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extent of his damage, and shall also be liable to an indictment for a misdemeanor punishable by fine or imprisonment, or both, at the discretion of the court by which he shall be tried.
"Section 20. Every sale, assignment, or transfer of any 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 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, and every judgment confessed, lien created, or security given by such partnership, under like circumstances, and with like intent, shall be void as against the creditors of the partnership.
"Section 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 partner when insolvent 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 of the partnership, a preference over creditors of the partnership, and every judgment confessed, lien 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.
"Section 22. Every special partner who shall violate any provision of the two last 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.
"Section 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.
"Section 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 office, in which the original certificate was recorded and published once in each week for four weeks, in a newspaper printed in each of the counties where the partnership may have places of business."
It will be at once perceived by those who have attended to the French law, that this is modeled upon that law; and in most of the sections follows it closely. The first section extends the plan to mechanical and manufacturing business, excluding banking and making insurance, while the partnership en commandite is strictly commercial. Besides France, those who drafted the bill having the example of Louisiana and New York before them, it may be considered as embodying all the collected wisdom upon the subject. How perfect that wisdom is, we shall have an opportunity of seeing presently.
Our objections to the bill are two-fold.
1. To the details of the measure; and 2. To the reasons on which the bill is founded.
As to the first:
The details of the measure are complex and uncertain. Litigation, increased litigation, will be the inevitable result.
That this is an evil of great magnitude (to some extent, indeed, necessary) no one acquainted with our courts of law will deny; and it is, moreover, one which we think even no professional man, however strong his prejudices, would contest. The kind of litigation, also, that would be fostered, is of the most perplexing kind; that between partners, or between third persons and the members of the firm, in relation to partnership accounts and transactions. We have not in Pennsylvania the court, which, by its constitution and modes of practice, is most appropriate to the settlement of such contests; we mean a court of chancery; and we are not prepared to give occasion for the establishment of one.
All this, though not perhaps immediately, would be permanently injurious to the interests of commerce. Uncertainty and doubt, are the bane of commercial engagements; when they operate to shake credit, they are destructive.
For proof of these positions, let us turn to the proposed bill. The first section constitutes, and the second defines this hermaphroditical creature. There are to be certain persons, responsible without limitation; that is, as the thing will practically operate, having no capital of their own, and of course, no real responsibility-and certain others, who are to be responsible just so far as they choose, that is, to the extent of the funds they may invest in the concern. This limited responsibility, however, is uncertain from the very commencement.
Accompanying the certificate of partnership is also to be filed an affidavit of one of the general partners, stating that the sums (which the certificate represents as commanditary capital,) have been contributed by the special partner and actually paid. If it shall appear-at any time-that such certificate or affidavit. contain any false statement, the limited partner is at once metamorphosed into a general partner, and shall be liable for the engagements of the partnership accordingly. Again :The terms of the partnership are to be published, for at least six weeks after the registry, in two newspapers to be designated by the recorder of deeds of the county, and to be published in the senatorial district. If these terms are not so published, for the full and exact length of time, in the prescribed number of newspapers, and those designated by the recorder, (qu.? if he designate none,) and in the senatorial district too, the same transmutation is effected.
So, again, of the renewal or continuance of a partnership beyond the time originally limited-the like formalities are required to be pursued with the same exactness; otherwise the same results are produced.
Any alteration in the names of the partners, in the nature of the business, or in any other matter specified in the original
certificate, works a dissolution-and the carrying on of the partnership, in any manner, after that event, makes them all general partners, unless there is a renewal in the manner before specified. If the name of the special partner shall be used in the firm with his privity-if he shall transact any business for the firm, or interfere at all, except to advise-or, finally, if he shall concur in or assent to any violation of the law in regard to preferences to creditors-in each of these cases, he is to be regarded as an unlimited or general partner.
How are these different facts to be ascertained? either voluntarily, by the admission of the special partner himself, or by suit at law. The first would hardly be expected from any man; therefore, the bill presents here one fruitful source of litigation. But there are others behind.
Turn to the 14th section. Suits are to be brought by and against the general partners, as if there were no special partners. This would be plain enough, if there were no contingencies upon which the special partners were to lose their characters as such. But suppose the happening of any one of these contingencies and the transformation accordingly, must they all join in the suit and all be sued, or only the original general partners? or may the former special partners be sued alone? if so, must the declaration against them be special? can the general partners plead the non-joinder in abatement? We address ourselves here more to professional men than to others, as they will perceive the full force of the questions, though the answers are more interesting to their clients than to them.
Again, suppose the fact to be, (which is very possible,) that the superadded liability of the special partner is unknown to the creditor at the time of commencing his suit. Does the fact of having brought suit against the others bar proceedings against him? Or will both suits lie? and if so, and the creditor obtain two judgments, and issue two executions, as would seem to be a necessary consequence, to what property shall each be confined?
