decided: March 3, 1890.
ERROR TO THE CIRCUIT COURT OF THE UNITED STATES FOR THE EASTERN DISTRICT OF TEXAS.
[ 134 U.S. Page 221]
MR. JUSTICE HARLAN, after stating the case as above reported, delivered the opinion of the court.
1. We have seen that article 3460 of the Revised Statutes of Texas declares void, as against the creditors of a limited partnership, every sale, assignment or transfer of any of its property or effects, made when such partnership was insolvent or contemplated insolvency, and with the intent to give a preference of some over others of its creditors. The first proposition of the defendants is that the assignment to the plaintiff of March 23, 1885 -- which was confessedly made by a partnership unable to meet its debts as they matured, and, therefore, insolvent, Cunningham v. Norton, 125 U.S. 77, 90 -- was void, as giving a preference to consenting creditors over those who did not consent. This contention is based upon the assumption that the act of March 24, 1879, as amended by that of 1883, has no application to limited partnerships; in other words, insolvent individual debtors and insolvent general partnerships may, but insolvent limited partnerships cannot, assign their property for the benefit, primarily, of only such creditors as will consent to take their proportional share of the effects assigned, and discharge the assignor or assignors. The bare statement of this proposition suggests the inquiry, why should the legislature make any such discrimination against limited partnership? The same considerations of public policy that require legislation under which an insolvent individual debtor and an insolvent general partnership may turn over their property to such creditors as will release their debts, would seem to have equal force in the case of limited partnerships that are insolvent or contemplate insolvency, Counsel for the defendants suggests that the reason for the discrimination -- which, he insists, is made by the statutes of Texas -- is, that the creditors of a limited partnership trust only the liability of the general partner, and the fund contributed by the special partner, and when they lose recourse upon that fund they have recourse only to the liability of the general partner. We do not perceive, in this statement of the relations between a limited partnership and its creditors,
[ 134 U.S. Page 222]
any just ground upon which to rest the supposed discrimination.
The argument, that the statutes of 1879 and 1883 have no application to limited partnerships, is based upon these propositions: That those enactments do not, in terms, repeal or modify article 3460 of the Revised Civil Statutes; that repeals by implication merely are not favored; that article 3460 constitutes a part of a title in the revision, which relates -- as did the act of 1846, from which it was taken -- exclusively to limited partnerships; and as the recent statutes do not, in terms, refer to limited partnerships, the duty of the court is to so construe the earlier and later statutes as, if possible, to give full effect to each according to the reasonable import of its words; a result, it is contended, that cannot be attained, unless the acts of 1879 and 1883 are interpreted as not embracing assignments by limited partnerships.
We have not been referred to any decision of the Supreme Court of Texas sustaining this view, and we cannot adopt any such interpretation. The recent enactments cover, substantially, the whole subject of assignments by insolvent debtors for the benefit of their creditors. The first section of the act of 1879 provides, as we have seen, that every assignment by an insolvent debtor, for the benefit of his creditors, shall provide for the distribution of all his real and personal estate, other than that exempted from execution, among all of his creditors, and, however made or expressed, the assignment shall have the effect, and be construed, to pass all such estate. This accomplishes all and more than was accomplished by article 3460 of the Revised Statutes. Will it be contended that this section applies only to assignments by individual debtors, and by general partnerships, and not to assignments by limited partnerships? That section, in terms, embraces "every assignment" by insolvent debtors for the benefit of their creditors. And the third section, enabling the debtor to surrender his estate for the exclusive benefit of creditors who will take their proportional share, and discharge him, embraces the case of "any debtor" who is insolvent or contemplates insolvency. The object of the act of 1879 was to encourage
[ 134 U.S. Page 223]
insolvent debtors to make an assignment of their property for the benefit of creditors. Cunningham v. Norton, 125 U.S. 77, 81. It establishes a complete system for the administration of the estates of insolvent debtors conveyed for the benefit of creditors; and the mere fact that it does not, in terms, modify article 3460 of the Revised Statutes, or the section of the same purport in the act of 1846, will not justify the courts in excepting from its operation the cases of debtors constituting a limited partnership, and including within its provisions, debtors constituting a general partnership. The special object of its third section was to open the way for the discharge of insolvent persons from their debts. Creditors who would not consent to their discharge were left to stand upon their rights, and take the chance of collecting their debts in full, if the debtor got upon his feet, and was fortunate enough to acquire other property. The statute is remedial in its character and should be liberally construed so as to give effect to the legislative will. And while it is true that repeals by implication are not favored by the courts, it is settled that, without express words of repeal, a previous statute will be held to be modified by a subsequent one, if the latter was plainly intended to cover the whole subject embraced by both, and to prescribe the only rules in respect to that subject that are to govern. United States v. Tynen, 11 Wall. 88, 95; Cook County National Bank v. United States, 107 U.S. 445, 451. We are of opinion, therefore, that in so far as article 3460 forbids a limited partnership, when it is insolvent or contemplates insolvency, from making an assignment ot its property for the benefit only of such creditors as will accept their proportional share of the proceeds of the effects assigned, and discharge their claims -- the share received being sufficient to pay one-third of the debts of the consenting creditors -- it is modified by the act of 1879, as amended by that of 1883.
