Lineweaver v. Slagle

Miller, J., delivered the opinion of the Court. Several questions arise on this appeal, and present, for the first time in this Court, the construction of certain sections of Article 72 of the Code, relating to “ Limited Partnerships.” The suit was brought by the appellant against Luther W. Hopkins, Charles T. Matthews and David W. Slagle, as partners doing business under the firm name of “Hopkins, Matthews & Co.” This firm failed and made an assignment for the benefit of its creditors on the 29th of April, 1884. The cause of action sued on was a promissory note for $404, signed in the firm name, dated the 1st of April, 1884, and payable at thirty days to the order of “Lineweaver & Co.,” of which latter firm the plaintiff was the surviving partner. There was no controversy as to the liability of Hopkins and Matthews, but Slagle set ⁴⁸⁰ up the defence that he was a special partner, and the effort of the plaintiff was to hold him responsible as a general partner.

At the trial several exceptions were taken by the plaintiff to the rulings of the Court which present the real subjects of dispute, and these have been argued by counsel with much zeal and ability. The testimony shows that on the 15th of March, 1880, these three parties, Hopkins, Matthews and Slagle, formed a partnership under the firm name of “ Hopkins, Matthews & Go.” to carry on a general commission business in the City of Baltimore, in which Slagle became a special partner and contributed $5000 capital. This partnership, by its terms, commenced on the 15th of March, 1880, and ended on the 14th of March, 1882, and in regard to its due formation no question arises. It is conceded that all the requisites and formalities required and prescribed by Article 12 of the Code, were duly followed and complied with.

In this firm, Slagle was unquestionably a special partner merely, and not therefore liable for its debts beyond the $5000 which he had contributed to its capital; On the 15th of March, 1882, the day succeeding that limited for the duration of this partnership, the same parties executed and acknowledged the following certificate: “ Be it remembered, and it is hereby certified that we, Luther W. Hopkins and Charles T. Matthews, as general partners, and David W. Slagle, as special partner, and all residing in the City of Baltimore, in the State of Maryland, have formed and entered into a limited partnership under the name or firm of ‘ Hopkins, Matthews & Go.’ and intend to transact a general commission business in the City of Baltimore. The said David W. Slagle has contributed $10,000 to the capital of the firm, and the partnership is to commence on the 15th day of March, 1882, and is to terminate on the 28th day of February, 1885." ⁴⁸¹ This certificate was duly recorded, and the “ terms of the partnership ” duly published in the newspapers; and it has been contended by counsel for the appellee that this partnership is to be regarded as a “ renewal or continuance ” of the one which it succeeded. But we think it clear that this position cannot be sustained. The law has made special provisions for such “ renewal or continuance,” and whore that is the object to be accomplished, these provisions must bo followed.

By section nine it is declared that “every renewal or continuance of such partnership beyond the time originally fixed for its duration, shall be certified, acknowledged and recorded; 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 continued, shall be deemed a general partnership.” And by section ten it is provided that “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 specified in the original certificate, shall be deemed a dissolution of the partnership; and every such partnership which shall in any manner bo carried on after any such alteration shall have been made, shall be deemed a general partnership, unless renewed as a special partnership under the provisions of the last preceding section.” The necessities of this case do not require us to decide what must be the form of the certificate for “renewal or continuance” under these sections. It is sufficient to say, that the change in the amount, of the capital to be contributed by the special partner from $5000 to $10,000, makes this in legal contemplation, a new partnership, and not a renewal or continuance of an old one ; and such would naturally be the conclusion reached by any one who might read this certificate on the records, or see in the newspapers the publication of the “terms of the partnership” in com ⁴⁸² formity therewith. From the information thus derived, no one could for a moment suppose that it was the intention of the parties to renew or continue an old firm. We are therefore clearly of opinion, that Slagle’s right to hold the position of a special partner in this partnership, is in no wise aided, or affected by the fact, that he was such in the old one.

So far as his rights in this respect are concerned, they must be treated and dealt with as if this certificate was in fact, as it is in law, the formation of a new and original partnership. The next question is, did Slagle contribute and pay the $10,000 as the law requires, so as to entitle him to the status, and immunity of a special partner? In various sections of this Article, it is provided that the special partner “shall contribute in actual cash payments a specific sum as capital to the common stock;” that a certificate shall be executed, acknowledged and recorded, which shall state among other things, “ the amount of capital which each special partner shall have contributed to the common stock;” that at the time of filing this certificate, there shall also be filed an affidavit of one or more of the general partners, “stating that the sums specified in the certificate to have been contributed by each of the special partners to the common stock, have been actually and in good faith paid in cash;” that “if any false statement shall be made in such certificate or affidavit, all the persons interested in such partnership, shall be liable for all the engagements thereof as general partners; ” and that “ the partners shall publish the-terms of the partnership when registered, for at least six weeks immediately after such registry, in .two newspapers to be designated by the clerk of the Court in which such registry shall be made.” These aré some of the conditions which the Legislature has seen fit to attach to the privilege of participating in the profits of a partnership, without absolute liability for ⁴⁸³ its debts. One of the objects they are intended to attain, is notice to the public of the exact terms of the partnership, so that those who deal with it may do so advisedly.

