speaks of the interest of the special partner iu the concern; but, it is conceived, that where the capital does not entirely consist of the investments of special partners, the whole stock of the partnership may, by the written agreement of all the partners, whether made prior to the commencement of the business, or subsequently, be divided into shares, and these shares sold to third persons, by name, however, and not to bearer. § 132. A hasty perusal of this section might lead to the inference, that it only contemplated special partnerships fully organized and iu operation. But, " the assent ia writing of his partner," may certainly be as well obtained ia the original articles of copart- the matter of the change of general partners. Did, then, this sec^on in- tend to confer privileges greater, or beyond those previously possessed by all the partners ? Most certainly, such partners may, at the formation of their connexion, agree, by deed, to do all that this section allows; would it not then be supererogatory, unless something more were in-, tended? If more were intended, it could mean nothing but the privilege to organize in shares. The 3d and 4th sections are clearly redundant ; for the death or in- solvency of special partners cannot, in principle, overturn the original contract of association, unless so stipulated. And if so stipulated, the clause would be very silly. The writer will, therefore, dismiss from his consideration, for the fa- ture, the aforesaid sections ; acknowledging, frankly, his incompetency to comment them. Verily, for their skill in nomography, as displayed of late years, our legislature is entitled to no medals; hardly to an "ho- norable mention." CH. VI.] RESOLUTION OF 1838 IN PENNSYLVANIA. 137 nership, by tlie special partner, as in a subsequent dis- tinct document. Why the legislature should have prescribed the necessity of obtaining the assent in writing of a general partner, in any case, as a condi- tion precedent to the right of a hmited partner to sell his interest, it is not easy to see; the probability is, that the requirement grew out of a confused notion of the nature of this form of joint trading association. § 133. It is very much to be regretted^ that the legislature of Pennsylvania did not introduce into this supplement a perfect, system of organization for special partnerships in shares deliverable to bearer. Without such a system, it is very evident that the demand for charters for incorporated companies cannot be mate- rially lessened. As it is, the subject is left in much doubt, by the peculiar phraseology of this suppletory law. Many, on a consideration of the words of its final section, might conclude, that the term "resolve" was confined to the preceding section — the 4th; — ^if so, then the notification to the general partner of changes by the special partners and the recording of these changes, would apply merely to what was done under that fourth section, leaving all the acts of spe- cial partners, under the second section, free and un- fettered.^ If this construction could be adopted and relied on, the system of shares to bearer might be or- ganized under the second section. But who would, in the face of so ambiguously and confusedly worded a law, venture his money and hopes in a Hmited part- nership with its capital cut up into shares issuable to bearer? There is, in fact, as much reason to argue, that the term "resolve," appUes to the whole four sec- ■ See the entire Resolution, ante, p. 58-59. 138 OF THE DIVISION OF CAPITAL IN SHAKES. [CH. VI. tions, as to the fourth alone. The law itself is entitled a "resolution^' and not an "obct" as is usual in the legis- lation of the state; how therefore a distinction be- tween the two terms of resolve and resolution, which are convertible — could be drawn, so as to justify, under the second section, a system of shares to bearer, the writer cannot see, and would be unwilling to argue. § 134. By the law of Prance, the capital of limited copartnerships may be divided into shares, and even into sections of shares of an equal value. But it was doubted whether the certificates of these shares could be made transferable to bearer, because, it was said, such machinery would facilitate the commission of frauds on the law.' And there is a singular want of coincidence and distinctness in the early French writers on the code, upon this important subject. The Com- mercial Code, in the 38th article, expressly declares, that " the capital of hmited partnerships may also be di- vided into shares, without any other derogation from the rules established for that kind of company." The reason of this use of the words, also, and other, is to be found in the 34th, 35th, and 36th articles of the same code, which provide that the capital of mwny^ mous companies may be divided into shares and parts of shares of an equal value ; — ^that these shares may be evidenced by certificates in favor of the hearer, and transferred by delivery; and that the right to shares may be established by an entry on the books of the association, and transfer entered on the register. But as to limited partnerships, the code only provides that they may also divide their capital into shares, but • 2 Parfait Notaire, 466. Edit. 1827. CH. VI.] COMMEECIAL USAGE IN FEANCE. 139 shall not make any other derogation from the general law/ 'Mr. Delangle, in his work on Partnership, (Vol. 2; No. 498 — 501;) thus accounts for this article: — "An article of the projected code of commerce, drawn up in the year IX. of the first Republic, provided that no partnership in shares should be established without an authorization of the government; and in the council of State, the same idea was broached and prevailed, Regnaud de Saint-Jean d'Angely and Cam- baceres supporting the doctrine. But the tribunals and cham.bers of commerce of the country almost universally protested against this inten- tion of the legislature, as far as applicable to societies in commandite. They demanded the completest liberty of action for all associations whose capital was divided into shares combined with a management by general partners responsible in solido towards third persons. Thus was a grave derogation from past usage contended for. But on motion of TreOhard, it was adopted on the following considerations: — 1. The government ought never to intervene unnecessarily in private contracts; 2. The authority conferred on partnerships in commandite to organize in shares was only in semblance a privilege, and might or not become a source of abuse ; Lastly, that no partnership with general partners jointly and indefi- nitely liable should be trammelled in its business combinations. Such was the origin of Article 38 of the Code of Commerce. Was it right to infer from its context that the capital of commandite partnerships might be divided not merely into nominative shares, but likewise into shares to bearer? Notwithstanding M. Locre, and after him M. Pardessus, came out with a negative opinion, a contrary usage hcis prevailed, and no small num- ber of associations under this latter form sprang into existence, when in 1830, on the occasion of a firm thus organized for the running of com- mercial carriages, the question came up for argument in the Royal Court, and was there solemnly debated." The result is stated in the text, in § 135, on the next piige. It may be as appropriate to state here, as any where else in the pro- gress of this chapter, that this form of commandite partnership in shares to bearer prevails also in Belgium, since the expulsion of the King of Holland; and in Spain, under the 275th article of its Commercial Code, which in this respect is similar to the 38th of that of France. Also in Tuscany, that portion of the Napolean code being still there in vigor. In the code of Wurtemberg, under the 236th article, the capital of such partnerships may be divided into nominative shares, but not into shares to bearer. See De Saint-Joseph's Concordance between Foreign Com- mercial Codes; Art. Societes. Paris, Edit, of 1851. 140 OF THE DIVISION OF CAPITAL IN SHARES. [CH. VI. § 135. The law as to this question continued in a state of uncertainty and judicially unpassed upon, until long after the promulgation of the Code of Commerce ; that is, from 1807 till 1832. But in the last year of the Eestoration, (1829 — 1830,) a company for run- ning commercial wagons was started as a limited part- nership with its capital divided into shares to bearer; and upon the legality of such a form of shares, the opinion of two of the most eminent lawyers of the kingdom — Dupin, Senior, and Persil — ^was taken and published. This opinion, which was reasoned out with all the powers of its distinguished authors, at great length, was decidedly against the legality. It is to be observed that by shares to bearer was, and still is, meant, shares issued without containing the name of the owner; their ownership merely evidenced by pos- session, and transferred by the simple dehvery of the certificate, without the least formality, so that the holders of these certificates, by the bare presentation of them, would be recognised as special partners.^ The question thus started, say Malepeyre and Jour- dain,^ was the most important that had yet been raised upon the law of societies in commandite, and one of the most difiicult. The opinion above referred to was, they state, drawn up with logical ability. But it was immediately encountered and refuted by talent equally as strong; first, by Odillon Barrot, and Dupin, Junior ; and afterwards by a champion, whose long and skilful argument created a marked sensation, and was accepted by many as conclusive : that of Mr. De Yaux du Cher, a distinguished lawyer of Bourges. It was this opinion, say the same authors, that triumphed ' Des Societes Comm., p. 200. ^ ibid. p. 140. CH. yi.] COMMERCIAL USAGE IN FRANCE. 141 before tlie Tribunal of Commerce of Paris, on the 14th of August, 1830, whose judgment was confirmed, upon appeal, by the Koyal Court of Paris on the 7th Feb- ruary, 1832; judgments which, in their opinion, also, ought thereafter to fix and settle the jurisprudence of the country upon a firm basis/ Other writers then embraced and asserted the same doctrine; such as Mr. F. Roger, in the Repertoire de la Jurisprudence du Notariat.^ So hkewise, the Dictionnaire du Notariat,^ a work compiled by an association of Notaries and Lawyers, which, after quoting the 38th article of the code, has these observations : " But may the capital of a limited partnership be divided into shares to bearer? Such a division is not incompatible with rules which are of the essence of this form of association. It is permitted in the case of an anonjTnous company, and yet the stockholders are there bound as here to the whole amount of their investments. The difiiculty which there would be to prove, that any one who had conducted the business was but a limited partner, in order to apply to him the rule of general responsibility, would not be an ob- stacle. A limited partnership in regard to the special partners is not an association of persons, but of ca- pitals; for their names do not appear in the part- nership style . It is sufiicient if there be one or more partners responsible in solido." * § 136. But the question was afterwards discussed at length by Troplong, in his work on partnership. ' Malepeyre & Jourdain, Des Soc. p. 145 — 6. 2 Vol. 6; p. 651. Paris, 1831. » Vol. 6; p. 189. Paris, 1832. * Quoting a decision in Cass. Paris, Feb. 1832; Contra, Pardessus, No. 1033. 142 OF THE DIVISION OF CAPITAL IN SHARES. [CH. VI. which first appeared in 1843, with a fulness of eru- dition and an acuteness of ratiociaation, that appears to have satisfied the legal mind of France. This emi- nent jurist contends, that both under the express lan- guage of the commercial code, as well as by general usage, the right to form special partnerships with its capital divided into shares to bearer, is undoubted, and ought to be maintained.^ As the writer cannot find any warrant for a similar system in this country, he considers it unnecessary to introduce here any account of the argument of the distinguished French judge.^ § 137. In general, when large Umited partnerships are formed, with their capital stock divided into shares, the general partners are required to become the owners of a certain number of shares, which are deposited as a security for their agency. Too much strictness in this respect cannot be exacted ; for the .majority of such associations which have failed, have been swamped by the rashness of their general partners.^ This im- portant line of demarkation ought to be, and in gene- ' Des Sooietes, vol. I., page 160, No. 147 to No. 193. * The whole of this learned argument, portraying the entire ^istory and doctrine, is in an Appendix to this work in an English dress. Mr. Delangle, whose important work on Partnership appeared in 1843, shortly posterior to that of Troplong, does not discuss this question; but contents himself with introducing into his pages the argument on both sides ; first that of Dupin, Sr. and Persil in the negative, and that of De Vaux du Cher, in the afiirmative, concluding, however, by stating that he himself, together with several of the most noted advocates of the bar of Paris and of Rouen, embraced the opinion so ably developed by De Vaux, and afterwards judicially determined in the Royal Court. The argument of the learned advocate of Bourges is indeed most luminous, thorough and vigorous; but it is remarkable, after it might be supposed that the subject had been exhausted, with what freshness, originality, and sound learning M. Troplong attacks and handles it. » Vide ante, § 1, p. 2. CH. VI.] COMPARED WITH CORPORATIONS. 143 ral is, traced out with great precision in the written articles of association.^ § 138. Formerly, in enterprises that required a large number of agents, the undertakers, who, to in- crease their joint capital, had associated with them- selves limited partners, through the medium of shares, refused to give employment or situations in the con- cern to any but those who held some of the stock. This cannot be done any longer, without carrjong with it the consequence of making the individual a general partner, unless the nature of his duties be purely physical and passive; and, particularly, that he do not enter into any commercial relation with third persons in reference to the joint affairs ; such as, to receive or pay money, to buy or sell; to negotiate verbally or in writing, iq any part of the business.^ § 139. An idea has prevailed to a certain extent in the State of Pennsylvania, that there was an affinity between corporations and associations for Hmited partnerships. The annexed extract from the annual message of a former Governor of that State to the legislature will show to what extent that idea has been entertained, and the use proposed to be made of it by those opposed to the creation of chartered insti- tutions : — " The Act of Assembly passed during the last ses- sion, relative to 'Limited Partnerships,' should here- after, to a great extent, prevent the increase of corpo- rations. And a due regard for the public welfare demands that no new corporate bodies should be created, except upon the most certain proof of their ' 1 Troplong des Sooi^tfis, No. 145, p. 383. » 2 Parfait Notaire, 466, Edit. 1827. 144 OF THE DIVISION OF CAPITAL IN SHARES. [CH. VI. necessity, and of the accomplishment of the proposed object being beyond the power of .individual enter- prise. This is the sound old rule in this State on the subject, and it should in no case be departed from. The formation of these artificial bodies in unnecessary cases, or under circumstances calculated to enter iuto competition with, and cramp the energies of fair trading and responsible individuals, is a tramphng upon the rights of the citizen. It serves to foster and perpetuate the thirst for gain without labor; it unduly increases profit and decreases risk, thereby paralyzing individual efibrt — it takes away responsibility both moral and pecuniary, except to the small extent of actual investment — it multiplies influence and the means of success by combining the whole weight of the members into one overwhelming mass — it aids deception by making it the interest of all concerned to pufi" the project — and finally, it begets confusion and panic in society, by the efforts of the many who are concerned to escape from the fall of the tottering fabric"! § 140. Without stopping to discuss the truth of the declamatory matter asserted in the foregoing extract, or to ascertain what effect the promulgation of the general doctrine has had upon the power addressed, the writer will content himself with simply expressing his entire dissent from it, both in reference to premises and inferences, and he will proceed to show that there is no kind of affinity between chartered companies and limited partnerships, and that the right to establish the latter is no logical reason for suppressing the for- mer, or refusing to grant new acts of incorporation. ' Message of 1839—1840. CH. VI.] COMPARED "WITH CORPORATIONS. 145 And first, an incorporated company, like the Societe Anonjone of the French jurisprudence, has no division of partners or share-holders into general and special classes. Secondly, no particular members or indi- viduals of the company are exclusively responsible, except, indeed, the directors in certain cases of mis- feasance or malfeasance. Thirdly, no particular mem- bers or shareholders are excluded from the adminis- tration of the concerns of the association, or liable for interference in the management of them. Fourthly, there is a corporate seal, with corporate liability in suits at law, a feature that is totally wanting in asso- ciations for a limited partnership. Nor would the attaching of individual habihty to the grant of incor- poration change the aspect of this latter feature of difference, but would rather increase the difference; because each stockholder would only be Hable in pro- portion to the quantity of his stock, in the event of failure; whereas limited partners do not become Hable for any thing, in the event of failure of the firms in which they are interested, except in cases where they have been guilty of interference. Lastly, an incor- porated company may change, and displace their managers, directors, and other administrative mem- bers ; but a limited partnership must preserve its gene- ral partners until a dissolution takes place, whether by death, agreement, or the lapse of time to which it was originally limited. On principles of pohtical economy, also, there is a wide difference between the two species of association. Indeed, the experience of nations may be said to show, that enterprises requiring gigantic capitals can never be undertaken upon the foundation of hmited co-partnerships, or upon any other than that of public incorporation. No very 146 OF THE DIVISION OF CAPITAL IN SHARES. [CH. YI. large body of individuals would confide immense sums of money to a few managers or general partners, (the latter perhaps possessing nothing,) and at the same time permanently exclude themselves from aU ma- nagement of, or interference in, the affairs of the asso- ciation, under the ruinous penalty of absolute and complete responsibility. § 141. Troplong thus designates the points of dif- ference : " Incorporated companies bear some analogy to limited paxtnerships; but they differ in one essen- tial : that is, the corporate and paid-ia capital has no representatives personally and indefinitely responsible. A corporation only offers to the public a patrimony as security, but no guarantee of persons. Its moral being is a social or joint money chest;' that, exhausted, no indiAdduals, liable as debtors, are tangible." Again, " In a corporation, the express object of their institu- tion is alone made public, and not the persons of those who compose it. On the contrary, in a hmited part- nership, both the object of the enterprise and the responsible conductors of it, must be made known."^ Again, "Incorporated companies are eminently pro- per for vast undertakings, such as canals, bridges, railroads, &c. And besides exemption from per- sonal responsibility for all the debts, they permit the shareholders to take part in the management and conduct of the operations, to watch and control their agents, and not, like Umited partners, obhged to trust to the good faith of their general partner."^ ' Des Sooietes, Vol. I. p. 121, No. 444. 2 Ibid. No. 168, p. 173—174. See also the Tiews of Delangle on this subject, ante, p. 3, in note. ^ • " Ibid., No. 450, p. 429—430. Vide ante, § 130, p. 132; the question discussed, ■whether an incorporated company can be engrafted upon a limited partnership. CH. VI.] PRECEDENTS IN FRANCE. 147 § 142. In order to enable the American lawyer to obtain a more precise idea of the nature of the divi- sion of a hmited partnership capital into shares, as well as to appreciate the practical working of such a mode of joint mercantile or trading association, the writer has introduced into an appendix various forms of the private articles of agreement between such share-holders and the general partners in France, and also of the certificates of stock issued to the former, of both species; viz., of those to order and name, and those to bearer, taken from divers authoritative books of precedents. § 143. Amongst those forms will be found the draught of articles of limited partnership in France, for the '' ea^loitalicm" of mines and the manufacture of chemical products, in which the capital is divided into shares of the nominative kind.^ It is a very ably drawn instrument in the original language, having, however, suffered, as is unavoidable, in a translation. Several peculiarities in this deed will strike the com- mon lawyer. It will be seen that the general part- ners have the mines, and the talent and science ne- cessary for working them profitably. They accord- ingly stipulate for a contribution of cash capital on certain terms, conditions and obUgations, with special partners, toho are unnamed, and perhaps unknown; that is, the future shareholders. The latter are the party of the second part to the deed of co-partnership, hy anticipation; and by the operation of the French law, they become, the moment they contribute their respective cash shares of the capital, protected by the covenants, and entitled to all the rights of special part- ' Vide post, Appendix No. 3. 148 OF THE DIVISION OF CAPITAL IN SHAKES. [OH. VI. ners, tlie same as if they liad been originally and at the inception of the articles, parties contracting and bound. § 144. That such a method of constituting a li- mited partnership must prove highly convenient in practice, no one can doubt. There are the general partners with real capital, and articles of association drawn, executed and recorded, showing, the reasons of the demand for cash capital from special partners, and the manner in which it is to be employed, when con- tributed. Of course, as soon as such special partners are found, who pay in the fund required to begin with, or the whole, the partnership is complete ; and it only remains to comply with the formahties prescribed by the Commercial Code, for the registry of it and a publi- cation of the terms. Can a partnership in this form, course, and consummation, be estabhshed under all or any of the limited habihty statutes of this country in the several states which have enacted them? The writer has no doubt that they can ; — particularly in Pennsylvania, since its suppletory law of 1838,' — and he offers the following reasons in support of his opinion : — The legislation referred to is borrowed from France, and it cannot be honestly carried out here, without incorporating with it its concomitants, attributes, and modes of interpretation, in the country of its origin. It contravenes no pubUc policy, and injures no private interests. It is no more than is done in every deed for heirs, executors and assigns, for whom binding covenants are made in advance, and who may thus become parties to an instrument executed even before they were bom. It is, too, a method always adopted ' See this statute quoted at length, Ante, pp. 58, 59. CH. VI.] PRECEDENTS IN" BELGIUM. 149 in the bringmg into existence and operation all our partnerships and companies constituted by act of in- corporation, legal or legislative. It seems, fairer, like- wise, thus to stipulate with future and supposed spe- cial partners, than with a few actual ones who are made express parties to the deed, and who become, thus, privileged to subsell all, or parts of their shares, at a premium, to those who would eagerly, perhaps, have subscribed to the original stock. The section of the Pennsylvania act of 1838, quoted at the com- mencement of this chapter, certainly facihtates or ren- ders less questionable a method of the kind ; but in the writer's opinion, all the facility it imparts in that state, (as he has before intimated,) and the permission it gives to the several parties to a limited partnership, existed,' and could in several respects be exercised by them, before it was promulgated. If, then, the writer's views are correct as to this form of limited co-partner- ship articles, he will have brought into the notice of the profession and of business men, a method of form- ing such an association of interests, as cannot but prove highly advantageous and eligible. § 145. Upon a perusal of the various articles of as- sociation en commandite, stated in the note below,* • Vide ante, p. 135 — 136, the writer's note upon this law. ^ The following is a list of limited partnerships, with capitals divided into shares, established in Belgium, up to the year 1839, taken from a large octavo volume in possession of the writer, published at Brussels in that year, in the French language, and entitled as follows: — " Collection des Statvts de toutes les SocUtes Anonymes, et en Commandite par Adions, de la Belgique; par M, L. F. B. Trioen, Avocat; in 2 vols. pp. 916. Brussels." The articles of association, {statutes as they are called in Europe,) of these concerns, are drawn with great care and minuteness, and, apparently, with equal ability. The Societes Anom/mes, or royal incorporated com- panies, are much more numerous, in this work. The statutes of any one of them, mutatis mutandis, would equally serve for limited partnerships. 150 OF THE DIVISION OF CAPITAL IN SHARES. [CH. VI. every one must be forcibly struck by the fact that in each case, the general partners bring into the concern, as the nucleus, and in most cases, as the foundation 1. Caisse D'Escompte, de Recouvrement, et de Consignation. Capital, 10,000,000 frs. 2. Caisse du Commerce et de I'Industrie de Valenciennes. Em. Lacan et Co. C. 10,000,000 frs. 3. Socieie en Commandite par Actions, ponrles Transports par Eau, de M. Adolphe Lebon et Comp. C. 300,000 frs., (in 600 shares of 500 frs.) 4. Passage Lemonnier. (A covered passage or arcade, with shops and houses on each side.) C. 16,000,000 frs. 5. Limited Partnership for the Encouragement of the Art of Music. C. 75,000 frs. 1,500 shares of 50 frs. each. 6. Societe Beige de Librairie, Imprimerie et Papeterie. C. 1,500,000 frs. 7. Societe Typographique Beige, en Commandite. C. 1,000,000 frs. 2,000 shares, of 500 frs. each. 8. Societe en Commandite sous la Raison, Meline, Cans, et Com- pagnie. (For Printing, Type Foundry, Paper Making, and Booksell- ing.) C. 3,000,000 frs. 9. Societe en Commandite, pour le Commerce et la Fabrication de Pa- pier, sous la Raison, Mathieu Nelis et Compagnie. C. 3,000,000 frs. 10. Societe Nationale pour la Propagation Des Bons Livres, en Com- mandite. C. 4,000,000 frs. Shares to order of 500 frs., and shares to bearer of 1,000 frs. 11. Societe de Beaux Arts. C. 500,000 frs. 12. Societe de Sucrerie du Midi de Boussu, sous la Raison, Maximilien Robette et Compagnie. C. 260,000 frs. 13. Society en Commandite des Ateliers de Constructions a Boussu, sous la Raisons sociale, Dorzee Pere et Fiis et Comp. C. 400,000 frs. 14. Sooidt6 en Commandite pour la Fabrication et la Vente des Bron- zes, sous la Raison, Jean Louis Pitet et Comp. C. 650,000 frs. 15. Society en Commandite, Des Corderies du Grand, Hornu, sous la Raison Sociale, Hauman Greive et Comp. C. 700,000 frs. 16. Socieie en Commandite, pour le Peignage, la Filature des Laines et la Fabrication des Tissu, sous la Raison, de Jos. Mehlem et Comp. k Liege. C. 1,500,000 frs. 17. Manufacture de Glaces de Trois, Fontaines, Societe en Comman- dite, sous la Raison Sociale, E. Mariotte etComp. Capital 1,000,000 fis. 18. Soci8t6 de Dampremy, pour la Fabrication du Verre, des Bouteilles et de la Gobeleterie, sous la Raison Sociale, Jules Frison et Comp. C. 1,500,000 frs. 19. Societe en Commandite pour I'Exploitation des Brasseries Beiges, sous la Raison de fienier Hambrouck et Comp. C. 6,000,000 frs. CH. TL'] precedents in BELGIUM. 151 of the joint business, some property, real or personal, corporeal or incorporeal, exclusively belonging to them, around which special partners are invited to rally, 20. Societe en Commandite, de Manufacture de Pianos, sous laEaison Sociale, Lichtenthal et Compagnie. C. 800,000 frs. 21. Soci6te Beige en Commandite, pour la Fabrication et la Location de Pianos, sous la Raison de Hoebereohts, Groetaers et Comp. C. 1,000,000 frs. 22. Societe en Commandite pour le Commerce et la Fabrication des Bois Indigenes et Exoliques, sous la Raison Sociale, Fran(jais Vanderma- chen et Comp. C. 300,000 frs. 23. Societe en Commandite, pour le Commerce et Sciesie de Marbres Indigdnes et Exotiques, sous la Raison, Michel Gois et Comp. C. 500,000 frs. 24. Societe en Commandite de la Poudriere d' Homu, sous la Raison Sociale, Ad. Marouse-Wins et Comp. C. 200,000 frs. 25. Societe Industrielle en Commandite, sous la Raison, Louis Delise et Compagnie. C. 3,000,000 frs. 26. Societe en Commandite, Distillerie de Watermael-Boitsfort, sous la Raison Social© de Lucq et Comp. C. 500,000 frs. 27. Societe en Commandite, Fabrication diiNoir Animal et autres pro- duits Chimiques, k Forest, pres Bruxelles, sous la Raison Sociale Ebingre et Compagnie. C. 150,000 frs. 28. Societe en Commandite, pour la Fabrication et le Commerce de Clous et Vis a Bois. — Raison Sociale, Preumont et Compagnie. C 300,000 fi-s. 29. Societe en Commandite pour le Commerce des Laines et le Sciage des Marbres. C. 300,000 frs. 30. Societe en Commandite par Actions, Ecole Normale Litteraire, Scientifique et Industrielle. C. 200,000 frs. — 400 shares of 500 frs. 31. Societe en Commandite dite des BruxeUoises, (Omnibus or Public Coaches,) sous la Raison Sociale de Canonne et Comp. C. 150,000 frs. 32. Societe en Commandite, Asphalte Guibert; Compagnie Beige Hollandaise, par Brevets d' Importation et de Perfectionnement obtenus en Belgique — Raison Sociale, Pierre Neliset Compagnie. C. 400,000 frs. The last-named partnership has its capital divided into 800 shares of 500 francs each. — ^The capital of almost all the preceding companies is divided into shares of one thousand francs each. According to general rule, when the shares are to be made transmissible to bearer, the scrip must be issued in the names, and to the order, of the special partners, until five-tenths of the par price is paid in ; after such payment it is ne- gotiable to bearer. When all the instalments are paid up, the shares may be sub-divi 5 Hill's Rep. 313 and 315. CH. VII.] BANK V. GOULD, 5 HILL, 309. 169 he must make good his share of the capital by re- storiag the deficiency, (sec. 16.) But there is no pretence that this great inroad upon the capital was or could have been fairly made by way of paying interest or profits, and if the name of the special part- ner was included in the conveyance of the mill with his knowledge and consent, I do not see how he can avoid being charged as a general partner. It is true that the 15th section does not declare what conse- quences shall follow the withdrawal of capital; but the act is expressly forbidden, and it is one which runs counter to the whole policy of the statute. Par- ties are only allowed to form a limited partnership upon certain specified 'terms' and 'conditions;' (s. 11;) among the most important of which are, the contribution by the special partner of 'a specific sum as capital to the common stock,' (s. 2 and 4,) and the keeping of that sum unimpaired, so far as relates to any act of the special partner, (s. 15.) I see no way in which the policy of the law can be maintained, and the rights of third persons be effectually preserved, without holding that every intentional violation of the statute by the special partner will deprive him of that exemption from Hability to creditors which he might otherwise claim." The learned judge also put forth a dictum, that a special partner directly acting in or negotiating the purchase or sale of the real estate of a limited partnership, forfeited his immu- nity, and became responsible as a general partner. § 162. In the opinion of the writer, a less favorable case for the broaching of so much severity of doctrine against special partners could not have been brought into a court of error or appeals. The matter was one almost wholly compounded of law and fact, and as such 170 REAL ESTATE OP LIMITED PARTKERSHIPS. [CH. VH. was passed upon by the inferior tribunal, (best quali- fied to appreciate such law and fact,) and adjudged in favor of the defendants. Although the report of the facts is rather meager, there is sufficient to show that the judge presiding in the circuit court viewed and treated the cause precisely as an enlightened lawyer should have done. Although the title to the mill was irregularly vested in the special partner, what possi- ble injury could that have caused the plaintiff in the cause ? By the very reasoning of the Supreme Court, such partner became a trustee under the conveyance for the use of the partnership, and no act of his, or of any separate creditor of his, could have divested him of that trust title to the injury of the firm. To assert too that he had withdrawn capital by allowing his name as a grantee to be inserted in the deed, when, at the same time, it was admitted that the entire mUl property was in the possession of the general partners and was employed by them in the business of the firm, was to assert an argumentative and abstract with- drawal, and one that did not exist in reality or prac- tice. To apply the dreadful penalty of forfeiture of his civil status as a special partner, and to decree him responsible for all the debts of the firm for such imagiuary withdrawal, when at the same time it was admitted that the 15th section was silent as to such forfeiture, was to strain and stretch construction to an unnecessary point of severity. § 163. In regard to the dictum ia this case, that a special partner who negotiates the purchase of real property that is to form the basis of the business of the limited partnership, becomes ipso faxito a general partner, the writer presumes it is a doctrine that at this day no one will contend for. Several of the States CH. VII.] RULE AT COMMON LAW. - 171 expressly permit, in their statutes, attorneys at law to be the legal assistants of limited partnerships in which they are special partners. Suppose this special partner had been a real estate broker or a conveyancer. If so, he would have merely acted, and very correctly too, ia the line of his business. After contributing his share of the capital in cash, it was perfectly legal and allowable for him either to sell the firm his own real estate, or that of other persons who had employed him for the purpose. And the distinction is this : — Be- tween being concerned in the purchase of the real estate for the uses of the firm, and being concerned with the real estate or dealing with it after it had he- come the property of the fi/rm. § 164. In the acquirement of real estate by a H- mited partnership, too much care cannot be expended in having the tenure, destination, and ultimate disposal of it regulated and determined in such a way, by pro- perly draughted stipulations in ithe articles of co-part- nership, as that none of the trammelling questions at- taching to lands at common law, in the event of the death or insolvency of any of the general partners, (supposing several to exist,) may arise. § 165. The feudal doctrine that still obtains amongst us as to the tenure and transmission of real estate, ap- plied to partners in trade, is this : — K lands or houses be conveyed to all the partners for the partnership ac- count, they become tenants in common thereof at law, and each can convey by deed only his own share or half, and not that of the other. So, that while one partner may, in the name of the firm, sell the whole of any goods belonging to it, both must join in order to convey the entirety of the real estate thereof.^ ' Coles V. Coles, 15 Johns. Rep. 159, 161; Story on Part., k 92, note, 2. 172 REAL 'ESTATE OF LIMITED PARTNERSHIPS. [CH.Vn, And in case of the death of one of the partners, his interest therein would survive to the others. It is true that courts of equity, however the title may stand at law, profess to treat real estate belonging to a part> nership like its personal effects and funds; and the parties in whose name it stands, as owners of the le- gal title, will be held to be trustees of the partner- ship, and accountable accordingly; and will not allow survivorship of the estate in case of death; the share of the decedent going to his proper representatives. "Indeed," says the late Mr. Justice Story,^ "so far as the partners and their creditors are concerned, real estate belonging to the partnership is in equity treated as mere personalty, and governed by the general doc- trines of the latter. And so it will be deemed m equity, to all other intents and purposes, if the parl> ners themselves have, by their agreement or other- wise, purposely impressed upon it the character of personalty. But a question has been made whether, in the absence of any such agreement, or other act, affecting its general character, real estate, held as a part of the partnership funds, or stock, ought to de- volve upon, or descend as real estate to, the heir or devisee, or ought to belong as personalty to the exe- cutor or administrator, upon the death of the partner. Upon this point there has been a diversity of judicial opinion, as well as of judicial decision ; some judges holding that in such a case it retained its original character of real estate, and passed to the heirs or de- visees accordingly ; and others holding that it was to be treated throughout as partnership property, and therefore as personalty, and belonged to the executor ' On Part., § 93, p. 136-7; 3d ed. CH. VII.] KULE IN COURTS OF EQUITY. ■ 173 or administrator. The doctrine under these circum- stances must be considered as open to many distress- ing doubts." § 166. This diversity of judicial opinion prevails, not only in England, but in the United States. Some of the most distinguished equity judges in the former country, such as Lord Thurlow, Sir Wm. Grant, and Sir L. Shadwell, held the former opinion ; while Lord Eldon, Sir John Leach, and Baron Alderson, main- tained that all property involved in a partnership con- cern, was to be considered as personal.^ The Ameri- can decisions in reference to real estate purchased with partnership funds, or for the use of the firm, are just as various and conflictiag. But it is said, they may generally be considered "as establishing these two principles. First, that such real estate, is, in equity, chargeable with the debts of the partnership; and with any balance that may be due from one partner to another upon the winding up of the afiairs of the firm. Secondly, that as between the personal representatives and the heirs at law of a deceased partner, his share of the surplus of the real estate of the copartnership, which remains after paying its debts, and adjusting all the equitable claims of the different members of the firm, as between themselves, is considered and treated as real estate."^ § 167. Upon this subject of the conversion of real estate belonging to a partnership, there is an able and a thorough analysis of the cases in the book of Mr. Bisset, that must be stated, because it was not only made after the examination of the entire subject by ' Story on Part., p. 137, n. 1. » Buohan v. Sumner, S Barbour, Ch Rep. 165. 174 REAL ESTATE OF LIMITED PARTNERSHIPS. [CH. VII. Mr. Justice Story, but because it presents new views and conceptions. It appears that the case of Phillips V. Phillips^ which is only cited in mass with others, in the commentary on partnership, is but half reported in the volume cited below. But in a MS. report of the decision, furnished Mr. Bisset by one of the counsel concerned in the cause, it is asserted, that, in addition to the point reported by Mylne and Keene, " that real estate purchased with partnership capital for partner- ship purposes, is personal estate, and as such goes to the personal representatives of a deceased partner;" it was also adjudged, 1. "That public houses devised by a brewer to his two nephews, who carried on the brewery, as partners, were held not to be partnership property, though used exactly as the former. 2. The uncle had mortgages of public houses, which he de- vised to his nephews, and the latter purchased the equity of redemption out of partnership funds; the equity of redemption was held to follow the mort- gages, and not to become partnership property."^ This decision was followed, says Mr. Bisset, in Broom V. Broom,^ and in Morris v. Kearsley:* and further, that the conclusion drawn from the printed report to the effect, " that freehold property used for the pur- poses of a trading partnership, whether purchased with partnership funds or not, is in equity to be con- sidered as converted into personalty, not only for the purposes of the partnership, but for all other purpo- ses,"^ is unfounded. A consequence of which is, he ' 1 Mylne and Keene, 649. Bisset on Partn. 50, 2 Bisset on Partn., 50, Lond. Edit., and 30 Am. Edit. ' 3 Myl. and K., 443. " 2 You. and Coll. 139. ^ So stated as the rule in Story on Partnership, § 91, p.' 134, 3d Edit., and supra, ner, under an agreement that during the partnership, and if necessary for partnership purposes, after the ' 1 Mont, on Partn. n. 97; and 1 Hop. Hus. and Wife, 346, n. ^ 2 Dow, 231. In this case, Lord Eldon said: — " My own individual opinion, is, that all property involved in a partnership concern ougM to be considered as personal," » 7 Sim. 271. * 8 Sim. 529. 5 8 Jurist, 994. ^ 4 jjare, 315. ■' Indeed, as far as the writer has been able to discover, the book of Mr. Bisset has wholly failed to attract the attention of Mr. Sumner. 'Townsend v. Devaynes; Phillips v. Phillips; Broom v. Broom: re- ferred to above. 9 Randall v. Randall, 7 Sim., 271. 176 REAL ESTATE OF LIMITED PAETNERSHIPS. [CH. VII. expiration of the partnership, it should be considered as personal estate not pwrchased with partnersTiip funds, and should not be sold for payment of debts or for other purposes of the partnership, is not converted into personal estate, as between heirs and personal re- presentatives.' 4. Real estate devised to partners is not partnership property, though used for partnership purposes.^ 5. Though partners purchase, with partnership funds, the equity of redemption of mortgages devised to them, the equity of redemption follows the mort- gage and remains real estate.^ § 169. Such are Mr. Bisset's deductions; and being all he has made, it is evident that he has omit- ted one of the most important which he ought to have made from his array of cases ; a clear and necessary corollary from Cktstance v. Bradslmw,^ a decision which he had all to himself, as the first author on partner- ship after its publication. He thus states the adjudi- cation: — "Vice Chancellor Wigram decided that the share of a deceased partner in freehold estates pur- chased with partnership funds for partnership pur- poses, is not personal estate for the purpose of being in- cluded in the value in respect of which probate duty is payable;" and he thus observed : — " The case of the crown rests wholly upon the proposition that such pro- perty is in equity, though not in fact, personal estate. And the case of Phillips v. Phillips is referred to as having carried out that principle, and determined that ' Cookson V. Cookson, 8 Sim., 529; Bisset on Part., 56. 2 Phillips V. Phillips, MS. Bisset on Part. 56, Lond. ed.j 33, Am. Ed. s Ibid. * 4 Hare, 315; Bisset, ubi supra. CH; Vn.] FICTION IN FAVOE OF TRADE. 177 the real estate" of a partnership so purchased is, in equity, personal estate for all intents and purposes. It does not appear to me that a decision in this case against the claim of the crown will conflict with that or any other case upon the same subject, and that con- sequently, in deciding against such claim, I am not called on to express any opinion upon the judgment in Phillips V. Phillips."^ § 170. What then is the corollary from this deci- sion? It is, that the rule is an equitable one in favor of trade ; and strangers have no right to invoke it, or rather equity, to turn it to the prejiidice of the heirs. The rule is a fiction of equity for the benefit of sur- viving or solvent partners, of executors and adminis- trators, and of creditors of the firm; and after it has served their turn and the interests of the whole part- nership, the doctrine follows that the fiction is at an end, and the real estate remaining is, if not to lose that impress of personalty for the benefit of the heirs, certainly not to retain it to their prejudice. § 171. This doctrine, that the fiction of equity is not to be stretched to subserve any interests but those of the firm and of their creditors, receives corrobora- tion from doctrine of a similar spirit in the French system. And this is that no partner, not even one specially deputed to manage the active or financial business of the concern, or the general partner of a limited partnership, who is exclusively allowed to ma- nage it, can take advantage of this fiction to ahenate the real estate of the firm not intended to be sold; such as the store-houses, buildings, or any other capi- tal which the firm has established expressly to be pre- ' Bisset on Part., 55, Lond. 33, Am. Ed. W. 178 REAL ESTATE OP LIMITED PABTJSTE.BSHIPS. [CH. ¥11. served in kind. This was so decided hy the Court of Cassation, August 23d, 1836, in reference to the gene- ral partner of a limited partnership."^ And on the same principle, though he may advance his own mo- ney for the interests of the firm, or borrow it when ne- cessary upon their joint credit, he cannot mortgage 'its real estate for the purpose of raising funds ev&n to save it? So strictly is this principle maintained that, where in such a case he could not mortgage the realty of the fimi, he might his own to serve it, and this would be a lien that would bind the firm, and have the prefe- rence of a partnership debt.' § 172. Again, — for the winding up of a French partnership, under the Commercial Code, it is some- times necessary, as we shall particularly see ia the chapter devoted to the diseolution of limited partner- ships, to appoint a peculiar functionary, termed a Uquir dator} It is his business to sell the goods and personal estate of the firm, and if a solvent firm, to restore to each partner such articles as personally belong to them. He also sells and makes title to the real estafe whose con- servation was not intended by the firm or which is not susceptible of partition amongst the partners. "And this is a power," says Troplong, "which a managing partner could not have exercised, but a liquidator must exercise, because the circumstances of the partner- ship are changed. It was the duty of the former to preserve the real estate intact that was needed for the operations of the concern; it is the duty of the liqui- dator to convert it into values capable of division."^ » Dalloz, Vol. of 1837, P. 1, p. 140; Troplong des Soc, VoL II., No. 682, p. 160. » Troplong, ubi supra, No. 684. ' Ibid. No. 686. < Vide post, Ch. XIV. ' Des Sooietes, Vol. II., No. 1071. CH. Til.] BRIEF CLAUSE IN THE ARTICLES. 179 §173. Ifj thexi, the general doctrine, after having been debated since the time of Lord Thurlow, should be " open to distressing doubts," at a day so recent as that whereon the late Judge Story penned his com- mentary, would it not be but a matter of common prudence to insert in the articles such a clause as will impress upon all the real estate of the partnership the character of personalty? It would require but a very brief covenant to do that effectually, i>y;hich is already more than half done by the courts, and might be pronounced to be wholly done, were it not that a judge might one day arise, peculiarly wedded to anti- quated and black letter lore, who, troubled with these *' distressing doubts," might apply them to a contract from which a clause of the kind was absent, to the utter frustration of the meaning, wishes, and interests of the great majority of those concerned, § 174. In French jurisprudence, which is one of law and equity combined in codes, no such questions can occur. Although Erance was once parcelled into feudal seigneuries, and the military land tenures there prevailed during the middle ages, the progress of le- gislation during the revolutionary, consular, and impe- rial rule, in that country, has effectu^^lly settled aU title to the earth on a more simple, hberal, and en- hghtened principle. In France, at the present day, it would be treated as preposterous and intolerable, that a firm of merchants should possess the faculty of selling ajid transferring a steam-ship, worth 1500,000, in a few minutes of time, or the cargo she had brought into port, worth double that sum, while their counting- house or ware-house, of but one-twentieth the value of the ship, should be fettered in its transmission by legal dogmas come down to this century from mailed barons, and m£|,de the source to them of vexation, in- 180 EKAL ESTATE OF LIMITED PARTNERSHIPS. [CH. Vn. terruption and delay. Of course, there is a notable distinction in France between real and personal estate, {moveables and vmmaoeahles, as there technically de- nominated,) as there must be in every civilized country from the different essences of the two things, in the disposal of them by way of sale or pledge ; but they are not feudal distinctions, as in this country and England. Let us demonstrate this by a few extracts from the jurisprudence of France, on the subject. "Capital invested in a partnership may be of a corporeal thing, or of an incorporeal right. A corpo- real thing ; as the huilding of a factory; a waterfall ; a machine; uncoined money; a mine; a railway ; too- neys. An incorporeal right ; as an invention; a valuable secret; a manufacturing process; a legal, or medical, or other professional chentage. "And such capital may not only be of a present thing or right, but of a thing or right in expectation ; as, a future inheritance of real or personal estate."^ § 175. The foregoing may sufl&ce to show us how different are the natures of personal and real things on either side of the British channel. Let us now see how realty, when actually constituting part of a so- cial capital, is treated by the law of the Southern side. And here, instead of a literal version, we will have to condense the doctrine of the French law, about to be quoted. The same eminent writer then tells us : — In a partnership, one may invest his money, a second, his house, and a third, his labor, in order to constitute a combined capital. As the presumption of law is, that the property of the money is invested, it is equally to be presumed that the property in the house is in- vested, and not the mere tenancy of it. Every part- ' Troplong des Societes, Vol. I., Nos. 108, 109. CH. VII.] NATUEE OF, IN FRANCE. 181 nership, then, supposes a community of interests, and it is tlie investments of eacli partner that constitute this community. Thus it is, that the several contri- butions to the capital, united, compose the joint capital, which remains in common during the entire existence of the firm. Nevertheless, partners may agree in the articles to divide such capital into shares. By this combination each partner becomes invested with a certain amount of shares, corresponding to his interest in the concern, and each of these shares represents a part of the joint capital. Actio sen pars sodetatis, says Voet. Whilst, therefore, the property in the personal and real estate, which makes up this capital, reposes, during the existence of the partnership, in the posses- sion of a creature of fiction (etre fidif) which it has raised up, the right of the partners, reduced in the meanwhile to a division of profits and the expectation of a final division, {partage^ has an expression in the individual certificates that may be delivered to them; and these, being negotiable, represent a moveable valiie, subject to the rises and falls of speculation, I 176. Again: These shares of capital are those whose values have been contributed in personal or real estate, and they are entitled, in the final partition, to their proportional parts of the latter. But the shares of labor are those which represent the labor capital, and may only be entitled to a share of profits, and not in the final partition, and may be required to be de- posited as a guarantee of the labor. Still, such a clause in the article is purely cautionary, and such shares may have all the attributes of property shares by agreement.' ' The above is a condensed view of the doctrine fiom the same volume last quoted, Nos. 126, 127, 128; and wUl suffice to show us how 182 EEAL ESTATE OF LIMITED PARTNERSHIPS. [CH. Til. 1 177. Again: Where the liquidator of a partner- ship in France, sells the real estate of the firm, it has never been pretended, s'ays Troplong, that the purcha- ser was bound to take notice of mortgages or incum- brances given by either of the partners, or to see to the payment of them ; (meaning, of course, ihortgages given by the partners, the primitive owners, beforiB bringing the real estate into the joint capital.) For it would be impossible to hold any purchaser to this in a part- nership whose capital had been divided into shares.^ So also, if a minor should be interested in such real estate, the sale, by a liquidator, would divest his right; though it is tru6, that his guardian, under the gteneral law, ■W'ould be entitled to notice of such sale, in order to be afforded an opportunity to bid, and to prevent a sacrifice of the property.^ No rule of good faith must be violated in such sale, or undue advantage allowed to the surviving partners, at the biddings. But the title of the purchaser, if not a partner, would be un- affected. littld Frbnch partnerships are hampered by real estate introduced into them as capital.j ' DesSoci^tes, Vol. II, No. 1006. « Ibid^ Nos. 1007, 1008. CH, Vm.] INTEBEST OF CLERKS IN PROFITS. 183 CHAPTER VIII. OF THE EMPLOYMENT BY LIMITED PARTNERSHIPS OF CLERKS ON SALARIES WITH AN INTEBEST IN PROFITS. § 178. A second peculiarity observable in tbe form of deed of foreign limited parttiersbip, described and commented on in a preceding chapter' is the mterven- ti&n of a third person in it, who is neither a general nor a special partner; who is not a party to become responsible to creditors, and yet is an agent who is employed to identify himself with the interests of the concern, and who, besides a salary, is to be entitled to a certain clear share of the profits. Allusion is here made to the provision in the 17th article for the adjunction of a eolahorat&t to one of the general parir ner«j in the application of processes to the manufac- turO of chemical products.* Also to the 29th article, in which he is allotted an annual salary and also five per cent-, of the annual profits, and of the surplus at the winding up of the concern. And lastly to the declaratory clause at the end of the articles which shows the said agent as present, taking cognizance of the instrument, and ebeG&plmg^ it as a contract binding on him, but without signing it, except, perhaps, as a witnessi It is etldent then that such appearer, though ' Chapter VI., § p. * This deed is presented at length in Appendix No. 3, post. 184 or THE EMPLOYMENT OF CLEEKS [CH. VlE less than a party, is something more than agent; and taking a share of the profits, the question may b started by some, would he, under such a contract, b liable as a partner, at common law, in this countrji or under the operation of any of our limited liability acts? § 179. Happily for the writer, the whole doctrin< involved iu this question, whether at law or in equity as far at least as regards general partnerships, is dis cussed by the late Mr. Justice Story, in his Commenta ries on Partnership, with an earnestness of purpose, i liberality of tone, and a breadth of learning, that leave but little of a task for him, in applying the doctrini to limited partnership, but that of borrowing. I would be superfluous to say, that this great autho: demonstrates that such intermediary would not, unde: the contract, become Hable as a partner to creditors He says : — " It is far from being universally true, tha a mere participation in the profits constitutes th( party a partner; at most, it is true only sub mode Indeed, as an original question, it might admit of i very grave doubt, whether it would not have bee] more convenient, and more conformable to true prir ciples, as well as to public poHcy, to have held, tha no partnership should be deemed to exist at all, evei as to third persons, unless such were the intention o the parties, or unless they had so held themselves ou to the pubHc."^ "Admitting, however, that a partici ■pation in the profits wiU ordinarily establish the es istence of a partnership in favor of third persons; i the absence of all other opposing circumstances, ough the rule to be regarded as any thing more than mer ' Story on Paitn. § 36, p. 55—56, 3d Edit. CH. Vin.] WITH AN INTEREST IN PROFITS. 185 presumptive proof thereof, and therefore liable to be repelled, and overcome by other circumstances, and not as of itself overcoming or controlling them? In other words, the question is, whether the portion of the profits taken, is in the character of a partner, or of an agent, as a compensation for labor and services."^ " The whole foundation on which this distinction rests, is, that no partnership is intended to be created by the parties mter sese; that the agent is not clothed with the general powers, rights, or duties of a part- ner; that the share in the profits given to him is not designed to make him a partner, either in the capital stock or in the profits, but to excite his diligence, and secure his personal skill and exertions, as an agent of the concern, and is contemplated merely as a compen- sation therefor. It is, therefore, not only susceptible of being treated purely as a case of agency; but in reality it is positively so, as far as the intention of the parties can accomplish the object. Under such cir- cumstances, what ground is there in reason or in equity, or ra natural justice, why in favor of third persons this intention should be overthrown, and another rule substituted, which must work a manifest injustice to the agent, and has not operated either as a fraud, or a deceit, or an intentional wrong upon third persons? Why should the agent, who is by this very agreement deprived of all power over the capital stock and the funds, and even of the ordinary rights of a partner to a levy thereon and an account thereof, be thus subjected to an unlimited responsi- bility to third persons, from whom he has taken no more of the funds or profits, (and, indeed, ordinarily 'Story on Part., § 38. 186 dF THE EMPLOYMENT OF CLERKS [CH. "VTII. less SO,) than he would have taken, if the compensa- tion had fceen fixed and absolute, instead Of contingent. If there be any stubborn rule of law which establishes such a doctrine, it must be obeyed; but if none such exists, then it is assuming the very ground iii contro- versy to assert, that it flows from general analogies of principles. On the contrary, it may be far more cor- rectly said, that even admitting, (what, on a matter unaffected by decisions, and to be reasoned out upon original principles, might well be doubted,) that where each party is to take a share of the profits indefinitely, and is to bear a proportion of the losses^ each havictg an equal right to act as a principal, as to the profits, although the capital stock might belong to one only, it shall constitute, as to third persons, a case of part- nership; yet that rule Ought not to apply to cases where one pafty is to act manifestly as the mere agent for another, and is to receive a compensation for his skill and services only, and not to share as a partner, or to possess the rights and power of a part- ner. " In shortj the true rulejj ex ceqitoet baiw^ would seem to be, that the agreement and intention of the parties themselves should govern all the cases. If they in- tended a partnership in the capital stockj or in the profits, or in both, then, that the same rule should ap- ply in favor of third persons, even if the agreement were unknown to them. Andj on the other hand, if no such partnership were intended between the par- ties, then, that there should be nohe as to third per- sons unless w'here the parties had held themselves out as partners to the pubHc, or their conduct operated as a fraud or deceit upon third persons. It is upon this foundation that the decisions rest, which affirm the truth and correctness of the distinction, as a quality Cff.Ytfl.] With AN INTEEEST IN PROFITS. 187 of the more general doctrine cdritfended fbf. And in this view it is difficult to perceive wliy it has not a; just support in reaSbri, and equity, aM piibUc policy. Wherever the profits and losses are to be shared by the parties in fixed proportions and shares, and each is in- tended to be clothed with the powers, aiid rights, and duties, and responsibilities bf a principal, either as td the capital stock, or the profits, or both, there may be just ground to assert, iii the absence of all controlling stipulations and circuinstaiices, that they intend a partnership. But where one party is stripped of the powers and rights of a partner, aiid clothed only with the more limited powers and rights of ah agent, it seems harsh, if not unreasonable, to crowd upon him the duties and responsibilities of a partner, which he has nfever assumed, and for which he has no recipro- city of reward or interest. It has, therefore, been well said by Mr. Chancellor Kent, that 'to be a part- ner, ohe niust hate such an interest in tke profits as will entitle him to an accouiit, and give him a spe- cific lien or preference in payment over other credi- tors. There is a distinction between a stipulation for a compensation for labor proportioned to the profits^ which does not make a person a partner, and a stipu- lation for ah intierest in such profits, which entitles the party to an account as a partner.' And Mr. CoUyer has given the same dbctririie in equally expressive terms, when he says, that in order to constitute a com- munion of profits between the parties, which shall ihake them partners, the ihtei'est iii the profits niust be mutual — that is, dach person must have a specific interest in the profits as a principal trader."* ' Story on Part., 5 48, 49. The doctrine of ColLyerj mentioned in the last paragraph, aboye, as "expressive," by the late learned commentator, is 188 OF THE EMPLOYMENT OF CLERKS [CH. VUI. § 180. The learned commentator on the law of part- nership then proceeds to notice the Roman and next the French law upon this subject, and states it in each system as conformable with his views : — " The Roman law fully recognised the same distinction, treating the case as a mandate, and not as a partnership, (unless the latter were the intention of the parties,) where one person was employed to sell the goods of another, and was to receive for his services a portion of the profits."^ Again, — " The same distinction is well known and fully recognised in the French law. Par- dessus has expressed his opinion upon it in the most direct and satisfactory manner. Thus, (he says,) cited by him, verbatim, in a preceding section, (Story on Part., ^ 33, p. 62,) with the remark, that it " wears the appearance of no small subtlety and refinement, and scarcely meets the mind in a clear, unambiguous form." "When may it be properly said, that ' an interest in the profits is mutual,' and that ' each person has a special interest in the profits, as aprinapal trader V No absolute test is given to distinguish the cases from each other, and it is not easy to grasp it when stated in so abstract a form." The same remark of subtlety is also in the same page ap- plied to Mr. Gow, who has also tried his hand at a distinction or test on the subject, as follows: — "A distinction prevails between an interest in the profits themselves, as profits, and the payment of a given sum of money in proportion to a given quantum of the profits, as the reward of, and as a compensation for, labor and services." If instead of subtlety, the critical designation used had been jargon, in reference to this extract, it would have better characterized it. For a distinction so framed as to he. of no possible practical value, ought only to be so considered and de- scribed. As for the test quoted above, with so much eulogy, from the commentaries of the late Chancellor Kent, that is only a repetition of the same language used by Lord Eldon in the case of Ex parte Hamper, 17 Ves. 412 ; and laying down a distinction, — to borrow the language of Mr. Bisset, (on Part., p. 13,) " which has appeared to some a distinction without a difierence ; so subtle and refined, couched in language so ob- scure and ambiguous, that it is difficult to meet with any ordinarily clear- headed man who professes to understand it." The writer will advert again to the confusion reigning in this curious discussion in his text. ' Story on Part., § 50, p. 78, 3d ed. CH. Vin.] WITH AN INTEREST IN PROFITS. 189 whenever a merchant, instead of a fixed salary, agrees to give his agent a certain part of the annual profit, the agent is a letter of his services under an aleatory condition; hut he is not a partner. So when one per- son has intrusted goods to another to sell for him, and has agreed to give him a part of the price that shall exceed a certain sum, this will not create a partner- ship, but wiU only be a salaried mandate, or commis- sion to the agent. Duvergier holds the same opinion, and has reasoned out the grounds thereof with un- common acuteness and ability.^ And, iadeed, it seems • Story on Part., 5 51. The distinguished commentator has introduced into a note at this place, a very long quotation from Duvergier, in the ori- ginal French text, exhibiting a masterly argument in favor of the liberal doctrine. It is to be regretted that a translation was not substituted for so much foreign and highly important reasoning. M. Duvergier says : — " There is a very general usage am.ongst merchants and traders of giving to their clerks and agents, as part of their salaries, a quota of the profits of their business. Such an agreement would seem, at the first blush, to involve all the elements of a copartnership ; on the other hand, to be very analogous to a salaried mandate. The importance of ascertaining to which class of contracts such a covenant does really belong, any one can perceive. It is, too, exceedingly difiicult to unravel the true character of a compact that seems to partake in equal parts of the features of a partnership, a salaried mandate and a bailment for services. Principles, therefore, must govern in the solution." The learned author then com- mences his argument. Inter alia, he thus observes in substance : — " There is not, properly speaking, such a thing as profits to be divided by the parties." The price obtained for the goods of the partner, by such an agent, represents, 1st, the intrinsic Vcilue of the goods, and 2d, the pains, care, and expense of the agent who disposes of them. This is no more than occurs daily in contracts efieoted through the medium of merchan- dise brokers; yet who ever pretended to assimilate them as partners in the business of the employers?" Again : — "The real partner is he, who, although he may have only invested his talents in the joint capital, is independent : he has duties to perform, but no orders to receive. The clerk, on the contrary, is bound to execute the orders of the partners ; he is to them a subordinate, with no investiture of the rights or powers of an associate." We shall presently see the opinion of another master of French law, not quoted in any other treatise. 190 OF THE EMPLOYMENT OF CLERKS. [CH. VIU. to be the established doctrine of the French tribunals. This coincidence of doctrines founded upon general reasoning, between foreign jurists and the municipal jurisprudence of the common law, as to the propriety of the distinction above stated, certainjiy affoi;ds no slight confirmation of its accuracy and entjire confor- mity to the true principles which ought to regulate the subject."^ § 181. The writer begs the learned reader to note the peculiar language of the preceding extract, and also of the following, with which the eminent Ameri- can commentator winds up his discussion of the sub- ject, inasmuch as the writer means, with all deference, to make those extracts the text of some observations of his own. " Thus much, at least, seemed proper to be said in vindication of the distinction at the common law and the cases in support of it, which have been treated, by some learned minds, as founded in too much subtlety and refinement, and as not reconcileable with acknowledged principles and just judicial reason- ing."^ Now, the truth is, that our great jurist, — ^who in this, his most thorough" and enlightened argument, has rendered an imperishable service to the cause of liberal doctrine, — has, while seeming to vindicate^the common law distinction said to be assailed, actually crushed and annihilated it. The real vindicators of the common law distinction, such as Gow, CoUyer, and Gary, have been routed by him; and it was his own "learned mind" that treated their theorem "as founded in too much subtlety and refinement." In proof of this, it is only necessary to refer to his work on Partnership, or the extract made from it a few mo- _^ _- — i ' Story on Part., § 51, p. SI— 83. " Ibid. § 52. CH. Viri.] WITH AN INTEREST IN PROFITS. 191 ments ago in these pages.' Further, the following extracts, already separately introduced, but now placed in parallel colujnns, will show whether it is the dis- tinction of the common law or of the civil law that has been vindicated, or that the distinguished author has so unanswerably established : PRINCIPLE NOT OP THE COM- MON LAW. "As an original ques- tion, it might admit of very grave doubt, whether it would not have been more convenient and more conformable to true prin- ciples, as well as to pubhc policy, to have held, that no partnership should be deemed to exist at all, even as to third persons, v/nless such were ihe mten- tkm of the parties, or unless they had so held them- selves out to the pubUc. But the common law has already settled it other- wise, and therefore it is use- less to speculate wpon the subject. The Koman law and the modern foreign law do not appear to have created a partnership be- ALTER SED IDEM. " In short, the true rule, ex cequo et bmo, would SEEM to be, tJiat the agree- ment and intention of the parties themselves should govern all the cases. If they intended a partner- ship in the capital stock, or in the profits, or in both, that the same rule should apply ia favor of third per- sons, even if the agree- ment were unknown to them. And on the other hand, if no such partner- ship were intended be- tween the parties, then, that there should be none as to third persons, unless where the parties had held themselves out as partners to the public, or their con- duct operated as a fraud upon third persons. It is Vide supra, i 178, p. 185; Story on Part, i 33, and § 34 ; p. 52, 3d Ed. 192 OF THE EMPLOYMENT OF CLERKS [CH. VIII. tween tlie parties, as to wpon this fowndaticm thai third persons, without the decisions rest, which af- their consent, or against Jlrm the truth and correct- the stipulations of their ness of the distinction al- own contract; and, there- read^/ considered, as a quor fore, the common law seems lification of the mare gene- to have pressed its prind- ral doctrine contended for. pies on this subject to an ex- And in this view it is dif- tent not required hy, even ficult to perceive, why it if consistent with, natural has not a just support in jiistice."^ reason, and equity, and public policy."* § 182. In making the preceding juxta-position of alleged consonant, but really different doctrines, there is no covert design to impute obfuscation to the great commentator upon the law of partnership. On the contrary, every one will see, that his reason and in- telligence revolted from the absurd and impracticable dogma of the English law, as attempted to be imposed by certain judges upon the business community, from the time of the dicta of Ch. J. Eyre in Waugh v. Car- ver;^ a dogma which had been early stigmatized by ' Story on Part., § 49; supra, § 179, p. 184. 2 Ibid., i 36, i 37; supra, § 179, pp. 186, 187. ^ 2 H. BL, 235. The narrow, unjust, and impolitic tenets of this de- cision, which is at the foundation of the false and absurd common law rule, have been recently attacked and shown up in a most signally vigorous and original manner, by R. G. C. Fane, Esq , a distinguished commissioner in bankruptcy in England, who was examined before the Committee of the House of Commons on the 27th May, 1851. This portion of his testimony, taken from p. 73 et seq., of the report of the committee, is here subjoined, the writer being satisfied that the views of Mr. Fane will equally delight and instruct every liberal and enlightened professional reader in the United States. "In the early part of my professional life, circumstances induced me to study the law of partnership, and I found this strange provision in it. CH.Vni.] "WITH AN INTEREST IN PROFITS. 193 Lord Eldon as "a nicety ;^ and a "distinction so ihm" that he could not "state it as established upon due consideration :" a dogma, too, which is now attributed I *as so startled and amazed, that I set about tracing it to its source, and then I discovered that it had, properly speaking, no foundation at all. I traced it to a case decided in 1793, on the alleged authority of a case decided in 1775, which last not only did not affirm it, but actually ne- gatived the liability of the alleged partner. "The case in 1775 was Grace v. Smith, 2 W. Bl. Rep. 998. There Grace endeavoured to make Smith, who had retired from a partnership some years before, responsible for a subsequent debt of the partnership, on the ground that he on retiring had stipulated for a share of the profits. The counsel who argued for the plaintiff, to support his argument, took from his pocket, what, in the language of our profession, is called pocket-pistol law, that is, a manuscript account of an unreported case, which he said had been decided a few months or weeks before by Lord Mansfield, Bloxham v. Pell, in which Lord Mansfield had decided, in a similar case, that the retired partner was liable. This argument and case, however, produced no effect, for Chief Justice de Grey and the three other judges held, that the defendant was not liable. Similar attempts to make per- sons responsible for debts, as dormant partners, were repeated ; in 1780, in Hoare v. Dawes, Douglas' Rep. 371; and again, in 1788, in Cooke v. Eyre, 1 H. Blackst. 37, but they failed; nor was it till 1793 that the doc- trine was established. In that year the case of Waugh v. Carver, 2 H. Blackst. 235, was heard. Two houses, who acted as agents for ship- owners, had agreed to assist each other in procuring agencies ; and it was agreed that they should divide the profit of a portion of their agency business. The two houses were entirely distinct, and had no other con- nexion with each other than the above, which was secret. One carried on business at Cowes, the other at Gosport. The Cowes house failed, whereupon a creditor of that house sued the Gosport house for goods sold and delivered to the Cowes house ; and having obtained a verdict, subject to the opinion of the court, the case was argued before the full court, and judgment given for the plaintiff. In giving judgment, L. C. J. Eyre admitted, " that the two houses were not and never meant to be partners;" that "they had no idea either was to be involved in the con- sequences of the failure of the other;" and that " they did not understand themselves responsible for any circumstances that might happen to the loss of either." "But," said he, "that was the agreement between them- selves. But the question is, whether they have not by parts of their agreement constituted themselves partners in respect of other persons? That they have so done is clear upon the face of the agreement; and N 194 OF THE EMPLOYMENT OF. CLEEES [CH. VIH. to this very Corjrpliaeus of English chancery law, by English writers too, with the not very flattering im- putation that he wished to palm it upon the legal upon the authority of Grace v. Smith, he who takes a moiety of all profits indefinitely, shall, by operation of law, be made liable to losses, if losses arise, upon the principle, that by taking a part of the profits, he takes from the creditors a part of that fund which is the proper security to them for the payment of their debts. That was the foundation of the decision in Grace v. Smith; and I think it stands upon the fair ground of reason." The result was, that the Gosport house was made liable. "It must surely be admitted that the decision in that case was most unreasonable, because the creditor, when parting with his goods, had never looked to the Gosport' house for payment, nor had the Gosport house ever voluntarily undertaken the liability; so that two contracts w«re invented by the law, a contract by the creditor to sell and deliver to the Gosport house, and a contract by the Gosport house to pay, neither of which had been dreamed of by the parties concerned. This is not the function of law. The function of law is not to invent contracts, but to find out what contracts men have really made, and enforce their due performance. "The result of this case has been a series of contradictory decisions, the judges sometimes affirming the false political economy of Waugh e. Carver, and sometimes setting it aside, as leading to results perfectly absurd. A late writer, Gow on Partnership, (edition 1830,) after com- menting on the decisions, says, p. 20: — 'Nominally there is a discre- pancy between the oases, but in what the substantial difference consistSj it is not easy to determine;' and he adds, 'it would be presumptuous to canvass or question the propriety of distinctions, which have obtained the sanction of so many enlightened judges.' The matter, however, is too important in a public point of view to excuse slavish submission to authority without inquiry, and I hope, therefore, I shall stand excused, if I venture to discuss the reasoning in Waugh v. Carver. What was it? It was, that ' he who takes a share of the profits of a business, takes part of the fund on which creditors rely for payment.' Can any thing be conceived more false ? Creditors neither can nor do rely on profits for payment. Profits do not exist till creditors are paid. Look at any individual transaction. A. sells goods to B. for lOOl. B. re-sells them for llOl. There is lOZ. profit. Does the creditor look to this 10/. for the payment of his WOl.1 No; he looks to the 100/. That sum would pay him, and is the proper fund to pay him. The 10/. would not. The 10/. evidently belongs to B., and is the fund to enable him to pay the out- goings of his trade, and subsist himself and his family. If, therefore, any creditor did look to the prq/iU of a trade, as his fund for payment, CH. Vin.]- WITH AN INTEREST IN PROFITS. 19S world, "as tlie result of cases previously decided," when it was not "warranted by any express decision anterior to his own judgment;" and, that it is "adia-^ tinction without a difference; so subtle arid refined, he would be a most unreasonable person, for he would wish that his customer and his customer's wife, family and servants should all starve, profits being the only fund they have to live on. ^' But if the principle, that he who takes part of the profits of a busi- ness, ought to be responsible to the creditors of the business, is a right principle, it ought to be carried out fully, and then it would ihvolve other and very serious consequences; for, upon that principle, every annui- tant on a business, and every creditor who charged exorbitant interest for the use of money lent, ought to be responsible to creditors ; for they certainly do take part of the fund to which creditors look. They are en- titled to be paid, even though no profits are made. And so again, if the' head of a house determined to pay his managing clerk by a salary equal to one-tenth of the profits, the managing clerk ought to be responsible to creditors, for he also would fake a share of the fund on which cre- ditors are supposed to rely for payment ; but here the law is staggerpd by its own conclusions, and hence it has been held by a distinction, which Lord Eldon has spoken of as ' extremely thin,' (Ex parte Ham- per, 17 Vesey, 404,) that a servant so paid is not'a partner. " The truth is, that the decision in Waugh v. Carver was not law, but mistaken political economy. The only safe principle to go on is this, that those, and those only, are responsible to creditors, who either are partners, or have publidy declared themselves as such, and have thus authorized all who deal with the partnership to consider and rely on theiii as partners. It may, however, be supposed that the law in question is part of the old law of England, or that it existed in the law of Rome. I do not believe that a trace of it is to be found in either. All the treatises on partnership that I have seen trace the law to Grace v. Smith, and trace it no further. But it may be asked, what good would the re- versal of the law laid down in Waugh v. Carver do? I answer, — Firstj It would prevent those revolting cases of injustice in which persons have been made liable for debts of which they knew nothing,' which they never intended to incur, and for which they had no idea they were lia- ble ; such cases as that of Waugh v. Carver. Secondly, Retiring part- ners, having gazetted themselves out, might occasionally leave a portion of their capital with the continuing partners whom they had long known^ and in whose business habits they had confidence, and share profits with- out risking their utter ruin ; and. Thirdly, It would occasionally ena,ble trustees and executors to leave infants' property in trades, pursuant to the wish of the author of the trust, without incurring persbnar liability.^' 196 OF THE EMPLOYMENT OF CLERKS [CH.Vin. obscure and ambiguous, it is difficult to meet with any ordinarily clear-beaded man who professes to under- stand it.'" The late Mr. Justice Story, further, found this dogma revamped, in this country, by the Chan- cellor of New York and promulged with approbation;* and this approbation re-echoed by so great an autho- rity as Ex-Chancellor Kent, in his Commentaries on American Law.^ In fact, at the time he was obUged to attack the subject in his treatise on the law of partnership, Judge Story met and had to face this very common law dogma, or distinction, prevailing, in all its glory, on both sides of the Atlantic. The English writers on the same title of jurisprudence, had aU, successively, broached, illustrated, or vindi- cated it. Gow, CoUyer, and Caiy, were conspicuous on the lists. The latter, indeed, went out of his way for the purpose of trumpeting itj for, after saying, that "it was not within the original object of his work to enter into any contested points, or to broach an opinion not immediately sanctioned by judicial deci- sions, in the present case it was allowable to depart from this rule, as the principle on which the distinc- tion was grounded seemed to him perfectly clear and just."* He then proceeds to defend it. Mr. Chahcel- ' Bisset on Partn., 13, Lond. Edit.; and 9, Am. Edit.; Coilyer on Partn., 24. 2d Edit. 2 In Champion ■». Bostwick, 18 Wend. 175, 184. s Supra, § 179, p. 187. * Gary on Partn. 1 1, note 1. His argument is bnt an iteration, or rather amplification, of the general expression of Lord Eldon, above alluded to. He distinguishes between " a proportion of a given quantum of profits by way of recompense for labor," to an agent on the one hand; and an agreement with the agent "for a part of the profits, os ^rq/?te, of the busi- ness, instead of a certain sum, proportioned to those profits," on the other hand. In the former case, the agent could only institute a suit against his employer for the recovery of his wages ; in the latter, he might sue CH. Tin.] "WITH AN INTEREST IN PROFITS. 197 lor Walworth, in the case immediately above referred to, incorporates this defence, totidem verbis, in his judgment; and thus states it: — " Gary insists, that as the person who is to receive a compensation for his labor in proportion to the profits of the business, with- out having a specific lien upon such profits to the ex- clusion of other creditors, it is for their interest that he should be compensated in that way, instead of re- ceiving a fixed compensation, whether the business pro- duced profits or otherwise; on the other hand, that if he stipulates for an interest in the profits of the business, which would entitle him to an account, and give him a specific lien or a preference in payment over other creditors, and give him the benefit of the increased profits of the business, without any corre- sponding risk in case of loss, it would operate unjustly as to other creditors ; and therefore that it is perfectly right in principle, that he should be holden to be lia- ble to third parties, as a partner in the latter case, but not in the former. lam inclined to think this dis- tinction is a sornid one, as regards the rights of third persons." With this endorsement, and the subsequent more imposing one of Chancellor Kent, Mr. Justice Story went into the elaborate and most able array of arguments and authorities, (particularly of American decisions,) that brought him to the conclusions above for an account of profits, to the prejudice of creditors, and for his full share of profits, to their exclusion. If, too, this did not make him a partner, he would, in the event of his employer's insolvency, have a preference; whereas, had he "not a determinate interest in the profits," but merely quasi wages, he would, in the event of his employer's bankruptcy, come in on the same footing with other simple contract creditors. If, as be- fore intimated, the foregoing distinction be not mere jargon, it certainly must prove incomprehensible to mercantile minds, and too fugitive to be reduced to practice. 198 OF THE EMPLOTMENT OF CLERKS [CH. VIII. enunciated, that distinguish him and his work as in- comparably superior to all rivals, and that settle for ever, it is most fervently to be hoped, this much vexed e«id vital question, upon an indestructible basis/ § 183. Since the advent of the Commentary on the Law of Partnership, a new writer on the same title has appeared in England, who, with some pretension^ to originality, and considerable ability, has evidently made his book out of the materials furnished by the American archetype. The treatise of Mr. Bisset, which was first published in 1847, is here alluded to. It is but natural to suppose, that with the new and elaborate views and conclusions put forth by the great American jurist upon so important and difficult an inquiry, staring him in the face, he felt himself bound to descend into the arena of argument, and to break a lance with so renowned a trans- Atlantic author;- — for, as FiU be seen directly, he challenges the force of the latter's efforts and conclusions. 1 184. Now, as it is of vital importance that this controyersy should be taken as settled for ever, in this commerciajl country, at least in regard to contracts of limited partnerships- — ^which are wholly of Eurppean and civil law origin; — and;, as the writer firmly be- lieves that the profession, upon the authority pf 9Q distinguished a jurist as Stokt, a judge too, at the time he wrote, who, on the bench of the Supreme Court of the United States, had been always looked up to as one of its illustrations, at the side of a Mae- shall, a Washington, and a Taney; — will hold the controversy as permanently closed, in this coun- try; and to dissuade, if possible, any future common ' Story on Partn., ? 39 — 48. CH.Tin.] WITH AN INTEREST IN PEOHTS. 199 law-taster, whom sudden political chances may place in elevated position upon the bench, from tearing this settlement from its natoorings aind starting the ques- tion again adrift upon the ocean of debate, the writer wiU continue the discussion of the subject by intro- ducing the most prominent views of Mr. Bisset, with the design of showing that they have not weakenied the American argument; and will then close it, by a reference to some French authorities not quoted by any other writer. § 185. As this review of the whole field of cases and commentary is quite extended, covering a matter of about twenty pages, the writer will have to con- tent himself with the following quotations, embodying merely the general views of Mr. Bisset : — " Some of the writers, and even some of the judicial authorities on the subject, appear to think that they have sur- mounted the difficulty, by confining the rule of liability to the cases where the party would have a right to an account of the profits; but to this it may be answered, that in all cases where a person is to be paid for his services by a sum jpraportkmed to the profits, hie imM he entitled to an accmint of profits. If ftot, how is he to ascertain that he has what he stipulated for ? In many of the cases which will be stated presently, it will be seen tliat notwithstandilag a clear right to an account, no partnership was held to subsist either as between the parties or as to third persoias."^ It is im- possible to avoid seeing at once, the truth, acuteness, and originality of the foregoing remarks, and if every ' thing else that Mr. Bisset had said on the sulgect were analogous or harmonious, he would be entitled to tiie ^ Bisset on I'artn., p. l4, Ldnd. Sldit.; p. 9 of Am. Ed. 200 OF THE EMPLOYMENT OF CLERKS [CH. THI. reputation of being the most forcible and satisfactory English writer on the law of partnership. In thus felling at a blow and burying the vaunted test of 'the right to an account of profits/- he has laid bare the jar- gon by which it was sought to make it look imposing, and to give it currency with feeble and conceited thinkers. § 186. Again, he thus continues : — " The distinction between the cases where a participation in the profits has been held to make a man liable as a partner, and those where it has been held not to make him so Hable, is certainly so thin, that it does not appear possible, from the most careful considerations of it, to arrive at any clear general conclusion j nor does Mr. Justice Story's attempt to reconcile the repugnancy of the va- rious decided cases, and to bring them, as he says, ' into harmony with each other, as well as with com- mon sense,' appear to be very successful. If the mat- ter were res Integra, a plain and intelUgible rule, and one, also, which would not be at variance with any thing in the cases decided previously to JExparie Hamper, it would be, that those whose share of the returns of the business or adventure consisted wholly of the profits of stock, or partly of the profits of stock, and partly Of the wages of labor, should be held liable as partners; but that those whose share of the said returns con- sisted wholly of the wages of labor, or the interest of money lent, or a certain fixed annuity, and who had no control or voice as principals in the management of the business or adventure, should not be held liable as partners. This would provide for all those cases in- which agents or servants, for the purpose of stimulating their exertions, are paid, not by a fixed sum, but by a certain proportion of the profits, or, to speak more ac- CH. VIII.] WITH AN INTEREST IN PROFITS. 201 curately, of the returns of tlie business or adventure. Of course it is not meant to apply to those cases where a party, although not interested in the capital stock, or even in the profits, suffers himself to be held out to the world as a partner ; nor to those cases where it is the intention that the party, though not interested in the capital stock, should nevertheless exercise the con- trol of a principal in the business or adventure, and, in short, fiU. the character of a partner to all intents and purposes."^ § 187. Such are the original observations of the last writer on the law of general partnership upon this much vexed and all-important question, which he follows up with a long review of the decided English and American cases pertinent to it. To his critique on Judge Story's exposition of the doctrine, we shall advert presently; let us first examine the new test he would propose, as a substitute, if the matter were open for adjustment, as res integra. The writer feels com- pelled to say, that he can discern in this test nothing more than what he asserted of those propounded by Gow, CoUyer, and Gary — jargon; that is, words seem- ing to embody a distinction that is none at all. Or, if a distinction, one without practical value for the business man, and one, the worthy emanation from the brain of a schoolman or a special pleader. It is to be observed, that Mr. Bisset really predicates his res inte- gra of past cases, though affecting to cast it out of original elements as a test for future cases. There is, therefore, no originahty in it, except the attempt to create a distinction out of mere words. § 188. That such is the truth, we shall convince ' Bisset on Part., p. 15 and 10. 202 OF THE EMPLOYMENT OF CLERKS [CH. VIII, every impartial mind out of tlie mouth of Mr. Bisset himself, in the paragraph that immediately foUows the text of the preceding extract : " Nor would this rule be altogether inconsistent and irreconcilable with Lord Eldon's dictum cited above. On the contrary, would it not tend to throw light on his expression so much criticized, ' a specific interest in the profits themselves, as profits,' by marking the distinction between the portion of the gross returns or earriings of a business, which comes strictly under the head of the wages of labor, and that portion which comes under the head of profits of stock, strictly and properly so called?"'' Here, then, we behold a writer assimilating his own thesis to that of another, which, but a few pages before, he had pronounced " a distinction without a difference ;" "subtle and refined;" "ambiguous," and incompre- hensible to men of "ordinary intelligence;" of another, too, who, pretending that he was forced to adopt a judi- cial rule, which he found established, but had really fabricated himself, designated itas a "mcefe/;" a "thin" distinction, and established without " due considerar tion."^ § 189. That this writer's new test is one of words alone, and of no value in practice, it is only necessary to peruse it a second time, to perceive. It asserts a difiference between the "profits" of a business, and the "returns" of a business. It asserts that one, whose "share of the returns" of the said business consisted wholly "of the interest of money," would not be a partner. Now, this is an old and exploded contrivance revived ; for every one knows, that money, so at in- terest in a firm, is capital in disguise. In short, it • Bisset on Part., p. 15, 10. > Vide supra, § 182, p. 192—196. CH. yin.] "WITH AN INTEREST IN PROFITS. 203 would be a waste of time and labor to demonstrate further the utter emptiness of this so called new scheme, founded on a res mtegrfi. No test, no scheme, no rule, savouring of the common law, will do in practice; it must, to be useful, be founded on the immutable prin- ciples of reason and justice, traceable back to the primordial founts of common sense; and such a one is only to be found where Judge Story and the American tribunals, whose judgments he comments on, found theirs, (and that without appearing to know it) in the civil law, and the Europejan law engrafted on it. § 190. Mr. Bisset pronounces a failure of Judge Story's " attempt to reconcile repugnant decided cases upon the question, and to bring them into harmony with each other, and with common sense." It is, un- fortunately, true, that our great American commentator did use similar language, and did profess to bring about what that language promised; for, is it not self-evident, that the proposition involves a contradiction in terms ? If those decisions were conflicting, and required to be harmonized not only with each other, hut with common sense, it follows, logically, that some of them, at least, if not all, were repugnant to common sense. We can all readily understand that decisions .on the same question, conflicting with each other, may be reconciled and harmonized ; but decisions on the same question, in conflict, not only with each other, but with com- mon sense, also, some of them must be devoid of com- mon sense, and, therefore, to be rejected as worse than useless. It was in keeping with the eminent American jurist's judicial character to profess respect for the de- cided cases of the English courts, and if he could not reconcile such as were then under his consideration, with common sense, or, which is the same thing, with 204 OF THE EMPLOYMENT OF CLERKS [CH. VIII. the distinction that at the outset of his argument, he expressly asserted must be "kept distinctly in view," — ^meaning the rule of the French and of the Roman law, — it was because the thing was impossible. But if he failed in that eJBfort, he has accomplished some- thing infinitely more useful. He has sustained his distinction by the authority of American decisions, and recent ones, too, which, for enlightened views, native force, and profound learning, are surpassed by nothing that ever emanated from Westminster Hall.' He has also superadded the authority of his own opinion, which, if his high judicial position, at the time he wrote and died, with his colossal reputation as a jurist, abroad and at home, and his undoubtedly real and intrinsic force and depth of intellect and learning, be considered, entitles us to take the doctrine as settled in perpetuum, at least in the United States. § 191. Before proceeding to resume the subject, in connexion with other foreign authors, as was promised, it remains to notice a decision of Lord EUenborough, ' Reference is here intended to the cases of Loomis v. Marshall, 12 Conn. Rep. 69 ; Bradley v. White, 10 Metcalfs Rep. 303 ; Turner v. Bissell, 14 Pick. Rep. 192; Rice Y.Austin, 17 Mass. Rep. 197; Reynolds v. T%)m, 15 Id. 370 ; Cutl^ v. Winsor, 6 Pick. Rep. 335. Mr. Justice Story has ob- served of these cases that they "have pressed the doctrine somewhat further" than the English cases. This was courtesy to England. He ought to have said, that they establish a doctrine alien to those cases, and far in advance of them. It is true that the able Judge, who pronounced the decision in the Connecticut case, and those who delivered the rea- soned judgments in the Massachusetts cases, reviewed and quoted from the English decisions, and seemed to cite the doctrines of them as authority, particularly the so much criticised distinction of Lord Eldon; nevertheless, the writer holds that this was only yielding to an American judicial habit ; for, to all intents and purposes, those American judgments have asserted, and do now assert and establish the rule of the French law, as defined by Duvergier, before quoted, and by all the writers who have appeared CH. VIII.] WITH AK INTEREST IN PROFITS. 205 often quoted and commented upon by the various English writers above mentioned, and repeatedly by Mr. Justice Story. The case of Dry v. Boswell,^ is here alluded to, which was this: — The owner of a Kghter agreed with B., a lighter man, that in con- sideration of his working the lighter, he should have half her gross earnings; this was held to be only a mode of pajdng B. wages for his labor, and not a part- nership; but that if the profits were to have been equally divided, there the participation by the parties of the profits and loss would make the agreement a partnership. And in a note^ to this case, the illustrious commentator says, that the distinction is between the gross earnings and the net earnings of the lighter. § 192. Now, this English case is thus quoted to show the stubborn and impracticable nature of the common law test, and it is decisive for the purpose. Out of the restricted sphere of the law of partnership, common lawyers are unable to get it, though it clearly has no kin with partnership ; and they are compelled to talk of "gross earnings," and a "quantum of the profits" proportioned to the labor, as wages; and "profits, as profits," and other changes, being mere phrases, signifying nothing of practical use. While, if they would call the contract by its right name, — of hailmentfor services, (contrat de louage pour services,) they would get into a new title, wherein they would find principles and illustrations to their hand, clearing away all difficulties, and leaving not a "loop to hang a doubt on." It is true, this would not be common law, but disparaged civil law. ' 1 Campb. Rep. 329. 2 Story on Partn., { 44, n. 1, p. 70; 3d Edit. 206 OF THE EMPLOYMENT OF CLERKS [CH. VHi. § 193. That the contract had nothing to do with partnership, and that it would, or ought not to have nlade any difference, whether the Hghter man was to receive half of the gross, or of the net earnings, ■ is perfectly clearj if classed as a bailment for work. What were the gross earnings? The whole sum paid by the freighters for each load carried by the Hghter from the ship to the quay, or vfice versa. And what would have been the net earnings ? Why the sum so paid, after deducting from it interest on the cost of the lighter; allowance fOr reasonable wear and tear*; license fee, and, perhaps, whatever would have had to be paid to a hand for the work actually done by a lighter-man. Now, how would a share of such net profits have made the latter a partner, had that been the contract? Because, would answer the common lawyer, the Hghter-man must thereby have had a risk in the losses. But this is a quibble. Had he not the same risk in the contract for gross earnings? There were two Ughters, and in opposition. The owner of the second employed a Hghter-man by the day, or the job, or the load ; and got the chief part of the unload- ing the ship, so that this Hghter'-man made more money than he who went in for half the gross earn- ings. Did not the latter thereby lose, and was not this a loss of profits? Suppose the ship had not em- ployed him at all, but had given the entire job to his rival? His wages would have been zero. § 194. There is still another case to notice, (recently decided in England, and not adverted to in the Com-" mentary on the Law of Partnership,) which is founded upon a just and well known principle of the common law, viz. : — that if a person, not a partner, holds him- self out as one, he is responsible to creditors; as, where CH. Vm.] WITH AN INTEREST IN PROFITS. 