2. If in error upon this point, the defendants contend that Tuffly had no authority in his own name to execute an assignment of the firm's property for the benefit of creditors; it not appearing that Mrs. McLin was absent, or incapable of acting in the matter, and the assignment being out of the common
[ 134 U.S. Page 224]
course. While there is some conflict in the adjudged cases as to the circumstances under which one partner may assign the entire effects of his firm for the benefit of creditors, the Supreme Court of Texas, in Granves v. Hall, 32 Texas, 665, sustained the authority of one partner to make, in good faith, in the name of his firm, an assignment of the partnership property for the benefit of creditors. Besides, under the law of that State, in the case of limited partnerships, the general partners only are authorized to transact business and sign for the partnership, and bind the same, and 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. Rev. Stats. Texas, §§ 3444, 3445.
3. It is also contended that the assignment does not purport to convey the firm property or the individual property of Mrs. McLin, and was, for that reason, void under the decisions in Donoho v. Fish, 58 Texas, 164, and Coffin v. Donglass, 61 Texas, 406. In those cases it was held that an assignment by partners which did not purport to pass title to all the property owned by the partnership, and by the members thereof in their separate rights, and not exempted from forced sale, could not be sustained as a valid assignment under the act of March 24, 1879, and would interpose no obstacle to creditors collecting their debts by the usual process.
We do not assent to the defendants' interpretation of the assignment. It is inaptly expressed, but was intended to convey, and does convey, to the assignee all of the effects of the firm of "W. T. Tuffly," as well as the individual property of W. T. Tuffly. There was, it is true, proof tending to show that Mrs. McLin had individual property not exempt from execution, which was not embraced in the assignment. But the cases of Donoho v. Fish and Coffin v. Donglass, were not cases of limited partnerships, and do not decide that an assignment under the act of 1879 must embrace the individual property of a special partner. The statute authorizing the formation of limited partnerships exempts a special partner from liability for the debts of the partnership beyond the fund contributed
[ 134 U.S. Page 225]
by him to the capital. The assignment in question covers the interest of Mrs. McLin as special partner, and need not have conveyed her individual property, which could not have been taken for the debts of the firm.
4. It is contended that an unlawful preference was given by the assignment in this: That Mrs. McLin was named in the schedule attached to the assignment as a creditor to the extent of $7798 for borrowed money. This, it is claimed, makes the assignment void under the provision that "in case of the involvency or bankruptcy of the partnership, no special partner shall, under any circumstances, be allowed to claim as creditor until the claims of all other creditors of the parties shall be satisfied." Texas Civil Statutes, Art. 3463. We are of opinion that a deed of assignment, under the Texas statute, is not void because the verified schedule annexed to it may embrace a debt that cannot be paid ratably with the claims of other creditors. In Fant v. Elsbury, 68 Texas, 1, 8, 6, it was held that an assignment which on its face preferred some creditors over others, in violation of the 18th section of the act of 1879, was not, therefore, void. The court said: "By the express terms of that section the attempted preference and not the assignment is void. The estate is still administered under the act, and is distributed among all the creditors in proportion to their respective claims, notwithstanding the attempted preference." Again: "All that is necessary is, that the assignment be made for the benefit of creditors by an insolvent, or one contemplating insolvency, and the statute dictates everything requisite to be performed in order that the property conveyed may be distributed according to its own provisions, whether the assignor has so requested or not. Should the assignor prescribe a course to be pursued by the trustees different from that directed by the statute, his wishes would not be respected." See, also, McCart v. Maddox, 68 Texas, 456, to the same general effect.
