Pettee v. Orser

18 How. Pr. 442, 19 Bosw. 123

• Court: The Superior Court of New York City
• Decided: February 15, 1860
• Status: Published

Opinion

By the court'—Hoffman, Justice.

The learned counsel of the plaintiff has adopted for his premises, as an incontestable proposition, that the power of disposition, as well as the power of acquiring and of binding, is fundamentally inherent in each partner by the very constitution of a partnership. All these attributes of power follow the relation. His argument on this basis is forcible and logical. Every thing of restriction and modification of this absolute authority must be rigorously established, cither from positive convention, or express judicial authority precisely to the point. The assumption is of entire authority. The exception must be exactly and strictly limited to what has been expressly declared to be an exception.

But the premises of the learned counsel are far from possessing that entire legal verity which his deduction assumes. Looking only to the ordinary and superficial statement of the relation of partners found in the elementary treatises, his position may appear plausible, if not certain. But looking to the origin of the law of this relation, and the source from which England, and we after England, have obtained it, its accuracy may be questioned.

The law of England as to partners is derived from the Lex Mercaloria, and from the civil law. The abridgements of Brooks and Filzherberl have no such title. Even in Viner's Abridgment, there are no cases cited prior to the reign of Charles the Second.

Lord Coke says that the Lex Mereatoria or the Law Merchant is part of the law of England (Coke Litt. 11 b.), and Sir William Grant, in Devaynes agt. Noble, (1 Merivale, 563), observes that the common law, although it professes to adopt the Lex Mereatoria; has not adopted it throughout, in what relates to partnership in trade.

In Molloy's Treatise De Jure Maritimo, p. 488, (Book 3, chap. VII, 14), it is stated, “If two joint merchants occupy their stock, goods and merchandise in common, one of them, naming himself a merchant, shall have an account against the other, naming him a merchant, and shall charge him. as receptor denariorum ipsius B. ex quacunque causa et contractu ad communem utilitatem ipsorum A & B. provenient—Sicut per legem mercatoriam rationabiliter monstrare poterit. He cites 10 Hy. 71, 16 a Fitzherbert Natura Brev. 117, D.

It cannot be questioned that the law of England upon this subject has been drawn primarily from the civil code. As trade and commerce arose, partnerships, and societies, .and corporation's grew up, and the resort of the untrained lawyers of the age must have been to those sources which the civil law in its plentitude of legislation opened to them. Yet I know of no author, except Mr. Watson, who has noticed this fact. {On Partnership Introduction, XXV.)

Two questions, then, occur: First, does the relation of co-partners imply the existence of a power in each partner, in contemplation of a dissolution, to transfer the whole property to the custody and control of a stranger ? Second, did the civil law, from which England derived the system, recognize such an absolute power of disposition ?

It cannot be said that there is an inherent necessity for the existence of such a power, in order to accomplish the purposes of a partnership. It would be strange to say that what is done in view of a destruction, or effects a destruction of the relation, springs from such relation, or the powers it logically or reasonably implies. The power is justly implied to do everything which tends to aid, to strengthen, and protect. Many of the leading objects of a partnership—the augmentation of capital, the combination of the varied skill of different persons, the increase of the power of labor, and the expansion of effort and enterprise—can be attained (perhaps less efficiently) without the transmission of the whole authority of the firm to each member, for either the acquisition or disposition of property. In short, whatever tends to preserve, may well be deemed inherent and essential; what pre-supposes, or produces dissolution, is not merely not inherent, but really repugnant to the abstract idea of a single partner’s power. The union of will created the relation ; the union of will seems necessary to destroy it.

And if we find this view sustained by the civil law, we may venture to be assured of its justness, and be emboldened to found our reasoning upon it.

The civil law did not deem such an authority essential to the nature of a partnership. I may go further, and say that the power of absolute disposition of capital stock resided only in the body of the firm—the corpus societatis.

Thus Gaines (Libro 10, ad edictum Provinciale Digest: Corpus juris Civilis, Lib. XVII, Tit. 11, 68,) says—Nemo ex sociis plus parte sua potest alienare etsi totorum bonorum socii siut. The text of Domat, as translated by Dr. Strahan, is as follows: “ Partners, even those who are in partnership of their whole estate and goods, can alienate only their own share of the common stock, and cannot, by their deed, bind the community, except in so far as it has empowered them.”

So Voet (Comm: Tome 2, p. 205, Pro Socio), says: “ Finally, (and to this the action pro socio is suitable), the partner should allow the other partner to use the common property for those purposes for which it was originally furnished by the will of the partners; and conversely, should abstain from all dealings with the common stock, which are new, and repugnant to the primary destination of the partners.”

The President Favre, in his treatise upon the Pandects (quoted by Troplong De Societe, Tome 12, p. 83), says: “ Sic enñn intellige ut qui societatem, etiam universalem et in perpeiuam, conirahit, rem suam communicet socio et in cam partem dominii transferal non in perpetuam, sed quamC.in tanium durat societas."