207 a clerk of a firm at a fixed salary, and without any share in profits, suffers his name to be introduced in the firm, as a partner, he will be held liable as one.' Now, the case alluded to is that of Smith v. Sherwood," before the Vice Chancellor of England, in which a clerk, under similar circumstances, filed his bill for an account against the actual members of the firm, al- leging himself a partner with them; and the defend- ants by their answer denied the partnership, and stated that the complainant was employed by them as their foreman or manager, but admitted having served him with a notice to dissolve partnership, and also that their accounts had been made out in his and their names, and that in a certain specification of buildings required by them, the buildings were de- cribed as being on the property of all, whereon, it was contended for the defendants, that the complainant from his own showing had advanced nothing, but the Vice Chancellor decided that there was sufficient proof of a partnership, inter sese. § 195. The object in quoting this case is to show that the repugnancy and confusion visible in the Eng- lish adjudications upon this subject is not so much the fault of the judges as of the system. Here is mani- festly a case that caused a struggle in the breast of the Vice Chancellor to foil oppression and promote in- dividual justice. There certainly was no real part- nership inter sese, although there was o^ie as to creditors. But the firm was solvent, and so far the clerk had won instead of lost; and the real partners wanted to oust him of his winnings by a technical objection. Without an account he could get no relief in Chan- ' Guidon v. Eobson, 2 Campb. Rep. 302. * 10 Jurist, 214, 208 OF THE EMPLOYMENT OF CLERKS [CH. VIII. eery; and to have an account, he must be a partner of the partners, although in reality but their foreman. There was then no alternative left but to allow injus- tice to go rampant in triumph, or to decree the clerk a partner in the face of the original intention of the parties. § 196. Such it was, and such it has always been, in the common law. If that important title of the civil law, the mandatum for service had been incorpo- rated in the English system, along with the other classes of bailment mentioned by Lord Holt in Coggs V. Bernard, as it ought to have been in its full extent, there would not be at this day the conflict, and cross- ings, and jarrings of opinions that we witness. The courts would then have had a set of principles and de- cisions to fall back upon in exceptional cases of the sort. § 197. It now remains to ascertain the views of other French jurists upon this doctrine, not quoted by any author on the law of English and American part- nerships. The two most prominent on the subject in France, are Troplong and Delangle, and they are the most recent writers. § 198. The former discusses the question in a two- fold way, or rather in two questions. 1st, Does a con- tract for a share of profits with a clerk, make him a partner as to third persons ? 2d. Does a contract with a partner for a share of profits exempt from losses ren- der him a cleric in respect to that share, to his co-part- ners? In other words, does it bind them? or can he exempt by extra services a part of his capital from losses, not as against third persons, but mfer sesel Both these questions deeply concern the creation of a limited partnership, (as we have seen in regard to the first,) and shall see, in regard to the second. CH. VIII.] "WITH AN INTEREST IN PROFITS. 209 § 199. M. Troplong thus opens the discussion : — "It is particularly the hire of industry^ that presents delicate analogies with the contract of co-partnership. In that of the hire of industry, the workman desires to secure the compensation of his care. In a co-pari^ nership, into which one partner brings his industry, he, too, expects to reap the recompense of his labor. But although the aim of each is thus identical, the modes of accomplishing it are very different. The contract for hire of services does not imply investment in the capital, or participation in the losses; while that of co-partnership adopted by a workman with nothing but his talents and industry, still implies a joint social fund, with the chances of loss and of gain to be borne in common. These observations, however elementary they may be, have been lost sight of by some clever spirits; and they were indispensable, in order to place the following combination in its legitimate rank.* "It involves the contract whereby a merchant, de- sirous of arousing the zeal of his clerks, gives them, instead of salaries, a share in the profits of his house. Is this a partnership, or is it but a contract of hire ? This is a question which has much occupied juriscon- sults. Its solution is dependent upon circumstances. As Julianus expresses it, implicitam foLcti quoestionem, (The law of the question is mixed up with the fact.) "If the clerk be not admitted into joint ownership of the capital, if subordinate to the authority of the employer, he may be dismissed, retaining his claim for ' The original is "louage d'industrie;" more properly in English, 6ai/'- mentfor work. ^ This learned author is pleased to designate his distinction as " ele~ . mentary;" but the fact is, it is one of the profoundest and acutest possi- ble, and equally new and original as profound and acute. 210 OF THE EMPLOYMENT OF CLERKS [CH. VHI. damages; if it be stipulated that he is not to be liable to creditors, and that losses are not to affect him, he has been decided not to be a partner but a clerk, who, instead of a fixed salary, receives for his services a share in the eventual profits." ****** ipjjg precarious position of the clerk — ^his subordination to the employer— his isolation from creditors, indicates most logically the contract of bailment for work. At all events, the question is always one so mixed up with fact, that the lower courts may often determine it ex- empt from the revisory power of the Court of Cassa- tion. ' Voluntatis qwBStio in existimatione jvdids est.' It is then for the judges of those courts to scrutinize these facts and intentions with intelligence, and to deduce the most precise, weighty, and consistent pre- sumptions.^ " And now let us take a further step in advance, and see whether it be legal that a partner who fur- nishes his labor shall be secured a fixed sum, no mat- ter what may be the joint losses of the firm? " Such an agreement may arise under divers circum- stances. A partner may stipulate, for example, that in any event, even of no profits, he shall have a full remuneration for his services. Or, he may stipu- late that a portion of his services shall be paid by a fixed salary, and the other portion shall depend for its recompense upon the eventual profits. These two cases are very different. In the first, no risk weighs upon the partner; he is ever saved harmless. In the second, the partner is subject to chances; for if there be no profits, he loses that portion of his labor which was to have been paid by those profits. ' Troplong des Socifetds, Vol. L, No. 46, p. 57—61. CH. VIII.] WITH AN INTEREST IN PROFITS. 211 " The first agreement has been examined by Feli- cius. He condemns it for the reason that such part- ner has covenanted to invest his labor in the view of gaiaing by it, and that equality exacts he should un- dergo the unpropitious chances that may injure the firm. This opinion appears to me true in one sense. It is evident that such a pact cannot be sustained on the principle of a partnership. But it may be valid as a contract of bailment for services ; [comme contrat de louage jpur et simple.) Frequent examples of this are found in maritime commerce. 'Seafaring people,' says Emerigon, 'to avoid exposure to unrewarded lar bor, have the usage of receiving ventures, which they undertake to manage for a per centage, which is gua- rantied them in every event,' even where a loss is sus- tained: and it is this which the Italians term, Inv- plidta.' " The second pact is governed by the same reason- ing. It has been considered by Voet, who insists, and correctly, that a partner's labor may be requited by a combination of fixed emolument and eventual gains ; and that the agreement is sanctioned by the usages of modem commerce. In this opinion he is supported by Delacombe, and by the author of the theological dissertation on usury. The reason assigned is, that there is more a locatio <^erarwm, than a partnership, as to the fixed emolument, and that it is a union of the two contracts to attain a licit result. " It is impossible to dispute the soundness of this doctrine. In order to prove it, let us put aside the case of a clerk to whom an interest has been given, as. already defined; (for we know that his civil posi- ' See Story on Partn., } 13, p. €8, for the American usage. 212 OF THE EMPLOYMENT OF CLERKS [CH. Vni. tion is regulated by the contract of bailment for ser- vices ;) and let us take up the case of one whose social character stands out in greatest relief: let us take up that of a general partner in a limited partnership. I assert, that even in this position the decision of Voet should be deemed conclusive. "Ideas of equahty, as an attribute of co-partner- ships, ought not to generate illusions; but should yield to a consideration of striking gravity : and that is, that a general partner of such a concern derives his right to a fixed emolument from the contract of bailment for services, [lavage d'ofumrages,) a contract which has been admitted to modify the essential {purs) principles of the contract of co-partnership: would not a partnership, which needs for its prosperity cer- tain kinds of labor and of service, be forced to com- pensate any stranger it might employ by way of hire, and give him a salary as its industrial agent? If so, why should it be inhibited from hiring, in preference, the services of one of its own members, in whom it might repose full confidence? Why should it not be allowed to assign him to the post in which it might place a third person? Why should the contract of bailment for hire be incompatible with certain privi- leges which the contract of partnership secures to him who contributes his industry to it? In any event, the partnership would not the less subsist under every other relation; inasmuch as it is well understood, that the fixed salary is to be but a par- tial remuneration, — a payment on account, — ^which is to be made up and completed out of expected profits. And should these profits never be realized, such part- ner agent would then experience a real loss, and would derive from his salary but an insufficient recompense. CH. Vin.] WITH AN INTEREST IN PROFITS. 213 "Further; modern authorities are fully in point in this view;^ and if there were any reproach to make them, it would be that they had urged the doctrine in favor of labor rather beyond its just limits. For ex- ample; I do not like this language of M. Zacharia, 'that the partner whose investment in the capital consists but in his industry, may he absolved from, all contrihution to the losses;' for it is language that lacks precision. M. GiUet, the orator of the Tribunate, has expressed a similar formula; but the modifications by which he qualifies it restore the truth to it. Thus, he says, ' where there is a partner whose only share of the capital is his indvstry, it may be stipulated that he shall be exonerated from the losses. This exoneration, in his regard, shall be considered as A portion of the PRICE that would have to be paid for his labor.'^ And it is clear, if this exemption be equivalent to hut a part of the price, the partner contributes, as to the surplus, his share of the joint losses, and it could not have been asserted, without such qualification, that there might be an agreement to exonerate him there- from. This illustration is therefore in no wise op- posed to the proposition advanced by me, above; that a participation of losses is of the essence of partner- ship. For, a partner who contributes but his labor remains subject to bad luck, in respect of that portion of his industry, which is to be paid out of profits, the defwiency in his fboed salary. K there be no profits, he loses his labor as to all that exceeds his salary, the latter having been intended to compensate but a por- ' They are Messrs. Zacharia, Tom. 3, p. 57 ; Delvinoourt, T. 3, p. 225; Duratiton, T. 17, No. 420; Duvergier, Nos. 262, 363. ^ Fenet. T. 14, p. 422. It is difficult to withhold a tribute of admira- tion to the acuteness and force of the above illustration. 214 OF THE EMPLOYMENT OF CLERKS [CH. "VIII. tion of his services. After all, the sagacity of the ju- diciary must discover the facts and differences, which, separating the question above discussed from the prior one examined, invest the latter with the character ristics of pure bailment, and the former with those of partnership."^ I 200. The learned French commentator then passes on to discuss the doctrine whether a partner can le- gally insure his co-partner against loss, and whether the contract for indemnity would be good as to the capital, as to the profits, or as to both.^ We shall state his views and conclusions on this subject in a future chapter.' § 201. The commentary of M. Delangle, on these questions, is very brief, but its tone is decided and peremptory as to the first. The following is a version of all he says : — " Our jurisprudence is settled that a clerk interested in the profits cannot be held a partner. And this upon a sound application of principle. For, whatever analogy in point of fact may be discovered between the condition of such a clerk and that of an actual partner, who invests his labor upon the same terms, there really exists, between the two positions, this capital difference : that a partner, be his invest- ment what it may — money, goods, or labor — ^is, to a certain extent, master of the social funds j that his rights are of the same nature, and bring forth the same results, as those of the other partners ; that a cessation of his relations with the firm, (being bom of it) can- not occur, before the period agreed on for a dissolution, without the unanimous consent, or a judicial decree ; ' Troplong des Societes, Vol. 2, Nos. 649, 650, 651. ' Ibid, No. 652, et seq. = Post, Chapter XYI. CH. Vni.] WITH AN INTEEEST IN PROFITS. 215 whilst, on the other hand, a clerk, interested in the profits — as his designation indicates — has never, for a moment, ceased to be a clerk. From the fact, that in Heu of a fixed salary, whereof commercial vicissitude is never to influence the payment, he is to take a share of the profits, to the reaUzation of which he contributes by his industry, it cannot be argued that his condition is changed. He acquires no right upon the social funds; he bears no part of the losses; his employer may discharge him from his service, subject to an action for damages if the discharge be unmerited. Therefore the quality of partner is not compatibly with such dependence."^ § 202. It will be observed that this author takes no notice of the second question, — that of a partner in- vesting his labor for a certain interest in the profits exonerated from loss,-^except indirectly, and, as it were, to negative it. Yet, an afl&rmative view of it having, been so much insisted on and so well argued by Troplong, as was seen but a few moments ago,* it has struck the writer, that, as lawyers in this country, exclusively versed in the common law, may not readily appreciate the doctrine j or comprehend its apphcabiUty, it would be expedient for him to enter on an additional examination, and attempt an elementary explanation of the question in connexion with our own system. § 203. Two important matters, in reference to European general partnership, i. e. (the sodete en nam collecti/,) are to be first adverted to; matters, too, that are not of the essence of our common law general ' Delangle des Societes, No. 5, p. 5, 6, where are cited all the decided cases establishing the point, being four in number, from 1811 to 1835. ^ Ante, § 199, p. 210—213. 216 OF THE EMPLOYMENT OF CLERKS [CH. yni. partnerships; and these are — 1st, distinctions between the general partners themselves ; and 2d, publicity of their contract of association.^ § 204. First: the general partners of such firms, (and of those in commandite, also, having several general partners,) are distinguished into gerants^ and ncni gerants, or partners simply. In the societe eii nom coUectif, or general partnership, the partners are called assooies; in the societe en commandite, or limited partnership, they, (the general partners,) are further called commandites. The gerants of both species of firms are the chief and potential managers; they possess, or rather may possess, under the written articles of association, more power, voice and com- mand, than their co-partners. By those written articles theii? attributes are defined ; and, so defined, are bind- ing on the latter and the public. § 205. For instance, they may have the exclusive right to issue bills and notes, and wield the social signature, while the exercise of the same privilege by ' See this mode of partnership explained, ante, ^ 16, p. 23, 24. ' From gerens, the Latin participle. Why gerent should not be an English noun as well as gerant, in French, and as well as vicegerent, in English, is extraordinary. The word, in French usage, is of the most useful and indispensable kind ; associate traders could not get along in Europe without it. We, in America, shall likewise equally need it in our new system; why, therefore, not begin at once to adopt it? It would be infinitely more English in its formation than the term depot, which we have adopted for our rail-road starting houses, when the French them- selves, who have lent us the term, make use, more correctly and elegantly, of gdre and embarcadere, to express the same idea. Mr. Webster says, in his Dictionary, that gerent, except in vicegerent, is an adjective. So it is and has been ; but there never was any principle or reason for this usage. On the contrary, the very fact that there exists a vicegerent, implies a gerent, his principal. Therefore, the writer craves leave herein and here- after to use this word, as well as gerency, which is quite orthodox in vice- gerency. CH. VIII.] WITH AN INTEREST IN PROFITS. 217 the other partners, would be null and inoperative, even as regarded the public, provided the pubHc have been advertised that the former were alone authorized to manage, administer, and sign for the firm. " Both the civU and the commercial law," says Delangle,^ "have established the principle, that a partner, who is not administrator, cannot alien or bind the social property, and that if he borrows or issues notes in the social name, he does not bind the firm; that any creditor, who has not informed himself of the capacity of the party with whom he has contracted, must endure the penalty of it. A partnership cannot suffer through a usurpation of authority committed by one of its mem- bers, unless it have tacitly approved the same. Were such not the legal rule, what security would there be for commercial partnerships? A single violation of faith, impossible to prevent, might ruin it in a day." § 206. The foregoing doctrine brings us to the con- sideration of the second matter stated before, as to the pubhcity of the written contract of co-partnership in Europe. This publicity is the same for general part- nerships, as well as for commanditary. And the same posting up, announcing and advertising in hand-bills and gazettes, and the same open registry, are sub- stantial forms that must be gone through. The ex- tract, consi'milar with the certificate of our 4th section, must be conceived in somewhat the following form : — "By a deed of two [or three, or more] parts, dated, &c., between A. B., of, &c., C. D., of, &c., it is made known that they have formed a co-partnership, to be carried on under the firm or social name of A. B. & • 2 Delangle des Societ^s, No. 557. 218 OF THE EMPLOYMENT OF CLERKS. [CH. YUl. C. D. J that the said A.. B. is to be the gerent, and to sign, alone, the firm signature ; that the said C. D. is to have charge of the books and moneys of the firm ; that the partnership is to begin on, &c. ; and to tennis nate on," &c.^ § 207. This strict and particular publicity is the reason why third persons are bound to take notice, at their peril, of the distinct functions and authority of every partner of a general business firm, in Trance. And such publicity is considered as efficient and availa- ble, to put creditors on their guard, as it is in the case of partnerships in commandite. Should there be any omission of such publicity, in the manner prescribed by the code, all the partners would then be held gerents, and whatever might, in such case, be the stipulations of their written articles, all the acts done, and all the papers signed by either of the partners^ would be bind- ing upon them all.* § 208. Now under such a system of publicity, it is easy to see the law of partnership may be moulded to serve the purpose of a partner, and a contract be framed wherein it may be agreed that he shall, for his labor, have not only an interest in the profits, but a certain fixed salary beyond them, or in the absence of them. If the public are apprized of this in the same way they, are of the designation of the gerents, there seems no reason why, in the event of bankruptcy or insolvency, such partner should not be admitted as a creditor to share in the assets, to the extent of his proportion, together with the body of regular creditors. It does indeed appear extremely difficult to conceive ' Malepeyre and Jourdain desSoc. p. 461. » 2 Delangle des Societes, No. 557, p. 209, 10. CH. Vni.] WITH AN INTEREST IN PROFITS. 219 how sucIl an agreement in his favor made between all the partners is to screen his private fortune, (if he have one,) from creditors, in the event of failure, or how legislation or jurisprudence could reconcile such conflicting and contradictory interests. But as pro- bably in all such cases, the partner thus preferred and exempted possesses no separate means, and has nothing to invest in the common stock but his time, his skill, and his labor, — ^which being perhaps one of the vital elements of it, he is unwilling to risk en- tirely during a long series of future years in the eventualities of trade or business, — ^it is not at all un- reasonable that such a stipulation should be given to protect him; and that in the event of disaster, he, the industrial and laboring partner, should change his position and be converted into a creditor for the amount of his fixed earnings or salary. And all the profits which he might have received during a series of prosperous years and invested in separate property, (it being susceptible of irrefragable proof that such property was the result of profits fairly paid him by the firm as a compensation for his labor,) would be protected by the general law, and not be liable to the creditors of the insolvent firm of which he was a part- ner.' ' Mr. Uisset in the new scheme propounded by him (if the matter were res integra) to detennine the liability or exoneration of third per- sons in the matter of a partnership connexion, proposes that not even derks who are paid partly out of profits and partly out of wages, should be exempted from the joint liability; as we showed in a former section, (^ 186, p. 200,) in his own words, as follows: — "If the matter were res integra, a plain and intelligible rule, and one, also, which would not be at variance with any thing in the cases decided previously to Ex parte Hampei; it would be, that those whose share of the returns of the busi- ness or adventure consisted wholly of the profits of stock, or partly of the 220 OF THE EMPLOYMENT OF CLERKS [CH. YIII. § 209. Without this exoneration from partnership liability of his savings out of such profits ; and with- out his personal exemption from accountability for all such profits paid him during past years, the writer confesses he would be incapable of understanding the privilege intended to be conferred on the industrial or scientific partner, or to understand the value of the doctrine propounded by Troplong upon the authority of the Latin authors quoted by him, and insisted on so strenuously in the argument translated from him. in section 199 of this chapter.' § 210. We are now prepared to enter on and appre- ciate a third and kindred question, that has been re- cently started by an ingenious and learned Enghsh common-law writer, which is, whether money, without labor, can be lent to a trader or merchant, or to any commercial firm, for a fixed interest not over the legal rate, and also for a proportionate share of the profits of the business, or for a proportion of the profits alone, without making the lender a partner and exposing him to the entire liabihty of a partner in case of the profits of stock, and partly of the wages of labor, should be held liable as partners; but that those whose share of the said returns consisted wholly of the wages of labor, or the interest of money lent, or a certain fixed annuity, and who had no control or voice as principals in the ma^ nagement of the business or adventure, should not be held liable as part- ners. This would provide for all those cases in which agents or ser- vants, for the purpose of stimulating their exertions, are paid, not by a fixed sum, but by a certain proportion of the profits." This distinction may be all in harmony with English common law notions; but it is non- sensical in itself, and at utter variance with European doctrines and usage. Why in the name of common sense should a clerk, who only got part of his pay in profits, be more of a partner than one who was paid for his services wholly in profits % It strikes us here, in this country, that the rule ought rather to be reversed. He who is paid wholly in profits is surely more of a partner than one who is only half so paid; 'Ante, p. 210—214. CH. Vni.] WITH AN INTEREST IN PROFITS. 221 borrower's insolvency. This question is put and elaborately discussed in the London Law Magazine for February, 1852, under the following formula of query : — " Is Partnership en commandite recognised AND PERMITTED BY THE PRESENT LAW OF ENGLAND?" The able author has not stated whether the money so lent is invested in the way a commanditaire lends his money; that is for a certain definite time, coeval with the duration of the business, -or whether for a time dependent on the pleasure of the lender, or on the will of both lender and borrower. Yet such in- gredient ia the contract is of the essence of a comman- ditary association. This writer's conclusions are un- reservedly in favor of the affirmative. § 211. But as the question is an important one, even in the shape in which he has discussed it, and as he has discussed it, (earnestly and learnedly,) his argument may do mischief to the cause of limited partnership, if left unanswered and unrefuted; it will be but fair to present this writer's statement of his thesis ia his own language. That statement is as follows : — " There is probably no proposition connected with our commercial law which would meet with so ready an assent as this, that where two persons are jointly interested in the profit and loss of a mercantile con- cern, they are partners in that concern, at least as to third persons, and liable as^partners to make good the losses of the concern with their last shilling and their last acre, to third persons : whatever may be the pri- vate stipulations which regulate their liabilities inter se. It is generally received as a corollary from this proposition, or rather, as the same proposition em- bodied in another form, that partnerships en com- mandite (to use the well known French term) are not 222 OF THE EMPLOYMENT OF CLERKS [CH. VIII. permitted by our laws. And notwithstanding the title at the head of these observations, we do not in- tend to dispute the propositions enunciated above, in the terms in which we have enunciated them. But we conceive that by a modification of the terms, sHght and immaterial to the parties entering into the ar- rangement, or we may say not at all depriving them of any of the advantages sought by the dormant part- ner joining such a concern, we can secure to the dor- mant partner the immense advantage of being involved in no risk beyond the extent of the capital which he may originally advance to the concern.'" § 212. It will be observed that this writer takes, at the outset, a dorvnomt partmer, who is to enlist in a business concern by lending his money to it at a rate of interest varying with the profits, and who is to escape the risk of becoming involved as a general partner, by shaping his contract of loan in a pecuHar way, (which way shall be shortly explained,) and that shall occa- sion so slight and immaterial a modification of the usual and fatal terms, that the lender shall not be deprived of any of the advantages sought by dormant partners joining such concerns. And the writer then proceeds to say, that " the rule concerning dormant partners is extremely strict. They are exposed to exactly the same liability as ostensible and active partners, never attracting any credit to the firm, never entering into or interfering with any contracts of the firm. A rule which has often been assailed as inhu- man, and contrary to the interests of commerce — tend- ing to damp speculation and to promote inertness." § 213. This learned writer and the author of these ' Law Mag., No. 94, Art. V., p. 50. CH. VIII.] WITH AN INTEREST IN PROFITS. 223 pages here come at issue upon a point of fact of great consequence, and only to be settled by the testimony of commercial persons ; and that is, whether dormant partners (who certainly are secret partners in nume- rous instances,) are not almost invariably tyrants and intermeddlers. The author's experience is, that they not only act in the business, and manage it secretly, but frequently control it wholly, to the oppression of their dependent associates; and that so far from being, under the secret articles, joiatly and absolutely liable in case of failure, it is expressly agreed they are to lose and be liable for no more than their investments ; and the same experience further justifies him in say- ing that when detected as partners, and sued, they are always disposed to deny and elude the connexion, and to throw every possible obstacle in the way of recovery by creditors.^ It may be that the experience of London is different, and that pride is the only feel- ing that prompts an Enghsh capitalist to conceal his interest connexion with a trading firm from the public eye. And it is not in effect difficult to conceive that an aristocratic man of wealth, ultra Atlanticum, would eagerly invest his money as a secret partner in a pou- drette factory that promised great profits, when he would shrink in dismay from having his name paraded on its cards and in its advertisements as one of its ge- neral or acting managers. But the pride of lineage, or kin, or station, is not so keen and active in this country; the great and controlling motive that would here induce a capitalist to go into and stand nominis vmhrd in such an enterprise, would be his calculation ' See further remarks on the nature and character of dormant partners, ante, § 3, p. 5 — 6. 224 OF THE EMPLOYMENT OF CLEEKS [CH. Till. of his chances of ultimate profit and loss, and ulti- mate general responsibility. He would make secrecy and exemption his conditions; and he would not em- bark his cash except with associates, upon whose ho- nor and fidehty he thought he might, with confidence, rely. § 214. But, be all this as it may, one fact is very certain, that the war which the common law and the commercial codes of Europe wage against secret and self-concealing partners is not from any abstract hatred of money-lenders, but because a peculiar policy (that of the security of creditors in the one system, and publicity in the other,) is supposed to be endangered or violated. The common law will show no quarter to a dormant partner when once unkennelled; because by possibility he may have speculated' upon the re- sources of creditors, and may have been a party to the operations that have swamped the credit of his house; and the commercial law of the continent will despoil him, because he neglected to avail himself of the publicity by which he might have forced the pub- lic to become a party to the registered contract of part- nership. § 215. But let us now ascertain the peculiar way by which the contract of loan is to be contrived, so as "to secure to a dormant partner the immense ad- vantage of being involved in no risk beyond the ex- tent of the capital which he may originally advance to the concern." The learned writer thus quoted pro- poses it thus : — He takes a debenture, or money bond, issued by a Joint Stock Company, established under the statue of 7 & 8 Victoria, Chap. 110, "conditioned for the payment of periodical sums by way of interest on the loan, proportional to the dividend declared CH. Vni.] WITH AN INTEREST IN PROFITS. 225 among the partners on the capital stock, as a model for the contract, with " a few verbal alterations " to adapt it for issue by a private partnership.' § 216. Let us attempt the framing of a form of ob- ligation as suggested by the learned writer, with the changes and adaptations suggested by him for a pri- vate mercantile or trading house. Let us also cast the form as favorably as we can in connexion with the point he wishes to establish; and then let us examine how far it will stand the test of critical examination. Of course, as the loan is to be made to individuals in regular business, and not to a joint-stock company, the amount of the bond, instead of being ^50, may be readily a thousand; and it will not need coupons of interest. The paraphrase might then be the fol- lowing : — • This form, together with the entire article of the Law Magazine, will be found in the last Appendix to this work. To have attempted to answer the argument by which this scheme is supported, by introducing partial quotations into the text, would have been doing injustice to it. It is an argument that cannot be disjointed ; it depends upon its intrinsic strength as a whole for whatever force it possesses, and to be appreci- ated at what it deserves must be read entire. But the American lawr- yer will be somewhat surprised when he comes to see that the writer makes the distinction asserted by Lord Eldon in Ex parte Hamper, 17 Ves. 403, (that if a trader pays a person for labor a sum proportionate to the profits of his business, that will not make him a partner; but if he agrees for a part of the profits, as such, giving him a right to an account,- he is a partner,) so severely handled by Mr. Bisset, as shown a few pages above, (^ 182, p. 192-6,) the foundation of his whole argument. He thinks that " whether the distinction be tkin or not, is of secondary impor- tance." But so far from being thin in his estimation, it appears to him " wide and strong enough to build a whole jurisprudence upon." The American reader will see, too, while perusing the jurisprudence so built on this " thin distinction," that the London writer has not succeeded in ra.aking it any clearer than his predecessors ; and that where he has at- tempted to expound it, he has inevitably fallen into the same strain of illustration that the writer was forced, a few pages back, to designate as jargon worthy of the days of the schoolmen. P 226 OF THE EMPLOYMENT OF CLERKS [CH. Till. 1 Jan'y, 185S. £1000. No. 1. LONDON, John Smith & Thos. Jones^ Ship Owners §• Importers, CONVERTIBLE BOND. 1 Jan'y, 1853. No. 1. £1000. We, the said J. S. & T. J., in consideration of the sum of £1,000, to us in hand paid by A. B., of &c., do bind ourselves, our executors and admiaistra- tors, unto the said A. B., his executors, administrators and assigns, in the penal sum of £2,000. The condition of the above obligation is such, that if the said J. S. & T. J., their executors, &c., shall pay to the said A. B., his executors, administrators and assigns, at the counting house of the said obligors, within one year and one week from the above date, and so within every year, and one week thereafter, such a sum of money, by way of interest on the said £1,000, as shall be after the same rate percent, as the amount of profits which shall, on the first day of January, 1854, and of every consecutive year there- after, appear, by the books and balance sheet of the said obligors, to have been made by them on the whole capital of their business ; or else, at the option of the said obligors, if they shall, at their said counting-house, and on the 1st day of July, 1852, pay to the said A. B., his executors, administrators, or assigns, the sum of £1000, with interest thereon, at the rate of £5 per centum per annum; then the above obligation is to be void, otherwise, to remain in full force and virtue. Given under our hands and seals, this 1st of January, 1853. {Endorsed Agreement) 1. The owner of this obligation is entitled, at any time, to require it to be converted into a share of our capital stock and business at par. CH. VIII.] WITH AN INTEREST IN" PROFITS. 227 2. The obligors are, annually, on the first day of the year, to have their books balanced, so as to show all the profits of the year (if any,) and so as to certify what portions are proper to be applied for a dividend on the said £1,000. 3. The obligors are entitled, at any time, on three months' notice, to pay off the owner of this obligation, principal and legal interest, unless such owner, with- in one month after such notice sent, elect to convert this obligation into a share, as aforesaid, and to become a partner, in the ratio of such amount. 4. The owner of this bond will be entitled to visit the said counting-house, from time to time, and there to. receive all information required by him, as to the affairs of the said obligors. 5. In no event shall the owner of this obhgatiou have any account founded on a lien, or any lien upon the said profits or the application of them, beyond the claim of an ordinary or trade creditor of the said obli- gors. § 217. The argument in the London Law Magazine, before referred to, contends, that the lender in the foregoing bond, (not so much as partner, but more than creditor,) would be entitled to the exemption of a com- mandite bailor of funds, in the event of the obhgors' bankruptcy. Suppose, then, that those obhgors. should do a prosperous business during ten successive years, and should yearly have paid their obhgee, out of hand fide profits, ten per cent, during those ten con- secutive years, making £1,000, or the full principal of his bond, and should fail through actual losses during the eleventh year, having but 70 per cent. o£ assets, and owing £50,000. "Would A. B., the afore- said obligee, be liable, as a partner, to the ordinary 228 OF THE EMPLOYMENT OF CLERKS [CH. VIII. creditors for the deficient £15,000? It is submitted, notwithstanding the ingenious case made out for him by the writer referred to, he would be liable, both in the common law courts of England and of this country. Presuming that the inquirer shall have read the entire argument for the negative, (as it is at his hand in the last appendix to this work,) the author will here at- tempt to show wherein he conceives that argument to be defective and inconclusive.^ • Immediately following the introduction of his model debenture bond, this writer proceeds to vindicate it, inter alias, with these observations, which (although we introduce his whole article in our appendix,) we will here present for the sake of putting a special case in reply : — ^' Now, the apparent right, which any person holding such a bond has against the concern, is that of a creditor for an amount as yet unascertained, but ascertainable at some future period. As soon as the dividend is declared, the rate of interest is known, and the total amount due for in- terest may be immediately calculated. The bond-holder, that instant, stands like any other specialty creditor against the concern for that ■amount. He cannot, (not having agreed for any interest, i. e. right of property, in the profits,) touch the profits or any part of them. If the company or firm refuse to satisfy his demand, he cannot seize the profits of himself; he can only put his bond in force. If he had contracted for a share or portion of, or interest in, the profits themselves in specie, the law would have given him, as incident to such a contract, the right to the custody and possession of every part of the profits, wherever they might be ; and his receipt alone, without the concunenoe of his partners, would have been a sufficient discharge for the whole. The exercise of such a right might manifestly be most prejudicial to all other persons having claims on the concern; and the law, therefore, has determined, that any person who possesses such a right shall be liable, as a partner, to the general creditors, whether he has exercised the right or not." Granting, then, that the above doctrine is true, would the following case be a legitimate corollary from it? Suppose the lender of the £1000, instead of taking a bond, modelled as that in the text, had got one couched iis follows: — "We, the undersigned obligors, in consideration of £1000 lent us this day by A. B., do bind ourselves, &c., to pay him annually thereon, until re-payment of the principal, such a sum of money, by way of interest, as shall be after the same rate per cent, as the clear profits of our business shall be and appear on the whole of our capital, in each year, &c., &c., and that ha shall have a right to an account of all our CH. VIII.] WITH AN INTEREST IN PROFITS. 229 § 218. It must not be forgotten that the statute of 7 and 8 Victoria, ch. 110, which authorizes the crea- tion of the joint stock company, supposed to issue the £50 debenture instrument, legally exempt from the taint of soUdarUy, provides, in the 25th section, that all the shareholders shall be liable as partners, just as if they were not iocorporated under its authority. Therefore, this bond, giving a right to the same share of profits, as they are entitled to for their money, to this particular lender, gives him further a great immu- nity, which they are not entitled to. Can this be pos- sible in England, merely by virtue of the unwritten law ? The pubUc know nothing of the borrowings of the company, for there is no provision in the statute that such contracts should be published or publicly registered. Yet it is said, and contended, that this is a case of "partnership in commandite, which is recog- nised and permitted by the present law of England." § 219. If it be such a case, then is the present law of England much more liberal to money-lenders than any commercial code or statute in Europe or this profits, and to his share and interest in the same in specie," &c., &c. Suppose, further, the lender, with this instrument, should go to a debtor of the firm, and say to him, " Yoa owe this firm £2000 for goods sold you, payable to-morrow ; look at this obligation, and see that by law it makes me a partner of the house to all intents and purposes; I am liable, as such, for all its debts, and have a lien on all its assets ; pay me that £2000, and I will allow you ten per cent, discount, giving you my receipt in full on the original bill of particulars or invoice sent you with the goods." The debtor, thus tempted, recognises the claim of this soi-disant new partner, and pays him in full, £1800. The lender, thus gaining £800 in a day, absconds. In a contest between the creditors of the firm, (it having faUed) and this debtor, would he be protected ? or would he be treated as a conspirator with A. B., to cheat the house who had sold liim the goods? If so, then is all the nice distinction above portrayed but words of no practical use or value. 230 OF THE EMPLOYMENT OF CLERKS [CH. VHI. country. After having been supposed for three-quar- ters of a century, to be unusually savage against com- mandite lenders of the species above described, by the best lawyers and judges, it all of a sudden turns up that they were under a cloud, and that the spirit of the law was the other way. If we turn to the report of the committee of the House of Commons, of July, 1851, we shall then see that all the jurists by it ex- amined, (and they were evidently called in for the reason that they were lawyers of distinguished at- tainments and great experience,) were under the im- pression that the law of England was directly opposed to any such arrangement, and so stated the law.^ ' Mr. Commissioner Fane, one of those witnesses, and clearly one of the most brilliant and enlightened spirits brought into communion with the committee, in reply to the following interrogatory : — " As you are very conversant with the operation of partnership matters in this country, will you take the trouble to point out what you conceive to be the evils of the existing law, and the prominent advantages of a change?" An- swered, "I see no evil in any part of the law of partnership, except that by which it is established, that he who contributes to the funds of an undertaking, on the terms of sharing in the profits, is liable, as a part- ner, to all the engagements of the partnership to his last acre and last shilling, although he does not disclose his name ; but in that I consider that there is the greatest evil, because its tendency is to preveBt capital coming forward to aid industry, ingenuity and enterprise. Capital with- out industry, is dead, and so is industry without capital. It is the union of the two out of which all wealth arises. It seems, therefore, most im- politic to discourage that union, by saying to each accumulator. You shall not risk any portion of your accumulations for the aid of struggling in- dustry or struggling ingenuity, on the terms of sharing in profits, if profits there be, without risking every farthing you have in the world. Nor in- deed is it easy to see what right the law has thus to interfere with each man's discretion. Take a very common case. A person, a successful lawyer, for instance, who has some accumulations lying idle, hears of a project which has been started by some enterprising person, the rescue of a large tract of land, in Victoria county, from the sea. He approves the idea, has confidence in its promoters, and is content to risk a mo- derate sum, IflOOl., on the success of the enterprise, but no more. ' No,' Ca. Vin.] WITH AN INTEREST IN PROFITS. 231 § 220. But independently of all opinions thus ad- verse in England, let us view the new argument of this writer, and test his conclusions upon their own intrinsic force and truth. Do they noty if true, estab- lish too much, for the commercial necessities of the present day? And would not the common law, if they be true, instead of requiring expansion for its narrowness, need pruning for its luxuriance ? Do they not, in thus raising up a commandite lender, vio- late two fundamental rules of the commandite sys- tem, to wit, pubhcity in the originating of the contract of loan, and loss of the amount lent in the event of insolvency? Observe, that A. B., this lender, has handed his thousand pounds to the mercantile house, quite in the dark. ■ The public have had no advertised or posted up information on the subject, and had no right to claim it. But if he had been a commandite lender, what nice formalities of certificates, registries, and publication, must he not have been compelled to go through ? Again, he is entitled to receive his ca- pital back from the borrowers, whenever, after notice, they choose to pay it baxjk. But a commandite lender would have no such right, and would be forced to leave his funds in the house until the expiration of the time advertised, or until a dissolution of the firm, and a complete liquidation for the protection of creditors. § 221. Yet all this is nothing to the result that is says the law, ' you shall not risk moderately ; if you risk at all, you shall risk your last acre, and last shilling.' What right has the law thus to dictate, thus to control his discretion ? It is admitted on all hands, that he might have advanced the same sum at 5, 10, or 20 per cent, interest, and incurred no risk beyond his advance ; why should he not be permitted to advance it for a share of profits, and incur no further risk ? What diference is there between interest and profit, but that interest is certain,- and profit uncertain?" Report, p. 72. 232 OF THE EMPLOYMENT OP CLERKS [CH. VIII. operated by the last condition of the bond, in favor of the lender. By that condition, in the event of failure of the firm, he becomes entitled to claim as an ordi- nary creditor; that is, after having, during the lapse often years, received, in the shape of profits, the whole of the sum originally lent by him, he is entitled, during the eleventh, a year of utter ruin to the house, to claim and get back seventy per cent, or £700 of that original sum. If this doetiine is not monstrous in itself, at any rate, it will be admitted on all hands, that it is at utter war with the most vital part of the commandite system of liability; which is, that in the event of failure of the commandites, the commandi- taire must lose the sum invested by him as capital. It is only that risk and eventual loss that can by pos- sibiUty be conjured up as a justification for the profits, (amounting, say to ten per cent, on his investment,) that the commanditaire may have, during a long se- ries of years, been receiving, and as a protection to him against the action of suffering creditors for the recovering of them back. I 222. In fine, that argument and those conclusions, if henceforward adopted by the bench of England, as the rule and the test of such a partnership, would precisely introduce the system, that under the name of commandite association with commercial houses in Europe, (particularly in France,) during the seven- teenth century, up to the ordonnance of Louis XIV., in ,1673, and thereafter, though in a less oppressive form in that country, to the promulgation of the Code, in 1807, was the parent of fraud, and the prolific source of evils that caused dissensions in Napoleon's council of state, and that were thought only to be met and repressed by the provisions of that code as it at pre- CH. VIII.] WITH AN INTEREST IN PROFITS. 233 sent exists:^ and in these United States met and repressed by still severer sanctions and guards. Put the case of a limited partnership in this country, that in addition to its commanditary capital, had borrowed money upon the emission of bonds precisely framed as that above drawn out, and, after paying ten per cent, of profits during as many years of prosperity, had, by some overwhelming disaster, become insolvent in the eleventh, to the extent of thirty per cent, on all its debts and engagements. If this bond were valid, as contended for, it would follow, that while one set of commanditaries, that is, the legal, public, and above- board bailors of funds, would lose all their original in- vestments, the other set, who, after weighing and ba- lancing the chances of lending at a fixed usurious in- terest, or upon the terms of this bond, had decided for the latter, and had covertly furnished their money upon its (comparatively speaking,) oppressive terms, would not lose it, but would have the right to present themselves as creditors, and obtain the same dividend of the assets as the latter, that is, seventy per cent, upon their original loan. It surely will not be pre- tended that a hmited partnership could not borrow money on such terms. Such a concern may borrow just as any others, even where the private articles of co-partnership may forbid it. For if the general part- ners should think proper to violate such a covenant, the ' Spe the "Expose des Motifs" of the Commercial Code, presented to the " Corps Legislatif" by the Counsellor of State, Regnauld de St. Jean d'Angely, on the 1st of September, 1807; and also the ^'Report" made by the Tribune, Jard-Panvillier, on the 10th of September, 1807, to the same body; 2 Delangle des Soo. App., p. 420 — 425. Both these docu- ments insist 'on publicity as one of the conditions necessary to justify, in law and reason, a similar loan of funds with limited liability. 234 or THE EMPLOYMENT OF CLEEKS [OH. VIII. public could not be made parties to the breach. But, in order to make the case stronger, suppose it were a commercial firm in this country that had no connex- ion with special partners under the statute, but had chosen to adopt the process indicated by such a de- benture for interest and a share of the profits, in order to raise fresh capital. What would be the result, in case of failure, in our courts of justice? Most cer- tainly, absolute liability of the lender for all the debts of the concern. There would be no use of our Hmited liability statutes, if the decision could be otherwise. § 223. Having thus discussed the question started by the London Law Magazine upon principle, let us examine how far the EngUsh authorities cited therein support the main and novel point contended for. That the mass of decisions there referred to do not support the point, cannot be better demonstrated than in the language of the writer himself: — " The objection which has generally been first made to this plan is, that Lord Eldon's rule, in Ex parte Hamper, is expressly confined to the single contract for labor : that he does not extend it to contracts for the loan of money : that there is no decided case in which such a rule has been held to extend to the case of money advanced on a rate of interest varying with the profits : and that every decided case, which exempts from liability a person taking an interest proportioned to the profits, has been in the case of clerks, agents, factors and such hke, sailors in the whale fishery, and other instances, where the pecuHar or inferior station in life and Une of action of the person so remunerated has precluded the notion of partnership : that there is no case where a person in fact advancing capital, for a remuneration varying with the profits, has been held CH. VIII.] WITH AN INTEREST IN PROFITS. 235 exempted. It is admitted that no case has been found exactly on all-fours with this. But there are several, one in particular — which shall presently be adverted to (Ex parte Langdale, 18 Ves. 300) — which seem to involve the whole principle now contended for. And it is not true that Lord Eldon expressly limited the rule to the case of labor. He only laid it down in the case of labor: he does not say that the rule is not equally true when such a remuneration is granted upon other considerations; except, indeed, so far as expressio v/nius exelvisio sit alterius. At any rate, there is no decision the other way. Assuming the point, as regards persons contributing capital for such a con- sideration, to be entirely new, the cases where brokers, agents, &c., are held to be no partners, go a great deal further than we wish to go at present."' In the foregoing extract, the London writer has touched the distinction that must ever be fatal to his argument : — the distinction between labor and money, or goods and money, bargained to a trading house for an interest in its profits. In the one case, that of labor or goods, the contract is regulated by the law of hailment, involving a code of ^riaciples completely settling it upon the immutable basis of reason and justice. In the other case, that of money, the contract is regulated by the law of partnership, involving a wholly distinct code of principles, one of which is pub- licity, and another loss o{ principal as well as interest, in case of failure by the borrower. § 224. The case of Ex parte Langdale is, further, the only solitary one produced by the writer as at all supporting his point, as he himself confesses in the » No. 94, Art. V. p. 58. 236 OF THE EMPLOYMENT OF CLERKS [CH. VIIL following extract : " Lord Eldon does not state the rule as true in the case of labor, and false in other cases ; and he afterwards applied a similar rule to a person advancing stock, in Ex parte Langdale, 18 Ves. 300, in which case are perhaps to he fownd tlie most favwahle dicta for these hond-holders ; dicta which very nearly, if not conapletely, embrace the whole principle now con- tended for. There, it was attempted to estabhsh a partnership between the bankrupt and a brewing firm, who had provided the bankrupt with beer on certain terms, having reference to profits ; but what the terms, of the contract were, was in dispute. Lord Eldon directed an issue, saying, after stating the difierent and contradictory representations of the nature of the contract, ' K the actual contract gave a claim on the profits or the application of them, that is a partner- ship. If there was no claim on the profits or the appli- cation of them, then it is not a partnership.^ — ^p. 301. It certainly can make no difierence whether it be money or goods which is supplied. In Ex parte Langdale, the brewers had supplied beer for a recompense, to be set- tled by reference to the profits. Here, the bond- holders supply money; but they put forward no claim on the profits, nor on the application of them."^ ' That it " can make no difference whether it be money or goods which is suppUed," is a proposition that the Avriter had need to assert dogmatically, in order to push it into currency. But we shall inquire presently into the "certainty" of that proposition; let us pre- viously look more particularly into the facts of the case itself. § 225. From these facts, it appears there was an at- 1 No. 94, Art. V. p. 65. CH. yill.] WITH AN INTEREST IN PROFITS. 237 tempt, to make the brewers responsible for the whole of the bankrupt's debts. They had delivered him beer upon the terms of £A 5s. a barrel, instead of £3 8s., the regular price, they paying the rent of a can- teen in which he vended it, in the neighborhood of certain military barracks. But his statement was, that the beer was sold him upon the condition that the vendors were to share in the profits to the amount of 17s, a barrel. Lord Eldon admitted that upon the statement of the brewers, the contract did not amount to a partnership; but upon the testimony of the bank- rupt, he directed an issue. That upon such a case he should have ordered an investigation, the object of which was to make individuals responsible in their whole fortune for the debts of another, with whom it was evident they had never had the slightest inten- tion of forming a general partnership, showed con- tracted views of public policy and a heartless disre- gard of private interests. For, taking the statements of both parties together, it was quite easy to infer that they intended nothing more, in point of fact, than a special and isolated contract, whereby the can- tineer was to be trusted with beer to be sold, the pay- ment of which was to be postponed until he should sell it, and the price regulated by the profits he might reahze. There was to be no participation in any thing else he might sell in the canteen, for aught that ap- peared. § 226. Now there was no need, on the part of the Chancellor, to split hairs with a schoolman's acuteness upon conflicting statements : there were sufiicient broad facts before him to warrant him in inferring an out and out contract of bailment. The brewers- had the canteen by virtue of paying the rent : they delivered 238 OF THE EMPLOYMENT OF CLERKS [CH. VIU. their goods in it to the custody and management of its occupant. He was to vend them for the joint profit; that is, under the operation of principles of the law of bailment, his services were hired for that purpose, to be compensated by a share of the profits. It surely is more consonant with morality and justice to interpret the facts in that way, than to allow them to be strained into a case, by which an unnatural and cruel dogma of the law of partnership should be brought into unjust action. Is it not demoralizing, that such a dogma should enable a body of creditors to open, Uke a pack of hounds, upon a man with whom they had never dealt or thought of dealing, and to strip him of his fortune to satisfy their claims upon another, merely upon the chance-discovery of his having had business relations with their insolvent debtor, that look lilie a partnership? In most of such cases, it is perfectly easy to find a solution for difficulties in the law of bailment. As Duvergier very truly ob- serves, they show contracts which, though seeming to partake equally of partnership, salaried mandate, and hire of services, may be solved easily by a proper application of principles. Thus, "between the owner of precious stones or other goods, and him who under- takes to sell them upon the terms of a portion of the price beyond a determined limit, there is no common property. The industry of one party is exercised upon things which have never ceased to belong to the other. There is not, properly speaking, profit that is shared between them; the total sum for which the sale could only be made, is the price of the ob- jects sold; it is the representation,, first, of the in- trinsic value of these objects, and secondly, of the pains, care, and even money, that were necessary to CH. Vin.] WITH AN INTEREST IN PROFITS. 239 be expended to procure for them a purchaser. In every sale, price is made up of these two elements : when the bargain is concluded between owner and buyer, the former touches both elements of the price ; in the contrary case, one is touched by the owner, the other by his agent. And the same rule must be pre- dicated, even where the salary of the agent is to con- sist purely of a certain quota of the price, no matter what might he the swrn to which he should raise it."^ § 227. It remains yet to notice the proposition de- nied in a previous section,^ that it can make no diffe- rence, in similar cases, whether moneys or goods are suppUed. It is impossible to lend goods upon a con- tract or obUgation framed Hke that which we have been commenting on. Money, alone, can strictly be lent, in the sense of that instrument. Money can certainly be bailed; but no bailee could take or use it under such a bond, within any rule or principle of the law of bailment. The difference is very great between the contract in Ex parte Langdale, and that exhibited by this bond. The brewers there delivered their beer to be sold, and the proceeds were to be shared in a certain manner. The beer was not lent; that is, it was not delivered for the purpose of being sold, and the pro- ceeds to be applied, by the vending agent, in the purchase of other goods, or in the carrying on of his general busi- ness, for the joint benefit of the brewers and himself. Had that been the contract, it certainly would hare amounted in substance to the one set forth in the bond ; but it was not that contract in any shape or form. Yet it requires all the elements just mentioned to make a loan of goods similar and equal to a loan of ' Droit Civ. FraiKjais, Vol. V., No. 48, 56. » Ante, § 224, p. 236. 240 OF THE EMPLOYMENT OF CLERKS [CH. VIII. money, for the purposes of the specialty contract ten- dered, in the Law Magazine, as a safe vehicle of a partnership with a restricted liabihty.^ § 228. In conclusion, we crave leave to dispute the proposition of this writer, that "svbtle distinctions in the wording of instruments make the greatest possible ' Having by inadvertence omitted to quote in its proper place in this chapter, the important decision of the Supreme Court of Louisiana (in •the case of St. Victor v. Daubert, 9 Louis. Hep., 314,) that a olerk may- be employed and paid by a commercial house partly with a fixed salary, and partly with a share of profits, the writer asks permission to introduce here a portion of the judgment of the court, which was delivered by Maktin, J. "The plaintiff and another person, being partners in trade, established a store and engaged the defendant at a salary of fifty dollars per month, to attend to the business of the store and sale of the goods, and further promised him one fourth part of the profits that might be made. The plaintiff afterwards purchased the interest of his co-partners, and finding the concern unprofitable, shut up the store, after having made a sale of the goods on hand. The defendant was charged with the collec- tion of the debts. After having collected the sum of one thousand seven hundred and seventy-eight dollars, the defendant retained it on the ground that he had a right to do so, until the plaintiff accounted to him and paid over his share of the profits. "The present suit was instituted to recover the sum thus remaining in the hands of the defendant. The plaintiff's demand is resisted, on an allegation that the parties were co-partners, and neither of them could sue the other, except for a settlement and recovery of the balanog. " Between the partners of a commercial house and a clerk who, in addition to his monthly salary, is allowed, as a further stimulus to his industry, a share of the profits, we have no hesitation in deciding, that this allowance does not constitute him a partner. It gives him no addi- tional control over the affairs of the partnership, nor does it authori-ze him to bind the house, or firm, further than by the express consent of the partners, or an implied consent resulting from the nature of his em- ploynient. "The person thus employed and rewarded, has no right to retain the funds of the house which employed him to collect them. They must be supposed, until the affairs of the partnership are liquidated, to be pro- vided for, and required to meet its engagements, and afterwards to reim- burse the partners for their advances, before a division of the profits is made." OH. Vin.] "WITH AN INTEREST IN PEOFITS. 241 difference in their effect," applied to so important a branch of the law-merchant, as the law of partnership. Subtle distinctions in the matter of framing contingent remainders, or conditional limitations as suggested by him, may so operate in instruments drawn with re- ference to the abstruse and artificial system of English realty law ; but they will not do, and have no busi- ness in commercial written contracts. If the people of England can have limited Hability partnership in no other way, than by sneaking into it under cover of subtle guards draughted by astute lawyers to evade a tyrannic and ruin-threatening general rule, it would be better for them to abstain from the enjoyment of such liabiHty altogether. The occupation of the cantar formularum et amxps syllaharum, cannot but engender disappointment and Htigation in such tasks as the draughting of law-merchant instruments. 242 or THE MANAGEMENT BT [CH. IX CHAPTER IX. OF THE MANAGEMENT OF LIMITED PAETNEESHIPS, AND OF RKMEDIES AGAINST GENERAL PARTNERS. § 229. Although other sections of the statute bear upon the subject of the management or conducting of these partnerships, indeed, the whole scope of the law intending that the management shall be confined to the general partners, the section which is about to be reviewed, viz., the 13th, seems the most fitting as an introduction to what the writer has to offer upon this head. The 13th section is as follows: — The business of the partnership shall be conducted under a firm, in which the names of the general part- ners only shall be inserted, without the addition of the word "Company," or any other general term; and if the name of any special partner shall be used in such firm, with his privity, he shall be deemed a general partner.^ ' The 7th section of the statute of Massachusetts, upoa the matter of the one above set out, is fuller and less ambiguous in its phraseology. The 10th and 11th sections of the statute of Maine provide the same thing; but the 11th section is wholly devoted to the particular inhibition on the special partner as to the use of his name, thus disconnecting him from that preceding as to the word " Company." This was an important matter in a case that will be presently adverted to. CH. IX.] GENERAL PARTNERS UNDER SECTION XIII. 243 § 230. The reason of the prohibition of the word company, in our statutes, can best be learned from French legal treatises on the subject of partnership.' That term, in the French system, is a technical one; but, when used, is matter of substance and never of form. In our practice, in reference to general partner- ships, it is sometimes a mere matter of form. Thus, though irregular to bring an action for or against a company, without naming all the members, it is not a fatal error, but must be pleaded in abatement; and after verdict, the court will presume A. B. & Co. to be the real name of the party .^ We find, too, many instances in this country of a single individual trading alone under his own name, with the word company annexed.^ This is not permitted in France; there the words '^^and compaiay" attest the fact that there are other partners responsible either specially or generally. These words are the indicia of a partnership consist- ing of more than one member, of whom each may be responsible for the whole of his debts and engage^ ' It is required, on the contrary, in French limited partnerships, at the present day, 2 10 Serg. and Eawie, 257. * " A firm may exist, and often does, without being designated by any name ; and in bringing suit against a firm of that kind, it is sufficient to designate the names of the parties, and it is unnecessary to allege the existence of a partnership firm. la Dana v. Abbott, 2 M'Lean, 27, it was decided that in an action against the maker of a note, signed A. & B., it is unnecessary to allege a partnership between the makers. It is only, as is ruled in I Denio, 471, 402, when partners have a partnership name, that they will be bound only by that name." Per Rogers, J., Overholt's Appeal, 12 Penn. State Rep., (2 Jones,) 226. By the 7th Section of the 6th Article of the codified Statute Law of Georgia, relative to Limited Partnerships, it is declared that no firm shall insert, or use in their social style, the name of any one not really a partner, under a penalty of $100, for every day the law is violated. See this section at length, in the Appendix No. 2 of this work. 244 OF THE MANAGEMENT BY [CH. IX. ments ; and is certainly for part. This is as to gene- ral partnerships. § 231. This idea, of assigning the partnership style to the general partner or partners alone, and excluding the annexion, "company," has been taken from Po- thier, who says,^ that general partnerships alone have a social style, and that limited ones, {la commandite,) could only carry on business in the name of a general partner. But the dictum of Pothier has been com- bated and overthrown. It appears that he borrowed the notion from Savary, to whom he was "extremely partial," (tfop attache;) that at the period Savary wrote, the commandite partnership had not in fact "hoisted the social flag," i. e., had not revealed itself to the public under a partnership name. But soon after his works appeared, this state of things changed, and the commandite, taking on increased proportions, adopted in Prance and Holland a social style,^ with the affix of company. It then began frequently to divide its capital into shares, as it had already done in Italy .^ The famous Koyal Bank, imagined by Law, was a limited partnership divided into shares under the firm or style of Law and Company.* § 232. It is therefore said by Troplong, that if it were the usage of primitive times not to annex the word company to the style of a commandite partner- ship, and to show no social name, modern commercial practice had modified it; "a practice too that was based upon the n§w necesdti^ of industry."^ This ' Societe, Nos. 57, 60. ' Merlin, Repert. Vo Sooiete, g. 674, 675, wheie he cites ijistaiiGe?, ' Merlin, Questions de Droit, Vo, Actionnaire, p. J03, where he shows an example of a commandite for the manufapture of njirrqir?, * 1 Troplong des Sooiaes, No. 396. ^ lipid. CH. IX.] GENERAL PARTNEES UNDER SECTION XIII. 245 was not all. The commandite could be established between two or more commercial houses, or commer- cial firms, but the managing house or firm announcing it under their social name, and cai*rjirig on its busi- ness in the way prfeseribed by the private articles of co-partnership.^ § 233. Under the 13th section of our statute, the awkward effect is produced, in limited partnerships having but one general partner, that the public can never tell, from its style or paper, that it is a firm of any kind.^ § 234. The argument for excluding the word "com- pany" is the following: — ^*'Now, as respects limited partnerships, as the style of the firm must contain all the names of the general partners, if more than one, and if but one, the name of that one alone; the word company should not be added; because an acting part- ner, who signs his name and company, or the names of several and company, is supposed to have con- tracted, in the first case, for himself and company, and in the second, for those named, and their com- pany. As, then, in the former case, this signing part- ner has no other co-partners but limited ones, it is ne- cessarily they who are understood to have become bound with him; and in the latter case, all those named having none but limited co-partners, it is again necessarily they who are understood to have become bound with those whose names have been signed. If he have received authority to sign thus ' 1 Troplong des Societes, No. 397. ^ Of course is meant here the public, who never saw the advertisement or registry of its creation. Creditors dealing five years thereafter with the general partner, might very easily be deluded with an idea that he was alone and for himself. 246 OF MANAGEMENT Br GENERAL PARTNERS. [CH.IX. from the whole firm, it may be said that he has re- ceived authority to deceive the trading pubhc, by in- ducing it to believe that there are others engaged generally, besides those named; and those who have thus allowed the use of the word company should bear the responsibilities of the credit which the use of it may have led the public to give. However, the transgression of this rule ought not to carry with it the pains of a general responsibility, unless other circum- stances combine to justify the presumption that the special partners are privy to the act."' § 235. It must be admitted, however, that although the present operation of the code of commerce has led to a diiFerent rule, there were serious divisions of opinion amongst the members of the Council of State at the time of the framing of this portion of the code, as to the law of limited partnership, and particularly, as to this question, of the form of the social style, or firm's name.^ It is said, that M. Merlin, one of its most distinguished members, deeply versed in the theory of the old law upon partnerships en commandite, but .unacquainted with the practical extension of it to modem exigencies, insisted that such partnerships should not have a social style or name, but that the business shoidd be carried on under the name of one general partner alone, just as was the practice in the days of Savary ;^ forgetting, as observes Troplong, that since his time, private interest had taken a different direction.'' The record of the discussion in the Coun- cil shows, that " M. Merliu denied that there could be ' 2 Parf. Not. 464, 6th Edit. ^ 1 Troplong des Sooietes, No. 399. ' He wrote before Pothier. •• Des Sooietes, No. 399, p. 378. CH. IX.] USE OF teem: AND COMPANY. 247 a partnership in cmrnnandite between two persons only, one of whom should be the general partner, to conduct the business under a social name; contending that such a style announced to the public eye a general partner- ship; and that by the very fact alone of a merchant's signing, s Chapter VIL § 162, p. 170. 294 OF SPECIAL partners' EIGHT TO PROFITS, fCH.X. The court admit, that the legislature had refrained from declaring any such penalty; and when it is con- sidered that this penalty is expressly' visiteA by the statute upon such infractions of it as the legislature deemed deserving of so extrenie and seTere an inflic- tion; and "when it is further considered, that the coun- tries from which we have borrowed the scheme of coiMnanditary partnership, bnly impose geiieral re- sponsibility upon special partners for interference in the management, (for other infractions of the law, only subjecting them to the consequences of nullify of their contract of association,)^ it caniidt be denied that the Supreme Court of New York were mistaken in their views of the policy of the statute, and went much too far . I'or, if their doctrine in this respect were correct, it would follow, that the annual receipt by a special partner of intetest on his contribution, know- ing thait the coricetn was losing ttioney, and had n6t its capital whole; Or "a receipt 'by him of profits, knowittg that the business had yielded- none,-would aiQount to a withdrawal of capital, and must bevisited with getieral liability. But it has ' n6ver been pre- tended that such a withdrawal Would e:^pOse a special partner to any other consequence than that of being compelled to refund with interest the various sums so received by him, either in an action by the creditors (if the concern should have failed,) or in one by the ge- neral partner, for money paid by mistake. § 2S0. Again: No withdrawal of capitalcan, in point of fact, take place except with the consent of the gtoeral partner. The sums contributed by the • Vide ante, i 94—104, p. 102—108, where this subject is fully ex- plained and discussed. CH. X.i] . UNDER SECTIONS XY. AND XVI. 2^5 special parsers having been received by him, he is master of them, ;aud the former have lost all control over them. If .then he choose, in ..the course of his operations for the joint interests, to place any portion of that capital in. the hajids qf a special partner, how can that operate as .a vsdthdrawal by ;the latter to en- tail upon hifli the .responsibility ^f.a.general. partner? ;It is conceded, ;^h§t a special partner may, ^ell goods -Jtp his iggneral partner, may .lend^money, ^dorse, and in every other business way become a .creditor of the concern, just as any other . ijidividu,al. .^bpulji it be- .come msplvent, .he would Ipse ;his ; investment, but scpuid, Trith.pth^r preditQi;s, clayp for his gopds spld, ,3ppney lent, or jendprspment paid. tJppn exactly the same principles, he might.bprrpw money of the cpncern, ,bgy ,i|is .gpods, pr .i'ecei'y;e its endorsement, ju^t; as any other man in trade pr- business. ,,!For a,il .such credit e^itended; tp him, a^-ip any .pther indi- vidual: ,he.:^ould give his jnpte ^r, acceptance, either without, security, or /^ith such guarantee as his gene- ral partner might think proper tp , exact. , Such npte or acceptance, with or without collateral securityi, .ViPould be the representative of. what, the special part- ner had got, and would amount to a fair and.inerely ordinary business transaction. There could be no injury or risk for the firm in the transaction greater than, in any other of its daily affairs; fpr, if the spe- cial partner be. supposed solvent when declared re- sponsible .msoZ'W^o,, he surely must be supposed good for all the oredit he may receive from the firm. Now if the doctrine of the Supreme Court of New York in The Madison County Bankv. Gpuld be correct, all this business deahng between limited partnerships and their special partners, as individuals, would be de>- 296 OF SPECIAL partners' right to profits, [oh. X. stroyed at one fell blow. In many instances, it might happen that the best customers of limited partnerships would be their special partners. It must of course be the interest of the latter to buy of houses in which they have invested their spare funds. It is notorious too that a credit business is part of the policy of this country; if then limited partnerships can only sell for cash to their special partners, it is evident that much of the most lucrative part of their business may be withheld from theru. § 281. For the foregoing reasons the writer is deeply impressed with the impolicy, on the part of the judi- ciary, of conjuring up, on every possible occasion, this doctrine of const/ruotive general habiUty, by way of scourge for special partners who violate the statute. He has before animadverted on it, in an important case decided in Pennsylvania with reference to the section;' in the strongest language that his high re- spect for the learned court that pronounced the deci- sion would permit. He is convinced that construc- tive general liability is as inimical to the true inte- rests of the business and trading community as it is contrary to the spirit and genius of commandite part- nership. § 282. The last half of the 15th section, together with the whole of the succeeding one, is employed upon an attempt to arrange and settle a matter, which is yet a vexed question in the French law, whether profits fairly received and spent can be ex- acted back; and has been decided contradictorily in the Courts of France. The first decision, in 1810, held the negative, and that the only resource of the ' Ante, § 244, p. 257—259. CH. X.] BONA FIDE PROFITS ONLY. 297 creditors who exacted this restoration of interest and profits from the special partner, was to prove, that during all the time of the payment of interest or making of a dividend, there had really been no ground for it, and that the affairs of the firm did not justify it. But in 1811, one year after the former decision, the contrary doctrine was held.^ Pardessus contends that there ought to be no general rule on this subject, but that the question should be regulated by the state of circumstances and the good faith of the past opera- tion.'^ The authors of the work on the "Jurispru- dence et Style du Notariat,"' are of opinion, that the first decision was correct, and state their ideas in sup- port of it. They also array the arguments on the other side, at length, and thus sum up: — "Beyond all doubt the intention of the law requires, that the whole investment of the commanditary should be an enduring pledge to the creditors of the company; but this intention is fully satisfied, as often as, at the pe- riods stipulated for the division of the profits or the payment of interest, the bond fide profits are distri- buted, and nothing is taken into the account, as such, but the excess over the actual capital investments, ex- cluding aU debts and responsibilities; the words actual capital investments, meaning the property itself, if real estate had been the investment of the comman- ditary; or, if personal, the actual equivalent, whether money, goods, merchandise, or credits of positive and certain value. Should, in such case, the succeeding year be productive of losses instead of gains, the cre- ' Rep. de la Juris, du Not. Vol. 6 ; Verb. Sooiete, 33, p. 650. ' Cours du Droit. Comm. Vol. IV., No. 1035. » Vol. VI., No. 1904. 298 OF SPECIAL PAETNEBS' EIGHT TO PROFITS. ;[0H. jS. ditors of the firm would iBQt ihave, and pugiht not to have, any greater rights against the commanditary, than the general partners themselves; for in fact, they only can (enforce as against him the rights of the firm itself But the firm could not exact a return of the profits thus divided, or the interest thus paid, in order to reintegrate . his investment, because that would amount to a call for fresh . capital: therefore the creditors could not exact it. A division of profits and payment of interest made at the regularly stipu- lated times without fraud and. without anticipation, are gains accrued, consummated, and realized; and, as such, irrecoverably segregated from the gross capital, and for ever put beyond the grasp of the creditors. : In the case quoted as adverse to; this doctrine, it will be found, that at the period of the division of the profits, there was not, in point of fact, any. real profits, be- cause the investment of the commanditary was then only represented by uncertain Vialues;" •§ 283. The able disGUSsion_ofsTroplong,on this, ques- tion also tends to the same conclusions; and, inasmuch as his argument on the subject takes up the question from the origin of the difl&eulty, views it on principle as well as upon authority, in not only a. most lucid, but very condensed manner, the writer has thought it indispensable to these .pages. After, it will follow a recent decision in the Court.of Cassation to the same effect, settling' the doctrine in France; beyond the hope of future overthrow. § 284. "In the event of failure,; inquires this. au- thor, shall the special partner lose but his investment, or shall he be held to return the profits or interest which may have been paid him ? "Straccha, and after him Pelicius, propounded this CH. X.] REAL PEOriTS NOT TO BE REFUNDED. 299 ters6 and vigorous argument : — Profits are an accessory of capital, and it is a principle that an accessory must follow the condition of its principal. . Now,, the capital of a limited partnership cannot be diminished during the time for which it was stipulated ; therefore, the profits of it should remain intact until after a dissolu- tion. But, .priorto Straceha, Bartolus had pronounced such a proposition quite^ problematical. His language is : — Si inter plures socios erat contracta soeietas, .ad certum tempus, sicut non debet minuicapitale^missum in societate, ita nee de lucro; qttod tamen mitto sub DUBio FORTi.^ And he' was right; or rather, the pro- position ought to be condenmed. "During the ^scussion of the 26th article of the GommerciarCode,'a member jpEOposed 'to. declare as sacred (cwisacrer,) this obligation' to restore the profits. His motion w^s rejected, and its j opponents took ground on the usages^of commerce; upon the essence of a special partner's right not to be? forced to lose more than his investment; upon the necessity of not fright- ening off capitalists, many of whom depend on divi- dends for their daily expenses."^ § 285. The learned -writer then proceeds to show that under the old system anterior .to the code of com- merce, to wit, under the ordinance of 1673,:Savary, in his limited partnership forms .and precedents, in- serted clauses, stipulating that every six months, or annually, the special partners should be entitled to a certain share of the profits, thereby indicating, that ' "If a partnership be contracted between several partners, to endure a certain time, just as the capital invested in the pa;rtnership may not be diminished during that time, so is it held as to the ^Oftts; Bvt this pkopo- SITION I CONTEND TO BE VERT DOUBTFUL." » Des Societes, Vol. II. No. 846, p. 324. 300 OP SPECIAL partners' right to profits, [ch. X. "the commercial usage existed to retire profits with- out the hazard of returning them; and whenever part- nership articles restricted such a right, it was not from any dread of creditors, but for the purpose of facili- tating and furthering the joint business."^ "It is further to be noted, that the Court of Cassa- tion, by a decision of the 14th February, 1810, re- versed a judgment of the Court of Rouen; which held that a special partner should refund passed profits which had been paid him."^ " The text of the 26th Article of the Commercial Code is precise and topical, warding off" ambiguity. ' L'asocie commanditaire n'est passible des pertes que jusqu'a concurrence des fonds qu'il a mis ou du mettre dans la societe.' [A special partner is only a sufferer in losses to the extent of the funds which he has in- vested, or ought to have invested in the partnership.] That which ought to remain sacred and whole in a limited partnership, is the capital; because that was intended as the unalterable pledge to the creditors. But, the periodical profits are earned to be distributed and consumed ; such is their destination, if the articles of association do not ordain otherwise ; and creditors have no right to expect such profits to he capitalized in order to augment the original social capital.' Let them be entitled to prefer their plaint for frauds in the declaring of profits; let them charge that the ac- ' Des Societes, Vol. II., No. 846, p. 325. « Ibid. p. 325—326. * Ibid. p. 326, citing Messrs. Malepeyre and Jourdain, No. 257, with Delvincourt, as accordant; M. Persil, Jr., contra. According to Pardessus, Tote, 4, No. 1035, every tiling depends on circumstances. But Duvergier contends that none but profits distributed since the debt ought to be reiiinded. CH. X.] DOCTRINE AND RULE IN FEANCE. 301 couilt of profits is made up in bad faith or mistake; let them be admitted to prove that what was colored with the title of profits was no more than a subtraction from the capital: this is their right, and they should be faithfully heard. But they will be defeated on every occasion wherein the books demonstrate that the dis- tribution of profits at the stipulated or usual periods embraced nothing but gains; that is to say, the balance remammg after all losses Tiave been covered."^ § 286. Of this opinion, likewise, is Bousquet;^ who says, that if a contrary doctrine were established, it would operate to the injury of trade and commerce; and further, that special partners, who might have received during consecutive years bond fide profits, conscientiously declared, might, through one year of reverses, be called on to refund them in mass, after they had been expended as necessary means of liveli- hood. § 287. The decision in Cassation referred to above as settling the question, but perhaps as much in the spirit of Pardessus' reasoning, as of Troplong, is as follows : — " On peut stipuler dans une societe en commandite, que les commanditaires prel§veront I'interet de leurs mises avant tout partage des benefices. Et ces pre- levemens ne sont pas sujets a restitution, alors meme que la societe se serait trouvee en perte lorsqu 'ils ont ete efiectues, si d'ailleurs ils ont ete pergus de bonne foi."^ The interest in this case, stipulated in the articles, was six per cent., being one per cent. ' Troplong, ubi supra, s NouveauDict. de Droit, Vol. IL, p. 666. ' Pellouin et autres v. C. Hendron, Cour de Cassation, 19 May, 1847. Recueil de Sirey, Vol. of 1847, P, I., p. 587. 302 OF SPECIAL PABTNERS' EIGHT TO PEOFITS. [CH. X. more than legal interest, according to the laws of France. No objection of this kind was taken. The court said, that the creditors had the option to de- mand a perusal of the articles before dealing with the concern; that usage sanctioned such a stipulation; and, in case of failure, the interest thus paid must fall into the general class of expenses. The good faith in this case consisted in the fact, that the commanditary did not suspect the company was failing; and when he did, he notified the creditors and prompted a dis- solution and liquidation. Further, the company en- joyed considerable credit, and the defendant was in no position to ascertain the solvency or insolvency of the general partner; he trusted fairly and honestly to the representations and balance sheets made and exhibited to him by the latter from time to time ; that there was ground to believe, that as long as he received interest, he sincerely believed in the prosperity of the business and the entirety of the capital; and finally, in the words of the court, — "he had not acted fraudulently, in any respect, towards the creditors." § 288. Upon an attentive perusal and collation of the two sections of our statute that form the text of the present chapter, it is evident that t|ie legislature intended there should be an absolute and indefeasible right to lawful interest (seven per cent, in New York and six in Peimsylvania) and also to profits after such interest is paid, vested in special partners, coupled, however, with two conditions: first, that such in- terest should be annual; second, that it should really and honestly be interest taken from land fide profits earned, and not sham interest secretly abstracted from the capital. The whole purport of the 16th section proves this. Its words are, " If it sTiall wpj^ear that by CH.X.] RULE AND TEST UNDER SECTION XVI. 303^ the payment' of interest or profits to any special part- ner, the origmal capital has been reduced," he shall refund sufficient " to maJce good his share." Therefore it becomes a correct and indisputable logical inference,, that if such interest and profits, (say, together, ten per cent, per annum,) have been received by special part- ners during five consecutive years; and there is proof that such ten per cent, was honestly and legitimately earned and paid by the firm, and at the end of those five years the original capital remained sound and intact, the right of the special partners to receive such earnings was inherent, and the right to retain them indefeasible. So that, if the sixth year should prove one of reverses and disasters, causing a destruc- tion of part of the capital, or even the whole of it, the special partners could not be called on to restore such interest and profits, and would only be losers of their original investment or contributions. § 289. Such appears to the writer tO be exactly the spirit of the French doctrine on the subject, as held by Pardessusj and the Court of Cassation in their recent decisioUj as above quoted. It is true, that there is no eoinparison between the legislation of France and the United States on the subject. The 26th article of the Code of Commerce, as we have just seen it, contains but about Ohe^sixth of the phraseology of our 15th and 16th Sections; but judicial commentary in France has Settled the legislator's meaning; and thati, it is Subihitted; upon the true principles of common reason and common justice. § 290; All those States then that haV'e feopied the New York statute^ have a plain and inconttovertiblie standard on the subject of profits. Those States are New Jersey, Pennsylvaniaj Geor^aj Mississippi^ Ala* 304 OF SPECIAL partners' right to profits, [ch. X. bama, and Florida. The State of Connecticut inhibits, in the 8th section of her statute, all and any payment or perception of interest and profits during the con- tinuance of the partnership. And so, precisely, does the State of Maryland, in the 10th section. The States of Maine, Massachusetts, Vermont, Rhode Island, Michigan, and Indiana, have, in their respec- tive statutes, so ingeniously contrived the matter that special partners may do exactly as they please about profits and interest, while the firm is prosperoiis; but wo to them, should they elect to touch, and the firm become insolvent. The substance of that contrivance is, that if a limited partnership should become in- solvent, the special partners shall refund with i/nterest all moneys in the shape of interest, profits, or divi- dends, which they may have received during times of prosperity and real gains. Of course, such legislation must effectually prevent all moneyed men who live on the interest of their funds, fi:om becoming special part- ners in those States; and must, further, it is highly probable, tend to suppress the disposition to embark in limited partnerships therein. One fact is very cer- tain as to France ; and that is, if such a strict rule had been enforced there against commanditaries, the largest and most respectable class of them would have been frightened out of all thought of a commandite, as a means of augmenting their annual incomes for the support of their families; such as small capitalists, and noblemen with reduced patrimony, retired trades- people, professional men, and the secular clergy. § 291. The prohibitions of the Maryland and Con- necticut statutes, as to the distribution of profits, is in consonance with the doctrines of several other jurists besides Staccha, already referred to. Indeed, if he CH. X.} RULE AND TEST OF FOEEIGK AUTHORS. 305 were the only one, it might be contended there was but a questionable ^authority in his opinion on the subject, inasmuchas his'language is, if not equivocal, at least obscure. It is this : — " Si coita sit societas inter plures ad certum tempus, quemadmodum sors ipsa, nisi finita societate, invitis sociis, diminui non potest, ita pecunia quae sorti accrevit, hoc est lucrum ipsum. Idem enim juris ia eo quod accrevit, quod et in sorte est."^ [If a partnership be organized for a definite time, since its capital, until the end of that time, cannot, contrary to the will of the partners, be di- minished; so the money which accrues to the capital constitutes the separate profits. The same rule of law applies to the profits as to the capital itself.] The ex- ception implied in the terms, invitis sociis, adeems all force from the proposition as a general one; because,, it directly foUows, that if the partners should be will- ing, the capital might be diminished, and of course,, the profits, which are governed by the same law, may be taken from the capital, with the consent of the partners. But another writer on commercial law, and almost equally distinguished,^ held the rule to be ab- solute against all division of profits until a dissolution. "Prima opinio verissima est, ante societatem finitam et revisam rationem, lucrv/m extrahi non posse, quia an adsit lucrum vel damnum, cognosci non potest, nisi finita societate et revisis rationibus."^ The distin- guished French author, M. Duvergier, also advances, an analogous opinion;* but both he and Fehcius con- ' De Contractis Meroat. No. 16. The passage, in consequence of th* two words, invitis sociis, has been called a proposition with a squint. "Felicius, C. 15, No. 13. ' It is submitted that latinity so simple needs no version. * Duvergier, No. 221. U 306 OF SPECIAL PARINEES' RIGHT TO PEOEITS. [CH. X. nect so many exeeptioBS or limitatioBS "wtth the rule, as almost to destroy itp pretension to be a rule. Thus, it is admitted, that profits may be di^ributed : — 1. When it is a^eed in the articles that a portion of the profits shall be divided at certain periods.^ 2. Wlien the usages of particular localities justify an annual division of profits out of a pvosfj^oushm- . ness? S. When the nature of a speculation proves that the" parties. could not have intended that the profits should be added to the partnership capital.' 4. When apartnershipiis constituted on such a basis as ,to compel a ipaaftner to tafce a portion of the profits for his support.* ,5. When one partner has withdrawn part of the profits, another demands the same privilege.® .6. When a division of profits is made by agreement between the general and special partners, and there is no qiiestioa that the capital remains whole and sacred.^ §292. To the foregoing, the writer would add an- other exception w'hich appears to him to be a corol- lary. Where a division of profits is made even by a bare majority of partners, and a part of profits is left as a surplus fumd in accretion with the capital. § 293. So far, then, according to these exceptions and limitations, from its being the rule, that it is not of common right that partners should be entitled to a share of profits before a winding up of the firm, the 1 Felicius, C. 15, No. 14; Duvergier, No. 222. 2 Felicius, No. 15, Savary, Tom. I., p. 393, Art. 23, and p. 406, Art. 21, 3 Felicius, No. 16. « Ibid. No. 17 ; Paidessus, Vol. IV., No. 1000 ; Duvergier, No. 222. ' Felicius, No. 18. " Ibid. No. 19. CH. X.] RULE IN LOUISIANA. 307 reverse appears to be the case. Indeed, two modern writers of distinction' contend that there are frequent- cases wherein a partner may .maintain an action against his associates for refusing him, or withholding his share of the earned profits ; that is, the profits ac- tually cleared and in hand. It is further evident, says another writer, that third persons have no right to complain of, or subsequently except to periodical distributions of profits made in good faith, and leaving the pai*taership capital sound and whole, just as it ever was, as a pledge to creditors and the public.^ Of course, this remark appKes exclusively to the creditors of limited partnerships; for none of these questions can apply to the profits of general partnerships in the United States. In them, the usage is notorious to divide and use the profits for separate purposes; and when once appropriated and put by, 4x) be liable for separate debts to private creditors. And even if there has been a fraudulent division of the capital from time to time, for the private support of the partners, they holding out an appearance of prosperity, and deceiving firesh creditors, it only amounts to civil insolvency, and if but a wreck is surrendered, not punished criminally. § 294. Under the 5th section of the statute of Louisiana, (or more accurately speaking, the 2814th article of the Civil Code,) a special partner "cannot be called upon by the partnership or its creditors to refund any dividend he may have received of net profits, fairly made during the solvency of the part- ners and iond fide, at a time stipulated in the articles of partnership." It is extremely probable that this ' Malepeyre & Jourdain des Societ€s, p. 145. *2 Troplong des Societes, p. 91. 308 OF SPECIAL PARTlSrERS' EIGHT TO PROFITS. [CH. X. statutory rule, or a very similar one, would be the doctrine maintained by the supreme judicial tribunal of every State whicb has copied the statute of New York; and it ought, in reason and policy, to be the doctrine of every State that pretends to a proper sta- tute of limited partnership. § 295. It must, however, in candor be admitted, that the States of Maryland and Connecticut have, for their exclusion of the right to share profits till the winding up of limited partnerships, archetypes in the ancient statutes of Tuscany, and authorities in the old Italian writers on commercial law. The Bif&rma, or Florentine Reform Statute of Commerce, of the 11th of April, 1713, expressly reserves the profits for divi- sion with the capital; and such is the teaching of Fierli, commenting upon it and the Italian system,* He also quotes Ansaldus' to the same purport, in these words: — "When on the expiration of a partnership profits are found, these are divided amongst the part- ners; when there are neither profits nor loss, each partner takes back his capital, and the partner who contributed nothing but labor, loses it; when, in a third case, there is not only a loss of all profit but deterioration of the capital, the partners who contri- buted it either lose it entirely or proportional parts of it, and those who only contributed services, lose the entire fruit of them."^ § 296. But that this reservation of profits for ulti- mate division, with a return of the capital, means all the profits : in other words, that during the whole term ' Dell' Accomandita, Vol. I., p. 164—165. 2 De Commercio, Disc. 38, n. 5. ' 1 Fierli, p. 88, n. 14, where other authorities are cited. CH. X.] DIFFEEENCE BETWEEN ENTEEEST AND PEOFITS. 309 of the partnership's existence, no support is afforded to the general partners out of the profits, and no interest is paid to the special partners as a source of income, out of the profits, in Italy, is a proposition that cannot for a moment be entertained. Indeed, to maintain the affirmative would be to maintain an absurdity. The experience, certainly, of every one conversant with the history, manners and habits of the people of that peninsula, would teach him so. The rationale of the rule, then, for Americans, must be this: — It is not the custom of the trading and commercial people of Europe to ''live up" to their gains, but it is their custom to set apart all they can of their gains, as a competency to retire upon at a future day. It is not the custom of such people, there, to indulge in an inordinate craving for great and sudden wealth, and to quit their legitimate business in order to launch into extraneous speculation, or gambling in stocks; but it is their custom to live frugally and unostentatiously, and to stick to their business, as the only sure road to the acquisition of the moderate wealth which alone they covet. It is not their custom to become bankrupt two or three times, and recommence business as if nothing had happened; but it is their custom to regard even a '^ stispension" as an impeachment of credit, and insol- vency as an abyss of horror and despair. § 297. It is the custom of limited partnerships to pay living salaries to general partners, and moderate interest to special partners, out of the profits, and yet to accumulate profits for distribution, upon a dissolu- tion of the concern. If this were not a legal custom, capitalists would have either to limit the term of the partnership to one year, with agreements to renew, or 310 OP SPECIAL partners' RIGHT TO PROFITS. [OH. X. else to abandon limited partnerships as a medium for the gain of large interest, for ever. § 298. And now, as to profits already, towhed by special partners, it remains, before closing this chapter, to state a rule that obtains in the foreign law. It is, that " special partners are not bound to satisfy, out of profits previously divided, such creditors as may have dealt with the firm since its expiration on the day fixed in the articles of co-partnership; even although the partnership may have been continued under the same names and contract; because the capital invested in the beginning has not been diminished. But the spe- cial partners only remain bound towards such credi- tors in their capital and the profits resfchzed since that division; for all that is registered in the tribunal of com- merce is a true declaration of the capital stock left, which with the subsequently earned profits is the just fund assigned in fevor of creditors, and is conformable to the provisions of the Bifarma of 1713.'" § 299. As this doctrine is utterly at variance with a position assumed by the' Supreme Court of Pennsyl- vania in Andrews v. Schott,^ that in the interval be- tween the expiration of a limited partnership, and the renewal of it with the same stock and capital,, and the introduction of a new general: partner, (the interval was there fifteen days,), the partnership becomes a general one and the special partners are liable in solido^ it is proper that the text of the Italian jurist just translated from should be presented in its original garb. "Non sono poi tenuti gli accomandanti a soddis- fare cogli utili, che si sono divisi^ quel ereditori che » 1 Fierli, p. 163—4. • 10 Barr, 53. CH. X.J OKEmTORS^ AFtER A DIVISION. 