5. It is contended that the publication of the notice of the formation of the partnership between Tuffly and Mrs. McLin was so defective that the partnership did not come into legal existence as a limited partnership. The certificate of partnership
[ 134 U.S. Page 226]
contained, substantially, all that was required by article 3445. It was duly verified by the general partner and was duly registered in the proper office. The required certificate having been made, acknowledged, filed and recorded, and the required affidavit having been filed, the limited partnership was, under article 3449, to be deemed as formed. But article 3450 requires that the partners shall publish the terms of the partnership or registry in such newspaper as shall be designated by the clerk in whose office the registry shall be made, and if such publication be not made, the partnership shall be deemed general. Now, the point is made that the "terms" of the partnership were not set forth in the newspaper notice, and, consequently, the partnership was to be deemed general, in which event no valid assignment could be made, unless Mrs. McLin joined in it with Tuffly.
Precisely what the statute means by the "terms" of the partnership is not clear. The notice did state that W. T. Tuffly was the general partner, and Mrs. McLin the special partner, and that the latter had contributed to the common stock the sum of $6419.36. And it disclosed the fact that the certificate of the partnership had been executed and recorded. Without deciding whether the notice sufficiently disclosed the terms of the partnership, it is clear that the legal existence of the partnership did not depend upon the notice or its contents. The only effect of the failure to make the required publication was that "the partnership shall be deemed general." But that is immaterial in view of the finding of the jury in respect to certain facts, constituting an estoppel against the defendants, and which were submitted to them by the instructions. To these facts, and the instruction relating to them, we will nest refer.
6. The jury were instructed: "If you shall find from the evidence that the limited partnership as stated and claimed by plaintiff was recognized as such in its inception by the three attaching creditors, defendants herein, and likewise during its existence was dealt with and credited as such by them, as well as sued therefor and its property attached as such after its assignment, and that its other creditors also treated and dealt
[ 134 U.S. Page 227]
with it, and accepted its assignment to plaintiff as such and that Mrs. McLin, named therein as the special or limited partner, and W. T. Tuffly, named therein as the general partner, and whose name constituted the firm name, always treated it as a special or limited partnership, and that Mrs. McLin loaned it money as claimed, and subsequently sued the plaintiff as its assignee therefor, then and in such case you likewise may deem the same a limited partnership and regard the assignment to plaintiff as valid.
"If you shall also find that the same was made at a time when the 'W. T. Tuffly' paper was maturing faster than it could be met in the ordinary and usual course of business, and that such assignment was made in good faith in contemplation of insolvency; and if you shall further find that the defendant Tracy, as United States marshal, seized the property so assigned, under and by virtue of the attachments of the three attachment creditors who have made themselves defendants herein, then you will find for the plaintiff herein as against defendant Tracy and the sureties on his official bond and the three firms of attaching creditors for the value of the goods as they were at the time and place of their seizure under such writs of attachment, such value to be ascertained from all the facts detailed in evidence before you.
"But if you shall otherwise find as to the facts constituting the rights of the parties as hereinbefore set forth, then and in such case your verdict will be for the defendants."
According to the bills of exceptions there was evidence tending to prove all the facts stated in these instructions. The attaching creditors, with other creditors, described them in the release executed by them at about the time of the formation of the limited partnership as constituting a limited partnership, in which W. T. Tuffly was the general, and Mrs. McLin the Special, partner. If the attaching creditors thus recognized and dealt with W. T. Tuffly and Mrs. McLin as a limited partnership, they are estopped from insisting that there was no such partnership, or that the assignment was not valid as an assignment by a limited partnership. They cannot be permitted thereafter to raise the objection that the terms of
[ 134 U.S. Page 228]
the partnership were not sufficiently stated in the published notice of its formation. Those terms were fully set forth in the recorded certificate of the partnership.
But as the defendants contended that their recognition of the limited partnership was in ignorance of material facts bearing upon that question, and therefore they were not estopped, the court, at their instance, further instructed the jury:
"If the proof shows you that Mrs. McLin never in fact contributed the amount to the common stock necessary to make her a special partner, or that she afterwards altered and diminished the amount of her capital stock, and that these facts, or either of them, were unknown to the attaching creditors, who are defendants herein, at the time they dealt with the firm and sued W. T. Tuffly, then you are instructed that neither the recognition and dealing by them with Tuffly and Mrs. McLin as a limited partnership, nor the suing of W. T. Tuffly in ignorance of said facts, estops or precludes them, or any of the defendants from showing that said partnership was never in fact legally formed as a limited partnership, for the reason above stated, nor from showing that it afterwards, by reason of the alteration and diminution of Mrs. McLin's capital stock, was rendered a general partnership."
This instruction gave the defendants the full benefit of all the facts upon which they could rely to defeat the estopped referred to in the other instruction.