The learned author Troplong, whom I have quoted, in his commentary upon the 1860th article of the Code of France, observes: “ It is then the society alone, and not one of its members (without a mandate), which can dispose, by sale or pledge, of what belongs to it. Even more, the preservation of the social capital is a point so important, that the majority cannot force the minority of the partners to sell the property not vendible (venales) which composes it.”

The word venales, which I have translated vendible, means either things held or procured to be sold; or things necessary to be quickly sold from their perishable character. (Troplong, article 746, Tome 13, p. 229.)

The learned author again says, in commenting upon article 1859, (Tome 13, p. 203, n. 714), “ this tacit authority (given by each to each other partner,) comprehends everything which is common in a procuration general; the power to purchase ; to pay; to receive; to hire or let; and to sell vendible arti cles.” So, in the remarks on article 1860, he quotes a civil law writer as follows: “ Aeque alienare potest nisi fructus aut alias res quae facile corrumpi potest," and observes, (N. 747) “ and in this, civil partnerships agree perfectly with the commercial partnerships en nom colledif in which every partner has the tacit authority to manage. Every day we see one partner selling the merchandise, the traffic of which sustains the business. But in commercial partnerships this form of the right of administration is more apparent and more frequent, because they comprise a far greater number of things vendible, and that the incessant traffic of the merchandise is then a condition of existence. But neither in the partnerships of commerce era nom colledif, nor in civil partnerships, can one partner dispose of things not vendible.”

Once more he observes, that the 1860th article extends to a prohibition of a sale, by one partner alone, of moveables as well as of immovables, and a violation of it will subject the partner to an action pro socio; but this concerns the partners between themselves. In relation to third persons, to whom sale or pledges have been made, the articles 1862, 1863 and 1864, prescribe the rules.

In considering those articles (Tome 12, p. 239), he recognizes the great power of one to bind the whole in general partnerships, and states, “ these principles are affected by modifications. One is, that the act must not plainly transcend the objects of the union. Suppose one associate sells, in the partnership name, all the immoveables, without which the firm cannot be carried on—is it not clear that the buyer cannot pretend to have the partnership considered the seller, when he has co-operated in an act destructive of the partnership?” (Tome 13, p. 294.)

It may be added that the law of France has provided in the fullest manner for the method of winding up a dissolved partnership. It is customary to name a liquidator in the articles. If that has been omitted, he can only be appointed by the unanimous choice of the partners; although a custom exists in many places of giving a majority this power. (Troplong, Tome 13, p, 484.) If an arrangement cannot be made, the courts are applied to. (Ibid.)

The 1859th and 1860th articles of the Code Civile of France is adopted verbatim into the Code of Louisiana. (Article 2841, Civil Code Laws, ed. 1825, p. 588.)

“ 1. The partners are supposed to have given reciprocally to each other the power of administering one for the other. What one does is valid even for the share of his partners, without their approbation, saving the right which they or every one of them has to oppose before it be concluded.

“ 2. Every partner may make use of the things belonging to the partnership, provided he employs the same to the uses for which they are intended (a la detinaiion fixie par Vusage), and that he does not use them so as to prevent his associates using them according to their rights nor against the interests of the partnership.

“ 3. (The third article relates to a contribution to expense.)

“ 4. One partner can neither dispose of nor make any change in the real property of the partnership, although to its benefit, without the consent of the other partners.

“ 5. In other than commercial partnerships, a partner cannot, as partner only, and if he has not the administration, alienate or engage the things which belong to the partnership.

“ Article 1860 of the French Code is, “ The associate who is not the administrator, cannot alien or pledge the things, even moveables ('rnobilieres), which belong to the partnership.”

The law of Scotland follows in the footsteps of Roman jurisprudence. (Bell’s Commentaries, Yol. 2, pp. 615, 616.) That of Holland is equally guided by it.

I.am justified, I think, in adopting the language of Troplong:

“ The maxims of the Roman lawyers, initiated by Domat, Po,ihier and others, and expanded by commercial custom, have .laid the true foundations of the law of partnership. This was tthe .first of long experience, and of the wise observation of important facts.”

It results from this review that, in general, there was no .power, as .between partners themselves, in one of them to dis.pose .of ..the common stock absolutely, without the consent of the others; that the unrestricted authority to bind the nssocia ■ ,tion was limited to partnership purposes, during the duration of the firm, for the object of carrying it on; that an act, exceeding this limited power, by one partner, might give rights to an innocent purchaser ; but if he took the whole property, implying that the partner was destroying the means of carrying on the business, he was not innocent; and lastly, that for the purpose of winding up a partnership the assent of all to a liquidation was necessary, or the tribunals of justice must be resorted to.