311 hanno contrattato colla ragione dopo il suo termine stabilito nella scritta sociale, benclie la medesima abbia continuato sotto gli stessi nomi e patti, purche nou siano stati intaccati i capital! postivi a principio; ma restano gli accomandanti solamente tenuti verso i detti creditori con i capitali, e cogli utUi esistenti dopo la fatta spartizione, purcbe questa sia stata registrata neUa Corte di Mercanzia con sincera espressione dei corpi lasciati, et con far giusta menzione dell' assegna- miento a favore dei creditori, e della spartizione degli utiii. seguenii, conform© prescribe laJStjfewa del 17.13." 312 OF INTERFERENCE BT SPECIAL PARTNERS. [CH. XI. CHAPTER XI. OF INTERFERENCE BT SPECIAL PARTNERS. § 300. Immixtion is the juridical term applied by French legal writers to this breach of the behests of the statute. Immixtion, says M. Troplong, in the ma- nagement of a limited partnership, entaUa upon the intruders the penalty of solidarity} It is not, how- ever, a term of the code; nor does it appear to be an old technical word; it is not a classic Latin formation, (from the verb immisceo,) and it is not to be found in the latest Law Lexicon extant in France ;** nor in that of the late Mr. John Bouvier of Philadelphia,* which professes to deal in the etymologies of terms of Euro- pean jurisprudence. Nevertheless, as significant of for- bidden^intermeddling, it is a most excellent designa- tion; but it has struck the writer, that the converti- ble term, interference, which he has adopted, is pre- ferable for the reason, — ^if for no other — ^that it is more English than immixtion, and is the word adopted in our statutes. § 301. The provisions of the New York, Pennsyl- vania, New Jersey, Mississippi, Florida, Alabama, and ' Des Societes, Vol. II., Tit. " Immixtion," in the Analytical Table, p. 563. ^ Nouveau Dictionnaire de Droit par Bousquet, Paris, 1847. » Unless it should appear in a 4th edition, the writer having communi- cated the term, with flie definition, to the proprietor of the Dictionary. CH, XI.] THEY MAT INSPECT THE BOOKS. 313 Georgia statutes on this important subject are the following : Section XVII. A special partner may from time to time examine into the state and progress of the partnership concerns, and may advise as to their management; but he shall not transact any business on account of the partner- ship, nor be employed for that purpose as agent, attor- ney, or otherwise. If he shall interfere contrary to these provisions, he shall be deemed a general partner. § 302. The privilege given to the special partner under this section, to examine into the affairs of the firm, will authorize him to inspect the books of the company and all their correspondence; the work- shops, store-houses, and goods of the concern;^ and should he be excluded from the fair enjoyment of this privilege in any unreasonable way, by either or all of the general partners, his remedy will He, in case the private articles of copartnership contain no provision on the subject, in equity. 0r, perhaps, this conduct on the part of the general partner would amount to a just cause and ground of dissolution. § 303. The clause in this section, which enables a special partner to advise as to the "management" of the partnership concerns, must be nugatory in cases where the general partners do not choose to follow his advice ; but it may be a question whether, if his advice is adopted by one or more of the general partners, so as to constitute a majority of the whole company, and any act is done by the minority in contravention of this advice to the prejudice of all, the consequences • 1 Delangle des Soc, No. 391, p. 361—363, 314 OF INTERPEEENCE' BT SPECIAL PABTNEES. [gS-XI. must be wholly borne by the minority^ and tbe loss made good by them? But a difficulty like this is. to be confined to themselvesj. and would not affect the public. Iq general partnerships, the ruler is, that the majority are to govern and control the management of the interior concerns of the- partners, and their busi- ness amongst themselves, unless special provision in the articles of association be made to the contrary.^ § 304. But as far so the public are concerned, the rule is different; and the law, as to those who are asked to seU to or trust a firm, may be thus stated :— K, be- fijre a purchase of goods made by one or a majority of partners, or before the completion or consummation of the contract^ another of the partners expressly forbids the same: on joint accoujit, or makes known, to the seller a stipulation in the articles of copartnership which prohibits dealings contrary to the will of any one of the firm, the seller,, if he persist,, must show a. subsequeut assent of the partners^, either express or implied by their acts, such as their receiving the goods. And Ghaacellor Kent s-tates-,. that lihe weight of aur thority is decidedly in favor of the power of a partner to interfere, and arrest the firm from the obligartion of an inchoate purchase which is deemed by him injurious. Such being the law as to general partnerships, may it ""Kirk V. Hodgson, 3 Johns. C5an. Rep. 400. But in aprivate assooia- lion of stookhold'ersj not feimihg a partnershipj Buf the- stockholders being" tenants in common of the property and franchises, (asithe North River Steam. Boat Company,) the majority cannot bind the minority, unless by special agreement. Livingston v. Lynch, 4 Tohns. Ch. Rep. 573i A partnerin-a ship'is.held to his responsibility otta Ibsing voyage) unless he expresslx dissented- from the voyage* Holme?s- Ex'i; v. Biga> low, 3 Desaus. 497. Part owners of ships are tenants in common, and not joint teiianlB. MiiHiford v. MicoU, 20 Johns. 611 ; * Johns: Ch. Bep; 522. CH. XI.] QUESTIONS UNDER SECTION" XTH. 315 not be argued that by tbe equity of this provision as to advising, a special partner may dissent from a con- tract, proposed to be entered into by the general part^ ners, and thus, inter se, exonerate his interest in the firm from responsibility, pro re natd, should it prove injurious or the cause of loss? May not, likewise, by the same equity, the disregard of his advice against a speculation or enterprise undertaken by the others, resulting in a positive loss,, exempt his share of the capital from a participation in the loss, also in regard to the general partners? To say that he may advise, without reserving to him any method of indicating his advice when given,, is to say that he may speak to his copairtners, a privilege that he would have without the sanction of this particular statute,. §. 3G5-. It is to be borne in. mind, however, that these are questions directed to the interests of the general partners alone, andlnot to those of the creditors of the firm;: as the creditors can have nothing to do with the disregard; of a limited partner's advice, or protests by his associates the general partners. We shall return to the consideration of this question ia a subsequent part of this chapter, while examining the law of France upon the same subject. §: 306:. By the law of France, a. special partner may be present at the meetings; of the partners convened to deliberate on the ^neral concerns, and may there give his views and advice; but hecannot have therein "a deMieraitive vowe " th&t is, the right of vetmg for the adoption or execution of aay copartnership operation, without incurring: the consequences of unlimited re- sponsibility.^ '2 Parf. KTot. 567, 6& Edit., Paris, 182T. 316 OP INTERFERENCE BY SPECIAL PARTNERS. [CH. XI, § 307. The last branch of this section, that the special partner shall not transact any business for the firm, nor be employed in its affairs, either as attorney, agent, or otherwise, may receive further illustrations from European jurisprudence, from which alone it emanates. There is the same prohibition in the French code, and the same penalty of answering in solido, for the debts. But it is held, that these provisions only ap- ply to acts done by a special partner while representing the limited partnership, and doing business in its name ; and not to commercial transactions that he might have in his individual and private capacity with the part- nership, acting through the general partners; and vice versa, similar to those that could be had with other commercial houses. In other words, a special partner may deal and trade on his own private account with his copartners as a firm, in the same way he could with any other firm, or any individual. § 308. The commentary of Delangle* on this im- portant subject is at once so terse and comprehensive, so clear and precise, that the writer will offer no apology for introducing into these pages his text at length : — "Quand le commanditaire traite avec le gerant, agissant et stipulant'pour la societe, sa condition ne differe point de celle de I'etranger. Quelle raison pourrait empecher un associe commanditaire de vendre a la societe des merchandises ou d'en acheter d'elle, de lui transmettre ou d'en recevoir des effets de com- merce? II ne se presente ni comme associe, ni en vertu des droits que lui confere sa qualite; il agit comme tiers. Or, d'une part, la distinction entre les ' Des Socieks, Vol. I., No. 382—385, p. 353—355. CH. XI.] THET MAT DEAL WITH THEIE FIRM. 317 associes personnellement et la societe, I'etre moral, autorise les associes a contracter individuellement avec la societe ; d'autre part, il n'y a pour les tiers aucun inconvenient a ce que les choses se passent de la sorte; car des faits de ce genre ne peuvent pas, en influant sur la marche de la societe, diminuer les garanties offertes par elle au public. " Un doute pourtant s'etait eleve sur cette interpre- tation de la loi. Des esprits defiants avaient imagine qu'n fallait elever un mur de separation entre le com- manditaire et la societe, et que tout contact entre eux, quelle qu'en fut la cause, cornpromettait la qualite du commanditaire. Ce doute a ete leve par un avis du conseil d'Etat, du 29 Avril, 1809. "Le conseil d'Etat, qui, en execution du renvoi or- donne par Sa Majeste, a entendu le rapport de la section de I'interieur sur celui du ministre de ce de- partment, tendant a faire decider si la defense portee aux art. 27 et 28 du Code de commerce, aux associes commanditaires, de faire aucun acte de gestion des affaires de la societe en commandite, sous peine d'etre obUges'solidairement, s'applique aux transactions com- merciales reciproques, etrangeres a la gestion de la maison commanditee. "Est d'avis que les art. 27 et 28 du Code de com- merce ne sont applicables qu'aux actes que les associes commanditaires feraient en representant comme ge- rants la maison commanditee, meme par procuration, et qu'ils ne s'appliquent pas aux transactions commer- ciales que la maison commanditee pent faire pour son compte avec le commanditaire, et reciproquement le commanditaire avec la maison commanditee, comme avec toute autre maison de commerce. " Toutes les fois que la question s'est presentee de- 318 OF INTERFEREKCE BY SPECIAL EARTNEES. [CH. XI. puis devant les tribunaux, elle a ete resolue dans ce sens; nous nous bornerons a citer I'arret suivant de la cour de Bordeaux, parce qu'il nous parait fixer avec nettete les regies applicables au commanditaire, dans ses divers rapports avec la societe : "La cour, 'attendu que de I'enquete a laquelle il.a ete precede a 1' audience du 15 mars dernier, et de la Gomparition personnelle des parties, il resulte que Deluze et Dumas avaient, durant la societe Champes, exerce quelques actes de: surveillance :sur radministra- tion de ce dernier; "Qu'ils avaient essaye d'en prevenir les funestes effets, a I'aide de diverses instructions, par I'emploi des mesures qu'une prudence plus au moins active, plus ou morns vigilante, avait dictees.; mais qu'en cela, ils n'ont pas excede ce que I'acte social autorisait, ce qui etait permis a des commanditaires ; "Attendu que I'examen des livres et des papiers- dependant de la faillite Champes, a montre que, pen- dant la societe, des negociations ont eu lieu entre lui, d'une part, et Deluze et Dumas de I'autre-; qu'elles n'qtaient point prohibees; qu'en ce qui interessait uniquement leur maison, Deluze et Dumas ont ete Ubres de traiter avec Champes, comme ils auraient pu traitor avec d'autres n^gociants, proposer ou accepter, consommer un certain nombre d'operations commer- ciales pour leur propre compte; "Attendu qu'aucun des faits qui ont ete invoques contre Deluze et Dumas, ne les a constitu6s associes gerants; qu'il ne parait pas meme que cette qualite essentieUe leur ait jamais et§ attribute ou donnee par ceux envers lesquels Champes acontracte des engage- ments; "Faisant droit sur I'appel que Deluze et Dumas ont CH. XI.] EECOUBSE ON GENERAL PAETNEES. 319 mterjete, met I'appel et ce dont est appel au neant; toendaut, decharge Deluze et Dumas de toute con- damnation, etc.'"^ "Telle est done la regie a suivre: entre le com- manditaire agissant comme tiers et la society, toute transaction commerciale est legitime. Les indivi- dualites ne se confondent pas. Le commanditaire ne gere point en yendant des jtaercliaindises a la societe; il ne gererait pas meme en vendant pour son compte, a titre de commissionnaire,.les mercliandises dont elle fait I'objet de son commerce." § 309. It appears to be a principle in tlie French system, that no device or contrivance, however inge- nious or colorable, resorted to by a special partner to guard himself from the penalty of answering as a general one, in transacting the business of the firm, will avail; every attempt of the kind, when discovered, will be treated as a fraud on the law, and a general responsibility decreed.^ § 310. The principle, that a limited partner trans- acting business on account of the firm, obligates him- self for its debts and engagements, having only been established for the protection of creditors, does not, in effect, go further than to render him a surety for the general partners; and when he has, for such a cause, been compelled to pay the debts of the conipany be- yond the amount of his investment, he may maintain an action against them in reimbursement of what he has paid exceeding the sum of such investment.* The mere fact of his acting in the concerns of the association does not change his character of special partner in I Delangle des Soc, No. 401, 373. " Pardessus, No. 1038. ' Ibid. 320 OF INTERFERENCE BY SPECIAL PARTNERS. [CH. XI. regard to the general partners.^ But quere, when he meddles with the business contrary to their expressed wishes and protestations, instead of by their sufferance or invitation? § 311. If by any secret arrangement the members of a hmited partnership have conceded to a special partner the custody or administration of the joint funds, or the right to limit, inflect, change or veto any measure agreed on by the general partners, this renders the former liable in solido.\ § 312. So, if the articles of association provide that the special partners shall have a part in the manage- ment of the concerns; shall originate speculations, and shall vote at the meetings, such an arrangement con- verts it from a hmited into a general partnership.^ § 313. So, if in an agreement of hmited copartnership between two merchants, it is stipulated that the busi- ness shall be managed by one alone of the partners, under the firm of such a one (nammg him) and com- pany; that the other partner may, whenever he shall think proper, and under a new agreement, connect his signature with that of the former; that he may trans- fer his interest to a third person, who shall have a share in the administration of the business; that each of the parties shall bear losses in proportion to his in- vestment; and finally, that the firm, shall be dissolved by the death of the acting partner, and the business be continued by the heirs of the non-acting partner; these facts convert it into a general partnership; and ' Pardessus, No. 1038. »Rep. Juris. Not. Verb. Sooiete, No. 37, Vol. VI^ p. 650. See also Pardessus, No. 1028, et seq. ' 6 Juris et Style du Not., No. 1896. Sirey, Tom. III., Part I., p. 274. CH. XI.] EXAMPLES UNDER THE RULE IN FRANCE. 321 the creditors, after a failure of the firm, may have an action in solido, agaiust the non-acting partner, al- though -they never knew him. The concurrence of all these circumstances, especially the partnership name, which supposes more than one general partner and the proportional contribution to the losses, with- out restriction to the investment of the pretended special partner, are of the essence of a general, and not of a limited partnership.^ § 314. The expulsion of the acting partner of a Hmited copartnership, brought about by a portion of the special partners, does not necessarily constitute, on their part, a transaction of the business of the firm sufficient to render them liable in soHdo, even though this change may not have been effected at a general meeting, accordiag to a requirement of the written articles, or made public according to the forms pre- scribed by the code. § 315. Neither would the following circumstances operate as an interference by the special partners s» as to render them generally hable : — 1st, an authoriza- tion from them to the general partner to dispose of new shares, and releasing him from all responsibiHty upon his negotiating these shares for a certain price; 2dly, a power of attorney from them to one of their number to join with the general partner in the disposing of those shares.^ § 316. Agents appointed in different parts of the country to sell the goods of the firm, who have taken and paid for shares in it merely as secwrity for their ac- ' 6 Juris, et Style du Not. No. 1898. Sirey, Tom. VL, Part I., p. 314. ^ Court of Cassation, 6th May,'1835 ; Bousquet's Die. de Droit, Vol. IL, p. 666. V 322 OF INTERFERENCE BY SPECIAL PARTNERS. [CH. XI. counting, and pledged to the fiito, do not become liable as general partners on the ground of interference/ § 317. As the provision against a special partner's acting as attorney or agent is penal, it can only be applied to cases in which the alleged acts in violation of it cannot be explained in any other way. Thus, a simple receipt given by the special partner to a gene- ral partner, as evidence of the payment of the price of goods delivered by the former to the company, be- ing explicable as establishiag, first, a purchase made by the limited partner on his individual account, then a sale freely made by him to the company of the same things, would not be sufficient to convert him into a general partner. For this transaction does not neces- sarily involve the supposition of an order received and executed, nor of a purchase made in the first instance for the use of the company. And the case would be decided in the same way, even though the limited partner had communicated in a letter to the general partner information concerning the price of certain ' Court of Cassation, 26th Nov., 1839. Ibid. 667. The statutes of South Caiolina, Mississippi, and Alabama, contain a proviso to this section, in favor of attorneys and counsellors at lavr, and aJlovring them, although special partners, to manage the bilsiness of their respective firms, in courts of law and equity. The statute of Florida embodies, in its 17th section, a clause that a special partner " shall not transact any business on account of the partnership unless employed as an agent under a power of attorney." It is this and other provisions similar in spirit, that invests the statute of that State vrith a character of superiority over those of all other States that have introduced the system of limited partnerships, and that have induced the writer to spread it in his Ap- pendix as a model of a law on the subject, worthy of imitation by the remaining States that have not yet adopted the system. The clause in question is completely identical in spirit with the views of the best French jurists and tribunals of the present day, as will be seen in the progress of the present chapter. CH. XI.] EXAMPLES UNDER THE RULE IN FRANCE. 323 goods, if those goods were not of the same nature with those so bought and re-sold.^ § 318. A mercantile house established in a sea port town, remote from the place of another commercial house, with which it proposed to become a special partner, (in other words to advance it certain funds for a share of its profits,) on condition that this latter house would employ the former to make all its pur- chases and sales in the sea port town. The question is, whether the Hmited partner house would, in thus buying and selling for the general partner house, in- cur the risk of liability in solido for all the debts of the latter? The reason for the doubt is, that th^ limited partner house is, in regard to third persons whom it deals with, the real agent of the other house for which it buys and sells. But the true ground of decision is, that the former, in its character of commis- sion merchant, is supposed to be specially carrying on its own business ; and to be only exercising its legiti- mate and appropriate commercial functions in exe- cuting such commissions; that the agency thus re- sulting is the accessory of its business and character of commission merchant ; that thus, in habitually doing that which continues its profession, it is supposed to be rather doing its own business than that of others; moreover, the nature of the acts being ascertained by their chief object, and not by their accessories, the whole of the commission business daily exercised by it, should be considered as the transaction of its own business, and not as the transaction of the business of third persons; because this commission business con- stitutes the principal object of its profession or trade, 'Sirey, Tom. XVI., PartIL, p. 77j 6 Juris, et Style duNof. No. 1899. 324 OF INTERFEEEKCE BY SPECIAL PARTNERS. [CH. XI. and, considered separately in reference to each com- mercial house that make it an agent, their separate agencies are but the accessories of the general object. To these arguments it may be added that every time a person has been invested with two capacities for the performance of the same thing, and the acting in one of them would be injurious to him, he will be held in equity to have acted in that alone which occasions him no detriment. This liberality in the considera- tion of personal acts will be extended to those alone which are marked with good faith, because the prohi- bition in the law against the agency of special part- ners was designed to guard against fraud. The law presumes fraud in every case in which a special part- ner has been employed in the business of the firm; but this presumption ceases the moment he can be considered to have only been transacting his own business and not that of the firm, although he may have acted for it accessorily, as in the hypothesis above stated. Further, the law was enacted to pro- mote the interests of commerce, and those interests require that the arrangements between mercantile and commission houses should be rather favored than discountenanced.^ § 319. It will be observed that this section ex- pressly prohibits the special partner from acting for the firm, even under a power of attorney from the general partners. As this is contrary to the general and philosophical rule of law that an attorney in ex- ercising his delegated powers only represents the per- son of his principal, and acts for and binds him alone ' 2 Parf. Not. 467, 6th Edit., Paris, 1827. Sirey, Tom. IX., Part II., p. 381. CH. XI.] UNDER POWEE OF ATTORNEY, 325 under orders and instructions, some good reason for the variance should be offered, if to be found. Such a reason is attempted to be furnished by certain French writers, who say : — It was designed by the provision, to put an end to a species of fraud that was frequently committed under the cover of a partnership, which operated disastrously both against the government and merchants in general. This fraud was perpe- trated in the following manner: A rich capitalist would solicit a contract from the government to fur- nish it with the articles it needed; and having ob- tained it through his credit or intrigues, he had the agreement, under which the undertaking was to be executed, drawn up in the name of his clerk, or some other irresponsible individual. With this man of straw he next formed a limited co-partnership, in which he played the special partner, and his creature the general one ; but in order to continue the sole mas- ter of the undertaking, he took from the latter a power of attorney to conduct all the affairs of the concern. If the losses exceeded the profits, as a special partner he sheltered himself from the government and the other creditors behind the articles of partnership, and thus escaped responsibility. Similar frauds were prac- tised in other departments of trade, and all that was wanting for the successful consummation of any scheme to cheat, was to find an insolvent person who would lend his name for its accomplishment.^ ' 2 Parf. Not. 465—6, 6th Edit., Paris, 1827. But it is evident that this illustration fiimishes no sound reason for the stringency of the rule. How easy would it not be for a government or mercantile house to insist on the contract being executed in the name of the original grantee, or in that of some other perfectly responsible person ? The case stated in the text shows; if not a conspiracy to cheat, certainly sufficient mala fides in the rich capitalist to render him liable for damages. 326 OF INTERFEEElsrOE BY SPECIAL PARTNERS. [CH.XI. § 320. We have seen tliat a limited partner may become a creditor of the firm, (irrespective of his in- vestment,) by dealings with it, and as such, be enti- tled to the same rights and remedies as other part- ners. That is, he may be a plaintiff in an action against the firm of which he is a special member, and, as far as his investment is involved, against him- self. So, he may become liable to the firm as any other third person, for the price of goods sold, or for a tort, or a breach of contract; in such case, he would be in substance a plaintiff against himself as defendant, or, more accurately speaking, against his investment in the capital stock. This under the 18th section. § 321. The section just alluded to refers to the ac- countability of the general partners to each other and to the special partners, and to nothing else; but of course neither it, nor the provision of the 19th, suc- ceeding it, can be construed to exclude the liability of the special partners to the general ones, or amongst themselves. Where the general partners have been made responsible beyond the whole capital, and the special partners have mterfered with the concerns, in violation of the 17th section of the statute, and with- out the consent of the general partners, they would be accountable to the general partners for contribu- tion; for, had the general partners been unable to meet their whole responsibility, the special ones would have become liable, supposing their interference to have been discovered. In a recent case in France a general partner sued his special partner for contribution as re- sponsible in solido, for acts oiimmixtion, (interference,) provided against by the 27th and 28th articles of the Commercial Code. His general right to recover was not denied; but it was held by the Court of Cassation, OH. XI.] POLICY OF THE EULE QUESTIONED. 327 (29th March, 1843,) that "this double circumstance" did not prove an immixtion; viz.: first, that the special had been attached to the general partner by the con- sent of all the members, to aid him in the discharge of the secondary duties of the administration of the concern and subject to his supervision; and secondly, that this special partner in his character of adjunct, was to receive, as a salary, a portion of the eventual profits of the business.^ § 322. Wolowski, the erudite and able chief editor of the Eeview of Legislation and Jurisprudence, in the essay upon Partnerships in Shares, so often quoted in this work, attacks^ both the doctrine of the French courts as to the 27th article of the Commercial Code, which prohibits interference or immixtion in the ma- nagement of a limited partnership, and the article itself. As to the one, he says that it should restrain the operation of the article within just limits; that it should only be applied to the relations of the firm with third persons, and never to the mterwr adminis- tration or relations between commanditaries and gene- ral partners: as to the other,* that "it is unjust, arbi- trary, blind; a special partner is intrinsically better qualified, [eceteris paribits,) than a mere stranger, to act as attorney in fact of the partnership, under spe- cial orders from his general partner. He has a two- fold interest to impel him to a faithful and intelligent discharge of his task; and he may, in numerous cases, thus quahfled, render signal services to his firm with- out the least inconvenience or danger to creditors or the public." He further says that this article is a ' Bonsquet, Diet, de Droit, Vol. 11., p. 667. » Page 26. * Page 40. 328 OF INTERFEEENCE BY SPECIAL PARTNEES. [CH. XI. " wretched innovation, dating but from tlie Code of the Empire, (1807,) and that it is in flagrant opposition to the commercial usage and practice of six anterior centwries. To declare a man liable in solido as a part- ner, who has never presented himself to me in any other capacity than that of an agent or clerk acting under orders; who has never acted in his own name, and who has never been trusted as an individual, is to consecrate a law at once tjnrannical and subversive of an old, a just, a natural and necessary usage." Again he observes, that the article should be re- modelled and made conformable to the previous usage, upon the only true principle, as developed in the star tutes of Italy, that any act done by a special partner in virtue of a mandate ficom the general partner, in the latter's name exclusively, and that cannot injure or tend to injure third persons or creditors, shall not be held as interference.^ Having thus prepared the way, the learned writer proceeds to detail his notions of the true rights of spedal partners^ both as they are and as they ought to be granted, supposing that he should have pushed the doctrine too far. In order- to fiu-nish an example of the nervous thought and felicitous style of Mr. Wolowsky, the original is quoted in the second note below.^ ' Page 44. ^ " Par une extension abasive donnee aux termes de I'artiole 27 dn code de Commerce, que nous retrouvons encove ici oomme I'obstacle principal, on a pretendu, en pirenant an pied de la lettre les dispositions proposSee par le tribunal de Cassation, que les commanditaires ne devaient assister i, aucune assemblee, ni prendre part k aucune deliberation ; que toute action wterimre, domestigue, sur la marohe de la society leur fitait inter- dite, aussi bien que toute action exterieure; et que I'intervention occuMe, tout comme I'intervention patente, les rendait responsables solidairement vis-Si-Tis des tiers. Sans cela, ajoute-t-on, le butde laloi est manque; en CH. XI.] ARGUMENT AGAINST THE RULE. 329 § 323. In the decision about to be quoted, of the Court of Cassation, (and it is the most recent on the subject,) the court laid much stress on the fact, that repoussant le commanditaire de la gestion, elle a voulu " empSoher les speculations frauduleuses faites avec audace, sous un nom inconnu, k I'aide duquel on faisait les plus hasardeuses speculations du commerce, de banque ou d'agiotage, et qu'on livrait en cas de mauvais succes au deshonneur obscur d'une banqueroute caJculee d'avance." Le gerant qui ne conserve pas son libre arbitre, auquel une volunte interieure vient s'adjoindre pour donner I'impulsion aux affaires de la societe, n'est plus que ce gerant apparent, au nom duquel on tente les chances les plus te- meraires, au risque de I'abandonner au deshonneur d'une banqueroute. Tel est I'avis de jurisconsultes distingues, et I'on conceit combien une pareille opinion doit inspirer d'ef&oi aux commanditaires. Bien que, sidvant ce que nous avons dit, cette responsabifite soit plutot nominale que reelle (car les gerans laissent rareraent arriver les choses au point ou pourrait oommencer leur propre solidarite, et par consequent celle des actionnaires qui auraient plus ou moins participe k la direction de la so- ciete,) elle suffit neanmoins pour entrainer les plus desastreuses conse- quences. Si la loi actuelle prononpait reellement une pareille prohibition, on ne saurait trop t6t I'abolir; car nous y voyons le germe de toutes les deceptions, de tous les embarras qui entrainent la mine des commandi- taires. Nous ne pensons pas que la loi doive etre etendue dans ce sens; nous ne pensons pas que dans la commandite ordinaire, dans la commandite sans actions, on ait voulue rendre solidaire I'associe qui dans le secret du cabinet ou par correspondance, discute avec le gerant les operations so- ciales, sans avoir aucune relation avec les crdEuiciers de la societe et en leur demeurant entierement inconnu. Tous ceux qui se tiennent en dehors de Paction exterieure de la so- ciete ne sont responsables que de leur mise ; tel est le principe fonda- mental de la commandite, telles sont les traditions de la touiume com- merciale. C'est li I'exaote 6quit6, particeps tenetur cum sub ejus nomine expresso, vel tacito sit contraetwm, dit la rote de Genes, ainsi que nous I'avons rappele plus haut; ajouter quelque chose Si cette deduction, c'est I'alterer, c'est s'ecarter du droit. (Fremery, Etudes de Droit Commercittl, p. 60.) " De droit commun, dit Merlin (Questions de droit, vo Societe, § III. bis m.) I'associe en commandite, n'est pas moins fonde que I'associe en nom coUectif, i prendre connaissance des livres, registres et eoritures de lamaison sooiale. II a la&me, comme lui, le droit de prendre part aux deliberations de la society." Aussi "le Code n'interdit au commanditaire que les actes de gestion, et non le concours aux deliberations de la societej cette limitation de la 330 OF INTERFERENCE BY SPECIAL PARTNERS. [CH. XI. the employment of a special partner as clerk to the concern was a thing notorious to the creditors with whom he did business on behalf of the firm. defense resulte non seulement du texte, mais encore de oe qui s'est passe lors de la discussion. En effet, la redaction adoptee d'abord au conseil- d'etat deoidait que le commanditaire ne pourrait eoncourir ni etre employe en aucune maniire, aux achats, ventes, etc. Le tribunal ohserva qu'wn des droits du commanditaire est departioiper aux deliberations generales de la societe; et ces deliberations ont souvent pour objet ou d'en approuver tes operations, ou, d'en autoriser les engagemens, de sorte que, sous ce rapport, le commanditaire y con- cowt et doit y eoncourir, du moins par son eonsentement. Ces observations ont ete adoptees par le conseil-d'etat, et I'on y a conforme la redaction." (Locre, Esprit du Code de Commerce, art. 27.) Un avis du conseil-d'etat du 29 Avril 1809 rend oette vferite plus saU- lante encore. En effet, il y est dit formellement : " Que les art. 27 et 38 du Code de commerce ne sont applicables qu'aux actes que les associes commanditaires feraient en representant comme gerans la maison commanditee, meme par procuration." (Sirey, 9, 2-384.) La loi ne les exclut done que des rapports que les gerans ont aveo les tiers; il leur est defendu de partioiper aux relations qui s'etabliront entre la societe et ceux qui traitent aveo elle ; ils doivent, dit M. Persil fils, rester toujour s dans la coulisse. Si la loi leur coramande de demeurer incon- nus au tiers, elle leur conserve la faculte d'user de leur titre d'associe dans les relations int&ieures, entre les membres de I'association. M. Pardessus a parfaitement defini le caractere veritable de la prohibi- tion que contient le code de commerce; voici ses paroles que nousoitons textuUement : " On n'interdit au commanditaire que les actes de gestion et Bon le concours aux deliberations de la societe, m^Uie k celles qui auraient pour but ou d'en approuver les operations ou d'en autoriser les engagemens, de sorte que le commanditaire a int^ret et droit d'y eoncourir. Tout ce qu'il faut, c'est qu'il n'agisse et ne traite jamais avec les tiers, que ceux-ci ne soient pas fondes k induire de sa conduite qu'il faisait les affaires de la societfe; ;qu'en un mot le droit d'agir pour la societe n'appartienne qu'aux associes responsables et solidaires, sauf le droit du commanditaire centre eux, s'ils avaient enfreint quelques conditions particulidres de leur asso- ciation. " Ce qui doit distinguer ce cas de oelui d'un concours i. l> administration qui est la seule chose interdite, c'est que les deliberations ne ferment de lien qu' entre le commandite et le commanditaire, qu'elles n'empSchent pas le commandite d'agir avec les tiers d'une manidre oppos6e i, ces d61i' bfirationset d'obliger valabLement la society ; qu'un commanditaire ne CH. 51.] AS CLERKS KNOWN TO CEEDITOES. 331 The syllabus of the report, as given below in the original, is as follows: — "A special partner who does acts of management, serait pas recevable Si attaquer les conventions du commandite avec les tiers, surle fondement qu'elles seraient contraires aux deliberations inte- rieures, sauf son action en dommages-intSrgts contre son associ6. " Les tiers ne pourraient, dans tons ces cas, dire qu'ils ont eu sujet dfi croire que le commanditaire administrait, tandis qu'il en serait autre- ment si le commanditaire prenait part aux conventions entre la soci6te et les tiers, et qu'alors il aurait fevidemment echange sa qualite et perdu les avantages d'une responsabilite limitfee i samise." L'influence int^rieure, le contr61e, la surveillance passive, derivent done du contrat de commandite, tel, qu'il est regie par la loi actuelle. Si I'on n'a pas fait un usage plus frequent, plus effipace de ce droit, c'est parce qu'il n'est pas nettement defini. Au lieu de tracer des limites qui determinent les pouvoirs attribues aux commanditaires, le Code de com- merce laisse le champs libre aux commentaires, aux interpretations, i I'appreciation arbitraire des tribunaux. De \k I'hesitation naturelle des actionnaires, qui se trouvent paralyses par la crq,inte d'outre-passer leurs droits, et qui preferent en fajre I'abandon, plutot que d'encourir una re- sponsabilite meriagante. Aussj, que Fon conserve ou non les restrictions portees dans I'art. 97, il importe de sortir du vague que sa redaction si elastique laisse subsister. Les commanditaires doivent Stre bien fix6s sur le point de savoir ce qu'il leur est permis, ce qu'il leur est dtfendu de faire. " Mais il ne suiRt pas d'expliquer I'esprit de la loi existante, il faut le modifier. II est de ces principes qu'un respect superstitieux environne ; on les accepte sans les discuter, on les prend pour point de depart, pour base de theories, de systemes, souvent ils entralnent par une dediiction inflexible h. des consequences desastreuses, egalement contraires k I'interet public et h I'equitfi. Vous interrogez alors leur raison d'etre, vous sondez leurs fondemens, et k votre grande surprise, I'idee qui commandaitune aveugle obeissance, apparait dans son impuissance et sa fragilite. La prohibition d'intervenir dans la direction des aifaires communes, enoncee contre les commanditaJres sans distinction, sans reserve ; la ne- gation de leur libre arbitre, dtendue meme aux relations interieuies, aux- quelles les tiers sont absolument etrangers, ne rentre-t-elle point dans eette categoric ? Et cependant c'est autour de cette prohibition d'intervenir, dont on a fait on ne salt trop pourquoi, le sine qua rum, I'essence des societes en commandites, que tourne communement toute la discussion ! Nous avons eu occasion, en examinant la question des actions auporteur, 332 OF INTERFERENCE BY SPECIAL PARTNERS. [CH. XI. not in his own name, or as general partner, represent- ing the firm, but solely in the capacity of clerk to the general partner, cannot be held responsible as a gene- ral partner in an action brought by creditors; and that particularly, when his character of clerk was known to those with whom he dealt.'" As this adjudication is an important one, the ori- ginal of the above version is here offered: — "L'associe commanditaire qui fait des actes de gestion, non de son chef, ni comme gerant representant la societe, mais en qualite de commis du gerant, ne pent etre considere comme oblige solidairement euvers les tiers, alors surtout que sa qualite de commis a ete connue de ceux avec qui il a traite." § 324. After the failure of the company, two of the creditors sued one of the limited partners for interfe- rence; that is, for having been clerk and book-keeper to the general partner, and in this capacity, for having superintended the workmen of the company's paper- miU, (paper making having been their business,) and reported thereon to his employer; and for having drawn bills of exchange by order of the latter, sign- de rappeler les regies qu'il nous parait juste et utile d'adopter, touchant ia gestion des aifairee communes par les commanditaires. Si pour ces rapports externes de I'assooiation, nous sommes parvenus a d6montrer que, toutes les fois que le commanditaire n'a pas fait suivre sa foi, qu'il s'est pr6sent£ non comme obligd personellement, mais au contraire com- me oblige pour autrui, il etait aussi nuisible qu'inutile d'etendre sur lui une solidarity que rien n'explique et ne justifie, k plus forte raison, dev- rons-nous adopter la mSme conclusion k I'dgard de I'influence legitime qui apparlient k I'actionnaire, dans ses rapports purement interieurs avec le commandite. loi la prohibition de la loi ne se bornerait pas k etre absurde, elle en trainerait le plus fatal resultat elle eloignerait de la societe en commandite les capitaux qui affluent naturellement dans cette direction." ' Lehagre et al. v. Dumoulin, Paris, March 15th, 1847; Recueil de Sirey, Vol. for 1847, Part I., p. 353. OH. XI.], PRESENCE AT MEETINGS. 333 ing them "for S. Duval, — A. Dumoulin;" for having paid the workmen, and for having conveyed orders to suspend the works. It was proved that the plaintiifs had a knowledge of the functions of the defendant, and had consulted him as to the probable solvency of his employer; and nothing appeared to show that they had ever trusted to the responsibility of the lat- ter or viewed him as any thing but a clerk. It also appeared in evidence, that the latter had always strictly acted under orders, and had never exhibited himself as manager or representative of the company, and had constantly taken care to give orders in the name of the general partner, as he had been directed to do. The question was much debated, first in the Superior Court of L'Orient, in 1844; next on appeal to the Cour Royale of Rennes, in 1846, and finally in Cassation at Paris, in 1847, when both the judgments were affirmed. § 325. As the law of France now stands, it is said, special partners are men more "sianed against than sinning;" or, in the language of M. Troplong, "plutot opprimes qu 'oppresseurs." Still, they should be rigo- rously kept from interfering, in the true sense of the term, and every shade of real agency delegated to them should be held as fraudulent.' As to their supervision and presence at the meetings of the general partners, and sharing in the deliberations, (concours,) the same learned author examines the whole ground with great acuteness and research.* When the au- thority of the general partner requires an accidental extension, — as, to raise funds by an extraordinary stretch of credit; or by way of hypothecation; or, to ' Troplong des Societ., Vol. I., p. 396. ^ ibid. 39(6—416. 334 OP INTEEFEEENCE BY SPECIAL PARTNERS. [CH. XI. provide for emergencies not foreseen at the inception of the business, a general meeting for deliberation and advice is both reasonable and legal. He contends, too, that general meetings ought to be tolerated for a ren- dering of accounts by the general partners. An in- spection of their minutes and an auditing, as it were, of their accounts, ought to be permitted. Where it had been stipulated in the articles, that a certain special partner should be notified and admitted to give his advice whenever the general partners should wish to change the system of operations, the Cour Eoyale of Paris decided, by a decree of the 25th July, 1828, that this did not amount to an act of interference.^ § 326. Neither would an act of supervision, {sw- veillance,) be an interference. This supervision would consist in a right reserved to inspect the books, the contracts, the stores, the work-shops, the fabrics of the firm, to appoint a clerk, and in any other measure merely of precaution, and to guard against fraud in the general partner.* § 327. All writers agree as to this point of supervi- sion, and the appointment of a supervising clerk is but a corollary from the doctrine.' "Habens participa- tionem in emolumentis pedagii, potest deputare suum ministrum et factorem, ut videat quantum percipiatur, ad consulendum fraudibus, quae alias sibi fieri pos^ sent."* But with this right of supervision, the ad- ministration of the cash department cannot be coupled. ' Troplong des Sooiet. Vol. I., p . 407. ^ n,;ci. 408. ' Ibid, quoting Pardessus, T. 4, No. 1031 ; Merlin, Quest, de Droit, vo Society, p. 560. No. 3, and a decision at Bordeaux, in 1838, and one in Cassation, December, 1841. * Deluca de Regalib. Disc. 91, No. 14. CH. XI.] RtJLE AND TEST OF GOOD FAITH. 335 Therefore, the shareholders of a newspaper called The World, who had resolved themselves into a permanent eouncil in order to control the conducting of the journal, supervise the operations, and examine the contracts of the general partner, modify the amount of the expenses of editing, concert with the latter the means of extending the circulation, and advise upon all questions relative to the publication, were declared, by the Cour Royal of Paris,^ to have interfered, and to have made themselves Hable as general partners. Troplong approves of this decision, because the opera- tions of the concern " showed a palpable fusion of the two characteristics of counsel and administration, into one delusive creation, and an attempt to disguise, under the plea of supervision, an actual usurpation of all ac- tion."^ The true prmevpls to be extracted from this important judgment is, that the co-deKberation {crni- com-s) of the special partners is to be restrained and regulated \>j good faith to the law; whenever this hma fides is violated by a degeneration of the co-deliberators into a convention on a smcdl scale, absorbing despotically all powers, the legal complexion of the Hmited asso- ciation disappears, and the shield of special immunity is lost. § 328. Two writers of authority on the subject of partnerships, (Malepeyre and Jourdain,) have started a question, whether a stipulation in the articles that the special partners should "be consulted upon all im/portant exigencies, and that their determinations should be obligatory on the general partner," did not involve a forfeiture of the immunity of the former? ' Ari6t of March 26, 1840, Sirey, 4, 2, 250. 2 Des Sooietes, Vol. I., p. 409. 336 OF INTERFERENCE BY SPECIAL PARTNERS. [CH. XC. These writers argue, tliat such partners would be spe- cial but in name; that they would have monopohzed the entire administration, becoming a supreme direc- tory, and making of the general partner but a mere tool. Such a stipulation, in the judgmentof Troplong, would be extremely vague, and therefore to be avoided in well digested articles. But, he asks, who is first to decide on the real vm/partance of the exigencies? A question important in the eyes of the special, might be the reverse in those of the general partner. But, supposing the actual existence of such a case, it is conceded, he observes, that special partners are not condemned to a passive existence ; — ^they are privileged to take part in the general meetings of the association convened for the purpose of settling the accounts; — declaring dividends and determining the surplus fund; — ^modifying by-laws — calUng in instalments, &c., &c. That such, likewise, are not their only rights of func- tion. A loan is wanted; a mortgage is to be given; a compromise is offered; a speculation is proposed; an erection, or a demolition is suggested; all these are of the highest importance, requiring a joint deliberation, and upon which the special partners have an ac- knowledged right to pronounce their opinions: The learned writer then goes on to say, that if indeed, "the special partners were to resolve themselves into a per- manent council in order to deliberate on other diurnal acts of lesser importance; if, from the frequency of these meetings, and the nature of the daily matters submitted to their consideration, an interference with the general partners essentially resulted, they must forfeit their immunity. But if, at certain intervals, important questions spring up, the special partners may be convened, and have the right to be consulted, without abdicating their privileges." CH. XI.] ADVICE, WHEN BINDING. 337 § 329. But are deliberations thus entered into, and counsel thus proffered, obligatory on the general part> ners? The writers above referred to (Malepeyre and Jourdaia) think they are not, but Troplong differs, and unhesitatingly asserts, that if by law special partners may deliberate on and approve of operations, and authorize engagements, their advice cannot be trampled on, and if disregarded by the general par1> ners (when the latter are in a minority) it will be at their peril, and on their individual responsibiUty to the former.' It is, however, true, that in regard to third persons, the general partners may act in opposi- tion to the opinion of the majority, and the special partners never can object to the claims of third per- sons, that the former have thrust aside the advice tendered to them by their associates.** But in regard to the special partners, the general partners so acting become Hable to an action for damages, and to a for- feiture of their copartner-position, [et a la destitution/) for they are bound by the advice {la deliberatim) ten- dered.^ § 330. The "may advise" faculty of this section, it is contended by Mr. Troplong, — ^in reference to an equi- valent provision in the French code, — is obligatory upon the general partners whenever it is exercised by a majority of the special partners, or by a majority of the partners, of which they constitute a portion. To affirm the rule otherwise, says he, "would be to esta- bhsh it as a maxim, that the general partner may trample the advice of the special partner under his feet. No ! when the Tribunate willed that the latter ' Des Societ., Vol. I., p. 412. * Ibid. Pardessus, No. 1031. ' Troplong, ubi supra. W 338 OF INTERFERENCE BY SPECIAL PARTNERS. [CH. XI. might sanction the joint operations, and might autho- rize contracts, it intended that as between him and the general partner, there should arise a bond of law that if violated would carry with it the penalty of legal re- sponsibility." "It is true," continues this able writer, "that in regard to third persons, the general partner may, at his risk and peril, put himself in opposition to the advice of the majority. It is his province, repre- senting the partnership without, as he does, to enter into all engagements with third persons in relation to its business; and the special partners would never be permitted to object to such third personSj that a ge- neral partner, in his contracts with them, had disre- garded the advice or wiU of his associates. But if so in regard to third persons, it is the reverse in regard to special partners; and the general partner who acts or carries on the joint business in a way opposed to their advice, so expressed in a deliberative meeting, exposes himself to an action for damages, and also to dismissal : — for he is bound by the deliberative vote."' § 331. This right of surveillance, that is, of effica- cious supervision, on the part of commanditaries in France, has been settled by a series of recent decisions in the highest court, pronounced under -numerous di- versities of circumstances, and is now beyond question ' 1 Troplong, des Sooi6t6s,No. 429, p. 412, cites Pardessus, No. 1031. A question is suggested by the text above, whether M. Troplong means to cionvey the doctrine that the geneml partner's liability to damages and dismissal, predicated in the events stated, are to attach only in case of disaster after disregarding the advice given him, or whether the same doctrine is to apply in cases wherein the opinion of the general partner has proved the better one, and the carrying out of the instructions of his special associates, would have resulted in loss? In other words, are pro- ceedings against him for contempt of advice to be stayed until the result has shown whether he or they were right? GH.XI.] THEIR RIGHT OF SUPERVISION. 339 or dispute.^ The limit of this right over the acts and operations of the general partners is invariably fixed by these authorities in this degree : — Special partners must beware fettering the action of their general part- ner ; they may moderate, but never invade his powers. They may tender to him, through the course of his administration, their views and experience; but they must take no active, patent share in that administra- tion, or do any act calculated to produce a false im- pression or a delusion in third persons as to ,the cha- racter or quahty in which they acted. The decision^ cited below all excaierate the commanditaries £com indefinite liability which creditors attempted to visit upon them, in consequence of the exercise by them of this right of supervision. § 332. So, where a general partner voluntarily seeks the advice of his commanditaries^ or submits to them at a meeting certain acts of manaigement for their approba- tion, whether in the view to obtain the benefit of their experience and information, or to exonerate himself from liability over to them in the event of disaster, and they accordingly pass resolutions of advice or ap- probation pro his casihus; such resolutions would not amount to acts of immixtion, amoui^ting, as they must, to but a tender of advice, or declaration of approval ; being wholly interior, and nowise brought into the no- tice of third persons, or leading any one to suppose that the personal credit of the commanditaries is in- tended to be submitted to their confidence.^ ' Deo. 26, 1842; Dalloz, 1843, P. I., p. 121, 252; March 29, and April 17, 1843; Ibid. 1844, P. I., p. 420; Nov. 13, 1844; Ibid. 1845, P. I., p. 386; July 10, and Dec. 22, 1845; Ibid. 1846, P. I., p. 30. See also notes 1,2, 3, of the Reporter Dalloz, to his volume of 1846, P. I., p. 308. 2 Breton et al. *. Montfouillon et al., in Cassation, S5 March, .18.46 ; Dalloz, Vol. of 1846, P. I., p. 308. 340 OF INTERFERENCE BT SPECIAL PARTNERS. [CH. XI. § 333. It appears to be a principle of French juris- prudence on this subject, that the privilege of irrespon- sibility is only forfeited by commanditaries upon the commission of patent acts, or acts of a nature to at- tract the confidence of third persons, and not by acts, occult, or of a nature such as would not affect the good faith of parties or prove a surprise on them.' There- fore it has been decided in Cassation, in two cases,^ where commanditaries, on the retirement of their gene- ral partner, met and appointed provisional managers with the single mission to guard and preserve the joint interests, they could not be made hable for in- terference, even though one of the transactions of the managers had been with a steam machine furnisher to the partnership, it being proved that the transac- tion was entered into for the purpose of obviating a great loss to the firm. § 334. This is a case that might well happen in the United States. As, suppose a general partner without capital should, through caprice or disappointment, throw up his trust and withdraw, what would be- come of the interests of speciaV partners, nay even of the creditors, should the former be deterred, from the fear of a charge of interference, from coming forward ? As the court in the above case well observes, they are compelled to intervene and appoint provisional mana- gers with power to wind up and distribute. § 335. So, in case of the dissolution of the firm, there could be no legal objection to the appointment of agents by the special partners, to settle the accounts ' DaUoz, Vol. of 1846, P. L, p. 30, n. 3. « Despeohers v, Avrottin, Ibid. December 22, 1845; Breton v. Mont- fouillon et al., Ibid. p. 308. CH. XI.] NECESSARY INTERFERENCE. 341 of their late associates, and to administer provisionally the affairs of the concern. So decided at Paris, Feb- ruary 25th, 1829.^ So, where the co-partnership has been dissolved by a unanimous vote, a sale of the real estate and stock of the jBrm by the special part- ners, could not be set up against them as an inter- ference; for such acts could only operate to consum- mate the dissolution, and could not be said to carry on the business of a firm actually existing,^ nor would the case be different, even though the dissolution had ■not been published according to the requirement of the Code of Commerce. Such omission could not affect the intention that led to the sale; neither could it convert into an interference an act simply done to carry out the dissolution. In every case wherein it is sought to fix a partner with so rigorous a liability, his real intention should be scanned in a spirit of jus- tice, and if clear and pure, his intention should be made the criterion.* § 336. Articles of limited partnership frequently provide that the general partner may, in the event of his becoming disabled to carry on the business, nomi- nate his successor to a general meeting. The part- ners, by accepting his resignation and confirming his nominee, do not become liable for interference.^ So, where the articles clothe the special partners with power to appoint a general partner in case of the death or continued illness of the first one named, there would be no interference. Such a provision would be but a proof of caution and prudent fore- sight.* But a clause reserving the right to dismiss or ' Troplong, Ibid. = Ibid. p. 413. ' Ibid, *Ibid. in Cassation, May 6th, 1835. ' 1 Troplong, p. 414, citing Horson, T. I., p. 65. 342 OF INTEEFEEENCE BY SPECIAL PAETNEES. [CH. XI. displace a general partner and to substitute one in his place, would not be within the same principle as that governing a spontaneous retirement, or a death. No arbitrary power can be reserved to the special part- ners to apply to such a case.^ The case of malversa- tion, fraud, gross neghgence, utter incapacity, or con- tinned drunkenness of a general partner would be reached by the Competent tribunal, or by a dissolu- tion; for there is nothing in the legal nature of a con- tract for a limited partnership that could prevent the Special partners from depriving their acting associate of the power of ruining the concern.^ § 337. On the renewal of a Umited partnership after the expiration of a former one, or before such expira- tion; or upon the formation of a new partnership, special partners who carry the capital of the first con- cern into the newly formed one, render themselves liable in solido for all the debts of the original part- nership. And this obligation is indivisible; it in- volves all the partners in the same liability. It will make no difference, that the capital of the prior part- nership has been converted into shares destined for the second one, even with the intention to assign those shares to the creditors for the purpose of satis- fying them.^ It will be observed that this decision establishes liability only for the debts of the first part- nership; a position that the writer conceded in regard to the special partner in the case of Andrews v. Schott* 1 Troplong, ubi supra. " Ibid. p. 414, and 2 Id., p. 149, Nos. 672—679, where this subject is very ably treated. » Decided at Paris, May 10th, 1843, ex relatione Bousquet, Nouveau Dictionnaire de Droit, Vol. II., tit. Sooiete, p. 667. * 10 Barr's Rep. 47. CH. XI.] EXCEPTION FROM THE RULE. 343 in which no creditors of the first firm seemed to claim; but combating his alleged responsibility to those of the second. § 338. It is evident, from the preceding elucidations of the doctrine of interference or immixtion, that the intention of the law is, to keep special partners from playing the role of the dormant partner of the com- mon law; to suppress implied fraud; and to foil specu- lation and gambling on the part of an associate, who has but a limited sum at stake, in the event of loss or disaster. It is, therefore, of the very genius of the system, that the special partner should not share in the management or direction of the social business. Non-interference is the price he pays for the privilege of adventuring but a portion of his fortune in connex- ion with able business men in any trading or commer- cial enterprise, who, on the other hand, risk all their fortune and credit. § 339. The modern decisions of the French courts, establishing the principle, that a clerk or agent of a limited partnership of which he is a special partner, is not liable for immixtion in cases in which his posi- tion does not bring him into contact with creditors, and does not interfere with or influence the manage- ment, [gestion,) are instances, says Delangle,' "wherein equity carries the sway over the written rule." Never- theless he is of opinion, that there is one case in which there might very properly be an exception even to the rule, that a special partner shall not directly interfere in the conduct of the business; and that is, in the case where his investment shall have consisted " of a secret of art or of chemistry; as for example, in a > Des Societes, Vol. I., No. 400, p. 372. 344 OF INTERFERENCE BY SPECIAL PARTNERS. [CH. XI. peculiar process for dyeing. In such a case, it could not possibly be affirmed that the commanditary en- gaged in the preparation of the colors was concerned in an act of gestkm. The application of a scientific process, which need not bring him into relation with third persons, can never have that character.'" § 340. But the question arises, when a special part- ner does interfere, and after he has become fixed with general liability for the debts of a wrecked partner- ship, in whose interest is he so liable? Is he liable to the creditors alone? Is he liable to other special partners who have not interfered, and whose contri- butions have been swamped? Is he liable to the ge- neral partners, whose prerogatives he has usurped? § 341. Happily, for the writer at least, this subject has engaged the attention of foreign jurists. " Up to this day," says M. Troplong, whose work on Partner- ship was pubUshed in 1843, "all our authors were of opinion that the partners of the comTrmnditaire (the special partner) were without remedy."® But the contrary has been decided by the Eoyal Court of Paris, in a judgment of the 9th January, 1836.^ In that case, it appeared that General Damremont was the special partner of a Sieur Chauvier, for the quarry- ing of a chalk-pit. But the General had not kept within the bounds of his legal status. Certain works being required to be done by the partnership, he had, in the absence and without the consent of Chauvier, contracted for them with third persons. He had, fur- ther, supervised and directed, paid the workmen, and ' Des Sooietes, Vol. I., No. 400, p. 373. ' Vol. I., No. 440, p. 420; the authors he refers to are Persil, Art. 28, ^0. 4; Pardessus, Tom. 4, No. 1038; Malepeyre and Jonrdain, No. 261. • Sirey, 1836, P. II., p. 134. CH. XI.] LIABILITY TO GEiSTEEAL PARTNERS. 345 furnished and sold to the partnership the materials which it stood in need of. Under these circumstances, Chauvier demanded that his special partner should be divested of his social quality, and should be decreed responsible to Mm, in solido, for all the debts to which these operations had given rise. The Court conceded his demands, and so decreed. "I cannot," says Troplong,^ "subscribe to this doc- trine. The 28th article of the Code of Commerce does not declare that a special partner who has interfered shall forfeit his social position; on the contrary, the Code continues to designate him by this name : only, it prescribes that he shall be bound in solido for all the debts and engagShients of the partnership; which is to bring him directly into the presence of third persons, and to render him responsible to them. The reason of this is easy to be seen : third persons may have been deceived; the acts of the special partner may have led them to suppose that he was a general part- ner, and that their credit was given to him. Having thus worn the colors of general partner, let him become one. But, as between partner and partner, is such an error possible ? Has not their social contract defined their positions, without equivoque and without mis- take? And does it not establish a general and a spe- cial partner? Of what injury then can the former complain? That the latter has infringed his rights? But why did he not arrest such infringement? Had he not the means to do so ? If he did not, was it not because he approved of the interference, which might turn out to the joint advantage? The 27th article of the code furnishes an irresistible argument against the 1 Des Sooietes, Vol. I., No. 440, p. 421. 346 OF INTERFERENCE BY SPECIAL PARTNERS. [CH. XI. decision of the court. It supposes that immixtion may be caused by a power from the general partner; yet for this, it visits the special partner with general liability. Can it then be conceived that this penalty should redound to the profit of one who has instigated and become the accomplice of the breach of the law? From these principles, it ought to follow, therefore, that a special partner who may have been forced to pay, through interference, the partnership debts, shall have recourse against the general partners, for all amounts exceeding his investment; for beyond that, he cannot be held."^ § 342. Now, if the writer understands the argument of the learned commentator, the real doctrine is this : — The business of a Hmited partnership has been disas- trous ; a special partner has interfered, hut the general partner is perfectly solvent, and the creditors are all paid by him. Can he sue the special partner for contribu- tion to these losses? He cannot, if he has been privy to the interference; or, if by ordinary vigilance, he could have prevented it. A special partner, who attempts to interfere in the management, can be ejected like any other intruder, if the general partner see fit. If he do not, but closes his eyes to the fact, and loses through it, the special partner also loses his investment in the capital, and no more. Therefore, it would follow, that if after the payment of all the losses, in such a case, (in proportion of course to the respective investments of capital,) there should remain a balance of the special partner's contribution, the ge- neral partner could not retain it, or set off the inter- ference against an action to recover it after a dissolution. • Des Sooietes, Vol. I., No. 441, p. 422. CH. XI. J CIRCULAR LETTERS. 347 But, should the special partner have interfered con- trary to the injunction, or in spite of the efforts of the general partner to restrain or to expel him, and losses should be sustained, though it could not be proved that such losses were occasioned by the interference, the special partner would be liable to the general partner in an action for contribution. § 343. In the commercial practice of Europe during the last and preceding centuries, circular letters, explanatory of the nature and extent of the business carried on, and sohciting custom and patronage, were a frequent mode of advertising on the part of trading and manufacturing firms and associations. Probably the usage is still kept up, notwithstanding the abun- dant, though in consequence of the stamp-tax, not cheap, means of publicity afforded by the daily news- papers. Certainly in the United States, at this day, wherein there is no stamp on advertisements, printed circulars are frequently resorted to by merchants, traders, and artisans, as a means of publishing a de- tailed account of their business capacities, means, and prganization, to such particular persons throughout the country whose credit or patronage is desired. Such circulars, if issued by limited partnerships, as a de- tailed programme of its designs and future operations, may exercise an important influence on the interests of special partners, if incautiously acquiesced in by them. They may also benefit them, as indicating the scope and objects of the partnership business. § 344. In the treatise of Fierli,^ there is an entire chapter devoted to this subject, which he entitles. ' Vol. 1., Ch. IX., p. 104 ; Delle Lettere Circolari chiamate Oblatorie, e delle Lettere Ordinarie. 348 OF INTERFERENCE BT SPECIAL PARTNERS.- [CH. II. "Of Circular Letters called Oblative and of Ordinary Letters.'" He says, that " they may be justly styled the original standard, {la prima norma,) or contract made legible to foreigners as far as they need it; inas- much as the particular stipulations between the par1> ners in their articles are of no interest to them." It is then immediately stated: — "A question has been more than once debated, whether such circular letters written by a general partner, can bind towards third persons a special partner who has permitted his name to be used therein. To resolve this question, the fol- lowing distinctions have been learnedly conceived : — " K the circulars have been signed by the special partner, or it be proved they were signed with his consent, in his name, and no reclamation or protest against this be shown by him, he would become Hable as a general partner; because third persons have a right to assume that circular letters demonstrate the nature and quality of the business of the firm and the faculties of the signers ; and to put their faith in the names and promises contaiaed therein.'^ But, if a general partner, contrary to the articles of copartner- ship, or secretly, adds the name of a special partner to his own, in a circular, the latter would not be bound." And the same law is laid down as to ordi- ' "Invitatory," is also another designation which he adopts, as con- vertible. He says that by means of them merchants of other places are advised of the erection of a limited partnership, and the facilities and advantages that may be had by dealing with it, are pointed out. In them it is usual to name the general partners, their business faculties, and all such incidents as may tend to accredit the firm in distant places, and ob- tain the custom and commissions of correspondents. Page 104 — 5. ^ For the same reasons, these circulars would bind creditors as to the scope and extent of the partnership business, and as to all separate deal- ings with the general partner, contrary to the interests of his associates . Ibid. p. 65. CH. XI.] - NATURE OF THE EYIDENCE. 349 nary letters, or the correspondence of the firm with distant parties. A special partner may be as much compromised by his acquiescence or want of caution, in a private letter sent by his general partner through the mail, as by a printed circular.^ § 345. It now remains to be ascertained, before closing this chapter, and as a fit topic for the purpose, what kind of evidence will be necessary to make out, in our courts of justice, the charge of interference against special partners. It is most probable that here the aid of the common law rules of evidence will be called in, and that parole, or rather oral testimony will be admitted. This, hkewise, is allowed in France, and the other states of Europe that have adopted the com- mandite system. Both written evidence and the tes- timony of witnesses, may be produced in those coun- tries, in aU inquiries of the kind, contrary to the gene- ral law of evidence in civil causes. § 346. Yiva voce testimony is admitted in the cri- minal courts of Europe, but from the civil tribunals it is rigorously, as a general rule, excluded. In the latter, written and documentary proofs are required; that is, proofs derived from books of accounts, corre- spondence by letters, written contracts, and all papers that may have passed between the parties, or may be connected with their controversy. It is easy to infer, from such a system, how difficult it would be to prove interference against special partners, were the rule of written proof apphcable to them. Yet it would be much more difficult in this country; because in Europe, traders and all persons in business are compelled by ' Ibid. p. 107 — 108, and the authorities cited by the author, in notes 5— 10, p. 111. 350 OF INTERFEEENCE BY SPECIAL PAETNEES. [CH. XL the insolvent or bankrupt laws to keep proper books of account, that is, books regularly paged, and fit and sufficient to show in detail the progress of their busi- ness from its inception to its termination, and that, under severe sanctions, without erasures, mutilation, or falsification. § 347. Upon the subject of proof of immixtion, Mr. Delangle's treatise on commercial partnerships in France, contains the following observations, showing that if the general and strict rule of law is thus mo- dified, it is as much because immixtion is of a qv^isi criminal nature, as from the positive necessity of the case : — " From all that has been said it results, that the immixtion of a commanditary in the conduct of the business, is a fraud and an infraction of the law. Third persons are therefore allowed, if the fact be in issue, to prove it by witnesses. When the law was discussed in the council of state, an amendment was moved of this import : — ^that in case a special partner should have interfered in the management of the joint business, oral testimony of such fact should be admis- sible, according to the circumstances. The amendment was rejected as useless. It is, indeed, very evident, that to deprive creditors of the resource of oral testi- mony, would be to put it out of their power ever to prove the fact, (les redmre a I'impossible,) in the ma- jority of cases. A commanditary who violates the law must particularly exert himself to efface all traces of acts and deeds compromising his whole for- tune."' § 348. The difficulty of proving even by viva voce ' 1 Delangle des Soo., No. 401, p. 373. CH. XI.J KATUEE OF THE EVIDENCE. 351 testimony in France, interference by shareholders in limited partnerships organized with a capital divided into shares to bearer, has been urged as a strong argu- ment against the sufferance by law of such concerns. Delangle has taken up the question and thus meets it : " K a shareholder who holds his stock in a limited partnership, as bearer, interferes in the management of the business, he violates the policy of the law, and thereby commits a fraud on it, for which he becomes indefinitely responsible. But, it is asked, how is this fraud to be proved if he be unknown to the creditors, and his name be not inscribed as a shareholder upon the books? and, it is said, even if he can be sometimes traced, and his interference proved, can this always be done with the same certainty as where every share- holder must be inscribed, and where the holder of stock must claim under a certificate bearing his name ? The answer is, that fraud is of so varied and infinite a character, that the legislator has renounced all effort to define it, and has left it in the breast of the judge to be established by the best evidence that can under the circumstances be obtained. If this difl&cultyjwere insurmountable, it would equally lead to the prohi- bition of nominative shares transmissible by endorse- ment; for a special partner who might hold such a certificate with an endorsement in blank, might refrain from inserting his name ; and after interfering in the management, and becoming responsible, might insert the name of any irresponsible person."^ § 349. The writer has had occasion to observe, that in this country, limited partnerships exist in which are special partners who carry on their own separate ' 2 Delangle des Sooietes, No. 502, p. 102—103. 352 OF INTEEFERENCE BY SPECIAL PARTNERS. [CH. XI; business in the same building witli their general part- ners, making use, in some instances, of the same counting-room or cabinet for the discussion or trans- action of their affairs, and the two separate concerns being the same or nearly similar in the nature of their goods. This cannot but be, from the nature of things, a dangerous proximity and contact for special partners. Being on the spot, how numerous the cases in which, either from impulse, calculation, or temptation, they may mix themselves up with the affairs of the limited partnership! When it is considered, in such contin-. gencies, to what extent the testimony of clerks, laborers, or bystanders, is received in our courts to be appre- ciated by juries, and how much it is the interest of creditors to be on the look out upon such occasions, special partners cannot be too guarded against these fatal consequences, and too vigilant in avoiding every man who comes in to deal or bargain with the firm. § 350. And this affords the writer an occasion to state, that a special partner so situated recently sub- mitted to him, for an opinion, the following case : — " Suppose a special partner were to issue the paper of the partnership, (that is, negotiate notes or bills, drawn by him in the name of the concern,) without its Imow- ledge or consent; would the act make him liable as a general partner?" The answer was, 1st, that an act of the kind would amount to a forgery, to which any party taking the paper privy to or cognisant of the fact would be a particeps criminis, but the special partner would not thereby become a general partner. 2dly, That if issued with the consent of the firm, he would be converted into a general partner. 3dly, That apart from the question of forgery in the first hypothesis, the general partners would not be bound, CH. XI.] CANNOT BIND THE FIRM. 353 but the special partner would be liable upon the notes as though signed or endorsed with his own signature. The general rule therefore is, that, as a special partner not employed, cannot bind the firm by any act of his own, every contract entered into by him purporting to do so and accepted as doing so, would be inoperative except as a contract binding himself separately, and would, therefore, not amount to an act of interference rendering him liable in solido. 354 OF THE ACGOUNTABILITY OF GENEKAL [OH. XH. CHAPTER XII. OF THE ACCOTJNTABILITT AND LIABIUTT OF GEITERAL "TO SPECIAL PARTNERS. § 351. Although, bound to account for the capital invested, and all sums received, the general partner is not bound to explain the reason of the consumption or diminution of the capital, occasioned by mercantile events or vicissitudes.' "Non e tenuto pero I'accom- mandatario a render ragione della consunzione, o diminuzione dei capitali originata dalle eventuah con- tingenze mercantiU." § 352. The confession by the general partner, in the public registry of the co-partnership, that he has been paid the capital in the several sums contributed by the special partners, estops him from denying such payments.^ § 353. The general partners, with all their exclu- sive right to the management of the firm, have not an unrestrainable authority to appropriate the joint pro- perty to their own use, or to risk or scatter it in un- dertakings for their private interest. Consequently, there may be binding guards and conditions against this course, inserted in the written articles; and, where a knowledge of these guards and conditions can be brought home to third persons, they wiU be ' 1 FierU, p. 61—75, n. 4. ' Ibid. p. 75, n. 4. CH. XIL] TO SPECIAL PARTNERS. — ^SECT-IC»f XVHI. 355 equAlly feound.' So, of a «epaiPafce trading or receivinig of good®' on consignmeirt, by'the ^gefn-eFalpajpteer, or of borrowiag ■ money, -eitlier on -a fix^d interest, or to trade with.* §354. As to the'irltGr«r?endeTing of accounts, whe- ther, it is presumed, duimg the oairying on of the partnership, or on its (Kssokition, provision is made by the ensuing section of the statute, 'and fraud in them is guarded against by the 19th which succeeds it. rSECMON XVIII. The g^ieral parteiers shall be liable to account to each other and to the special partners, for the ma- nagement of their concerns both in law a^ad equity, as other partners now are by law. § 855. Postponing the sulgect of fraud, let us con- sider this section first. § 356. It must strike every one that the express injunction contained in this important section upon the managing paiiaiers, (wiio have all the power and possession,) to account to their ispecial paitners, neces- sarily applies to the yearly- or half-yearly accounting with a view to 4i division of protfits or a deelafring of dividends. Without this application, the section would be devoid of much of its practical utility. It wiU also be observed that tiie gea^al partners are declared to be thus liable to account, m law wnd equity. They -would be so liable, by implication, 1 1 Fierli, p. 64—65. « Ibid. p. 66—67, and see this pj^ to 70, as to the operation of the rule on .a firm jof hankers, brokers, or money-dealers. 356 OF THE ACCOUNTABILIir OF GENERAL [CH.XII. from the general nature of the contract of Umited partnership between them and the special partners; and ought to be, even in the absence of an express written covenant to such effect, held in equity to ac- count. But where there exist articles of co-partner- ship which contain direct stipulations to account from time to time, whether for the purpose of declaring di- vidends, or of showing the true state of affairs, there is no doubt that should general partners refuse or neglect to account in accordance, courts of equity would immediately compel them to do so. The ex- ercise of such jurisdiction would be merely the ordi- nary matter of commanding the specific performance of a fair and just contract. § 357. But taking the whole statute together, it is easy to see that the main force of this section must chiefly come into play in the event of disputes upon the dissolution of the partnership by agreement or by bankruptcy, or of its termination at the expiration of the period for which it was constituted. " The firm being insolvent or ended," says Fierli,^ "the special partners have a right to obtain in every possible legal way from the general partner, an account of the ad- ministration of their capital." And they ma/, with the authorization of the general partner, appoiat an agent to withdraw, in case of the failure or insolvency of the concern, its effects, sell them and pay the cre- ditors ; for such an act, so authorized, would not amount to interference, whether creditors themselves or not.^ § 358. The accounting of the general partners to each other would be enforced by the general law of partnership; the accounting of those partners to the ' Vol. I., p. 40. ' Ibid, ante, } 335; p. 340. CH. XII.] TO SPECIAL PARTNERS. — SECTION XVHI. 357 special members, would mvolve the subject of the winding up and close of the affairs. Upon this sub- ject, the learned author above referred to has a chap- ter,^ from which the writer will borrow whatever he deems pertinent here. "In order to procure a just rendition of accounts, three things are necessary :— 1st, a production of the books and papers of the firm; 2dly, a settling of them, with a calculation of the respective distributive parts; and lastly, satisfaction of the advances or a distribution of the balance.""* " Should the general partner prove moros^ in the ren- dering of the accounts, he may be cited to settle up all the books, and to present a true, just, and exact balance-sheet; otherwise, at the expiration of the time limited in the citation, without a compliance, to be condemned to pay to all interested their proportions of the capital." And in the decision quoted by Fierli as estabhshing this doctrine,^ it is asserted that the court will. in such cases "act preventively; and that, after having been ioformed of the true state of things, they will proceed to the sequestration (al sequestra) of the books and papers of the finn, and order them to be deposited in a place of safety, and in such manner that they cannot be mutUated or altered."* This is precisely carrying out the principle that Hes at the basis of this form of association; to wit, that the gene- ral partner is but a trustee; — a trustee not only for the creditors, but also for the special partners, as soon as the former are satisfied. And it is apprehended that equity, in this country, would enforce the same ' Ch. Xm., Vol. I., p. 153. "Id. 156. ' The original is, "Moroso al rendimento de' conti; 1 Fierli, 156. . " Ibid. ' Ibid. 166, note 4. 358 OF THE ACCOUNTABILITY OF GENERAL [CH. XII. doetrine in similar cases, and would, by its preventive process, guard tlie special partners against danger, and by its remedial,, enforce a searching and complete ac- countability, I" S59. In the recent. Eaglish, case, of Wklmsley^.Y. Wiilmdey,^ it was held; that, where a survivingrpari;ner, who had the possession of the partnership books, wilfully and fraudulently refused to produce them for the purpose of having the partnership accounts taken, under a decree of the Court of GhaMcery to that end; and the master^ in the absence of other evidence, charged a sum of lOZ. per cent, per annum on the capital stocky as the net gains- made by the partners during the partnership,, and debited the surviving piartner^. with a moiety thereo:^ he^the master- — was justij&ed in doing so, and the court decreed accord' ingly. § 360. It is not a little singular that this decision, so consonant with the plainesti dictates of equity prin- ciples;,, has been deemed, by the editors of the London Jurist, in need of a labored vindication^ apprehending thatdt may appear, at first sight, "a little arbitrary," although "strictly consistent with principle and: au- thority."" As: the argument of the able editors in support of this decision will illustrate the doetrine above submitted by thewriter^ he wilLoffert no apology for the introduction of it- into his pages. " It must be observed, that the master reported, that the defendant (who was resident in England,) declined to produce before him the books, which contaiued the account of the partnership transactions and dealings, though he ' 3 Jones and Latouche, 556. 'Jurist, Vol.. Xn., No, 619, Nov. 18, 1848. CH. XU.] TO SPECIAL PARTNERS. — SECTION SVni. 359 gave him every opportunity of comiiig in and pro- ducing said books, and required him to produce the same; and repeatedly, with the consent of the plaintifif, deferred the proceedings in theeause,in: order to induce the defendant to bring in and lodge said books in his office, to esaable him to take said accounts; and he found that defendant had wilfully and fraudulently withheld said books, although it was- admitted before the master, that the defendant had the possession of the books, and could produce the same, and although he was advised by his solicitor acting for him in this country, to produce the same." Of course, the report not being excepted to, the facts appearing upon itmust be taken to be true; and assuming them to be true, a grosser case of attempt to deprive a plaintiff of the means of knowing how the accoimt is to be taken can scarcely be conceived. Partners are, in a sense, trus- tees for each other; every thing one partner knows relating to the joint business, and which may be for the benefit of that business, he is, clearly, bound to coimnunicate. Every shilling of profit thathe makes with the partnership funds he clearly holds as trustee for the firm. He isj therefore, with reference to his liability to account, on the footing of a trustee. If he could deal with the partnership funds, possess himself, exclusively, of the means of knowing what profits had resulted firom such dealing, and then, by happening -to be in a position practically to refuse the production of such means of knowledge, could insist, that, unless his opponent could produce evidence of the profits, he was merely to be charged with common interest, the juris- diction of equity would, indeed, become a mere mockery, and, instead; of checking, would open the door, to-its very utmost width, to fraud; There i« j also, authority 860 OF THE ACCOUNTABILITY OF GENERAL [CH. XIL in iSupport of th.e decision in Walmsley v. Walmsley, though none was cited in that case. In Walker v. Woodward, (1 Russ. 107,) a much weaker case against the party charged, it appeared, by the answer, that the defendant Woodward had carried on business with the intestate's effects, and had made considerable profits; but he said he could not set forth the particular profits arising out of such use of the intestate's estate, as he had not kept any books, and had blended the transac- tion with his other concerns. The court, on this, charged him with 5Z. per cent., with annual rests, and interest on those rests — ^in effect, therefore, with com- pound interest. Here then was, at the most, impUed fraud; and the defendant clearly had not, on the facts stated, the means of saying what his profits had been. But the principle was taken to be clear, that, not showing what profits he had made, he must pay some- thing more than interest. It may be said that in Walmsley v. Walmsley, there was no evidence and no admission of any profits. But there was evidence that iiie defendant had the books, and knew exactly whether there had been any and what profits; and it would be idle to suppose, that, if there had been no profits, he would have withheld the books. It was to be presumed, therefore, against him, that there had been profits; and, that fact being presumed, the case is within Walker v. Woodward: The principle of Walmsley v. Walmsley seems, however, to go somewhat further, and to be of the same kind as that which was applied in Lord Chedworih v. Edwards, (8 Ves. 46,) viz., that, if a person, holding a fiduciary character will not inform the court what is his own and what the cestui que trust's, the court will assume the utmost that can be assumed in favor of the cestui que trust, OH. xn.] TO SPECLA.L PAETNEES. — SECTION XVIII. 361 without being very nice whether, in doing so, it is not treating, as belonging to the cestui que trust, that which may turn out to be the trustee's; and it is ob- vious, that, unless it did so, it would be powerless to repress fraud. In the case referred to, of Lcyrd Ched- worth V. Edwards, the defendant, the steward of the plaintiff, had received the plaintiff's rents for a long time, paying him, from time to time, certain sums, and mixing the remainder with his own and investing the whole in stock. Though it was clear that part of the stock belonged to the defendant, yet Lord Eldon re- strained the defendant from transferring any part of it until he informed the court what part was the plaintiff's. "The case," said his lordship, "though new, stands upon a principle that will support it: only till he informs me what is his master's." A like principle was acted upon in White v. Lady Lwwoln, (8 Ves. 363.) In that case, a confidential agent, who had neglected to keep such accounts of his dealings as would enable his employer to ascertain the true state of the account between them, so that there was no evidence which way the balance lay, was not allowed to charge for business done as a solicitor: in other words, because he, whose business it was to inform the court, could not do so, and that by his own neglect of duty, he was, in effect, fined to the extent of claims on the face of them, and, in the absence of any evidence to the contrary, justly due. The result of all these cases, is, we apprehend, clearly to establish, that the court exercises a jurisdiction to compel an accounting party indirectly to account, by assuming the account against him (if he will not inforpi the court) to the utmost . extent of the possible rights of the party en- titled to the account; and will not permit a party, who 362 or THE ACCOUNTABILITZ OJ! GENERAL. [CH. XU. knows or ougbt taknoiw what he has- done with the property of another, to go free on paying mere interest on the bstkaces that hafve been in his hands-." §-36,1., The foregoing doctrine of English equity, imposing. asi it. doeSy a. penalty, on. the csmtumacious partner, maymot reachthesoibstantial justice of every similar case. For, it supposes, in a measure, the tadi- vidual solvency of that. partnerj,, and leavesto him the closing of the aeeonnts and th& realization of the joint property. But thisi prerogative, in this country at least j might be just what a dishonest partner would like: to grasp;, and, what his injured associate would wish to have :wrested;fix)m him. Iti is submitted^ that in such a casCj a court of equity, would possess the power to compel him to produce the hooks, and to. ac- count, for the whole sum which they and, other evi' deaae might show to be the just amount of the joint assets. To do so, would be merely to enforce the specific performance of the contract of copartnership, and to refuse to do so, might: ba to indulge the de- fendant in a criminal withholding of the joint hooks and property, for, to the writer's mind, the ousting of one partner by another, in this way, from the posses- sion of his rights', is a high-handed act of bad faith, to be treated as a fraudulent, if not a felonious, self-ap- propriation of the common property. In the case of Lord Ghedworth v. Edwarisi, commented on in the preceding extract,^ we find' that the defendant was ex- pressly restrained by Lord Eldon from; touching the joint stock until he should comply with the decree, of the court: it is only necessary to carry out the princi- ple of this case, to compel the doing of equity in: all < Ante; p. 360; CH. XII.] TO SPECIAL PARTNERS. — ^SECTION XVIII. 363 similar cases. Suppose, by proceeding solely on the principle of forcing the defendant to account for a cer- tain specified amount of profits, it. should turn' out, that he h«Hi realized for himself^ in the winding up, twice or thrice the amount- he had paid to his partner, under the decree, what retrihution- could the latter ask ? Could he return to- the same oourt, and say, You did a foolish thing in my regard; will you now re- pair the injustice I have suffered? § 362. la. the event: of the appearance of the gene- ral partner to suchr process, and without; further mo- roseness and contumacy, evincing; a dispcmtion to ac- count, the court would "go into an examination ofi the truth (rf his balance-sheet, would discuss the particur lars of which it was made: up, would aseertfein; what species o£ culpabilityeouldjustly be imputed to him, and thence condemn him to make good losses; sustained through his fault, (e;quindi ccaadannarlo alia refezione dei danniper suacalpaiarreoati,) but without charging him for losses that had occurred through the vicissi- tudes and contingencies of commerce,"^ § 363. The prineiple involved in the foregoing doc- trine, if applicable to our system, is a most important one; inasmuch as it affirms the liability of the general partner to the special' partner for any sacrifice or de- struction of his capital through: negligence, or, ia the words of the Florentine smthor, per- sua colpa arrecati. § 364 1 The 19th section of our statute, which is next to be considered, provides for such liability in the case of framd — but fraud is very different fvoia fault or negligence. It is true that by the principles of the law of England, gross negligence, (the crassa negliffentia 'Ante,- p. 157—158. S64 OF THE ACCOUNTABILITY OF GENERAL [CH. XII. of the civil law,) is held to amount to fraud; but, ac- cording to the text of the writer above quoted, this constrimtive fraud is not intended. His language im- plies fault, and not fravd. Neither is there any diffi- culty in reconciling this doctrine with that of the com- mon law. We have seen that the commanditary of the foreign law is not & partner; he is a constituent — a cestui que trust, a beneficiary, and the gerent of the firm is his mamdatcrry, or agent. He is a hailar of money, and the latter, as his bailee, is responsible upon the same principles of law as would induce responsi- bility in cases of bailment. It is well known that ac- cording to the well settled principles of the law of bailment, a bailee is Hable for fault not amountiag to constructive fraud; indeed, in many cases for losses, not even occasioned by fault, but caused by the want or omission of extraordinary care. § 365. It may perhaps be expected that the writer should suggest instances of this species of fault apart from fraud, in the administration of a general partner, that would render him liable, after the satisfaction of all the creditors, to the special partner, for his lost capital. To do so is not a difficult task. Thus :— after the inception of the business, the general part- ner, with the best disposition, with great talent, with unexceptionable character, may become the victim of some ungovernable vice or passion. He may become, not a drunkard, but so much a toper, as to lose all his business tact and energy. He may become a gam- bler, and without losing the money of the concern at play, he may, for want of attention, seriously com- promise the general interests. He may be absorbed by a love affair; he may allow himself to be diverted into speculations, apart from the business of the firm. CH. Xn.] TO SPECIAL PARTNERS. — SECTION XVUI. 365 in which too he may be successful, but, from the abstrac- tion of his attention, to the entire ruin of the business of the partnership. He may have impaired his health by excesses of one kind or another, and thereby have been forced to neglect, or become incapacitated to attend vigilantly and actively to the partnership business. All these are cases in which ^efavlt, springing from or dependent on temperament or idiosyncracy,^ece(?es the negligence, and can never be construed into the fraud that would govern in a civil court of common law. § 366. The case, then, occurriiig of the failure of a limited partnership, through the fault of the general partner, and such fault as would render him liable to his special partner, the question occurs, how and when could this liability be enforced? The latter certainly could not come in and share the assets with the credi- tors. Under a bankrupt law he could not prove his claim for lost capital as a debt. But he could, in an action on the case, obtain a judgment for damages, that might be enforced against any property of the general partner, that could be found, after the satisfac- tion of the claims or judgments of the creditors of the firm. If the whole capital should have been sunk, and the general partner should possess no private property, so that the creditors could obtaia nothing, their claims, it seems to the writer, would have to run their chance with the judgment for damages obtained by the special partner. Such of those claims, which, to guard against the operation of the statute of Umitations, might have been turned into judgments, as should be in force after the lapse of years had brought the general partner into a state of partial solvency, could not, without great general inconvenience, be allowed to have a pre- cedence over the judgment for damages. Nothing 366 OP THE ACCOUNTABILITY OF GENERAL [CH.XII. would appear of record to justify such a priority; nothing would appear that ought toitake any of the judgments out of 'the general rule as to date in the entering or ohtaining of thetn. § 367. The 18th section of the statute which has <^us at length been 'considered, is clearly independent of the 19th section, if the distinction between fault and fraud, above discussed, be kept in view. Never- theless, the framers Of the statute have not been clear in expressing their meaning, or in showing the inten- tion of the law as to the two cases of accounting — ^the one having been guilty,!the other, without having been ^ilty of fraud. If general partners are to be liable inlaw and equity, as asserted in the 18th section, they would surely be liable for fraud as well as for fault, and the provisions of the 19th isection would seem to be useless. § 868. 33hat section, which will now be considered, is as follows.: — Section -XIX. Every: partner who shall be .guilty of lany fraud in the affairs of the partnership, shall be liable civilly to the party injured, to the extent of his damage. § 369. When the general civil liability of every man for fraud, whether in trade or out of it, is consi- dered, it is not easy to discern the meaning of this section. That it may intend to exclude a criminal re- sponsibility, should any such be provided by the penal law of the land, is not to be presumed. Nevertheless, it has been recently decided in France, that a general partner is not to be viewed as an attorney in fact, [mmidataire,'] and that consequently, if he appropriate CH.Xn.] TO SPECIAL PARTKEES. — SECTION XIX. 367 the parfaiership ftiiids to Ms private use, he does not commit the; abuse of comfideace punishable under the 408ih iaxticle of the IPenal^Gode.^ ^The 408tli atticle referred to,;is as follows : — ^'Whosoever shall have di- verted,; or jdisapateid,tO'the prejudice 6f the owners, possessors, or holders, any effects, moneys, merchan- dise, biUs, receipts, or any other instruments contain- ing or operating an obligation or discharge, which may have been dehvered to him or her to hire, on deposit, bailment, or for work to be or not to be compensated, with condition to return or to Tepreseilt them, or to put them to a determinate use or employment, shall be punished with the penalties prescribed in article 406." It strikes the writer that the Court of Cassa- tion has taiken a more narrow view of the law than the Govtr Eoyale, at Eoueu. It does not seem necessary that a general partner should be held to be a manda,- tory to bring him within the sanction of this law. But if it were, is he not ia fact sua. agent of the special partners? Is he not their agent and more — ^their de- positary, manager and trustee ? In the French autho- rities he is constantlyand exclusively called the germit of the firm ; whOe the mcx^g&r&r is -always introduced into French powers of attorney as a leading term to designate' the faculties granted by the constituent, and in some of the judgments in Cassation the general part- ner is actually said to have ei"mMmdat" to represent his -special partners to the extent of their investment.^ The decision of thei Cour Eoyale 6fEouen, above cited, as reversed by the superior court, appears to the writer, upon iacontrovertible principles,- to, be the better law. ' In Cassation, 15th January, 1842; Gontm, Rouen, 18th Maioh, 1842. 2 Cour de Cassation, EebHiary.28th, 1844; 2 Bousquet^s Diet, de Droit, p. 667. 368 or THE ACCOUNTABILITY OF GENERAL [CH. HI, § 370. All such breaches of confidence, — even that committed by a managing partner in ordinary and general firms, — should be visited with the penal law, wherever possible; and no criminal statute against them should be construed away, or strained iu behalf of such offenders. § 371. The 9th section of the statute of Maryland imposes a penalty of one thousand dollars upon general partners for fraud. § 372. The 19th section of the statute of New York contains the further provision that a fi^audulent part- ner "shall also be liable to an indictment for a misde- meanor, punishable by fine or imprisonment, or both, in the discretion of the court by which he shall be tried." And it is imitated in this respect by the sta^- tutes of New Jersey, Mississippi, Georgia, Alabama and South Carolina. § 373. Supposing, however, that there has been no actionable favlt, and no fraud, on the part of the ge- neral partner; that there is, further, no "mcnroseness" or implied refusal to account; but, on the contrary, a perfect willingness to account in good faith, and with- out delay, to the special partner or to his attorney in fact, or at law, there must necessarily have been, or there must go on, pari passu with the accounting, a ^winding u;p of the affairs of the concern. This pro- cess is termed by the Italians lo atraldo; signifying that " all the business of the firm, commenced and unfinished, shall be terminated, and every body satis- fied."