Another, and the most important, is that the contribution by the special partner shall be made in actual cash. This also has in view the protection of the public. “ Its object is to provide a fund on the day the company is formed, to be thereafter subject to no contingencies or losses, except those which come from the proper business of the partnership,” ( 103 Mass., 19 ,) and wherever the question has arisen, the Courts have uniformly exacted a strict compliance with this condition. The contribution cannot be made partly in cash, and partly in goods, credits, or assets of another firm taken at a valuation, nor w.ill government bonds, or any other class of commercial securities, no matter how valuable they may be, or how easily convertible into money, be accepted as a substitute for the “actual cash payments,” which the statute requires. Haviland vs. Chace, 39 Barb., 283 ; Pierce vs. Bryant, et al., 5 Allen, 91 ; Haggerty, et al. vs. Foster, 103 Mass., 17 ; Richardson vs. Hogg, 38 Penn.

State Rep., 153; In re Merrill, et al., 12 Blatchford, 221; Van Ingen vs. Whitman, Bankrupts, 62 N. Y., 513 . Nor is it material that the parties may have acted in good faith, and have honestly intended to comply with the law, and have honestly supposed the transaction did gratify the statute, for, as was said by Eolger, J., in the case last cited: “The statement of the amount of the cash payment is required so that the public may gauge thereby the extent of its dealings with the firm. The affidavit is called for, that the public may have reliance upon the existence of the fact of payment. The statute is thwarted, the public is misled and deceived, as much when there is an unintentional untruth, as when there is an intentional one.

This statute does not set out to deal with motives, but with acts and their results; and it guards the public, not ⁴⁸⁴ by requiring good intentions, but a certain act done in a certain mode, and a true statement that it has been thus done.” To the same effect is the decision in the Massachusetts’ case, ( 103 Mass., 17 ,) where it was held that government bonds could not be regarded as equivalent to cash within the meaning of the statute. “It is wholly immaterial,” say' the Court, “ that the transaction at the time was honestly intended and understood by the parties to be sufficient; that the securities actually transferred afforded the means by which their cash value was in fact, subsequently realized; or that creditors were not actually defrauded. The statute is plain and explicit. The use of the phrase, c actual cash payment,’ is emphatic and significant. It is wisely intended to exclude a construction by which commercial securities of any description may be regarded, by the aid of mercantile usage, as substantially equivalent to cash; and to remove from all parties the temptation to evade its requirements in this respect.” This brings us to an examination of the facts attending the alleged contribution and payment of the $10,000.

The proof shows that -on the 15th of March, 1882, the day on which the certificate was signed, and at about 10 o’clock, a. m., Slagle gave to the firm of “Hopkins? Matthews & Co.” a certified check on the Citizens’ National Bank, for $10,000, which was soon afterwards deposited by the firm and passed to its credit; that in a few hours, and on the same day, between two and three' o’clock, p. m., the firm gave Slagle its check on the same bank for $6500, and that three days afterwards the firm, by another check, paid him the sum of $1119.16. There is further proof to show that the old firm kept their account in the same bank, and that on the 15th of March, 1882, and prior to the deposit of Slagle’s check, that account was overdrawn to a small amount, and that on that day and the next, neither the old firm nor the new one, nor Hopkins and Matthews, the general partners in both, ⁴⁸⁵ had any money in bank out of which the $6500 check could be paid, save that which was derived from Slagle’s check for $10,000. Assuming then that these were the facts, or that a jury would so find from the evidence, the transaction amounted simply to this, that Slagle on the morning of the 15th of March, 1882, paid in his $10,000, and a few hours afterwards on the same day $6500 of the same money was paid back to him.

Now we take it to be too plain for argument that this was not such a “ contribution” of $10,000, “to the common stock” of the firm that day formed, as the law requires. In no legitimate sense of the word can the paying of money one hour and receiving it back the next, be said to be a “ contribution ” of it for any purpose whatever. We hold it to be clear that to gratify the statute the