7. A considerable part of the discussion at the bar, and of the briefs of counsel, was directed to the question whether the court erred in refusing to give to the jury a certain charge which was prepared and submitted by the defendants. So much of that charge as constituted an argument rather than an instruction in behalf of the defendants may be omitted from this opinion. The material part of it was to the effect that if Mrs. McLin's husband had a net interest, at or about the time of his death, in the firm of R.W. McLin & Co., and that in consideration of the arrangement by W. T. Tuffly, for full settlement of all claims against the firm, and the obtaining of a release of R. W. McLin's estate from liability on
[ 134 U.S. Page 229]
account of the same, she assigned and transferred to W. T. Tuffly all the goods, wares, merchandise and other property of the firm, "and that the interest so conveyed constituted her contribution to the common stock to make her a special partner, this would not be such contribution of actual cash as the law requires or contemplates, no matter what the outward form of the transaction was, and in such case Mrs. McLin would have thereupon become a general partner and liable as such, and no advance, loan or payment thereafter made by her to W. T. Tuffly or to the firm would change her status from that of a general partner, and if you so find, then you are instructed that it was essential to the validity of the assignment that she should have joined in it and conveyed to the assignee her individual property not exempt, and that as she did not do so the assignment would be illegal and void, and that your verdict should be for the defendants."
We shall not extend this opinion by a discussion of the several propositions embodied in this instruction. It is sufficient to say: 1, The issues as to whether Mrs. McLin made the contribution to the common stock necessary to make her a special partner, or whether there was an alteration or diminution of her capital stock, were fairly submitted to the jury in the instruction that the court gave at the instance of the defendants; 2, The instruction now in question was in conflict with the first one given by the court upon its own motion; if given, it might have resulted in a verdict for the defendants, although the jury may have found that the partnership between Tuffly and Mrs. McLin was recognized by the attaching and other creditors, in its inception, and was dealt with by all of them during its existence, as a limited partnership, in which Mrs. McLin was known by them to be the special partner, and W. T. Tuffly the general partner.
Many other instructions were asked by the defendants which the court refused to grant. But it is unnecessary to discuss them, as what has been said is sufficient to indicate our opinion touching the essential issues in the case.
Upon the whole case we are of opinion that no error was committed by the court below, and the judgment must be
1 "It is claimed by the plaintiff, Louis Tuffly, that the copartnership or the firm of W. T. Tuffly was a limited partnership composed of W. T. Tuffly as general partner, and Christine E. McLin as special partner. It is claimed by defendants that Tuffly and said Christine E. McLin were both general partners, and that said Christine E. McLin was a general and not a special partner, for the reason, among others alleged by them, that she did not comply with the requirements of the law governing limited partnerships.
"On this question you are instructed that limited partnerships may consist of one or more persons who shall be called the general partners, and of one or more persons who shall contribute in actual cash payments a specific sum as capital to the common stock, who shall be called special partners. They are also required to make and severally sign a certificate, which, among other things, shall contain the amount of capital which each special partner shall have contributed to the common stock.
"This certificate, after having been acknowledged by the parties in the same manner as conveyances of land are acknowledged, shall be filed in the office of the clerk of the county court of the county in which the principal place of business of the partnership shall be situated. At or before the time or filing this certificate the sum specified in the certificate to have been contributed by the special partner in the common stock must have been actually and in good faith paid in cash; and if this is not so actually and in good faith paid in cash at or before said filing, then all persons interested in such partnership shall be liable for all the engagements thereof as general partners, and no payment into the fund thereafter by the special partner can relieve him from the consequences of failure to pay within the time above specified; so also the sum to be contributed by the special partner must have been actually and in good faith paid in cash, and cannot be contributed in property of any kind, however valuable it may be. If the proof shows you that Mrs. McLin's deceased husband, R. W. McLin, had a net interest, at or about the time of his death, in the firm of R.W. McLin & Co., and that, in consideration of the arrangement by W. T. Tuffly for full settlement of all claims against the said firm of R.W. McLin & Co. and the obtaining of a release of the estate of R. W. McLin from liability on account of the same, assigned and transferred to W. T. Tuffly all the goods, wares, and merchandise and other properties of said firm, and that the interest so conveyed constituted her contribution to the common stock to make her a special partner, then you are instructed that this would not be such contribution of actual cash as the law requires or contemplates, no matter what the outward form of the transaction was, and in such case Mrs. McLin would have thereupon become a general partner and liable as such, and no advance, loan, or payment thereafter made by her to W. T. Tuffly or to the firm would change her status from that of a general partner, and if you so find, then you are instructed that it was essential to the validity of the assignment that she should have joined in it and conveyed to the assignee her individual property not exempt, and that as she did not do so the assignment would be illegal and void, and that your verdict should be for the defendants."
© 1998 VersusLaw Inc.