^ This winding up may be performed by the ge- neral partner, or by some third person mutually agreed on, or selected with the consent and approval of the > Casaregis de Oommercio, Disc. 130. Fierli, Vol. I., p. 165, n, 1. CH. XII.] TO SPECIAL PARTNERS. — SECTION XIX. 369 special partner. The proof itself consists in ascertain- ing the amount of stock, calling in the debts, selling off the remaining merchandise, and reducing, as far as possible, every thing to cash, so as to be able to pay the creditors first; and next, distribute to the special part- ners their portions of the capital, together with such profits as may be declared to have justly accrued to them.' The same writer also states that it is a prac- tice generally adopted to advertise all the correspon- dents of the house, by " circular letters" of the termi- nation of the limited partnership, of the name and quality of the person engaged in winding it up, so that they may refer to him for the liquidation or satis- faction of their claims. § 374. When the winding up is completed, the creditors satisfied, the books settled up, and a final balance-sheet struck, there must foUow a restitu- tion of the capital and a distribution of the profits, "This," says the writer last quoted, "is done in the following manner : — If the capital paid in by the in- terested parties remain safe and entire, each one is entitled to a full reimbursement. If not safe and entire, to a proportionate reimbursement. If in addi- tion to the capital, there be also profits, these must be divided in the same proportions. When the capital alone remains, that is not to be distributed in the ratio of the profits, but ought to be restored in the ratio of the capital."^ But "the distribution of profits and restitution of capital may be controlled and go- verned by the contract of association executed at the • Fierli, ubi supra. ^ 1 Ibid. Vol. I., p. 159, citing Casaregis de Commeic. Disc, 29, No. 3; Zanch. de Societ. part I., Ch. IX., n. 119. T 370 OF THE ACCOUNTABILITY OF GENERAL [CH. XII. inception of the business; for there is nothing' to in- hibit a previous agreement for such an ultimate divi- sion as accords with the notions which the respective parties entertain of the value of their capital or of their time and talents.' But in the absence of such a precise! pact, or previous written stipulations as to profits, the rule of law {jud commv/ne) is positive, that a division of profits means "in equal proportions of g'eow^eincaZ and' not an^Awiefo'caZ equality; that is, the share of each one's gain shall be in the proportion of the capital and labor reciprocally invested." And the same rule obtains as to the losses and damage sus- tained by the firm.* § 375. It is further affirmed to be a corollary from the foregoing doctrine, that if one of the special part- ners had delivered to the general partner any capital beyond the acknowledged and public amount, on which a profit should be realized in the legitimate exercise of the business, that such profit would enure to the common benefit, in' thei proportions designated in the written articles of association.* As the prin- ciple so enunciated is an important one, it is proper that the text referred to should be introduced for bet- ter verification. It will therefore be found in the note below.* In a note to this passage, the learned author ' 1 Fierli, p. 165, n. 1. ^ Ibid. p. 160—161. » Ibid. 161. * Da tutto questo ne deriva, che se uno dei Socj o Accomandanti abbia consegnata all' Accomandataiio, in conto di capitaJe oltre le mercanzie e masserizie deUa Bottega anche la sua entratura, e che il prezzo de questa cresoiuto sia mediante il trafficb bene esercitato, non vi e dubbio, que un tale aumento di prezzo debba cedere a vantaggio di tutti i com- pagni del negozio, e cosi anche dell' accomandatario, che pose soltanto la sua opera ed industria. Perlooh^ la giustizia e I'uguaglianza riohie- dono, che fatla una nuova stima dell' entratura, si acoordi nella divi- sione degli utili la parlicipazione all' accomandataiio di quell' aumento di prezzo che da tal nuova stima ne risultasse, con queUa proporzione, che di tutti gli utili fu convenuta e fissata nella scritta sooiale. CH. XII.] TO SPECIAL PARTNERS. — SECTION XIX. 371 seems to qualify and limit the application of the prin- ciple, by the following language.^ E' da notarsi che il jus dell' entratura si acquista dal socio institore che ha amministrata 1' accomanditaj e non dagli altri socj, o preponenti non esercitanti. (It is to be noted that the right of entratura is acquired by the general partner who has administered the limited partner- ship, and not by the other partners, or investers not administering.) After citing authorities to the point, Fierli thus proceeds;'— Ma di questo jus, e suoi utili ne profittano i socj, o preponenti, essendo lo«tesso il far I'esercizio di un negozio o personalmente, o per mezzo deir Institore, o miaistro, (But ill that right and its profits, the partners or investers may share, it being the same thing whether a business be carried on personally or through the medium of an institutor or agent.) If there be not a contradiction between the doctrine of these two extracts> there is at least obscurity ra the statement of it. § 376. It is not the intention of the writer of these pages to discuss the question whether one of several special partners can increase the published capital of the firm by an additional payment after the inception of the business ; nor whether the increment on such additional capital would enure to the joint benefit of all, or to that of the general and the particular special partner who has paid it in. As to the public and as to creditors, there would seem to be no harm in in- creasing the capital; and, if there were but one spe- cial partner in the firm, it would be immaterial how much augmentation of the partnership funds might take place ; but, where there were several special par1>- ' Fierli, Vol. L, p. 168, n. 13, citing Casaregis de Commero, Disc, 29, No. 3; Zanch. de Societ. part I., Ch. IX, 372 OF THE ACCOUNTABILITT OF GEXERAL [CH. XII. ners, it would constitute a very different question, how far any one of them might introduce so important a change into the general economy of the concern, as the addition of a larger or a smaller amount of cash to the joint fund. With an increase of capital might come an extension of business not originally con- templated, and, by consequence, an increase of the care, labor, and responsibility of the general partner or partners. The private written articles of co-partr nership having specified and limited the nature and extent of the business, with the duties and responsi- bility of the general partners, it might become a very dangerous experiment, by the bringing in of more cash on the part of a special partner, to augment or vary those duties and that responsibility, and thus, in a measure, by a side agreement between him and the general partner, to alter, add to, or thrust aside, the original compact of all. If done secretly, or with- out the consent of the other special partner, it might, under certain contingencies, operate as an interference that would induce liability in soHdo. It is not always that money brought into a firm would be pronounced innocuous; under peculiar circumstances it might prove a decided evil; at any rate, before doing so, all the interested should be consulted. § 377. The same principle of law that protects ge- neral partners from liability upon any- contract made by another of the firm, out of the scope of the partner- ship business, would protect the capital of special part- ners in a limited partnership. Particularly, too, if the private articles of co-partnership should prohibit the general partner from engaging in any traffic or trade foreign to the legitimate business of the associa- tion, would the principle apply. Under the foreign CH. Xn.] TO SFECIAIi PAKTNERS. BECTIOK XIX. 373 law, a creditor could not even hold a pledge, or en- force a mortgage, [ipoleca,) m. opposition to tlie provi- sions of the articles; and in case of bankruptcy, he would not be allowed to come in with the creditors of the firm, and prove his claim. In such cases, his only- remedy would be against the general partner with whom he had separately contracted.' Neither, on the same principle, would the capital of the special partner be bound by a contract entered into by the general partner and tiiird persons in violation of any article of the contract of co-partnership, in cases wherein such third persons had full notice of the ar- ticles violated.® § 878. Before closing this chapter, there remains for consideration a topic, which, though treated in all works upon the law of partnership, whether Roman, French, or English, in a general aspect, is not viewed, in particular aspects, alik« : that topic is the duty and good faith which a managing partner owes to his asso- ciates, and his accountaMlity and liabiUty for a breach of such faith. § 379. The writers in different tongues all agree upon the general nature of such good faith and duty. Mr. Justice Story, after stating the common law doc- trine on the subject, shows the conformity with it of the civil and of the French law.^ But he has not shown that the latter carry it further than the com- mon law, and particularize in cases in which there seems to be no express jurisprudence in the English or American systems. For example, the matter of Imputation is an important branch of that good faith ' 2 Fierli, p. 58. ' Ibid. ' Stojy on Partn., { 169—173. 374 OF THE ACCOUNTABILITY OF GENERAL [CH. XII. and duty, which seems to have escaped the attention of English and American jurists, in their examina- tions and discussions of the law of partnership. This matter the writer will endeavor to explain, but pre- viously will claim leave to state the general foreign doctrine. § 380. A general partner, if he desire to fulfil ho- nestly his obligations, will devote himself diligently to the aifairs of the concerns committed to his care. He will seek the profi.t of the firm, and avoid injuring it; he will keep its secrets, and not divulge its specula- tions. He will account to his special partners for all capital put by them in the firm, and for all moneys received by him. And because that in himself is re- presented two distinct and formal persons; one the administrator of the whole business, the other, copart- ner with associates interested in it, he will be com- pelled to render such account upon principles of law that will render the account eflfectual.^ One of those principles is, that he shall not prefer his private in- terests to those of the partnership, but shall rather postpone them.* And it is upon this principle that the matter of imputation is to be explained. Re- versing the position of the parties as debtor and cre- ditor, it would correspond with the subject of the ap- propriation of payments at common law. § 381. Pothier,^ and after him the Napoleon Code,* have prescribed, that in cases wherein a firm and one of the members of it are at the same time creditors of the same individual for two separate sums due and called for, if the debtor pay such partner one sum of ' Fierli, Vol. I., p. 61. ^ Troplong des Societes, Vol. 2, No. 551. ' Socidte, No. 120—122. » Article 1848. CH. XII.] TO SPECIE PARTNERS. — SECTION XIX. 375 money sufficient to pay him, but not the firm also, the partner shall not appropriate this sum to the credit of his own claim, but, he shall njake ?kn imputation of it to the claim of the partnership and his own, in (he proportion of the two credits; and that, even though in his receipt, he should have imputed the; payment to his own claim alone. And it is contended, that if the rule of law were not so, a partner who is boufid by general maxims of right to devote as much care and protection to the interests of his firm as to his own, would, in a conflict of those interests, be per- mitted to prefer his own to those of the firm, instead of conciliating them on the true principles of equity."^ § 382. As was just observed, the appropriation of payments at common law is chiefly considered in cases in which a firm and one partner of it are debtors to the same individual, who receives but one sum from the partner, not adequate to satisfy both his claims. Now this matter, simple as it may appear to be, (the gene- ral rule being that the debtor may appropriate the payment as he pleases,) has been much discussed at common law before it could be definitely settled.^ But, ' Troplong des Sooietes, Vol. 11., No. 552. • Story on Partn., § 157, and note 2 to that section, being a long extract from the work of Coilyer on the same doctrine, and discussing it at length. As the entire doctrine of the English law of partnership upon the appropriation of payments is ably summed up in these two references, the writer willraake no apology for transferring their contents to his pages. Mr.. Justice Story thus observes : " In cases of this sort, where there are running accounts between the firm and third persons, and one of the partners retires, the question, as to the appropriation of payments, subsequently made by the partners re- maining in the firm, often arises, and especially in relation to banking transactions. As to this the doctrine has been generally laid down, that, where divers debts are due from a person, and he pays money to his 376 OF THE ACCOTJNTABILITT OF GENERAL [CH. XII. as the writer can discover, nothing is laid down at com- mon law in the reverse case; i. e., where the partner- ship and a partner are creditors to the same person creditor, the debtor may, if he pleases, appropriate the payment to the discharge of any one or other of those debts. If he does not appropriate it, the creditor may make an appropriation. But if there is no appro- priation by either party, and there is an account current between them, (as is the case between banker and customer,) the law makes an appro- priation according to the order of the items of the account, the first item on the debit side of the account being discharged or reduced by the first item on the credit side. CoUyer on Partn. B. 3, ch. 3, i 3, p. 376 to 383, 2d edit.; Davaynes v. Noble, Clayton's Case, 1 Meriv. E. 572. See Cop- land V. Toulman, 1 West, R. H. of Lords, p. 165; S. C. 7 Clark & Fin. 350. To apply these principles to oases of retiring partners : — Where there is a cash account current between a firm and a customer, and the account is in favor of the latter, a retiring partner will be liable for the balance of this account at the time of his retirement. But if the account be continued, the balance, for which the retiring partner is liable, will be diminished by every payment which is made by the new firm, supposing such payment not to be appropriated to the discharge of any specific item; because, in such case, it is the first item on the debit side of the account, which is discharged or reduced by the first item on the credit side. Vide post, § 253 to 256. — Mr. CoUyer has added in another place, (p. 321.) the following remarks: — 'To render an appropriation of pay- ment by the act of the party valid, it must be made at the time of pay- ment, if made by the payor, and within a reasonable time after payment, if made by the payee. Sir William Grant was inclined to hold, accord- ing to the principles of the civil law, that the appropriation, even if made by the payee, must be made at the time of payment. But cases might be stated, where such a rule, if strictly adhered to, would be productive of injustice; and it is manifestly at variance with the decisions on this subject in the courts of common law. On the other hand, those courts have been inclined to favor the creditor too much, and have in many cases "extended the proposition — ^that if the debtor does not apply the payment, the creditor may make the application to what debt he pleases — much beyond its original meaning, so as in general to authorize the creditor to make his election when he thinks fit." In a recent case, how- ever, the Court of King's Bench came to a very just decision on this im- portant subject. Thus, in Simson v. Ingham, an action on a bond was brought by Bruce & Co., bankers, against the heirs and devisees of Benja- min Ingham. The bond was given by Ingham and another, bankers, at Huddersfleld, to the plaintiffs, their London correspondents, conditioned for remitting money to provide for bills, and for the repayment of such CH. XII.] TO SPECIAL PARTNERS. — SECTION XIX. 377 instead of being his debtors. Yet the civil law is the source of both doctrines. The question then arises to be discussed here, is the doctrine of imputation the law of limited partnerships in this country in respect sums as Bruce & Co. might advance on account of persons constituting the Huddersfield Bank. The damages were assessed by an arbitrator at £13,845, subject to the opinion of the Court upon the following facts : — The house of Bruce & Go. were in the habit of sending to the Huddersfield bank monthly statements of their accounts. Benjamin Ingham died in September, 1811. The last statement sent previously to his death was for the month of August The balance of that account was greatly in favor of Bruce & Co. No alteration in the account was made iu the books of Bruce & Co. immediately on the death of Benjamin Ingham; but, during the residue of that month and a part of October, the remit- tances made by the Huddersfield Bank, and the payments made for them by Bruce & Co., were entered in continuation of the former account. Before, however, any account was transmitted to the Huddersfield Bank, subsequent to that for August, Bruce & Co., in consequence of a commu- nication with their solicitor, opened a new account, and in that inserted all the remittances and payments made subsequent to the death of Benja- min ; and in November they transmitted to the Huddersfield Bank state- ments of two accounts. The first of these accounts was thus entitled: — "Debtors, Messrs. B. & J. Ingham & Co. (old account) in account with Bruce & Co., creditors;" and the first item on the debit side was the ba- lance of August, The second account was in the same form, but entitled " new account." This account began on the 16th September, without any balance brought forward, and contained the remittances and payments made during that month, subsequent to the death of Benjamin, a,nd also those made in the month of October. From this time the old and new accounts were kept separate in the books of Bruce & Co. The Hudders- field bank did not appear to have ever objected to the accounts being kept separately by Bruce & Co., although in their own books they only kept one account. The arbitrator was of opinion, that, under these cir- cumstances, the balance due on the death of Benjamin Ingham was not discharged by subsequent payments by the new firm. Accordingly, after making certain allowances for dishonored bills, he assessed the damages at the sum above awarded; and the Court of King's Bench held the award to be right. In the preceding case, the Court proceeded on the principle, that the entries, which had been continiued in the creditor's books immediately on the death of Ingham, not having been communi- cated to the debtors, were not conclusive on the creditors, and conse- quently, tliat the general legal appropriation, of which such entries would otherwise have been evidence, was incomplete. It is clear from this, as also from the express opinions of the judges, that they did not consider 378 OF THE ACCOUNTABILITY OF GENERAL [CH. XII. of general partners? The question as to the general law of partnership does not concern this work. § 383. Before entering on this question, let us ex- amine the doctrine of the French or civil law a little closer. Suppose a general partner of a firm is the creditor of a person who is also debtor to the partner- ship, and he receives from such debtor the full amount of his credit, giving him a receipt in full for such claim alone. Notwithstanding such imputation, the partner is liable to the firm for its proportional part of the pay- ment. Both claims were due at the same time, and the partner would have no right even to take from the debtor an express appropriation of the payment to his private claim, though he might to that of the part- nershvp, which would hind him, the partner} But sup- pose a special partner of the same firm is a creditor of a debtor to the firm, and the debtor pays him in full, but pays the firm nothing. Can this doctrine of imputation be visited on the special pa,rtner? It is asserted that it cannot; because it would be interfe- rence [immixtion) on the part of the latter, to collect the debts of the firm; therefore, if his own collection could thus be subtracted from him, it would operate as a forced interference on him by the firm to his pre- judice every way.^ it necessary, in order to support any alleged appropriation on the part of the creditor, that he should prove it to have been made at the time of payment. On the other hand, if payment be made to the creditor of any sum in respect of an account current, the creditor making no appropria- tion at the time of payment, and if after such payment the debtor and creditor continue their mutual dealings, or do any other mutual act in respect of the same account, the creditor will be barred by such subse- quent transactions from establishing an appropriation of the payment." ' Troplong des Societes, Vol. II., Nos. .552; 553; 554; 555. ^Ibid. No. 557. It strikes the writer that a better ground is, that the firm has no business with a special partner's private and separate claim upon one of its debtors. CH. XII.] TO SPECIAL PARTNKBS — SECTIONS XIX. 379 § 384. But there is another case to be supposed; not that of a limited partnership, it is true, but one of a somewhat similar nature. A general part^ nership has appointed one of its members sole ma- nager and exclusive director of its business and in- terests. Here the penalty of interference does not attach, as in the first case, thus rendering the solution of the point less easy. The question then is, whether any partner of this firm other than the- manager, being the creditor of a debtor to the firm, and both claims payable, can receive his private credit from this debtor exempt from the foregoing doctrine of imputation? Mr. President Troplong thus reasons out the ques- tion : — " But it is not the less true that this partner has been dispensed from acting in the interests of the firm. The individual action of the partners has been suppressed by the partnership articles, and has been replaced by power concentrated in a single managing partner. Therefore, in spite of the general doctrine, the other partners, not being bound to stipulate for the social interests, are not obliged to impute a por- tion of such payments from st, common debtor to the firm's credit. Even though a partner so paid should have information from the managing partner of this claim of the firm upon his debtor, this would not put the latter claim under the care of the separate part- ner. His good faith is indisputable; he has kept himself within the sphere assigned him by the part- nership articles; and this stipulation in them exempts him from the operation of the general doctrine of im- putation."^ ' Des Societes, No. 558 ; and with this learned jurist is quoted Par- dessus, T. 4, No. 1018, and Duvergier, No. 341, as accordant. Contra, Malepeyre and Jouidain, No. 106; and Duranton, Tom. 17, No. 401. 380 OF THE ACOOCNTABILITY OF OENEEAL [CH.XII. § 385. The general doctrine, continues M. Troplong, applies readily and without difficulty to the case of two equal credits which the debtor has no interest in dis- tinguishing between for a preference, and is only re-_ quested to distinguish between, by a selfish partner. But, he continues, in many cases this imputation is not selfish, but is the result of the express will of the debtor. In some cases, the separate credit of the part- ner may carry interest; or, it may be secured by a mortgage, a pledge, or a surety; while the credit of the firm possesses no such guarantee; In all these circumstances, the debtor has a manifestly greater in- terest in paying the separate creditor in full, than in paying the firm to which he belongs. In such a case, an imputation insisted on by the debtor to the ex- tinction of the partner's private claim is a legal act which the partnership (mght to submit to. For, if the firm should demand from its associate a propor- tionate part of this payment, will it restore him the mortgage, or pledge, or surety, that he was obliged to give up or release? Can it -exact of any member the sacrifice or abandonment of any private right in favor of the joint interests? The answer to these questions is easy; it is, that the general doctrine of imputation is not applicable to this case.^ I know that M. Duranton teaches the contrary;^ and that Messrs. Malepeyre and Jourdain seem to agree with him -^ but it is their respect for the letter of the law that influences them. Had they studied the origin of the doctrine, and scanned the peculiar language of the ' M. Troplong here cites as accordant, Delvincourt, Tom. 3, p. 231, Jiotes; Pardessus, Tom. 4; No. 1016. Duvergier, No. 336. 2 Tom. 17; No. 401. 'No. 108. CH. XII.] TO SPECIAL PAETNEES. — SECTION XIX. 381 text which speaks of impntation, they would have discovered that it is a selfish imputation on the part of a member of the firm which is sought to be re- . pressed, and not the imputation prescribed by a debtor who but exercises a legal right in making it.^ § 386. Having thus seen the discussion upon this interesting subject in the French books, let us return to the original question, whether the doctrine of im- putation is a rule bindiag upon general partners in this country? The writer has no hesitation in assert- ing the affirmative. In favor of this opinion, — ^for of course he has no authority to offer on the question — he submits the following reasons : — 1. The appropriation of payments from a partner- ship or separate partner, at common law, has its type in the civil law. 2. The appropriation of payments io a partner by a debtor who also owes the firm, is sustained on the same principles of equity in the civil law. 3. The common law writers on the doctrine of the duties and obligations of partners mter se, state pre*- cisely the same principles and reasons of law in sup- port of that doctrine as are relied on by civil law writers to sustain the rule of imputation. In proof of this, it is only necessary to cite the opening sec- tions of Mr. Justice Story's chapter upon the " rights, duties and obligations of partners between them- selves,"^ in which he demonstrates, by a reference to the foreign law, that is the civil and French law, — that the sources for the requirement of good faith, and the exclusion of fraud, selfishness and negligence, are the same in all three systems- ' Troplong des Societ., Vol. II., No. 559. • Chapter IX., § 169 — 173; of his work on Partnership. 382 OF THE ACCOUNTABILITY OF GENERAL [CH. XII. § 387. But why should not the rule of imputation at civil law be binding upon general partners in this country? Is it because there is no authority in our legal annals upon the subject? Or because the rule has never been urged, and the question never started? If so, the answer is, that it is a quality of the common law to remain unpropounded, until an exigency sum- moning its manifestation from its hidden depository, arise to challenge its action and protection. There may be law yet reposing in its original holy source, never declared, upon other and not kindred topics, and not to be promulgated, until the act or the injury is perpetrated whereon it may be indispensable to evoke it for redress.^ Let, however, a case be put, as occurring in the city of New York for the first time, and let that case be one borrowed from a civil law writer, and used by him as an illustration of the doctrine and its practical operation. The limited partnership of Peter, Paul and Judas, is a creditor of Titius in the sum of $2400, due and payable. At the same time Mr. Judas is a separate creditor of Ti- tius in another sum of $1200, which the latter pays him in full; and a few weeks after becomes insolvent, still owing the firm the same amount of |2400, and informing them of his separate payment to Mr. Judas. Can the latter retain this payment, for which he gave a receipt in full of his own claim, to the entire exclu- sion of the firm? No, says Pothier, he cannot.^ But he must account to the firm for a proportionate ' Law may exist and may not be found in the boolcs ; for that may be law which, in point of principle, is so clear, that it never occurred to any man to question it, till a case came to draw it into doubt. 9 Serg. and Rawle, 267 ; Per Duncan, J. «Societ6, No. 121. CH. XII.] TO SPECIAL PARTNERS. — SECTION XIX. 383 amount; that is, its demand being for |2400, double of his, he must credit it with $800, and retain but $400 for himself.' Would the Chancellor of New York so decree? If he should refuse, he would sanc- tion, according to Pothier and the civil law, mala fides in a separate partner. Nor would it be necessary to invoke the usual clause in partnership articles to aid this conclusion: — "In consideration of the mutual trust and confidence which the said parties repose in each other;" &c. — Or, "of the good faith, diligence, and devotion to the joint interests which they have pledged to each other." — For without written articles, " the contract of partnership itself has its solid foun- dation in the mutual respect, confidence and belief in the entire integrity of each partner, and his sincere devotion to the business and true interests of the part- nership: good faith, reasonable skill and diligence, and the exercise of sound judgment and discretion, are naturally, if not necessarily, implied from the very nature and character of partnership."^ Thus spoke a great jurist; and if his summary be true, Mr. Judas would have to account to the firm under the rule of imputation and in the ratio above laid down. > Pothier, ubi supra; Civil or Napoleon Code, Article, 1848. Trop- long des Societes, Vol. II., No. 552. ^ Story on Partn., I) 169. 384 OF ASSIGNMENTS. [CH. XIII, CHAPTER XIII, OP ASSIGNMENTS OF THE PEOPEETT OF LIMITED PARTNER- SHIPS. § 388, We shall make the 20tb, 21gt, 22(1, and 23d sections of the statute, the text of our commentary in this chapter, begiitming with the first three;. Section XX. Everj sale, assignment, or transfer of anj of the property or effects of such partnership, made by such partnership when insolvent,, or in contemplation of insolvency, or after or in contemplation of the insol- vency of any partner, with the intent of giving a pre- ference to any creditor of such partnership, or insol- vent partner, over other creditors of such partnership, and every judgment confessed, lien created, or security given, by such partnership, under the circumstances and with like intent, shall be void as against the cre- ditors of the partnership. Section XXI. Every sale, assignment or transfer of any of the property or effects of the general or special partner, made by such general or special partner when insol- vent, or in contemplation of insolvency, or after or in contemplation of the insolvency of the partnership, with the intent of giving to any creditor of his own or CH. XIII.] SECTIONS XX. AND XXI. — PREFERENCES. 385 of the partnership a preference over creditors of the partnership, and every judgment confessed, lien cre- ated, or security given, by any such partner under the like circumstances, and with the like intent, shall be void as against the creditors of the partnership. Section XXII. Every special partner who shall violate any provi- sion of the last two preceding sections, or who shall concur in or assent to any such violation by the part- nership, or by any individual partner, shall be liable as a general partner. § 389. The 20th and 21st sections have very posi- tively abrogated the legal usage as to general assign- ments giving preferences, (and as to judgments, liens, and pledges specially given with the same view,) in all cases of limited copartnerships, and all such firms are conclusively put out of the pale of that branch of the legal polity of those states which yet permit as- signments with preferences, if any do at this day per- mit them. Therefore it will not be amiss to consider in this place, very briefly, the nature of such assign- ments and the power of one copartner to make them. § 390. It was, not many years ago, a well settled rule in Pennsylvania, (and may yet be the law in some other states that have adopted limited partner- ships,) that a debtor, whether in failing circumstances or not, might not only dispose of his property in trust for the use and benefit of his creditors generally, but he might prefer one creditor to another, and assign his property in trust to pay particular debts.^ ' " The act of 17th April, 1843, in Pennsylvania, (Stroud's Dig., p. 90,) to prevent preferences in assignments, provides that aU assignments of Z 386 or ASSIGNMENTS. [CH. XIII. § 391. It was, too, a very common practice through- out the United States at one time, not very remote, thus to give a preference to certain creditors, and not only property in trust, which shall hereafter be made by debtors to trustees, on account of inability at the time of the assignments to pay their debts, to prefer one or more creditors, (except for the payment of wages of labor,) shall be held and construed to inure to the benefit of all the cre- ditors in proportion to their respective demands; and all such assign- ments shall be subject in all respects to the laws now in force relative to ■voluntary assignments : Provided, thut the claims of laborers thus pre- ferred shall not severally exceed the sura of fifty dollars. The 4th section of the act of 16th April, 1849, (Pamph. Laws, p. €64,) enacts, that any condition in assignments of property made by •debtors to trustees on account of inability at the tinie of the assignment to pay their debts, within the meaning of the act entitled "An act to pre- 5vent preferences in assignments," approved April seventeenth, one thousand eight hundred and forty-three, for the payment of the creditors only who shall execute a release, shall be taken as a preference in favor of such creditors and be void, and the assignment be held and construed to inure to the benefit of all the creditors in proportion to their respective demands: Provided, that no bond fide judgment or lien acquired against the property of any debtor, or any sale or transfer of the property of such debtor, unless the same shall have been obtained, acquired, or made with intent to evade the provisions of the said act, shall be avoided or de- feated by the subsequent discovery thatsuch debtor was insolvent at the time such judgment was obtained, lien acquired, or transfer made." The case of Summers' Appeal, 4 Harris, 169, decided in reference to this act of Assembly, on the 26th of May, 1851, was the following:— 1. By the 4th section of the act of 16th AprU, 1849, judgments con- fessed to evade the act of 17th April, 1843, concerning preferences in assignments, followed by an assignment of real estate, are void as against other creditors, and are not entitled to preference out of the proceeds of sale of such real estate, but are entitled only to a pro rata payment with the other debts of the debtor. 2. A debtor, after suit against him, voluntarily executed five judg- ment bonds in favor of other creditors, intending at the time to make an assignment of his real estate, and about the same time selling portions of his personal property; after the entry of judgments on the bonds he exe- cuted an assignment of his real estate only, in trust for creditors. On the day it was recorded, an award, in favor of the plaintifi' in the suit, was filed. The repiaining personal estate of the debtor was sold on a fi. fa. on a judgment on a bond executed subsequent to the recording of the assign- ment. The real estate was sold by the trustee, for a sum not sufficient CH. XIII.] PREFERENCES. 387 to postpone in terms, but virtually to exclude others. The conditions on which the preference was to be en- joyed, were prescribed by the assignor as a lawgiver, to pay the five judgments : Held, that the fire judgments were not alone entitled to the proceeds of saje of the real estate, but that the same were to be distributed pro rata, amojigst all the creditors. 3. If the debtor at the time of confessing the judgments inew that he was insolvent, his subsequent execution of the assignment is conclu- sive evidence that the judgments were given in firaud of the act of 1843. The opinion of the court was delivered by CouLTBR, J,: — ^The hardship of withholding from a, debtor the right of securing an honest and bona fide creditor, by confessing a judgment to him, although such debtor, might afterwards execute an assignment for the benefit of his creditors, and the anomalous character of an interdict upon doing that voluntarily which the creditor could compel hiiji to do by suit, as well as the apparenli invasion, of private right, by t^ing from a man dominion over his afiairs, ejereised for an.honest and fair purpose, while he continued sui juris, were fully pointed pijt in the case of Bl,akey 's Appeal, 7 Barr, 449. In that case, it was ruled that a judgment confessed by a man in embarrassed , circumstances, was neither fraudulent nor void, but good in favor of the judgment creditor, although the debtor ten days afterwards executed an assignnreiit, We held that the act of 17th April, 1843, entitled ''An Act to prevent preferences in assignments," did not avoid such bond fide judgments, and was confined to preferences contained in the assignment itself, according to the plain meaning of the act. But in the opinion delivered in that case, it was stated, that if the legislatme extended the interdict to confession of judgment by a man in embarrassed circumstances, who afterwards executed an assignment, this court would cheerfully carry out such enactments. The statute of 16th April, 1849, entitled " An Act supplementary to the Act about lunatics and habitual drunkards," 4th section, seems to have been an acceptance of the overture, and was no doubt enacted in consequence of that deci- sion. The act is exceedingly obscure — counsel pronounced it insensible — ^but there is a glimmering of intent in it. The clause is as follows : — " Provided, that no bona fide judgnient, or lien acquired against the pro- perty of any debtor, or any sale or transfer of the property of any debtor • unless the same shall have been acquired or made with intent to evade the provisions of the said act, shall be avoided or defeated by the subse- quent discovery that such debtor was insolvent at the time such judgment was obtained, hen acquired, or transfer made." (See Lea's Appeal, 9 Barr, 504.) At first blush, the section would seem intended to save, not destroy; but there is nothing going before to which the section can apply. It 388 OF ASSIGNMENTS. [CH. XIII. in his deed of assignment; and a compliance with them on the part of him. who was to have the benefit of the preference was required. The abuse attendant imist be considered, and is, an independent and positive enactment. There are three affirmations to be extracted from it. 1st, That judgments, &c., made to evade the Act of 1843, are void. 2d, That knowledge of insolvency at the time the judgment, &c., were made, shall in itself be evidence that they were made with intent to evade the act. 3d, That if the debtor was actually insolvent at the time, but did not know it until afterwards, that the judgment shall remain good. The whole thing, then, hinges upon the scienter of the debtor as to his solvency or insolvency at the time he gave the judgment or made the transfer. The knowledge of the creditor or the alienee seems not to enter into the account any more than it did in judgments or transfers before bankruptcy. The objects of the acts of 1843 and 1849 seem to be to force a debtor who makes an assignment in invitum into a sort of bankruptcy, so far as the creditors are concerned, without equivalents of bankruptcy to himself Did, then, Shultz know, at the time of giving or making the judgments to the several judgment creditors, that he was insolvent at that time? If he did, as he executed an assignment a few days afterwards, these judg- ments are void, because, by the act of 1849, that is made conclusive, that they were given in fraud of the act of 1843, and therefore void. It seems clear enough that he did know that he could not pay his debts, and that his property would not do it. Mr. Strohm testifies that he drew the five judgment bonds, and also the deed of assignment ; that the bonds were given a few days before the assignment, but that he talked to him about drawing the assignment before he wrote the bond. Strohm was the assignee, and he says that Shultz told him he could not pay his debts. But there is pregnant evidence in the deed itself, which recites his ina- bility to pay his debts, and directs his trustee to pay his just debts equally and rateably. It appears that the money produced by the sale of the assigned property will not pay the five judgments, and is applied to them by the auditor pro rata, leaving the judgment of Summers, the appellant, for $3009, and the judgment of Armstrong for $545, untouched, and, per- haps, other debts which don't appear on the record. We are of opinion that by the 4th section of the act of 16th April, 1849, the five judgments confessed to B. Barr, J. F. Herr, B. Shultz, M. Eckman and John GroflF, are void, as against the other creditors, and have no preference. The decree of the court below is reversed, and this court decrees the fund to all the creditors of Christian Shultz, pro rata; and the record is remitted to the court below to carry this decree into effect. By an act passed on the 4th of May, 1852, (Pamph. Laws, p. 485,) the Legislature of Pennsylvania repealed the proviso of the act of April, CH. XIII.] PEEFEEENCES. 389 on such a system could not be well avoided but by total prohibition, or by a bankrupt law. § 392. The object of a proper bankrupt law is equality of distribution amongst all the creditors by those who administer that law, and its direct effect is to take from the debtor the right to parcel out his estate to certain creditors whom he may be pleased to prefer. As the practice and the law were, not only ac- tual creditors, but sureties, might have partiahty shown them ; and likewise drawers and endorsers of bills and notes, although not due at the time of the assignment. So, this kind of preference might not only, have been personal, but might have been extended so as to cover particular demands, whosoever might be the claimants or holders* With respect to the persons capable of making such an assignment, there appeared to be no restraint upon any one, (except on persons of unsound mind, or laboring under some legal disabiUty, us co- verture, infancy, &c. ;) and it was decided that incor- porated companies, as well as natural persons, might make voluntary assignments with preferences, 1849; so that as the law now stands, (by implication from this enact- ment and repeal,) a bonS, fide judgment or lien acquired against the pro- perty of any debtor, shall be avoided by the subsequent discovery of his insolvency at the time of giving the judgment or lien. Mr. Justice Coulter has stated above, that the proviso of 1849 was in accordance with the overture of the Supreme Court to the legislature, that if the latter would extend the interdict of the act of 1843, relative to assignments, to confessions of judgments by debtors in embarrassed circumstances, who afterwards executed assignments, "the court would cheerfully carry out such enactments." It strikes the writer that though the legislature did certainly pass the proviso in consequence of the over- ture, it was any thing but a ratification of the views of the court, or a confirmation of their doctrine. At any rate, this rapid and contradictory legislation is but another instance of the total want of homogeneous ii.- formation on the part of our law-makers, and of the heterogeneous character of the laws they ordain. 390 OF ASSIGNMENTS. [CH. XIII. § 393. Of course copartners in trade might exercise this right, not only as a joint and concerted act, but one partner might separately, at any time during the existence of the partnership, assign the ejQfects and property of the firm, for the payment of the debts of the firm, and prefer one of its creditors to another. It is true that it was not without great doubt and diffi- culty that the courts could arrive at this conclusion, but it became and is now the rule, as far as such a rule can be established by the authority of the highest judicial tribunal, in South Carolina, Connecticut, Mas- sachusetts, and the United States as a federal body. This rule, as stated by one writer of great authority, is deduced from the authorities, with a limitation; and he states, that one partner can only exercise such an act, provided Tie has charge of the whole business of the firm. But another writer, treating of the doctrine of assignments, generally, does not so limit the rule; and an examination of the cases does not seem to war- rant such a distinction.' But by the 20th and 21st sections of the statute under consideration, all this doctrine is rendered inap- plicable, and persons who deal with limited copartner- ships must do it with the certainty that in case of failure, there can be no preferences, but the effects of the insolvent firm must be equally distributed. And general partners who take special partners ilito their concerns, thereby abandon the privilege of securmg their friends in the event of failure or insolvency,^ by preferences in assignments or judgments confessed. ' See Angell on Assignments, 49 — 57 ; 2 Kent's Com,. 532, et seq. ' By the foreign law, (which ought to be the law here and every where;) the insolvency of a limited partnership operated the "civil death" of the CH. Xm.] DECISIONS IN NE"W YOBK. 3'91 § 394. But two reported cases, adjudged witii refe- rence to the subject matter of these sectioias, appear to exist; and those are the case of Somen y. David O.Ar- gall and William Argall, decided in the Supreme Court of New York in the year 1840.^ The various stages of the judicial history of this adjudication very con- clusively show how dangerous it was to have codified an almost new system of commanditary partnership for this country, when in one of the most civilized and commercial countries of Europe, a system, the result of the matured wisdom and experience of consecutive ages, with a jurisprudence built on it by the great and brilliant jurists of this century, thoroughly illustrating it and shaping it to the practical wants of the present day, was already at hand, and might have been brought into use for the mere trouble of translating, § 395. In this case, the plaintiff sued a general and limited partner jointly upon a note made by the former. After proving the signature of David C. Argall, (the general partner,) to the note, the plaintifi^ in order to charge the special partner, proved that on the 16th of general partner as to all the property of the concern. It dated, too, from the moment of the insolvency as revealed to himself, and not merely from the time it was declared to the public. Hence, he had no power to make an assignment, composition, transfer, payment, confession of judgment, or any other act or contract to the prejudice of his creditors as a body. (3 Fierli, p. 7.) The right of administration of the assets and the pos- session of them vested in the creditors from the day of the insolvency, and no debtor to the firm, informed of its failure, could pay the general partner, or obtain from him a valid release. The only possible validity allowed to any act of his after the failure, would be to one manifestly beneficial to the firm; that is, the party contracting with him could not plead his nullity in bar of performance of the covenant with him. (2 Fierli, p. 25 — 26, note 13.) In Tuscany, three months anterior to insol- vency was the period fixed for the avoid?ince of grants of rea,! estate, and ten days as to personal. ' 24 Wendell, 496, and Mills v. Argall, 6 Paige, 577. 392 OF ASSIGNMENTS. [CH. XIH. May, 1836, Lamd C. Argall, describing himself as transacting business under a limited partnership in the name of David C. Argall, made an assignment of all his stock in trade for the benefit of his creditors, giving a preference to certain creditors, among whom was his partner, "William Argall, to whom it was stated he was indebted for endorsements in the sum of |519 01, and for cash lent $35, and providing, be- sides, for the re-payment to WilHam Argall of the sum contributed by him as capital towards the com- mon stock. Evidence was then given by the plaintiff to show that William Argall had assented to the gene- ral assignment thus executed by his general partner. The defendants, to rebut this case, proved that on the 29th of June, the parties being advised that the as- signment of the 16th of May .'preceding was invalid, Curtis, the assignee, reconveyed the property to David C. Argall, who on the same day executed a new as- signment of the same property to Curtis. By this latter instrument no preferences were given, but the proceeds of the property were directed to be equally distributed among all the creditors of the assignor, and after satisfying such debts, ^to pay WilHam Argall, (as limited partner,) the sum con- tributed by him to the common stock. In the list of creditors, however, the name of William Argall was inserted, and the sum of $519 01 was stated as due to him for endorsements given by him. The plaintiff objected to this evidence, but it was received by the Court, (of Common Pleas,) who charged the jury, that, as to the first assignment, though fraudulent as to cre- ditors and voidable by them, it was valid as between the parties to it; that a void deed, however, might be made good by matter ex post facto; that under the CH. Xni.] BOWEN V. AEGALL, 24 WEND. 496. 393 assignment of May, 1836, the title to the property passed, and a trust was created; but as none of the creditors accepted the assignment, and no payments had been made under it, there was no objection to the re-assignment by the assignee, nor to the second as- signment made to relieve the first from what was illegal, and the special partner could claim under it as a creditor for endorsements lent the firm. The Supreme Court, upon a writ of error, abstain- ing from any decision on the last mentioned point, as not arising in the case, sustained the court below, and held that the plaintiff was not, upon the evidence, entitled to any more favorable form of charge; As to interference in the business of the firm, or concurrence in the first assignment, on the part of the limited part- ner, the court did not think that there was any "direct, unimpeachable, and conclusive testimony on either of these heads, or any to which the judge could, as mat- ter of law, attach any definite influence," and conse- quently, that he was right in referring the evidence to the jury on both objections, after stating the law to them. § 396. In regard to the question whether the spe- cial partner could claim, under the assignment as a creditor, for endorsements, or rather whether he were tainted by accepting it, which the Court thought did not arise in the case, it will be necessary, previous to any examination, to introduce the section under which it arises : — Section XXIII. In case of the insolvency or bankruptcy of the part- nership, no special partner shall, under any circum- stances, be allowed to claim as a creditor, until the 394 OF ASSIGNMENTS. [CH. XHI. claims of all the other creditors of the partnership shall be satisfied. § 397. In the opinion of the President of the Com- mon Pleas, (Judge Irving,) this provision did not apply to an endorsement by a special partner for the firm, but had reference to the capital paid in by him, only.' In Mills v. Argall^ the Chancellor of New York held that this second assignment was contrary to this section of the statute,^ because of the provision that William Argall, (the special partner,) should be paid his endorsement rateably with the other creditors. Mr. Justice Cowen, in delivering the opinion of the Supreme Court in Bawen v. Argall,^ says, "It is not now necessary to pronounce whether this or the Chan- cellor's construction was right; for I see nothing in the statute declaring as a consequence of an assignment or other act providing for the forbidden preference, that the special partner should thereby become liable as a general one. The only consequence of the con- struction contended for by the plaintiff in error would, therefore, be the avoiding of the particular provision for the benefit of the other partnership creditors, in a proceeding adopted to enforce their claims of pre- ference." § 398. The judge who pronounced the opinion in this case, spoke in terms of great respect of the President of the Common Pleas, and evidently leaned to his opi- nion on the point referred to. The fact that the presi- dent of that court did come decidedly to the conclusion that the statute does not mean to exclude special part- ners from claiming as creditors, like other third per- ' 24 Wendell, 500. » 6 Paige, 577, 582. » 24 Wendell, 504. CH. XIII.] SECTION X-Xm. OF THE STATUTE. 395 sons, for goods sold or credit given, shows that he was an enlightened man, and a lawyer of an enlarged and most discriminating judicial intellect. How the Chan- cellor of New York could have taken so narrow a view of the statutCj in a question of so much importance, it is difficult to understand, unless indeed the bald argu- ment at the bar were the cause. Had the counsel referred him to the foreign authorities, (the decisions of the European courts,) he would certainly have dis- covered the true principle that governs the question. § 399. As it stands, his decision is wrong, on prin- ciples of logic, of morals, and of law. 1. On princi- ples of logic, because the 23d section of the statutes, designating the special partner as a creditor, postpones him to suhsequent creditors. By allowing him to be a creditor, as to his investment, it of course allows him to become a creditor subsequently, with other third persons, for goods sold, money lent, or endorsements. As such subsequent creditor, he should rank with the class. 2. On principles of morals, because, it would be unjust and iniquitous to expel him from this class of subsequent creditors; and, if any legislature had the constitutional right thus to interfere with a sacred contract sanctioned by themselves, all courts of justice should require the expression of the legislative will to be clothed in the most imperative, unequivocal, and precise terms. 3. Chi principles of law, because the established rules for the construction of statutes, would, in favor of right and justice, hold, that the language of the section, "no special partner shall, under any circumstances, be allowed to claim as cre- ditor," should read thus : " No special partner shall be allowed to claim, until the claims of all the creditors of the partnership shall be satisfied;" and would not 396 OF ASSIGNMENTS. [CH. XIII. allow a mere redundancy of legislative phraseology to operate a manifest absurdity as well as wrong. For, every special partner, being, by the express provision of the law, wholly impersonal' yniYi respect to the partnership in which he has embarked his capital, may readily deal with such partnership in his per- sonal capacity, like any other man; and no ingenuity can suggest a sound reason why he should not, or that any rule or principle of policy would be violated by allowing him to do so; while, on the other hand, it would require no ingenuity to show that the interests of trade would be materially subserved by allowing special partners to give credit to the firms in which they are interested, just as any other persons in trade. § 400. There is nothing in this section, as the late Mr. Justice Cowen justly observes, in the opinion above quoted, which would convert the special into a general partner because of a preference given to him in an assignment, or of any assignment in his favor. It may also be added, that there is nothing in the sec- tion which converts him into a general partner be- cause he may have sold goods to the firm or lent it money in its need; yet if in case of the insolvency of the firm, he is to be looked on as tainted by this act, and is to be excluded in the division of the assets amongst the creditors, he is pro tanto treated as a general partner, and suffers a penalty as far as his last credit extends. The other creditors get first all his special investment, and next all that he may have lent or trusted to the firm subsequently, and he is utterly excluded from the distribution, not only for no fault, but for having done a meritorious act. If this construction were to prevail, the statute would be brought into contradiction with itself; for it sedu- CH. XIII.] MILLS V. ARGALL, 6 PAIGE, 577. 397 lously inhibits preferences amongst creditors : it, how- ever, prefers the claims of creditors over those of spe- cial partners, as special partners; and if it also ex- cluded the claims of the latter as creditors for subse- quent credit, it would certainly, in this respect, itself make an assignment of the partnership effects, effectu- ally giving a preference to some creditors over others. § 401. When we consider the consequences that were proclaimed by the Chancellor as flowing from this apparently innocent act of recognising the special partner as a creditor to the amount of his endorse- ments for the firm, to wit, that the whole assignment was void as against such of the other creditors who might think proper to avoid it in equity, the world of litigation that was to grow out of this doctrine may well help to convince us that there must be something radically unsound in it and contrary to the spirit of the enactment. In this respect, the argument of the counsel for the appellant was extremely forcible and entitled to great weight. They observed "that the special partner had a common law right to deal with the limited partnership as an individual; but, even if no dealing between the special partner and the limited partnership is permitted, the assignment is not void or fraudulent, because it only directs the assignee to pay the amount due to each one of the creditors, and if the special partner cannot be a creditor until all the others are paid, the fund in the hands of the assignee must be distributed among the creditors who are en- titled to be paid according to law, which the assignee is at his peril to observe." The same counsel observed of the revised statutes that they had, "in respect to limited partnerships, created a species of corporation, and must be governed by the law of corporations; a 398 OF ASSIGNMENTS. [CH.XIII. stockholder in a bank which has become insolvent, who is also one of its bill-holders, would be permitted to claim the amount of his biUs rateably with the other creditors of the bank. No part of his stock could be claimed until all the creditors of the bank were paid; but, as to the amount of the bills held by him, he is in the same situation as any other person not a stock- holder. A common law right cannot be taken away without an express enactment."' To the force of this illustration by the right of a bill-holder against a cor- poration of which he is a member, there appears to be no answer.® § 402. We come now to the second branch of the 20th and 21st sections, which embraces the equally important subject of judgments. The 20th section, (and in the same spirit the 21st,) if properly collated in respect to judgments, would read thus : — " Every > 6 Paige, 579. 2 But it is open to the remark that however strong in regard to a cor- poration, (which may be a general partnership without individual liabi- lity,) there is no similarity, in point of fact, between an incorporated bank and a limited co-partnership. The latter is neither a corporation, a quasi-corporation, nor " a species of corporation." Neither can a bank or other corporate institution be assimilated to a limited partnership ; wanting, as they all do, one of the chief and essential guards of the latter form of association, — non-interference, A stockholder of a bank may not only advise, but he may vote at elections, be a director, president, cashier, or clerk, and, in all respects, control, manage, or conduct the affairs of the concern, if appointed so to do, without incurring the penalty of gene- ral liability. The proposition stated by the reporter (in the case quoted) at the head of his syllabus, that " an assignment by a limited partnership to a trus- tee for the benefit of creditors, after the firm has become insolvent or in contemplation of insolvency, is void as against creditors of the firm if any preference in payment is given to one creditor or class of creditors over anottier," is only an iteration of the terms of the 20th section of the statute, but is not by any means the decision of the Chancellor. CH. Xra.] SECTIONS XX. AND XXI. — ^JUDGMENTS. 399 judgment confessed, lien created, or security given by any such partnership or general partner, when insol- vent, or in contemplation of the insolvency of any partner, with the intent of giving a preference to any creditor of such partnership or insolvent partner over other creditors of such partnership, shall be void as against those creditors." Now in the matter of an as- signment, there is no need of talking of a contempla- tion of insolvency; the assignment would be of itself an act of insolvency, and a most conclusive one. But the case is far different as to judgments, liens, or se- curities given. AU or either of these acts might be entered into during a state of perfect solvency; or, in a crisis to ward off insolvency and to save the con- cern. When, therefore, the fact of a " contemplation of insolvency" might be plausibly charged against the vahdity of any judgment, lien, or security given by a limited partnership, it would necessarily be an issua- ble one, to be determined by the proper tribunal after investigation. A judgment must suppose real estate ; for if the right to issue an execution against a firm which has nothing but personal property be given, that would certainly operate as a declaration of insol- vency. A " security given " may mean a hypothecar tion of merchandise, which might be as perfectly a fair, as it is a customary and every day business trans- action. § 403. Judgments, then, confessed by limited part- nerships to creditors, to bind their real estate as a se- curity, (for, it is submitted, that judgment with the right of execution either immediately or in an unrea- sonably short space of time, would of itself amount to proof of a contemplation of insolvency ;) "Hens created, or security given," would be voidable, if in reality pre- 400 or ASSIGNMENTS. [CH. XUl. ferences; but not absolutely void, like assignments, from the mere fact of expressing preferences. And if upon investigation any such judgment, hen, or se- curity, should be found to have been given during a state of insolvency or in contemplation of it, they would necessarily be declared void, and the particular creditor benefited by them would be compelled to re- store the pledge, or to refund, in case he should have converted his security into money. And it would really seem, as if the validity, efficacy and permanency of the pledge could not depend upon the knowledge of the fact of insolvency, or contemplation of it, either by the partnership or the creditor ; but would be de- termined bp the ftict itself at the time the contract was executed. The scienter of neither debtor nor creditor would influence the decision; for if the actual fact at the time were not to govern, the equahty aimed at by the statute would be frustrated. § 404. The general doctrine of the value to be awarded to judgments confessed as a security, in the distribution of insolvent assets, has very recently been discussed in an able judgment delivered by the Supreme Court of Pennsylvania,^ but not, as the writer thinks, upon true ground in reference to the general law of insolvency. Whether, under our star tutes of limited partnership, the same doctrine would apply to the insolvency of general partners, is a ques- tion that remains for determination, and cannot be entered on by the writer, until the judgment referred to is first presented. He will therefore at once intro- duce it : — 1 Worman et al, v. Executors of Wolfersberger; Error to Com. Pleas of Dauphin county. 1852. MS. CH. XIII.] PREFERENCES UNDER JUDGMENTS. 401 " Lewis, J. — This is an issue between subsequent and prior judgment creditors of Levi Wolfersberger & Co., for tbe purpose of determining the rights of the first judgment. It is admitted to have been given for a just debt, but the objection to it is that it was given by the debtors when m failing circumstances, with a view of preferring the plaintiffs therein, the debtors knowing at the time that they were insolvent. The debtors never made any assignment for the bene- fit of creditors, and the only title of the plaintiffs in this issue to enter into the contest is founded upon their subsequent judgment and execution. "At common law, a debtor, in failing circumstances, so long as he holds dominion over his property, has an undoubted right to prefer one creditor over ano- ther. Many debts are contracted with a knowledge of the existence of this right, and upon the full con- fidence that it will be exercised to secure those who have the strongest claims upon the conscience, and even upon the gratitude of the debtor. Loans made from motives of friendship, and endorsements and other liabilities incurred as surety, without expectar tion of profit, are of this character. At least they are so esteemed by the community in general, and any enactment which takes away the right of a debtor to prefer them, would produce a sudden change, so ex- tensive in all business transactions, that its policy is somewhat questionable. The project is supported by a refinement in morals which is certainly in advance of the commercial spirit of the age in which we live. At all events, a change so important in the commer- cial dealings of the people, ought not to be put inta operation by the courts, until the legislative will, to that effect, be plainly expressed. 2a 402 "oF'i:§^i(j]S'MEN^s.. .[dH.-xcn. " TKe act of 1843, ptoMbiting preferences in -assign- "inents'fbr tlie 'benefit of cteditors/iri'aKies-nosucli ex- tensive change " in tlie course of dealuig. It goes no fu]*tHertM4n io 'forbid preferences, in alnd lijihe in- striiMeiit 'by which the debtor stirreiiders to his credi- toirs air dbminidn river his property. In «uch a ease, it is lirdvided'til^t^theiEfcSfeigrnneht^^haTl iiiiire for the Miieflt of aifin proportion to their d^alrids. -This Was thie Coristrtiction'givein to -the'-aiit m Blakey's appeal, 7 Barr, 451. It^as'thei-e'distrhctly'dfe'eMt^d'by^this ■court,' "th^t it is only '-When 'a'min 'tesQs 'doiiiinion ■over his propeirtiyj'ariti'#te^fete''tMt ddiiiinion toiano- ^her, 'that 'the' iright of the creditors to a-prortefo divi- ■dehd attaches. WhiM a tnian retains dominion of his property, 'he rhay eiicninber and convey 'it ^ais -he pleases, if hot directly forbidden by "law, iind prefer fetich ci"editOrs, by payment or transfer, as'he choOges." '3faiH'itiv-as'ihere ^dded, ''If it Vefe not so, an indivi- dual could 'hot get ialong "with 'his 'btt'siness." This cbttstriiction, limiting the pW)hibition to eaisesin which the debtor sUrrehderled 'his property to others, was Init the judicial ackhoWledgment of an ihe^Hitable 'ne- cessity. K the domihion be not surrendered by the debtor, who ghsbll deprive him of itfor'the ptStpoBeof xAakhig' ^ pro fcda distribution atmoilg his creditors? It cannot be taken from him "Unless' by the judgihent of his peers or the'law of ihe land." That'is, by fltie process of law— ^by jtidgnient' and execution; and in these proceedings the liiaxini "applies, ''Vigilantibus ■riOn dormiehtibtis servitiex." The'first in tinle'beilig the best in right, the' only eSfect produced by vacating one judgment, because voluntarily given, wbuld be to let in another, whose vigilance, more 'than any pecu- liar equity in his claim, placed him next in priority CU.CSni.'] PEEFERESrCES .UNDER JUBGMENTS. AOS on the record. The second judpaent would get the ■\diole fund, instead ©f the [first; rand thus the equality in which ' equity: is- said r to d«light,^ and which it was the mainrobjeet of i the legislature rto secure, would be idefeated; iand the a-etiOf.l843,-«ithithis"-;eonstruetion engrafted upon it, would be iinjade an inatEument for seeming preferenees ^instead . of tikfieulm^g hthem. In the onevease, the faywites (WQuld ftee .<9ibtajji,edj<\5iiathout the harshness of adverse .proceedings, ;by the voluntary consentof a gratefiilidebtor. , It can scarcely' be .sup- posed, that the legislature .idesired to .produoei-arresult 80 uninapofEtantiu its .ig^jner^l ipolicy, aiodiWhich fhas at the same time so rUttle to 'reeQmm.end it on the score of justice. It follows :that the only swimissible construction of theactofclSAS isthat which eonfines it, to cases where- the debtor executes fan-assignment -for the benefit' of his-jcaseditors. " The i act of .1 849, ;being in p^ri •. mMefmi .must; be construed iur connexion withthat 6f 1843. Judgments obtained for debts honestlyidue are notito.be defeated "■ by i the subsequent ? discovery of iihe ; insol"p;e»ey " of the.debtor, "iunless !they were obtained with intent to evade the provisions .of;the act of;1843." The " in- tent to. evade "the, :act of 1843, is -whativitiates -the judgment. That -aet, with ^ an ■ exception .in favor of wages, makes .provision , for an equal distribution amoijg all.the creditors in proportion to their claims where an .assignment is made. The " intentto evade "" an eqv^l diatrikutionf IS'Mh^iia forbidden by .the. lact. '^04 OF ASSIGNMENTS. [cH. XHI, Where no assignment is made, there is no provision for equal distribution; and, in &uch case, the eonfes- sion of judgments can have no tendency whatever to defeat such distribution. Its only tendency is to ehartge ths order of preference, from those which would inevitably be produced by a passive submission to the recovery of judgments by adverse proceedings accord- ing to law. To say that a debtor may not volmbtarily do what the law c&mpels him to do, and punishes him with costs for not doing, is to expose the justice of the country to pubUc contempt and ridicule. ''According to all the decisions upon statutes enacted to prevent frauds upon creditors, the party who ob- tained a security or conveyance in good faith was not affected by the wrongful intent of the debtor in giving it, unless the former participated in it. This was the ccmstruction of the English statutes of 13th and 27th Elizabeth, upon the clauses which made void grants, &c., "made with intention to deceive, &c., purchasers and creditors." The same principle was decided in Massachusetts, Qreen v. Tanner, 8 Met. 411 ; in New York, Sandis v. Hilcireth, 14 John. 49S; in South Caro- lina,- TJnmn Bank v. Toomer, 2 Hills. 27; in Alaba- ma, Staeer v. H&rrmgUm, 7 Ala. 142 ; in Mississippi, Ibpe V. Andrews, 1 G. & M., 185; in Indiana, Frakes V. Brcmn, 2 Blackf. 295; and in the Supreme. Court of the United States, upon the statute of Illinois, Astor V. Wells, 4 Wheat. 466. But in Summers' Appeal, 4 Harris, 169, it was held, in a case where the debtor had made an assignment for the benefit of creditors, that the validity of a judgment previously given, "hinged entirely upon the scienter of the debtor, as to his solvency or insolvency at the time he gave the judgment;" and the "knowledge of the creditor" did CH. Xni,] PEEFERENCES UNDER JUDGMEKTS. 405 not seem to " enter into the aooount." This was cer- tainly a departure from the principles which had usually governed the courts in the construction of similar statutes- There is something so revolting to the most ordinary sense of justice in depriving any one of a vested right — a lien for a just debt — ^without any fault of his own, that it ought not to be done except in obedienoe to the plain and imperative mandate of a power which cannot be resisted- The injustice of the principle engrafted upon the act of 1849, by the decisioji last meatiioned, produced, without doubt, the repeal of the pnoviso from which it sprang, within less than a year after the decision. Under such circum- stances, its weight as a precedent will be open for con- sideration, whai the question arises. All that the present ease requires us to say is, that the principles (of that ded«on will not be carried further than tiie case requiires — thai k, must be regarded as authority th section is- so imperative, m declaring, void all. judg- ments^ confessed by limited; partnerships! "wAm «fflso?- vent" that. the-doctrine of the debtor's dominion over his pi&perty at the lime; of confes^on,. is completely thrust' aside by the fact; of insolvency.. If the facfe were so, it: matters not what was the scienter of debtor or credit&r"; the latter must be ousted of his exclusive pledgCj and^ must and- can omly come in under: the luminous and' beautiful rule stated by the learned, judgej (rf perfect "equahty witik the other creditors in the distribution^ of the assete;" a* rule that is- laid down, by the court in Summers' Appeal and^ tiiat isane- cessary deduction from their dfecisionj § 406. The writer cannot see why it should be held' that the- repeal of the legislature of Penni^lvania, in 1852, (rf- their proviso of 1-84-9-, has got rid of "the injustice of the principle engrafted upon the latter act by the decision" of the Shpreme Gourt: in Summers' Appeal, as statied* aJbove by Mr. Justice Levrisi®' Surely that repeal has put the law exactly as the legislature supposed it wa& previerusly; that is-, if the debtor were really insolvent, when he confessed judgmentj the judgment, though a bonat fide one, would^ beoeme void upon a discoviMy of the- inselvency, ^nd^ could' ©aly rtok, in a' distributioaaof assets^ as aAsimpfe contract dfebt. And' it can make no difiteence now how the scientieris; whetiierthe creditor or the debtor, or both, knew of the insolvency. If a manin trade or business be insolvent^ he csamot establish a. lien on his property ' Yide ante, p. 388, in note. ' Ante, p. 405. CH. Xni,] EXECUT-ORy-BREFERENCES. i07 in favor of- a, creditor, thatoij. th,e explosipn of his inspl- vency will obtaiaajprefereweoyear th^,ot]:)^rfire/Jitpr§, §407. Is^tlieF^;aay.injustice,in,suck a ruJLe? Why sliQuJd^ any xjreditor. be allpw^. to haye. any secu;rityj. in. the nature, of. allien, to operate, in, tlief event of disp, aster, as. a preference in, his, favor,?, Itt trade, all, seGijiriti,e& should be tan^Tple, and shpijld ^9. intp th^, corporeal possession,af tb,e,,(a"f;ditor.; and £(.UfSiW!h,as.he, caanpt; h^dle, or cairj:y. a-^ay> should, be suspected, Wh.efp.,a,nian wislies tp,1^4.^9°^py ^^i}V^M^> ^? 1% safe in taking a judgnaefl^ pr- m.Qi'tgag^^t^-.l^d unj, encumbered real, estate; so he, may in^i§t;Ou such, a, Sjecurity for good^ sold, or money leirt, to,a,trajdej,.oj. mejphah:^^ perhaps such money cr gppds, ipay-, be.. the, means- of saving the credit of the desbtor. ap.d saving him from failure; but tlie, ti^o niattersiofsale or loan, and judgment and mortgage, must hq cotemporaneous, s^ud; must form in fact but one, tran^actioJtt- If this, could uot be donp legally, the daily business of tba community r would be thrown, into disorder, if not stopped; £\,nji'.such li§nSj if declared void, by, reason, of the insolvency of the debtor, "should alon^ present the, rgypltmg .instances, of injustice alluded to in the judgr ment, of thp, Supreme Court abpve quoted. But, fufthej^than this, thq writer does, i^O,t,.think i^q doc- triu^ caft b^ carried;, a.t leas}; in, refexeuq^ tp Hmited. partnership. That of the Supreme Court of Penusyl-^, vania in the, judgment above, quoted, thf^ugh, possibly trup and justj, a^, i^Ettt^^, of general juri^pruderi.ce,, would be nullified by; the express language of the sec-, tious of the statute, npw ^^^^r revie^y;- §4,08, Bu|i of wha|;,v,3,li4e,is.tl]L^,gpod faith, hpue^t opinion, or f^ir dealing, of debtpr and. creditor, or of eithea:, in a tr^s^tion. w,herem a judgment is con- 408 OF ASSIGNMENTS. [CH. XIII. fessed or security given to the latter, really as a pre- ference in the contingency of failure or insolvency? Of what value is the knowledge of both or either ? To take the knowledge (or the scienter, as it has been rather pedantically termed,) of debtor or creditor, in respect to the former's insolvency or contemplation of insolvency, as a test or a principle, in determining the validity or honesty of a judgment confessed, is to take, as a reality, that which can nine times out of ten have no real existence. What can this so called knowledge in a majority of cases amount to, but a mere opinion? And an opinion, too, dependent upon the temperament more or less sanguine of the debtor? When, as in most new countries, enterprise, trade, and commerce, must more or less be carried on with borrowed capital, and that capital belonging to and loaned by chartered institutions, how can any merchant or trader using it, ever for a moment predicate his own solvency, or guess his neighbor's insolvency? Those chartered institu- tions have the privilege of making and issuing a paper currency, and that currency they lend to their cus- tomers. The latter have generally neither the means nor the inclination, to judge of or test the question of its undue inflation, or its just ratio with a specie basis; but with the accommodations they have received and which they flatter themselves will be continued, they "believe in their own solvency, and would resent any challenge of or imputation against it. But a policy of contraction is suddenly sprung upon them, and a panic ensues. They are called on by those chartered institutions to refund, and new loans are denied them. Money becomes exorbitantly dear; and to command it, these same business men, besides the enormous premiums exacted, must further confess judgment or CH. Xm.] EXECUTOET PREFERENCES. 409 hypothecate their goods as a collateral security to the new lenders. The latter, by the very act of demand- ing such security, ^' contemplate" the insolvency of the borrowers. Can it be possible, under such circum- stances, that the borrower can form any thing more than an qpmion as to his own solvency, and that his scienter can be any thing more, (if favorable to his sol- vency,) in a plurality of instances, than an exaggerar tion, or a hope? § 409. If these views be correct, there is no injustice in depriving a creditor of a security sttch as is de- scribed by Mr. Justice Lewis in the opinion abov6 quoted, "given for a just debt by debtors when in failing circumstances, with a view of preferring the plaintiffs therein, the debtors knowing at the time they were insolvent." The consideration is past; it is not the case of a loan upon mortgage, the security given expressly in consideration of the money. A failing debtor, deprived of this faculty of confessing a judgment to ensure a preference, would not allow ad- verse judgments, (the difficulty started by the learned judge as insuperable,) to be recovered against him "by merciless creditors," but would defeat them by an as- signment in favor of all. The gratitude of a debtor for past generous and disinterested efforts of friends and relatives to assist or save him, and the merit of one credit for these reasons over another, are abstractions that cannot be permitted to embarrass jurisprudence. In a conflict of claims amongst creditors so supposed to be separate in merit or title, the gratitude of the debtor must frequently be exercised towards his be- nevolent creditors at the expense alone of those sup- posed to have no merit. Often have goods bought of A., at the eleventh or last hour of solvency, been 410. oi.'AgsiSNMENTg, [icg.xin. dented, to pay B.., whose credit.was given when the; insolvent was, resppnsihle and prosperous. But, put the case of a creditor who, six; months i previously, most genferpu^ly; stepped forward! to sustafin a stagger- ing- trader 5 having ihm_. e:^aG,ted; no , security, he ex-, tended aid, at hi^: own, peril? "\^hen, afterwai^ds the; debtori peyoeiyes; himself onthe brink of ruin, it,is too. latei' to : give, thisj security. The creditor then seeks, and obtains that which it is out of the other's . poweri tO: give;_ it; has-: oeased to be; his, a^ though in, his physical doininion, it-,in ju^ticer be,longSf to all his ere-, djtors. equpilly.^ Let U;S,. nqw see, hjow.., these things, were, in aijcsieist tinjeis.,, 'TJle argument ofthe Supreme Court in the case ofWorman- et al; v. Wblfersbargerls Exftcutors,, is psrecisejy the ajgiipie.nt that raised and; sustained so long the .comnjEcoi,al us?gp in, this country, of giving pre- ferences in assignmesnts.to one class of creditors. over another; a usage that at last became so fraught with- evil, as to array, againsj it the. very body of men who originated it, a^d whif were alonejessei^tiajly. interested ; in its legal iexistenoe-. It was thg usage that any.tr^ader, or business man, np matter how insolvent, had the right, -while he held the dominion of his. property, or rathe^, th& wreck of ity ta indulge .his, j^ivateieelings and to yield to the dictaites of gratitudie.o^--.thp neoepsitiesjoffajij^ilytiesi, in dis- trib,Utingtl|atwjeckr ampngstrhis,creditprs. A,}id this, usage is exactly what the court has recognised and intends to support, in the "matter of' confession of judgments^ mai^ily.upon thejground thatitis a m.oral ne-, , cessity, bpcauge. " in^vEieating suob judgnif nt^ ith^yjOnly lejt injudlgjiients,. ot)tg.jned atJufiwe^j/jWhiph thus -without as mv^qh equity obtain a,priqrity over all others." But this difficulty is an illusion. A judgment obtained' adversely- og-aiiwi- on iiMoheat. debtor, is, at the present day, under. the i spirit of ouf, statutes and. jurisprudence, a^,niUQh a prpfer^pp,,aS;Qn9j, confessed, through the, debtor's, allowing it to he pbtgijned. But even if it were not, the creditor has been obliged to invoke the aid of a court of- justiee ; the fund produced fror^ the sale, of the insQlypntiprRpertyi by.th§i ^id of the court's proees,s,iS;necess?irily-paid!intfl courtfby.tjie, sheriff %-, distribution. What is there to prevent the couxt, thw posseted (fthefynd, by the action of a sort of indirect bankrupt law, to share tht money equally amongst all the creditors t Nothing: on the contrary, reason, equity, and law, all demand such a consumrnation. Unless- tM? spirit of jurisprudence, in CH..XinL[] PEEFEEENGESUNDEETHE CIVIL LAW. 411. § 410. THere is a substantial; diflferenoe, saysiEierli^'' between the order of payment and preference of credit torSi of ajblankrapt;firBaj under: tha civil. law of Rome^, and the old miimicipal. enactments of Tuscany. Underj the.Eomarulaw/hypotbficairy. were preferred to chiro-. graphifi creditors; (those holding. mortgages; or biUa of) sale, to thfis© holdings notes of, hand;) anditheiformerj class, were preferred according; to; the: dates: of tbekr Hens, as the text of the Digest thus expresses it:- — " P-otiorresti iii-pignQre,.qm pdoia; credidit peeuniiimr et accepit hypothe.camj..qu.amyis cum alio: an,te. oonvene- rat, utsi ab, eo pecuniam aecepit, sit eil res. obligata,. licet, ah hocposteaaoeepiti." Bktjthe statute of Ela.- rence of the^ year 1415^? and: the celebrated Riformaj degli: Statiiti di : Mercanzia , of 171 3, both placed ; credi-. tors; upon the most perfect equality in the distribution- of assets^ depriviag- the holders of hypothecations of direct consonance with our acts of assembly; be maintained, it would be better that all legal remedies to recover money for goods. sold on. creditj. should. b& abolished. No middle course of the c.onfused' complexion that .now prevails, will do. An. honest and enlightened bankrupt law, dispensing different classes and degrees of' certificates- to debtors, sueb as now exists iuiEngland, would.be thebest thing for oar commercjaj, States; but if they cannot have that, they, shouldhave anhon^st insolTent. law, which should be administered by their courts of justice as much in- the spirit of that system, (which is perfect equality;) as-possibte. Such is thftrrule in France. "In. the. matter of a commercial failufe,"- says Delan^e, .(Vol. L, p. 45 — 46, Des Societes,) "the law, from respect, for a principle of order and morality, wiU not perniit the lo.t of creditors to beunequal. It forbids, it punishes,' eye.a the vigilance that would re- sult in liberating; any one creditor from the losses which a failure, drags afterit. Not only can he not retain the preferences, (les amntages) he may have, obtained through oblique ways, hat he is obnoxious to the rigors of the criminal law." 'VoLII., p.,35.. ^T>ig. n,h. Potior. ' De modo et forma distribuendi bona cessantium et fugitivorum, inter oreditores eorum. 412 OP ASSIGNMENTS. [CH. XIH. all preference in the shape of liens. Good faith, says the Italian author, is at the foundation of this rule : where all have with the same frankness and liberality trusted the fallen firm, to all equally' should one and the same risk and fate be awarded; "and the painful disparity which gives to some creditors all and to others nothing, entirely shielding this one, and in- volving that in the ruin of the debtors, is thereby avoided.'" § 411. But in consideration of the foreign commerce of the country, and the necessity of impressing stran- gers with confidence in the equity of the laws, this rule of absolute parity and equal distribution was not ex- tended to the foreign creditors of Tuscan merchants who might hold pledges or any symbols of fair hypo- thecation. Such creditors after a certain delay and notice were allowed to claim under their liens; or the option to surrender them and come in with the home creditors for a proportionate distribution of the as- signed assets.* §412. The writer has not been able to discover whether, in this practice of Tuscany, any distinction was made as to possession of the thing or merchandise pledged, in the sense of the common law; that is, that possession in the pledger was a badge of fraud, and void; but from the following doctrine, embodied in a note to the text of FierK,^ he infers that such posses- sion would, in Tuscany, have been merely voidable, according as it might or not be founded in truth and good faith on both sides: — "Even the mere transfer, (la sola destinaziane,) of the names of debtors [to the firm] or of goods in the possession of third persons ' Fierli, Vol. II., p. 39. » Ibid. p. 39—51. ' Ibid, note 7, p. 67—68. CH. Xin.] PREFERENCES IN EUROPE. 413 with an order to pay, or to deliver the goods to a cre^ ditor, induces a valid pledge and operates a preference in him, provided such transfer had been made two days prior to the failure. So that a pledge is legally constituted not only by an actual delivery of the thing pledged, but likewise by a symbdHc tradition, which was effected validly on the instant of the deli- very of the written order to him; such order vesting in him aU the rights of his debtors over their debtors or the goods held by agents. And this creditor pledgee would have his right enforced over the claim of a ma- terial but accidental holder of the goods so pledged." In regard to biUs of lading, or consignments, or writ- ten transfers of merchandise held in distant places, advances of money upon such documents would have been perfectly protected by them, if made by corre- spondents in foreign countries. § 413. The law of Tuscany, in the case of a failure of a limited or other partnership, allowed two other curious preferences to certain creditors as exceptions to the general rule of perfect equality. First, a cre- ditor who lent the firm money, ia 'prevent it from, fail- ing on a certain day, had a right to retain any pledge given to secure him;^ but the delivery of every pledge had to be vouched by a writing in valid form, executed at the time and consentaneously with the loan of the money, and the transaction had to be done in good faith and without fraud, or, some days before an ex- plosion of the bankruptcy of a firm. Secondly, the grantors or vendors of a business or mercantile firm, who had reserved the ownership or preambulaiory hypothecatimi until payment in full, were allowed to ' Fierli, Vol. II., p. 49 — 51, and again, p. 55—56, and the notes at p. 71. 414 OF ASSIGNMENTS, ,[CH. XUI. maintain this as a lien upon the capital rstoeki sold, in the event of insolvency, and as a preference against ■air the creditors of the purchasers, upon the .-ground that a "merbantUe'firm or shop, is bargained andsold as a universal body;" [purche per altro la ragione o taberna 'mercantile sia stata venduta o ceduta como corpo universale,] to whose owner it was hypothe- cated before it passed from his hands into the domi- nion 6f the ^bankrupts.' And the next two pages i of •the learned author just quoted from are employed in showing h^w -the fact 6f -selling that stock of goods and introdudng another in its place would or would 4iot aflfect'tihe mortgage given to secure the considera- tion money; a principle called^ of rs-iiSj-g^afe'cw,. being apphed in aid and preservation of 'that ffiiortgage,. in virtue. of which the fresh goods bought with the rpro- duct of those sold were subrogated -for' the latter and •tooktheir place under the; lien. The language of the -original' is :—"Gioverebbe il ricorrere allaregola della mm!(fgimicme^ia virtu deUa quale tie altre imereiiintro- -dotte nella tabemassubentrano in luogo deile alienate, emanteiigdilo'sempre viva 1' universaUta dove passano; poiche nascendo queSto rimedio della surrogazione dalla natura del^orpo universale, :chfi sempre e il ^medesimo appresso qualunque possessore si trovi,.non puo mai aver iluogo nelle robe ' particolari, poiche ;manca la causa, que lo. produce."* § 414. TFhe linking in of' special ;partnerswith1 the matter of making assignments, confessing judgments, and giving securities, in the 21gt section, and the de- 'Fierli, Vol. H., p. 52, and note 11, p. 70, where further reasons are given and authorities cited. » Ibid. p. 53—54. CH.Xin,] SECTIONS iSXI. AlTD'XXII.-^CREDITORS. '415 'daririg ' tllein ■ liable as gen^i-al ' paHiiers, in'the 223., fov 'the Violation of "any provision of i^e last two [pre- ■'ceding •sections," offers, in ^ike eStiffiati€)n of the ivtiter, a perfect gpeeifflen of legislation at random '^lid in the dark. WhM po^ible power have special partners to sell, assign, transfer, encumber, or pledge the partnership property? They have neither pos- '^sessibn, dominion, nO'r license, ^hey have Biot even the legal capacity, if -they welre'JdispOsed -to interfere. They 6anndt even give a preference orer their own -investmeiits, IbecauBe they *are 'ia the hands of the 'general partners, aiidm.^tfet abide 'the partnership, ac- ceding to the edvertants of the original contract. Aiid •to connect the iHsolvency of spedal: partners 'with! that of gieh6ial'partners, as the 21st section actually does, is'inerely-mixing'up and confounding in the most un- necessary way the insolvency of a cestui que trust with ^)hat of his' trustee, two matters essentially distinct and •diseoiiiiaeeted 'in point of law. § 415. Although, 'according >to: the principles of dn- *-ttil?pretation of this contract of association in Europe, ■ttie' speeial'members are held as ereditors lather than as -partners, for the amount of capital by them paid in, they Ibse that character upon a failure or baiik- 'ruptcy of the concern; but if, in such case, any of them, in addition 'to their being creditor capitalists, -have becotne creditors of the firm, by the sale of 'goods, or ihe'loan of their -mon6y or credit -to it, they can come in with the other creditors for a proportionate -partof the -assets, and possess the same right of action as the latter against the general partner for the amount bf their respective credits.^ These principles' we have ' 2 Fierli, 59. 416 OF ASSIGNMENTS. [CH.XIII. before abundantly seen, with authorities, quoted in support of them.^ But we have not seen them stated in reference or in application to the case of a contest between creditors about the distribution of an insolvent estate in the hands of assignees, as the following case will illustrate : § 416. Recognising the principle, that not only may a special partner be a creditor of his firm for goods sold or money or credit lent after its formation, and enter into other commercial operations with it on his own behalf and account, the same as any other trader not interested in it,^ but, as the court held, he may also take a pledge or any collateral secwrity from ttie firm for money lent or other credit he may furnish it. This was decided by the Eoyal Court of Lyons on the 5th of July, 1845, in an action brought by a com- manditary against the firm.^ The case was this : — A limited partnership in shares was formed at Lyons for the navigation of the Ehone with iron steam-boats. The company having on its hands fifty-one shares of stock undisposed of, representing a capital of 250,000 francs, the general partner was authorized, by a general vote, to procure a loan of this sum by a hypothecation of the shares. The money was lent hy a special partifier, to whom an acknowledgment and the shares were delivered. In 1842, the company failed: upon its liquidation, the creditors opposed the reception of this claim as a lien on the assets, on the ground that the lender having concurred, in his capacity of partner, "Ante, §307; p. 316-319. = Tioplong des Soc, Vol. I., No. 434; Delangle des Soc, Vol. I., No. 382. »N. V. The Assignee of the Syrius S. B. Co.; Dalloz, Vol. of 1846, Part II., p. 228. CH. XIII.] SPECIAL PAETNEES WITH PLEDGES. 417 in the negotiation of the loan, had solely acted with a view to his own interest, and could not be put on a par with disinterested creditors. But the court held that this special partner had done no exterior act that could deceive creditors, and that his position as a shareholder was perfectly consistent with his position as a creditor. That this double quality of lender and partner ought to be viewed favorably in such a con- cern, as having a tendency to augment the elements of every such commercial association's prosperity; and to add to the guarantees intended for the public. That the loan was open to all bidders as third parties; and had it been taken by one not a commanditary, there could not have been the shadow of a pretext against his right to take this security; that if a mere note or bond had been given to this shareholder for his money so lent, there would be equally no pretext for disputing it, and the fact of his having also re- ceived the collateral pledge could not affect or vitiate his claim. Decree, therefore, tliat this special partner, or his transferees of the shares, be admitted to prove the claim along with other creditors. § 417. Again, a commanditary may be equally a creditor for his share of the profits not drawn out, after they were declared and he had become entitled to receive them. This point is very clearly explained by the testimony of Mr. Howell, delivered before the committee of the House of Commons on the 20th of May, 1851, to the following effect: — "As I am in- formed, the law of France is this : the amount placed in by a commcmdite partner is registered; an account is kept of that amount; another account current is kept with the commandite partner for his accumulated profits : thus, if a commandite partner puts 2,000Z. inta 2b 418 OP ASSIGISTMENTS. [CH. XHI. a business as his share of the capital, and he realizes another 2,000?. in profit, which is not drawn out of the concern, and some sudden misfortune overtake that business, and they Ml, he proves for the balance at his credit on the account current; so that he is to all intents and purposes a creditor, and not a partner, making contracts, buying and selling, dealing and con- trolling. I maintain that he is a creditor, and that it is the calling him a partner which creates the confu- sion that exists in our Enghsh minds. In point of fact, in that case he holds a double character; he is a subscriber in the first instance en oommandite, and he becomes afterwards a partner in the surplus profits, which he may leave in the hands of the concern."^ This statement of the commercial practice is perfectly ■consistent with the law and the principle uniformly held by the French courts, that profits really earned ' Minutes of Evid., p. 30 — ^31. The testimony of Mr. Townsend, an importer of French silks, for twenty years, is to the same point, as will be seen by the following extract from the same report : (p. 63 — 64) — Mr. Glyn. I believe this is the way in which it stands, that a man subscribes £1,000 en corfimandite for a term, say of 10 years'J — Yes. During the first eight years he makes a profit of £1,000 — £2,000 stand to his credit in the books of the partnership? No ; I expect' that in gene- ral they force them to take out their interest and their prbfits every year. Has he a right to draw out his profits? — They pay them out to him. In the event of the failure of the firm, his capital en commandite taeigea in general assets, but has he a credit upon the firm to the amount of his profits? — Yes. Many persons commandite a firm for a certain amount, and then they lend a further amount to the firm, which is of course entered, and then, in case of failure, they come in as creditors for that ;amount, but not for that amount en commandite. Mr. Gobden. But it is distinctly understood, that if a commanditaire leaves the amount of his accumulated profits in the business, and the house should fail, he can prove as a creditor against the estate for the amount of his profits so left in the concern? — Yes; he can prove as a creditor for the amount of his profits, but the total amount of the sum that he advances en commandite is lost. CH. XIII.] SPECIAL PARTNERS AS CREDITORS. 419 and bona fide paid out to the commanditaries are irreclaimable in the event of subsequent loss or even failure. § 418. So completely distinct are the two species of partners in reference to their separate business transactions, that the Supreme Court of Louisiana, in a recent case, decided that a general partner Tui^i be the individual or sepasute cr-editar of hie special partner during the pendency of the firm, and that the faict of there having existed a partnership in commendam between them, would not prevent the former from suing ajid recovering from the latter moneys paid for him in the purchase of real estate, (which moneys were not taken from or connected with the partner- ship,) and that the non-liquidation of the partnership concerns by the plaintiff was no bar to his present action.^ § 419. The principles of the foreign law appertain- ing to this species of association distinguish between the bankruptcy of the individuals composing the com- pany, and the company itself.^ If the partners, general or limited, be personally and separately insolvent, it does not follow that the partnership is insolvent. The private mercantile standing of the limited partners is never considered, nor need that of the general partners be, where they have no capital of their own in the concern, and are merely employing their labor and time upon the capital of the Hmited partners.^ And ' Batfaille v. Battaille, 6 Louis. An. Rep, 682, Post, Appendix, No. 1 . ' This the 21st section of our statute does not do, as it ought, but on the contrary, confounds the two characters of general and special part- ner, in supposing that the latter may be a party or privy to acts of in- solvency with the former. ' 2 Fierli, p. 5, and the authorities cited by him in note 6. 420 OF ASSIGNMENTS. [CH.XIII. the failure or bankruptcy of a limited partnership does not involve the special partners in cases in which they have not interfered or withdrawn any part of the capital.^ Where the firm is solvent, but the general partners individually insolvent, their material interest in the capital, that is, their share of the partnership property after the payment of the partnership debts, would be liable to execution. § 420. The legal consequence of the bankruptcy or insolvency of a limited ^partnership is the dissolution of it. Where a bankrupt law exists, the mandate of the general partner is withdrawn by the act of law, and the partnership property vests in the creditors, or rather in the agents or assignees designated in the bankruptcy statute to administer it for the benefit of the creditors.^ Where no bankrupt law exists, as in Pennsylvania, and generally throughout the Union, if the general partner should refuse or even hesitate to make a general assignment of the joint property to the creditors, the remedy against him would be in a court of equity. No honest chancellor would hesitate to enjoin him from wasting the property, or from ap- propriating it to his own use, or from partial^ distribu- tion of it amongst favorite creditors. It would seem to be a clear case for the appointment of receivers. § 421. Before closing this chapter, it remains for us to take a view of a contest that may arise before the assignees of the property of a limited partnership, between the creditors of individual general partners and the creditors of the partnership itself; the former claiming to come in for a tiistributive share of the in- solvent assets upon certain legal grounds, and the 1 2 Fierli; p. 5, and the authorities in note 7. ^ j^jj p g CH. XIII.] COSTFLICTING SETS OF CEEDITORS. 421 latter seeking to exclude them. The grounds upon which the separate creditors of a general partner may come into conflict with the joint creditors in reference to the assigned fund, or may seek to hold specific securities given to them by the general partner to the injury of the firm's creditors, are a total want of publi- cation of the partnership, or substantial defects in the publication- A neglect to publish the creation of a iimited partnership, or a mistake of substance in the terms of the publication, is, according to the 42d article of the commercial code of France, a cause of nullity of the whole contract which will let in the separate creditors, in company with those of the firm, for a proportionate share of its bankrupt assets, just as if no contract of copartnership had ever been executed, and as if HO firm had ever carried on business. It there- fore appears that in JFrance, third persons trusting a limited paaiirysrship are hamid to see that it has heen i&reated or renewed^ aocordi/ag to Taw, arid has heen regu- larly registered and advertised. Whether that is the doctrine under our statutes, is a question that wUl be presently adverted to. § 422. The jurispruderw^ of Prance on this very important subject is this, — 1. The parties cannot plead or set up this nullity of their copartnership against third persons; nor can third persons dealing with them, whether separately or as a firm, take advantage of it, as a ground for not fulfilling their contracts. 2. But if a contest arise between creditors of the firm and separate creditors of the general partners, the joint creditors lose their preference through this want or defect of pubUcation. 3. When a limited partnership has not been pub- 422 OF ASSIGNMENTS. [CH. XIII. lished according to the code, mortgages and pledges of and liens on the joint property may be enforced by those holding them, just as if no partnership existed. And real estate purchased with the joint funds is, in regard of third persons, treated as real estate purchased in common by the several grantees. It is not viewed by law as belonging to the firm.' § 423. Whether such is the law of this country under our statutes, may well be doubted. The 4 2d article of the French code which ordains this nullity is similar to our statutes in regard to the terms and strictness of registry and publication; but, unlike ours, does not impose general liability upon a special partner for "any false statement made ia the certificate or affidavit" of formation, or for a neglect to see that "the terms of the partnership when registered '^ have been duly published. And that is the great and im- portant difference between the two systems. If this penalty on special partners, as expressed in the Sth and 9th sections of the New York statute, had a place in the commercial code of France, the probability is that it would be sufficient to drive off all capitalists disposed to adventure money in trade. §424. The French code decrees that "these for- malities," (i. e., the entire matter of registry and pub- lication,) "shall be observed under the penalty of nullity in regard to those interested," meaning the partners. Our statutesi, on the contrary, only ordain nullity in a single case. "No sttcJi partnership shall be deemed to have been formed, until a certificate shall have been made, acknowledged, filed, and re- corded, nor until an affidavit shall have been filed as ' 2 Delangle des Soci&es, Nos. 543—550, p. 191. CH, Xin.] CONrLICTING SETS OP CKEDITOES. 