Further; is a strict and literal compliance with the requisitions of the act necessary? or will principles of equity be called in to relieve against penalties consequent upon a non-compliance? Many events might be supposed which would make it unconscionable to enforce the letter of the law against the special partner. Have our courts the equitable powers to remedy this? or, as a question of general policy, would it be desirable? Again, look at the 22d section. If any special partner shall "concur in or assent to" any violation of the act, he shall be liable as a general partner. Can any thing be more loose? At what time must the assent be given; before or after the act done? What effect will such assent produce
upon suits brought against the general partners alone, before such assent? or what will be construed such assent? Are the rights of creditors to depend upon uncertain deductions from equivocal facts?
But we have not yet done with the list of uncertainties. The 15th and 16th sections are replete with them.
The first says:-No part of the special partner's capital shall be liable to previous debts of the firm. How distinguish that capital? Let us put a case. A and B have carried on business as partners and have contracted debts. They enter into a new arrangement with C, as special partner under the new act. He advances money; and they buy goods. An old creditor, seeing them in possession of property, issues his execution and levies on these goods; or it may be, upon goods which have resulted remotely from the first stock of goods purchased with the limited partner's funds. In what way, under our common law proceedings, is the law to be enforced? The execution of the goods must either go on-the goods be sold the business injured, and the law violated; or, to prevent this; the whole operations of the firm must be stopped, until the facts are ascertained by a tedious investigation (for important allegations like these must be proved to the satisfaction of the court; they cannot be taken for granted,) and these limited partnerships will well deserve their designation, for they will scarcely breathe before they perish.
When a partnership is ended and the funds in the hands of the law, the process is a very simple one. The court, through the agency of an auditor, or an examiner or a master, investigates facts and marshals the assets (or, in popular language, distributes the funds) accordingly. So, the result may be reached by a proceeding in a court of chancery, which, it is well known, we are without in Pennsylvania. But the object of the law is, certainly, neither to throw firms into chancery, nor to induce a speedy shipwreck of their funds by means of common law executions.
But, the section proceeds :-no part of his capital shall be withdrawn by such special partner, either directly or by means of dividends or otherwise, during the partnership. The law is not intended to be a dead letter, we suppose; how then prevent this? how even know it? Is there to be established any such surveillance as we have seen to exist in France? Are the judges of our courts or the mayor of our city to investigate our merchants' books? Is there any thing more illusory than profits, any thing more difficult to be ascertained? A firm may have thousands in the shape of profits on its books and yet be insolBut if the partner does withdraw his capital, how is he to be reached? This is touched upon in the 16th section. We
shall turn to it in a moment. The 15th proceeds: (in a sort of saving clause of the rights of special partners,) he may withdraw the interest upon his capital; and if the payment of such interest does not reduce the original amount of the capital furnished by him, and there is any surplus, he may take that also in the name of profits. Interest, we know, is calculated annually; in fact, the act expressly authorises this annual subtraction of interest; how then will the partner know whether he intrenches upon the capital or not? Will every year balance itself? or is the statement, on the face of the books, of profits, to make all right? This we have said to be no criterion.
The spirit of the whole clause is deceptive. It holds out the "word of promise" to the ears of creditors, but may "break it to their hopes." In practice, it assuredly will.
But the 16th section, it is thought, will remedy this-let us see. "If it shall appear," that by the payment of profits or interest to any special partner, the original capital has been reduced, he shall restore the deficiency, with interest. "If it shall appear." When? No time is mentioned. We take it for granted, that the answer is, at any time. What is right at the time it is done, may be made wrong afterwards, by after circumstances. The special partner must be constantly on the look out, to keep up his capital to a certain point. He will never know whether it is at this point, or not--or whether it will continue so. By the innocent subtraction of interest even, he may be defrauding creditors, and render himself liable to an action. But who is to bring that action? The general partners? how can they bring an action to recover back money they allowed him to take-which they actually paid him--and which was apparently his right at the time? They may not choose to sue-or some disability may prevent them. Shall the creditors sue? If so, all of them--or some of them-or every of them? What kind of action? A special declaration would be required, which would puzzle many a special pleader. But what is the creditor to recover? What is the deficiency of capital? and what the proportion, which is the due of each creditor? These must be ascertained:-can they be ascertained in the particular trial? certainly not. Must the creditor wait till they are ascertained? When may that be? and how? Difficulties-inextricable difficulties-surround these questions. With a single additional remark, we shall close this rapid examination of the details of the measure.
It is provided by the last section, that no dissolution shall take place by the acts of the parties, previously to the time specified in the certificate filed, until a notice thereof shall have been filed in the same office, and published for four weeks in