In considering the question as affected by the decisions now binding upon this court, we find some positions so settled as not to be open to discussion here.

Deming agt. Colt (3 Sandf. S. C. R. 284,) decides, that one partner could not, without the consent of the other, and without consulting him, although present.-and actively engaged in the business, make a general assignment to a trustee for the benefit of the creditors without preferences. The principle of the court in that case was, that each partner has a great and powerful interest to see that a proper person is selected to wind up the affairs of the concern; as the judicious administration of the estate, will beneficially affect the extent of the liability of each for the debts remaining undischarged, as well as the prospect of an ultimate surplus.

It was treated as settled law, that an assignment u,nder such circumstances, giving preferences, was void. Havens agt. Hussey (5 Paige R. 30,) is referred to, and fully sustains the decision.

In Hayes agt. Heyer, (3 Sandf. S. C. R. 293), heard before the three other judges of the court, it was announced that the decision in Heming agt. Oolt might be considered as expressing the unanimous opinion of all the justices of this court, that “ a partner can in no case make a general assignment to a trustee for the benefit of creditors, against the consent or without the concurrence of his co-partner, the latter being present, and capable of acting in the matter."

Fisher agt. Murray, (1 E. D. Smith's Rep. 341), in the court of common pleas, is to the same point. The learned judge who delivered the opinion, used the words “ under circumstances rendering it impossible to consult the other partners,” instead of “ the latter being present and capable of acting.”

An assignment under such circumstances, giving preferences, would be even more clearly invalid; and so it was considered in Kemp agt. Carnley, 3 Duer Rep. 1. Dana, agt. Lull (17 Vermont Rep. 390,) gives the express sanction, to this point, of two of the judges.

In Ormsbee agt. Davis, (5 Rhode Island Rep. 442,1859), a general assignment, giving preferences, and mainly tó the firm of which thé assignee was a member, was held void when made by one partner, the other not being shown to have been away or incapable of being consulted. An attaching creditor impeached it.

In Kemp agt. Carnley (3 Duer Rep. 1,) the decision was, that when a partner had absconded, and relinquished all control and management of the concern, an assignment by the other to a trustee, not giving preferences, was valid.

The case of Mabbett agt. White (2 Kern. Rep. 442,) involves the point: that one partner, when the firm is insolvent, may make a direct transfer of all the partnership property, to a single creditor, to pay the debts, without the knowledge or consent of the other partner, though he was present, or could have been consulted, there being no fraudulent intent to defeat creditors.

The court declare that it was not necessary in the case to decide whether the partner could make an assignment to a trustee for that purpose.

Judges Denio and Johnson dissented, and the former examined the cases with care.- I am authorized by one of the learned judges who concurred in the judgment (Judge Dean,) to- say, that he should have come to a different result had the transfer been to a trustee, giving the creditor a preference.

This decision leaves the question, which arises in the present case, open for our determination. It is to be remembered that the absent partners were away upon the business of the firm, and, as soon as apprised of the assignment, repudiated it.

Upon the principal question, then, my own conclusion is that an assignment, without the concurrence of acting partners, of all the property of a firm, giving preferences, is void. It is void because the partners have never vested each other, by force of the partnership union, with such a power. It is invalid, because it controverts the great object of a partnership, the true theory and the most sacred bond of the connection, the furtherance of partnership objects, so long as they can be attained, and the equal power of each to watch over and direct the application of the funds when insolvency overtakes the 'firm. It is not warranted, in the present ease, by the absence of the other partners. That created no emergency which can justify it. The law will sanction an assignment distributing the property among all the creditors, because the law assumes that all the associates will unite in what equity dictates. The law opens another mode to the partner, by throwing the administration pf the funds into a court of equity. It has been suggested, and the argument receives no slight strength from Mabbett agt. White, that as the present assignee was a preferred creditor, (to an amount, indeed, of $1291.50 out of about $1620), the transfer must be valid as to his demand, as if the property had been made directly and delivered to him.

It may be answered, if this may prevail, the rule requiring the concurrence of the partners is effectually defeated. Let all the preferred creditors be named trustees, and the object of the assigning partner will, in the great majority of cases, be attained.

Again, upon a direct transfer in payment of a debt, the partners are discharged; the debt is extinguished. This was the case in Mabbett agt. White, where a note of the purchaser was given for the balance. Here the partners will be left responble for any deficiency.

Again, here is a trust created to sell the property, to collect the debts, to pay the expenses of the assignment, and, yet more, to defray the costs and expenses of prosecuting or defending suits connected with the assignment.

In the case of Ormsbee agt. Davis, before cited, a subsequent transfer of part of the partnership property to the creditor, in satisfaction, or even security for the debt, was supported. The line of distinction I have pursued in this argument, is strikingly shown in that authority.

I conclude that on no ground can the transfer in question be sustained; and that the judgment appealed from must be affirmed.