423 above directed," declares the eighth section of our statute. Then, if the certificate which is so elabo- rately provided for in the 4th, 5th, and 6th sections, be not invested with the four attributes prescribed; Istly, execution in the mode prescribed; 2dly, ac- knowledged; Sdly, filed; 4thly, recorded: and if the afiidavit commanded by the 7th section be not, 1st, drawn in the way declared; 2dly, filed; the 8th sec- tion decrees that no such partnership shall be deemed (by the judiciary of course,) to have been formed. But for any fahe statement in such certificate or affida- vit, though the partnership shall be deemed formed, the special partners shall be liable as general. § 425. It therefore follows, (unhke the French code,) that for the want of a certificate and affidavit, or of either, as aforesaid ordained, the creditors of the supposed firm are to forfeit their priority over sepa^ rate creditors ; and that for any false statement therein, the special partners are to forfeit their privilege of restricted liability. Those creditors are then to look after the certificate and affidavit, and the special part- ners are to take care that there be no false statements in them. § 426. Is this a just construction of the sections mentioned ? The writer confesses that he believes in it, and that he cannot see how any other can be put upon it. Perhaps it may be a rare case that any partner should go on in business without having in every respect obeyed the four sections above enume- rated. But it may occur as it has often occurred in France. In such an event what is the jurisprudence to govern? Again, the writer cannot see that any other than that of the French courts can be applied or resorted to. But whether or not, that jurispru- 424 OF ASSIGNMENTS. [CH. XIII. dence is apparently so wise and philosophical, and has been summed up by Mr. Delangle in a style at once so terse and precise, so comprehensive and clear, there can be no need of an apology for introducing it into these pages.' "Aux termes de I'article 42 du Code de commerce, I'inobservation des formalites prescrites a peine de nul- lite, ne pent etre opposee aux tiers par les associes. "L'ordonnance de 1673 avait une disposition con- traire ; elle pronon9ait a defaut de publication, la nul- lite de tous actes et contrats passes tant entre les associes qyJavec leurs creanciers et ayants cause. C'etait punir les tiers qui s'en etaient rapportes a I'apparence tou- jours si grave en matiere commerciale, d'une faute qui ne leur etait point imputable; c'etait, chose plus fa- cheuse peul^etre, inviter les associes a violer la loi par I'appat du profit qu'ils en pourraient retirer. "La loi nouvelle a ete plus sage; elle reserve la peine aux associes qui, meprisant les prescriptions de la loi, n'ont pas soigneusement observe les formalites dont I'ensemble assure la notoriete des societes en nom coUectif ou en commandite. L'action des tiers s'exerce avec autant de plenitude que si tout s'etait fait avec une entiere regularite. lis peuvent attaquer la societe dans la personne du gerant, saisir le fonds social, ex6cuter contre chacun des associes les con- damnations obtenues, exercer la solidarite, la con- trainte par corps, faire en un mot tout ce qui serait permis contre une societe legalemeut constituee. " Tant que le debat se concentre entre la societe et ses creanciers, il n'y a pas de difficulte possible. Mais si des creanciers se presentent, ayant les associes indi- > Vol. II., Nos. 546—551, p. 192—202. CH,XIII.] NULLITY. — CONrLlCTING CREDITORS. 425 viduellement pour obliges, quelle sera la solution? Les creanciers sociaux seront-ils fondes a reclamer que le fonds social demeure separe du patrimoiue particulier de cliacun des associes, et specialement aflfecte aux dettes sociales? les creanciers personnels ne seront-ils pas recevables au contraire a invoquer I'art. 1328 du Code civil, et a repousser la preference reclamee par les creanciers sociaux, sur le motif qu'une societe nuUe ne pent pas leur etre opposee. "Cette question est importante et grave, car elle met en presence des interets egalement respectables, des principes egalement certains j elle merite un se- rieux examen. " Pour les creanciers sociaux, on invoque le prin- cipe consacre par I'art. 42 du Code de commerce, que le defaut de formalites ne leur est point opposable, c'est-a-dire qu'a leur egard, les choses doivent etre appreciees et jugees comme si la societe s'etait legale- ment constituee; or, dans toute societe legalement con- stituee, le capital social appartient exclusivement aux creanciers sociaux; c'est la propriete de I'etre moral oblige envers eux. Tant qu'ils ne sont pas satisfaits, les creanciers personnels des associes n'y peuvent rien pretendre. "Que dans les cas oil I'existence de la societe n'est pas certaine, quand elle est alleguee plutot que prou- v6e, les tribunaux refusent aux creanciers sociaux, ou se disant tels, un droit dont le principe n'est pas jus- tifie, c'est une chose parfaitement juste. L'exercice du droit est soumise a I'evidence du fait. Mais quand, au vu et su de tous, la societe a fonctionne pendant un certain temps; quand elle a eu ses magasins, sa comptabilite, ses commis, qu'elle a publiquement achete, vendu, signe des effets de commerce, et 426 OF ASSIGNMENTS. [CH. XUl. qu'ainsi la publication de I'acte est suppleee par une succession de faits dont la consequence n'est pas dou- teuse, quelle raison y aurait-il de refuser aux crean- ciers sociaux une action privil6giee sur le patrimoine social? "La disposition de I'art. 42 du Code de commerce a ete dictee par cette consideration que la foi publique ne pouvait point etre trompee, et qu'on ne pouvait enlever aux tiers qui s'6taient confi6s en I'apparence, les garanties qu'ils avaient esperees. Or, admettre que si le defaut de publicite ne pent etre oppose par les associes il le peut etre par leurs creanciers per- sonnels, c'est retirer d'une main ce qu'on a donne de I'autre; c'est, contre le texte meme de I'art. 42, faire pr^valoir la forme sur le fond, I'ecrit et les formalites de publication sur le contrat dont ils ne sont que I'accessoire. " Une jurisprudence, qui ne trouve plus aujourd'hui de contradicteurs, a decidee qu'entre les associes eux- memes, la nullite n'affectait que I'avenir; que la con- vention sociale regissait le passe ; que chaque associe devait exercer tous les droits dont il y trouvait le germe, subir toutes obligations qui s'y trouvaient ecrites. Personne ne conteste qu'il y ait, dans les societes annulees, un fonds social partageable, d'apres le mode, et suivant les conditions etablies pour les so- cietes rfegulieres. Comment done faire aux creanciers innocents de toute faute, une condition pire que celle des associes coupables d'infraction a laloi? Comment constituer, pour ces derniers, un fonds social, quand, dans rint6ret des premiers, interet plus imperieux assurement, il n'en existerait pas ? " En matiere commerciale, il n'est pas besoin d'actes pour conferer des droits. II suffit de la convention, de CH. XIII.] NULLITY. — CONFLICTING CREDITORS. 427 quelque maniere qu'elle soit prouvee, par une facture, une lettre, par des presoraptions, ou par des t^moins. Et quand un acte de societe, non seulement aura ete r6dig6, mais publie, si une formalite quelconque a 6te negligee, les creanciers sociaux seront d§ch.us de la position que la loi leur a faite ! Non, des qu'il y a un etre moral, un fonds social, dont la destination ne pent etre chang6e : les creanciers sociaux doivent etre payes avant tout ; et ce n'est qu'autant que I'actif ex- cede le passif social, que les associ6s individuellement, ou leurs ayants cause en peuvent recueillir une partie. " Ces raisons ne manquent pas de force, et on ne pent nier que I'^quite ne leur prete une grande puis- sance. Mais suffisent-elles a justifier la pretention des creanciers qui les alleguent? II est permis d'en douter. " Si Ton s'arrete au texte de la loi, il est manifeste que I'art. 42 du Code de commerce ne regie pas les droits des creanciers dont la situation est diflferente ; il ne dispose qu'entre les associ6s eux-memes, et les tiers. " ' Les formalites y est-il dit, seront observ6es, a peine de nullite, a I'^ard des int^resses ; mais le de- faut d'aucune d'elles ne pourra etre oppose a des tiers par les assodes.' C'est aux associ^s seuls, en expiation de la faute qu'ils ont commise, et pour prevenir des calculs frauduleux, que la faculte de se prevaloir du d6faut de formalites est interdite. Si done le d6bat s'engage entre les tiers, les uns creanciers de la soci- 6t6 non publi6e, les autres creanciers des associes per- sonnellement, c'est dans les principes du droit civil, ou de la loi commerciale, qu'il faut puiser la solution. L'art. 42 ne decide rien. " Trois cas peuvent se presenter : ou il n'a pas ete 428 OP ASSIGNKENTS. [CH. XIII. r6dige d'acte de societe; ou I'acte n'a 6te ni enregistr6, ni publie ; ou la publication n'a pas et6 reguli^rement faite. Dans les deux premiers cas, la convention n'a pas de date certaine; 1' article 1328 du Code civil ne permet pas qu'on en excipe; dans le troisieme, la nuUite de la publication r6agit sur la convention meme, la soci6t6 n'est point opposable aux tiers ; les cr6anciers dont elle diminuerait les droits sont fond6s a la m6connaitre. " Des creanciers personnels aux associ^s agissant en nom coUectif, ces principes ne sont pas contestables ; nous I'avons prouv6 ci-dessus. Les associes seraient forces d'en subir I'application, quelque dommageable qu'elle fut. La circonstance que des creanciers so- ciaux existent et r^clament, j peut-elle apporter une modification? " Le principe qui fait de la soci6te un etre moral, distinct des associes individuellement, et proprietaire du fonds social, est une fiction legale, fiction grave, car eUe a pour r^sultat de cr6er une personne civile, et de soustraire a Taction des creanciers les Mens de leur debiteur. C'est un privilege veritable. Or, les fictions 16gales, comme -les privileges ne s'^tendent point au dela des termes de la loi. Si les conditions auxquelles leur existence est subordonnee, n'ont pas et6 litteralement accomplies, il n'en existe pas. Les exceptions sont de droit 6troit. II se pr6sentera sans doute des cas, ou la cause des creanciers sociaux sera particulierement favorable ; il semblera dur, par exemple, de les priver de garanties qu'ils esperaient, parce que les formalites de publica- tion n'auront pas 6t6 scrupuleusement remplies. Mais la question n'est pas la: ce n'est pas I'^quite qu'on doit consulter; la loi seule doit pronolicer, et la loi CH. Xm.] NULLITY. — CONFLICTING CREDITORS, 429 n'admet pas de temperament. EUe denie expresse- ment aux contrats irr^gulierement formes les privi- leges de la societe. "On ne pent d'ailleurs meconnaitre que si les cr6an- ciers sociaux sent exposes a perdre, ils ne peuvent I'imputer qu'a leur propre faute. Personne n'ignore que les societ6s commerciales en nom coUectif et en commandite, doivent, a peine de nuUite, etre affich^es et publi6es dans les journaux. C'est la condition de leur vie ; c'est done aux tiers qui veulent traiter avec une society de s'assurer si elle a satisfait aux commande- ments de la loi. Celui qui ne prend pas cette precau- tion, ne peut guere se plaindre d'avoir 6t6 tromp^. II est coupable de negligence ou d'imprudence; le dan- ger qu'U court est son oeuvre. "On invoque en faveur des creanciers sociaux la jurisprudence qui soumet les associes, quand le con- trat est annuie, a I'executer pour le passe, et la regie fondamentale dans les matieres de commerce, que toutes conventions se prouvent indifferemment par ecrit, par temoins, meme par de simples presomp- tions. Mais, 1° a regard des tiers, une societe non publiee n'a pas plus de passe que d'avenir. La nul- lite serait illusoire, si quand il y a eu violation fla- grante d'une loi d'ordre public, la societe produisait contre eux, pour le passe, tons ses effets. Que gagne- raient-ils a la repousser, si le systeme contraire pre- valait? Ce n'est pas I'avenir qui leur importe, mais le passe; car c'est contre les dispositions du fonds social qu'ils ont besoin de protection; I'invocation de la nuUite n'a pas et ne peut pas avoir d' autre objet. A moins done de supposer que la loi a conferfe aux tiers une faculte sterile, il faut bien attacher a son exercice le seul avantage dont elle soit susceptible. 430 OF ASSIGNMENTS. [CH. XIH. "2. En matiere de soci^t^, la loi sp6ciale a ftiit une dj^rogation a la regie, que toute convention, quand elle est prouv^e, peu importe comment, ou par I'^crit, ou par les faits, repoit sa pleine execution. Les cr6an- ciers d'une soci^t6 non publi^e, peuvent sans doute, si on la d^nie, en faire la preuve par t^moins ; mais la preuve n'a d'effet qu'envers les associ^s. Elle ^tablit Yis-a-vis d'eux la communaut6 d'int^rets, et les soumet a toutes les consequences de la convention de soci^te; mais vis-a-vis des tiers, elle n'etablit rien. Une per- sonne civile n'existe point sans acte rfegulier qui la cr6e; elle procede du droit, non du fait, et aucune preuve ne pent remplacer la preuve legale. Or, la preuve legale, c'est un acte authentique ou sous seing prive, transcrit, affiche, publie. Oil cette condition manque, il n'y a pas de society, quant aux tiers, et la mise sociale, lorsque les formalit^s nfecessaires pour en transferer la propriety a I'etre coUectif n'ont pas 6t6 remplies, reste dans le patrimoine du d^biteur. Chaque crfeancier pent la saisir, et la realisation opferfee, le pro- duit appartient a tous indistinctement, et par contri- bution. Ni la forme des titres, ni la destination de la chose saisie, ne peuvent attribuer de preference aux creanciers de la societe. "La jurisprudence est conforme a cette theorie. "Le 28 decembre 1816, une societe en nom coUectif se forme a Montpellier, entre un sieur Chatelet qui, depuis quarante ans, y faisait le commerce de cuivre, et un sieur Grellet. Un acte sous seing prive avait ete redige pour constater la convention ; mais il ne fut ni enregistre ni publie. La society devait durer dix annees; mais, dans le courant de 1818, Chatelet est declare en faillite sur la provocation de ses creanciers personnels. Les scelles apposes sur les marchandises CH. XIII.] NULLITT. — CONFLICTING CREDITORS. 431 de la societe, les creanciers sociaux intervienneiit, s'opposajit a ce qu'elles soient comprises dans I'actif de Chatelet. lis demandaient que leur produit fut consacre de preference au paiement des dettes sociales. "Les creanciers personnels invoquent le defaut de publicite. 24 mars 1819, arret de la cour de Mont- pellier, qui donne gain de cause a ceux-ci, par ces motifs de droit; "1. Que I'acte de societe, r&dig6 sous seing priv§, n'ayant 6t6 enregistr^ qu'apres la faillite de Chatelet, ne pouvait etre valablement oppos6 a ses creanciers personnels, agissant comme tiers; "2. Qu'aux termes de I'art. 42 du Code de com- merce, qui veut que les soci6t6s commerciales soient rendues publiques, a peine de nulUte, a I'egard des int6ress6s, I'acte de soci6t6 6tait nul a I'fegard des cre- anciers personnels de Chatelet, tiers interess^s a la contester. "L'arret avait, en outre, tire des faits la conse- quence, que les crfeanciers qui avaient traitfe avec Chatelet personnellement, avaient eu juste raison de considerer tout ce qui lui appartenait comme le gage de leurs cr^ances. "Pourvoi: 13 fevrier 1821, arret de rejet. Attendu qu'il est reconnu, en fait, par I'arret attaque que, depuis 40 ans, Chatelet faisait le meme commerce qu'a I'epoque de sa faillite ; qu'il avait les m^mes marchan- dises, les m^mes usines; que les creanciers avaient traite avec lui sous la foi de la confiance et du crMit attaches a cette existence commerciale, et qu'en jugeant qu'une partie de ces m^mes creanciers n' avaient pu etre dfechus de leurs droits sur la presque totality de I'actif de ce d6biteur failli, au profit d'une autre classe de creanciers, sous le pr^texte d'une societe portee. sur 432 OF ASSIGNMENTS. [CH. XTTT. un acte sous seing priv^, non enregistr^ avant I'ouver- ture de la faillite, et demeur6 inconnu jusqu'alors, la cour royale de Montpellier n'a vioM aucune loi. "Le 15 avril 1839, la cour de Eouen, a consacr6 le m^me systeme. II s'agissait d'une femme exerpant sur I'actif de la soci^t^ dont son mari ^tait membre, la reprise de ses droits, et a laquelle on opposait comme fin de non-recevoir, la connaissance qu'elle aurait eue personnellement de I'association. "L'arr^t rejette la pretention des creanciers sociaux : "Attendu que la pretendue soci^t^ articuMe avoir existe entre Leblanc et Frosnel, n'a pas repu la publi- cite exig^e par la loi; "Que les tiers peuvent se pr^valoir de 1' absence de cette formalitfe essentielle; "Que la dame Leblanc, creanciere de son mari, ne pent etre repouss6e par les creanciers de la pr6tendue soci6t6 et etre primfee par ces memes creanciers, rela- tivement a ses droits ant^rieurs a la pretendue associar tion non formulae Ifegalement; "Que le mode de publicity exigfe par la loi est le seul qui puisse valablement avertir les tiers; "Qu'il ne suffit pas qu'en dehors de ce mode les tiers aient eu connaissance de I'existence de I'associa- tion. " M. Dalloz cite comme ayant jugS dans le mSme sens deux arrets de la cour d' Angers, I'un du 11 aout 1838, 1'autre du 28 Janvier 1841. " Mais il rfesulte d'un examen attentif que ce sont des arrets d'espece. La cour se decide dans les deux cas, par ce motif p6remptoire que les socifetfes all6gu6es, n'6taient pas m^me prouv6es en fait. EUe declare, en outre, dans I'arret du 28 Janvier 1841, que I'invocation de la soci6t6 est le rfesultat d'une fraude concert6e entre CH. Xin.] NULLITY. — CONFLICTING CREDITORS. 433 les pr6tendus associ^s, et les crfeanciers qui se presen- taient comine cr6anciers sociaux.^ " Cette jurisprudence est rigoureuse, mais necessaire ; toute salutaire qu'elle est pourtant, il faut la renfermer dans de justes bornes. Elle a pour but de prot^ger des iuterSts s^rieux et non d'encourager des tracasse- ries ; or, tel serait assur^ment le resultat qui se pro- duirait, si, meme apres la dissolution de la society, un creancier, dont les droits n'6taient pas nes alors, pouvait proposer et faire prononcer la nullit6 d'une conven- tion qui n'existe plus en reality, afin de ravir aux anciens associ^s les r^sultats de la liquidation. ' Dans lui proces recemment soumis 4 la cour de Caen, la question a ele debattue en'sens inverse. Les creanciers personnels d'un des associes ne se bomaient pas h soutenir que les creanciers de la societe non pu- bliee n'avaient auoun privilege sur I'actif social; ils demandaient la nul- lite de leurs titres, comme consequence necessaire de Part. 42 du Code de commerce. La cour, par un arr^t du 8 mars 1842, a maintenu l'6galite de condi- tion entre les creanciers sociaux et les creanciers particuliers : "Considerant que la society dtablie en 1812 entre les enfants Moisson ne fut ni constatee parun acte eorit, ni publiee aux termes de Part. 42 du Code de commerce, et que I'on se prevaut de cette circonstance pour en proposer la nullite; " Qu'il n'est pas douteux que Melidor-Moisson ne pourrait personnel- lement opposer ce moyen aux creanciers de la societe, d'apres la dispo- sition finale de Part. 42 ; " Que, quant k ses creancers personnels, la nullite proposee de leur chef, n'empeche pas qu'il ait existe une communaute de fait, et, par suite, un ensemble d'operations consommees, dont il est impossible de faire abstraction; " Que, si les creanciers de cette communaute de fait ne peuvent pas in- voquer les droits speciaux derivant de Pexistence d'une societe legalement publiee, tel qu'un privilege aur Pavoir social, les obligations contractees envers eux, en vertu du mandat donne par Melidor et ses freres, peuvent au moins etre executes sur ses biens, conformement au droit commun." Le pourvoi forme centre cet arret, a ete rejete sur mes conclusions, le 22 mars 1843. 2g 434 OF ASSIGNMENTS. [CH.Xm. "Aussi la cour de Rouen et la cour de cassation ont elles repouss^ cette pretention. "L' arret de la cour de Rouen est fonde sur les motifs suivants : "Que le 27 aont 1809 une society avait et6 formee ■entre la dame veuve Gueroult, les sieurs Gueroult fils, Sollier et Coutan; " Que si I'existence de cette soci6t6 n'etait pas legale, les formalites requises n'ayant pas ete remplies pour la validite de I'acte de societe, neanmoins il etait con- ■stant que de fait elle avait existe; que les soci^taires, loin d'en demander la nullit6, s'y etaient conform6s, et que la dissolution avait ete prononc6e par decision arbitrale du 28 Janvier 1817, anterieurement a la re- -connaissance et a la constatation du droit de Brodard. "Sur le pourvoi, arret du 16 decembre 1823, qui rejette : Attendu que la cr^ance de Brodard centre Gueroult n'ayant obtenu date certaine, que par la •decision arbitrale du 12 juin 1817, et Brodard n'ayant pris d'inscription bypoth^caire contre son debiteur, ■que le 21 fevrier 1818, il n'avait pas un interet n6 lors de la formation de la society en 1809, et de sa dissolution par le jugement arbitral du 28 Janvier 1817, pour attaquer ces actes comme n'ayant pas repu la publicity, par affiches, qu'exigent les art. 42, 43 et 46 du Code de commerce; "Attendu que cette seule consideration suflSt pour ecarter la demande de Brodard, sans qu'il soit besoin d'examiner les autres motifs de 1' arret, et les moyens ■qui s'y rattachent. "On ne pent qu'applaudir a cette solution. Ne ;serai1>ce pas, en eflfet, pousser trop loin le dfesir de venger la loi, que d'en considerer les infractions comme survivant aux contrats memes, et d'attribuer, par une CH, XIIL] nullity. — CONFLICTING CEEDITORS. 435 sorte de retroactivity sans limite, le droit de reclama- tion a des cr^anciers qui n'ont pu ressentir des nulKtes invoqu6es apr^ coup, aucune espece de prejudice, Le legitime interet du commerce exige qu'on tienne compte des faits accomplis, ^' Au reste, et alors meme qu'en principe, et malgr6 la sanction qu'elle a repue de la cour de cassation, on n'adopterait pas la tlifeoiie que nous exposons, il est hors de doute qu'une soci^te non publi6e ne pourrait en rien modifier les droits liypothecaires acquis ou confferes sur les immeubles apport^s par un associe, C'est qu'en effet, tant qu'il n'y a pas eu transcription, I'immeuble, relativement aux tiers, n'a pas change de main; sil'associe se marie, I'apport est greve de I'hypo- tlieque legale de la femme. Le creancier personnel qui obtient une condamnation pent, en s'inscrivant, le frapper d'une hypotheque judiciare, et enfin, si, man- quant a la fidelity qu'U. doit a ses coassocies, I'associe constitue, sur le bien par lui mis en commun, une hjrpotheque, elle est valable et doit produire tout son effet. Des que le contrat est serieux, toute reclama- tion est interdite a la socifete. " II y a plus ; si des immeubles sont achetes, durant la societe, ils sont greves de I'hypotheque legale. Au fur et a mesure des acquisitions, le droit de la femme mariee, des mineurs, des interdits, affecte la part de I'associe oblige envers eux : car a quelque titre et sous quelque forme que I'achat ait lieu, il ne produit qu'une copropri6t6. C'est, aiasi que nous I'avons dit, a la condition de remplir avec exactitude les formalites de publication, qu'il existe un etre moral, distinct des associes, proprietaire de I'actif social, apte a revendi- quer I'entiere disposition des choses qui ont succes- sivement accrue le patrimoine commun. Lors done 436 OF ASSIGNMENTS. [CH. Xtll, qu'elles n'ont pas &te accompKes, ce n'est plus au regard des tiers une society, mais une copropri^te qui laisse aux droits des crfeanciers personnels leur plein et libre exercice; sauf Hen entendu les chances que comporte I'indivision. Si le partage, fait sans fraude, ne trans- met point a leur dfebiteur la propri6te de I'immeuble ach.et6 en commun, le droit r6el s'6teint. La licitation et le partage 6tant purement declaratifs, I'associ^ est censfe n'avoir jamais ete proprietaire d'aucune partie de cet immeuble, et ses cr6anciers priv6s du benefice de rhypotheque ne peuvent que r^clamer la soulte a laquelle il a droit." § 427. Before closing tbis chapter, it seems proper -to state that it has been decided by the Court of Cassation in France, (26th Nov., 1839,) that a spe- cial partner has no right to appeal from a judgment decreeing the firm to be bankrupt,^ (en failUte.) It will be observed that this means appeal from the judgment of a court of record having the requisite jurisdiction, and it is to be supposed that special part- ners wishing to appeal from such a fiat, must be in- duced thereto by the conviction that the firm is not really insolvent. Whether special partners in this country could set aside an assignment in a court of equity, on the ground that the partnership was not insolvent, and that the general partner had acted fraudulently in making it, is a question that it is not necessary to discuss here. Of course if they could, it would be upon the condition, before they could get possession of the assigned assets and business with the view of continuing the business, that they should assume and pay all the debts of the concern and settle " Bousquet's Diet, de Droit, Vol. II., p. 667. CH. XIII.] OPPOSED BT SPECIAL PARTNERS. 437 all its engagements, thus completely rendering them- selves general partners. Upon this condition, entered into with sureties to the complete satisfaction of a Chancellor, it is not easy to see why he should refuse to interfere and to order a re-assignment, or, more properly speaking, a restoration of aU the assigned property to the special partners; and that, in a case where there appeared to be fraud, or coUusion be- tween assignor and assi^ee, with costs.^ ' The author desires to note here a mistake in the last line of page 409, (4 409 of this chapter,) where the word " solvency " is erroneously printed for insolvency. The word was insolyency in the MS., and con- tinued so in the revise sent back to be struck oiF; but, as some dbnormu sapiens of the press ccmld better understand the expression, " last hour of solvency," than ''last hoar of insolvency," the form so issued from the press, and the author stood corrected until the present moment. It is, however, quite natural that a printer should suppose men in trade solvent until they become insolvent, and qiaite unnaUiral that he should comprehend how some men in business Aould be insolvent all the time. This rectification is therefore made with the profoundest respect for the press, and with a vivid remembrance that divers great men of our coun- try wew quoadam printers. 438 OF DISSOLUTION OF LIMITED PAETNEESHIPS. [CH. XIV. CHAPTER XIV. OF THE DISSOLUTION OF LIMITED PAETNEESHIPS. § 428. A PAETNEESHiP, at this day, as in the days of ancient Rome, is dissolved by death amongst the partners; but with this difference from the civil law, it may be continued, by stipulations in the partner^ ship deed, with the heirs or personal representatives of the deceased partner.' This principle appertains to all partnerships that are not incorporated ; there- fore, in them a stipulation of the kind would be use- less. So it would be unnecessary in a limited part- nership in France, whose capital was divided into shares. The creation of shares that may be passed from hand to hand, until the whole personality of the special partners may have been changed, is a signal proof that the association was constituted respectu negotii, and not personarum? § 429. But the principle would not apply to limited partnerships whose capital was not so divided into shares. And even when so divided, the principle is only applicable to the heirs, executors, administrators, or assignees of the special partners; for the death of a general partner is a cause of dissolution, unless otherwise provided for in the articles of association.^ ' Troplong des Sociftes, Vol. IL, No. 882. = Ibid. No. 887, cites Pardessus, T. 4, No. 1087. > Ibid. No. 888. CH. XIV.] DEATH OF GENERAL OR SPECIAL PARTNERS. 439 A general partner may be the chosen administrator, in whose industry, experience, talent, and probity, faith is reposed by the special partners : his death, therefore, changes all the conditions of the contract. It requires, then, the unanimous consent of the sur- vivors for a successor to him, otherwise the dissolution of the firm is commanded by the law. Inconveniences may result from this rule ; but the parties may prevent them by stipulating in the articles that a majority of the special partners or shareholders may choose ano- ther general partner; and that is a precaution to be witnessed in all special partnership deeds drawn up with care.' § 430. The association called accomandita, says Fierli,* is not dissolved, Hke a general partnership, by the death of one of the special members ; but the in- terest of the deceased party passes to his heirs or le- gatees, and the firm continues with them as previously. " The reason of the difference is, that it is contrary to common reason, that in general or ordinary partner- ships, the surviving partners should be obliged to re- ceive the heir of the deceased member as an associate, a person who may be utterly disquaUfied for their business; while in the (Mxomandita, it is wholly imma- terial whether the special partner be succeeded by the heir, inasmuch as neither is more than a creditor of his capital invested, and a participant of the profit or loss, after the payment of all the debts."^ For the same reason, the special partner may, by will, dispose ^ Troplong des Societes, Vol. II., No. 889, citing M. Duvergier, No. 435, as accordant. ' Vol. I., p. 46 — 47, quoting Casaregis de Commer. Disc. 29, No. 10, Zanch de Societ. No. 19 — 20. » Fierli, Ibid. 440 OF DISSOLUTION OF LIMITED PARTNERSHIPS. [CH. XXY. of all his rights, and his legatee will succeed to them all, and stand exactly in his position with regard to the firm J and such an arrangement may also be the subject of agreement in the original articles.^ § 431. In the State of Pennsylvania, legislative provision has been made on this subject. When any special partner shall die, without having disposed of his interest in the limited partnership, his executor or administrator may either continue his interest therein, for its unexpired term, for the benefit of his estate, or may sell the same at public auction, under the direction of the Orphans' Court of the county in which the principal place of business of such partner- ship may be, in the same manner as the estates of in- testates are now by law sold. Testamentary dispo- sitions, in writing, of the interest of special partners, may also be made; the decease of special partners shall not dissolve such limited partnership, unless, by the agreement between the parties, it is provided that such decease shall have that effect.^ § 432. It is to be remarked in reference to this le- gislative provision, that upon the ordinary principles of law, it was supererogatory. It gives special part- ners and their personal representatives no more power than they had previously. As an affirmation, how- ever, of legal rights and faculties that already existed, the provision can do no harm. The 5th and concluding section of this law orders that every alteration in a limited partnership, accord- ing to the provisions of this resolve, shall be notified ' Fierli, ubi supra. ' Resolution of April 16th, 1838, section 4, Stroud and Brightly's Dig., p. 924. CH. XIT.] SECTION XXIV. OF THE STATUTE. 441 to the general partner, and shall be duly acknowledged, certified, and recorded, as in the case of the original formation of such partnership. § 433. The matter of the general dissolution of limited partnerships is regulated by the 24 th and final section of both the New York and Pennsylvania general statutes. The language of that section in each of those States is as follows : — Section XXIV. No dissolution of such partnership by the acts of the parties shall take place previous to the time spe- cified in the certificate of its formation, or in the cer- tificate of its renewal, untU a notice of such dissolution shall have been filed and recorded in the recorder's office in which the original certificate was recorded, and published once in each week for fo** weeks, in a newspaper printed in each of the counties where the partnership may have places of business. § 434. Before inquiring into the form of a dissolu- tion under the last section, it may not be inappropri- ate to consider first, the subject of the dissolution of copartnerships, generally, and at common law. § 435. A partnership at will, of the ordinary kind, (that is where no precise period was agreed on for its duration, at its inception,) may be dissolved at the express desire, or by the death, felony, insolvency, bankruptcy, insanity, banishment or absconding of one of the partners : The marriage of a female pairt- ner also works a dissolution; and likewise a partner- ship between citizens of two countries is dissolved by the breaking out of war between those countries. It seems, too, that partnerships are dissolved by a change 442 OF DISSOLUTION OF LIMITED PAETNEESHIPS. [CH. XIY. of the condition of one of the parties which disables him from performing his part of the duty; as by a loss of hberty,' incurable disease, irreclaimable drunk- enness/ a judicial or governmental prohibition to carry on his business, or by confiscation of his goods. § 436. In the first of the cases above mentioned, (a dissolution at the express wish of one of the parties,) the partnership is dissolved instantaneously by the mere fact of the announcement and at a moment's- notice, subject, however, to the proper accounts. In the words of Lord Eldon, "A partner, not for a term, has certainly a right to say, I instantly dissolve the partnership." The existence of engagements with third persons does not prevent the dissolution, though those engagements will not be affected, and the part- nership will still continue, as to all antecedent concerns, until they arir duly adjusted and settled. A reason- able notice of the dissolution might be advantageous to the company, but it is not requisite, and one partner may choose a very unseasonable moment for the exercise of his right.'' A dissolution thus effected by ' And (under the law of Spain,) by reason of violent teqiper. John- ston's Tiansl. Instit. Law of Spain, p. 232. ' The late Mr. Justice Story, (Commentaries on Equity Jurispradence, Vol. I., p. 619,) contends for the doctrine, that "a court of equity will, in case of a partnership existing during the pleasure of the parties, with no time fixed for its renunciation, interfere to qualify or restrain that re- nunciation, unless it is done under fair and reasonable circumstances; for if a sudden dissolution is about to be made in ill faith, and will work irreparable injury, a court of equity will, upon its ordinary jurisdiction, to prevent irreparable mischief, grant an injunction against such disso- lution." By the law of Spain, a partner who thus suddenly renounces the partnership, " is obliged to satisfy the others the damage and pre- judice occasioned by reason thereof." And " on a fraudulent renunciation all the profits thenceforward become common amongst the others." Johnston's Transl. of Instit. of Law of Spain, p. 232. The French law is similar, and the arbitrary exercise of this faculty to dissolve is kept CH. XIV.] SPECIAL PARTNERS CANNOT DISSOLVE. 443 one, operates as a dissolution of the whole society, and those who continue together are not to be termed remaining or surviving partners; the withdrawal or destruction of one member being, unless otherwise previously agreed, a dissolution of the entire partner- ship. This principle is of great importance, as it helps to designate clearly the basis and boundary of all accounts which are to be taken between the part- ners, and of the further existence of the firm for the purpose of fulfilHng binding engagements which could not be fulfilled previously. § 437. In the case then of a partnership for an in- definite period, either party may, at any time, put an end to the partnership by a simple notice to his copart- ner, and, a fortiori, that effect may be produced by a mutual agreement. Therefore, where A. and B. were partners in alum works for an indefinite period, K being a dormant partner: in January, 1829, it was agreed that the settlement of the partnership accounts and all questions concerning the respective liabilities, within bounds. As applied to limited partnerships, a recent decision in Cassation thus pronounces as to special partners : Le droit qui appartient %. ohaque associfi de provoquer la dissolution de la socidte, par I'expres- sion seule de sa volonte, de ne pas rester associ6, n'est point attribue aux simples commanditaires. Cour d'Appel deLyon, Feb. 7, 1849. Recueil G6n6ral de Sirey, P. 2, p. 435 — 6, Vol. 1849. Des Simples commandi- taires ne pourront se pourvoir que devant le tribunal arbitral, seul juge des affaires sociales et des actes des associes, et qu 'ils doivent des lors supporter les depens relatifs k Pinstance par eux engagee devant le tri- bunal de Commerce. Ibid. Which may be thus rendered : — ^The right appertaining to every partner to produce a dissolution of the firm by the mere declaration of his will and pleasure, that he will no longer con- tinue a partner, is not a right invested in special partners. The latter can only take action upon their interests before the arbiter tribunal, the legal and only judge of the social disputes and matters. And when they so recur, they must bear the costs incident to their proceeding before the Tribunal of Commerce. 444 OF DISSOLUTION OF LIMITED PAETNERSHIPS [OH. XIV. and the mode of winding up tlie affairs, and the man- ner and time of dissolving the partnership, should be referred to an arbitrator; and it was afterwards agreed that A. and B. should respectively bid for the plant, utensils, and fixtures, and the referee was to declare the highest bidder to be] the purchaser : in April, 1829, A., having been declared the highest bidder, became the purchaser, and the works were entirely given up to him; it was decided that the partnership was then determined, although the referee had made no order as to the dissolution; and that A. had no authority after that time to bind B. by a promissory note;' § 438. When the partners have expressly agreed by articles to form, and continue the association for a definite period, it is held, in England, that it cannot be dissolved, without mutual consent, before the period arrives. But it has been decided in New York, that the voluntary assignment by one partner, of all his interest in the concern, dissolved the partnership, though it was stipulated in the articles that the part- nership was to continue until two of the partners should demand a dissolution; and the other partners wished the business to be continued, notwithstanding the assignment. And in another case, in that state, it was held by one of the judges that there was no such thing as an indissoluble partnership. It was revocable in its own nature, and each party might, by giving due notice, dissolve the partnership as to all future capacity of the firm to bind him by con- tract; and he had the same legal power, even though the parties had covenanted with each other, that the ' Heath v. Sansom, 4 B. & Adol. 172. CH. XW^ BY DEATH. — SECTION XXIY. 445 partnersMp should continue for such a period of time. The only consequence of such a revocation of the partnership power in the intermediate time, would be, that the partner would subject himself to a claim of damages for a breach of the covenant. The late Chancellor Kent, in stating these dicta, seems to ap- prove of them, by suggesting reasons that give them plausibility and force.' § 439. The effect of a dissolution of a partnership is, to absolve the parties from all liability for future transactions, but not for the transactions of the part- nership that are past.* And neither one has an ex- clusive right to any part of the partnership funds or effects, until the joint accounts have been adjusted, and a balance in favor of one ascertained. On a dis- solution by death, however, the surviving partner is entitled to the exclusive custody and control of the choses in action and other evidences of debt belonging to the firm, which must be collected in his name : so of the books of account. § 440. Upon reperusing the last section of the sta- tute under our consideration, it wiU be perceived that it changes the law as above stated wherever limited copartnerships exist, pro tcmto. § 441. It would seem that not only the responsibi- lities, but the rights of the firm, continue as they were, until the whole of the requirements of that section are complied with. And it would seem, too, that not ' 3 Comm. on Am. Law, 40. * Therefore, it has been decided that a general dissolution of partner- ship between A. and B., does not operate to discharge A. from his re- sponsibility for the subsequent conduct of B. in respect of the engage- ments of the partnership with third persons, made prior to the dissolution. Ault V. Goodrich, 4 Russ. 430. 446 OF DISSOLUTION OF LIMITED PARTNERSHIPS. [CH.XlV. even the mutual consent of the members of the firm would dispense with the provisions of the sections as far as the trading public is concerned. But there ap- pears to be nothing to prevent any one general partner of the firm from efiecting a dissolution at his will and pleasure, by taking on himself to go through the forms prescribed by this section, and fulfilling its conditions, the same as a partner could before this law was pro- mulged, subject, however, to all the terms and respon- sibilities declared in other parts of it. In other words, this section seems to be intended only as a protectioiji for third persons, and to be designed to change the general law, as far as the right of one partner to dis- solve the concern is involved. § 442. It is very evident that a dissolution made according to the terms of this section,, whether by ge- neral consent or the act of any individual member, will leave past responsibilities and the rights of all as they were at the time of the dissolution. Whether the dissolution as to third persons be complete at the time of the first publication, — at the time when proved to have been brought home to any individual dealing with the firm, — or, at the end of the four weeks, — is a question that is left for the discussion of others. § 443. The form of notice of a dissolution under this section, may be as follows : Notice of Dissolution of Copartnership. The limited partnership entered into on the day of A. D., 1850, by A. B. and C. D. as general partners, and E. F. as special partner, trading under the firm of A. B., and C. D., Importers of French goods, (the certificate whereof is recorded in the office for recording deeds for the city and county CH. XIT.] NOTICE UNDER SECTION XXiy. 447 of Philadelphia, ia Book M. N., page &c.,) has been this day dissolved by mutual consent. [Or, hy the death of A. B. ; or, hy the withdrawal of the sub- scriber, dec, &c, and notice of this dissolution has been duly filed and recorded in the said office. The affairs of the concern will be wound up by, &c., at &c.] Philadelphia, December, 1852. (Signed by each of the firm.) § 444. The rule as to the vehicle or medium through which the notice of a dissolution is to be conveyed, is, in reference to general partnerships, this : General notice in the Gazette, of a dissolution, is sufficient, as to all persons who have had no previous deahngs with the firm. But as to those with whom the firm have dealt, such constructive notice is not enough. Actual notice must be shown; otherwise, as to these, the act of one of the former firm, in the partnership name, will bind all the former partners. This rule, however, does not extend to dormant partners : and actual dis- solution without notice, will protect them from the time of the dissolution.-' § 445. Whether all these rules are negatived by the last section of the statute before us, is a question that wUl admit of discussion. That section declares, that "no dissolution" shall take place until its pro- visions are complied with; the inference, then, might be contended to be, that where this is done ; that is, when a notice of dissolution has been filed with the recorder of deeds, and published once a week for four weeks in the Gazette, the' dissolution is complete as ' 3 Kent's Comra, 41. 448 OF DISSOLUTION OF LIMITED PARTNERSHIPS. [CH. XIT. to the whole world, and no private notice need be given to particular creditors, or other persons. Never- theless, it may be worthy of consideration whether, as a precautionary measure, and particularly where a dissolution is insisted on by one partner alone, it be not advisable to give private notice (in addition) to those from whom the firm has been accustomed to buy goods on credit.' § 446. Havii^ considered dissolutions induced by the acts of the parties, it remains to treat of dissolu- tions effected by the expiration of the term limited in the contract and in the pubhshed notice. As the statute exacts a publication of the time of the con- tinuance of limited partnerships at the commencement of the business, and prescribes the mode in which that pubHcation is to be made, it appears that no formal notice of the dissolution of the firm, at the end of the prescribed period, is necessary. § 447. This was decided by the Chancellor of New York in the case of Haggerty et al. v. Taylor et al.^ upon appeal from an order of the vice-chancellor of the first circuit, who held the same doctrine. The complainants, in that case, claimed to be creditors of the limited partnership of Booraem & Co., which was insolvent, and to be entitled to a rateable proportion of the assets of the firm in payment of their credit. ' In Chitty's "General Practice of the Law," under the head of Pre- cautionary Measures in anticipation of an Injury, Vol. I., p. 433, a ju- dicious statement of the law as to notice of dissolution of partnership, and notice not to give credit to a particular partner, and the consonant forms are to be found. Many useful hints may be derived from them by every species of firm, general, special, or limited, and the numerous forms there given by Mr, Chitty are of peculiar value and variety. » 10 Paige, 261. CH. XIT.] CASE IN EQUITY, 10 PAIGE, 261. 449 Prom the bill and answer, it appeared that in the summer of 1834, a limited partnership was formed between the four executors of H. Booraem, deceased, as the special partners, and T. L. Booraem and F. L. Clark, two of such executors, in their private capaci- ties, and J. B. Rathbone, as general partners; and the executors, as such special partners, under an authority- contained in the will of their testator, contributed $40,000. The partnership was to continue for two years and six months from the first of July, 1834. After the expiration of this time, the general partners continued to give and take notes in the name of the firm, but they stopped payment in April, 1837. In October, 1838, T. L. Booraem, who was largely indebted to the firm, persuaded the other acting gene- ral partners to give to the firm of Booraem & Dedrick, of which he was a member, the notes of Booraem & Co., for $15,000; two of which notes, amounting to about $4,000, payable eight months after date, were transferred before they became due to the complainants for a valuable consideration. Upon this case the chancellor said : "The only question necessary to be decided is, whether the complainants are creditors of the limited partnership, as such, so as to entitle them to share rateably in the assets of the firm with other creditors whose debts were contracted before the first of Janu- ary, 1837. The statute requires, among other things, that the persons forming a limited partnership shall state, in their certificate, which is to be acknowledged and filed, the time when the partnership is to com- mence, and the period at which it will terminate. As the terms of the special partnership and the time of its continuance are to be published at the commence- 2d 450 OF DISSOLUTION OF LIMITED PARTNEKSHIPS. [CH. XIY. ment of its business, every person dealing with the firm is presumed to have notice of the termination of the copartnership; so that no formal notice of the dissolution of the firm is necessary to be given, to prevent any of the general partners from charging the copartnership with new debts contracted after its termination. The statute also expressly provides, that every renewal or continuance of such partner- ship beyond the time originally fixed for its duration, shall be certified, acknowledged, and recorded, and notice thereof published, in the same manner as at its original formation; and that every such partnership which shall be otherwise renewed or continued, shall ibe deemed a general partnership. The limited part- nership of Booraem & Co., therefore, terminated on the 1st of January, 1837, not only as to those who had actual notice of the period limited for its continuance, but also as to those who had constructive notice thereof by the publication of the notice at the commencement of the partnership, as required by the statute. And those who were creditors of the firm previous to Janu- ary, 1837, are entitled to a preference, and should be paid rateably out of the property which then belonged to the limited copartnership. If the execu- tors have rendered themselves personally responsible to any new creditors, as general partners with Booraem, Clark, and Rathbone, by carrying on any partnership business in the name of the old firm, after the expira- tion of the time prescribed for the continuance of the limited partnership, the remedy of the complainants is by a suit at law against them in their individual capacities.'" ' See ante, 5 57 — 60, p. 74 : the remarks upon the peculiar construction of this partnership quoad the members of it, and a question made whether that construction were not in conflict with some provisions of the statute. CH. Xiy.] DISTRIBUTION OF CAPITAL. 461 § 448. The same doctrine as to notice after a (disso- lution, has been pronounced by the Supreme Court of Louisiana, that when a limited partnership is formed for a specific and definite period, and the contract has been regularly recorded in the pubUc office designated by the code, no other notice of the dissolution is ne- cessary.' § 449. The liability of a special partner closing with the dissolution of the firm, whether by agreement or regular expiration, he may, after the liabilities and debts of the concern are ascertained or liquidated, withdraw the capital cotttfibuted by him and' also his share of the profits.* And the rule and mode of pro^ ceeding may be stated as in the ensuing two sections. § 450. When a limited partnership expires, being perfectly solvent as to all its joint creditors, and is wound up, each special partner is entitled, in a distri- bution of the assets, to receive his share, unaffected by the debts of any other partner, and clear of all liens or process sought to be enforced by the creditors of any other particular partner against the residuary assets.^ § 451. A special partner who is a crdddtor of his firm for goods sold, money lent, or other consideration (except of course his interest in the capital, as to which he is a partner and not a creditor till payment of all debts and liquidation,) may come in with other credi- tors at the winding up, just as if he were not a partner. If he be a dd)tor to his firin for goods sold or money lent by the firm to him, he is liable as any other debtor, and ' Marshall v. Lambeth et aL, 7 Rob. Rep., 471. > Id. Ibid. ' 2 Fierli, p. 6, citing in note 10, Ansald de Comm. Disc. 36, No. 9, and Disc. 34, No. 33j Zanch. de Societate, P. 4, ch. 12, No. 127. 452 OF rassoLunoN of limited paetneessips. [ch. xiy, cannot set off his interest in the capital to an action brought against him for this debt, even though the firm is not only solvent, but has been prosperous, and has much augmented the capital.' But on the re- newal of a limited partnership, the indebtedness of a special partner to the renewed firm, (if renewed with the clear remaining capital stock of the first firm,) may be cmrvpenscded by, i. e. set off against the sum standing to his credit in the settlement of the first or expired firm.® § 452. On the dissolution of a limited partnership, the general or acting partners have a right, in the liquidation of the partnership, to continue to use the social name. A special partner cannot prevent their doing so; nor can his. knowledge that they continued to use the firm style subject him to any liability. The presumption upon which liability may be fastened on an ordinary retiring partner, who suffers his name to be used, or to remain as part of the firm, that the partnership was trusted on his responsibility, does not apply to a special partner; because his name can- not appear in that of the partnership; and because his liability, as to amount and duration, is determined by, and may be ascertained from, the registry of the contract which the law requires to be made. So long as he does none of those acts which by law impose on him the liabilities of a common partner, no one has a right to look beyond such registry.^ § 453. But, upon the same principles, the general or acting partners cannot, nor can either of them, use the social name so as to bind the special partners; ' 1 Fierli, p. 85. ^ Ibid. p. 88, note 13. ' Marshall v. Lambeth et al., 7 Rob. Louisiana Rep. 471. CH. xrv.] ON partner's selling otjt. 453 nor can the latter be bound by any acknowledgment of a debt or account, made by the former.^ § 454. Upon a dissolution caused by a partner's selling out his place and interest in the partnership, the remaining partners are entitled to keep exclusive possession, for the purpose of liquidating the debts and winding up the concern ; and the purchaser has no right to take a personal part in such liquidation, or to interfere in the winding up; nor can he, in a case where no improper conduct caa be charged against the remaining-in partners, have an injunction in equity against them and a receiver appointed/ ' LaAomette ■B.Thffltnas, 5 Rob. Bep. 172. • M'Glensey v. Cox, Com. Pleas, Philadelphia, August, 1852, Arner. Law Reg., Vol. I., No. 1 , p. S4. The following is the opinion (embodying all the facts) of the court in this ease: — Thompson, P. J^ — ^The bill filed ia this case alleges that Andrew B. Hirst, Charles D. Cox and James B. Smith entered into partnership for ihe parpose af carrying on the business of the City Hotel, on the 29th day of January, I8525 that the said Hirst, on the Ifith of July, 1852, having first offered to sell his share of interest in the partnership to his co-partners, upon their declining to purchase, soid his said interest to the complainant, that since the said sale to complainant, the said Cox and Smith have advertised a dissolution of the partnership, and that they are still in possession of the partnership property, and are endeavoring to collect the debts due the Sim- and further, that they refuse to make any equitable divisiott or settlement with said complainant. Upon these charges the bill prays for an account, and injunction to re- strain said respondents from collecting or receiving any partnership debts or moneys, and for the appointment of a receiver. The affidavit read in support of the motion for the injunction, and for the appointment of a receiver, goes further tibian the bill, and alleges mismanagement of the partnership affairs and property by the respon- dents. Upon the hearing of the motion the respondents presented counter affidavits, by which the charges contained in the bill, of their, re- fusal to account and to make an equitable settlement, as well as the allegation of mismanagement contained in the complainant's affidavit, are fully and positively denied. The respondents further show by their affidavits, that they requested the complainant to unite with them in taking an account of the partnership affairs, and that upon his refusal 454 OF DISSOLUTION OF LIMITED PAETNEESHIPS [CH. XIT. § 455. Of course the above doctrine could not be applied to the case of a sale by a general partner in Pennsylvania of his interest in the firm, under the act the partnership for the piirpose of adjusting and settling the interests of the respective parties. Upon the case, therefore, as presented upon the affidavits of the re- spective parties, the complainant is not entitled to an injunction. All the allegations made by the complainant are fully responded to, Eind his equity denied. But it is insisted by the complainant, that inasmuch as he is apurchaser of the interest of Hirst, one of the partners, he is entitled, upon the dis- solution which has taken place, to have a receiver appointed as a matter of course, even though all improper conduct on the part of the respond- ent has been denied, or did not in fact exist. It is not necessary to consider, in this case, whether a partner, who by his own act dissolves the partnership before the expiration of the term fixed for its continuance, can claim to have a receiver appointed, without alleging a breach of duty or of the partnership contract on the part of his co-partner, as the complainant does not claim to come into the firm as a partner, nor does his assignor, Hirst, appear in any way a party to the suit. The ground assumed by the complainant is, that the partnership having been dissolved, whether by the sale to him or by the notice given by the respondents subsequent to said sale, it matters not which, it is the ordi- nary case of a dissolved partnership, and that he, as the party in interest, is entitled to have an injunction and a receiver as a matter of course. Whatever may be the rights of a partner upon the dissolution, it is clear that he cannot transfer to a stranger his interest in the partnership, and thereby introduce him into the concern as a partner, (^Mason v. Cormel, 1 Whar. 381; Cochran v. Perry, 8 W. & S. 262; Horton's Appeal, I Harris, 67.) Can he, then, by a transfer convey to a stranger those rights which he possesses only because he is a partner? The stranger thus coming into the concern may be entitled to use appropriate means to ascertain the situation of the partnership ; he may demand an Eiccount and perhaps an immediate settlement, but not being a partner, he has no right person- ally to interfere, and the refusal of the remaining partners to permit him to do so, is no sufficient reason for depriving them of any rights to which their position entitles them. The remaining partners, after a dissolution thus effected, are entitled to hold possession for the purpose of paying off the debts and winding up the assets of the firm, (1 Harris, 67;) and in case where no improper conduct is charged in the complainant's bill, and where every thing like mismanagement is fully refuted by the counter affidavits presented, and where it further appeared that the complainant CH. Xm.] BY AGENT "WITH SPECIAL POWEE. 455 of April, 1838,* "with the assent in writing of his partner." Nor to a sale, under the same law, by the executor or administrator of a deceased general partner, "a corresponding alteration" having been made in the name of the firm, and the recording and publication directed by the section having been duly made. In such latter case, it seems that the law of Pennsylvania does not contemplate a dissolution, but supposes a right in the purchaser to become a partner and to take a personal share in the business and management. § 456. A dissolution of a limited partnership can- not be effected by an agent, except under a special power expressly conferred on him. The dissolution of a partnership is not an act of administration, and does not come within the general powers of an agent, acting under and constituted by the usual general form of delegation. Therefore, where a general part- ner upon going abroad, gave a power of attorney to A. for the transaction of his private business, and has had further opportunity to investigate the situation of aflairs, and 10 ascertain the value of the interest claimed by him, it would be a harsh exercise of the power of the court to deprive parties of their rightful control over their own property, without some more efficient cause shown than appears in the present case. The clause in the agreement by which the partnership was formed, which provides that neither of the parties shall sell or assign his interest without consulting the other parties and giving them the preference to buy such interest, is not sufficiently indicative of an intention to autho- rize the introduction of a stranger into the firm, to overrule the well established law on that subject. Indeed the complainant nowhere alleges that he became a partner under the clause referred to. It may have been introduced as a provision for an earlier dissolution than the term men- tioned in the agreement, but whatever efl'ect the provision may have had between the parties themselves, it does not clearly appear to confer on the complainant those rights which would, in the present case, justify the court in granting the present application. The motion for an injunction and for the appointment of a receiver, is therefore refused. ' Section 1, ante, p. 58 — 59. 456 OF DISSOLUTION OF LIMITED PARTNERSHIPS. [CH. XIV. another to B. for the administration of his commer- cial house; it was decided by the Supreme Court of Louisiana that A. had no authority to dissolve the partnership, and a dissolution of it by him, at the in- stance and with the consent of the special partner, was void.^ And where such dissolution was obtained from the agent by the special partner, with the sole view of withdrawing his funds from the partnership, and not from any just cause of complaint against the general partner, or well grounded fear of becoming liable in solido through defects in the original creation of the partnership, the act of dissolution will be set aside, the funds withdrawn by the special partner ordered to be restored, and damages according to the injury sustained by the general partner decreed."^ § 457. The matter of the winding up of commer- cial partnerships, after a dissolution, is, in case of disputes, of the nicest and most difficult character. It would scarcely then be excusable, if in a work like the present one, (which it is sought to render as practi- cal as possible,) were the writer to stop here without giving any account of the mode in Europe of settling the affairs of a dissolved firm of the limited liability kind, m pais vel in lite, amicably or judicially. It is notorious to the profession, and doubtless to many business men, (to their sorrow,) that in England and the United States, this matter, when partners quarrel, falls into the domain of chancery, which, through its masters, examines into the difficulties and settles them as best it can, at its own good tin^e, and at enormous cost, while receivers take care of the capital, and only restore it upon their own terms. This jurisdiction of ' Jonau V. Blanchard et al., 2 Rob. Rep. 513. » Ibid. CH. XIV.] EVILS OF THE JUDGE MASTER SYSTEM. 457 masters and receivers over the affairs of dissolved trading firms, has been aptly called, in a modern legal periodical, "the monster grievance,"^ "as to its ex- pense, its delay, the practical extortion which therein prevails, — and as to the want of power in the master, however he may desire it, to compel the parties to proceed."^ § 458. So deeply impressed was this same writer with the vital importance of the subject, that while recommending and urging the introduction of the limited partnership system into England, he states his conviction of the necessity , of connecting with that system " an appropriate court for the administration of partnerships 'pendente lite, in those cases in which the absolute dissolution, and sale of the property and effects of the partnership, and winding up of the con- cern, would he attended hy ruin, or by consequences disproportionate to the occasion,"^ if settled and wound up in the ordinary way by a court of equity. § 459. In France, there is none of this ruin, or heart-breaking delay, or outrageous expense, on the occurrence of a dissolution, whether forced or agreed on. This, it will be the effort of the writer to demon- strate, presently. But first, he will ask leave to show the contrivance resorted to by modern British legisla- tion, in the case of joint stock companies, which have been dissolved, or which it is sought to dissolve and to have wound up, for the benefit of creditors or shareholders. § 460. As these companies are not specially char- tered corporations, but are or may be creations under ' London Law Review for Nov., 1848, Vol. IX., No. 17, p. 2. ^ Id. Ibid. ' Ibid. p. 85. 458 OF DISSOLUTION OF LIMITED PAKTNERSHIPS. [CH. XIV. general acts of parliament of tlie reign of Victoria, for banking, insuring, manufacturing, mining, trading and other purposes ; partaking of the nature of public incorporation, and perhaps being quasi corporations without the limited liability of the former, upon cer- tain terms, conditions, and restrictions prescribed by those acts of parliament, it follows that the contrivance mentioned above, as that resorted to for the purpose of winding them up when dissolved, speedily, equita- bly and economically, without the interference of " that most detestable part of the most detestable court of justice, the masters' office of the court of chancery;" (for such is the strong but true language of the pow- erful English lawyer about to be referred to and quoted,) it follows that a description of it must be desirable and interesting to every legist in this coun- try, who desires to see our jurisprudence of limited partnership perfected, and brought into general and harmonious operation. The same vigorous and learned law periodical just cited, will furnish us with that de- scription. § 461. The learned reviewer thus introduces and details the subject: — "Equity. The most important Act under this head, is unquestionably the 'Joint-Stock Companies' Winding-up Act." To the law reformer this statute is one of high interest; not so much on account of the magnitude of the affairs it deals with, as on account of the novelty and importance^ of the principles of ' Act of Parliament of the Session of 1848 — 1849. ' This Act is also of much importance and interest from the care be- stowed on it, both in and out of the House, by most of the members of the Equity Bar now in Parliament, and more especially by those who are members of the Fees" Committee. CH. XIV.] ■WINDING UP IN ENGLAND. 459 procedure it introduces into that most detestable part of our most detestable court of justice, the Masters' office of the Court of Chancery. " There do not probably occur a dozen cases per annum of joint-stock companies dissolving themselves, and requiring to be wound up; and a small proportion only of those dozen cases requires the assistance of courts of justice; and if this Act is found to be an efficient one, the proportion of those who in future will need court assistance will be greatly lessened. The value to the public of any legal machine is by no means to be estimated from the number of cases which call it into action. The preventive effect of an efficient law is its highest and truest value to society. And we have little doubt that the mere passing of this Act will cause many companies which have remained unwound up (for instance, because shareholders had calls to pay; and would not pay, as there was no practical way of compelling therii,) to be now wound up, without the need of recourse to its provisions. We do not value this Act, therefore, because of the magnitude of the cases it has to deal with. Let us see it wind up one single case well, and we shall be satisfied to pronounce it one of the most important Acts relating to the procedure of the Court of Chancery which has been passed in our day. For the scheme of procedure it adopts, if it answer for joint-stock companies, will be also applicable to the larger number of cases to the discharge of which our great trustee Court is at present so entirely incompe- tent. To these bantlings she is at present an un- wieldy nurse — she first dandles them in Court, then puts them to bed and to sleep in the Masters' office, and there overlays and stifles them with the weight 460 OF DISSOLUTION OF LIMITED PARTNERSHIPS. [OH. XIV. of herself and of the layers of forms with which she always keeps herself enveloped. This Act takes the poor sufferer, to a considerable extent, out of legal nurse, and almost entirely disencumbers it from the enfolding forms. " To show the probable value of the Act, we will begin with explaining to our unlearned readers, as well as we can, why the Court of Chancery cannot now wind up a partnership. Contested cases are yearly going into its hospital, but they never come out cured : they die there, and yet are never dissected for the benefit of legal science. Why cannot the cure be effected? We will put the simplest case. Take the following. Suppose a concern with only two part- ners, each entitled to half the profits. As the junior partner gives the greater personal service, the senior puts in 20,000Z. capital to the junior's 10,000Z. Be- yond, all the capital is equal, or rather interest is allowed on all capital beyond, of which there is a vast sum. Both partners die: the junior survives, and nearly winds up the affairs. All the estate is got in; but the ultimate division is required. The exact net profits have never been taken ; but gross profits, not deducting bad debts, have been divided into two parts, and one added to each partner's account, thus avowedly showing to each partner's credit a very much larger sum than the concern, on winding up, could possibly pay. How is this deficiency to be borne? The executors of the junior say out of the 20,000Z. and 10,000Z., *. e. that the senior's estate is to bear two thirds of the deficiency. We don't observe on the legal merits of the question. Our readers may think it a foolish one — so do we. But this the ques- tion is. The junior's executors have all the assets; CH. Xiy.] WINDING UP IN ENGLAND. 461 they admit that, on their own showing, they have, say, 8000Z. to pay to the other estate; and the senior's executors claim 30,000Z. The junior's executors (this our Courts allow) are nimble at first, and become plaiiv- tiffs in a Chancery suit to take the partnership accounts. Once having the conduct of the case, they move slowly enough. The cause is heard in two or three years. The point might well have been then settled; but no! — our Courts don't give decisions on points of bare principle : the accounts are sent to the Master for him to take, without telling him how to deal with this deficiency. Once declare this point, and the par- ties could, and, if -they were honest, would, at once settle all beside. The Master can't make a report of mere principle; saying that such were the facts, and I think the principle of division should be so and so. The Court does not allow this : he must first deter- mine the principle, and then state and report the ac- counts in figures ; and then the report of figures must be excepted to, in order to raise the question of prin- ciple involved on appeal. But though the real ques- tion is so simple, the items which go to make up the balance-sheet and to show the exact amount of the deficiency are very numerous. The plaintifis have to pay some sum in any event : they find the Master is against them on the principle, and they then re- quire every figure to be proved. They have the stake in hand, and being plaintifis, they cannot be forced to pay it into Court. They claim to hold it without paying interest : their policy is one of procras- tination. In every account — inquiry between debtor and creditor, this must always be ilie case with the debtor. And so each one of hundreds of items becomes the subject of a distinct inquiry, entered into by one 462 OF DISSOLUTION OF LIMITED PARTNERSHIPS. [CH. XIV. party solely for delay. Each item must be proved by evidence as voluminous as would be required for many a case at Nisi Prius. When would such in- quiry end? The case we have put is, perhaps, the simplest case of partnership conceivable, and yet, in that case, we say, without hesitation, Never. The time to be required, like the parallax of the fixed stars, is incalculable. " Reader, this case is no supposititious one : we can refer to it, if need be, by name. Two or three years were taken in getting into the Masters' office — seven years were occupied there. A not inactive nor very incapable solicitor personally looked after it as soli- citor for the senior partner's executors ; a gentleman by no means unfairly captious opposed him for the junior's; and at the end of seven long years the plaintiff was forced to compromise the suit. "Multiply your two partners by 100 or 1000, mul- tiply your difficulties in some larger ratio, and you have then the join1>stock company partnership; and then apply your old Chancery procedure to that case. This of course would be absurd. "Such being the disease, what should be the re- medy? "The statute 7 & 8 Vict. c. Ill, was passed to meet this evil. It has never yet been used. Scarcely has there been an attempt to bring a case under it. The Act was framed, we feel bound to say, in most lamen- table darkness as to the real evil and the real remedy. The scheme of that Act was to make a qvxid bank- ruptcy of the joint or partnership estate, and to leave the partners still individually liable, and in the pos- session of their private property. A creditor was to set it in motion. But the proposed proceeding might CH. XIV.] WINDING UP IN ENGLAND. 463 as well have been called a Lunacy. For what credi'^ tor would be such a lunatic as to go to bankruptcy for a mere dividend, and that for all the other credi- tors as well as for himseK, and that, too, only out of the jomt assets, when by suing at. law he might have recourse, for his own exclusive benefit, to both the joint and separate estate of every shareholder? " On the occasion of the passing of that statute, the views just expressed were represented, on behalf of a dissolved joint-stock company at Liverpool, to the Board of Trade, by the gentlemen who ultimately drew the scheme of the present Act; and shortly be- fore Sir Robert Peel's government retired, the Board of Trade resolved to have a new bill prepared in con- formity with the principles carried out in the Act we are about to review. Some of our contemporaries have surmised that the recent Act was drawn with- out the aid of persons of much practical experience. So far from that beiug the case, the bill was put in type and circulated, by direction of the Board of Trade, among the Masters, Masters' clerks, record and writ clerks, registrars, and other ofiicers of the Court, and received very great attention from many of them through the six months previous to its intro- duction into Parliament. It was sent to some of the officers of the Chancery Court in Ireland, and every suggestion received minute attention. A most com- plete analysis was prefixed to the prints of the bill as it passed through both Houses; and the fullest criti- cism was courted. During its passage it was watched with great care by the members of Parhament before alluded to. The framers considered that while the bankruptcy procedure was the only one known in England fitted to the business of winding-up joint- 464 OF DISSOLUTION OF LIMITED PARTNERSHIPS. [CH. XW. stock companies, the whole of the rules of law which would come into play in the administration were ne- cessarily rules of an Equity Court. And that there- fore these rules must either be imported into the Bank- ruptcy Courts, and those Courts be made into complete Equity Courts, with powers of issuing writs, levying execution, &c., or else that a bankruptcy procedure must be imported into the Masters' office. On this latter principle the Act is formed, and the plan is carried out in the following way. "Any partner having an interest in winding up a joint^stock company may petition in a summary way to have it wound up. This petition he may serve, and advertise and circulate by post, in such way as he thinks most likely to satisfy the Court that as full a notice of the apphcation has been given as the case requires. On the hearing, if the Court is satisfied that there are sufiicient grounds for the order, but it de- sires further notice to be given, it may make, if it please, an order nisi (an entire novelty on merits, in Equity,) and require such order nisi to be served or advertised as it may think most likely to meet the notice of all concerned. And when satisfied both with the need of interposition, and that there has been sufficient notice, then it may issue its fiat for winding up. In this method the framers proposed to satisfy the principle of the Equity Courts, (a principle which true justice must always imperiously insist on,) of having all parties interested made, as far as possi- ble, parties to the proceeding. Or rather they satisfy the true exigence of the principle, and yet avoid all the technical difficulties, practically so insuperable, of naming them parties to the record, by making them primes to it. CH. XIV.] EECENT ACT OF PARLIAMENT. 465 " This first process is analogous to what the fiat in bankruptcy was before it was allowed to degenerate into a mere empty form : and, except by way of ap- peal, the Court will hear no more of the case after it has made the winding-up order. The Master first appoints one or more official managers. By their appointment all the real and personal estate is vested in them. They are ike Company. They make out and complete its accounts, and the accounts they make are primd fade binding. In this way it is in- tended to avoid all power of procrastination by the debtor accounting-party. From time to time, at their instance, the Master makes calls. These calls are debited to each shareholder's account. If the debit makes him on its balance a debtor to the concern, he is ordered to pay it. On notice, and after allowing time for appeal, the Master makes an order for pay- ing the balance. This order has the force of a judg- ment, and execution can be issued on it, not only in England, but in Scotland or Ireland also, without new suit in those countries. "All appeals are by motion to discharge the Mas- ter's order, — the cheapest and quickest form of appeal known among our different schemes of procedure. " The Masters have power to act for one another without order of transfer. Indeed the Act wisely contemplates sending all these cases, or perhaps only the earlier ones, to one and the same Master, instead of sending them into the office by rotation. The good effect would be the establishment of a uniform usage and practice, which will much facilitate the working of the Act hereafter. "Full powers to compromise all claims are given to the official manager and the Master. No shareholder 2£ 466 OF DISSOLUTION OF LIMITED PARTNERSHIPS. [CH. XIV. will be able to plead the non-payment and insolvency of another shareholder as a reason why he should not pay what the liabilities of the concern require from him. Thus the insuperable difficulty of our present Equity procedure, the need of adding assignees of a bankrupt, executors of a deceased, &c. to the record, is attempted to be got over, without sacrificing the real justice of the case. And if too large a sum is raised by calls, or where there are otherwise assets to distribute, the official manager is charged with the task of distribution; — ^in all matters, however, being under the Master's control. "Another principle, new in Equity, and yet of vast moment to the procedurist, and of peculiar scientific interest, is introduced by this bill. The analogy of assignee-choosing is adopted from bankruptcy; and where there are questions of class difference arising between sets of shareholders, each set is to choose its xepresentative to discuss the question in their behalf. " The Act is one entirely in the interest of share- holders, and is merely a substitute for a dissolution suit. Creditors are therefore no farther affected by this bill than that, after an official manager is ap- pointed, they are bound to send in proof or claim for their debts before the Master, so as to enable the official manager to raise and pay them, if he thinks the debt due. The Act, however, allows the Master, with the creditors' consent, by issue or otherwise, to put the validity of the claim in course of trial. "An important addition was made to this Act in the House of Lords by the Lord Chancellor. By a few words introduced into the^title, preamble, and the 19th section, he has enabled the Court, on the hearing of any suit for dissolving or winding up a common CH. XIV.] OFFICIAL MANAGERS TO WIND UP. 467 partnership, to order it to be wound up under this Act. " It is also to be observed that service of orders, &e. under the Act by post is, for the first time, made good service. "Siich is a general outline of the novelties of the present Act. We suppose we shall next, according to usage, see our judges, or some of them, attempting to thwart its objects and working in every way in their power, wishing thus to show their contempt for an effort in the cause of legal improvement which, if it prove altogether abortive, at least deserves respectful consideration from every one who desires to see the laws and tribunals of his country respected." § 462. That this earnest prayer and monition of the enlightened and honest reviewer, may be heeded by English judges, is a consummation of the greatest moment to British capitalists. Happily, in Pennsyl- vania, and many other States, judges immediately chosen by the people will not venture on the perilous task of "thwarting" the will of their representatives declared in their halls of legislation. Such was once the practice; and notably, in reference to the act of 1806, of the Legislature of Pennsylvania, which allowed suitors to substitute their informal written statements, and counter-statements of claims and de- fences, in civil causes, for the precise and technical forms and precedents of the science of special plead- ing. Indeed, it was a statute that, instead of being hailed and moulded for good, was not merely thwart- ed, but was gradually strangled, and as deeply as possible inurned. If the Legislature of Pennsylvania should think proper now to devise a scheme by which partnerships in the large metropolis of that State 468 OF DISSOLUTION OF LIMITED PARTNERSHIPS. [CH. XIV. could, in the event of disputes and dissolution, escape the clutches of masters in chancery, which even there strike into their vitals, the people of that metropolis will take care that the enactment is not thwarted by judicial action, iu revenge for the abstraction of che- rished patronage. §463. We wiU now enter upon a tableau of the French legal method of settling the affairs of a dis- solved partnership, by a disinterested and capable third party; and here our task, instead of the com- paratively easy one of selecting and transcribing from the pages of a writer in our own vernacular, will be that of translating and condensing from those of an author in a foreign tongue. For the account that follows of that method, (being a complete synopsis of its rationale and modus operandi,) the author of this work will be agaiu indebted to the same great jurist, who has already contributed so much valuable matter to his pages : he means, to the work of Troplong on the Law of Partnerships in France. § 464. For the purpose of winding up a partner- ship there, the services of an agent are resorted to, particularly in cases of dispute or difficulty; which agent is denominated a Liquidator. The rationale of his agency is thus expressed by the author above named : " There are few partnerships whose business is so clear that it can be halted in an instant, settled, and the assets distributed: for, there are almost always operations commenced, carrying with them new rights, and imposing new obligations. The partnership has also debtors who are either solvent or insolvent, and their position must be defined. It may also possess real estate, and that must be valued. It may be CH. XIV.] LIQUIDATORS IK FRANCE. 469 creditor or debtor to its own members, and their ac- counts must be adjusted by rendering up or taking back. All this requires time and care, for complica- tions are sure to be engendered, and a liquidaior be- comes, most generally, indispensable."^ "Logically, a liquidation ought to be accomplished by all the partners reunited. And when harmony reigns amongst them, this is their task. But the mo- ment of a dissolution is the moment in which dissen- sion bursts forth. Sometimes, one or more of the partners may be absent, or personally incompetent, or under age, and all these causes combined may surround an amicable settlement with insurmounta- ble difficulties. A resort to law for liquidation, in such a contingency, is frightful, and may be ruinous, from its delays, its expense, and its uncertainty. In commercial disputes, rapidity and economy of decision are indispensable. Repudiating, then, the drags of the civil law in matters of partnership accounts-ad- justing, partition, and distribution, the usages of modem commerce have originated the theory of a liquidator ; a theory not mentioned by Pothier. Prom it sprang the now general practice of appointing one or more hquidators empowered to represent the part- ners, clothed with all their powers, and charged to bring about a final settlement. Although not dating back further than the 18th century, the usage is now so frequent, that some hold a liquidator is necessary to every partnership. In a legal point of view, this idea is erroneous. The appointment must be agreed on, either in the articles of copartnership, or subse- quently."^ ' Des Societes, VoL II., No. 999. » Ibid. Nps. 1002, 1003. 470 OF DISSOLUTION OF LIMITED PARTNERSHIPS. [CH. XIY. " As to the role of a liquidator, that is easily defined. He is an attorney in fact, and no more. It is his task to settle that which is in question; to unravel that which is obscure ; to conclude that which is unfinished ; in a word, to extricate the actual capital from its lia- bilities: [degager V adif dv, passif.y " M. Pardessus has observed, that ' a liquidator is not presumed to have fewer rights than the original partnership; he is the partnership itself This pro- position is too general, and has been the source of numerous mistakes. It is not true that a liquidator unites in himself the whole powers of a dissolved partnership, or even those of managing partners. The partnership was established for business undertakings ; the liquidator of it is named to terminate what has been undertaken. He cannot buy to sell again; but must sell what is left in the stores or ware-rooms. He cannot make or endorse notes or bills in the name of the firm. He cannot borrow to pay its debts. When without the means to pay its debts, he must notify the partners of the fact; if they furnish him with no means, he must leave the creditor to his remedy at law.^ He may, however, be invested with all these powers in the deed of copartnership or in the agree- ment that appointed him. He cannot mortgage, pledge, or hypothecate the partnership property."^ " But he is seized of all the partnership capital, and holds in his hand all its values. It is for this reason, that to guard himself against alleged responsibility, he should have an inventory and appraisement taken. ' Des Soci^tes, No. 1009; citing a decision in the Court of Cassation, of 15th January, 1812. 2 Ibid. Nos. 1010, 1011; citing numerous authorities, » Ibid. No. 1022. CH. Xrv.] LIQUIDATORS IN FRANCE. 471 The law does not prescribe this, but prudence dictates it. During the elaboration of the Commercial Code, it was proposed that every liquidator should be re- quired to give surety, and this even in opposition to the agreement, the moment a partner should step for- ward and offer to liquidate on the same condition. But such a modification of an agreement, after its inception, would amount to a violation of it. Yet the agreement may stipulate for security from him before he enters on his duties. "The liquidator collects the debts of the firm, brings suit, and gives receipts. A debtor who pays a partner, after public notice of liquidation, is not dis- charged.' The clerks and other assistants in the busi- ness account to and take orders from him. He ascer- tains the account of the firm with each partner, and he balances, or rather sets off the debt of each partner to the firm against his share of the capital. He sells every thing destined to be sold, or necessary to be realized: — goods, wares, fixtures, personal and real estate. As fast as assets or moneys come into his hands, he must discharge the debts of the firm, and not suffer its credit to be impeached or impaired un- necessarily. "A liquidator is an officer j»ro hdc vice, himself, and has no need of the presence of a notary or other func- tionary in settHng the division or making distribution under the final balance-sheet. He represents the partnership for the service of adverse process; and must defend all suits brought against it. " But he cannot compound, compromise, or release the claims or credits of the firm, (for partial satisfac- ' Des Societ6s, No. 1041. 472 OF DISSOLUTION OF LIMITED PARTNERSHIPS. [CH. XLY. tion,) without express authority in the instrument of his creation. This has been expressly decided by the higher court of justice.' "Every liquidator should be named in the articles, if possible; at least, the ultimate appointment of one should be agreed on. K this be not so done, it requires unanimous consent to appoint one on a dissolution. A majority of partners will not suffice, notwithstand- ing one author thinks to the contrary."^ § 465. This right of veto in a single partner against the appointment of a liquidator is fecund of inconve- niences. For this reason, the original articles should always stipulate for the naming of one by a majority of the partners. Suppose, for example, a dissolution; differences between the partners, and a refusal by some to agree on a liquidator; in that case, they must either all join in the winding up, or usage gives to the tri- bunal of arbitrament the functions of liquidator. So, if an original liquidator die, or betray his trust and be dismissed.^ Arbitrators thus invested with autho- rity, dictate the mode and course of winding up and distribution,* in the liquidator whom they may appoint. Generally, they appoint a former managing partner of undoubted integrity and capacity, or the most re- spectable of the partners; or a stranger.^ § 466. It is an essential rule that there can be no liquidator without an express mandate. Therefore, ' In Cassation, Jan'y 15th, 1812; Ibid. No. 1023. 2 Ibid. No. 1025. But such is the usage of Belgium; Ibid. No. 1027. ' Ibid. No. 1028—1030. " Ibid. No. 1031. 5 Ibid. No. 1032—1033. What is this tribunal? How are the arbi- trators appointed? It is a forced tribunal, appointed on petition by the Tribunal of Commerce; its judgment has the effect too of a court of record, and in partnership controversies is to be rendered speedily and economically. Bousquet, Diction, de Droit, Vol. I., p. 131; } 2. CH. Xiy.] LIQUIDATORS IN FRANCE. 473 where the last surviving partner of several assumed ipso facto, the quality of liquidator, the court of cassar tion decided that he had no such privilege; but that he must call together the heirs or personal representa- tives of the other partners for the purpose of pro- ceeding to a joint choice of a liquidator.^ § 467. A liquidator, who is a partner, once agreed on, or appointed v/nder the articles, cannot be dismissed except for cause shown to the tribunal of arbitrament. But one appointed after a dissolution by the partners themselves may be revoked. So a stranger liquidator may be revoked, whether appointed in the articles, or after the dissolution.** "And now as to the duties of the liquidator in re- ference to third persons. If partners are re'Sponsible to the firm in any way, or owe it money, the liquida- tor must act against them as third persons. So if any partner be a creditor of the firm, or have a claim on it of any kind, he must address himself to the liquidator.* " In order to impress upon a liquidation all possible celerity and unity, the partners are restrained from interfering in it, and from importuning or vexing the liquidator.* "The liquidator must also carry out the unexecuted contracts which bind the firm, and which cannot be disregarded without liabiUty for damages. He is the firm, as to all its unfinished engagements and social obligations;^ although his intervention cannot shield the individual partners from actions by third persons who may have claims on them personally.^ ' Troplongdes SooieteSjVol. II., No. 1033. » Ibid. No. 1034—1038. » Ibid. No. 1040. ■• Ibid. No. 1041. 5 Ibid. No. 1043. « Ibid. No. 1044. 474 OF DISSOLUTION OF LIMITED PARTNERSHIPS. [CH. XIV. "As liquidator of a dissolved firm, a stranger is only liable for its debts, &c., to the extent of the assets which he receives. If he be also a partner as well as hquidator, his separate estate is liable as that of other partners, in ordinary cases.' "If a liquidator be or have been a special partner of a limited partnership which he is appointed to wind up, he cannot be distinguished from any other stranger liquidator.^ " But where the general partner is liquidator, as he may be, and a special partner has a claim as a credi- tor for money lent the firm, (besides his cash contri- bution to the capital which was all paid in,) he sues the liquidator, as any other creditor would, merely for the amount of his loan, and the defendant, being general partner as well as liquidator, is liable in both capacities and in all his estate, for the amount.^ "On a liquidation, the statute of limitations bars claims against the 'partners after five years ; against the hquidator, who is a trustee, after tMrty years.^ But if the liquidator be also a partner of the firm, he re- mains liable for thirty years, and cannot plead the statute after five years, to an action brought against him as a partner as well as liquidator. But in such case, he would have his action against his copartners for contribution."* § 468. Such is a view of the system of winding up partnerships in the two great countries situated on the north and south side of the Enghsh channel; and the question is, which is preferable in point of • Troplong des Societes, Vol. II., No. 1045. » Ibid. No. 1046. ' Ibid.; citing a decision in Cassation, of April 8th, 1828. « Ibid. No. 1049. « Ibid. No. 1051. CH. XIV.] WINDING UP IN THE UNITED STATES. 475 celerity, simplicity, economy, and justice? It is an important question for the lawgiver in the United States. Limited partnerships, on an imposing scale, cannot certainly urge their onward career, with com- fort and advantage, under the imperfect statutes at present existing in various States. No assistance to them can be expected from the courts. Even in the matter of the winding up of ordinary partnerships, at this day, we are no better off than they are in England, in this State of Pennsylvania. As to the city of Philadelphia, the principal civil local court of which was invested, but a few years ago, with full equity jurisdiction, it is as much under the dominion of masters' jurisdiction and receivers' graspings, in cases of partnership disputes, as any other city in the Union. § 469. The judges of that tribunal, on entering upon that equity domain, merely adopted the rules in equity prevailing in the Federal courts; but, with full power to make rules, (and, be it known, that in Pennsylvania rules of court have a peculiar efficacy and sway; indeed, in matters within the control of rules of court, they have the reach and influence, for good or ill, of statutes;) that tribunal devised no improvement in the rotten action of the English system ; nor attempted, nor even suggested any noble or great reform, nor reform at all; but on the contra- ry, grasped at and enforced chancery practice extant from the days of Lord Thurlow, with all its delays, aU its corruptions, and all its demoralizing vexations.' ' In order to demonstrate this, the writer will here introduce an article cut from a recent number of an English periodical, to exhibit what has Just been done in England in the matter of reform of chancery practice, and he will follow up the quotation with some remarks of his own :— 476 OF DISSOLUTION OF LIMITED PARTNERSHIPS. [CH. XIV. It is true, that the tribunal principally responsible for all the evils of such a state of things, and others originated and perpetrated under the authority of its The New Orders of the Court of Chancery. — The new general orders, so anxiously expected by the public and the profession to give effect to the recent act " to amend tlie practice and course of proceeding in the High Court of Chancery," have now been published. Their general character and operation maybe thus described; but to make the description clear, the old mode of procedure must first be adverted to : — Hitherto the complainant has commenced his suit by filing his bill of complaint written on parchment, and summoning the persons against whom he proceeds by means of writs of subpcena to appear and defend themselves against his complaint. Beyond the fact that a bill had been filed, which he was required to answer, a defendant in a Chancery suit could know nothing of the nature of the proceedings against him until he had taken, at considerable cost, an office copy of the bill; and prac- tically each defendant had to take an office copy. Then, after an interval of time — though shortened of late, still needlessly long — the defendant must put in his answer to the bill, though perhaps he admitted or denied all the allegations of the bill, or perchance had no knowledge, one way or the other, about any of them. But know he little or much about the questions asked, the defendant must answer; for the practice, under a modern general order, of serving a copy of the bill, had only a limited application. Then, of every answer, useful or useless, the plaiatiff had to take an office copy, and the accumulation of paper in suits involving many details, or much documentary matter, or to which there were many defendants, often became perfectly frightful. Then .the power a plaintiff had to compel a defendant to set forth in his answer, in so many words, lengthy accounts and documents, was constantly made an engine of much oppression. Now, by the recent orders, when a. Chancery suit is commenced after the 2d of November (last,) the plaintiff will prepare his bill according to a concise form given in the new orders, which he must have printed " on writing royal-paper, quarto, in pica type, leaded," with blank paper of the same kind interleaved, and this is to be filed with the clerk of the Records. Instead of serving a subpQsna, a mere writ of sum- mons, the plaintiff must then serve each defendant with a printed copy of the bill, on which is an indorsement informing him when he must appear, and the consequences of his non-appearance, such copy having been authenticated by the stamp of the Record Clerk. The bill is to con- tain no interrogatories, but if the plaintiff requires an answer from any defendant, separate interrogatories may be filed for examination of the defendant within eight days after the time limited for the defendant's appearance. Each defendant is entitled to demand ten printed copies of CH. XIV.] WINDIKG UP IN PENNSYLVANIA. 477 jurisdiction by its favorites, which have branded their demorahzing influences upon the body politic, — ^was broken down by the people, in 1851, and in its stead the bill from the plaintiff, at a fixed price, one half-penny per folio of seventy-four words. Thus the bill having been once printed, aU the various parties to the suit have the benefit of this convenient form in every stage of the proceedings; and though in some cases the first cost to the plaintiff of printing the bill may rather exceed that of a single written bill, yet in the end — ^the unsuccessful, as a rule, having to pay ultimately all the costs — the saving at the termination of the suit will most likely be very considerable. If amendments or additions are re- quired to be made to the bill, they are to be printed and served in the same way as the original. The orders give a concise form for answers. But if no answer is required by the plaintiff, or thought necessary by the defendant, he merely files a replication, and leaves the plaintiff to prove his case in the best way he can. At the end of three months, if the plaintiff has not proceeded with his suit effectually, so as to bring it to a hearing, the defendcuit may move to dismiss the bill for want of prose- cution, when the court may make such order as may be just and rea- sonable. Thus a defendant can never have a suit hanging over him more than three months, unless there be substantial and active proceed- ings in the cause. In many cases the object is to get a speedy hearing; probably there is little or no dispute as to facts, and all that is wanted is the decision of the court on legal questions. In other cases, again, prompt decision is of the essence of justice. This is now provided for; when the defendant's time for answering has expired, the plaintiff may move for a decree, giving a month's notice, and previously filing all the affidavits he means to use, and giving at the foot of his notice a list of such affidavits. In fourteen days the defendant must file his affidavits in answer, giving his opponent a list of them, who has seven days more to file affidavits, which must " be confined to matters strictly in reply." When no such motion for a decree is made, but issue is joined, either party may give notice of his intention to examine the T^-itnesses orally, when that mode of taking the evidence is to be adopted; but where neither party requires oral examinations, the evidence will be given by affidavits. Thus it is obvious that with the reciprocal power plaintiffs and defendants will have of forcing on suits to a termination, and with the necessity both parties will be under of proceeding promptly, a Chan- cery suit will take no longer time than may be due to the substantial merits and difficulties of each case. When to this we add the abolition of the Masters' offices, and the substitution of the judge before whom the whole cause has to be heard, as the functionary by whom all inci- dental questions arising in the progress of the suit are to be decided, and 478 OF DISSOLUTION OP LIMITED PARTNERSHIPS. [CH. XIV. other judges were chosen through the ballot-box. Nevertheless, the evils of that practice in chancery still prevail; and the legislature alone seems now the the great reduction of fees payable by suitors, we may fairly anticipate that the Court of Chancery will be deemed much more generally than heretofore a fountain of prompt and speedy justice. — (Examiner.) Now, there was nothing in the world to prevent our new fledged Chancellors from devising and introducing the same new procedures ; and if there had been, the legislature would have conceded them the power upon the asking. But instead of reflecting what a curse the old routine of equity practice and pleading was then proving to the English people, fastened on them, as it were, like a vampire, and their tribunals powerless to destroy it, our judges embraced the abominable details of the system with ardor, administered them in all their strictness, and actually took a parvenu's delight in their little new learning and their great uew jurisdiction. If there had escaped from them, (in the course of their administration of this important jurisdiction,) a breath of sym- pathy for tlie community whom they were overlaying as with an incubus, or a single regret for the misery that their course must necessarily entail upon families, it might seem in bad taste to advert to their history here, now that they are consigned to retirement. But the fact was the reverse. We had upon our backs, as soon as practicable, the whole English system of examiners, masters, and receivers, in all its glory ; and that merely (cumulated with a mass of other patronage, already worse than odious,) to benefit and enrich a few favorites at the bar, who were totally devoid of any exceptional claims to the spoils ; and who, when the hoiir of peril struck, and clouds of disgrace were gathering in the horizon, were utterly impotent, had they been disposed, to befriend their bountiful patrons. Whether the new court, elected by the people, means to do any better, remains to be seen. If they do not, let them look to it. A kneM of parting power can just as readily be tolled for them. It will not mend the matter for this court to withdraw its patronage from the few who formerly monopolized it, to dispense it amongst the whole bar — as the writer is informed is done at present. This is only to add new parties to the ignoble scheme hatched fifteen years ago, to fleece the people of Philadelphia, and can have no other effect than to perpetuate it. When, in 1850, we, the citizens, took the judiciary-ap- pointing power from the governor and senate, in order to exercise it our- selves, we thought we were crushing this hydra of spoliation and mis- chief; and in 1851, when we actually did appoint new judges, we deemed it not only dead, but viewed its cadaver as with the green of decompo- sition upon its hide. Why then this attempt to galvanize it into a counter- feit existence ? Is it possible that those judges cannot see the conse- CH. XIV.] WIKDING UP IN THE UNITED STATES. 479 only power able effectually to extirpate them. Ex- emplars of remedies they have in the two systems just presented, of English and French institution. Which will they pattern by? § 470. The Lord Chancellor, as stated by the Lon- don writer quoted, made a valuable suggestion; which was, to allow courts of equity the right to invoke the application of that act of Parliament to partner- ship controversies on a dissolution. Yet the whole act is tainted with analogies borrowed from the old procedure; masters are still to be recurred to in cer- tain exigencies; indeed, it seems as if the tenacity of the polypus to the diseased flesh which has bred it, is exemplified in this recent instance of English chancery reform. Not so the French invention. There is a freshness, a simplicity, a business-look, an honesty of purpose, in its outline and filling in, that is as worthy of imitation and admiration, as any thing that ever emanated from the style of the great Ko- quences of such policy'? How are the public officers to be restrained from infractions of the fee-bill, as long as their legal master is doing worse than they ? A quarter of a century ago the charges of the sheriff of the city and county of Philadelphia, were, in several respects, fifty per cent, higher than was set down in the fee-bill ; the same charges are now one hundred per cent, higher. Would that fanctionary ever have dared to set the law at defiance as he has done and is still doing, if he had not found a warrant for his plunder and peculations in this indirec- tion of the court? The only way left for the court is in regard to this immense patronage to adopt the odi et arceo principle of us citizens, and to shake it ofi'. If they cannot do it of themselves, the legislature will aid them. The country counties never allowed themselves to be made slaves to auditors of trust accounts, but maintained their rule of accounts confirming themselves, unless excepted to — which was also our rale twenty years ago. The result is, that the country has not suffered from violations of the fee-bill, by its sheriffs, registers, recorders, and prothono- taries. This canker of demoralization must therefore be burnt out, as soon as possibly feasible. The sooner the better for those implicated. 480 OF DISSOLUTION OF LIMITED PARTNERSHIPS. [CH. XIY. man lawyers who framed the Codes of Justinian, It is to be noted too, that this invention of liquidators is not a part of the French code of commerce, but is the work of the business and trading community, sug- gested contemporaneously with the promulgation of the code by the experience of merchants and practical men. Clauses for the appointment of liquidators, either with or without defined powers, having been introduced into all well drawn articles of copartner- ship, the courts were obliged to recognise them and to supply the explanatory jurisprudence. The sys- tem as it now works in France is not only beneficial, but is indispensable. The writer bespeaks for it, in any future effort at reform, the earnest attention of all republican legislatures. He also says to limited partnerships, incorporate its chief features in your deeds of association. If they be wisely framed in this important requisite, they become, even though misfor- tune overtake them, at least safe from the fangs of the law as it now exists. CH, XV.] SUITS AGAINST SPECIAL PARTNEKS. 481 CHAPTEK XV. OF LEGAL jAND EQtnTABLE REMEDIES AGAINST SPECIAL PARTNEKS. I 471. First, of legal remedies. When, for any alleged violation of the statute, it is sought to make special partners responsible m so Udo, the writ. must be sued out against the general partner ox partners, and the special partnej or part- ners who may have become liable, as if they had all been originaliy general partners. If only one of the latter has rendered himself liable, he alone should be joined in the action, as a defendant with the general partners, unless, indeed, the case of a false statement wade in the certificate and affidavit prescribed in the 6 th and 7th sections, should have occurred, when, according to the letter of the 8th section, (dl the part- ners are declared toljaveijacurred a joint general re- sponsibility. § 472. In instituting an action against a limited partnership in which there are several general and several special partners, and it can be proved that all Qi the latter have made themselves liable in solido, the consideration naturally arises, whether the re- medy a,s to them is joint and several, or joint only. If the latter, all must be sued; if joint and several, a selection may be made of such special partners as it is most convenient to sue. Against the general part- 2f 482 OF REMEDIES AGAINST SPECIAL PARTNERS. [CH.XV, ners, the action under the common law practice must of course be joint, and no one of them can be omitted. If but one special partner have become liable out of se- veral, the question does not arise. But if all the special partners have become liable, must they all be included in the writ, or can any of them be omitted? In the absence of authority on the subject, the question can ,only be discussed on principle. Common equity would seem to require that in such a case all the special part- ners should be sued together, in order that each one might be burdened with but his proportion of the damages. It is true, that they are only qvasi part- ners of the firm; and they are not partners amongst themselves. Their interests are separate; each is a creditor of the firm for his own contribution, and the only common bond of interest between them is their proportionate equality in the profits. It would per- haps be the safer course to join them all. § 473. According to Fierli, however,' an action in ■solidvm, against a limited partnership, by a creditor, may be maintained against all the partners liable, or against those who may appear most eligible; (puo ■esigirlo tutto da chi di loro piu gli sembra vantag- ^oso;) and where there are several specisfl partners equally Hable with the general partner, the creditor is not bound to split his claim and direct his action for proportional amounts against the defendants. (Non e tenuto a divider suo credito, e a dirigere I'azione a rata contro tutti i compagni.) But if any special partner has become surety for the partnership, (as he clearly may to any creditor who chooses to ac- cept him as such at the inception of a contract,) such 'Vol, I., p. 113—114. CH. XV.] DEATH OF SPECIAL PARTNER DEFENDANT. 483 as, co-obligor in a bond, or endorser, or acceptor of a note or bill, there, undoubtedly, the plaintiff must view him, not as a special partner, but as he would any other third person who might have been induced to guaranty the firm, and so direct his action.' § 474. Supposing that all the special partners have become responsible for the debts of the firm, and a creditor has elected to sue them all, or that it is his interest to do so, he may be met by the fact of the death of one or more of the special partners;— the only ones, perhaps, who were solvent, and who have left adequate estates. In such states of the Union as possess separate and distinct common law and chan- cery jurisdictions and tribunals, the plaintiff would, in such an exigency, be compelled to resort to a court of equity. In Pennsylvania, wherein a chancellor has never been commissioned as a separate law officer, and whose courts of law administer equity in a great many matters, through common law forms, there would be no obstacle in the event of death, as above suggested. A signal and remarkable decision, recently pronounced in the Supreme Court of that State, puts to rest all difficulty on that subject. The writer alludes to the case of The Philadelphia Loan Company v. Elliott's Executors and Oragg, a Bamkrwpt;^ the judgment in which, in the writer's opinion, equally and highly illustrates the ability, liberality and independence of the learned bench that declared it, and reflects credit, so far, on the administration of civil justice. It is only to be regretted, that in consimilar cases, the same enlarged and enlightened judicial policy had not been adopted and promulgated long ago. ' 1 Fierli, p. 116. * 15 Penns. State Rep., 3 Harris, 224; decided Febniaiy 18th,1851. 484 OF REMEDIES AGAIKST SPECIAL FAETNEES. [CH. SY. § 475. The aGti«D was in asrompsit, and in the writ were combined as defendants, the executors of a de- ceased partner with the surviving partner. It was founded on a clainai for $4500, lent by pl^ntiffs to Cragg on his note secured by Taluable collaterals, and, upon an agreement subsequently made signed by Cragg and Elliott, that in consideration of the plaintiffs' restoring the said collateral security, they should be realized, and thereojat, the plaintiffs be re- paid their loan with interest. Cragg, to whom the said securities were therefore delivered, collected them and paid no part of the plaintiffs' claim. Elhott died, leaving a will appointing the other defendants his executors. The declaration contained the common counts and a special one on the agreement. The ex- ecutors pleaded the genera,! issue j and a special plea, that the agreement was made joijitly hy Elliott and Cra,^j that at the inception of this suit, Elliott was dead and Cragg had survived him, &c., and therefore no cause of action survived against Elliott's execu- tors — The plaintifis replied that an action did sur- vive against his said representatives. On this issue, the court below rejected the plaintiffs' evidence and entered a nonsuit. The Supreme Court,* on error ' Ita cpinion, which was delirered by the Chief Jnstjoe, is so able and admirable a judgment, that the writer taltes leave to introduce it here : — Gibson, C. J.-r-" When this court &st declared equity to be part of the law of Pennsylvania, it had one of two things to do in order to carry its declaration out — either to assume the powers of a court of chancery or to strain relief through common law forms, disregarding technical congruity when found to stand in the way of justice. Unfortunately, it attempted a middle course. By the help of fiction, the common law form of the record was measurably preserved, though often at the expense of right. The relief sometimes stopped short of complete justice, while the record did not indicate that there had been any relief at all. It was impossible to tell from the verdict, in an action of covenant by a vendor, whether the jury had executed the contract or given damages for a breach of it. CH. XV.] JOINDEE OF EXECUTOES. 485 brought for this, sustaii^ed the action and reversed the judgment. The effect of this reversal in the court below was to force them to r^eive evidence of EqjiitaWe juiisdicfion. was gradually a«sinin«d, hat not al-waye in STib- ordinatian to teehnical forms. A plaintiff has been allowed to declare on a lest tiond without a proferti a defendant has been allowed to plead anatter lof eqaitable defence «peciaily; and many other deparfsires :&oni common law rales have been saactionod. W a proceeding at once so natural, so simple,; just, facile, and necessary: and one that now, it is apprehended, must CH. XV.] JOINDER QF EXECUTORS. 487 partners and the executors of a deceased one in the same writ, a creditor may also institute his action against such personal representatives alone. In re- be sanctioned, as it ought to be, on every principle of equity and com- mon sense, as the law of the land. Ought not all our common law courts, too, in view of their immense equitable jurisdiction, under the practice now so completely rooted, and the maxim that equity is part of the law, to proceed at once to thoroughly amalgamate the two systems of writs, pleadings, evidence, decrees, judg- ments, entries, and final process? Ought they not to put themselves at the head of a great cfficina hrevium et Jbrmularum? and treating the past sys- tem, as far as it goes, as a solemn statute in consimili cam, provide equi- table forms of process, orders, rules, and decrees, to suit all emergencies ? They would thereby gradually assimilate their system of procedure to that which prevails on the continent of Europe ; the most rational, con- sistent, intelligible, and practical of all systems. Every state possessing such a corpus juris dvilis must necessarily have but one bar, one judi- ciary, and one procedure. That state of things must of itself pave the way to progress and improvement. If a homogeneous legal system, both of procedure and doctrine, has not been, with the exception of Louisiana, the lot of the several United States, it. is owing to no fault of the latter, in the origin, though it must be confessed they have been slow in unfet- tering themselves from vassalage to the combined dominion of English black letter and its alleged corrective, modem equity. As a means of attaining, not justice, but of preventing injustice, the enjoining by chan- cery of a judgment of the highest court of law in England, has been and still is looked upon, by the jurists of the continent, as a solecism of the ridiculous kind, yet that solecism has been engrafted on the legal system of most of the United States. It is to be hoped, however, that now England has set the example of as thorough legal reform as she can, (and would, if she were as free to do it as we are, set a stUl more remarkable example,) every state of this union will do like New York, abolish transatlantic technicalities and fictions, and substitute codes of their own devising, based upon the im- mutable principles of reason and justice, with modes of administration conceived in simple language and easy of application. Until this is done we shall continue to witness what may perhaps have been noticed in the course of this chapter, an attempt, at every revolving session of the legislature, to tinker the existing system by special enactments. The very law of 1848, immediately above quoted, is a specimen of this tinkering. The writer does not certainly mean to say that it is not amended; on the contrary, he sees in it an honest effort at emancipation from old and absurd common law technicality. But it is necessarily 488 OF EEMEDIES AGAINST SPECIAL PARTNERS. [CH. XV: ference to this course there is a recent law. The 4th section of the Act of April 11th, 1848, of Pennsylva- nia,^ provides that, in actions " against the executors or administrators of a deceased copartner, for a debt of the firm, it shall not be necessary to aver on the record, or prove on the trial, that the surviving part^ ner or partners is or are insolvent, to enable the plain- tiff to recover." § 477. Touching mistakes coramitted, in the process, of the names of any of the partners, the statute, in Pennsylvania, of the 16th February, 1846,^ allows great latitude in the matter of amendments. Prior to its enactment, the courts thought they had no power to allow an amendment of the writ for changing the averment of a defendant's name from, e. g., John to James. To supply this defect, the statute confers the power to permit such amendments of the record when it appears that a mistake has been made in the Christian or surname of any party, plaintiff or de- fendant.^ "In Horbaoh v. Knox et al.,^ it was objected that the act did not sanction the change of a Christian name, because the amendment contemplated was in, and not of, the name. But this hypercriticism was properly put aside by the observation, that the object was to remedy a defect in the administration of jus- tice, and therefore a liberal interpretation should be tinkering; and as such, does us no particulai honor; whereas, if we had the right kind of men employed by the state in framing for us a complete, consistent, and homogeneous body of larws, from alpha to omega, such men as were the jurists of Justinian and Napoleon, we should certainly devise something that would do us honor and good likewise. ^ Stroud and Brightly's Digi, 1383; Pamph. Laws, 536. ' Stroud and Brightly's Dig. ' Porter et al. il. Hildebrand; 14 Penns. State Rep., 133. ' 6 Barr's Rep., 377. CB. 2Y.] AMENDMENTS IN NAMES Of PAHTIES. 48& awarded to the statute. Less than this would not only frustrate the legislative intent, but run in contradiction to the professional sentiment which is fast learning to regard merely technical objections as entitled to little favor."^ In consonance with these principles, it has been held® that the court may per- mit the Christian name of a defendant to be added to the record, when he has been sued by his surname only, there being no dijfference, in principle, between a total change of name and supplying an omitted one. Both cases are the same as to the mischief felt, and both are equally within the equity of the remedy pro- vided. " The only danger to be apprehended from a liberal construction is of a mistake in the service of the "process; but this is always within the control of the proper tribunal." In Ward v. iStevenson et al? it was decided that amendments might be made in both Christian and surnames. § 478. There are some pecuharities in the practice of the State of Pennsylvania relative to the commence- ment of actions against partners; to the death of one of them; to averments in the pleadings; insolvency of survivors; effectof judgment against one alone; pleas in abatement, &c. ; which shall be briefly mentioned, in the course of this chapter, in their appropriate places. One of them regards the institution of an action by one firm against another firm, ia both of which the same individual may be a partner. A re- medy for this difficulty is provided by statute. § 479. By the first section of the Act of AprU' 14th, 1838/ "relating to the commencement of actions," no > Per Bell, J., 14 Penns. State Rep., 134, (2 Harris.) = Per eundem, Id. Ibid. ' 15 Id. (3 Harris,) 21. * Stroud and Brightly's Dig., 920—921. 490 OF REMEDIES AGAINST SPECIAL PARTNERS. [CH. XV. action to be brought by partners or several persons against partners or several persons, shall abate, or the right of the plaintiffs to sustain their action be de- feated, by reason of one or more members belonging, or having belonged, to both firms; but the same shall proceed to trial and judgment as though the plaintiffs and defendants were all distinct persons ; and the acts and declarations of such of them as are members of both firms shall be evidence to affect each party, re- spectively, to the same extent as the acts and decla- rations of the other partners (plaintiffs or defendants) would affect their respective firms : but no act or de- claration of the said party shall be received in. evidence in his own favor to the prejudice of others.^ § 480. "We have seen, in the 13th and 14th sections of the Act of Assembly of Pennsylvania of 1851, quoted at length in a previous page,^ that partnerships in that State must file, in the prothonotary'sofiice of the county in which they are located, a designation of the names of the members, " and their location," (qu. residences ?) under pain, if they do not, of forfeiting the right, in suits against them, "to plead any misnomer, or the omission of the name of any member of the partner- ship, or the inclusion of the names (qu. joinder?) of per- sons not members of said partnership." Whether it were intended that this law should apply to limited ' See Hepburn v. Curts, 7 Watts' Rep. 300; M'Clelland v. Lindsay, 1 Watts and Serg. 364; M'Fadden v. Hunt, 5 Id. 468; 3 Penna. Law Jour., 225; Pennock v. Swayne, 6 Watts and Serg. 242; Tassey ii. Church, 6 id. 465. If the writer understands the oonte.tt of the above law, it means, that the name of the partner belonging to both creditor and debtor firm, shall be inserted in the process as plaintiff and defendant. The enact- ment is a wise one, and was necessary. 'Ante, p. 60; Stroud and Brightly's Dig. 1383, Pamph. Laws, 615, OH. XT.] PLEAS UNDER ACTS OF 1851 AND 1848. 491 partnerships — ^the members of which, on the forma- tion thereof, have done every act so required in the Kecorder of Deeds' Office — it is not easy to say. Com- mon sense would inculcate that all the particulars of the creation and composition of such firms being pa- tent in a public office next door to that of the protho- notary, a repetition of the same registry would not be necessary in the latter's office, in order to save to the Respective partners their privilege of pleading in abate- ment the important matters mentioned in the Act of Assembly. § 481. If any copartnership is sued in Pennsylvania^ and all the members are not included in the action, the defendants are obliged to plead the omission in abatement; otherwise, uiider the operation of the 5th section of the Act of April 11th, 1848,^ a judgment obtained against them " shall not be a bar to a re- covery in any subsequent suit against any partner who might not have been joined in the action in whiwa such judgment was obtained, and whether obtained amicably" (by confession) "or by adversary process."^ § 482. It is plain that no creditor of the firm can have a cause of action against a special partner, as such. Under the 14th section of the statute, suits are to be brought against the general partners as if there were no special ones. Consequently, whenever one of the latter is deemed liable in law by a creditor, it can only be as a general partner. The action being instituted against the defendants as general partners, it behooves the special partner who is joined in the writ, to be cautious, how, after his appearance, he ' Stroud and Brightly's Dig. 1383; Pamph. Laws, 536. ' Vide supra, p. 488; and post, p. 499. 492 OF REMEDIES AGAINST SPECIAL PARTNERS. [CH. XVi commits himself by any entry or admission of re- cord. Thus, if the practice of any of the States should re- quire an affidavit of defence to be filed, (as is the case in the civil courts of Philadelphia,) he should abstain from disclosing his special position therein, as he is clearly not bound to do so; and leave it to the plain- tiff to connect him with the general partners, and to fix him as one of them. A signal illustration of the fatality attending a departure from this line of po- licy, may be seen in the case of Andrews v. Schatt,^ decided in the Supreme Court of Pennsylvania in 1848. There, the writ joined the general and spe- cial partners as equally liable; and after appearance, the plaintiff filed a copy of the promissory note sued on, which had only in point of fact been made and negotiated by the general partners. And that was the only statement, on the recordj of the cause of ac- tion. The special partner, instead of disclaiming lia- bility, by an affidavit, that he was no party to the note, that he had never negotiated it, that he knew nothing about it, and that he owed the plaintiff no- thing, (all of which he could conscientiously have done,) went into a long detail of facts that ought to have been left to the plaintiff to show; setting out the formation and renewal of the limited partnerahip, with copies annexed of the registered documents and proceedings, thereby furnishing a complete record for the plaintiff to base and rest his case upon, as an issue in law; when, for aught that might otherwise have appeared, the plaintiff would have had the onus of proving the facts- on a regular and complete record, ' 10 Ban-'s Bep. 57. Vide supra, § 337, p. 248—255. CH. XY.] FOEIf OF DECLARATIONS. 493 an obligation that niQst probablywould have proved an up hill task. § 483. In the case of Sovoen v. ArgeHl,^ in the Su- preme Court of New Yorjs, Henry F. Bowen brought assumpsit against David C Argall and William Ar- gall, and declared against them for goods sold and delivered, and also on the common money counts, To the declaration was attached a copy of a promis- sory note made by David C. Argall alone, (the gene- ral partner,) dated the 2l8t of October, 1835, for $345, payable to the plaintiff six months after date, and then due. The declaration was served on Wil- liam Argall alone, who put in a plea of non-iassumpsit. The plaintiff claimed to recover against Wilham Ar- gall, as a member of a limited parlmership carried on under the name of David C. Argall, on the ground that the act respecting such partnerships had not been duly compHed with, and that in other respects the defendant William Argall had rendered himself liable for the debts of the partnership. The plain- tiff then proceeded to estabhsh his allegations by evi- dence, a detail of which and the course of the trial shall be presenlily introduced. § 484. In the case of The Madison County Bank v. Oould and others,^ in the same court, the action was assunapsit against George Euesell,, William Russell, and Charles D. Crould, sued jointly as endorsers of a promissory note made by Cook and Whitney on the 9th of March, 1839, for |551 86, payable to the order of George Russell and Brother, four months after date, and endorsed, — "George Russell and Brother." The plaintiffs gave evidence tending to show that the ' 24 Wendell, 497. » 6 HiE's Rep. 309. 494 OF REMEDIES AGAINST SPECIAL PARTNERS. [OH. XV. defendants were partners; in answer to which the defendant Gould insisted that the partnership was a limited one, formed pursuant to the statute, of which he was the special partner, and so not answerable for this demand. A detail of the course of this trial will also for the present be postponed, to be resumed here- after. § 485. The difference of the course pursued by the respective plaintiffs in these two cases will at once strike the professional reader; the declaration in each appears to have been general, with the general issue pleaded; in the former, the plaintiff goes at once into the allegation and proof of a limited partnership be- come liable in soiido, while in the latter, the plaintiff merely a.lleges a general partnership of three, trading under the name of two, and one of the defendants establishes a limited partnership and asserts his im- munity under it. As far as these two cases go, there is no need in New York of a special count in the de- claration in order to charge a special partner, nor of a plea on his part, averring his limited character as a member of the firm ; nor of notice from either side of the nature of the evidence intended to be relied on. When we reflect on the numerous cases in which general liabihty attaches upon the special partner for merely inconsiderate conduct with reference to the firm, it becomes evident that such a practice as that pursued in the above two cases in New York, must often operate injustice. It is true that the defendant oUght always to know how and in what respects he has violated the statute; but experience teaches us that proof is often attempted at nisi prius of what never has occurred, and that sometimes successfully. It would be a good rule to empower special partners CH. XV.] EVIDENCE. 495 when sued, to call on the plaintiff for a specification of breaches of the statute which he means to prove, as superiaducing solidarity on the former. § 486. The case of Smith, Admmistratrix of John O. Smith, V. David G. Argall omd William Argall^ was assumpsit for goods sold and delivered to the firm of David G. Argall. The jury found a special verdict stating the facts proved on both sides, and nothing appears iu the report showing the precise course taken by either; but it was an action successfully maintained against the last named defendant, who was a limited partner with the former as a general partner, on the ground of a general liability in- curred, for not compljdng substantially with the requirements of the statute in the pubHcation of the terms of the co-partnership, in the newspapers. The action seems to have been instituted against the two as general partners, under the circumstances, and to have been conducted against them as such; and to support it, on the ground stated, the Supreme Court held, that the plaintiff need not prove that he was actually misled by the error contained in the publication of the terms of the partnership. § 487. In the case of Bowen v. Argall, first above referred to, (the points decided in which have been stated under their appropriate heads in preceding chapters,) the plaintiff proceeded at once to produce the evidence necessary to fix the special partner; be- ginning with the original certificate of partnership, and introducing the affidavits, record of the clerk, advertisements in the newspapers, assignment by the general partner in trust for creditors, to show that ' 6 Hill's Rep. 479. 496 OF REMEDIES AGAINST SPECIAL PARTNERS. [gH. XV» there was a mistake in the publication of the names of the partners, sufficient to vitiate it; th^-t the pub- lication was not made immediately after the regista'y ; that the statute had not been complied with in the tinsfis of pubhcation, nor in the amount of capital contributed; and that a preference in the assignment of the special partner for hig share of the capital, and for endorsements and. money lent, to which assign- ment the latter had assented, rendered him generally hable. The defendant then went into, countervailing evidence on his part. §488. lu the case of The Madmm Ckmdy Bank V, Gould, after the general evidence introduced by the plaintiff, as above stated, the defendant, setting up the statute as his immunity, introduced the origi- nal certificates, affidavits, records, advertisements; and, having done so, the plaintiff went into proof of violations of the statute, by the special partner, in various ways. This case having been also analyz,ed in preceding pages, it is unnecessary here to repeat the points made and decided on.' § 489. In the above quoted case of Smith's Adm'x. V. Argall et al., it is held, when the defendants (the special as well as general partners) set up and rely on the statute for protection, the burden of the proof is on them to prove a compliance with what it re- quires.*' "The statute is rigorous in its terms, and those who claim its benefits must show a substantial conformity to its requirements," is the language of the judge who delivered the opinion of the court in that case. § 490. It is conceived that some cases may occur, ' Supra, { 160, p. 167—171: 5 HUl's Eep. 309. » 6 HiU'sRep. 482. CH. XV.] SPECIAL PLEA. — EVIDENCE. 497 in wHcli a special plea may avail a limited partner sued for the debts of the firm, to save him trouble and expense : inasmuch as the form of rephcation adopted by the plaintiff would inform him whether he would have to prove the averments of his plea. If the replication contained matter showing a general liability, it would admit the facts stated in the plea, and enable the defendant to rejoin new matter, or to take issue on the allegations of the last pleading. § 491. The certificate of terms, affidavit, record, and pubHshed notices, may be given in evidence by the defendant, to show that the whole machinery for forming a limited partnership has been constructed, and the requirements of the statute have been com- plied with. If these documents be regular and suffi- cient in point of form, they make out a prvmd fade case for the defendants, that the partnership was a limited one, and throw the onus upon the plaintiffs of proving that something was wrong, before they could fix the special as a general partner. If they do this, as, for example, if they show that the certifi- cate and statement contained a false statement, that the special partner had paid in cash his stipulated contribution to the common stock, when, in point of fact, he had paid nothing, the affidavit and documents cannot again be put in as rebutting evidence by the defendant, as that would be allowing him to be a witness in his own favor on the question of payment.^ § 492. Before a creditor has conducted his suit against a hmited partnership to judgment, he may be met by the event of the death of one or more of them. 1 The Madison county Bank v. Goiild, 5 Hill'& Rep. 315—316. 2g 498 OF REMEDIES AGAINST SPECIAL PARTNERS. [CH.XY. whether general or special members of the firm. The writer will not undertake to say what might be the proper course to pursue in any other State than his own. He presumes, however, that in most of the States wherein these partnerships are introduced, the remedy in such case would survive, and the plaintiff would have to resort to a court of equity in order to get at the assets of the decedent. But in Pennsylvania, he submits, the executors or adminis- trators of the deceased partner could be brought in. § 493. In a late case,' which was trespass for en- tering the plaintiff's close, and carrying away his rail-road iron, one of the defendants, after plea plead- ed by all, died, and the court below compelled his executors to appear to a scire facias issued to bring them in, and to plead. One of their pleas was, that the cause of action survived against the co-defendants, ^nd that they were not liable. The Supreme Court held, it is true, that this was wrong, and that "the executors could never be joined in a case hke that." But now, the writer apprehends, a different doctrine prevails. The case of The Philadelphia Loan Compa- ny V. Elliott's Executors, & Cragg, already quoted in this chapter at length, and commented on,^ determined . in February, 1851, would authorize such a joinder. There is no difference between the two cases, except * in the fact that the death of a copartner occurred in the one case before the inception of the suit, in the other, after; a difference, in principle, whoUy imma- terial. The court treat, also, in both adjudications ' Mechanic's and Tradesmen's Insurance Co. v. Spang et al., 5 Barr's Rep. 113, decided April 12th, 1847. 2 Vide supra, § 474, p. 484; 15 Penns. State Rep. 224. CH. XV.] JOINDER OF EXECUTORS AFTER DEATH. 499 of the common law rule of one judgment, and one execution; but in how dififerent a vein and spirit! And the fact is, that in our practice, to treat the entry of judgment, or the frame of execution, as an obstacle, is a farce. It is notorious that throughout the State, the judgment, against no matter how many, is always entered generally, and in that one word. No roll or record of the whole proceedings is ever formally made up by the prothonotary, unless required to do it for a special purpose; and the courts have power, under their general equity jurisdiction, to authorize the framing of equitable entries, just as they have to re- quire equitable verdicts from juries, and to mould them into form. § 494, In Pennsylvania, after a judgment has been obtained against partners, the death of one of them, by the Act of Assembly of April 11th, 1848,' shall not discharge his estate, real or personal; but his executors or administrators are required to pay the judgment "as if it had been several against the de- ceased alone.'"' Of course, a scire facias against them may issue pari passu with final process against the sur- viving defendants. § 495. In regard to mistakes of names or number of parties, apparent on the record, which it may be sought to render fatal in a court of error, to the ad- vantage of partners or of persons sued as jointly responsible, a recent case in the Supreme Court of Pennsylvania shows, as far, at least, as that State is concerned, that partners and joint defendants must. ' Section 3d. Vide supia, pp. 488 and 491, where this statute is quoted at length. ^ Pamph. Laws, 536; Stroud and Brightly's Dig. 1382—3. 500 OF REMEDIES AGAINST SPECIAL PARTKEES. [OH. XV. for such defects or errors, seek, at a much earlier stage of the cause, redress, or interpose their objec- tions. Thus, an action for goods sold and delivered was brought against a firm by their social name, A. B. Seitz & Co., by another firm, who set out aU their own separate names at length. After some important procee^ngs in which the plaintiffs suffered on account of their mistake, they applied to the court below and obtained leave to amend by adding the name of Fre- derick Seitz as a defendant; and the court ordered that this new party should be introduced as the trus- tee of the original defendants^ and that the record should thenceforth show the defendants to be, "Fre- derick Seitz, Trustee of Anna Barbara Seitz & Co." But the declaration had been filed previously to this order, and it was not amended to conform to this amended state of things. The attorney of the first named defendants then withdrew his appearance; and the plaintififs served a rule on them to plead in ten days. No plea being entered, judgment for want of one was entered, upon which was brought this writ of error; and the errors assigned Were, 1. The amend- ment; 2. The variance between the declaration and the judgment; 3. The error of names in the original writ. But the court held, 1. That there was no error in adding a trustee, or legal owner, to the record; as it was not, in substacnce, the addition of a new party, but merely the name of a person in whom is vested the legal title held for the use of others beneficially interested in the cause, the matters in controversy remaining the same as before the amendments : 2. The variance might have been, and might yet be amended: 3. That the writ was against partners without naming all the members of the firm, is cured CH. XV.] BRINGING IN NEW PARTIES. 501 by verdict; the court would, then presume the social name to be the name of the real persons, when the contrary did not appear.^ § 496. The observations that occur to the writer upon this important decision are these: Although the doctrine is laid down in a court of error on ques- tions arising after verdict or judgment, it is clear that the reach of it is, to give the courts of first instance power to amend in the larg^t and most beneficial manner, according to a sound discretion, and even by allowing a new party, plaintiff or defendant, to be brought. For, if the court below actually choose so to amend or do, and the court above refuse to reverse, because it is too late after a trial, or verdict, or judg- ment, where is the distinction, in this respect, between an absolute and a limited power in the former tribu- nal? But the learned judge who delivered the opinion of the court observed, that "the doctrine of amend- ments, though there is an increasing disposition to allow them, has not yet been carried to the extent of permittiag an entirely new party to be added to the suit,"** in a court of law, as would be permitted in a court of equity. But the writer would ask, with great respect for the opinions of those who still worship common law practice in this country after it has been almost annihilated in the country of its origin, why not permit such an amendment? You have ap- proached very near to doing so in the decision you have just made, and the difference you have pointed out between the new trustee party, and another new ' Seitz et ai. v. Buffum et al., 14 Penna, State Rep., (2 Harris,) 69. Vide ante, k 230, p. 243; Ward v. Stevenson et al., 15 Fenos. State Eep., (3 Hams,) 22. * Per EoGBEs, J., 14 Penns. State Rep. 70. 502 OF REMEDIES AGAINST SPECIAL PARTNERS. [CH. XY. one, is a shadow, or a vision, or a coloring. How could any more harm be done to third persons in the one case than in the other? Such an amendment would be equally within the control of the court, who, when allowing it, could, through the conditions of time and notice, effectually prevent all mischief just as effectually as a chancellor. § 497. Secondly, of equitable remedies. As to remedies in equity against special partners, a statement of the practice as to partners in general will, it is apprehended, be useful, in order to ascertain how the former may be reached in exigencies deemed to be within the aid or peculiar cognizance of courts of chancery. Where the capital of a limited partnership is divided into shares which are held by numerous special partners, it is conceived that the practice in equity, as stated below, respecting the joinder of par- ties' defendants jointly and severally interested or liable, will apply to the case of special partners under the statute : "Creditors," says Mr. Gow,^ "or persons contract- ing with a partnership firm, may, where there is a defect of remedy at law, resort to a count of equity, and call in aid its interference. In many instances more effectual relief is administered in equity than the forms and technicalities of the law will allow it to grant. The common law, for example, though it pro- fesses to adopt the lex mercatoria, has not adopted it throughout in what relates to partnerships in trade. It holds, indeed, that although partners are in the nature of joint tenants, there shall be no survivorship between them in point of interest; yet, with regard to > On Paitn. 242, 2d Lond. Edit. CH, XT.] DEFENDANTS IN COURTS OF EQUITY. 503 partnership contracts, it applies its own peculiar rule, and, because they are in form joint, holds them to produce only a joint obligation, which consequently attaches exclusively upon the survivors. By the general mercantile law, however, a partnership con- tract is several as well as joint; and courts of equity, adopting to its full extent that law for their guidance, have considered joint contracts of this description as standing upon a different footing from ordinary joint contracts, and have ascribed a several, as well as a joint, operation to them. On the ground, therefore, that each partner is liable for a partnership debt, a court of equity not only sanctions the remedy which the law gives against the surviving partner, but will likewise decree satisfaction out of the estate of a de- ceased partner." § 498. Again: — Even in Pennsylvania, in whose courts of law equitable process and pleadings are so freely tolerated, and amendments so liberally granted, the following language, in reference to parties at law and in equity, was used: — "It is the ordinary practice of a court of chancery to continue to add, on motion, parties to a proceeding in that court until every per- son interested, or that may be in any way affected by the decree, is brought on the record. Indeed, a court of equity will refuse to proceed to a final disposition of a cause until all persons interested are made parties to the bill. This wise and beneficial practice, how- ever, has never obtained a footing in a court governed by the technical and narrow principles of the common law. The latter adhere strictly to mere technicalities, at the sacrifice frequently of the justice of the case ; an acknowledged evil which may in most cases be easily obviated by a simple amendment in matters 504 OF REMEDIES AGAINST SPECIAL PARTNERS. [CH. XV. of form, or substance, without injury to a single human being. Aware of the injustice which a too strict adherence to form is apt to produce, the legisla- ture, and the courts following in their wake, are be- coming more liberal on this head. The doctrine of amendments, however, although there is an increas- ing disposition to allow them, has not yet been carried to the extent of permitting an entirely new party to be added to the suit." ^ § 499. To a suit in equity instituted against part- ners, as in a suit brought by them, all the partners must be made parties. This is necessary, in compli- ance with the general rule, which requires that, to a bill founded on a contract, all those persons should be made parties who are parties to the contract.^ It is also essential in order that the court may be enabled to dispense complete justice, by deciding upon and settling the rights of all persons interested.^ But a strict observance of the general rule is not enforced where the parties to be made defendants are too nu- merous to render it practicable to prosecute a suit, if they were all joined in it; and therefore an individual claiming against a numerous partnership or club, who is not himself a partner, is at liberty to file a bill against a few of the partners or members only.^ And ' Seitz et al. v. Buffiim et al., 14 Penns. State Rep., 70, per Rogers, J. ' Humphreys v. HoUis, 1 Jacob, 75; Waggmer v. Gray's Adm. 2 Hen. & Munf. 605 ; Bozier v. Edwards, 3 Litt. Rep. 67. See Hoy's Heirs v. McMurry, 1 Litt. Rep. 365. » Lord Redesdale's Tr. on PI. 133. * Baldwin v. Lawrence, 2 Sim. & Stu. 26 ; Weale v. West Middlesex Waterworks Company, 1 Jac. & Walk. 358; Meux v. Maltby, 2 Swanst. 277; Cockburn v. Thompson, 16 Ves. 321; Weld v. Bonham, 2 Sim. & Stu. 91. In the case of Atwood v. SmaU, which came before the Lord Chancellor on appeal from the Vice Chancellor, and in which the objection CH. XV.] DEFENDANTS IN COURTS OF EQUITY. 505 when one partner is resident in a foreign country, and consequently out of the reach of the process of the court, the suit may be brought against the partner who is within its jurisdiction; and if the omission be excused by the bill, the defendant will be precluded ■was made that all the shareholders were not made parties defendants to the suit, Lord Cottenham observed — " Now, it is said, there are three descriptions of persons who are not brought before the court; and, amongst the three, one set of persons are, all the shareholders of the company. With regard to this, seeing what is stated in the bill, and look- ing at the authorities on the question, there is no ground upon which the objection can be maintained. The bill alleges that there are 600 share- holders, and that they are constantly varying, the shares being trans- ferable ; and states a case, therefore, that makes it utterly impossible that the plaintiff could pursue his remedy, if he must pursue it, by bringing before the court and keeping there all persons who are shareholders. The cases of Adair v. The New River Company, (11 Ves. 429,) and Meux V. Maltby, (2 Swanst. 277,) in which that was considered, have saved me from the necessity of doing that, which I certainly should have done, if I had not found authorities already standing in the books, of adopting the rule which it was necessary to adopt, in order to prevent the grossest injustice from being practised by companies of this description. To say that they are to be permitted to sue on behalf of themselves and others, because they are so numerous that they cannot be brought before the court, and then to say, that persons, by whom they are sued, are not to be at liberty to bring those who are plaintiffs against them before the court, without bringing all the shareholders, would enable them to com- mit any injustice which they pleased, without the possibility of being made responsible for it. The authorities to which I have referred, and several others, are quite sufficient to show that this court has adopted a course which prevents this injustice &om taking place. Upon the autho- rity, therefore, of those cases, I am of opinion it is not necessary to bring the shareholders, as such, before the court." His lordship afterwards said — " The partnership deed, as stated in the bill, puts the directors in the place of the company, and makes them, for the purpose of any liti- gation between themselves and others, in my opinion, proprietors of the company. I have impliedly said that, when L said the 600 shareholders are not necessary parties to the suit ; but, if they are not necessary parties to the suit as shareholders, there must be some persons whom those in contest with the company are at liberty to sue. The only other persons held out by the deed, as owners of the property of the company, and competent to deal with individuals, who may have transactioQS with them, are the directors." (4 Jurist. 239.) 506 OF REMEDIES AGAINST SPECIAL PARTNERS. [CH. XV. from objecting that his copartner is not made a party;' and if a decree be obtained against him, he will be compelled to satisfy the joint demand.^ § 500. So where one of the joint owners of a cargo deposited part of the cargo with a factor to sell, and hold a moiety of the proceeds for his separate creditor, it was held that the latter, to a bill filed for an account of the proceeds, need not make the other joint owner a party.' And where a bill was filed against two partners, of whom one was abroad, and the partner in this country admitted that he was the agent of his co- partner, it was ordered, upon motion, that service of the subpoena upon the partner in England, or upon his clerk in court, should be good service upon both.* The relief to be obtained against partners, through the medium of a bill in equity, corresponds in almost every respect with that which is granted against an individual defendant. The number of the parties, or the fact of their being united as partners, does not ' Weymouth 1). Boyer, 1 Ves. jun. 416. In Cockbum «. Thompson, 16 Ves. 325, Lord Eldon said: — "There are many instances of justice ad- ministered in this court, in the absence of those, without whose presence, as parties, if they were within the jurisdiction, it would not'be adminis- tered." * Darwentv. Walton, 2 Atk. 510. It is usual, where parties are charged by the bill to be out of the jurisdiction of the court, to name thetn in the prayer of process ; because, if they come within the jurisdiction, process may issue against them without amending the bill. But the omission of their names in the prayer of process does not render the record defective. Lord Eedesdale's Tr. on PI. 134. Haddock v. Thomlinson, 2 Sim. and Stu. 219. ' Weymouth v. Boyer, supra. * Carrington v. Cantillon, Bumb. 107, S. P. Coles «. Gurney, 1 Madd. 187. So the answer of one joint partner in the name of both is sufficient, provided the complainant files a general replication, and takes no steps to compel an answer from the other partner. Freelands v. Royal el al., 2 Hen. and Munf, 575. And see Ex parte Peyton, Buck, 200. CH. XV.] GENERAL DOCTEINE IN EQUITY. 507 necessarily make any difference or variation in the equity administered. That remains immutable, and is as rigorously exacted from those who have formed themselves into an association, as it would be were they the objects of suit in their ^parate capacities. It is not the parties, but the right, which is regarded. It has been holden that a court of equity has jurisdic- tion against a corporation on a bill for an account of the profits in the nature of a partnership, and such a bill will be entertained, not only at the instance of a member, but of a stranger.' The equitable jurisdic- tion by injunction, where the effect will be to stop a large trading concern, is exercised with great caution; for an injunction will not be granted ex 'parte, but on notice, giving the defendants an opportunity to oppose it by affidavit.*' § 501. In relation to suits against limited partner- ships in equity, there appear to be but two reported cases in this country. They are Mills v. Argall^ and Haggerty v. Taylor,* both noticed in former parts of this work,^ and both introduced at length in the Ap- pendix hereto. The learned reader is therefore re- ferred to them, as he is just as competent, probably more, than the writer, to appreciate their value and sum up their merits. § 502. "We will now pass on to the last but one, and not the least important, chapter of this work, viz., the framing and interpretation of contracts of limited partnership. 'Adley v. Whitstable Company, 17 Ves. 315, S. C; 1 Meriv. 107. See also Attorney-General v. Governors of Foundling Hospital, 2 Ves. jun. 42. ^ Crowder v. Tinkler, 19 Ves. 617, "6 Paige, 577. * 10 Id. 26J. « Vide supra, § 397, p. 394—397, and § 259, p. 274—275. 508 OF THE FORM AND STRUCTUBE OF DEEDS. [CH. XVI. CHAPTER XVI. OP THE FORM AND STRUCTURE OF DEEDS OF LIMITED PART- NERSHIP, AND THEIR INTERPRETATION. § 503. In no one of the numerous treatises of the Law of Partnership, whether English or French, which the writer has seen, is there to be found any subdivision specially assigned to the consideration of the framing of contracts of trade association. The best work on that important branch of the general law, (the Commentary of the late Mr. Justice Story on the Law of Partnership,) contains two ample chapters on " the rights and duties of partners, im- plied by law, inter sese," and on "their rights and duties towards each other under the deed of partner- ship;" but, the comments of the author on both topics, suppose such a deed already framed and in operation. § 504. The most recent English treatise on the law of partnership that has appeared,^ contains, indeed, a copious chapter on " Deeds of Partnership, and their Construction;" but this, likewise, turns more or less on the idea of instruments already executed, and does not profess to indicate the clauses, conditions, and stipulations, that ought to be introduced into, or ' By Andrew Bisset, 1847, with notes of American oases, forming the 9th Vol. of M'Kinley and Lescure's Library of Law and Equity. CH. XVI.] TWOFOLD NATURE OF DEEDS. 509 omitted from, such instruments. Perhaps, in a book confined to the common law view and scheme of mercantile and trading partnerships, a chapter like this might be considered as a weaving over again of the entire matter of the treatise, and to be avoided as a repetition. Be this true or not, it is very certain that a book, specially devoted to partnerships with a limited liability, would not be complete without a synthesis of the machinery of a deed constituting such a partnership, as well as the covenants that might enter into it, as well for the guidance and con- trol of the general partners, as for the profit or pro- tection of the special members. § 505. The writer, then, will attempt a chapter, founded on this two-fold idea; but, to accomplish his task thoroughly, it is evident that he will have to adopt the case of an agreement for a limited partner- ship, consisting of at least two general partners, and of two special ones. The construction of a deed for the conduct of a joint concern, composed of several parties of both descriptions, wiU present the subject in its most complicated form; and will furnish the occasion for stating the doctrines of law and equity that govern all general partners as between them- selves, and that govern as between them and their special associates; and also the doctrines of the law of partnerships &n commandite, that govern as between the general partners on the. one hand, and the special partners on the other; and, finally, that govern as between the special partners alone.^ ' According to the 24th article of the Commercial Code of France, the same establishment may be at once a general partnership in regard to the general partners, and a limited partnership in regard to the contri- butors of funds. But if there be but one general partner, there is then 510 OF THE FORM AND STRUCTURE OF DEEDS. [CH. XVI. § 506. In regard to the rights, duties, and obliga- tions of general partners, inter se, implied by law, it is said in the English treatise mentioned in the pre- ceding page,^ that "a full enumeration of those rights and duties would, to borrow the words of Mr. Justice Story, be found at once tediously minute, and of little value, even if it were practicable; and, indeed, they form the subject, more or less, not of one, but of every chapter in this (the English) work." He then goes on to say, "The more obvious of the duties, those which every man of ordinary prudence and integrity will perform as matters of course, it is needless to specify. Nor can we hope to make any thing like a complete enumeration of those less obvi- ous, though important, duties, to the breach of which the law attaches serious consequences."^ Now, the treatise of the late distinguished. American jurist actually does contain an attempt, — and certainly a masterly one, — at an enumeration of the rights, du- ties, and obligations of partners, above specified; to that attempt is devoted the whole of the 9th chapter. And it is only towards its close, after a great deal of original and able disquisition had been employed, that the eminent author observes : " This is but a very summary view of the leading rights, duties, and obli- gations of partners inter sese, implied by law; and, indeed, a full enumeration of them, with reference to the circumstances of each particular kind of partner- ship, would be found at once tediously minute and no general partnership intermixed with that with a hmited liability, and such general partner is alone liable for the debts of the firm as an indi- vidual. 1 Troplong des Sooietes, No. 412, p. 383. ' See page 154 of the London edition, and p. 102 of the American. » Ibid. CH. XVI.] ENUMERATION OF DUTIES. 511 of little value, even if it were practicable. The rights, duties, and obligations of partners inter sese, must necessarily be expanded or restrained, to meet the exigencies of their peculiar trade and busiaess; and general rules can do little more than to point out the ordinary course in common transactions."^ § 507. It becomes important, therefore, — inasmuch as it has been seen that some enumeration of the rights, duties, and obligations of partners inter se, im- pHed by law, can be, and has been made, — to ascertain what these rights, duties, and obligations are; how far they might enter into, or be excluded from, a deed of Hmited partnership ; and, if excluded, how far they would legally control or influence such deed. § 508. First : Good faith, reasonable skill and dili- gence, and the exercise of sound judgment and discre- tion, are implied from the very nature of the relation of partnership. Hence, if any loss occur from the gross neghgence, unskilfubaess, fraud, or wanton mis- conduct, of any partner, in the course of the business, he will be responsible over to the other partners for all the damage sustained thereby, whether directly or through their own liability to third persons.^ Secondly, it is implied in law, that all the partners shall strictly conform themselves to all the stipula- tions contained in the partnership articles;^ and shall also keep within the bounds and limitations of the .rights, powers, authorities, and acts, appropriate to the due discharge of the partnership business. For ' Story on Partn., i 185, p. 298, of 3d edit. " Ibid. § 169, p. 276. ' Ibid. § 173. It strikes the writer that this is a forced and unnecessary implication ; inasmuch as the articles themselves must necessarily compel the partners to the same thing, arid that expressly. 512 OF THE FORM AND STRUCTURE OF DEEDS. [CH. XTI every deviation therefrom or excess in the exercise oJ such rights, powers, and acts, that shall cause loss tc the concern, the transgressing partner shall be respon- sible to his associates. Thus, the withdrawing of an undue portion of the funds, under the pretext of his private domestic expenses, by one of the firm, for the purchase of plate, carriage and horses, or other luxu- rious appUances, would be visited on him or his estate, as a breach of good faith and an injury to the joint concern.' Thirdly; a clandestine stipulating with third per- sons by any one partner, for any private advantage to himself, in any transaction of the partnership busi- ness, would be a breach of good faith, and any profit accruing to him therefrom would enure to the joint benefit.^ So, any concealment of superior information from his associates, which should enable him to deal with them privately for any further interest in the part- nership, — such as the purchase of the share of any one of them — upon terms advantageous to himself and in- jurious to them, would be set aside as a constructive fraud.' So, if a partner voluntarily place himself in a position, in which his bias, as well as his interest, becomes opposed to the interest of the partnership; as, if he buy goods for the joint account, and makes the bargain by a barter of his own private goods on his own sole account, and charges the partnership with the cash price of the goods, he will be compelled to account for the private profit made in the barter."* > Story on Partn. See the case there quoted in the note, Stoughton V. Lynch, 1 Johns. Ch. R. 467. 'Ibid. H74. 'Ibid. H72. < Ibid. § 175, Burton v. Wookey, 6 Madd. Rep. 367. Cfl. XVI.] ENUMEEATION OF DUTIES. 513 The same rule applies to the converse case of a sale of the partnership property under the like circumstances. ' Fourthly; It is the implied duty of every partner, not to engage in any other business or speculation, which must necessarily deprive the partnership of a portion of the skill, industry, diligence, or capital, which he is hound to employ therein.^ In other words he is not at liberty to deal on his own private account in any matter or business, which is obviously at variance with, or adverse to, the business or inte- rest of the partnership.^ And courts of equity will interfere to restrain partners by injunction from in- fringing these rules against separate trading or specu- lation in matters inconsistent with, or injurious to, the partnership business.* Fifthly : — It is next an implied obligation upon all the partners, as a matter of good faith, that the busi- ness of the partnership shall be conducted in such a manner, as that each one may be enabled to see that it is being carried on for their mutual advantage, and not injuriously to the common interests. It is the proper duty, therefore, of each partner to keep pre- cise accounts of all his own transactions for the firm, and to have them always ready for inspection and explanation. This rule extends to the receipt of money by any one of them for the concern; and of such receipt an entry should be at once made on the books, ready and open for the inspection of his asso- ciates. And no one member of the firm can exclude ' Story on Partn. i 175. * Ibid. § 177; 3 Kent's Coram., p. 51, Lect. 43, 4th edit. ^ Kent and Story, ubi supia, and Pothier des Societes, No, 59 ; Boulay Paty, Droit Commer., Tom. 3, § 19, p. 94, cited by them. * Glassington v. Thwaites, 1 Sim. and Stu., 124 — 133. 2h 514 OF THE FORM AND STRUCTURE OF DEEDS. [CH. XVI. another from a personal interposition, and an equal management in the joint concerns, unless, indeed, in the case of exceptions or limitations in the partner- ship articles.^ Sixthly.. In the implied obligation of every partner to possess the requisite skill, and to exercise due dili- gence and perform due labor in the business of the partnership, mentioned hereinbefore, as the first in the series of these legally implied duties, he must be so qualified, and must so devote himself, without ex- acting any reward or special compensation, unless he can do so under an express previous agreement.^ For this position the learned commentator below quoted cites a number of English and American authorities; but it strikes the writer as very clear that it is but the mere and unavoidable corollary of the implied obligar tion which has Just been stated. But, in the case of a loan of capital to the firm by a partner, or an excess of it belonging to him, it is the better opinion that interest on such loan or excess would be allowed him, supposing him to have been equally as laborious and attentive to the common business as the rest of his associates.^ Seventhly:: The learned American commentator specifies lastly, as an implied obligation amongst part- ners, that each one shall exercise a sound and reason- able discretion for the mutual benefit and interest; shall avoid abusing in any way the ordinary privileges of a partner in the management of the concern; as. ' Story on Partn., § 181, citing CoUyer on Partn., B. 11., ch. 2, j 1, and the English Chan, cases quoted by th-e latter. ' Story on Partn., $ 182. ' Ibid. 5 182, a, where is cited Millar v. Craig, 6 Beavan's Eep., 433, and numerous American cases. CH. XVI.] DUTIES AS TO SPECIAL PARTNERS. 515 for example, by profuse or unnecessary expenditures in the partnership business, or by rash and imprudent speculations, or by negligent and extravagant sacri- fices of the partnership property.^ It seems to the writer, indeed it strikes him so forcibly that he cannot refrain from hazarding the criticism, that the trans- gression by any one partner of the foregoing obliga- tions would amount to no more than a compound in- fraction of the two rules previously laid down in the matter of a breach of good faith, and a want of com- petent skill or due diligence. § 509. Having thus concluded the enumeration of the rights, duties, and obligations between partners implied by law, and independent of any express agree- ment or articles, it remains to be seen how far, and in what degree, if any, the existence of these rights, duties, and obligations between all partners under the general commercial law, would affect, influence, or enter into a contract for a limited partnership for the advantage or the protection of the special partners. For, in regard to a general commercial partnership, constituted by specific written articles, it is an un- doubted rule that these articles, although regulating the rights, duties, obligations, and interests of the partners in the cases and contingencies therein detailed, yet leave in full force all the other rights, duties, obli- gations, and interests, implied by law, so far as the latter are not superseded, qualified, or limited, by these articles.^ § 510. It seems to the writer to be perfectly unde- ' Story on Partn. { 183, quoting Collyer, B. II., ch. 2, ^ 1, p. 127, 2d edit. ^ Story on Partn., oh. 10, § 191, p. 303, 3d edit., citing Collyer, B. II., ch. 2, § 2, p. 139, 2d edit. 516 OF THE FORM AND STRnCTUKE OF DEEDS. [CH. XVI. niable that all special partners, under the system en commandite, do possess the advantage and protection of these implications of the general law of partnership, and can invoke their aid whenever an emergency may arise. It also seems to him that the series of rules and illustrations of the rights, duties, and obligations of partners to each other, implied by law, above stated by him under seven categories, borrowed, though in a very condensed form, from the 9th chapter of the work last quoted, is yet, if not a repetition, certainly but an amphfication of the same two principles ; the one, posi- tive, requiring competent skiU, discretion, and dili- gence; the other, negative, enforcing good faith and fidelity on each towards all. Indeed, he thinks this- condensation may be carried still farther; and the two principles, important as they doubtless are, and sacred as they ought ever to be held, amount in fact to but one — a sort of lairge principle with two handles, an ampulla — the whole benefit of which could be incorpo- rated into the text of any copartnership deed in a sen- tence of three or four lines ; as thus : — " Bach party covenants that he possesses due skill; that he will employ it with care, economy, and industry, in the common business, at all times and to the best of his ability; without any attempt at private gain, and with perfect good faith and fidelity to his associates." § 511. The way now being clear for a consideration of the form and framing of a deed of limited partner- ship, with a detail of the most important stipulations and arrangements usually inserted in such a deed; of the standards of interpretation and application of such stipulations and arrangements; and of the manner and extent in which they can be set up or enforced in a court of law or of equity, — the writer will proceed CH. XVI.] HEADS OF EULES AND DOCTRINE. 517 first to an enumeration of the rules and doctrine binding general partners inter se; secondly, binding them and the special partners together; and lastly, those that concern the special partners alone. § 512. This enumeration may be made under twenty-two several heads: — I. The form of the partnership agreement, whether by deed under seal, or by writing not under seal. II. The nature and extent of the business. III. Commencement and duration of the partner- ship. IV. Emergenci^ for which a power to dissolve is to be provided. V. Style and signature of the firm. VL Capital; and proportions in which the partners are to invest it, and share profits and losses. VII. Sums which each one may draw out for his separate use. VIII. Degree of labor and attention to be devoted by the respective partners, and exclusive manage- ment by one or more. IX. Eestraints on the members as to engaging in other business, or in the firm's business on private account. X. Grounds defined for the expulsion of any mem- ber. XI. Decision and government by majority, in ques- tions as to the conduct of the business. XIL Mode in which the books of account are to be kept. XIII. Periodical or annual accounts. XIV. Modes in which a final account is to be made out, upon a dissolution, and the afiairs wound up. XV. Carrying on of the business by a surviving partner. 518 OF THE FORM AND STRITCTURE OF DEEDS. [CH. XVI. XVI. Carrying on of the business by the executor of a deceased partner, in trust. XVII. Clauses for the admission into a firm of a deceased partner's heirs or representatives. XVIII. Clauses for the arbitration of disputes. XIX. Clauses for liquidated damages on an infrac- tion of the articles. XX. Deeds of dissolution; and clauses for winding up the business. XXI. Clauses defining the rights and protecting the interests of special partners alone. XXII. Clauses destructive of every type of part- nership. § 513. — ^I. In England and the United States, there are two formulas in force for the shaping of partner- ship articles ; the one is by deed under seal, called, technically, a spedalty; the other an instrument of writing not under seal, called a simple contract. They are both equally effective on the partners, and equally as protective in law. But there is undoubtedly, in the first named country, and perhaps in this,. a prejudice in favor of the instrument under seal pervading the profession of the law. This relic of feudalism, — a seal — is thought to carry with it legal advantages. One of them is said to be, that an action of covenant can be maintained for the breach of stipulations con- tained in a deed; another, that a deed is binding on the representatives of deceased contracting partners, as a specialty obligation; a third, that the statute of limitations does not attach its bar to claims protected by a seal. § 514. In France, and the countries wherein the system of partnerships en commandite prevailsj these CH. XVI.] CONCISENESS AND SIMPLICITY. 519 distinctions are unknown; perhaps this ought to be a reason why, in this country, no importance should be attached to the absence or the presence of seals, in the written contract for a limited partnership. But whichever form be adopted, let care be taken to frame the various stipulations in concise language, avoiding the tautologies, redundancies, and repetitions, usual in English deeds.* § 515. "Written articles of copartnership, whether under the French or English law, are not, in respect to their intrinsic form or modes of expression, con- fined to any particular formulas; on the contrary, as instruments to be interpreted under the law-merchant, they may be conceived in the simplest and least arti- ficial way, wholly devoid of technicalities. The cove- nants entering into them, ought, however, to be ex- pressed with precision and clearness, and without verbosity and tautology. Sequences of convertible words; repetitions of the names and qualities of parties ; masses of verbiage inserted in the vain hope to exclude all possible ambiguity, (the peculiar attri- butes, by the way, of forms to be found in English ' The late distinguished and very learned commentator on American Law, Chancellor Kent, after remarking on the excessive verbiage always inserted in deeds for the bargain and sale of real estate, thus expresses his own views of what he conceived would suffice to make an unim- peachable conveyance of land, or of a house and lot : — •'' I, A. B., in con- sideration of one dollar to me paid by C. D., do bargain and sell, (in New York "grant,") to C. D., and his heirs, the lot of land, (describing it.) Witness my hand and seal." If there be no heterodoxy in this marvellously curt form of a conveyance of real estate, (which may be worth $100,000,) as tendered by the great lawyer who composed it, for use, and who will dare dispute its sufficiency? certainly a very great retrenchment may be made of the words and phrases usually stuffed into formal deeds of copartnership. See 4 Comm, 508 — 9, 7th edit. P. 461, in prior editions. 520 OF THE FORM AND STRUCTURE OF DEEDS. [CH. XVI. books of precedents,) are only resorted to by draughts- men, wbo calculate on swelling out their charges. But whether the instrument be long or short, let every thing agreed on be expressed ; omit nothing wpon an understandimg ; and never modify, hy merely verbal agreements, any clause or clauses of the written com- pact. For, should any one partner refuse to adhere to a verbal understanding, made at the time of the execution of the articles, with and ia the presence of the other partners, in modij&cation, contradiction, or change of the written agreement, there would be no remedy against him. Parol testimony to subvert the writing, or contradictory to particular clauses, or of what was alleged prior to, at the time of, or since the execution, would be rigorously excluded by courts of justice.^ On this subject, Delangle observes, it is a presumption of law that the parties to articles of copartnership have carefully considered each covenant inserted therein, and have Hkewise thereiu set down with precision the laws by which they intended to bind themselves in the future. Why then permit any of them, by invoking parol proof, to add to their rights, or dimiuish the sum of their obligations? Where would be the use of executing deeds, and giving them publicity, if their contents were not to continue the standard? Therefore is it, that a gene- ral partner can never pretend he is entitled, beyond the allowance secured to him in the articles, to com- missions upon certain receipts; or that, in certain cases, he is to be exempted from liability, when no such agreement appears in the articles. Neither could he contend that a dissolution of the partnership was ■ Malepeyre and Jourdain des Soc. Comm., p. 108. CH. XVI.] NATURE OF BUSINESS. — COMMENCEMENT. 521 verbally agreed on before the period fixed in the deed of formation.' § 516. — II. If the articles state precisely the nature, and extent, and kind of business of the copartnership, no one of the partners would be permitted to extend the business, without the consent of all the members, to any other business, or branch, of a difierent nature, extent, or kind. Courts of equity construe articles, in this regard, strictly; and upon any attempt of the sort, they would interpose, by way of injunction, to restrain the offending parties.* Of course, if the at- tempt have been carried into execution, the contracts made under it would not bind the other partners. § 517. — III. If no time be fixed in the articles for the commencement of a general partnership, it would date from the day on which they were executed. Under the statutes of this country for the establish- ment of partnerships with limited liability, this ques- tion could not arise, inasmuch as the day of inception is estabhshed in the registry. So also, is the dura- tion. But its duration, as between the general part- ners, is liable to a change, notwithstanding the re- gistry. It is always understood, as an imphed condition or reservation, (unless the contrary be expressly stipu- lated,) that a partnership created by articles to endure for a certain period of time, is dissolved by the death of any one of the partners duriug that period of time.^ " Des Soc. Commer., Vol. II., No. 525, citing a decision of the Royal Court of Bordeaux, of January 1.5th, 1827, in Dalloz, 1828, P. 2, p. 292. * Story on Partn., i 193, cites Natusch v. Irving, Gow on Partn., Appx. 398, 407; 111—112, 3d edit. ' Story on Partn. § 195, cites Collyer, with several English and Ameri- can cases. 522 OF THE FORM AND STRUCTURE OF DEEDS. [CH. XVI. The act of 1838, of the legislature of Pennsylvania, has, as we have seen,' enabled the general partners of an association in commandite, to guard against such a dissolution; they may also, independently of this statute, provide in the articles in any way they wish against a vicissitude of this kind.'' § 518. — IV. As to the emergencies for which powers to dissolve a partnership ought to be provided in the articles, it is said that there is some difference of opi- nion. Mr. Jarman, — an eminent London convey- ancer, and voluminous writer on his branch of Eng- lish law, — thinks that so extensive a power as that of dissolving a partnership ought to be exercisable only upon a deliberate breach of some of the essential articles of the partnership compact; such as, com- pounding, releasing, or contracting debts, without the consent of the copartners; assigning his share, or withdrawing for private use the whole or part of his share, by any member; or becoming surety, or carry- ing on separately the same trade; but not, (as in some precedents,) upon the mere neglect to make an entry in the books, or some other trivial departure from the rules laid down for the conduct of the business.' And even in regard to grave acts of misconduct, it is recommended by the same writer, that a definite time should be fixed, within which the aggrieved partner should be obliged to avail himself of the power.* It ' Supra, ch. 4, p. 58—59. ' Where a limited partnership runs out by effluxion of the original stipulated time, (as was the case in Andrews v. Schott,) we have already- discussed and defined the statm of the special partners. Supra, § 113, p. 116, where this effluxion occurs in a general firm, and it is, neverthe- less, carried on by the same partners. See Story on Partn. § 197, and { 198, p. 310, 3d edition. ' 7 Jarm. Conv. 175, edit. 1842. * Id. Ibid. CH. XVI.] DISSOLVING CLAUSES. — STYLE. 523 is contended, on the other hand, that a proviso for dissolving the partnership upon notice at the will of either party, which is sometimes inserted in partner- ship deeds, will be found extremely convenient.^ As lunacy does not, jper se, work a dissolution, or enable the remaining partners to dissolve the partnership, it is important that a power to that effect should be ex- pressly given them.^ And on the same ground, pub- lic notice in one or more newspapers is requisite to discharge the lunatic's estate from subsequent liabi- lity for engagements of the firm.^ § 519. — V. A partnership style is prescribed by all the statutes providing for Hmited partnerships in this country. The statute of Maryland ordains that it shall consist "of all the names of all the partners in- terested, except special partners."* As, in general partnerships, the style of |;he firm is often agreed on, and ought always to be, the law requires that, when once adopted, it shall be adhered to; "and, under such circumstances, it is a part of the duty of every partner, in signing contracts and other instruments, punctiliously to observe and follow the very formu- lary."* It would be a breach of such duty to abridge, add to, or modify, the name of the firm, or to sign his own name, adding, "for Self & Partners."^ This doctrine appUes, a fortiori, where the firm name is in- tended to express the names of all who are partners; as, for example, John Doe & Eichard Roe; for, in such a case, it may be for the benefit of each partner that he be known to the world as a member of that con- ' Bisset on Partn. 157, Lond. 104, Am. edit. 2 Bisset, vM, supra, 7 Jarra. Conv. 197. ' Ibid. ■> Post, Appendix, No. 2. ^ gtory on Partn. § 202. ' Ibid. ; Marshall v. Colman, 2 Jac. and Walk., 266—269. 52.4 OF THE FORM AND STRUCTURE OF DEEDS. [CH. XVI. cern, and also, that as between the partners themselves and the world, it should not be left as a mere matter of speculation who are really partners, or who are not dormant partners, but that the firm may have the credit, and the pubhc the confidence, resulting from the knowledge of the fact.^ " And probably," says the late Mr. Justice Story, " a court of equity might, in a case of this sort, interfere by way of injunction, to prevent any mischief to the firm by thus exposing it to the consequences of being made liable for proceed- ings of one partner to which it did not really assent."* Why "probably" only, the writer is at a loss to con- ceive. If there be any use of courts of chancery, it is in cases of this kind. A chancellor who would doubt, or halt, or hesitate, in an emergency of this kind, would be an incubus upon, and not a benefactor to, the public. It is true that, in the case above cited frorri the second volume of the reports of Jacob & Walker, which the learned American commentator extracts largely from in a note, Lord Eldon denied an injunction of the kind, "under the special circum- stances;" using this language — "But it must be made out to be a case which goes further than this does to entitle the court to grant an injunction against the breach of such a contract; it must be a studied, in- tentional, prolonged, and continued inattention to the application of one party calling on the other to observe that contract."* ' Story on Partn. Marshall v. Colman, 2 Jac. and Walk., 266—269. " On Partn. ut supra. ' If there be equity judges in any state of this union similar in legal temperament and idiosyncracy to the deceased English Lord Chancellor, the writer advises the mercantile and trading puplio of that state to give their statute upon limited partnership the go-by, as an impracticability, CH. XVI.] CAPITAL. — PROFITS. — REALTY. 525 § 520. — VI. It must always be important for special partners, on the agreement for a limited partnership, that the share of the capital stock belonging to each general partner, (where there are several,) and the share of the profit to which each is to be entitled, should be carefully specified in the articles of associa- tion. Likewise, when a share of profits is given, but no share of capital put in, that should be carefully specified; because, in the absence of any express con- tract or stipulation on the subject, the presumption of law would be that they were interested in equal moieties.' § 521. . In designating the generic nature of the capital, if any real estate is brought in, or is intended to be acquired, for the uses of the firm, it is indis- pensable, for reasons stated in a previous chapter,^ and therefore unnecessary to repeat here, that a clause should be introduced into the articles agreeing that such realty shall be held and .disposed of as personal property, like the other capit3,l .of the concern, upon any event or mutation whatsoever amongst the part- ners. A formula of a clause for any partnership might be conceived as follows : — " The joint investment of each general partner is to, consist of the value of $20,000, of which, real estate, suita,ble.for the business, as a legal mechanism impossible to be got into continuous and useful operation. • • ' Per Lord Eldon. Ch. in Peacock v. Peacock, 16 Vesey, 56; in Farrar V. Beswiok, 1 Moo. and Ry. 527, Parke, B. said, " Where no evidence is given to show in what proportions the parties are interested." But Lord Brougham, in Thompson v. Williamson, 7 Bligh, N. S., 432, states it as the opinion of himself, of Lord Wynford, and one of the Chief Justices, that where there is no evidence, a jury should take into con- sideration the fairness of an equal division. * Ante, ch. 7, p. 167 ; of the Real Estate of Limited Partnerships. 526 OF THE FOEM AND STRUCTURE OF DEEDS. [CH. XVI. may be brought in. Such real estate shall then be held, deemed, treated and disposed of, as personal estate, like all the other efifects of the firm, by each partner, and the death or insolvency of him in whose name the title rests shall not aflfect the business, te- nure or claims of the other partners." If it should be intended to purchase real estate with the funds con- tributed by the special partners, the framing of a similar clause would be very easy. But agreements containing the introduction of real estate as joint capi- tal ought, as a measure of precaution, to be recorded in the proper public office. § 522. — VII. In the matter of this subdivision, spe- cial partners have a vital interest. The way in which partnerships most frequently become embarrassed and finally ruined, is by one partner's drawing out more than his share of the profits for his own separate use. It is therefore most important that the other partners may have the power of putting a stop to this at the earliest possible time. This power will be effectually given by a proviso that, in case it shall appear at the end of a year — or any other period agreed on — upon taking an account, that any partner shall have drawn out a sum larger than his share of the net profits during such period, such partner shall, imme- diately after such account taken, repay to the firm the excess over the amount to which he was merely en- titled. And if the articles are, and, as the English writers hold, they ought to be, under seal, an action of cove- nant can be maintained for a breach of this stipula- tion, and thus the delinquent partner at once brought to account.^ As a judgment and execution could be ' Bisset on Partn. 105, and 158—9; 7 Jarm. Conveya,n. 114. CH. XVI.] LESIONS OF THE CAPITAL. — CARE AND SKILL. 527 the only legal result of such an action, and its fruit could not be reaped without the ministry of the sheriff in the partnership house by virtue of that execution, would it not be infinitely better for the partners to have the power in their own hands on the discovery of such indiscretion or abstraction by their associate, and that the stipulatioju in the articles should be that, on such discovery, a lien should attach on the de- faulter's share of the capital stock, and his associates should have the power of enforcing that lien by debi1> ing him with the sum of his wrongful abstraction, or in any other stringent way (by expulsion even) that may redress the firm, and prevent a similar depreda- tion in the future? § 523. — VIII. It is said that, as to the stipulations which are usually contained in articles of copartnership, respecting the degree of attention which each partner shall pay to the business, the parties must rely more for the performance of them on their knowledge and confidence in each other, than what either the frame of the deed or the power of a court, either of law or equity, can effect. For when a partner who has con- tracted to exert himself in a special way for the bene- fit of the concern, violates his engagement, chancery cannot compel a specific performance of it.' When the articles provide thatone or more of the partners shall exclusively manage aU the joint concerns, or one or more particular departments, courts of equity will up- hold, with a steady hand, every such stipulation, give it fuU effect during the continuance of the partnership, and inhibit the non-competent partners from inter- meddling therewith.* And this is in coincidence with ' Kemble v. Kean, 6 Sim. 333 ; Bisset on Partn. 106—159. ^ Story on Partn. § 173, 182, 193, 202, 204 528 OF THE FORM AND STRUCTTJRE OF DEEDS. [CH. XVI. the French law, and with the positive regulations of the code of Louisiana. The power once given in the articles is deemed irrevocable during the continuance of the association; and so it seems to have been im- pliedly promulgated by the Eoman law.^ § 524. — IX. A special stipulation in articles of co- partnership, that no partner shall carry on any busi- ness incompatible with or prejudicial to that of the firm, is the constant course ; and that, notwithstand- ing the implied obligation of law on the subject. If the language of this stipulation be general, it will, of course, exclude all business interfering with that de- scribed in the articles. But if limited to engaging in the same business, or to any other particularly speci- fied business, during the continuance of the firm, it would leave the partner free to engage in any other than the excepted business, by virtue of the maxim, that Expressio wnius est exclvisio alterius.^ The same clause should be so framed as to embrace the case of a withdrawal or retirement of a partner from the firm during its continuance, in order to prevent any mem- ber from withdrawing or retiring for the very purpose of engaging in the same business, or in another incon- sistent with it, on his own separate accoun£, and with the idea that he would thereby make more money. Many a withdrawal might be motived by such a pur- pose, while any pretext might be assigned as the cause. In such stipulations, furthermore, it is evident that special partners, who are the real capitalists, have a preponderating interest; as, for example, where a ' Story on Partn. k 204. ' Per Lord Eldon, Ch. Morris v. Coleman, 18 Vesey, 438 j Collyer on Partn. B. II., ch. 2, § 2, p. 143; Story on Partn. § 209; Bisset on Partn. 107—160. CH. XVI.] EXPULSION OF GENERAL PAETNEES. 529 retiring partner carries with him the secret of cer- tain processes of manufacture used by the firm, which, perhaps, he may design to use in conjunction with other capitalists, near the very locality of the existing firm. § 525. — X. Provision is also often made in partner- ship articles, for the expulsion of a partner for gross misconduct;^ or in case of bankruptcy; or of insolvency under execution ; or in case of inabihty to pay his debts ; or other special enumerated cases ;^ and, therefore, as it seems to the writer, in the case of an infraction of the stipulation mentioned above, under subdivision Vin., for the devoting of a particular degree of atten- tion to, or exercising a particular kind of labor, on all or any portion of the partnership business. Can it be necessary to warn special partners, that attention to the framing and execution of comprehensive and strin- gent clauses, in respect of expulsion for these delin- quencies, is of vital interest to them? In special associations, where there are numerous general part- ners, it may be confidently asserted, that in the strength and fulness of such clauses, the main hope of salvation for the special members must rest.^ § 526. — XI. The right of a majority, or of a defi- nite number of the general partners, to direct the business of the partnership, and to decide, in case of a diversity of opinion among the members, upon any ' In the designation of " gross misconduct," the writer wotrld unhesi- tatingly class drunkenness, gambling, peculation of the joint property, and emissions of the partnership name or paper, for private purposes. 2 Story on Paitn. § 214. ' The law of this subject is considered in the 9th^ chapter of this work,, upon the Management of General Partners; and in sections 250 — 253j ante, p. 262 — 268, the cases are stated and reviewed. 2i 530 OF THE FORM AND STRUCTURE OF DEEDS. [CH. XVI. question of purchase, sale, speculation, investment, extension of business, or other interest that may come up, ought to be a matter of special provision in the articles of a limited partnership. Such a provi- sion would constitute the imperative rule in cases of difference. It should be ample, too, as, it seems, it would not be extended by legal implication to any collateral cases, although they might fall within the same or even a greater mischief.' Thus, for exam- ple,, if it were intended that in cases of difficulty, the majority should have power to wind up or sell the concern, the authority must be expressly given; for it would not be inferred, from the general language Ibid. § 213, CoUyer on Partn. B.II., ch. 2, i 2, p. 143, Vide ante, Ch. IX., of Management by General Partners. * Ibid. Ckapple v. Cadell, Jacob's Rep. 537. See Chapter XIV., of this work, on the Dissolmtron of Limited Partnerships. ' Bisset on Partn. 108, 161 — 2; seethe Lord Chancellor's observations in Goodman v. Whitcombj 1 Jac. and W. 593. CH. XVI.] BOOKS. — YEAELY ACCOUNTS. 531 the books, such clauses, if full and stringent, would prove a great comfort, and often a safeguard. § 528. — XIII. Of equal importance for special part- ners would be stipulations in the articles for an an- nual account, valuation, and balance sheet of the moneys, stock in trade, and credits of the partnership, and also of its debts and responsibilities; and, also, for an annual division of the whole or of a portion of the profits. The annual accounts, when so settled and balanced, are ordinarily held to be conclusive, unless some error is shown; and to guard against the opening of such accounts, upon suggested errors at distant periods, it is not unfrequently further pro- vided, that such annual statements, balances, and set- tlements shall be binding and conclusive upon all the parties, notwithstanding any errors, unless they are discovered in the lifetime of the partners, or during the term of the partnership. With such further pro- visos, they would be final and for ever unimpeachable, except in matters of fraud, and where errors in them cduld be traced to the fraud of any of the partners; for fraud will nullify the effect of the most solemn and binding stipulations that can be dievised.^ § 529. — XIV. Another usual stipulation in the ar- ticles is, for a general account of all the partnership property and concerns, upon a dissolution by the death, expulsion or retirement of a partner, or upon the expiration of the partnership by its own limita- tion; and this is followed by another clause establish- ing the mode of winding up the concerns, and of dividing and distributing the partnership property ' Collyeron Partn. B. II., oh. 2, i 2, p. 144, 145, 146, 2d edit. ; Oldaker V. Lavender, 7 Sim. Kep. 239; Story on Partn. S 206. 532 OF THE FORM AND STRUCTURE OF DEEDS. [CH, XVI. a,ud effects. This is generally provided for in one of two modes. One mode is, by a general conversion of all the partnership assets into cash by a sale, and dividing the product thereof, after payment of the debts of the firm, among all the parties, in propor- tion to their respective shares and interests. The other mode is, by providmg that one or more of the partners shall be entitled to purchase the share of the other, who dies or retires, at a valuation. The former mode is that constajitly adopted by courts of equity, in the absence of any express stipulations; the latter can only be insisted upon, when there is an express stipulation to that very effect. A mere stipu- lation for the division of the partnership stock and effects, at the end of the partnership, will not be deemed, in equity, sufficient to entitle one or more of the partners to purchase them at a valuation; but merely to provide for a division in the usual manner by a sale. The same rule of a sale is applied in all cases, where the mode prescribed by the partnership articles becomes impracticable, or cannot otherwise be fairly obtaiaed.^ § 530. Under the clause in articles for a purchase at a valuation, upon the dissolution of a partnership, the question has arisen, whether that clause is appli- cable to a dissolution by bankruptcy. It has been thought that it is not applicable, although the point has not expressly come under decision; but a strong inclination of opinion, in that direction, was expressed 'Ibid. 7 Jarm. Conv. 115, 116, 143, n. (f;) Cookson v. Cookson, 8 Sim. Rep. 529 ; Rigden v. Pierce, 6 Madd. Rep. 353 ; Cook v. CoUing- ridge, Jacob's Rep. 607. CH. XVI.] STTEVITING PARTNERS. — EXECUTOES. 533 by Lord Eldon.' The late Judge Story® and Mr. Jar- man/ intimate that the provision in such case would be void, as an attempt by a party in a contract to effectuate a particular disposition of his property, in ^n event which deprives him of all power and con- trol over it, and vests all his interest and title in his creditors or assignees. § 531. — XV. K it be desired, on the formation of any partnership, general or limited, that the business shall be carried on by a surviving partner or partners for the benefit of the family of a deceased partner, it should be agreed in the articles what degree of inter- ference and control is to be exercised by the acting partners, and whether any allowance is to be made them for their trouble in managing the concern. If so carried on, under the articles, but without a clause as to this allowance, no claim can be made for it.* § 532. — XVI. Again; if it be desired on the formar lion of a partnership that, on the death of a partner, the business shall be carried on by the executor or administrator of his estate, for the benefit of his family, in connexion with the surviving partners, a special clause should be introduced into the articles, to such effect. The late Mr. Justice Story says that such a clause is usually inserted in partnership agree- ments for a long term of years, where the outlay of capital is great in permanent fixtures, and in manu- facturing establishments, and the locality of the trade renders it important, in point of profit and good will, ' Wilson V. Greenwood, 1 Swanst. Rep. 481, and the Reporter's note, (1 ;) Gow on Partn. ch. 5, § 3 ; CoUyer on Partn. B. II., ch. 2, § 2, p. 145 —146. ^ Story on Partn. § 208. ' 7 Jarm. Conveyan. 115. * Bisseton Partn. Ill, 167 — 8, 7 Jarm. Conveyan. 177, 3d edit., for the form of a clause of such extra allowance. 534 OF THE FORM AND STEUCTUEE OF DEEDS. [CH. XVI. that it should be steadily carried on, as long as may he, under the same proprietors or their representa- tives.-' It is asserted in the English books on this subject, that " an executor carrying on his testator's business with the surviving partners for the benefit of the decedent's family, and having himself no beneficial interest," becomes personally liable as a partner for the engagements of the firm, while the profits belong to the cestui que truM? This liability, the unprofes- sional reader might suppose, would imply the ex- haustion of all the testator's property, previously; and that, even with this limit, the execution of such a trust would be full of peril to executors, in many cases. But the law is not so; indeed, however much conflicting with general notions of equity, it appears to be the very reverse. It is undoubtedly true, never- theless, that a testator, directing the continuance of his partnership, may, if he so choose, bind his gene- ral assets for the debts of the firm contracted after his death. But he may also limit his responsibility, either to the funds embarked in the business, or to any specific amount to be invested therein for that purpose; and then the creditors can resort to that fund or amount only, and not to the general assets of the testator's estate, aliluyugh the partner, or executor, or other person carrying on the trade, may he personally responsible for all the debts contracted.^ But nothing ' Stoiy on Partn. § 199. ' Wightman v. Townroe, 1 Man. and Selw. 412; Bisset on Partn. Ill —168. * Story on Partn. § 201, o. Ex parte Gtarland, 10 Vesey, 110;Exparte Richardson, 3 Madd. 138 — 157; Thompson v. Andrews, 1 Mylne and Keen, 116 ; Pitkin v. Pitkin, 7 Conn. Rep. 307; Burwell v. Mandeville's Ex'rs, 2 Howard, (Sup. Ct. U. S.,) 576. CH. XVI.] EXECUTORS AND HEIRS AS PARTNERS. 535 but the most positive language in a will, would make the testator's general assets liable for all debts con- tracted in the continued trade after his death; and this on the ground of inconvenience, and the impossi- bility of paying off the legacies, or distributing the residue of his estate, until by the lapse of time, it could be ascertained whether the partnership trade would prove successful or ruinous.' § 533. — XVII. Clauses are sometimes inserted in the articles for transmittiag the shares of the partners at their decease, to their respective widows and children; and frequently, for the admission of one or more of their children into the concern, upon his or tiheir ar- rival at majority. Sometimes the provision partakes of the character of ia settlement, giving an interest in the partnership to the widow, during her life, and dividing this share, after her death, equally among all the children. This clause would be construed to mean, only such children as are living at the death of the mother.^ Sometimes the clause provides for the continuance of the partnership, by stipulating, that the interest of the deceased partner in the concern, after his death, and during the term of the partnership, shall go to such persons as he shall by his will appoint; and in default of such appointment, that it shall devolve on his wife, and in case of her death, upon his children, in equal shares, and in the case of the death of the latter, to his executors or administrators, who are to succeed to all his- rights and powers in the business 'Id. Ibid.' * CoUyer on Partn. B. II., eh. 2, 4 2, p. 147—148, 2d edit. ; Balraain v. Shore, 9 Vesey, 500, 506—507; Story on Partn. J 199. 536 OF THE FORM AND STRUCTURE OF DEEDS. [CH. XVI. and management of the partnership. Such a power of appointment would not be construed as a technical one; and, therefore, would be well executed by a testator, by a general gift of all his estate and effects to one or more of his family, without any distinct allusion, in the bequest, to this power.' As to an option, in respect to clauses of this nature, on the part of executors to accept or refuse, the general rule is, that they may act as they think proper, and, of course, a reasonable time will be allowed them for the purpose of deliberating whether to decline or to continue the partnership.* Probably "the same rule would prevail in the case of a widow, a child, a lega- tee, or appointee, unless the language of the direction clearly established a positive direction, that, at all events, the partnership should be continued."^ § 534. — XVIII. The cause for the arbitration of disputes must ever, in contracts for limited partner- ships, be of the greatest value. It is true, that as to contracts of general partnership, this clause is treated by authors as, if not nugatory, at least of little value. But the writer, doubting the soundness of the doctrines emitted on the subject, and whether sound or not, considering them as both odious and impolitic, will offer his own views in reference to what he considers is, or ought to be, the policy of the legal tribunals in • CoUyer ut supra, p. 148 — 149, 2d edit. ; Ponton v. Dunn, 1 Euss. and Mylne, 402 ; Story on Partn. i 200. « CoUyer on Partn. B. II., oh. 2, § 2, p. 149, 150—151, 2d edit.; Story on Partn. § 201. ' Ibid. Kershaw v. Matthews, 2 Russ. Rep. 62 ; Pigot v. Bayley, 1 M'Clel. and Y. 509; Morris v. Harrison, Colles' Pari. Rep. 157; Craw- shay V. Maule, 1 Swanst. Rep. 512 ; Holland v. King, 6 Manning, Granger and Scott's Rep. 727. CH. XVI.] AEBITEATION COVENANT. 537 this country upon this head of stipulations in written articles of copartnership. He will first quote the hackneyed doctrine of the books from one of the best of modern writers : — " This stipulation would seem to be nugatory and futile, be- cause no action at law is maintainable for a breach of it, it being against the policy of the common law, and having a tendency to exclude the jurisdiction of the Supreme Courts, which are provided by the government with ample means to entertain and decide all legal controversies. Besides, there is this additional difficulty, that it would be impracticable for the party to establish at the trial, that, upon such an arbitration, he would have succeeded in re- covering damages. It is also very clear, that no stipu- lation of the sort will be decreed to be specifically per- formed by a court of equity; not merely upon the ground of public policy, but also upon that of the utter inadequacy of arbitrators to administer entire justice between the parties, from a defect of power in them to examine under oath, and to compel the pro- duction of papers, as well as upon the ground of the impracticability of a court of equity's compelling a suitable performance of such a stipulation between the parties."^ The author will now present the observations of a recent London writer, on this very subject, which, as they embody his own opinions, and express the views he has for years entertained upon the question of ar- bitration, he adopts and makes his own: — "In most partnership deeds there is provision for arbitration in ' Story on Partn. § 215, citing the three chief English writers on part- nership, as well as all the decided cases on the subject. 538 OF THE FOEM AND STEUCTUEE OF DEEDS. [CH. XVI. cases of disputes, but the courts, on the plea of dignity, or on the plea that the suitor should have the best adjudication, have refused to give effect to the cove- nants where one or other of the parties refuses to ap- point the arbitrator; moreover, they refuse to adminis- ter the business pending the suit, but in most cases insist upon the sale and dissolution of the business, which may have been created by years of anxious exertion, and in which may be involved an immense amount of capital and of credit, the greater part of which will be lost, unless the sale and dissolution be conducted with almost as much care and circumspec- tion as was used in creating the concern, and in bring- ing it to its present state. The faults or failures may not be of a nature to justify the expulsion of either party from the association, and thus deprive him of the benefits of the partnership, but may only be of such a nature as to call for the judicious interference of an intelligent and disinterested moderator ; but no, the fixity and impliant nature of the rules of equity forbid a discriminate and equitable administration of the afiair, and the elaborate work of years of enter- prise and prudence is sacrificed to the incompetency, the indolence, the servile adherence to precedents, or it may be the selfish folly of the functionaries ap- pointed by the state to give relief, in a matter of almost as much importance, and of as universal concern, as marriage itself."^ Again : — " The courts should be re- quired to give effect to the stipulation, for referring matters of difference to arbitrators; and, in aid of that purpose, a court of arbitration should be established I Law Review, Nov. 1848, Vol. IX., No. 17, p. 78, Art. V., on "Li- mited Liability on Partnership." CH. XVI.] ARBITRATION COYENANT. 539 in connexion with the machinery for registering part- nerships of every denomination; and, for the mainte- nance of such courts in an efficient form, there might be imposed, in respect of an annual certificate of regis- tration, a small stamp duty. Such a court of reference should exist in subordination to the higher courts, and be aided and supported by them."^ The plea of a better jurisdiction, and the plea of dignity, thus set up against the arbitration clause in partnership deeds, are false and hollow pretexts, re- sorted to for a selfish purpose, in England, and heed- lessly adopted by the courts of this country. § 535. It was the jealousy of lawyers at Westmin- ster Hall of all interference with their practice, and their selfish fears that arbitration, once firmly rooted in the commercial world, would oust them from minis- try in many rich disputes between merchants and traders, that led to the broaching and sway of this unjust and arbitrary dogma. It is notorious that in matters wherein it accords with their convenience or interest to have arbitration and umpires, judges en- courage the practice, nay, insist on it. Lord EUenbo- rough, in Soott v. Mouyintosh,^ refused peremptorily to try the cause, asserting, that the referring of a long account between merchants to a jury, was not within the contemplation of those who framed the jurisdic- tion of his court. Other EngHsh judges, whenever frightened at an issue of etccounts, recommend an ar- bitration, and such recommendation is generally adopt- ed as tantamount to an order. But in such cases the arbitrators chosen are always barristers; therefore, arbitration in them is right and proper. Now this " Law fieview, Vol. IX., p. 84. ^ 2 Campb. Rep. 239. 540 OF THE FORM AND STEUOTUKE OF DEEDS. [CH. XVI. spirit should never have been acclimated in a republi- can country, and it should no longer be tolerated, but should be expurged and expelled from our system. What has the dignity of republican judges to do with the private contracts of our citizen traders and merchants ? If the latter, by solemn written stipu- lations, agree to decide their own business disputes and questions of account, and private interests, what right have other citizens, because they administer the public law, to proclaim that the former shall not do so? or, that, if they attempt to do so, they will be frustrated and foiled in the effort by the tribunals. There is an old common law maxim, that modus et conventio vincunt legem; and it is pretended that this maxim, except in cases opposed to honesty and fair dealing, is maintained by the courts ; but, as to the stipulation for arbitrament between merchant part- ners, the maxim is exactly reversed, and reads, lex vincit modum et conventvyrwm} The writer, therefore, says to stipulants, frame your covenant for the arbi- tration of your business disputes solemnly and amply, and then rely on the just and enlarged spirit of judges whom you have yourselves put upon the bench, to aid you in carrying it out.^ It is indispensable to special partners, that regular and proper machinery ' It would be strange indeed, \^ American judges, elected by the people, rather underpaid than overpaid for their services, with lists daily before them burdened with issues in law, and in fact, of one, two, three and four years' standing, should complain of being ousted of their juris- diction by the practice of arbitrament amongst laymen, or of a lesion of their dignity by a foregone renunciation of their assistance. " It seems that in one case at least, " the anxious provision of the parties for arbitration," had its due effect on an English Chancellor. It was the case of the management of the Opera House, in which, upon motion to interfere before the parties had proceeded with that course, Lord Eldoii refused his interference. Waters v. Taylor, 15 Vesey, 10. CH. XVI.] ARBITRATION- COVElSrANT. 541 of this kind should be provided in case of difficulty and controversies between those who manage their capital, for the avoidance of the expense, delay, and scandal of a resort to the public tribunals of law. § 536. Not so the French tribunals of law. The same maxim pervades the jurisprudence of France (to wit, that private stipulation will control the gene- ral law, if not contrary to public policy) as is pre- tended to govern in England and in this country. But in the former country, the maxim is respected, and is not distinguished away for the promotion of the private interests of any class. The decision which is cited in the note below, although a recent one, is only a repetition of doctrine previously held. The following- is a literal translation of the abstract of that case, quoted in the original language, from Sirey's Reports, for the year 1849, the original being also inserted in the annexed note : " In the matter of forced arbitrament, a covenant contained in the part- nership articles is binding, if it stipulate that the partners shall, in case of disputes, be judged by three arbitrators, with power to decide as amicable settlers, without appeal or recourse to Cassation. Such a stipulation does not change the nature of the arbitra- ment, nor clothe it with the character of arbitrament purely voluntary. The law recognises, almost gene- rally, the right of parties to stipulate even in ad- vance, for certain accessory conditions in relation to modes of judgment and means of appeal. Should a decision of arbitrators, empowered to determine as amicable settlers, without appeal, be set aside for an error in form, the court of appeal cannot take jwisdic- tion of the case, a/nd decide it out and out; such a course would be to falsify the plain intention of the parties. 542 OF THE FORM AND STRUCTURE OF DEEDS. [CH. XVI. But the case would have to be sent back and brought before new arbitrators. To settle the interests of parties in a jurisdiction to which they did not agree to submit, and which they have expressly excluded, would be to trample upon intentions that had been lawfully expressed."^ ' En matiere d'arbitrage force, est valable la clause contenue dans I'acte social par laquelle les associ^s stiputent q« 'en cas de difficulties, elles seront jug6es par trois arbUres, qui auront pouvoir de les decider comme amiables compositeuri, sans appd ni recours en cassation. Une pareille clause ne change pas la nature de I'arbitrage, et ne lui donne pas le ca- ractere d'arbitrage purement volontaire. Cour d'Appel de Paris, Dec. 23, 1848.— Recueil General de Sirey, P. 4, p. 34, Vol. of 1849. La juris- prudence reconnait assez gfencralement qu'en raateire d'arbitrage forc6, il est permis aux parties de stipuler, mtSme d'avance, quant aux modes du jugement on aux voies de recours, certaines conditions accessoires. Id. Ibid. n. 2. Au cas d'smnulation, pour vice de forme, d'une sentence rendue par des arbitres ayant pouvoir de juger comme amiables compositeurs et en dernier ressort, la cour d'appel ne peut evoquer I'affaire et statuer au fond : ce serait meconnaitre I'intention manifeste des parties. L'afFaire doit etre renvoyee devant de nouveaux arbitres. Ce serait violer I'inten- tion legalement exprimfie des parties, que de regler leura inter^ts par une jurisdiction k laquelle elles n'ont pas entendu se soumettre, et qu'elles ont manifestement interdite. Ibid. The following is a form of this clause taken from precedents of French articles of copartnership; — " All disputes between the said partners, or between one of them and the heirs or personal representatives, or assigns of another ; or between the heirs and representatives of both partners, concerning the affairs of the said partnership or its liquidation, {mncling up (f it,) shall be de- cided by three arbitrators, two of whom shsdl be respectively chosen by the parties, and the third by the arbitrators. On failure or delay so to choose, the Tribunal of Commerce of Paris shall appoint them. And the said partners covenant for themselves, their heirs and representatives, that the decision of the said arbitrators shall bind them and their estate as a judgment rendered by a court of last resort, and shall be submitted to, without appeal, stay of execution, exceptions, or writ of error, by the said partners, their heirs, personal representatives and assigns," A better clause than the above similar one may be thus : — " On failure or delay, by either party, so to choose, or by both,^the Tri- bunal of Commerce (or any other court or judge,) shall ex officio appoint CH. XVI.] LIQUIDATED DAMAGES COVENANT. 543 § 537. — XIX. It is a favorite stipulation, not only in deeds of copartnership, but also in other specialty obligations, both in England and the United States, that, on the breach of any of the covenants contained in such instruments, the transgressing party shall pay to the other a specific sum of money by way of liqui- dated DAMAGES. Strange to say that this stipulation likewise often meets with disregard and nullification at the hands of courts of justice. " The frequent failure of attempts to establish claims to liquidated damages might seem almost to warrant a doubt whether the courts would, in any instance, give effect to covenants for the payment of them, did not cases sometimes occur in which such damages are recovered. Such is Jones v. Qreen,^ where an annual sum of £10 an acre, which was, by a lease, made payable, in case the tenant, in the last three years of the term, should sow more than a certain quantity of the land with clover in any one year, was treated as an additional rent, and not as a penalty ."*' A similar stipulation, under the denomination of dedit, is also a frequent one in French written agreements; but the dedit, whether a penalty or the real damage, is enforced by the French judges. In regard to partnership articles, Mr. Bisset says •? — "Such provisions are useful as regards some sorts of covenants, the non-performance of which is likely to be attended with an extent of injury not easily ascer- tainable or capable of proof; such, for example, as an arbitrator for the party or parties failing or delaying; and also the um- pire, should the two arbitrators disagree. And the said partners cove- nant," &e. ' 3 Youn. and Jerv. Rep. 298. * 7 Jarm. Conv. 87, 2d edit. • On Partn. p. 173, Lend., and 114, Am. edit. 544 OF THE FORM AND STRtTCTUBE OF DEEDS. [CH. XVI the covenant not to set up business, within a certain distance, for a given period of time after the dissolution of the partnership. In such cases, the liquidated da- mages will be deemed the real damages, and a verdict, in an action on the covenant, will be found for the amount of the liquidated damages. In such contin- gencies,- a clause fixing the damages ought always to be added.'" "But such a clause is useless in cases where the breach of the covenant is attended with an ascertained damage of a different amount, as in the case of a cove- nant to pay money. And a general clause, directing the payment of a specific sum, by way of liquidated damages, on the breach of any one of a series of cove- nants, is now established to be nugatory; especially where the breach of any of the covenants is evidently attended with an ascertained damage of a different amount.^ In a subsequent case, even though none of the covenants were for the payment of money, the court of common pleas decided that a provision, as- signing the same measure of liquidated damages for the breach of any one of a series of covenants of dif- ferent degrees of importance, is to be regarded as im- posing a penalty only, and referred it to the protho- notary to ascertain how much, if anything, ought to be paid to the plaintiff.^ The conclusion, observes Mr. Jarman, to be drawn from the reasoning of the court in this case is, that a covenant to pay a sum of money as liquidated damages on the breach of any one of a ' Low V. Peers, 4 Burr. 2225; Leighton v. Wales, 3 Mees. and Wels. 545, 7 Jarm. Conv. 83, 2cl edit. * Kemble v. Farren, 6 Bingham, 141, S. C, 3 Moore and Payne, 425. ' Charrington v. Laing, 6 Bingham, 242, S. C, 3 Moore and Payne, 587. CH. XTI.3 LIQUIDATED DAMAGES COTENANT. 545 series of stipulations must, ia all cases, be nugatory, as the covenant necessarily embraces acts of various degrees of importance, all of whicb cannot, with, equal justice, be compensated for by payment of the same sum. If it were sufficient in regard to some, it must be excessive as to others. The unreasonableness of such a provision formed, in the opinion of the court, a suf- ficient ground for treating the sum stipulated to be paid as a penalty. The consequence is, that, in order to give an effectual remedy for the recovery of a sum of money as stipulated damages, in such a case, a dis- tmct and separate wrnxmrtt should he assessed, as the mea" swre of comjpensation, on the hreobch of each several cov&- nantr^ § 538, The stipulation for liquidated damages on a breach of the articles may, it is apprehended, be made by special partners a powerful means for compelling the general partners to observe, and not to violate, the partnership articles themselves- And here, before this view is more fully developed, it will be necessary to unfold the general law on the subject, which shall be done from the work of Mr. Justice Story." — Partner- ship articles, in the view of courts of equity, whatever may be the rule in those of law, are liable to be con- trolled, superseded, qualified, or waived, by the acts and transactions of the partnership, in the course of its business, whenever the assent of all the partners thereto may be fairly inferred, and however positive or stringent those provisions may be. Partners, it has been affirmed,^ niay, if they please, in the course ' 7 Jarm. Conv. 87, 2d edit., Bisset on Partn, 174 — 184. 2 On ParUi. § 192, p. 304—5, 3d edit. ' England v. Curling, 8 Beav. fiep. 129. 2k 546 OF THE FORM AND STEtJCTURE OF DEEDS. [CH.XYI, of the partnersHp, daily come to a new arrangement for the purpose of having some addition or alteration in the terms on which they carry on business, provided those additions or alterations be made with the unani- mous concurrence of all the partners, in short, in many cases of this kind, looking to the course of con- duct of the partners, and the special circumstances of their business, or to their general acquiescence, or their positive acts, we may often have the most satis- factory evidence that the partnership articles have been laid aside, either pro tcmto or in whole, and that new articles and arrangements have been entered into in their stead. Hence it has been judicially declared that, in courts of equity, articles of partnership, con- taining clauses which have not been acted upon by the parties, are read as if those clauses were expunged, or were not inserted therein.' § 539. Now, therefore, special partners, seeing the great liberty thus conceded to their general associates over the original compact, may not choose to tolerate it; but, trusting that in an adherence to the terms of such original compact, the prosperity of the firm will be ensured, they may choose to insist on a stipulation that there shall be no change or departure, at least without notice to them and their consent; and then, the question would arise, how obedience to such sti- pulation could be enforced? Certainly, with a know- ledge in time of the infraction of it, the special part- " Jackson v. Sedwiok, 1 Swanst. Rep. 460 — 469 ; see Geddes v. Wal- lace, 2 Bligh's Eep. 271, 297—298; Const, v. Harris, Turn, and Russ. Rep. 523 ; Stewart v. Forbes, 1 HaE and Twell's Rep. 461, S. C. 1 Mac- naghten and Gordon's Eep. 137 ; CoUyer on Partn. B. II., ch. 2, § 2, p. 139, 2d edit. CH. XVI.] LIQUIDATED DAMAGES COYENANT. 547 ners could obtain the intervention of a court of equity. But, an accompanying stipulation for a certain amount of liquidated damages, in case of such infraction, could likewise be adopted, as a means of enforcement. And, as liquidated damages would be but a sorry satisfaction, in the event of the wreck of the concern, and the ulterior insolvency of the gene- ral partners, surety could be exacted by the special partners for the pajnment of themj and such surety, not being a violation of any principle guarded by the statute law, given by a third person, would be com- petent and legal. Mention having been just made of a stipulation against change without notice to the spe- cial partners, it may be here stated that the system of limited partnership allows of their taking part in de- liberations for a modification of the original organiza- tion and the introduction of new clauses. This is expressly laid down by Troplong,-' who thus sums up on the question : — Special partners, in assisting at such deliberations, would not be managing or inter- fering. It is true that Straccha says, in speaking of a special partner, "Administrationi formam dare non, potest; " but what signify these words? Merely, that in the ordinary course of events special partners could not arrogate to themselves the exorbitant power of settling the constitution of the firm afloat at their will and pleasure. But they do not signify that the original articles could not reserve the right for their own modification; and that, where imperative neces^ sity dictated a change, all the partners could not meet in council to advise on what was required. In a limited partnership, J., a special partner, had taken ' Des Societes, Vol. L, No. 426. p. 407. 548 OF THE FORM AND STRUCTURE OF DEEDS. [CH. XVI. a stipulation, that if it became desirable that the sys- tem of operations should be changed, all the partners should meet, and that he should receive special notice to be present and to advise, it was held by the Cour Royale of Paris, by judgment of the 26th of July, 1828, that this did not amount to an act of manage- ment.' § 540. — XX. There is an old technical principle, or rather maxim, of the common law, that requires, when the partnership is formed by deed for a definite period, it should be dissolved by deed, whenever a dissolution is resolved on : the maxim is, eodem modo, quo quid oritur, eodem modo dissolvitur. An obligation under seal can only be discharged by an instrument of equal solemnity, because the made of the origi/n, and the mode of the dissolution, must he equivalent. But all this is now sheer theory; for, it is very clear, that a dissolution actually made by the parties to the deed, by mere volition, will be held, in equity, perfect and complete, to all intents and purposes, both as to them and to third persons, having full notice thereof.^ But, where the partnership has been constituted by a deed wherein there is a provision, that the dissolution shall be by deed, upon the terms that may be subsequently agreed on, no form or mode of dissolution and wind- ing up of the concerns having been adopted in the articles themselves, it would be necessary to comply with this stipulation, or a court of equity would in- terfere on a bill, and decree a dissolution and account.' The English precedents of deeds of dissolution, if > Des Sooietes, Vol. I., citing D. 28, 2, 240 j S. 29, 2, 136. » CoUyer on Partn. B. II., oh. 2, § 2, p. 154 — 5, 2d edit. ; Story on Partn. k 268, p. 410—411, 3d edit. ' Vide CoUyer on Partn. ubi supra. CH. XVI.] -WINDING UP COVENANTS. 549 the writer understand them, amount to a totally new contract, reciting the original one at length, and seem to take place where a partner is bought out, or where the joint affairs are to be gradually wound up for the joint interest, where one or more partners retire. § 541. In the 14th chapter of this work, we have examined the subject of the dissolution of limited partnerships at length, and shown the method, called of liquidation, practised in France, as well as that of England, in the matter of joint stock companies, which are quasi corporations with a soi-disant limited liabiUty.' The subject is of vital consequence to all special partners, and ought to be carefully provided for in the original articles of association. On a disso- lution, the civil person, the legal being of the part- nership, is extinguished; and there then remains but a corps of communists with an undivided and joint mass to distribute. Each one, then, thinks of and schemes for his own interests alone. If there be no law in the deed to regulate this division, and to con- trol these separate interests, controversies and litiga- tion are certain, in the majority of cases, to arise. But how easy is it, on the inception of a partnership, — and the greater the scale of intended capital and operations the easier, — to prepare for and guard against all litigation at its close. In these prelimi- nary meetings of intended partners, (as has been well observed,) to debate and conclude the terms of associ- ation, each one is open to the dictates of reason and common sense, and discerns his interest in their pre- vailing; persons and things have then their appro- priate action and spheres assigned them for all time; ' Vide ante, § 458—470, p. 457—480, 550 OF THE FORM AND STEITCTUEE OF DEEDS. [CH. XVI. but if, on the contrary, the moment of dissolution is the time chosen for setthng and distributing suv/m cuique, jarring interests and personal dissensions are apt to prevail, fettering harmonious action, if not effectually crushing it.' If any thing, therefore, is to be covenanted for, it is the mode of winding up. § 542. — XXI. Having thus enumerated and com- mented on the rules, principles, and doctrines of the general law binding, first, general partners, inter se; and secondly, binding them and the special partners, with reference to the structure and execution of a deed of limited partnership, it remains to treat of the rules, principles, and doctrines that concern special partners alone; that is, that define their rights and guard their interests, in and under a deed of that description. And here it will be the task of the author to quit the field of English and American jurisprudence, in order to travel into, and to glean from that of France and Italy all that is applicable. This for two reasons: the one, that the American statutes, licensing and naturalizing the societe en com- mandite in the several States, are too nude to aid : the other, that the incorporation, in this way, of the foreign scheme of partnership into our system, neces- sarily imported with it, as a part of the common law of that system, all the appertaining body of judicial exposition and commentary. Why an American lawyer should hesitate to consider a decision of the French Court of Cassation, on a question arising out of the law of limited partnership, as equal in moral authority to one of the Queen's Bench, or of Chancery, in England, on a question under the general law of • See 2 Troplong des Sooiet^s, No. 1024. CH. XVI.'] COVENANTS WITH SPECIAL PARTNERS. 551 partnership, the author cahnot conceive; he will therefore continue, in the progress of this chapter, as he has hitherto done, to use the judgments in Cassation, in France, freely, wherever, in his view, they are applicable to, and illustrate or settle the law with regard to our statutes. § 543. A cardinal, and, as it seems, a first rule to be observed by special partners, in draughting the articles, is to avoid inserting any stipulations or pro- visoes that would operate for their advantage in contravention of the statute, whether of its letter or spirit. To stipulate for duties and obligations on the part of the general partners, or for prerogatives and privileges on behalf of the special partners, which ehoaild evade or violate the guards and prohibitions of the statute, is what the writer deems too extrava- gauifc to suppose. Such clauses, even though never practised on or carried out, would, if brought into judicature, he apprehends and submits, not be treated or read as unused clauses in general articles would be, that is, as if they had never been inserted in the deed ; but would, on the contrary, be turned upon the spe- cial partners as a conspiracy in fraud of the law, and would, ipso facto, entail upon them general responsi- bility, in case of the ultimate failure of the firm. But in the framing of clauses that concern the special partners, he wishes to allude to such as might wear the aspect or color of evasion or infringement; such as might be seized hold of by rapacious creditors as amounting to an infraction ef the law, and made the pretext for Htigation, against the special partners; while, in point of truth and justice, these clauses had only been predicated of, and framed on, too broad and 552 or THE FORM AND STRUCTURE OF DEEDS. [CH. XVI. liberal a construction of 'the statute, without any de- sign to impinge on its policy. Let it be recollected too, that such clauses, once signed and sealed, remain to cast, perhaps, a baleful aspect upon subsequent acts alleged to be interfe- rences, with which they were totally disconnected, and to aid in proving a settled intent from the start to violate the law. Doubtful clauses, or such as might compromise special partners, it will be the effort of the writer to point out, in the remaining pages of this chap- ter; as also, to define, as far as practicable, the utmost verge and license to which such as favor them may be carried. § 544. Upon this subject, Fierli has some valuable observations. He says: The private written agree- ment of the contractors demonstrates the real charac- ter of the pact, whether a legal restricted one, or a general partnership in disguise. Clauses stipulating that the general partner will obey the special one; will render him periodical accounts and balances; will be satisfied with a fixed monthly or annual salary; will refund portions of the capital contri- buted; or clauses in restraint of the absolute domi- nion of the general partner; or restricting him to a particular system or kind of trafficking or trading, or to a particular mode of applying the capital; are wholly in contravention of the nature and intent of this species of special partnership, and would destroy the immunity of the special partner.* So, if in con- tracts with third persons, the name of the special partner be introduced as a party, and he be viewed as such by those third persons, and in joint interest ' 1 Fierli, p. 32 — 34, and the decisions quoted by him at p. 41. CH. Xyi.] MISCELLANEOUS COVENANTS. 553 with the general partner, a joint responsibility would supervene.^ § 545. The use of terms in the private written con- tract, such as partnership, partners, joint parties, and other generic expressions adapted to any scheme of association, would not, without more, superinduce ge- neral liability.^ Neither would the mere denomina- tion, in the written articles, oi principal, taken by the special, and agent, by the general partner, affect the for- mer injuriously; because "the substance of the con- tract does not consist in the names arrogated by the parties to it, but in the pacts and stipulations adopted and executed, and in the greater or less faculties vested in the general partner."^ Nor would a stipu- lation, that the general partner should not trade or traffic on his own separate account, or that he should not buy except for cash or receive goods not paid for, clash with the exclusive dominion of the general part- ner, or expose the special partner to general liability.* Finally, there would be no clashing with the true character of the accomandita in a clause that the special partner should, in the event of the stopping, (impimtth mento,) or of the bankruptcy of the firm, empower an agent to take possession of the partnership effects, to sell them, and to pay the creditors ; nor would the special partner's doing so render him generally hable, on the alleged ground of his having retained the real dominion of the joint property. Because, says Pierli,* " such acts being equivocal, and such as the creditors themselves could do in order to secure their claims, ' 1 Fierli, p. 34, and the decisions quoted by him at p. 41. ' Casaregis de Commercio, Disc. 29, n. 33; 1 Fierli, p. 38. ' 1 Fierli, p. 38, and his authorities at p. 43. * Ibid. ' P. 40. 554 OF THE FORM AND STRUCTURE OF DEEDS. [CH. XVI. may be consistently referred to the head of paTticipk- tion, and not of dominion. Whether the firm be in- solvent, {impwntata,) or ended, {finita^ there can be no interference on the part of the special partner set up by the creditors, in the fact of his having resorted to all possible methods of compelling the general part- ner to account, and of protecting his own advance." § 546. No clause granting to a special partner the right to take part in the management of the firm, should be put into the articles, unless it be indifferent to him whether he become liable as a general part- ner; for such a clause would be perfectly legal, and he could enforce it, should he wish to become a general partner. Therefore, even should he never have acted under such a clause ; nay, even if it had been intend- ed by him to remain as a dead letter, he would yet have incurred the responsibility of a general partner from the very start.' Not only may a special partner legally stipulate to this effect, under, nevertheless, the 'aforesaid penalty; but he may, without incurring this penalty, have a stipulation inserted reserving to himself the right to become a general partner and to share in the adminis- tration, upon duly notifying his copartners to that effect. The words, "and to share in the administra- tion," are essential; for just as a general partner even may be excluded from participation in the maiiage- ment, by express words in the articles^ so would ex- press words be necessary to reinstate him, and to in- vest a special partner with similar power. Therefore, without such words, a special partner might incur the penalty, and still not be tolerated in the management. ' Malepeyre & Jourdain des Soo. Com. p. 150. CH. XVI.] IKSURANCE COVENANTS. 555 So, in the clause providing for the right to sell or as- sign his share, a special partner may, a fortiori, have an agreement that his vendee or assignee shall have the right to become a general partner, should he think proper.' § 547. As an example, in illustration of the ex- pression, "doubtful clauses," made use of at the end of the last preceding section but three, the writer would mention the stipulation in some articles for imsurcmce against the joint losses. Thus, can one partner insure his co-partner to the extent of the latter's entire share of the capital and the eventual profits or losses ? If not, can he insure the capital alone, and not the profits ? Can he insure a special partner in both ways, or in the latter way only? § 548. The first hypothesis, says Troplong,* is, in France, resolved by all legists in the negative, for the maintenance of purity in principle. There is no doubt that a partner may have all his interest in the con- cern — principal and prospective profits — insured by third persons. But such insurance would be extrinsic to the partnership contract, and would promote its subsistence ; while, on the contrary, an insurance by a copartner would destroy the contract in its essence ; it would strike out the intercommunion of gain and loss, which is of the substance of all partnership. It would be further but another disguise for a violation of the laws against usury. Not so, however, would it be, in regard to the second hypothesis above put. There is no doubt whatever, but that one partner of a firm may insure a fellow-member, for a fair premium. ' Malepeyre & Jourdain des Soo. Com. p. 151. ' Des Societes, Vol. If., No. 652, p. 126-7-8. 556 OF THE FORM AND STRUCTURE OF DEEDS. [CH. XTI. {un abandonnement raisonable) as to liis entire share of the capital, but excluding all insurance of profits thereon. Thus, I have a business with a capital of 40,000 francs, in which I associate A.B., who puts in the same sum, and I agree with him by deed, that he shall have three-fourths of the profits instead of the half of them, but he is to sustain all the losses; is such a stipulation void or voidable?' The learned author, borrowing this example from Pothier,* who, with Grotius,^ and Vinnius,* maintained that the sti- pulation was legal, and was a mixed species of the contract of assurance, states that several of the best modern French authors were opposed to it as a viola- tion of article 1855 of the Napoleon Code Civil.^ M. Troplong then examines this question, and seems to conclude that the insurance would not be within the prohibition of that article ; after which he thus sums up : — " However, it is agreed all around, that nothing inhibits one partner from guarantying another partner against all losses which might exceed the amount of his investment in the capital of the firm.^ It is also agreed, furthermore, that nothing resembles less a leonine pact, than an agreement to exempt a copartner from debts beyond the amount of his share of the capital. Such a clause in articles is perfectly legal and very usual ; it is of the common law of a hmitfed partnership."'' ■> > Des Socials, Vol. II., No. 652, p. 126-7-8. 2 Pothier, Societe, No. 25 and 35. ' De jure pacis et belli, Lib. II., c. 12, No. 24. * Sur les Inst. De Sooietate, § 2, No. 4. 6 Troplong des Soo.Vol. II., No. 665, citing M.Delvincourt, Tom. 3, p. 224; M. Daranton, Tom. 17, No. 418; M. Zacharise, Tom. 3, p. 56, and his annotators. Note 6. _^ , 8 Troplong, No. 655, citing M. M. Malapeyre et Jourda^in, No. 131. ' Troplong, No. 656. '^ CH.XVI.] RETIEEMENT COVENANTS. 557 § 549. While upon this topic of msurance between copartners, it may be appropriate to mention, that it is a pact, the consideration of which does not appear to have employed English or American writers on the general subject of common law and commercial partnership. Provided, under the latter system, the liability of each and every partner, to the whole ex- tent of his fortune, is preserved to the public, for the whole of the partnership obligations and debts; the common law does not seem to care what private pacts and guarantees against losses and disasters are entered into between partners, whether in the original arti- cles, or that pass from one to the other at subsequent and different periods; nor, does it seem, that the lion's share objection of the civil law, or that of usury, would taint or avoid any such agreements. This is very different under the Napoleon Code, as we have just seen in the preceding section. As the subject is a novel and interesting one, it may not be amiss to consider it here a little further, in order to ascertain its bearing upon limited copartnerships, should it be desired to introduce clauses of indemnity against risk or loss, into articles constituting such a firm. § 550. " It is the usage of every day," says Troplong,' "in articles of copartnership, for general partners to stipulate that one or more of them may retire, with- drawing his original contribution to the capital, with- out any division or account : and the clause is an ex- cellent one. In regard to the reach or extent of such a clause, however, circumstances must more or less con- trol. Sometimes it may go no further than to stipulate, that such a retirement shall only be suffered in case ' Des Sooi^tes, Vol. II., No. 657, p. 134. 558 OF THE FORM AND STRUCTURE OF DEEDS. [CH. XVI. the partnersMp shall have sustained no losses; or if it have sustained losses, after contributing a rateable proportion thereof Sometimes, on the other hand, this clause may go so far as to allow such absolute and unscathed retirement in any event." ^ The ques- tion, after this view of the French practice, arises, whether any such pacts or stipulations could be framed for the benefit of special partners in this country? The answer is easily given. It is evident that they would be wholly opposed to the letter and spirit of the American statutes, and particularly of the 12th, 15th, and final sections of the New York and Penn- sylvania acts of assembly, of the 10th of that of Maryland, and of the 8th of that of Massachusetts. In fact, any clause of the kind would, if carried out, amount to a dissolution, within these statutes; and a dissolution, previous to the time recorded in the certi- ficate, it has been seen, can only be after the fulfil- ment of certain public solemnities.* § 551. In limited partnerships, this great line of demarkation between the general and special partners should always be traced out with precision in the articles, viz. : that the latter are but bailors of funds, beyond the amount of which they are not to be made liable by any act of the former. It is further said that, as an association of traders en commandite is one restrictive of the common law, the constitution of it should in every part be based upon precise and unam- biguous clauses.' § 552. Where the special partners consist of a mer- ' Des Socifetes, Nob. 658, 659 and 660. 2 Vide these statutes, ante p. 52, and in the Appendix No. 2, post. • 1 Troplong des Societes, No. 414, p. 383-4. CH. XVI.] SUPERVISION COVENANTS. 559 cantile or business firm, or of any body or company of individuals with a joint fund, whicb has been con- tributed to the stock of the limited partnership, the articles should stipulate that the general partners will not employ any of the special partners in the business, or suffer any one of them to do, act, or proceed there- in, in any way that might compromise the whole, or render them liable in solido as a firm. § 553. The provision in some of the American sta- tutes, that "special partners may, from time to time, examine into the state and progress of the partnership concerns, and may advise as to their management, but shall not transact any business on account of the firm, nor be employed for that purpose as agent, attorney, or otherwise,"^ puts at rest questions that have much divided French jurists as to the structure of clauses to be introduced into the articles, in reference to the visi- torial, advisory, and mandatory faculties of special partners. In regard to the question of maTidatwm, that is, of a power conferred by the general on one or more special partners to act as attorney in fact, agent, or manager in the partnership business, so much dis- cussed and disputed in France, Troplong observes: — "For my part, I am of the opinion that every power given to a special partner to manage should be reputed fraudulent and void in law. That would be the de- cisive method to confine special partners to their toUs, and to compel them to elect, in the first instance, none but skilful, experienced, and honest general partners."^ This question is entirely closed by the language of the ' Section 17 of the New York and Pennsylvania Acts, and Section 4 of that of Maryland. The statute of Massachusetts is wholly silent on the subject. ' Des Societes, Vol. I., No. 422, p. 396. 560 OF THE FORM AND STEUCTUEE OF DEEDS. [CH. XVI. divers American statutes above quoted. But those that arise upon the faculty granted in the same sec- tions, to special partners, "to examine into the state and progress of the partnership concerns, and to advise as to their management," are necessarily opened up, and must be rtfet, as to the degree and depth of this examination, and as to the binding force of this advice, as often as it is proposed to construct private articles for the foundation of a limited partnership. Fortu- nately these questions, or cognate ones, have been thoroughly discussed by the most eminent French ju- rists, and considered by divers of the highest of French tribunals. § 554. Thenght"toexamine,"csi]ledtherightqfsuper- vision, (le droit de surveillance,) affected to special part- ners; also the right to advise, termed indiscriminately their right of concurrence in the social operations, (leurs concours dans les operations sociales,) or their right to participate in the general deliberations of the partner- ship, have each been defined, if not completely settled, in the courts of France. The Tribunal of Commerce of Toulouse declared for this right of surveMa/irvce on the part of special partners, " as a bridle upon rash general partners, as a guarantee for prudent manage- ment, and for fidelity in the handling of the social capital."^ The right to advise, that is of concurreruce, w.as settled to mean a right to counsel by a granting or withholding (by the special partners) of their acqui- escence in a certain course pursuing, or proposed to be pursued, by the general partners. Therefore the former cannot manage, they cannot buy or sell, they cannot bind the partnership; for this would be in ' Des Soci6tes,Vol. I., No. 423, p. 397. CH. XVI.] COVENANTS FOR MEETINGS. 561 effect to marnage: but they could advise, that is "authorize" in any emergency or doubt, certain pur- chases, or sales, or the entering into contracts.' Duvergier (an eminent French jurist) contends, how- ever,^ that when this advice, or concurrence, {deUberor tion is his word,) "confers on the general partner a capacity which he needed, and without which the partnership could not have been bound, the special partners have stepped out of the bounds within which they should have confined themselves." Thus, for example, says Troplong, combating this doctrine: "A general partner, in order to contract a loan of money, requires authority to pledge or to mort- gage the partnership property. If the special partners have been called together for the purpose of delibe- rating on the occasion and authorizing the loan and pledge, they must become liable as managers. The doc- trine only tolerates deliberations the design of which is to counsel a general partner, who, from scruples or a desire to foreclose reproach in the event of reversesi, seeks a bill of indemnity against the consequences of acts, which he has a perfect right to do of his own mo- tion. And why this difference between the two eases ? Because, in the second, the deliberation is an interior act of the members, which is not intended to be com- municated to strangers, which can in no wise bear on them, and which they can never therefore turn back on the special partners; while, on the other hand, in the first case, the dehberation must necessarily be made known to third persons, — (the contract having to be made with them,) and who thus learn that it is > Des Societes, Vol. I., No. 424, p. 401, citing Straccha, Decis. 14, No. 93L 2 Revue Etrangere de M. Felix. 3 Series, Tom. I., p. 739, 732. 2l 562 OF THE FORM AND STRUCTURE OP DEEDS. [CH. XVI. not the volition of the general partner that decides the contract, but that of his special partners, for whom he simply acts as an intermediary with such third persons.^ I repel this restriction of the right of special partners; it is opposed to principle, to the practice of all time, and to established modern ideas. Straccha asserted a long time ago: Every general partner who feels compelled to contract extraordi- nary loans, ought to consult his special partners; for such is the command of prudence and of reason.. I «ay further, that when the law authorizes special partners to concur, at least by their consent, iu cer- tain obligations of the firm, it means, obligations which are beyond the ordinary powers of the general partner; for which alone the intervention of the spe- cial partners is called for; and in which alone they need to advise and consent; for, in regard to all other -exigencies, their concurrence is merely /ocwtoitwe."^ § 555. But there are other cases of "examination" under the statute, that is, of concurrence and deliberar tion, left to be reviewed, for which clauses may be introduced into the articles. Thus, there are the accounts. " To examine into the state and progress of the partnership concerns," may not always imply the accounts, but a great deal more exclusive of them. The accounts are a separate matter. By the succeed- ing section, (the 18th,) the general partners are re- ' Duvergier, he. dt., p. 739 ; Troplong, ubi supra. ' 1 Troplong des Socifites, No. 424, p. 402-3. The learned commentator then continues his argument, in a vein of the most cogent reasoning, for nearly three pages : this was due to the doctrine of his eminent opponent, Duvergier; for, in point of logical acuteness, that doctrine is remarkable. But, like most logical and acute reasoning, it is narrow, sharp, illiberal, impractical, and unsuited to the times. CH. XVI.] COVENANTS FOR ACCOUNTS. 563 quired to account to their special associates as to the management of the concern. For this purpose, as is the practice in Europe, there may be provision in the articles, for general periodical meetings of all the part- ners, or for the calling of general meetings by a deter- minate number of the special partners. At these meetings, the accounts may be submitted, audited, and discussed.^ § 556. We come now to the clause providing for the superviskm, — ^the swvdllance of the French sys- tem, — by the special partners, of the management of the partnership concerns. The decisions of the tribunals in France, and the opinions of the great legists, all concur in granting this privilege to the commanditaries, and allowing them to take covenants for it in the articles. Thus, the Royal Court of Colmar^ decided, that a special partner could reserve to himself the right to share in the dehberations of the firm; to inspect its books, papers, workshops, and storehouses; and to appoint a clerk for it of his ex- clusive selection; and this decision has become the admitted rule.' The inspection portion of the stipu- lation was held to be but a measure of precaution to prevent fraud; and the appointment of a clerk powei to be but a matter of interior supervision, to restrain the general partner from engaging in operations in- terdicted by the articles, to watch his management, and to foil him in any malversation. • TroploTig des Sooietes, No. 425, p. 406. « Feb. 4lh, 1819; Dalloz, SociMe, p. 133. ' Troplong des Societes, No. 427, p. 408, who cites as accordant, De luca, M. Pardessus, M. Merlin, M. M. Malepeyre & Jourdain; also ade uision at Bordeaux, Aug. 28th, 1838, (Sirey, 1839, P. 2, p. 43;) and on< in Cassation. Deo. 13th, 1841, (Sirey, 1842, P. I., p. 142.) 564 - OF THE FORM AND STRUOTIJEE OF DEEDS. [CH. XVI. A clause reserving to all the partners, at general meetings, the right to lay down to the general part- ner certain rules or lines of conduct to be observed by him in certain contingencies foreseen or supposed by the articles, would not entail solidarity on the special partners, when, notwithstanding this clause, the ge- neral partner is declared in the deed independent and alone responsible, and the facts show that his powers of independent action were never controlled or interfered with. Thus, in the ease of the Iron Steamboat Company of the Rhone,' the creditors, after its failure, attempted to fix the, eommanditaries with general hability, on the . ground that the deed of association gave them the right at general meet- ings to change the number, form, and dimensions of the boats, the days, hours, and numbers of departure of the boats, as well as their places of destination and stopping; and to declare dividends upon the shares. That it omitted to state that the company was to go into operation after' the payment in of a part of the capital, (180,000 frs. upon 1,000,000 frs.;) that it contained no mention either of the capital subscribed, or of what remained to be subscribed; and that the eommanditaries had acted under and carried out these powers, as if they were managers.^ So, where articles stipulated that the eommandita- ries might appoint a committee of supervision with power to take cognizance of the transactions of the general partners; that they might appoint a cashier, without whose attestation the general partners should issue no notes, borrow no money, execute no release, ' Breton et al. v. Montfouiliou et al., decided in Cassation, March 23d, 1846; Dalloz, Vol. of 1846, P. 1, p. 308. CH. 5VI.] SUPERVISION COVENANTS. 565 and compromise no claim, &c., &c. ; further, that they should have the power to displace the general part- ners or to dissolve the partnership, in the event of the commission of faults calculated to endanger the social prosperity; it was held in Cassation,^ that such stipu- lations did not imply interference, being solely in- tended to render the right of interior supervision a substantial and not an illusory one, such right being unquestionably secured to commanditaries by law/ § 557. A stipulation in favor of a special partner, that the general partner should communicate to him "all business of a serious character, and that he should have the right of approval or of opposition," would render him liable as a general partner.^ But would a clause omitting the right of sanction or veto have that effect ? It might be of the utmost consequence to a special partner to have notice from the general part- ner of his intention to embark in a great speculation ; inasmuch as, if unpossessed of the right of objection, the former would have that of advice, expostulation, or remonstrance; and, if unheeded, would have the opportunity of watching and recurring to chancery in case of headlong and desperate management, or play, on the part of his associate; also of taking advantage of any other clause that might exist providing for a dissolution before the period originally agreed on. § 558. The articles may stipulate that the purchaser, legatee, or heir, under a special partner, shall not have a deliberative voice at the general meetings ; or that he ' June 25th, 1846; Chevret v. Baragnon et al.; Dalloz, Vol. of 1S46, P. 1, p. 313. * Said to have been so decided by M. Vinoens, des Sooiet6s par Ac- tions, p. S4. 566 OF THE FORM AND STRUCTURE OF DEEDS. [CH. XVI. shall only have it after the lapse of a certain period. And such a provision might prove a wise precaution. § 559. They may also stipulate that, in the event of a proposed sale, by a special partner, of his interest in the concern, or of his death, the original partners shall have the option to purchase, for the joint general ac- count, his share or interest in the capital, to the ex- clusion of his offered vendee, or of his heirs or lega- tees.' But as such a stipulation would be one of a stringent right, and would be strictly construed, it should be carefully worded in all the particulars of notice, time, place, and consideration, so that it might be readily carried out by the partners, and might defy annuUation in a court of justice. The deliberation and vote of the general and special partners, in such a matter, to enforce or waive this pre-emption right, would not amount to interference on the part of the latter.' Other cases might be quoted, and other illustrations produced, in support of this doctrine, but it would be by entering into the field of interference — or immix- tion, as the European legists term it — a subject which has already been considered in a precedent chapter of this work^ specially devoted to it. Of course, in that chapter, confined, as it was intended to be, to the ge- neral doctrine of immixtion, it was difl&cult to avoid 1 2 Delangle des Societes, Nos. 467, 468. ^ Vide supra, Chap. XL, Of Interference by Special Partners. Should any lawyer or merchant who does the author of this work the honor to consult it, discover, on a reference to that chapter on Interference, any repetitions in the present one, he is requested to allow for the fault iu the very great difficulty, in a first analysis of a new law, of separating cases that illustrate a general view of its policy and prohibitions from those that elucidate a particular view of a portion of such policy and prohibitions. CH. XVI.] COVENANTS UNDER OUR STATUTES. 567 t incorporating cases and glosses that would apply as well to it as to that involved in the framing of deeds of limited partnership. § 560. So far, then, the American statutes borrowed from the commercial code of France, and judicial ex- planations of that code do, by their letter as well as their spirit, profess to tolerate, in special partners, the exercise of similar rights, and the construction oi agreements for the same privileges. And those rights and privileges, conceded by and expressed in the 17th and 18th sections of the New York and Pennsylvania statutes, have been seen to consist of the faculties oi advising and examining; that is, when resolved into their natural elements — 1st, the faculty of taking pari in general meetings for considering the affairs of the firm; and 2dly, the faculty of supervising the ma- nagement of the general partners. § 561. The first will include clauses in the articles as to the settling of accounts, declaring of dividends, fixing of the surplus or contingent fund, calling in fresh capital, altering the course of the business, lend- ing or borrowing money, pledging merchandise or mortgaging the real estate, compromising with insol- vent debtors or settling law-suits, constructing of new buildings and tearing down of old ones, or determining on any grave question connected with the prosperity of the firm, or innovating upon its previous settled policy and established action.' The second will em- brace the appointment of clerks, who, owing their material position to the favor of the special partners, will naturally exercise a supervisory power over the ' 1 Troplong des Societ^s, No. 429, p. 411. 568 OF THE FORM AND STRTTCTUEB OF DEEDS. [CH. XVI. general partners, and report all derogations from, and lesions of, the social interests. § 562. It retaaias now, not only as a conclusion of this chapter, but of the last chapter of this work em- ployed upon particular topics, to consider a matter that is treated of in the initiatory chapters of other works on partnership, and that is, the original ground- work of the partnership itself In other words, the clauses in the originating contract that are essential to constitute a real society; or rather, clauses that, if adopted, would expressly or impliedly negative and exclude aU partnership, in point of law, between the contractors, whatever might have been their iatention or their wishes. Upon this interesting subject, there is a vast diversity between the present European law and the common. law of England. The common law seems principally to consider the contract with refe- rence to creditors, in the point of view as to what will or will not render the parties absolutely liable as part- ners to third persons, leaving it pretty much to them- selves to make what covenants they choose that are merely to affect their own private interests. But the codes of Europe seem widely different; for they will not tolerate with the name, attributes, and legal quality of a commercial society, an agreement that is without a communion of interests in profits and losses, and that seeks to put all the losses upon the shoulders of one party alone. The jurisprudence of France rigorously carries out this doctrine, no matter who may he the sufferers hy it, as we shall presently see. § 563. We have already seen the case wherein, un- der our statutes, no limited partnership shall be deemed to have been formed, (for a violation of the 5th, 6th, and 7th sections,) no matter how correct may be the CH. XVI.] ANTI-PARTNERSHIP COVENANTS. 569 original contract of association ;' and in this case third persons, it would seem, might be sufferers. The case we are about entering on is that in which none of the elements of a real commercial society enter into the original articles or covenants for its constitution; and in this case, on the other hand, creditors cannot be affected by the defects; but the self-called partners may or are to be the only sufferers, and the contract may be nullified against them alone, by the action of law, as a partnership, and a mere contract q/" some Tdrud set up in its place to be construed and carried out ac- cording to equity and justice. Let us, for greater per- spicuity, go over these grounds with a few illustrar tions. § 564. The best writer extant on partnership at common law, after a view of the utterly divergent doctrines of the Roman law, the European law, and the English law, thus sums up the doctrine as it is held in this country: — "So strong and inflexible is this rule," (the rule of communion of profit and loss,) "that it is often laid down in elementary works, as well as in the common law authorities, that, to con- stitute a partnership, there must be a communion of profits and losses between the partners. And this, in a qualified sense, is perfectly true, when it is under- stood with the proper Umitations belonging to the statement." Then, after a statement of the Roman law, the same writer® continues: — "It is in this sense that the proposition has been generally understood by jurists in modem times, and adopted into the common law — that each partner must at all events share in ' Ante, chap. 13, § 421—426, p. 420. » Story on Partn. h 19, p. 24, Sd edit. 570 OF THE FORM AND STRUCTURE OF DEEDS. [OH. XVI. the losses, so far, at least, as they constitute a charge upon, and diminution or deduction from, the profits ; and, in this sense, it is regularly true."' Let us test this rule so qualified by an example : — A. and B. enter into a commercial partnership, under regularly executed covenants, to the following effect : A. contributes $50,000, and B. his time and labor. He possesses no property whatever, but his wife has an annual income of |2000 secured to herself, upon which he has been living. The profits of the business are to be equally divided, if over $3000, the legal interest of A.'s money, and he (A.) is never to receive less than this sum yearly, though it may absorb all the profits, but he is to assist in the management of the business, giving it all his time and care. Should there, upon the winding up, be any loss of this capital of $50,000, or any part, with legal interest, B. is to make it up to A., or to confess judgment to him for the amount of the loss, if unable to pay it. If there are no profits annually over $3000, B. is never to draw out any thing for his services. It is difficult to state an example more leonine in its aspect, and more in conflict with the doctrine just ex- tracted as of the common law, than that above put by the author of these pages. Yet, as A. and B. intend it as their partnership, so announce it to the world, and so carry it on, who will venture to say that it is not a real partnership at common law? There is no doubt it is such as to third persons ; why may it not be so as to the parties themselves? B. may find a perfectly ade- quate consideration, for the fearful odds he gives A., in the fact of possession of the latter's $50,000 to trade ' Story on Partn. § 21. CH. XVI.] ANTI-PARTNEESHIP COVENANTS. 571 upon, and it may be in a business in which these odds are but a fair return for the risk with a man who has nothing. The matter of a judgment against B. for losses is also an element that our law would appreci- ate; because, though he has nothing, that is no reason why he never should become rich, and the judgment fully good. Let us, however, call it by another name, and not a partnership ; it still is a valid contract, and would be enforced as a contract of some kind, even if no name could be found for it. It would not be usu- rious, because no more than legal interest was stipu- lated for, and no other parts of the contract were for usury in disguise. Yet this is a contract that would be repudiated in French jurisprudence as one utterly destitute of all the elements of a real contract of so- ciety. Jt would be void as between the partners, it would be void as to third persons. It would infringe the law of imprisonment for debt, which holds that none can be arrested except on a commercial contract, but here would exist a merely simulated commercial union of joint interests. It would also infringe the bankrupt law, which allows no process or decree ex- cept against really commercial partners, and not pre- tended ones. § 565. The writer will prove the foregoing positions by the following modern French case, a case at once of the most unique, curious, and interesting composi- tion: — § 566. Delangle, from whose pages we shall borrow the case,^ thus introduces and prefaces it : " It is therefore to this point that interpretation must be constantly brought back : has there been a commu- ' Des Societes, Vol. I., No. 7, p. 8. 572 OF THE FORM AND STRUCTURE OF DEEDS. [CH. XVI. nion of investment and risk of profit and loss ? For, without these conditions, there is no partnership; they are of the essence of the contract. Vainly will the parties have clothed their articles with all the semblances of a society; have constituted a gerent, estabhshed shares, and a social name : and, in giving to their stipulations all the publicity that the law commands for commercial firms, have inspired third persons with a belief that a partnership in commandite has been really formed. The denomination will be void of the power to change the nature of things ; for it cannot depend upon an abuse in the employment of the formalities reserved for commercial partner- ships, that a loan of money, for example, should be modified as well in its effects as its object. Whither should we not be carried, if the caprice or the fraud of contracting parties might thus do violence to rules of law? Arrest of the person would attach to debts purely civil! Bankruptcy would be pronounced against persons not mercantile.^ The mendacity of the form cannot be allowed to alter the fundamental principle; therefore, saving the right to third persons injured to recover damages for the deceit, the contract remains what it was in essence, and is by the inandate of the law. A decision of the Court of Cassation of the 20th April, 1842, has established this principle in the en- suing case : — In 1836, an architect of the name of Roze, con- tracted with the city of Montargis to build it a thea- ' Arrest for debt can only be made in France upon commercial (ne- gotiable) paper and on commercial contracts. So bankruptcy can only be decreed in such cases. OH. XVI.] ANTI-PARTNERSHIP COVENANTS. 573 tre. The city gave him, upon an emphyteotic lease/ the requisite ground, for which he was to incur the charge of the building. Eoze had no money ; but he made a public call for capital, and in a deed entitled by him a partnership in commandite, it was stipulated that shares should be created producing an annual in- terest of five per cent. ; that every year the funds re- maining in the treasury should be employed for the sinking of a portion of the shares; that Eoze might, whenever he thought proper, extinguish them all by reimbursing the subscribers principal and legal inte- rest; but that if not all extinguished within ten years, (the period fixed for the duration of the society,) Roze should be bound thereto in his private fortune. The right of emphyteosis, conceded by the city, with the theatre itself, were afiected as pledges for the execu- tion of these engagements. The construction having been progressed in, and Roze paying nobody, the workmen obtained against him the usual commercial condemnation, and after fruitless efibrts to make the same by execution, they invoked a declaration of bankruptcy against the part- nership. Upon an opposition set up by some of the share- ' holders, the tribunal decided that the articles of co- partnership did not contain the essential elements of a real society, and anliulled the fiat. Appeal by the workmen, who insisted on the quali- ' The Emphyteose of the civil law, (for the Code Napoleon does not mention it.) is a lease of the freehold to the lessee, his heirs and assigns, for 99 or less years, at a nominal rent, and was in feudal times made use of for the bringing into cultivation large tracts of uncleared or un- drained lands. See Bousq. Die. de Droit, Vol. I., at that word. The etymology seems to be the Greek verb, tfi^ua, to grow in ; the property of the soil being inherent in the lease. 574 OF THE FORM AND STRUCTURE OF DEEDS. [OH. XVI. fication given to the articles by the parties themselves, and particularly on the publicity made ; a publicity exclusively applicable to commercial firms. On the 18th June, 1840, the Royal Court of Orleans affirmed this judgment, and on the 20th April, 1842, it was reaffirmed in Cassation."^ § 567. It seems to little purpose to introduce here cases of null contracts of copartnership at common law, because such cases have been so decided merely to guard one of the parties against general and un- limited liability, while as between the parties them- selves the contracts would be maintained by law for what they were worth as contracts. And, no matter how completely a deed professing to be for the consti- tution of a partnership might be wanting in all the elements and essence of a real society, if the parties held themselves out to the world as partners under it, the deed would be construed by our courts as a real partnership in regard to the world, in all respects and to all intents and purposes, differing thus toto coelo from the doctrine and jurisprudence in France as immediately above quoted. Nevertheless, the fol- lowing are cases at common law held not to be part- nerships, though professing to be so : — The case of Muzzy v. Whitney,^ where the defend- ants agreed with the plaintiff to let him have a share of the profits, if any, in making the second ten miles of the Chenango turnpike road, in proportion to the help he afforded in completing the same, the one-half to be taken from the part of each defendant, it was held there was no partnership inter se. ' See the grounds of both judgments in the language of each court, fully stated by Delangle, «6i supra. 2 10 Johns. Rep. 226. CH. XVI.] ANTI-PAETNEESHIP COVENAJSfTS. 575 Again, in The Moliawk and Hudson Eailroad Com- pany V. Niles,' where the company agreed with cer- tain persons engaged in transporting merchandise from New York to divers places in the west, by way of Hudson river and the canals, that these carriers should surrender their freight to the company at particular places, and the company should transport the goods from thence to their destination, and that the carriers should pay the company therefor a cer- tain portion of the freight, according to certain dis- tances; it was held that this agreement did not make the company partners with the carriers in the trans- portation of the goods, either inter se or as to third persons. The ground of this decision was, that there was no community of interests or division of the profits of a joint concern between the parties. The Railroad Conipany had no interest in the profits or losses of the Transportation Company, on that part of the route which the latter was to accomplish ; nor the latter company in the profit or loss iu the railroad portion of the transportation. Each company was to receive a fixed proportion of the freight, whether the other would lose or gain on its own portion of the route, so that there was no community of profit or loss. § 568. This question might readily arise in a court of equity upon a bill seeking its enforcement of a prehminary contract to form and carry on a partner- ship. As to such a bill, the doctrine of equity is, that if the partnership is for a specific time and is not dis- solvable at the will of either party, and fraud might be perpetrated or mischief ensue unless the contract ' 3 Hill's Rep. 162. 576 OF THE FORM AND STRUCTURE OF DEEDS. [CH.XVI. should be enforced, the chancellor may decree a spe- cific performance of the contract against the party re- fusing to carry it out.' Now should the pleadings in such a case ^et forth a contract, such as we have before described as destitute of the real elements of a part- nership, though having the semblance of one; the complainant, no matter how hard his case, would be at once put out of court and turned over to his remedy at common law for damages on a breach of contract. § 569. In conclusion, it may be observed, that per- haps the best illustration of the form and machinery of a deed of limited partnership, and of the nature and extent of the covenants that may, with safety from the penalty of solidarity, be introduced into it, by special partners, is to be found in the precedents for such a deed draughted by eminent French notaries— for they are the conveyancers, in the English sense, of the French people — and approved by eminent lawyers of the bar of Paris. A few such precedents, settled by the first talent of the day, for large trading, manufac- turing, mining, or commercial associations, with nu- merous special partners investing in them a heavy amount of cash capital, will do as much, it may be more, for the information and guidance of bur own business communities, on the subject, than a volume of dissertation and commentary, though proceeding from a much abler and practised legal pen than that of the present writer. He will, accordingly, incorpo- rate in his appendix three or four of the best of such precedents he could find, translated by him, and adopts ed for use in such of the states as, under the regime of the common law, have also naturalized the sodite en commandite. ' Story on Partn. § 188—189, p. 300, 3d edit. CH. XVII.] CONCLUDING EEMAEKS. 577 CHAPTER XVII. CONCLUDING. § 570. Having .termmated his cojnmentary on the text of these statutes for limited partnership and the decisions appertaining to them, the writer asks to be indulged in making a few concluding remarks. § 571. Perhaps it may be thought, that as a writer on a legal title, he has departed from usage and been too free with criticisms and suggestions of his own. The replication is, that as the first author in the English language upon this important branch of the law of partnership, he had necessarily to hew the stone from the quarry, and "to spin from his own bowels,"^— or to quit the subject in very much the ^ame state as that m which he found it : — ^bald, ob- scure, and but half developed. Besides, the study and the thought which the writer has devoted to it during fifteen years, and during the last five years to the exclusion of almost every other legal theme, enti- tle him to the privilege of asserting his own views and expressing his own opinions.^ ' To quote the language of the late Mr. Dn Ponceau, on the Jurisdic- tiijn of the Federal Courts, in reference to Chief Justice Marshall, his great cotemporary. * It was the remark of Hazlitt, as distinguished a litterateur as any of this century, that he had thought for twenty years, before taking up the pen; and this in answer to the men but of his yesterday, who had flip- 2m 578 CONCLUDING. [CH. XVU. § 572. The author of these pages, having chosen to make a barren, and to the majority of law readers, perhaps an uninteresting title of partnership jurispru- dence, the subject of exclusive examination for several years, claims the right to speak and to pronounce, and to be patiently considered, provided he have spoken and pronounced in a spirit of frankness and of the love of truth, without dogmatism and without acer- bity. § 573. It remains then only to observe, that he trusts his inculcations on the necessity of construct- ing a liberal American system out of these statutes, hj taking them as much as possible into the exclu- sive keeping of the judiciary, and by protecting judi- cially every honest special partner, will be duly weighed and, as far as possible, tested. § 574. Why, he would inquire, should the bar and bench wish to mix up limited partnership with the common law scheme of joint trading, when the two are so dissimilar in principle? Why should it be wished to bring questions growing out of the former into the domain of juries? The writer would sup- pose that every enlightened American lawyer of the second half of this century would have quite enough of the jury box in civil causes, without wishing to put more jurisdiction into it. A commercial court to decide without juries has been asked for recently by the trading community of the city of New York. Why such tribunals should not have been already pantly assailed his beautiful disquisitions on Shakspeare and the old English dramatists; that he claimed the right of putting his literary views before the reading world as of authority, at least as of greater authority than those of critics who had never devoted the same patient meditation lon the topics of his predilection. CH. XVII.] SYSTEM FOE THE JUDICIARY ALONE. 579 instituted in all our great Atlantic cities, can only be accounted for by the inveterate prejudice in favor of things of English origin, that has more or less swayed the American mind since the close of our war of independence. But that prejudice has been greatly on the wane during the last few years. The introduc- tion of the system of limited partnership into so many States of this Union — a system so thoroughly of continental origin — ^is one proof of this. England has not yet adopted it, and probably, though urged by some able writers, will not very soon.^ § 575. Let then every judge, before whom a case under this new system comes up, take it as much as possible into his own keeping, and suffer a jury to have as little to do with it as possible. There is a war- rant for this in the origin and nature of the statutes. Under the commercial codes of France and Italy, questions growing out of contracts of limited part- nership are of the exclusive jurisdiction of the judges of the civil tribunals. The 18th section of the New York and Pennsylvania statutes gives equity juris- diction to the courts of all disputes between the gene- ral partners, and between them and the special par1> ners. The 14th section of the statute of Massachu- setts, and the 18th of that of Maine, give the supreme courts authority to "determine in equity all ques- tions arising under the provisions " of the entire law.* ' A modem French author, (Frhnery, p. 39,) says : — " Partnership in commandite, so long established in the commerce of the south, is re- jected in England; and upon the frontier of the most mercantile people of the universe, has been inscribed the characteristic legend — Et penitus toto divisos orbe Britannos." Vide ante, I 15, p. 18; a statement of the progress of England in this matter- ^ See the statiate of Massachusetts in extenso in Appendix, No. 2. 580 COKCLXJDING. [OH. XVII. This is an admirable provision, and greatly distin- giiishes these statutes from the consimilar ones of New York, Pennsylvania, and the other States which have copied the New York enactment.^ ' It may not perhaps be generally known to the prefession in the United States, that amongst the immense practical legal reforms made recently in England, their new county conrts may dispense with jmies in civU causes, if the parties do not want them. The London Law Ma- gazine for May, 1852, (Art. X., p. 245,) reviewing a woik on Trial by Jury, by W. Forsyth, lately published in England, thns remarks : — " Mr. Forsyth is a stanch admirer of JBries. He backs them by in- stances of their useful conduct in apposing the tyranny of mijust judges : forgetful, we fear, of the shoals of cases in which they have wcwked in- justice. The practice of the county courts ought to be fatal to the highi notions of the immense popularity and value of juries — when every one can have a jury, few ask for it ! ' ' At times (he says) impatient mnrmtirs may be heard againsft the igno- rance or perverseness of juries, and th«ir verdicts are unfavorably con- trasted with what are supposed likely to have been the decisions of a learned and clear-sighted judge. Within the last few yea,rs an innova- tion has taken place of an important kind. The act establis&ing the county courts has substituted single judges for juries in all cases within their jurisdiction, where neither of the litigant parties claim to have the cause heard before the latter tribunal. But a stfll greater change consists in the number of the jurors. The old immeniarial twelve are no longer required, but the jury is limited to five, whose verdict determines the facts in dispute. The reason of this, no doubt, has been a conviction on the part of the legislature, that the great majority of causes which would be tried in the county courts were likely to be of too trifling a nature to justify them in tlftowing the burden of attendance upon a largernumber. But in selecting an uneven number, like five, and still requiring their verdict to be unanimous, they seem to have been impressed with the idea that, in case of difference of opinion, there must necessarily be a majority, who are more likely to influence the dissentients than where the numbers are equally divided. The allowing judges to decide both facts and law, in claims limited to a certain amount, is nothing more than extending to civil cases the principle which intrusts magistrates with the power of summary conviction in minor offences. " In the outlines of a proposed code lately put forth by the Society for Promoting the Amendment of the Law, one of the articles is — ' All questions of fact shall be determined by the judge, unless either party CH. XVII.] JURIES UNUSED ABROAD. 581 § 576. Let the law have a liberal interpretation in favor of trade; that is, let moneyed men be encou- raged to embark in this form of association, and let shall require them to be determined by a jury.' This corresponds with the provision in the New York code previously quoted, which enables the parties in a" cause, by mutual consent, to dispense with a jury. And certainly, as regards the public, no fair objection can be taken to such a plan, for volenti rum jH injuria, and there seems no reason why, if both parties desire it, they should not be at liberty to forego a jury trial. But an additional burden would thereby be thrown upon the judges (none worth naming — the writer is practically experienced in the matter;) and this deserves consideration, as will be noticed hereafter. The opponents, however, of the civil jury say — and it may be admitted — that juries are sometimes mistaken, and their verdicts wrong. I believe that this hap- pens much less frequently than the objection implies, and chiefly in those cases where there is such a conflict of evidence and probabilities as would render it difficult for any tribunal, however constituted, to arrive at the truth. The presiding judge has, by the tendency and bias of the remarks which he makes in summing up, the means of influencing and guiding them to a tight result; and they have generally the good sense to avail themselves of all the help afforded by his perspicacity. And in the power of granting a new trial, the courts possess an efiectual, though, it must be confessed, an expensive remedy, against verdicts in civil cases which are manifestly improper. True it is that causes are some- times submitted to the decision of juries with which they are unfitted to deaL Such are questions arising out of long and complicated accounts, and. other matters of a like kind ; but these ought never to be brought be- fore them. The only proper tribunal for such inquiries is the^nim do- medicum of the arbitrator; and experience ought by this time to have taught parties the folly of incurring in those cases the costs of appearing in court, where the almost inevitable consequence is, that the cause is referred to arbitration after much unnecessary expense and delay. It would not be difficult for an opponent of the system to cite ludicrous examples of foolish verdicts, but they would be a very unfair sample of the average quality (nothing of the kind ;) and nothing would be more unsafe than to make exceptional cases the basis of legislation. (They are, unhappily, by no means exceptional.) In a country like this, which is one vast hive of commerce and manufactures, and where so large a proportion of civil actions arises out of transactions in trade, it may with certainty be affirmed, that the persons most likely to understand the na- ture, and arrive at the truth of the dispute between litigant parties, are those who are conversant with the details of business, and engaged in similar occupations themselves. (The commercial men think otherwise, 582 CONCLUDING. [CH. XVII. them not, as special partners, be trampled on or op- pressed. K special partners are to be dealt with as experi- and detest juries.) And such are the men who constitute our juries. (iSTot once in ten times.) It may well be doubted whether Lord Mansfield would have been able to elaborate from the principles of the common law, cramped and fettered as it was by the technicalities of a bygone time, the noble system of mercantile law which has immortalized his name, without the assistance of juries of merchants (of merchants, but not of our jurymen,) who so zealously co-operated with him in the task of applying the legal maxims of the days of the Henrys and Edwards to questions arising upon bills of exchange, charter-parties, and policies of insurance. Nor must we forget the many other advantages of this mode of trial, which have been already noticed in an earlier part of the pre- sent chapter. "ft was said of Socrates, that he first drew philosophy from the clouds, and made it walk upon the earth. And of the civil jury it may also be said, that it is an institution which draws down the knowledge of the Jaws to the level of popular comprehension, and makes the unlearned understand the nature and extent of their legal rights and remedies. " Supposing, however, that we were to abolish it, what tribunal are we prepared to substitute in its place'? Are we to throw the burden wpOn the judges, and make them, like the Seabirii of the Franks, decide disputed facts as well as expound the law V We question whether any one is prepared for the abolition of juries. The question is, shall they be rendered optional, at any rate in civil cases ? Mr. Forsyth is chargeable with much onesidedness in his way of putting the case in the above passage. He cites the change as to juries made by the county courts in reducing the number from twelve to 'five, but he wholly shirks the mention of the conclusive refutation which the expe- rience of these courts afford to his high-flown eulogia on juries — namely, that the millions of suitors and defendants in them rarely, if ever, avail themselves of juries, but voluntarily reject them. The vox popuii at least is outspoken, and it gives a flat contradiction to nearly eveiy thing Mr. Forsyth has said about the merits of juries. What shall we say of the fairness or philosophy of a writer who rakes up and cites strings of in- stances in which juries have acted well, and been of service to justice, and omits the shoals of instances in which they have in former times proved their venality; and in our own times, at each assize and quarter session, defeat justice and exhibit the most incredible perversity of wrong judgment? Look at the atrocious criminals who are yearly let loose on society by juries. In hopeless ignorance and folly, the Kent jury, who acquitted a prisoner and recommended him to mercy, were really no CH. XVII.] PROTECTION OF SPECIAL PARTNERS. 58; ence shows they have been, so far, by the courts where will, be the inducement to embark capital ii this form of association? It is surely better thai rich men should be allowed to lend their money t( the traders, artisans, manufacturers, and other in dustrials designated in the statute, in the shape of ven tures, than in the shape of loans at ruinous usances It is surely politic to teach the capitalist that the la^^ will be his fast friend if he employ his excess in en terprises under this new system; while, in theory a1 least, it tells him it is his enemy, if he lend at usuri ous interest. Why should not the special partner who has never meddled, dictated to or controlled the firm, be treated differently from any other creditor' Why should some unintentional peccadillo committee in the formation or the initiative steps of the associa tion, even though some of that Mephistophelian com- mon law notion of substance should attach to it, — expose him to the loss of his whole fortune, and thai worse than many of their brethren throughout the country. We quite nevertheless, agree with Mr. Forsyth that we ought never to surrendej the guarantee of thepower of having juries, both to the criminal, the suitor and the defendant. It is a valuable safeguard against the tyranny and in- competency of bad judges, of which, unfortunately, we stand in need even at this time (in at least one judicial instance,) which would render the absence of juries a perfect curse. But surely this is no reason foi thrusting their general incapacity and waywardness on the criminals and suitors who would rather be without them. And that this is the all but universal feeling of the people in civil cases is undeniably proved by the practice of the county courts." These English writers appear to confound the question of juries in civil and criminal jurisdictions. In civil cases they are practically a farce and a nuisance, always, for two reasons : first, for want of intelligence ; secondly, in consequence of the new trial power of the judges. But in criminal trials, though frequently on our plan of a unanimous verdict of twelve, an evil, on the French method of a majority of the twelve, they are a blessing. 584 CONCLUDING. [cH.xvir. in favor of creditors who bad not individually trusted tlie firm a tithe of Ms investment? One would sup- pose that the loss of all his cash contribution would disarm the hostility of the most rapacious. He has a right to advise and to examine the books of the firm. His right to advise is shared in common with him by every one of its creditors who seeks or has sought to sell it goods on credit. § 577. As the position of special partners has been defined, so far, by the tribunals of this country, there is no encouragement for the moneyed man to embark in a limited partnership, but there is a great deal to discourage him from it. The decisions, as far as pro- nounced, are sufiicient in their tendency to convert the creditors of such an association iiito a band of conspirators, always on the look out to fix the spe- cial partner, and always schemihg to fix him. The total loss of his investment in the wreck of the firm, however great or distressing to him, is nothing to them; it gives rise to no compunctious feeling, to no sympathy, to no forbearance. Let it be the steadfast business of the courts of justice to foil this disloyal, this demoralizing spirit. And if they shrink from the duty or waver, let the legislative power do more. § 578. An able English periodical, advocating the introduction of the limited liability partnership scheme in England,' thus writes on this very topic: — "It is the office of the statesman and the legislator, taking counsel of the naturalist and the jurist, to remove hiaderances to the development of the enterprise of the people, according to their tvants and wishes, and to take care that the institutions for the administra- 9 Lond. Law Review, No. 17, p. 75^ Noyembaj-, 1848. CH. XVII.] INSURANCE COVENANTS. 585 tion of justice do not interpose to prevent the fair and free action of that enterprise, — -perplexwig it hy incongruous and inapplicable doctrines, and restricting it within the competency, most incompetent, of its antique and clumsy machinery. Of such a state of things, partnerships, as established by the law of England, are striking illustrations; they are yet in swaddling clothes, though of late years, by dint of much struggling, and much hesitating legislation, they have got their lim;bs somewhat more free." § 579. In answer to the foregoing observations it may be inquired whether the legislature have not fur- nished too elaborate and detailed a system of written rules to the judiciary to allow of any recasting or moulding over at the hands of the latter? and whether any judge, with twenty or more consecutive sections of a new law before him^ professing to be complete and consonant, can step beyond the functions of an interpreter to stretch the statute into the form which he discovers ought to have been given to it? § 580. To questions of this kind, the language of a Pennsylvania judge, who has shown himself to be an able jurist, (and who, in a style at once nervous, purej and classic, has uttered many stalwart judicial dicta^ and pronounced many valuable judgments,) must be applied and adopted : — " To prevent the machinery of a code from cutting the merits of particular cases to pieces, it is necessary that it be fitted, its mistakes corrected, and its dejidemdes se de Beaune de la responsabilite des versements ulterieurs, ce qui n'eflt pu 6tre le resultat d'une cession k un tiers. Le traite eut done lieu le 24 avril 1850. Mme de Beaune, en stipu- lant le dep6t de garantie de cinquante actions du gaz hollandais, actions qui appartenaient k la societe, trouvait bien dans cette clause la confir- mation du fait de la vente k la societe elle-mfime ; et il ne peut y avoir, , Bur ce point, d'equivoque ; les actions sent, d'apres leurs numferos, celles qui appartenaient k la societe; si, comme on I'a dit, elles avaient fete deposte par un actionnaire, c'etait la societe aussi qui les detenait com- me gage; et si, comme on I'a dit encore, M. Roux en possfedait person- nellement de semblables, pourquoi ne les a-t-U pas en effet dfiposfees'? Est-ce que la confiision est possible ? On a pla«6 dans la discussion un detail que je ne veux pas negliger; il s'agit des sept glaces que Mme de Beaune rfeclamait comme fepingles du marchfe: "Quand je m'y regarderai, ecrivait-elle, je ne me rappel- lerai pas la societe aveo rancune." M. Roux demanda k conferer de cette demands avec le conseil d'administration : Pourquoi ? c'est qu'il fallait I'assentiment de la soci§t6, paroe que la societe etait acqufereur en efiet. D'ailleurs, Mm^ de Beaune n'evlt pas fait cette demande k M. Roux personnellement; elle pouvait, sans humilite, la faire k la societe de MontluQon. II y a plus: est-ce M. Roux qui a paye les glaces? non : le prix (3 ou 4,000 fr.) n'est pas porte dans son compte courant. Le traite signe, on en remet un double k Me Saint-Jean, qui revolt aussi les 25,000 fr. et les actions de garantie, et un autre double k Me Castaignet. Quant k M. Roux, il ne revolt ni le double ni les actions NO. I.] DE PARIS, AUGUST, 1852. 655 vendues. Cependant U ofFre le 20 mai h la societe de lui ceder ces ac- tions, qu'il n'a pas; le 2.'5 mai le conseil d'admitiistration, sans meme lui demander de justifier qu'il a la libre disposition de ces actions, decide immediatement, sans examen et sans remise, qu'il y a pour la societe urgence d'acquerir, au prix de 250,000 fr., quoiqu'il n'y ait point d'ar- gent en caisse, et on ne stipule mSme pas un delai pour le paiement a faire k M. Roux. De fait, on le credite sur-le-champ de ces 250,000 fr.; et des 25,000 fr. d'interets produits par les actions. Cela se passe le 5 juillet, et ce n'est que le 8 juillet qu'a lieu entre lui et Mn>e de Beaune le traite definitif qui I'investit des actions au prix de 100,000 fr. L'autorisation de justice avait ete demandee depuis le traite provisoire elle avait ete difBcilement accordee, seulement apres I'afBrmation don- nee au Tribunal par le subroge-tuteur des mineures de Beaune, que c'etait bien la societe qui faisait de M™^ de Beaune I'acquisition des ac- tions ainsi exonerees de toute responsabilite des versements ulterieurs. Le fait etait encore confirme par la proposition que M. Roux avait faite i, M^e de Beaune, de prendre en paiement de sa crfiance, jusqu'ii concurrence de 50,000 fr., les actions de garantie du gaz hollandais ap- partenant k la societe, ce que M™« de Beaune n'avait pas accepte, con- siderant ces actions comme une valeur trop incertaine. M* Saint-Jean, notaire, en attestant cette offre et ce refus, ajoute, quant aux interets des actions, non pas, comme I'a dit M. Roux, que ces inte- rets lui furent laisses, mais qu'il n'en fut pas compte h M™^ de Beaune, uniquement parce qu'il fut dit que la societe ne payait pas d'interets aux actionnaires en retard d'op6rer leurs versements. Or, M. Roux, faisait cette declaration le 5 juillet et le 8 juillet il se faisait lui-m6me orediter de 25,000 pour ces monies interfits. Ce ne fut que le 17 juillet qu'il remit les cinq mUle actions Ji la caisse sociale: il avait k faire connaitre et k dissimuler k la fois aux action- naires les faits qui venaient de s'accomplir; son rapport k I'assemblee generale fait voir aveo quelle habilete il s'acquitta de cette t^che. Le 16 aoflt 1850, il disait dansce rapport: " Je oherchai k traiter des actions de M. de Beaune pour compte de quelques capitalistes qui devaient en faire les versements Je fus assez heureux pour reussir, et le 24 avril, 1850, un traite fut conclu. Je cioyais avoir fait beauooup pour la compagnie en detournant I'orage qui la menapait et en assurant ainsi les versements des cinq mille actions de la succession de Beaune. "Plusieurs des plus forts actionnaires d'entre vous, auxquels je parlai de I'affaire, trouverent qu'il aurait mieux vaJu prendre les moyens de la traiter pour la compagnie, puisqu'elle restait chargee de 50,000 fr. d'in- terets par an, et que des tiers etrangers k nos debats allaient profiter k bas prix de cette situation, qu'il etait desirable de faire jouir la compag- nie, des avantages qu'elle pourrait obtenir en devenant aoquereur k son tour des cinq mUle actions. " L'impossibilite pecuniaire ftant d6montree, il fut convenu tacite- 656 DE BEAUNE V. ROUX, COFR d'APPEL [APP. ment qu un appel de fonds, devenu dejJi inevitable, serait fait immedi- atement; et qu'on tS,cherait d'obtenir la retrocession des cinq mille ac- tions aux meilleures conditions possibles ; le prix de 250,000 fr. fut indi- que par moi comrae le minimum du prix auquel il serait possible de racheter. ." " •■ • Par cette mesure, la compagnie s'exonere de 50,000 fr. annuels d'interfits et beneficie de 750,000 fr. ; ces resultats ne peuvent manquer d'etre accueillis avec satisfaction par tons nos actionnaires, et malgre la charge qu'ils peuvent nous imposer par les versements qu'ils exigent, I'avantage est si grand qu'il a du faire taire toute autre consideration. . ." Et I'assemblee generale, i I'unanimite, approuve I'achat qui en a ete fait par la compagnie moyennant 250,000 fr. II est desormais etabli que M. Roux a afRrme i, Mme de Beaune que c'etait la societe qui achetait ses actions, et que Mme de Beaune ne faisait cette vente qu'en raison de I'exoneration qui en resultait pour elle de la responsabilite relative aux versements ultSrieurs; exoneration qui ne serait pas resullee d'un traite avec M. Roux personnellem.ent. Quant k I'appel incident, relatif k la contrainte par corps, la situation de M. Roux, sa deconfiture, sa separation de biens, et surtout le titre m§me de la demande de Mme de Beaune, demande fondee sur le dol et la fraude, toutes ces circonstances dfimontrent la necessity de cette mesure, consequence inevitable de la confirmation du jugement. . . . M. le president: La cause est continuee Ji vendredi pour les conclusions de M. I'avocat-general. M. Salle, substitut du procureur-general, s'est exprime ainsi : Cette atfaire, messieurs, est fort grave, et nous n'exagerons pas en disant qu'elle reclame toute I'attention et toutes 'les lumieres de la Cour. II s'agit d'un traite qui, apres avoir et6 prepare et etudie avec soin, a repu une approbation definitive. Mais ce traite n'est-il pas, de la part de M. Eoux, le produit du dol et de la fraude ? Les premiers juges ont aperpu cette fraude, mais il nous parait qu'ils ne I'ont pas su^samment de- signee par les motifs de leur decision. Pour ce qui nous concerne, voici comment nous apprecions cette affaire. Mme de Beaune possedait 5,000 actions; la vente de ces 5,000 actions, il raison de leur importance considerable, etait en quelque sorte forcee pour Mme de Beaune, tutrice de ses deux jeunes filles. L'acquisition de ces valeurs etait aussi forcee pour la societe des glaces, qui y trouvait I'avantage d'amortir un capital d'un million 20,000 fr. deji verse, et 50,000 fr. d'inter§ts encore dus. M. Eoux se presente chez Mme de Beaune ; il etait le president du conseil d'adminis- tration; a-t-il dit, a-t-il laissfe voir qu'il desirait acheter pour la societe? C'est ici un fait capital, et c'est pour n'avoir pas rattache ce fait aux cir- constances relevees dans le jugement, que nous pensons que ce juge- ment est incomplet k cet egard. Nous pensons, quant a nous, que Mme de Beaune a voulu vendre et a cm vendre k la societe, et que M. Roux, par ses paroles, par sa qua- NO. I.] DE PARIS, AUGUST, 1852. 657 lite, par son attitude, iui a persuade, qu'en etTet, o'etait k la societe que cette vente etait faite par son intermediaire. Etait-il supposable, en effet, que M™e de Beaune voulut vendre k un tiers? La vente i la societe liberait Mme de Beaune de toute garantie, quant aux versements ulterieurs k operer pour le coraplement des dix dixiemes, et la vente k un tiers laissait subsister cette garantie. M""* de Beaune, entouree de nombreux conseils, ne pouvait vouloir courir un tel risque, surtout en vendant 100,000 fr. des valeurs qui, pen de temps apres, etaient evaluees par M, Roux lui-meme 250,000 fr. Ce dernier, d'ailleurs, pouvait-il esperer de determiner M^e de Beaune a Iui faire cette vente pour son compte personnel? M. Roux etait, il faut le dire, dans une situation fecheuse ; sans doute il avait obtenu de ses creanciers des accommodements et des marques d'estime ; mais, plus ce concordat etait honorable, plus il y a lieu de penser que M. Roux avait epuise toutes ses ressources pour I'obtenir. Maintenant, voyons comment s'est operee la negociation. M. Roux, dans son rapport du 16 aout 1850 k I'assemblee gSnerale des actionnaires, leur en rendait compte, et rappelait, avant tout, qu'elle avait eu lieu au moment meme ou M>"6 de Beaune prfeparait une action en justice pour demander la dissolution de la sooifite. Aussi comprend- on bien que lorsque M. Roux s'etait presents k M™^ de Beaune, lorsqu'il avait fait les premiers pas pour conjurer cette dissolution, M^e de Beaune n'avait du voir en Iui que le president du conseil d'administration stipulant pour la societe. II y a plus : les conditions du contrat confirment le fait de la vente a la soci6t6. En effet, parmi les garanties donnees, M. Roux a depose des actions d'une compagnie de gaz hoUandais; or, ces Eiotions etaient la propriete de la societe. D'un autre c6te, Mme de Beaune avait demande, k titre d'epingles, quelques glaces provenant de I'usine de MontluQon; elle pouvait faire naturellement une telle demande k la society, elle ne I'eiit pas faite a M. Roux personneUement; et, de fait, si M. Roux eut ete le donateur de ces glaces, le prix en eut figure dans son compte avec la societe, et ce prix ne s'y trouve pas. II est un detail qui merite d'Stre ici rappele. On a dit que lors du jugement qui avait donne I'autorisation de vendre les actions, les magis- trats avaient ete informes que cette vente devait etre faite a la societe. n est difficile de s'expliquer categoriquement sur un fait qui doit rester enseveli dans la chambre du coliseil. Mais, en rsuson de la solidarite qui appartient aux membres du parquet, nous croyons pouvoir etre plus affirmatif sur un autre point, et dire que le substitut charge de oonclure sur la requete a fin d'autorisation, a su, en effet, par le subroge-tuteur des mineurs de Beaune, que la vente devait etre faite a la societe. Si de ces circonstances nous passons k Hexamen des faits acoomplis entre M. Roux et la societe, sans nous appesantir sur la composition du 2k 658 DE BEAUNE Y. ROUX, COUR d'APPEL [aPP. personnel du conseil d'administration et sur les attaques dont il a ete I'objet de la part de Mme de Beaune, nous ferons toutefois remarquer que ,-c'est sans aucune remise des titres, qui n'etaient pas encore entre les mains de M. Roux Iui-m6rae, qui en faisait la cession, que le conseil d'administration credite immediateraent M. Roux du prix de cette ces- sion, 25,000 fr.; puis, nousvoyons, des la date du 23 mai, ce conseil ac- cepter I'offre de cette cession, par une deliberation qui dissimule habile- ment la verite. On lit, en effet, dans cette deliberation, les passages sui- vants : ORDRE DU JOUR. " ^ VI. — Proposition par M. A. Roux de ceder k la compagnie cinq mille actions provenant de la succession de Beaune, et dont il est porteur, jouissanoe du 1" mars 1850, lesquelles sont liberees d'un million, et qu'U ofTre moyennant la sorame de 250,000 fr "Sur la 6= question, celle de la convenance qu'il y a pour la com- pagnie d'acquerir, moyennant 250,000 fr., les cinq mille actions prove- nant de la succession de Beaune et qui lui sont offertes, jouissance du 1" mars 1850, par A. Roux, qui en a la disposition et possession : "Attendu que si ces cinq mille actions restaient endre des mains tierces qui en feraient le versement, la compagnie resterait soumise au paiement des interets, et supporterait la part de benefices qui leur in- oomberait plus tard ; " Attendu que cette operation donnera k la compagnie, outre le bene- fice desdits interets et dividendes, un benefice de 750,000 francs sur le capital verse pour ces cinq mille actions; " Attendu que si la compagnie n'a pas en ce moment les fonds neces- saires pour faire cette acquisition, elle pourra les prelever sur le prochain versement, et que, d'ailleurs, elle a toujours le droit de faire des appels successifs, jusqu'Ji la liberation complete des actions; ■" Attendu que cette operation est d'un interet tellement evident, qu'il ne pent etre I'objet d'auoune contestation ; " Le conseil arrete, k I'unanimite, moins la voix de M. Roux, qui ne prend pas part au vote : "II y a utUite et urgenoe k accepter I'achat des cinq mille actions en question, jouissance du l«f mars 1850, au prix de 250,000 francs; " La compagnie est autorisee k prendre les mesures necessaires pour remplir ce marche et en acquitter le montant." Puis, le contrat etant complet, la societe etant investie, M. Roux, dans I'expose qu'il presente, le 16 aout 1850, k I'assemblee generale, fait avec adresse I'obscurite sur ce qui s'est passe; il indique que c'est la succes- sion de Beaune qui a vendu, mais sans preciser que ce soit lui qui ait achete directement, pour revendre ensuite k la societe. Et les action- naires ont si bien cru, sur cet expose, que c'etait la societe qui avait achete, que plusieurs ont felicite M^e de Beaune d'avoir fait cette vente, dont le prix etait de 250,000 francs. NO. I.] DE PARIS, AUGUST, 1852. 669 Nous pouvons conclure ici, k cet egard, que les deux contrats se tien- nent, qu'il ne faut pas les isoler, et que, si M. Roux a agi par ftaude en- vers la societe, il avait bien pu proceder de meme 4 1'egard de M™^ de Beaune. Le dol etant etabli, et quoi qu'on en ait dit, c'est le dol que M^e de Beaune a constamment articule oomrae gen^rateur de son droit, quelle action en resulte pour M^^ de Beaune ? Une action en dommages-inte- rets; mais dans quelle mesure? On a dit qu'elle n'eprouvait pas de pre- judice, puisque, d'une part, elle €tait desormais liberee de la responsa- bilite des versements ulterieurs que n'avait plus k lui reclamer la societe, devenue proprietaire des actions, puisque, d'autre part, elle avait regu le minimum d« 100,000 fr. fixe par elle-mSme ; et que, si quelqu'un pou- vait elever une plainte, ce serait tout au plus la societe, en raisoij du prix plus considerable employe i I'acquisition. Tout cela ne constitue pas une satisfaisante reponse. La plainte de M>ne de Beaune, en efFet, consistait dans les manoeuvres frauduleuses qui I'avaient determinee Ji ceder pour 100,000 francs, au lieu de 250,000 fr.; et si la tromperie a rejailli sur la societe, cette tromperie, avant tout, n'en existait pas moins contra M""* de Beaune. Le fait est que M. Roux, connaissant le minimum de M^e de Beaune, et le maximum de la societe, s'est place entre I'un et I'autre pour perce- voir le benefice. Pour preciser le prejudice, les premiers juges ont pris la base la plus morale pent etre, en le fixant au chiffre de 175,000 fr,, montant de ce benefice ; mais ce n'est pent 6tre pas la plus juridique, et il nous parait que cette fixation rentre dans I'appreciation des circon- stances. Sous cette uniqus reserve, nous concluons k la confirmation du jagement sur I'appel principal. Quant k I'appel incident, dont I'objet est la contrainte par corps de- mandee contre M. Roux, il y a ici dol et fraude et il s'agit de biens de mineurs. Nous pensons que cet appel incident doit etre acceuilli. 16 Aout, 1852, Arret oomme suit; — " La Cour, " En ce qui touche la quality de I'appelant ; " Considerant que c'est justement que les premiers juges ont d6clar6, et qu'il est aujourd'hui reconnu par toutes les parties que, dans les ces- sions de 5,100 actions de la societe des glaces de Montlu<;on, des 24 . avril et 8 juillet 1850, consenties par la veuve de Beaune a I'appelant, celui-ci n'etait pas le mandataire de la veuve de Beaune, non plus que le mandataire de la societe des glaces de Montlu^jon; " En ce qui touche la fraude: "Considerant que I'intimee ne prouve point que Roux soit parvenu, a I'aide de manoeuvres frauduleuses ou de moyans dolosifs, a surprendre son consentement a la vente des cinq mille cent actions sussnonoees et dependant de la succession de son mari en cherchant a la tromper, soit sur la valeur reelle desdites actions, soit sur I'avenir et la veritable situa tion des affairs de la societe de MontluQon; 660 DE BEAUNE V. ROUX, COUR d'AFPEL [APP. " Que le oontraire resulte de ce que, de I'aveu merae de I'intimee, Thibaut, ancien notaire, ami et conseil de la faraille, aurait ete speciale- ment charge par elle de prendre connaissance des livres de la societe, de ses inventaires, des deliberations des assemblees generales et de tous les actes de gestion ; " Que oe n'est, en efFet, qu'apres les investigations les plus detaillees, suivies d'un examen approfondi, que les nombreux conseils des mineurs de Beaune, dont I'experience et les lumieres sont notoires, ont donne leur assentiment au projet de cession des cinq mille cent actions entre Roux, acquereur, et la veuve de Beaune, es-noras, venderesse ; " Que ce projet a ete approuve par I'avis unanime du conseil de fa- mille et consacre par un jugement homologatif du Tribunal civil de Paris, sur les conclusions conformes du ministere public, d'ou il suit qxi'a ce point de vue du moins aucune prenve de la &aude n'est rapporteej " Considerat d'ailleurs que la veuve de Beaune essayerait vainement d'induire cette fraude de cette circonstance que son consentement aurait ete veritablement surpris, ou du moins altere dans un de ses elements les plus essentiels, en ce sens que Roux, par ses assertions, directes ou par ses artifices, I'aurait amenee a penser qu'il ne traitait pas pour son compte personnel, mais bien dans I'interet et pour le- compte de la so- ciete ; " Considerant, en effet, a cet egard, que la veuve de Beaune ne jus- tifie pas que telle ait ete, en realitte, la situatiolj lesp^ctivement acceptee pax les parties, soit pendant les longs pourparlers qui ont precede le traite, soit au moment de la conclusion definitive; "Que le contraire resulte de la forme et surtout de I'eoonomie meme de I'acte du 24 avril 1850, dont toutes les clauses ont non-seulement pour effet d'investir sans aucune reserve I'appelant de la pleine et en- tiere propriete des actions, mais encore se referent par des stipulations precises a des eventualites de gaiantie directement a la charge de Roux, pour le cas notamment oii la succession de Beaune serait ulterieurement obligee d'effectuer dans la caisse sociale les versements complementaires de la commandite, ce qui suppose necessairement en la personne de Roux la qualite de tiers-acquereur vis-i-vis de la societe ; " Considerant d'ailleurs qu'en admettant que la pensee de la veuve de Beaune, au moment du traite, ait pu etre que Roux, acquereur apparent, n'etait en realite, et selon leur commune pensee, qu'un intermediaire stipulant dans I'inteiet de la society, il est de tout evidence que la retro- cession des actions qui, dans ce cas, devait avoir lieu au nom et pour le compte de la societe, n'avait et ne pouvait avoir d'autre objet, meme aux yeux de la veuve de Beaune, que d'affranchir souverainement la succession de son mari de toute obligation eu egard aux versements ulterieurs et complementaires de la commandite dont il vient d'etre parle ; " D'oii il suit que ce but une fois atteint, la veuve de Beaune etait sans droit comme sans interet pour s'immiscer dans le regleraent des NO. I.] DE PARIS, AUGUST, 1€52. 661 clauses et conditions de la retrocession a intervenir entre Roux et la so- ciete, et qu'a cette gard, au surplus, elle avait manifestement suivi la foi de son cessionnaire ; " Considerant que la retrocession par Roux a la societe, a eu lieu, et qu'ainsi, dans I'hypothese meme oii se place I'intimee, tous les interets que les traites des 24 avril et 8 juillet avaient en viie de sauYegarder sont desormais k I'abri de toute atteinte et de tout discussion ; " Que si les circonstances qui ont precede, accompagne et suivi cette retrocession, et notamment la difference de 175,000 francs entre le prix de la vente faite a Roux par la veuve de Beaune et celui de la vente faite par Roux k la societe des glaoes de MontluQon peuvent donner ouverture k une action en repetition du montant de cette difference, a raison de la qualite salon laquelle Roux aurait agi ou serait repute avoir agi dans ces deux actes, il est incontestable que cette action, dont la Cour n'a pas si apprecier au fond la valeur, pqurrait tout au plus apparte- nir h la societe elle-meme, sans que la succession de Beaune put, dans aucun cas et a aucun titre, s'en prevaloir; "Infirme; au principal, deboute M^e Defresne de sa demande," etc. REMARKS. I was present at the argument of the foregoing important case, at Paris last August. The court consisted of nine judges, presided by M. Aylies, and doubtless of some of the best lawyers of France. I have given in the text, (Ante, p. 285 — 290,) an analysis of the cause, with some com- ments ; above is the fullest report of it that will probably ever be pub- lished, yet it certainly does not do justice to the actual argument of the Attorney General. He contended that under all the facts upon the record, the widow was entitled to recover, because they pointed to a conspiracy to hem her in and force her in desperation to capitulate at discretion. The company had not stirred a step to aid her; they had not tendered '' her a statement of their position, and looked on while their manager was negotiating with her for an inordinate sacrifice, while she was harassed by the fear of another call for instalments, of which they had the sole control, and as to which they did nothing to set her at ease. After the sacrifice had been consummated they forthwith took the shares from their manager at an advance of 175,000 francs, and yet realized for them- selves an enormous advantage by the purchase. This profit, said the eloquent advocate in his capacity of Counsellor to the Court, even sup- posing that it was aJl for Roux, and was not to be divided between him and a few leading spirits of the concern, was such a one as ought not to have been made. " It was oppressive, it was corrupt. It will be de- moralizing ; and this court, sitting in judgment over the decree of a tri- bunal that has already branded the bargain as such, will also hold that this profit was mauvais, (bad in law,) and will also so brand it." 662 HXTTCHUsrsoN V. m'clure, supreme court [app. COURT OF APPEAL OF PARIS, AUGUST 22cl, 1849. Morigeau v. Calando. (Sirey An. Rep. vol. of 1850, P. 2, p. 570.) The manager or general partner of a limited partnership, who succeeds to a former one, is bound for all flie obligations of the latter, contracted in the name of the partnership, and that notwithstanding all contrary stipulations contained in the agreement constituting the new general partner : — Such stipulations might well bind the shareholders, but would be inoperative as to third persons and cre- ditors. So held in a recent case in Paris ; the syllabus of which in French is here presented : — Le gerant d'une sooiete en commandite, qui succede a un precedent gerant, est tenu de toutes les obligations contractees par celui-ci au nom de la societe, et cela nonobstant toutes stipulations contraires contenues dans la deliberation qui a nomme le nouveau gerant; une telle stipu- lation pent bien obliger les actionnaires, mais elle est inopposable aux tiers. In this case the company had been benefited by the contract with the plaintiffs, who had furnished the former general partner with the articles for the company : but the court said that the substitution of a new ge- rant could not be assimilated either to the constitution of a new partner- ship, or the liquidation of an old one; but that the reservation made in favor of the new general partner might, although nugatory as to third persons, well bind the limited partners. Vide ante, § 253, p. 268, in note, this case referred to. Haggerty et al. v. Taylor et al. (10 Paige's Reports, 261.) IN THE COURT OF CHANCERY OF THE STATE OF NEW YORK. This case having been introduced in the text, {ante, p. 448, 450,) and copiously commented on in another place, {ante, p. 74, 77,) has been omitted from this Appendix, HutcMnson v. M'Clure et al. Almost at the moment of going to press with this form, to wit, on the 21st of December, 1852, I saw in the Pennsylvanian of this city a re- port of the very recent judgment of the Supreme Court of Pennsylvania in the above case, pronounced in the Western District on error from Erie county. As this decision re-affirms the doctrine asserted by the NO. I.] OF PENNSYLVANIA, SEPTEMBER TERM, 1852. 663 same court through the same judge, which I ventured to comment on in a preceding chapter, with the view of showing that it was far from establishing those principles of honest equality amongst the creditors of an insolvent partnership that the original act of assembly designed to bring about, (vide ante, p. 401-412,) I deem it needful to introduce the decision into this appendix. The opinion of the court in this case was delivered by Lewis, J. — ^This is an issue directed to the Common Pleas of Erie county, to try whether Monroe Hutchinson, assignee of Squire Hall, is entitled to priority over John M'Clure, Steward C. Marsh, and Alexander Freer, in the distribution of the fund raised by the sale of personal pro- perty of Hall, under executions in favor of the creditors last named. On the 1st of August, 1846, Hall was indebted to M'Clure on a pro- missory note given for the purchase of a stock of goods at Cranesville, and on the 10th August, 1849, gave a single biU for the amount, with power to confess judgment. On the 8th December, 1848, he was in- debted to M'Clure on another promissory note for goods at Girard, and on the 5th May, 1851, gave a single bill for the amount, payable within twenty days from date, with power to confess judgment. On the 4th August, 1851, both these debts were included in a judgment bond, and on the 18th August, 1851, judgment was entered on the bond and exe- cution issued. On the 7t(i of July, 1851, Hall gave Marsh and Freer a bond with power to confess judgment, for an indebtedness which arose two years before, for goods purchased in New York. On this bond judgment was entered on the 16th of August, 1851, and execution issued. By virtue of these two executions, the goods of Hall were seized and sold by the sheriff. The sale commenced on the 1st September, 1851. On that day, while the sheriff was actually selling the goods, Hall exe- cuted an assignment, for the benefit of creditors, to Hutchinson, the plaintiff. This assignment was not recorded until the 29th September, 1851, and the bond of the assignee was not approved until the 29th of April, 1852. There was no evidence tending to show that the debts claimed by M'Clure, and Marsh, and Freer, were not justly due, or that in attaining their judgment bonds, or in afterwards entering judgment on them, they had any intention to evade the provisions of the act of 1843, relative to assignments. It did not clearly appear that Hall, when he gave these judgment bonds, respectively, on the 7th July, and 4th Au- gust, contemplated an assignment, or even knew that he was insolvent. But, conceding that he had such knowledge, and entertained, at the time, an intention to make an assignment, how is that to affect an honest creditor who had no knowledge of any such purpose, and had no participation in the intention to evade the act of 1843. In Worman et al. v. Wolfersberger's Exec, (a case in the middle dis- trict, not yet reported,) it was shown that, according to all the decisions upon statutes enacted to prevent frauds upon creditors, the party who ob- 664 HUTCHINSON V. m'CLTTRE, SUPREME COURT [APP. tained a security or a conveyance, in good faith, was not affected by, unless they participated in, the wrongfd intent of the debtor in giving it; and it was declared that the doctrine in Summers' Appeal, 4 Harris, 159 : — " Was a departure from the principles which had usually governed the courts in the construction of statutes similar to the proviso in the act of 1849; and that there was something so revolting to the most ordinary sense of justice in depriving any one of a vested right — a lien for a just debt — without any fault of his own, that it ought not to be done, except in obedience to the plain and imperative mandate of a power not to be resisted." Is there any such " plain and imperative mandate " in the act of 18491 Far from it. Even the learned judge who engrafted upon it the construction in question, admits, in his opinion, that the act is " ex- ceedingly obscure," and that there is but " a glimmering" of such "in- tent" in it — 4 Harris, 174. And the legislative and executive depart- ments, so far from admitting the existence of any such intent, within less than a year after the decision was pronounced, repealed the proviso upon which it was founded, and thus extinguished the ignis fatuus which had led the judicial mind astray. Although this repeal cannot operate retro- spectively upon rights which had previously vested, the judgment of the other branches of government, in cases admitting of doubt, is certainly to be treated with respectful consideration. The decision in Summers' appeal was a departure from the great principle which requires that statutes in derogation of the common law shall receive a strict construction. It was pronounced in manifest for- getfnlness of an uninterrupted current of authority upon the construction of similar clauses in statutes to prevent frauds upon creditors. It was an invasion, without legislative warrant, of the long established right of the citizen where he has not surrendered the dominion over his property to others, to conduct his affairs in his own way. It was a violation of a maxim of universal justice, which declares that no one shall suffer for another's fault — Nemo punitus pro alieno delicto. Its tendency is to produce uncertainty and litigation ; and its result, if adhered to, would be to throw into confusion the plain business transactions of a community whose commercial enterprises prosper most when left to their own activity, in- telligence and vigilance. In overruling it we correct a plain mistake — we affirm as a principle not to be denied, that the judicial power is not authorized to make new and inconvenient innovations upon the rights of the people, or to alter the law of the land upon a mere "glimmering " of Legislative intent ; and we replace ourselves upon ancient foundations, in accordance with the true doctrine of stare dedsiSj and in obedience to the authoritative voice of the law. On the ensuing day, the same journal contained the following editorial notice of this decision : — NO. I.] OF PENNSYLVANIA, SEPTEMBER TERM, 1852. 665 "SUMMERS' APPEAL." In referring to the interesting decision in this case, given by the Su- preme Court of our State, and published in yesterday's Pennsylvanian, the York Gazette says : — No opinion of the Supreme Court excited greater surprise to the pro- fession, and to the community at large, than Summers' Appeal, 4 Harms, 169, decided by the late bench, and reversing the judgment of Lewis, President of the Court below. The decision put the validity of a judg- ment not on the good faith of the transaction, not on the act, intention, or knowledge of the creditor, but on the htmt uncommunicated opinion of the debtor about a collateral circumstance, no matter whether the opinion was correct or erroneous. It introduced evils in the transactions of com- mon life, ten-fold worse than those of the repudiated bankrupt act, and based their introduction on a forced construction of an act of Assembly obviously intended to prevent evils of the very kind thus introduced. The court, however, in this decision, only followed the opinion of Judge Bell, delivered a few months before at Nisi Prius, in the case of Towar v. Barrington, reported in Brightly's R., 258. It certainly would be unbecoming in me now to except any longer. But I would claim leave to congratulate the learned judge on the oppor- tunity he has enjoyed of taking his revanche. It strikes me that if he were reversed unduly in 4 Harris, he has not only since unhorsed his enemies, but reinstated himself, comme il faut. It is time, now, likewise, that the Legislature, instead of past " glimmerings," should favour us with full light. As the act of. 1843 is judicially read at this day, it certainly "pales its ineffectual fire," and is, for all useful commercial purposes, practically nullified. The result too is, a strict rule for limited partner- ships, and a lax one for those of the general kind. There could not be a more favorable case for testing the practical value of the two rules than that afforded by the facts embodied in the foregoing judgment. Those facts conclusively show an insolvent trader paltering with himself for two years, and tampering with his creditors up to the very day of the sheriff's sale of his goods ; when, as if to purge his conscience, he makes an assignment for the benefit of all. Such facts, in my view, demonstrate the reasoning of the court to be at once " false political economy," and unhealthy sentiment, however much it may be "good at common law." 666 APPENDIX OF STATUTES. [APP. APPENDIX. NUMBER II. OP STATUTES OF LIMITED PARTNERSHIP. STATE OF LOUISIANA. PARTNERSHIP IN COMMENDAM AND SOCIETE EN COMMANDITE, FROM THE CIVIL CODE. Art. 2810. Partnership in commendam is formed by a contract, by which one person or partnership agrees to furnish another person or partnership a certain amount, either in property or money, to be employed by the person or partnership to whom it is furnished, in his or their own name or firm, on condition of receiving a share in the profits, in the proportion determined by the contract, and of being liable to losses and expenses to the amount furnished, and no more. Art. 281 1. He who makes this contract is called, with respect to those to whom he makes the advance of capital, a partner in commendam. Every species of partnership may receive such partners. It is, there- fore, a modification, of which the several kinds of partnerships are susceptible, rather than a separate division of partnerships. Art. 2812. The proportion of profits to be received by the partner in commendam may be regulated by the covenant of the parties, as may also, with respect to each other, the proportion of losses and expenses to be borne by each of the partners; but, as respects third persons, the whole sum furnished, or agreed to be furnished by such partner, is liable for the debts of the partnership. Art. 2813. In no case, except as is hereafter expressly provided, shall the partner, who has no other interest in the concern than that of a part- ner in commendam, be liable to pay any sum beyond that which he has agreed to furnish by his contract. If it has been paid and lost in the business of the partnership, he is exonerated from any other payment. If any part be unpaid, he is liable for that amount, and no more, to the creditors of the partnership. Art. 2814. The partner in commendam cannot be called upon by the partnership or its creditors to refund any dividend he may have received NO. II.] STATUTE OF LOUISIANA. 667 of net profits, fairly made during the solvency of the partners and bona fide, at a time stipulated in the articles of partnership. Art. 2815. The partner m commenrfam cannot bind the other partners by any act of his ; he is not considered as a partner, further than is especially provided in this section. "Art. 2816. Partnership in commendam must be made in writing, and must be recorded in the manner hereinafter directed, or otherwise the partner in commendam will be considered as a common psirtner in the concern, and will be subject to all the responsibilities towards third per- sons that would attach to any of the other partners in the business for which he made his advance. Art. 2817. The contract must express the amount furnished, or agreed to be furnished, by the partner in commendam, the proportion of profi.ts he is to receive, and of the expenses and losses he is to bear. It must state whether it has been received, and whether in goods, money, or how otherwise ; and if not received, it must contain a stipulation to pay or deliver it. It mast be signed by the parties in the presence of one or more witnesses, and shall be recorded in full by the officer authorized to record mortgages in the place where the principal business of the partnership is carried on. If it be a commercial partnership, and con- sists of several houses or establishments, in different parts of the State, such recording shall be made in each of such places. Art. 2818. The record mentioned in the preceding article shall be made in six days from the time of the execution of the contr8ict, in the place where the principal establishment is situated, and if there are more than one, then allowing one day for every two leagues' distance between such principal establishment and the others. Art. 2819. The officer, authorized to record mortgages, shall keep a separate book for the purpose of recording acts of partnership, which shall be, at all office hours, open for the inspection of any person who may choose to consult the same, and shall receive the same fees to which he is entitled for the recording of mortgages, and for certificates and copies. When the act is under private signature, the record shall be only made on the acknowledgment of the act, before a judge, a notary, or the person authorized to make the record, or by proof of the execu- tion made in the same manner by one of the subscribing witnesses. Art. 2820. The business of the concern, to which the partner in com- mendam has contributed his advance, must not be carried on in the name of such partner, or in his name jointly with others, or by him, or by his agency as agent, or attomey for the other partners, but by those to whom he has made the advance, and in their name or firm ;' and if the ad- vance in commendam has been made to one person only, such person must carry on the business in his sole name, and must not make the * " Social signature " is tlie term in tlie parallel French version of the Code. 668 APPENDIX OF STATUTES. [APP. addition " and company," or adopt any firm [^signature social] that may cause it to be understood that he has any partners. And if the partner in commmdam shall take any part in the business of the partnership, or permit his name to be used in the firm, [social signature,] or knowingly permit any single- person, to whom he has made the advance, to add any words to his name or firm, that may imply that he has other part- ners, besides the partner in commendam, when in fact he has none, such partner in commendam shall be liable to all the responsibilities of a gene- ral partner in the business for which he has made the advance. Art. 2821. If the person, to whom the partner m commendam has made the advance, shall, without his consent, use his name in the firm, or if, not having any other partner, he shall adopt or use any such addition as is expressed in the last preceding article, the partner in cmnmendam may immediately withdraw the sum he has advanced, and, in giving notice in two of the public newspapers, shall be freed from all responsibility, either to the partners or to third persons, from the time of such notice. Art. 2822. The partner in commendam cannot withdraw the stock he has furnished at a time when those to whom he has advanced it, are in failing circumstances, or when there is a reasonable apprehension that they will become insolvent. REMARKS. The Civil Code of Louisiana was promulgated in the English and French languages, simultaneously. The articles are published in each tongue on parallel pages, the English on the left, and the French on the right hand pages. It is difficult to say which side was the original draught, and which the translation, except as to the foregoing articles. From internal evidence, the inference is irresistible, that the original conception was French and that the English articles are a translation. The above oft-repeated word, "firm," is a pregnant proof of this. The translator has so rendered the term, "signature social," instead of adopting, "partnership signature," or "style," or "name;*" either of which terms would have been less awkward, and more precise. For further remarks on the above translation, vide ante, p. 25, the note to § 17. That this system is a better and wiser one than any framed for the rest of the States, no one will doubt who has studied the practical work- ing of the kindred system in France and the rest of Europe. And it is wiser and better simply because in its frame-work it is more like that kindred system. But there is one blemish in it that I cannot account for, and that is in the 2820th article, in which it is declared that any special partner who "knowingly permits" ariy general partner to add the word "company" to his signature, shall be responsible insolido. I could understand the Louisisinians if they had declared that in such a case the partnership should be null and void; but, when they impose such a heavy penalty NO. II.] STATUTE OF FLORIDA. 669 for the very act that is done by command of law in the country of their origin, and from which they borrowed their system, I hold that they are in conflict with the whole rationale and theory of the commandite in- vention. That rationale and theory is simply this : you may be a part- ner with a liability restricted to your investment in the capital, provided ycfu do not act as general partner in the concern ; the moment you do so you forfeit that privilege. It is on this principle alone that in Europe solidarity is confined to interference. The extending of this forfeiture ■ in Louisiana, to the breach in question, could only have resulted from a confusion of ideas. The fact, that for the existence of a company, or information as to its several elements, the public registry and advertise- ments were intended to be the only standard, seems to have been there entirely overlooked. Next to this statute, as best in model in this coimtry, comes that of Florida. STATUTE OF FLORIDA. AN ACT TO AWTHOBIZE LIMITED PARTNERSHIPS. Section 1. Limited partnerships, for the transaction of any commer- cial, mercantile, mechanical, manufacturing, or agricultural business whatever, and the transportation of persons, produce or merchandize, within this territory, may be formed by two or more persons, upon the terms, with the rights and powers, and subject to the conditions and lia- bilities herein prescribed : but the provisions of this act shall not be con- strued to authorize the persons engaged in sUch partnerships to use it for the purposes of banking or insurance. Sect. 2. Such partnerships may consist of one or more persons, who shall be called general palmers, and who shall be jointly and severally responsible, as general partners now are by law, and of one or more per- sons who shall constitute a specific sum as capital to the common stock, who shall be called special partners, and who shall not be liable for the debts of the partnership beyond the funds contributed by him or them to the capital. Sect. 3. The general partners only shall be authorized to transact the business of the concern, and sign for the partnership to bind the same. Sect. 4. Persons desirous of forming such partnerships shall make and severally sign articles of co-partnership, which shall contain : — 1st. The name of the firm under which such parthership is to be con- ducted. 2d. The general nature of the business intended to be transacted. 3d. The names of the general and special partners inserted therein, distinguishing which are general and which are special, and their respec- tive places of residence. 670 APPENDIX OF STATUTES. [APP. 4th. The amount of capital which each partner shall have contributed to the common stock. 5th. The period at which the partnership is to commence, and the pe- riod at which it is to terminate. Sect. 5. The articles of co-partnership before mentioned, shall be exe- cuted in the presence of two subscribing witnesses, and the same shall be proved in the same manner as conveyances of land are now required by law to be proved. Sect. 6. The articles of co-partnership so proved, shall be filed in the ofSce of the clerk of the county court of the county in which the princi- pal place of business of the partnership shall be situated, and shall also be recorded by him, in a book to be kept for that purpose, open to pub- lic inspection. If the partnership shall have places of business situated in different counties, a transcript of the articles of co-partnership, and of the probate thereof, duly certified by the clerk, in whose ofiioe it shall be filed, under his official seal, shall be filed, and recorded in like manner, in the office of the clerk of the county court in every such county. Sect. 7. At the time of filing the original articles of co-partnership, with the evidence of the execution thereof, as before directed, an affidavit of one or more of the general partners shall also be filed in the same office, stating that the amount in cash, or its equivalent, specified in the articles of co-partnership, has been contributed by each of the special partners. Sect. 8. When property constitutes a part of the stock, it shall be ap- praised by three fit and discreet persons, duly appointed, and sworn by the judge of the county court, unless he be a party, in which case the sheriff of the county shall make the appointment, and administer the oath ; the appraisement thus made shall be accompanied by a certificate of the appraisers, under seal, which certificate shall be filed and recorded in the office of the clerk of the county court, with the original or re- newed articles of co-partnership. Sect. 9. No partnership shall be deemed to have been formed unKl such limited articles of co-partnership, as herein mentioned, shall have been made, proved, filed, and recorded, nor until an affidavit shall have been filed, as above directed, in the several cases; and if any false state- ment be made in such articles of co-partnership, or affidavit, all the per- sons interested in such partnership shall be liable for all the engagements thereof, as general partners; and the person or persons so making a false affidavit, shall be liable for the pains and penalties of perjury. Sect. 10. The partners shall publish the terms of the partnership, when registered, for at least six weeks immediately after such registry, in one newspaper in the county in which the principal place of business is situ- ated; if no newspaper be published in such county, the publication shall be made in the nearest newspaper, and if such publication be not made, the partnership shall be deemed general. Sect. 1 1. Any renewal or continuance of such partnership, beyond the time originally fixed for its duration, shall be proven and recorded; and NO. II.] STATUTE OF FLORIDA. 671 an affidavit of a general partner be made and filed, and notice given in manner as required for its original formation, and every such partner- ship which shall be otherwise renewed, or continued, shall be deemed a general partnership. Sect. 12. Every alteration that shall be made, — 1st. In the nature of the business. 2d. In the names of the partners, or names of the firm. 3d. In the articles of co-partnerships. 4th. In a reduction of the original capital, shall be deemed a dissolu- tion of the partnership, and any continuation of the business thereafter shall be regarded as a general partnership, unless renewed as special partnership, according to the provisions of the last section : Provided, such alteration was made with the privity of consent of the special part- ner or partners. Sect. 13. The business of the partnership shall be conducted under a firm, in which the names of the general partners only shall be inserted, without the additional terra " company," or any other general term, and if the name of any special partner shall be used in such firm with his privity, he shall be deemed a general partner. Sect. 14. Suits in relation of the general partnership may be brought and conducted by, and against, the general partner or partners, in the same manner as if there were no special partners, and it shall be op- tional with the parties to include in such suit any special partner or part- ners who may have become general partners, by not having complied with the provisions of this act. Sect. 15. No part of the sum which any special partner shall have contributed to the common stock, shall be withdrawn by him, or paid, or transferred to him, in the way of dividends, profits, or otherwise, at any time during the continuance of the partnership ; but any partner may annually receive lawful interest on the sum so contributed by him, i&the payment of such interest shall not reduce the original capital, and if, after the payment of such interest, any profits shall remain to be di- vided, he may also receive his portion of such profits. Sect. 16. If it shall appear that by the payment of interest, or divi- dends to any special partner, the original capital has been reduced, the partner receiving the sum shall be bound to restore the amount necessary to make good his share of the original stock, or he shall be considered a general partner from the period when it became so reduced. Sect. 17. A spdcial partner may at any time examine into the state of the partnership concerns, and may advise as to their management, but he shall not transact any business on account of the partnership, unless employed as an agent under a power of attorney; if contrary to these provisions he shall interfere in the management, he shall be deemed a general partner. The remaining five sections of this statute are omitted, being similar to those of the New York and Pennsylvania statutes. 672 APPENDIX OF STATUTES. [APP. STATUTE OF GEORGIA, The concluding section of the law on Linaited Partnership, in this State, being different from that of other States, is here presented. Sect. 7. Co-partners in general. lUegal use of names. — It shall not be lawful for any persons, who are partners in trade, or business of any kind, to insert or use in their part- nership firm, style, and name, the name of any person not actually a co-partner with them at the time his or her name is so inserted or used, nor shall it be lawful to continue, in any partnership firm, style, and name, the name of any individual partner after he or she shall have re- tired from the partnership: Provided, that this act shall not be so con- strued as to prevent the collection of debts due to any partnership after its dissolution, or after the retirement of any partner, in the name pre- viously used, in conformity with this act. Penalty for violation. — Each and every individual violating the provi- sions of this act, shall forfeit and pay the sum of $100 for each and every day such name may be used, to be sued for and recovered by any person who may prosecute for the same. Execution of sealed instruments. — In all suits, either in favor of, or against, partners, or persons jointly interested, and in all cases when such partners or persons jointly interested shaU in any wise become con- nected with any suitor other matter, pending in any of the courts of this state, in any way whatsoever, wherein it shall become necessary for said partners or persons jointly interested, to give bond, it shall and may be lawful for any one of said partners or persons jointly interested, to exe- cute the same, by signing the names of all of said partners or persons jointly interested, and the same shall be obligatory and binding upon every of said partners or persons interested. STATUTE OF SOUTH CAROLINA. This is the same in its general features as the statute of New York; but the 24th section contains some general provisions that must prove, in practice, of a very useful character; and the 26th allows all the evi- dence in suits against special partners, whether of an implicating or exculpatory nature, to be given under the general issue, whilst it de- clares that the failure of a plaintiff on the tried to establish general lia- bility shall not be cause of non-suit. This latter clause, if I understand it, means to divest the judiciary of all dictatorial control over suits against special partners : if I am correct in that idea, the provision is not only unwise but is absurd. NO. n.] STATUTE OF CONNECTICUT. 673 Those two sections are as follows : — Sect. 24. From and after the first day of July next, every mercantile partnership in this State, in addition to a proper or conspicuous sign- board or plate, containing the name and style of the firm, shall post up and keep posted up, in some conspicuous place, at the business stand and stands of the firm, the given and surname of each member of the film, under pain, in case of default, of being sued and proceeded against, at law or in equity, without naming the individual members of the firm, and also of forfeiting and paying, individually and each, the sum of fifty dollars to any one who shall sue for the same, for each and every month they shall make such default as aforesaid; and any person or persons who shall post up a plate or sign-board, representing himself or themselves as being united with another or others in partnership, under the addition of the word " company," or " Co.," or shall other- wise make such representation, when in fact such other or others are not united with him or them in partnership as aforesaid, he and they shall each be subject to forfeit and pay, as aforesaid, the monthly penal- ty aforesaid ; provided, that nothing in this section contained shall apply to the special partners of a limited partnership. Sect. 26. Any creditor of a limited partnership may at his option, in- clude in his suit against the same, the special partner or partners who may become liable as general partners, by failing to comply with the provisions of this act; and aU the facts necessary to affirm or negative the liability of such special partner or partners, may be given in evi- dence under the general issue ; and the failure of the plaintiff to estab- lish such liability shall not be cause of nonsuit. STATUTE OF CONNECTICUT. There is nothing in this statute different in complexion fi'om those of the other States, except in the 10th section, which has some well-con- ceived and well drawn provisions for the renewal and continuation of limited partnerships. I think that these provisions, as tending to remove the objections that mere common lawyers think of, when an interregnum occurs, against special partners, ought to be generally adopted. In the mean while, I would recommend all business men or their attorneys, iii other States, upon renewing such concerns, to follow the directions of this section, as a matter of prudence. I believe, that as a correct and honest practice, it would be sustained by the courts. The 10th section is as follows: — Whenever the time fixed in any such partnership for the continuance of the same, shall have expired, and the several persons constituting the partnership shall choose to continue it beyond the time originally 2s 674 APPEKDIX OF STATUTES. [aPP. agreed upon for its duration, a certificate shall be made, acknowledged, and recorded, in the manner prescribed in the fourth and fifth sections of this act, a certified copy of which certificate shall be evidence of the matters therein contained, and at the time of making the record of such certificate, such of the general partners as are authorized by the partner- ship to transact the partnership business, shall make oath that the seve- ral sums mentioned in said certificate, as contributed to the capital stock, were actually paid at the commencement of said partnership, and that said sums have not been lost, spent, or squandered, and have not been drawn out, or any part thereof, and that the capital stock of said partnership is entirely unimpaired, and also that they believe the part- nership to be solvent and able to pay all the claims against it; and every such partnership, which shall be continued after the term for which it was formed, and not so renewed, shall, after the expiration of said term, be deemed a general partnership. Sect. 11. The partners, in any partnership so renewed or continued, shall publish the terms of the partnership, recorded as aforesaid, for at least three weeks, in a newspaper published in the county in which their business is done, and if no newspaper is published in said county, then in a newspaper publishfed in an adjoining county ; and said part- ners, after having complied with said several provisions, shall be enti- tled to the same privileges, and be subject to the same liabilities, during the time for which their partnership is continued, that they were during the first term of their partnership. SOCIETE EN COMMANDITE; OR LAW OF LIMITED PARTNERSHIP IN FRANCE, AS REGULATED BY THE CODE OF COMMERCE AND CIVIL CODE. Limited partnerships are directly organized by the Code of Commerce in France, but the Civil Code operates upon them partially. In the first named code, the entire subject of commercial partnerships is legislated for in the third Title, commencing with the 18th Article, and ending with the 64th. This title of partnership is divided into two sec- tions : in the first, beginning with Article 23, limited partnership is taken up, defined, and continued in subsequent Articles, as wiU be seen in the following extracts and parallel translations, until the 51st, when the arbi- tration of partnership disputes is provided for, commencing and termi- nating the second section of the title. In respect of the French codes, it ought, perhaps, to be explained that the two of them referred to are connected by very intimate relations. As to the one, an annotator* observes : — " Les dispositions du Code Civil * Sirey, Code de Coin. Annot6, No. 3, p. I. There are five Codes in all: -1, Code d'ln- Btruction Criminelle ; 2, Code P^nal; 3, Code de Procedure Civile; 4, Code Civil, now called Code Napoleon ; and 5, Code de Commerce. NO. II.] PARTNERSHIP IN COMMANDITE. 675 forment le droit commun pour les conventions qui sont faites en matiere de commerce." That is, "The cast of the Civil Code furnishes a com- mon law for agreements made in matters of commerce." Again : — " En matiere de conventions et de preuves y relatives, le Code Civil est loi pour les matieres de commerce non reglees par des dispositions speci- ales." — " In the matter of contracts, and the evidence relating to them, the Civil Code is law in all those of commerce not regulated by special enactment."* Therefore it is that the French writers on the law of part- nership comment the Civil Code, and connect with it the Code of Com- merce, as an embodiment of commercial usages in a series of formulas,! independent of the former. The following are those relating to the Societe or PARTNERSHIP IN COMMANDITE. Art. 23. La societe en comman- dite se contracte entre un ou plu- sieurs associfes responsables et soli- daires, et un ou phisieurs associes, simples bailleurs de fonds, qu'on nomme oommanditaires on associes en commandite. EUe est reglee sons un nom social qui doit Stre neces- sairement celui d'un ou de plusieurs associes responsables et solidaires. Art. 24. Lorsqn'il y a plusieurs associes solidaires et en nom, soit que tons g^rent ensemble, soit qu'un ou plusieurs gerentpour tous, la societe est k la fois societe en nom coDectif i leur egard, et soci- ete en commandite 3. I'dgard des simples bailleurs de fonds. Art. 25. Le nom d'un assoclS commanditaire ne peut faire paitie da la raison sociale. Art. 26. L'assocife commanditaire n'est passible des pertes que jusqu'ii concurrence des fonds qu'il a mis ou du mettre dans la societe. Art. 27. L'assooie commanditaire ne peut faire aucun acte de gestion, ni etre employ6 pour les affaires de Art. 23. A limited partnership may be contracted between one or more partners, responsible jointly and seversilly, and one or more partners, merely bailors of money, who are named commanditaries, or special partners. It is carried on under a partnership name, which must be that of one or more part- ners jointly and severally responsi- ble. Art. 24. Where there are several general partners, who either ma- nage together, or one or more for all, the partnership is at once ge- neral in regard to them, and spe- cial in regard to the mere bailors of funds. Art. 25. The name of a special partner cannot compose part of the style of the firm. Art. 26. A special partner is to share in losses only to the extent of the funds which he has put or ought to have put into the partnership. Art. 27. A special partner shall not perform any act of manag*- ment, nor be employed in the busi- * Sirey, Code de Com. AnnoU, No- 4, p. 2, t 2 Troplong des Sociel*s, No, 1071. 676 APPENDIX OF STATUTES. [app. la societe, m§me en vertu de pro- curation. Art. 28. En cas de contravention a la prohibition mentionnee dans I'article precedent, I'assooie oom- manditaire est oblige solidaireraent, avec les associes en nom collectif, pour toutes les dettes et engage- ments de la societe. ness of the partnership, not eren under a letter of attorney. Art. 28. In case of a violation of the prohibition mentioned in the preceding article, the special part- ner shdl be liable in solido, with the general partners, for all the debts and engagements of the firm. The Code of Commerce here halts in its prorisions for this species of partnership, and immediately takes up that of anonymous partnership, (^incai'parated companies with us,) which it regulates in eight articles, from the 29th to the 37th inclusive. Now, three of these, to wit, the 34th, 35th, and 36th, as they provide for the division of the capital of such incorporations into shares, and their provisions are directly extended by the 38th to limited partnerships, in very peculiar but emphatic phrase- ology, — constitute, in the judgment of the writer, a component and inseparably vital part of the system of partnership in commandite, in France, and as such he will here introduce them; premising, however; that if a similar complete system of limited partnership is ever meant to be interwoven in our scheme, these articles will either have to be copied or paraphrased by our legislatures. Art. 34. Le capital de la societe anonyme se divise en actions et meme en coupons d'actions d'une valeur egale. Art. 35. L'action peut etre 6tablie sous la forme d'un titre au porteur. Dans oe cas, la cession s'opere par la tradition du titre. Art. 36. La propriete des actions peut etre etablie par une inscription surles regristres de la societe. Dans ce cas, la cession s'opere par une declaration de transfert inscrite sur les registres, et signee de celui qui fait le transport ou d'un fonde de pouvoir. Art. 34. The capital of an anony- mous partnership may be divided into shares and even (or, the same Tneme, qu ?) into coupons of shares of an equal value.' Art. 35. Each share may be framed under the form of a certifi- cate to bearer. In this case, an assignment would be operated by a delivery of the certificate. Art. 36. A title to shares may be established by an entry on the re- gistry of the partnership. In this case, an assignment may be ope- rated by a declaration of transfer inscribed upon the registry, and signed by the transferer, or by his attorney in fact. 1 No one can presume to translate this article who is unacquainted wiih the fact, i e., the practice in France. That a shareholder can subdivide hia shares into equal parts, would, at Ijrst blush, appear to be the meaning, Butsuch a plan, if recognised by the company, would entail on them great trouble. NO. II.] PARTNERSHIP IN COMMANDITE. 677 We have thus the incorporated joint stock system of France as allowed to be organized into shares in the names of the partners, or into certificates of shares deliverable to beaier. The 37th article then goes on to prescribe how an act of incorporation is to be obtained; after which comes the 38th, suddenly resuming the matter of limited part- nerships in the following words : — Art. 38. Le capitad des societes Art. 38. The capital of limited en commandite pourra 6tre aitssi partnerships may also be divided divise en actions, sans aucune into shares, without any other dero- autre derogation aux regies etablies gation from the rules established pour ce genre de societes. for this kind of partnership. Upon the peculiar phraseology of this article, a controversy arose amongst French jurists, (now determined,) as to whether it justified the creation by limited partnerships of shares negotiable to bearer, or con- fined them to that of nominative shares; i. e., in the name and to the order of the special partners. The two words, aussi and autre, above italicized, although of manifest importance in the process of interpreta- tion, have been omitted by some writers from their quotation of the article. This disingenuous omission may be seen in Bousquet's New Dictionary of Law, for example, although a very recent work. Yet the best arguments in favor of the bearer system must be based upon these words, as wiU be seen hereafter. Art. 39. Les societ6s en non col- Art. 39. General and limited part- lectif ou en commandite doivent nerships must be evidenced by con- Stre constatees par des actes publics tracts executed publicly or under ou sous signature privee, en se con- private signature, in complying, as formant, dans ce demier cas, a to this latter case, with the 13^5th I'article 1325 du Code Civil. article of the Civil Code. According to this article of the Civil Code, deeds or articles of copart- nership between general and special partners, must, if they contain mu- tual (synaUagmatic,) covenants, be executed in as many parts as there are parties; and a decision in Cassation has settled, that in limited partner- ships there are but two parties to the articles, viz. : the general and the special partners.' Deeds executed pubUcly, mean, before Notaries, who are sworn pubUc functionaries, having an ofiicial seal which proves hself and the deed in a court of justice. To return to the Code of Commerce, the 40th article resumes the sub- ject of Anonymous, or Incorporated Companies; and the 41st then re- turns to the genersd subject, as follows : Alt. 41. Aucune preuve par i€- Art. 41. No testimony by wit- moins ne pent 6tre admise centre nesses shall be admitted against and * Bousquet, Diet, de Droit, Vol. II., p. 666, quoting a decision in tliat court, of December 20lb, 1830. 678 APPENDIX OF STATUTES. [app. et outre le contenu dans les actes de societe, ni suroe qui serait alle- gue avoir ete dit avant I'acte, ou de- puis, encore qu'il s'agisse d'une somme au dessous de cent cin- quante francs. Art. 42. L'extrait des actes de societe en nom collectif et en com- mandite doit 6tre remis, dans la quinzaine de leur date, au greffe du Tribunal de Commerce de I'ar- rondissement dans lequel est Sta- bile la maison du commerce social, pour §tre transcrit sur le registre et afRche pendant trois mois dans la salle des audiences. Si la societe a plusieurs maisons de commerce situees dans divers arrondissements, la remise, la tran- scription, et I'affiche de cet extrait, seront faites au tribunal de com- merce de chaque arrondissement. Chaque annee, dans la premiere quinzaine de Janvier, les tribunaux de commerce designeront, au chef lieu de leur ressort, et k defaut, dans la ville la plus voisine, un ou plu- sieurs joumaux oii devront Stre in- sere, dans la quinzaine de leur date, les extraits d'actes de societfi en nom collectif ou en commandite, et regleront le tarif de I'impression de ces extraits. II sera justifie de cette insertion par un exemplaire du journal, oer- tifie par I'imprimeur, 16galise parle maire, et enregistre dans les trois mois de sa date.* Ces formalites seront observees a peine de nullit6, a legard des interesses, nlais le de- iaut d'aucune d'elles, ne pourra beyond the contents of partnership articles ; nor upon what may be al- leged to have been said before the execution or since, except vrhere the dispute is of a sum below 150 francs. Art. 42. An extract from the ar- ticles of co-partnership of general and limited partnerships shall be delivered, within two weeks from their date, to the clerk of the Tri- bunal of Commerce of the district in which the partnership place of business is located, in order to be recorded in the register, and to be posted up in the audience hail of the court. Should the partnership have branch houses situated in several districts, the delivery, recording, and posting of this extract, shall be executed at the tribunal of com- merce of each district. Every year, within the first two weeks of January, the tribunals of commerce shall designate, at the chief town of their jurisdiction, and in default, in the most neighboring city, one or more journals in which are to be inserted within two weeks from their date, the extracts from the partnership articles of general and limited partnerships, and shall regulate the cost of the printing of such extracts. The legal evidence of such inser- tion shall be a copy of the journal certified by its printer, legalized by the mayor, and recorded within three months from its date. These formalities shall be observed, under the penalty of nullity, in regard to tliose interested in the firms; but * These two paragraphs were added to the Code by a law of the 31st March, 18311. PARTNERSHIP IN COMMANDITE. NO. II.] etre oppose 4 des tiers par des as- socies. Art. 43. L'extrait doit contenir les noms, prenoms, qualites et de- meures des associes autres que les actionnaires ou cominanditaires : La raison de commerce de la so- ciete : La designation de ceux des as- socies autorises 4 gerer, administrer et signer pour la societe : Le montant des valeurs fournies ou El fournir par actions ou en com- mandite : L'epoque oii la societe doit com- mencer, et celle oii elle doit finir. Art. 44. L'extrait des actes de so- ciete est signe, pour les actes pub- lics, par les notaires, et pour les ac- tes sous seing-prive, par tousles as- socies, si la societe est en nom col- lectif, et par les associes solidaires ou gerants, si la societe est en com- mandite, soit qu'elle se divise ou qu'elle ne se divise pas en actions. 679 no default in any of them shall be set up against third persons by the partners. Art. 43. The extract shall contain the names, first names, professions and residences of the general part- ners, but not of the shareholders or special partners: The business style of the part- nership : A designation of such of the partners as have been authorized to conduct the business, direct and sign for the firm : The amount of values contributed or to be contributed upon shares, or by the special partners : The time when the partnership is to commence, and that of its termination. Art. 44. The extract from the ar- ticles of co-partnership shall be signed, when of public execution, by the notaries; and when under private signature, by all the part- ners,' if the firm be general, and by the general partners, i^ the firm be a limited partnership; and this, both when divided, or not divided, into shares. The 45th article then takes up the subject of anonymous, or incorpo- rated companies, in order to provide in much the same way for the pub- lication and posting up of their creation ; except that it orders, in lieu of an extract, an advertisement, and hand-bills of the entire contract or deed of association. Art. 46. Toute continuation de societe, apres son terme expire, sera constatee, par une declaration des co-associes. Cette declaration, et tons actes portant dissolution de societe avant le terme fixe pour sa duree parl'acte qui I'etablit, tout ohangement ou re- traite d'assooies, toutes nouvelles Art. 46. Every continuation of a partnership, after the expiration of its original term, shall be evidenced by a declaration of the co-partners. This declaration, as well as all agreements for a dissolution of part- nership prior to the period fixed for its termination, in the contract esta- blishing it, every change or retire- 680 APPENDIX OF STATUTES. [AFP. stipulations ou clauses, tout change- ment of partners, all new stipula- ment a la raison de societe sont tions or clauses, every change in soumisauxformalitesprescritespar the partnership style, shall go les articles 42, 43, et 44. En cas through the formalities prescribed d'omission de ces formalites, il y by the 42d, 43d, and 44th articles, aura lien a I'application des disposi- In case of the omission of these tions penale de Particle 42, dernier formalities, there shall be ground alinea. for the application of the penal dis- position of the 42d article and last paragraph. To the foregoing article may be subjoined, as part of it, a decision in the highest court of the country, that a limited partnership, which had not in its creation been properly published, (and which had therefore been liable to the penalty of nullity, under the 42d section, though never en- forced,) must, if changed or renewed, pass through the forms prescribed by that article, without exception or restriction; otherwise the same penalty of nullity would impend over the changed or renewed firm at the will of any partner.* The code here drops the matter of limited partnership, and in its four succeeding articles, viz. : the 47th, 48th, 49th, and 50th, defines that of partnerships in participation. In the 5 1st, which commences the second section of the title of partnership, in the code, it resumes a topic appli- cable to limited partnerships, (that of arbitrziment,) as follows: — Art. 51. Toute contestation entre Art. 51. All disputes between associes et pour raison de la so- partners, as to partnership interests, ciete, sera jugee par des arbitres. shaU. be determined by arbitrators. This is the forced arbitration of the French law imposed upon all com- mercial partnerships, for the settling of differences between partners; for, should the interests in controversy concern third parties, the 51st article would be wholly inapplicable, as determined in Cassation, Feb. 28th, 1844.+ The twelve succeeding articles of the Code, from the 52d to the 63d, both inclusive, are employed on the matter of arbitration and awards, in reference to partnership difficulties, and the 64th concludes the general title by providing for a prescription, or bar of limitation, to actions against partners. This bar is fixed after the lapse of five years, provided the partners have complied with all the requirements as to pub- lication and registry. No article appears (nor indeed any provision,) to have been incorpo- rated in this title of the Code of Commerce, or in any other, on the * In the Court of Cassation, July 9tb, 1833 ; from which the inference seems to flow, tliat if on the change or renewal, the law ia strictly complied with, the prior errors are all currd t Boasquet Diet, de Droit, Vol. II., p. 673. NO. II.} FAETiraKSHIP IN COMMANDITE. 681 subject of dissolutions of firms ; a subject which makes so conspicuous a figure towards the end of our various statutes of limited partnerships, and a neglect of the behests of which inflicts the so oft applied experi- mentum crucis of general responsibility upon those handy sponsors for all sins, the special partners. It is true that this 64th and concluding article does allude to dissolu- tions, but it is only to declare, that partnerships which have expired after having been duly registered and published, or those that have been dis- solved by written agreements registered and published with the forma- lities of the 42d, 43d, 44th, and 46th articles, shail be entitled to the benefit of this bar of limitations after five years. But the general matter of dissolution is regulated as to all partnerships by the Civil Code, beginning with the 1865th, and ending with the 1872d article. As, however, it is general legislation, and does not affect special partners with any pains or penalties, it is quite unnecessary to introduce a translation of it here. SccH is the code or statute law of France upon the title of Limited Partnership. But the machinery of the most important part of it, for all practical commercial purposes, viz. : that relative to the division of the social capital into shares to bearer, is so curtly developed in the title, as to aiford but a partial view of its working to the American reader : it was therefore thought advisable to append a disquisition upon that sub- ject to the foregoing extract from the Commercial Code, in order that the people of any state, who might wish to introduce it amongst themselves, might be able to obtain from this work full information upon it. For this purpose, a translation of the very thorough, learned, and argu- mentative dissertation of M.Troplong, upon this branch of the code, a,nd the questions springing from it, was prepared for the writer by one of his Mends, and he confidently relied on inserting it in this appendix, having so referred to it repeatedly in the text. But being a document that would have filled at least thirty pages with the present small type, the publisher felt himself bound to exclude it, as tending to make the book too ex- pensive. 682 APPENDIX OF FORMS. [APP. APPENDIX. NUMBER III. FORMS OF DEEDS OF LIMITED PARTNERSHIP. ARTICLES OF LIMITED PARTNERSHIP IN FRANCE, CALLED ORDINARY OR SIMPLE, BECAUSE TRADING WITH A CAPITAL NOT DIVIDED INTO SHARES. This form is of the kind denominated, under the Commercial Code, sous seing prive, ("under private seal,") being executed by the parties privately before witnesses, and is contra-distinguished from articles exe- cuted before two notaries, and certified under their ofiicial seal. Both forms are equally legal, and the choice of either is a question of conve- nience. The latter deeds prove themselves in courts of justice and else- where; whereas, for proof of the former, the subscribing witnesses must be called. FORM. Between the undersigned: — A. B., of the city of Paris, wine merchant; C. D., of the said city, wine merchant; E. F., also of the said city, freeholder; It has been covenanted as follows :— r A limited partnership is hereby formed between the said A. B. and C. D. as general partners, and the said E. F. as special partner, for the carrying on of a wholesale wine and liquor business. It is to begin on the 1st of January next, and is to terminate on the 1st of January, 1863. The place of business is the said city, in a proper location for such business, hereafter to be chosen, and taken on a lease for the said term. The joint capital is to consist — Firstly, Of wines and liquors belonging to the said A. B., now in the possession of G. H., of the said city, as depositary, to be conveyed to the place of business of the said firm as fast as needed, which are inventoried and appraised at 20,000 frs. Secondly, Of the sum of 20,000 francs, to be paid in by the said C. D. on the 1st day of January next. KO. III.] FOBM OF ORDINARY ARTICLES. 683 Thirdly, Of the sum of 40,000 francs, which the said E. F. binds him- self to pay in on the same day, as special partner. The said A. B. and C. D. further bind themselves to bring into the business of the said firm all the customers they can of their former re- spective houses, and to devote thereto all their time and industry, re- nouncing hereby the right to engage in any other business or occupation. The social style or signature of the said firm is to be A. B. & C. D., and the social signature is to belong exclusively to the said A. B. The said C. D. is to be cashier and book-keeper. Purchases and sales of the joint goods are to be made concurrently by the said general partners. Every six months an account shall be taken and stated of the profits, to be divided into three equal shares, and distributed amongst the said three partners. In case of loss, the same proportion of a third shall be charged to each partner. But the said special psirtner shall not lose more than his afore- said investment, and shall not be liable, personally, for any debts or con- tracts of the said firm. Each partner shall be entitled to receive, monthly, a sum of 150 £rs. subject to account; for which end an account with each shall be opened on the books of the firm. Done and delivered, in triplicate, at Paris, this day of A.D. 1852. Sealed and delivered ( in presence of us, f REMARK. It is to be remarked that, in the foregoing form, the investments of capital by the general partners are stated and detailed, and that one of them coittnhTites merchandise only. The "Extract" for public registry and advertisement, in this case, would be as follows: — On the day, &c. Articles of limited partnership for the carrying on of a wholesale wine and liquor business. Between A. B., of the city of Paris, wine merchant, C. D., of the said city, wine merchant. And a Bailor of Funds, the special partner, (his name never being pub- lished in France.") Under the social style or firm of A. B. & C. D. The capital of the said partnership consists of the sum of 60,000 francs, composed thus : — 20,000 francs to be paid in by the said C. D. on the 1st of January next; 40,000 francs by the said special partner on the same day; and, lastly, goods (being wines and liquors) to the amount of 20,000 684 APPENDIX OP FORMS. — ^FOEM WITH CAPITAL [APP. 20,000 francs, to be furnished, stating the times when and the proportions each time.] The said partnership is to begin on, &o., and end on, &c. The above affirmed to be true by the undersigned general partners, at the said city, this day of, &c. This extract (taken from the Manuel du Droit Commercial, p. 118,) is only to be signed by the general partners, being sous aeing privL If it had been executed before notaries, the latter only would have certified and signed it. — {Vide ibid.) ARTICLES OF LIMITED PAKTNERSHIP, WITH A CAPITAL DIVIDED INTO BEARER SHARES, FOR THE ESTABLISHMENT OF A PATENT-RIGHT METHOD OF FOUND- INS AND CASTINS STEREOTYPE PLATES.* Before introducing this form, it is necessary to observe that the head or chapter relative to what the French term the administration of the partnership, i. e., the management of its affairs and conduct of its busi- ness, will not be found in it, inasmuch as it is not contained in the origi- nal, the compilers of the work cited below saying, in their introduction, that the clauses appertaining thereto are to be found in the articles or acts of incorporation of every anonymous co-partnership, they being com- mon to both forms of association. For the very same reason, as statutes of incorporated companies abound in this country, containing provisions in amplest development upon the subject of management and direction, it is not necessary to swell the forms inserted in this appendix with such supererogatory matter: besides, these clauses will be found in another form of articles in this appendix. Before Messrs. A. B. and C. D., . Notaries, &c. Appeared the Sieur Firmin Fermanel, of the city of Paris, printer, Who has required the undersigned notaries to draw up the bases of a limited copartnership which he has projected for the exploitation of a patent right for a new method of founding and casting stereotype plates. Art. 1. A limited copartnership is hereby formed between the said F. Fermanel, as general partner, and the holders of shares to be issued in execution of this deed, as special partners, the trade and business of which is the working of a patent-right method of founding and casting stereotype plates, whereof he is sole owner. Art. 2. The duration of this partnership is ten years from the day of 1852. Art. 3. Its location is the city of Paris, and its social style, Fermanel & Company. * From the Nouveau Formulaire des Actes des Notaires, by the Authors of the New Dic- tionary of Notaries, Paris, 1842. NO. III.] IN NOMINATIVE SHARES. 685 Art. 4. The capital is 100,000 francs, divided into 100 shares of 1000 francs each, called shares of capital. There are created, moreover, 100 shares, termed ^'industrial." Art. 5. The certificates of shares are to be extracted from a register book, with a tally, in two series. Series 1st is to comprise the shares of capital, numbered from 1 to 100. Series 2d, the industrial shares, num- bered from 1 to 100. These divers shares are to be certified by the said general partner, and delivered conformably with the subjoined model. Art. 6. The shares are to be issued in the names, and to the order, of the partners. They may be transferred by endorsement, but the transfer must also be entered on a register, kept for this sole purpose, at the place of the firm's business. Art. 7. The price of shares shall be payable in the following manner: One-third cash, one-third within three months thereafter, and the remain- ing third within six months from the date of the certificate. Art. 8. The said general partner invests in the capital stock the said patent right, and the right to a renewal thereof according to law; together with his labor and skill, which he binds himself to devote to the exclu- sive benefit of the concern ; all the materials necessary for the working of such an establishment, an inventory of which is hereto subjoined; all the casts, forms, &c. existing in the said establishment : reserving, never- theless, the exclusive right to sell his patent right for foreign countries. Art. 9. The said general partner is to receive 50 out of the said 100 shares of capital stock in payment of his said investment; and he is fur- ther to own the whole 100 aforesaid industrial shares of stock. Art. 10. The capital stock shares are to be entitled to interest, which is to be 6 per cent, per annum, payable half-yearly. The industrial shares are not to bear interest. Art. 1 1. Out of the profits of the partnership one-third shall be annually reserved, to constitute a sinking fund for the redemption of the capital stock shares. The shares to be redeemed shall be determined by lot, and those drawn shall then cease to bear interest, but shall still be en- titled to a share of profits. In case the 25 shares of the said general partner should be dravra, he is immediately to give surety in the sum of 25,000 francs, with collateral security of the public loan, or other equally good and similar security. Art. 12. The profits of the partnership, saving the reserve of one-third, as aforesaid, shall be immediately divided amongst the shareholders. The industrial shares, from 1 to 50, shall be entitled to a share of profits. The remaining 50 shall not be entitled to any profits until the complete sinking of the capital stock shares by the fund aforesaid. Art. 13. The special partners shall not be subject to any liability be- yond the amount of their shares. The profits duly agreed on and distri- buted shall not be recalled on any pretext. Art. 14. The entire business and affairs of the concern shall be con- ducted and. carried on by the said general partner, and he alone shall 686 APPENDIX OF FORMS — FORM WITH [aPP. sign for the firm. But the partnership is to buy for cash, and is there- fore not to be bound by any notes, bills, bonds, or acceptances, given by him. Art. 15. A clerk, to be chosen by the special partners alone, shall be cashier and book-keeper, who may be displaced by them at wUl, and another substituted ; the whole, however, with the assent of the general partner. All collections and receipts shall be had by this clerk; and he shall make no payment, on call of the general partner, except for the support of the latter, or wages of his assistants and workmen ; for the purchase of metals and other objects needed in the business ; and finally, for the rent, or other ordinary expenses of the business. A committee of one, appointed by the special partners, shall have power, once a week, to inspect the books and papers of the concern, and the state of the treasury. To whom, likewise, the aforesaid clerk shall, once every year, furnish a statement under oath. 1. The number of plates made and disposed of during the past year. 2. The cash received, and the credits on the books, with the names and qualities of the debtors. 3. An account of stock. Art 16. The said general partner shall have a monthly salary of 500 francs. The rent of the establishment and pay of clerks and workmen shall be settled according to the table hereto subjoined, and no increase shall be allowed except by the special partners at a regular meeting. Art. 17. Twenty out of the shares of capital stock issued to the said general partner shall be deposited as security for his good management in the treasury of the firm, .with the endorsement of the said committee certifj'ing their destination. Art. 18. No call on the special partners or shareholders for funds shall be made, except where the said general partner shall have paid into the treasury, beyond the sums invested by the former, the sum of 60,000 francs, all of which shaU have been absorbed in the expenses of the con- cern ; so that there can be no ground to declare the partnership insolvent, except on the happening of this contingency. Art. 19. During the month following the expiration of the social year, to wit, in of each year, the general partner shall draw up, in pre- sence of the said committee, upon notice in writing to him, a general inventory and statement of the condition of the firm, together with a re- port upon the mode and policy of his management. These documents, with the vouchers, shall be audited by the said committee, and his report thereon shall be submitted at a general meeting. Art. 20. The interests of the special partners shall be confided to the care of a committee of one chosen from amongst them at a general meeting. His duties shall be : — 1. To guard against the violation of any of these articles. NO. III.] CAPITAL IN NOMINATIVE SHARES. "687 2. To aid in making the annual inventory and account of stock. 3. To audit the accounts of the general partner, and to report thereon to a general meeting. 4. To keep one of the keys of the treasury, and be depositary of the shares of the general partner held as collateral security. His term of service shall be but for one year, but he may be re-elected. Art. 21. The shareholders shall hold, once a year, a general meeting, at the place of business of the firm, during the month foUovfing the closing of the general inventory and account. At this meeting they shall deliberate upon all reports; pass upon the receipts and expenses of the past year; settle the figure of the, contingent fund and the dividend to be declared; proceed to the drawing by lot of the shares to be sunk; and, finally, elect a committee of one to serve for the ensuing twelve months. Art. 22. No special partner shall vote at this or any other meeting who shall not be they owner of ^^— shares. One vote shall be allowed to every ten shares, but the number of votes shall not exceed shares. REMARKS. Should it be wished to make the shares transferable to bearer, it would be merely necessary to alter or modify Article 6 so as to read thus : — " They may be transferred to bearer, and the lawful bearers shall have all the rights under this deed of the original grantees thereof." So the ensuing form, at page 689, may be changed so as to make the shares pass to bearer, by making the 2d section of the 10th article (at page 691) read thus : — " These shares so first issued may change hands by delivery to bearer, whereupon the latter shall stand in the place of the first sub- scriber and grantee." And a corresponding change may easily be made in the ensuing two forms of certificates. For a more developed form of deed of limited copartnership, with its capital in shares, containing details as to the internal and exterior ma- nagement, salaries, profits, dissolution, winding up, and arbitration, see p. 694-695, post. Upon the succeeding page is the form of certificate of shares issued to the special partners, to be cut from a book having a lateral souche or tally-register, which Is preserved as a record of the issues. The certificate is cut from this souche (literally stock,) in a waving o^ indented line, and this method of excision, by an adjustment of the two documents together, has proved in practice the only decisive way of detecting a counterfeit. It was this plan that determined recently in Franfte the genuineness of a lottery ticket that had drawn a high prize, a counterfeit having been presented. 688 APPENDIX OF POEMS. [app. CO PS EH PS ■< (=1 E-i I — I o o o o T-t ^-| o led to Five nership, on &ancs, in- e upon the sate, issued 1852. 13 •a CO SI ^ entit Part nam eitifi of fq i< , ..J3 cS JSt3 o " . •^ ^ f^ S M pq ■< g ■f . C IB.S "^-S i I 02 i a; -3 02 jj -^ !h CD HJ o «4-l O '^ « hH . ,270 foreign law does not permit, . . . .271 EXECUTORS AND ADMINISTRATORS. Case in. equity in New York where they were special partners, . 57, 58j 59 carrying on the partnership business, . . . 532 IJfDEX. 711 EXECUTORS AND ADMINISTRATOES— Corfiwuied are liable as personal partners ■while they, continue the business even as trustees, . . . , . 534 and pannot first apply, thei decedent's general assets, Ibid EXPENDITURES BY PARTNERS, . . . .522 EXPULSION OF GENERAL PARTNER. In what cases and hawefiected, 249—253 provision in .articles of. copartnership! for misconduct, . 525 EXTRACT. In France, synonymous with om certificate of limited partnership, ..... 86 requisites and form of, .... 87,88 — 91 forms of, .... . App*!, p. 683 — 697 form of depot for registry of, ... App'x, p. 698 F. FALSE STATEMENT. In afiidavit of formation, . . 74 FAULTS. Of general partners enumerated and defined, . 365 liabUityfor, . . . . ' . . .366 FEME COVERT. May be partners general or special, 51, 52, 53, their separate estate in Pennsylvania, . . . 70 — 74 FICTION IN EQUITY. For the benefit of solvent and sun^i- ving partners, , . . . . . 169 — 172 FIRM, STYLE OF. Of limited partnerships in France, . 93 FLORIDA. Statute of peouliaj, . .... 33 in Appendix, . . . . .p. 672 FORFEITURE. Seven causes of, wherein special partners incur it,, of their privilege, ..... 103 FORMATION. How limited partnerships formed, . . 37 without written articles or deeds, . . .86, 87, 88 when nuU in France, .... 94—102 FRAUD. Liability of general partners for, . . 368— r372 FRAUDULENT REPRESENTATION. Whether when of the credit of the firm by special partners will render them liable, . . . note, 255, 256—260, and p. 271 opinion of Grose, J. on the doctrine at common law, note, p. 271 G. GENERAL PARTNERS. Private good character of essential, 1 difficulty to get rid of bad, . . . . . 7, 8 are trustees of their special partners, , . . .25 frauds and. malversation of, grounds for dissolution when, 127, 128 case where they haye obligated themselves to subscribe to capital, . , . , . . . . 15'''» 158 — 11-j _i <._ :„ u.„„„„ 204. 205 712 INDEX. GENERAL PARTNERS.— Conimueti. may be removed, .... 249, 250, 251, 252 in Pennsylvania may sell out their interests, . . 247 suits against the firm must be brought against, . 253, 254 how far bound by advice from special partners, . 329, 334 voluntarily seeking advice of special partners, . . 332 liability and accountability of to special partners, . . 351 bound to account for profits yearly or half yearly, . . 356 accounting on dissolution or expiration, . . 357 et seq. holding fraudulent possession of the books, . 359, 360 remedies against for obstinate or fraudulent conduct, 361, 362, 363 actual fraud of under 19th section, . . . . 364 cases of fraud of suggested with or without remedy, . 365 remedies against where the firm has broke through faults of, 366 civil and criminal liability of for fraud, . .368, 369 — 372 winding up of concerns by after dissolution, . . 373 distribution of assets by after winding up, . . 374, 375 cannot bind the special partners' capital by acts beyond scope of the business, ...... 377 good faith due from to special partners, . . . 378 doctrine of good faith in imputations, . . . 379 refusal of to make assignments, .... 420 rights of where solvent and special partners interfere, . 342 GEORGIA. Peculiar section in statute of, . . p. 672 GERANT. Name of managing general partner in France, . 204 etymology, and applicability of to our system, . note 2, 204 called also commandite, ..... 204 has exclusive right to issue bills and notes, and use the so- cial signature, ...... 205 even a general partner excluded in the articles from the ge- rency, cannot act as, to bind the firm, . . . 205 usage in large firms for them to contribute to the capital, p. 164 publication of all firms in Europe compels third persons to take notice who are, . . . . 207, 208 GRACE V. SMITH. Leading case in 2'W. Bl. 998, of English law of partnership, denied and refuted by Commissioner Fane, note to p. 192—195 H. HUSBAND AND WIFE, (See Feme Covert.) HUTCHINSON v. M'CLURE. Remarks on the decision of Sup. Court of Pennsylvania in, . . . . p. concluding remarks upon, ... p. 662 665 INDEX. 713 HYPOTHECATION. (See Pledges; also, Assignments.) of goods of firm by a general partner out of scope of part- nership business null and void, . . . . 27 1 ILLEGAL PARTNERSHIP. What will avoid contracts to form, 562 IMMIXTION. (See Tntebferencb.) definition and etymology of the term, . . . 300 IMPUTATION. General doctrine of, . . . ,379 appropriation of payments at civil law, . . . 380 " " at common law, . n. 2, p. 375 is it law imder our system, . . p. 377 — 379, § 387 appropriation of payments from and to partners generally, at law and equity, ..... 386 case supposed of, in this country, . .v . . '387 INCOMING PARTNER, rights and responsibility of, note, p. 268 is responsible for former debts of firm. Ibid. ; and S. C. in App'x, p. 662 INCORPORATED COMPANY. Cannot be engrafted on a li- mited partnership, • . . . .130 INDUSTRIAL SHARES, in a capital of limited partnership, from for, . . . . , . .p. 685 INFANT./ (See Minors.) INSOLVENCY. No special partner to claim after, . . 396 cases upon in New York, .... 394 — 396 review of the doctrine in those cases, 397, 398, 399, 400, 4.01 contemplation of, . . . . . . 402 judgments confessed after, .... 403 peculiar views of the Sup. Court of Penna., as to, . 404 review of their decision, . . ' . . 405 — 409 goods bought at last hour of, devoted to pay old debts, p. 409, 410 INSURANCE. Exception against in American statutes criti- cized, . . . . . . n. 2., 38 clauses for in the articles, of a partner against losses, . 547 by one partner of his copartner's share, how far legal, . 548 doctrine of French jurists upon, . . . 548, 549 doctrine in respect of at common law, . . . 549 example of a large insurance company in commandite, in reign of Louis XIV., . . . n. 2, p., 46 Mr. Phillimore in favor of it, . . note, p., 48 INTEREST. (See Profits.) When special partners are entitled to draw on investments, .... 287, 297 under New York and other statutes, . . 288, 290 to partners on loan to firm or excess of capital, . p, 514 714 INDEX. INTERFERENCE. By special partners, how and when tempt- ed to, and danger of, ..... 6 penalty of under our statutes, 300 et seq., . . 300 provisions of the statutes of various States, 301 et seq., . 301 meaning of " may examine into state of concerns," . 302 " clause " advise as to management," . 303, 304 whether special partners may vote at meetings of the firm, 306 transaction of business for the firm how far, , 307, 308 no device or contrivance to shroud will avail, , 309,311,312 when special partners made liable for, may have contribu- tion from other partners. . . . .310 when penalty incurred from clauses in the deed, . . 312 expulsion of general partners does not superinduce, 314 et seq. . . . . . . .314 acting as attorney or agent, when amounts to, . 317,318,319 criticism of French jurists on the general doctrine, . 323 case where a special partner acted as clerk, . 323, 324 supervision by special partners is not,, 325 et seq., . 325 various cases which do not amount to, . , . 328 in France, only committed by ;)afeni acts, . . 334 special partners acting as agents on dissolution, do not in- cur, ....... 335: nor by appointing new general partners, . . . 336 carrying capital from first to a second firm causes/ . 337 rationale of doctrine of immixtion, , . . 338 patent acts of, ...... 333 interior acts of, ... . . , . 339 doctrine of at law modified in equity, . . . 339 extent of liability after, and to whom, . . 340, 341 liability of special where general partner is solvent, . 342 may be incurred through circulars issued, . 343, 344 evidence to sustain it against special partners, . 345, 346 — 349 difficulty of proof of in certain cases, . . . 348 where special and general partners carry on separate trades or business in the same building, , . . 349 case put of issue of the firm's paper by special partner, . 350 stipulations in the articles in fraud of the statute would be, ,543,, 544 what terms in the articles would amount to, . . 545 clauses in the articles as to management that would amount to, ....... 546 doubtful clauses in articles held as, . . 547, 548 clauses for requiremnt of partners when, . . . 549 when a firm is special pajtner one partner may involve it in, . . . . , . . 552 mandatum to special partners will be, . . . 553 when authorizing by special partners will be,. . . 554 INDEX. 71S INTERFERENCE— Continued. supervision clauses will not be, .... 556 special partner's approving or vetoing will be, . . 557 " " agreeing to a sale of a general partner's share is not, ...... 559 INTERPRETATION. (See Judiciary.) JOINDER OF PARTNERS. (See Abatement of Action.) JOINT DEBTS. . Must be first paid, before the separate creditor of partners can levy on joint assets, . . . 264 distinctions as to, under the foreign law, . . .265 JOINT STOCK COMPANIES. Operation of in England, . 15 mode of winding up in England, . . . . 460 JUDICIARY. Their power over statutes, . . ,258 two decisions cited in proof of, . . . . 258 their duty to take cases under from juries, . . . 575 should interpret these statutes in favor of trade, . 576, 578 standards of interpretation for, . . . 579, 580 JUDGMENTS CONFESSED. Under the statutes of limited part- nership void, . . . . . . 402 general doctrine as to the value of as a means of prefe- 404 404 405 doctrine of Supreme Court of Pennsylvania stated, and reviewed, 405, denied as a means of preference to creditors in all cases, 406 — 409 decision in Hutchinson v. M'Clure at length, App'x, p., 662 remarks thereon, . . . .p. 665 decision in Summers' appeal, . . . 386 — 388 money paid, into court under, ought to be impounded by courts, and equally distributed among creditors, . in note, 400 goods bought at last hour of insolvency levied on under, 409, 410 have no merit in real justice as preferences, . . 409 JURIES. In civil cases abolished in county courts of England, note, 580 LAND. (See Real Estate.) LEONINE PACTS. Exemplied in a question of insurance of one partner by another, . , LIABILITY. Constructive general, protested against, LIQUIDATORS. In France, appointed to wind up partnerships, character and legal functions of, mav have been nartners of the firm. 549 281 463 464 470—472 467 716 INDEX. LIQUIDATORS— Coniintted. are the firm as to all unfinished engagements, . . 464 special or general partners may be, ... 474 statute of limitations against being trustees, . . 474 LIQUIDATED DAMAGES. Clauses in partnership deeds for . 537 where they will be literally enforced, . . 543 — 545 where they will not be enforced by courts, . . 544 stipulations for may be adopted with advantage by special partners, . . . . . . .538 LIMITED PARTNERSHIPS. For what form of enterprise suit- able, ....... 2 are in their nature trusts, ! ^ . . .25 statutes of, in United States defective, . . • ^^i ^5 no afiinity with corporations, . . . 139, 141 forms of deeds of, .... 142,143,144—146 gambling under cover of, .... 147 — 150,151 difference between, and common law partnership, 264 — 270 when a trustee by force of law, . . . 25,272 bankruptcy of, and consequences, .... 420 analytic list of firms of, in Belgium, . . in note, p. 450 to be .conducted in the U. S. as if there were no special part- ners, ....... 246 LOSSES. Contract between partners that share of one shall be exempt from, ...... 198 question argued by Trjplong, . . . 199 can one partner insure another against? . . 200 — 202 (See Insurance.) clauses in articles of insurance against, . . 547 — 549 argument of Troplong as to insurance against, . . 548 LOUISIANA. Statute of, allows capital in property or money from special partners, ..... 34 statute of, in . . . . . app.j No. 2, p. 666 M. 1 MAJORITY OF PARTNERS. Right of, at common law, . 304 right to decide, and to manage business under the articles, 526 MANAGERS. Official to wind up partnerships, . . p. 465 MANAGEMENT. 229, iSee Partners and Gerants.) MANDATE. Salaried, . . . . . .189 for services, . . ..... 196 from general to special partners by the foreign law, . 553 &om special to general partners considered, , . p. 561 special partners may give to a clerk, . . . 556 MASTERS IN CHANCERY. As agents to liquidate partner- ships a nuisance, ..... 457, 458 patronage of courts to appoint demoralizing, 469 ; and note to p. 476 INDEX. 717 MINORS. May be special partners, . . . .54 MISCONDUCT OF PARTNER. 358, (See Removal and Ex- PPLSION.) moroseness of, . . . . . .p. 357 fraudulent retention of books and accounts, . 359, 360 fraud and negligence distinguished, .... 364 examples of, detailed, and result, . . . .365 MISTAKE. In publication of terms, . . . .75,76 in amount of contribution fatal, . . . 80, 81, 82 in process against several partners, . . . 477 on the record in a court of error, , . . 495, 496 MONEY. Can it be lent in trade for a share of the profits with- out rendering lender liable as a partner ? . . 210,211 argued in the affirmative, in London Law Magazine, . 211 that argument controverted herein at length, MOROSE GENERAL PARTNERS. Proceedings against under the foreign law, . . . . . .358 MORTGAGES. General partners cannot mortgage real estate of firm without special power, . . • P- 561, 554 N. NAME OF FIRM, Construction of, in France, . 48, 88, 93 in certificate of creation, . . . . . p. 77 a firm may exist at common law without suiy, . n. 3, p. 243 statute of Georgia in respect of, . . . . Ibid, where A. B. & Co., presumed to be name of partners, . 230 assigned to general partners alone, . . 231,232 mistake or blunder in, on bringing suitj . . 495, 496 NEGLIGENCE. Distinction between, and fraud in general part- ner, ....... 364 NEW YORK. Statute of, 40, n. 1, p 57 NOTICE. Decision in New York as to, in newspapers of the formation of a firm, . . . . . 75, 76 NULLITY. Limited partnership, when null in France, 95, 96, 97—102 of firms that have not been duly registered or published, . 421 when it lets in separate creditors on the joint assets, 421 — 426 doctrine of French jurisprudence, .... 426 PARLIAMENT. Report of the Committee of the House of Commons on Partnerships, . . .in note, p. 18 extract from as to merchandise capitals, . . n. 2, p. 42 opinion of Mr. Phillimore, in favor of Commandite Insu- rnnnp Cnnmanv. . . . . . n. p. 48 718 INDEX. PARLIAMENT— Coniinieed. and of Mr. Ludlow, . . . . n. p. 51 Mr. Fane's discussion of the English rule, n. 3, p. 192, and n. p. 230, of -Mr. Townsend. as to drawing out profits, . n. p. 418 PAROL TESTIMONY. To contradict written articles of part- nership inadmissible here and abroad, . . . 255 PARTICIPATION. Partnership in France, ... 18 examples and explanation of, . . .in note, p. 29 PARTNERS. Management confined to general, , . 229 section of statute providing for their management, general, should conduct the business as if they had no spe- cial partners, . . . 246 ; quere lib. note 1 rights, duties and obligations of, inter se, at common law, 507 et seq., . . . . . .507 good faith, skill and diligence required from, 508 and p. 514 bound to conform strictly to partnership deed, . . 509 clandestine bargains by, with third persons, . . p. 512 cannot engage in any other business or ooneem, . . p. 513 must so conduct business as that the other partners may see how, . . . . . . .p. 513 not to abuse their privileges or be lavish in expenditures, p. 514 — 515 how far the rules of common law affect and bind general partners, . . » . . . . 509, 510 rules and doctrine binding on, in limited partnersMps, 511, 512 PARTNERSHIP. Division of in France and several species, . 16 limited may be formed here without a previous deed, . 86 publicity of general in Europe, the same as limited, com- pels third persons to take notice of the distinct functions of each partner, .... 207, 208 PENALTY. (Sec Forfeitche.) in equity against contumacious general partners, . . 361 PENNSYLVANIA. Statutes of limited partnership in, . 42 PLEADINGS. In actioris against special partners, . 483 489 special pleas by special partners, .... 490 PLEDGES. Doctrine of at civil law, .... 410 questions as to possession of, . . . .412 special partners may hold, as creditors of their firm, . 416 of capital of firm to special partners, . . .154 PREFERENCES. (See Assignments, and Judgments Confessed.) (See Hypothecation.) PRINTER. Affidavit of as to advertisement, . . . 85 PRIVITY. Remarks on, in the case of Andrews v. Schott, . 239 leg'al intendment of, in the 13th section, . . .245 PROCESS. Amendment of original, in names of parties, . 477 INDEX. -719 PROFITS. Right of special partners to a division of, . . 276 the 15th and 16th sections of the statute as to, considered, 277 et seq., ...... 277 special partners liable as general for withdrawing capital under pretext of, 278 et seq., . . . . . 278 the doctrine of a New York decision doubted, . 279, 280 whether when fairly received must be paid back on failure of the firm, 282 et seq., ..... 282 question discussed in France, 283 et seq., . . . 283 probable doctrine in the United States, . . 288 — 294 old doctrine in Italy, .... 295 — 298 salaries paid to general partners, and interest to special, 297 — 298 special partners may be creditors for, . . . 417 seven rules for distribution of, . . . .p. 306 rule in Louisiana, . . . . . .p. 307 " Maryland and Connecticut, .... p. 308 reservation of for ultimate division, .... 296 PUBLICATION. Of certiiioate, . . . . 61, 63 decision as to in New York, .... Ibid. falsehood in, . . . . . . . 61, 63 of terms of partnership, .... 74, 77, 78 affidavits of, . . . . . . .74 mistake in, . . , . . . . 75, 76 where not regular or legal may let in separate creditors, 421—426 the system of in Europe justifies the obligation on creditors to take notice of the distinct functions of each partner, 207, 208 R. REAL ESTATE. When bulk of capital, . . .159 decision in respect of in New York, . . 160, 161 whether special partner may negotiate for, . . 162, 123 general doctrine as to tenure and and disposal of, 164, 165, et seq., ...... 164, 165 common law doctrine of, . . . . 165, 166 — 170 fiction of equity as to, . . . . 170, 171 doctrine of under the foreign law, . . . 174 — 177 if conveyed to a special partner destroys his privilege, 161 — 164 RECEIVER. Intervention of in the winding up of partner- ships a monster, grievance, .... 457 demoralizing influence of judicial patronage to appoint, 469, and note to p. 476 RECORDING. Of certificates, . . . . 69, 70, 71 REMEDIES. Against special partners in courts of law, , . 471 whether joint and several against special partners, . . 472 720 INDEX. REMEDIES— Cbnimucrf. uniting or splitting claims in actions, . . . 473 jurisdictions in case of death of one partner, . . 474 peculiar practice in Pennsylvania on death of one or more partners, ...... 474, 475 joinder of surviving partners in, . . . . 476 mistakes in the process sued out, .... 477 amending the record with new names, . . . 477 by one firm against another in which are same partners, . 478 REMOVAL AND DISMISSAL. Of general partners may be effected, ...... 249 — 252 RENEWAL OF LIMITED PARTNERSHIPS. provisions of the statute, 109, criticisms of, . . . 110 case of Andrews u. Schott as to, reviewed, . Ill — 118 alterations in names of partners, . . . .119 forms and publicity of, . . . . 120, 121 difference between renewals and continuations, 122, 123, 124 expired limited partnership, how renewed, 125, 126, 127, 128 transfer of capital on, renders special partners liable in cer- tain cases, ...... 337 provision in statute of Connecticut as to transfer of capital, 673, 674 REPORT OF COMMITTEE. On law of partnership in England, (Sec Parliament.) REPRESENTATION, FRAUDULENT, as to credit of a limited partnership by a special partner, common law doctrine as to, 255 — 260 ; and note, p. .... 271 RESIDENCE. Of special partners, case involving in New York, 75 critical remarks on publication of, . . . .76 RETIREMENT OF PARTNER. How provided for, . 550, 551 RIGHTS AND DUTIES OF PARTNERS, . . 505—509 S. SALARIED MANDATE. Contract of, for an interest in profits to an agent is not a partnership, in note, p. . . 189 SEALED OR SPECIALTY ARTICLES, . . 513, 514 SEPARATE CREDITORS. Cannot have execution against limited partnerships until wound up, . . 261 decision of Supreme Court of Maine contra, reviewed, . Ibid, doctrine in Louisiana, ..... 270 doctrine in France, ...... 271 SEQUESTRATION OF BOOKS AND PAPERS. Courts issued order for, against fraudulent general partners, . . 358 called compensation in the civil law, . . . 126 SET OFF. By a debtor of special partner against a claim as- signed to firm, ...... 126 INDEX. 721 SET OFF— Continued. of share in capital of special partners against their interfe- rence, ....... 342 against their indebtedness to firm, .... 451 SHARES. Limited partnerships with capitals divided into, 23, 24, 131 (See Capital.) —158 SIGNATURE. general partners alone entitled to sign, . . .205 of firm used by special partners, a forgery, . . . 350 partners bound to use no other, and not to abridge or add to, 519 SOUCHE. Or tally margin, explained in art. 9 of form, . p. 691 form of, . . . . . . . p. 688 SOUTH CAROLINA. Sections 24 and 26 of the statute of, . p. 673 SPECIAL PARTNERS. Bound to see statute complied with, when, ....... 83 must pay up contributions in cash, and not equivalents, . 108 cannot make secret arrangements for non-payment or with- drawal of capital, ..... 126, 127, 128 attempted frauds on the statute by, . . . . 1 54 liable for negotiating purchase of real estate, . 161,162 may sell their interest and retire, .... 247 may dispose of their shares by will, . . . 248 fraudulent representations by, of the firm's credit, . 255 — 260 cannot secretly trammel the firm, .... 268 when entitled to a share of profits, . . 288 — 294 when they may draw interest on investments, . . 297 how far, and when liable for interference, . . . 300 expelling a general partner not an interference, . 314, 315 when liable for acting as agents or attorneys, . . 317 when dealing with the firm as creditors or buyers, . . 320 how far liable for acting as clerks, . . . 323 — 325 more sinned against than sinning, . . . .325 supervision of, and giving advice by, . . 326 — 331 must be cautious how they carry capital from expired firm, into a second or renewed one, .... 337 may be creditors of the firm, .... 307 may hold collateral pledges as creditors of the firm, . 416 creditors as well as partners, . . . 415, 416 may be creditors for profits not drawn out, . . . 417 distinct nature of their character from general partners, . 418 distinction as to their insolvency, and that of the firm, . 419 may withdraw capital after a dissolution and winding up, 449—451 suits at law against, by creditors, . . . .471 actions against, whether joint or several, . . 472, 473 how death of, operates against creditors, . . 474, 475 . 476 , 482 483, 484 485 486 . 487 ,488 489 491 492, 493 494 576, 577 722 INDEX. SPECIAL PARTNERS— Confeucd. •where survivors and executors of deceased one may be sued together, ...... cannot be sued as such under the statutes, . declaration, pleas and evidence in suits against, difference in modes in two cases in New York, another case against, in same state, . mode of conducting the evidence, evidence by, to show formation of partnership, death of one before judgment, " after judgment, persecution of by courts of justice, . STATUTES OF LIMITED PARTNERSHIP. should be taken into keeping by the judiciary of this country, 573, 574 reasons for this position, .... 575 juries not fit expounders of. ... note, 574 should be interpreted to encourage capitalists, . . 576 so far, they have been strained against capitalists, . . 577 standards of interpretation of, . . . 578 — 580 English decisions and common law authority unharmonizing ■with, ....... 581 STOCK CERTIFICATES. Of limited partnerships in shares, forms of, . . . . . .p. 688—696 SUBROGATION. Fiction of the civil law, substituting goods bought, for hypothetioated goods sold, . . , p. 414 application of, to a case of limited partnership, . . p. 602 SUPERVISION. By special partners over their general partner, 326 — 334 clauses in the articles providing for, and for appointing of clerks by special partners to supervise, . . . 656 SURVIVING PARTNERS. Carrying on of the business by, . 531 carrying on of the firm with executor of deceased partner, . 532 TALLY MARGIN. Form of in certificate or share book, . p. 688 explained, . . . . . . art. 9, p. 691 TRANSFER OF CAPITAL. On a renewal of firm, appendix, p. 662 No. 2, note 2, p. 337 TRUSTEE. General partner is for his special partner, . . 25 •when a limited partnership, ex vi legis, becomes a trustee for third persons, ...... 272 partnership assets a trust fund for creditors against creditors of general partner, ..... 270 responsibility of limited partnership as to its special partners, 272 important case in France involving the whole doctrine, . 273 INDEX. 723 VALUATION. purchase of a partner's share or interest in the firm at a, un- der the articles, ...... 530 W. WINDING UP. By general partners after a dissolution, . 373 partners may withdraw capital after, . . 449 — 451 after a dissolution, a delicate and difficult task, . . 457 an express tribunal suggested for, . . . . ^ 458 in case of joint stock companies in England, . . 460 mode of, in France by liquidators, . . .463 ofiicial managers for, in England, . . . .p. 465 jurisdiction for in Pennsylvania, . . . 468, 469 advantEiges of English and French methods compared, . 470 WITHDRAWAL OF CAPITAL. What will amount to, on the part of special partners, .... 160 — 278,379 when special partners may legally withdraw capital paid in, 449, 450 THE END. tmtmmm-mm